<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 1996
REGISTRATION NO. 333-6431
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HAMBRECHT & QUIST GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6211 94-3246636
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
ONE BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 576-3300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
DANIEL H. CASE III
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HAMBRECHT & QUIST
ONE BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 576-3300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
FRANCIS S. CURRIE KENNETH L. GUERNSEY
NEIL J. WOLFF KARYN R. SMITH
GAIL C. HUSICK ANN CHIGA
YOICHIRO TAKU COOLEY GODWARD CASTRO HUDDLESON &
CHRISTOPHER G. NICHOLSON TATUM
WILSON SONSINI GOODRICH & ROSATI ONE MARITIME PLAZA
PROFESSIONAL CORPORATION 20TH FLOOR
650 PAGE MILL ROAD SAN FRANCISCO, CALIFORNIA 94111-3580
PALO ALTO, CALIFORNIA 94304-1050 (415) 693-2000
(415) 493-9300
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If the only securities being delivered pursuant to this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) PRICE (1) FEE (2)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share............................ 4,025,000 shares $17.00 $68,425,000 $23,595
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
(2) A fee of $27,587 was paid at the time of the initial filing.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS SEC, ACTING PURSUANT TO SUCH SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
HAMBRECHT & QUIST GROUP, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF PART I ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
Outside Front Cover Page
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus......................
Inside Front Cover Page; Outside Back Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.......................................
Prospectus Summary; Risk Factors
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...........................
Use of Proceeds
4. Use of Proceeds......................................
Outside Front Cover Page; Underwriting
5. Determination of Offering Price......................
Dilution
6. Dilution.............................................
Not Applicable
7. Selling Security Holders.............................
Outside and Inside Front Cover Pages; Underwriting;
Outside Back Cover Page
8. Plan of Distribution.................................
Prospectus Summary; Capitalization; Description of
Capital Stock; Shares Eligible for Future Sale
9. Description of Securities to be Registered...........
Legal Matters
10. Interests of Named Experts and Counsel...............
Outside and Inside Front Cover Pages; Prospectus
Summary; Risk Factors; The Company; Restructuring;
Use of Proceeds; Dividend Policy; Dilution;
Capitalization; Selected Combined Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Regulation; Net Capital Requirements; Management;
Certain Transactions; Principal Stockholders;
Description of Capital Stock; Shares Eligible for
Future Sale; Combined Financial Statements; Outside
Back Cover Page
11. Information with Respect to the Registrant...........
Not Applicable
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities......................
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 25, 1996
PROSPECTUS
3,500,000 SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Hambrecht
& Quist Group ("Hambrecht & Quist," "H&Q" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$15.00 and $17.00 per share. The initial public offering price will be
determined by agreement between the Company and the Underwriters in accordance
with the recommendation of a "qualified independent underwriter" as required by
the Rules of the National Association of Securities Dealers, Inc. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Common Stock has been approved for listing on
the New York Stock Exchange under the symbol HMQ, subject to official notice of
issuance. Upon the completion of this offering, the current directors and
executive officers of the Company will exercise voting control over
approximately 41% of the Company's outstanding Common Stock. See "Principal
Stockholders."
--------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company, estimated at $800,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
525,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
--------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about August , 1996 at the office of the agent of Hambrecht
& Quist LLC in New York, New York.
HAMBRECHT & QUIST LLC
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
, 1996
<PAGE>
The Company intends to distribute to its stockholders annual reports
containing consolidated financial statements audited by its independent auditors
and will make available copies of quarterly reports for the first three quarters
of each fiscal year containing unaudited financial information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE
PACIFIC STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS."
THE COMPANY
Hambrecht & Quist is a major bracket investment bank focused on emerging
growth companies and growth-oriented investors in the United States and,
increasingly, worldwide. The Company's core strength has been the early
identification of trends, industries and entrepreneurial companies that have the
potential to become broad-based drivers of economic growth and change. The
Company believes that its industry-oriented research specialization is crucial
to meeting the demands of its investor and issuer clients for sophisticated and
informed investment and strategic advice, and to building long-term
relationships with these clients. Since its inception in 1968, Hambrecht & Quist
has broadened its industry focus from technology and healthcare to encompass the
branded consumer industry and companies providing business information,
outsourcing and healthcare services.
H&Q organizes its research and investment banking professionals into
industry teams. Each team, together with H&Q's venture capital professionals,
endeavors to develop and maintain an in-depth understanding of the secular and
cyclical trends driving that particular industry sector. In addition, each team
of professionals maintains close relationships not only with private and public
growth companies, but also with venture capital and institutional investors,
technical experts, professional service providers and other key industry
participants. Through these relationships, H&Q gains the opportunity to
participate actively in the growth of promising entrepreneurial companies.
H&Q has leveraged its industry expertise by providing an increasingly broad
range of investment banking and brokerage services and by investing its own
capital in emerging growth companies. It has grown its business by expanding the
range of services it provides to growth companies and investors, by addressing
the needs of larger companies and by developing expertise in new industries and
markets. The Company has significantly expanded its underwriting capability;
added advisory services in mergers, acquisitions, strategic partnerships and
private placements; and begun providing asset-based and mezzanine financing. H&Q
also has achieved a leading role in Nasdaq market-making in securities of
companies for which H&Q has managed or co-managed public offerings, expanded its
retail brokerage services and increased its trading of NYSE-listed securities.
The Company brings together growth companies and growth investors through
the sponsorship of eight regular conferences, each focusing on a different
industry or geographic region. In addition, to facilitate the analysis of long-
term trends, the Company has developed 11 industry indices, starting with the
H&Q Technology Index, a number of which are regularly cited in the media. The
Company believes that these efforts, together with the Company's investment
banking and brokerage activities, have closely associated the name Hambrecht &
Quist with entrepreneurial, high growth companies in its chosen areas of focus.
Hambrecht & Quist believes that its industry focus and long-term
orientation, together with the depth of its resources committed to the growth
company sector, have made H&Q a leading provider of investment banking and
brokerage services for emerging growth companies and investors. The number of
public equity offerings managed or co-managed by the Company has increased from
43 in 1991 to 90 in 1995 and 69 in the first six months of 1996. While the
distribution of offerings among industries has varied over time, during 1995 and
the first six months of 1996, the Company managed or co-managed 96 public equity
offerings in the technology industry, 35 in the healthcare industry, 21 in the
services industry and 7 in the branded consumer industry. Since 1968, Hambrecht
& Quist has managed or co-managed over 650 public offerings for over 440 growth
companies in the technology, healthcare, business information and outsourcing
services, healthcare services, branded consumer and related industries,
including Adobe, Apple, Genentech and Netscape.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............ 3,500,000 shares
Common Stock to be outstanding after the 22,169,064 shares(1)
offering.....................................
Use of proceeds................................ General corporate purposes
Proposed New York Stock Exchange symbol........ HMQ
</TABLE>
- ------------------------------
(1) Based on shares outstanding at June 30, 1996. Excludes 5,697,520 shares of
Common Stock issuable upon exercise of stock options outstanding at June 30,
1996 at a weighted average exercise price of $7.15 per share, 3,000,000
shares of Common Stock reserved at June 30, 1996 for future issuance under
the Company's 1996 Equity Plan and 26,140 shares of Common Stock held by a
wholly owned subsidiary of the Company. See "Management -- Compensation
Plans" and Note 8 of Condensed Notes to Combined Financial Statements --
June 30, 1996.
3
<PAGE>
SUMMARY COMBINED FINANCIAL INFORMATION(1)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE
FISCAL YEAR ENDED SEPTEMBER 30, 30,
----------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ----------- -----------
COMBINED STATEMENT OF OPERATIONS
DATA:
Revenues:
Principal transactions........... $ 23,480 $ 33,438 $ 30,045 $ 36,411 $ 53,425 $ 36,316 $ 75,354
Agency commissions............... 11,135 12,557 14,221 14,242 24,603 15,911 29,094
Investment banking............... 23,176 51,517 42,960 29,234 70,360 39,400 130,522
Corporate finance fees........... 7,409 8,371 9,993 18,561 20,709 14,530 31,947
Net investment gains............. 7,026 8,193 3,524 10,270 33,852 18,542 19,087
Other............................ 9,620 11,418 9,804 10,612 17,074 11,988 26,358
--------- --------- --------- --------- --------- ----------- -----------
Total revenues................... 81,846 125,494 110,547 119,330 220,023 136,687 312,362
--------- --------- --------- --------- --------- ----------- -----------
Expenses:
Compensation and benefits........ 37,424 58,044 54,917 60,175 105,370 68,750 159,738
Brokerage and clearance.......... 5,611 6,184 6,892 7,367 10,441 6,678 10,017
Occupancy and equipment.......... 6,003 6,040 6,045 6,679 7,803 5,511 7,146
Communications................... 3,461 4,135 4,377 6,244 7,394 5,533 7,310
Interest......................... 303 1,141 1,464 987 1,266 727 1,041
Other(3)......................... 44,382 32,226 10,256 11,315 15,131 10,790 19,717
--------- --------- --------- --------- --------- ----------- -----------
Total expenses................... 97,184 107,770 83,951 92,767 147,405 97,989 204,969
--------- --------- --------- --------- --------- ----------- -----------
Minority interest(4)............... 453 794 352 526 719 454 874
--------- --------- --------- --------- --------- ----------- -----------
Income (loss) before income tax
provision......................... (15,791) 16,930 26,244 26,037 71,899 38,244 106,519
Income tax provision (credit)...... (5,878) 7,200 10,940 10,119 22,461 11,810 36,493
--------- --------- --------- --------- --------- ----------- -----------
Net income (loss).................. $ (9,913) $ 9,730 $ 15,304 $ 15,918 $ 49,438 $ 26,434 $ 70,026
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
Pro forma net income per
share(5)..........................
Pro forma weighted average shares
outstanding(5)....................
<CAPTION>
JUNE 30, 1996
-------------------------------
AS
PRO ADJUSTED
ACTUAL FORMA(2) (2)(6)
--------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Total assets....................... $ 486,736 $ 463,708 $ 514,988
Debt obligations................... 11,252 11,252 11,252
Stockholders' equity............... 170,394 155,725 207,005
Book value per common share
outstanding....................... $ 8.34 $ 9.34
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED SEPTEMBER ENDED
30, JUNE 30,
--------------- -------------
<S> <C> <C>
1995 1996
--------------- -------------
PRO FORMA(2)
COMBINED STATEMENT OF OPERATIONS
DATA:
Revenues:
Principal transactions........... $ 53,425 $ 75,354
Agency commissions............... 24,603 29,094
Investment banking............... 70,360 130,522
Corporate finance fees........... 20,709 31,947
Net investment gains............. 26,439 15,383
Other............................ 16,809 26,159
------- -------------
Total revenues................... 212,345 308,459
------- -------------
Expenses:
Compensation and benefits........ 105,370 159,738
Brokerage and clearance.......... 10,441 10,017
Occupancy and equipment.......... 7,803 7,146
Communications................... 7,394 7,310
Interest......................... 1,266 1,041
Other(3)......................... 15,131 19,717
------- -------------
Total expenses................... 147,405 204,969
------- -------------
Minority interest(4)............... 300 364
------- -------------
Income (loss) before income tax
provision......................... 64,640 103,126
Income tax provision (credit)...... 28,442 45,374
------- -------------
Net income (loss).................. $ 36,198 $ 57,752
------- -------------
------- -------------
Pro forma net income per
share(5).......................... $ 1.83 $ 2.78
------- -------------
------- -------------
Pro forma weighted average shares
outstanding(5).................... 19,827 20,769
------- -------------
------- -------------
<S> <C> <C>
COMBINED BALANCE SHEET DATA:
Total assets.......................
Debt obligations...................
Stockholders' equity...............
Book value per common share
outstanding.......................
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
----------------------------------------------------- ------------
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total employees(7)............... 291 327 350 426 498 617
Return on average equity......... -- 34% 37% 28% 58% 62%(8)
Compensation and benefits expense
as a percentage of total
revenues........................ 46% 46% 50% 50% 48% 51%
Non-compensation and benefits
expense as a percentage of total
revenues........................ 73% 40% 26% 27% 19% 14%
<CAPTION>
<S> <C>
OPERATING DATA:
Total employees(7)...............
Return on average equity.........
Compensation and benefits expense
as a percentage of total
revenues........................
Non-compensation and benefits
expense as a percentage of total
revenues........................
</TABLE>
- ------------------------------
(1) See Note 1 of Notes to Combined Financial Statements--September 30, 1995 for
an explanation of the basis of presentation.
(2) Gives effect to the transactions described under "Restructuring" and to the
Tax Distribution. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
(3) Includes $36.9 million in fiscal 1991 and $22.9 million in fiscal 1992 for
settlement of certain litigation relating to MiniScribe Corporation. See
"Business--Legal Proceedings."
(4) Represents the pro rata interest of owners other than the Company in the
earnings of Hambrecht & Quist Guaranty Finance.
(5) See Note 8 of Notes to Pro Forma Combined Financial Statements for a
discussion of the number of shares used in calculating pro forma net income
per share.
(6) As adjusted to reflect the sale of the shares of Common Stock offered hereby
at an assumed initial public offering price of $16.00 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
(7) Shown at end of period.
(8) Shown on an annualized basis.
------------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) REFLECTS
THE TRANSACTIONS DESCRIBED UNDER "RESTRUCTURING" PRIOR TO THE COMPLETION OF THIS
OFFERING WITH NO EXERCISE OF DISSENTERS' RIGHTS AND (II) ASSUMES NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "RESTRUCTURING," "DESCRIPTION OF
CAPITAL STOCK" AND "UNDERWRITING."
4
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING FACTORS SHOULD
BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY.
RISKS ASSOCIATED WITH SECURITIES BUSINESS
The securities business is, by its nature, subject to numerous and
substantial risks, particularly in volatile or illiquid markets, including the
risk of losses resulting from the underwriting or ownership of securities,
trading, principal activities, counterparty failure to meet commitments,
customer fraud, employee errors, misconduct and fraud (including unauthorized
transactions by traders), failures in connection with the processing of
securities transactions and litigation.
RISKS OF REVENUE DECLINES DUE TO ECONOMIC, POLITICAL AND MARKET
CONDITIONS. The securities business and its profitability are affected by many
national and international factors, including economic, political and market
conditions; the level and volatility of interest rates; legislative and
regulatory changes; currency values; inflation; and the availability of
short-term and long-term funding and capital. Any one or more of these factors
may contribute to reduced levels of securities offerings and merger and
acquisition activities, which would result in lower revenues from the Company's
investment banking, trading and sales activities.
RISKS ASSOCIATED WITH DECLINES IN VOLUME, PRICE AND LIQUIDITY. The
securities business is also subject to declines in the volume of securities
transactions and in market liquidity, which generally result in lower revenues
from trading activities and commissions. Lower price levels of securities may
also result in a reduced volume of underwriting transactions, which would cause
a reduction in revenue from corporate finance fees, as well as the recognition
of losses from declines in the market value of securities held in trading,
investment and underwriting positions. Sudden sharp declines in market values of
securities can result in illiquid markets and the failure of issuers and
counterparties to perform their obligations, as well as increases in customer
claims. In such markets, the Company may incur losses in its principal trading
and market-making activities.
These varied risks associated with the securities business, which are beyond
the Company's control, can adversely affect the Company's investment banking and
sales and trading revenues. Any reduction in revenues or any loss resulting from
the underwriting or ownership of securities could adversely affect the Company's
operating results and financial condition.
DEPENDENCE ON SECURITIES OFFERINGS BY EMERGING GROWTH COMPANIES
The Company's business depends to a substantial extent on the market for
equity offerings by emerging growth companies, particularly companies in the
technology, healthcare, business information and outsourcing services,
healthcare services and branded consumer industries. These markets have
historically experienced significant volatility not only in the number and size
of equity offerings, but also in the after-market trading volume and prices of
newly issued securities. In addition, the number of major investors and the size
of managed funds in the market for growth company securities is smaller than in
many other industrial sectors, producing higher volatility in the number and
size of corporate financing transactions, and in the volume of after-market
trading, for growth company securities.
VARIABILITY BASED ON ECONOMIC, POLITICAL OR MARKET FACTORS. Securities
offerings by growth companies can vary significantly due to economic, political
and market factors. The recent growth in the Company's revenues has arisen in
large part from the significantly increased number and size of underwritten
transactions by companies in the Company's targeted industries, and by the
related increase in after-market trading for such companies during fiscal 1995
and the first nine months of fiscal 1996. During other periods, relatively few
public offerings for companies in these industries were completed, which
materially adversely affected the Company's operating results. Underwriting
activities in H&Q's targeted industries can decline for a number of reasons. For
example, underwriting activities decreased significantly in the period from
August 1990, when hostilities commenced between Iraq and Kuwait, until the first
quarter of calendar 1991. Underwriting activity experienced a similar drop in
the third quarter of calendar 1994, after interest rates in the United States
increased
5
<PAGE>
sharply. In recent weeks, the market for equity securities in general, and for
companies in the industries on which the Company focuses in particular, has
experienced a significant decline. For example, from its all-time high on May
20, 1996 through July 23, 1996 the Hambrecht & Quist Technology Index declined
by 22.5%. As a result of this market decline, many pending securities offerings
have been delayed or canceled, including several offerings which the Company was
managing or co-managing. Certain offerings completed in July 1996 have been
effected at lower valuations and smaller total dollar sizes than the price
ranges indicated in the preliminary prospectuses for these offerings. There can
be no assurance that this trend will not continue. Underwriting and brokerage
activity can also be materially adversely affected for a growth company or
industry segment by disappointments in quarterly performance relative to
analysts' expectations, or by changes in long-term prospects.
DEPENDENCE ON CASH INFLOWS TO MUTUAL FUNDS. The demand for new equity
offerings during calendar 1995 and the first six months of calendar 1996 was
driven in part by institutional investors, particularly large mutual funds,
seeking to invest cash received from the public. From January through May 1996,
the mutual fund industry received an aggregate net cash inflow of approximately
$124 billion. The financial press has reported that the net aggregate amount
invested in certain mutual funds focused on technology and other growth
industries declined during June and July 1996. The financial press has also
reported that such funds experienced significant declines in net asset values
due to the recent market decline. The public may withdraw additional cash from
these and other mutual funds as a result of the decline in the market generally
or as a result of a decline in mutual fund net asset values. To the extent that
the decline in cash inflows into mutual funds and the decline in net asset
values result in or portend a temporary or sustained reduction in demand by
managers of these funds or other institutional investors for new equity
offerings by emerging growth companies, the Company's business and results of
operations could be materially adversely affected.
EXPOSURE TO INDUSTRY-SPECIFIC RISKS IN TECHNOLOGY AND HEALTHCARE
INDUSTRIES. The market for securities offerings in each of the industries on
which the Company focuses may also be subject to industry-specific risks. For
example, the prospects for growth in the personal computer market affect
companies in a number of other industries, such as semiconductor-related
companies and companies in the software and networking equipment industries.
Similarly, changes in policies by the United States Food and Drug Administration
or the United States Health Care Financing Administration can produce sharp
swings in the market for the securities of biotechnology and healthcare services
companies. Although the Company has recently expanded its activities in equity
offerings for services and branded consumer companies, technology and healthcare
underwriting transactions continue to play a relatively larger role in the
Company's investment banking and research activities, continuing the Company's
historic exposure to downturns in underwriting activities in these industries.
RISKS ASSOCIATED WITH REGIONAL CONCENTRATIONS OF EMERGING GROWTH
COMPANIES. The Company's focus on emerging growth companies in selected
industries exposes it to risks associated with the geographic areas in which
those industries are concentrated. Emerging growth companies in these industries
tend to be concentrated in California and Massachusetts, with smaller
concentrations in Colorado, Illinois, Minnesota, New Jersey, Pennsylvania, Texas
and Washington. Approximately 49% of the companies for which H&Q served as
manager or co-manager of a securities offering between January 1994 and June
1996 had principal offices located in California, and approximately 12% of these
companies had principal offices located in Massachusetts. As a result, a natural
disaster in one of these states, particularly in California, could adversely
affect the companies in that state, which in turn could reduce the Company's
underwriting and brokerage business relating to those companies.
RISK OF DECLINE IN BROKERAGE REVENUES. H&Q also derives a significant
portion of its revenues from institutional brokerage transactions related to the
securities of growth companies. In the past, revenues from such institutional
brokerage transactions have declined when underwriting activities in these
industry sectors declined, the volume of trading on the Nasdaq National Market
or New York Stock Exchange ("NYSE") declined, or when industry sectors or
individual companies reported results below investors' expectations.
As a result of its dependence on revenues related to securities issued by
technology, healthcare, business information and outsourcing services,
healthcare services and branded consumer companies, any downturn in
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the market for equity offerings by emerging growth companies in these industries
could adversely affect the Company's operating results and financial condition.
See "Business--Investment Banking" and
"--Sales, Trading and Syndicate."
SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's revenues and operating results may fluctuate from quarter to
quarter and from year to year due to a combination of factors, including the
number of underwriting and merger and acquisition transactions completed by the
Company's clients, access to public markets for companies in which the Company
has invested as a principal, valuations of the Company's principal investments,
the level of institutional and retail brokerage transactions, variations in
expenditures for personnel, litigation expenses, and the expenses of
establishing new business units.
The Company's revenues from an underwriting transaction are recorded only
when the underwritten securities commence trading, and revenues from a merger or
acquisition transaction are recorded only when retainer fees are received or the
transaction closes. Accordingly, the timing of the Company's recognition of
revenue from a significant transaction can materially affect the Company's
quarterly operating results.
The Company's cost structure currently is oriented to meeting the level of
demand for corporate finance transactions experienced during fiscal 1995 and the
first nine months of fiscal 1996. As a result, despite the variability of
professional incentive compensation, the Company could experience losses if
demand for these transactions declines more quickly than the Company's ability
to change its cost structure.
The recent market decline and the resulting reduction in the Company's
business will cause the Company's revenues and net income in the quarter ending
September 30, 1996 to be substantially lower than its revenues and net income in
each of the first three quarters of fiscal 1996. Further, as a result of general
seasonal trends for quarters ending on September 30, the Company's fourth
quarter results are particularly dependent on revenues for the month of
September to offset typically lower revenues during the August vacation period.
Because of the volatility and uncertainties caused by present market conditions,
the Company's revenues for the month of September 1996 and the fourth quarter of
fiscal 1996 are particularly difficult to predict, and such revenues could be
even lower than present expectations if market conditions continue to
deteriorate. There can be no assurance that this market decline, or the related
adverse effect on the Company's operating results, will not continue or worsen.
Due to the foregoing and other factors, there can be no assurance that the
Company will be able to sustain profitability on a quarterly or annual basis.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON ABILITY TO RETAIN AND RECRUIT PERSONNEL
The Company's business is dependent on the highly skilled, and often highly
specialized, individuals it employs. Retention of research, investment banking,
sales and trading, venture capital, money management and administrative
professionals is particularly important to the Company's prospects. Hambrecht &
Quist's strategy is to establish relationships with its prospective corporate
clients in advance of any transaction and to maintain such relationships over
the long term by providing advisory services to corporate clients in equity,
convertible debt and merger and acquisition transactions. Research professionals
contribute significantly to the Company's ability to secure a role in managing
public offerings.
COMPETITION FOR PROFESSIONAL EMPLOYEES. From time to time, Hambrecht &
Quist has experienced losses of research, investment banking and sales and
trading professionals, including recent losses of research analysts. The level
of competition for key personnel has increased recently, particularly due to the
market entry efforts of certain international commercial banks and other
investment banks targeting or increasing their efforts in some of the same
industries that H&Q serves, most notably technology and healthcare. There can be
no assurance that losses of key personnel due to such competition or otherwise
will not occur in the future. The loss of an investment banking, research or
sales and trading professional, particularly a senior professional with a broad
range of contacts in an industry, could materially and adversely affect the
Company's operating results. See "Business--Employees" and "Management."
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LIMITATIONS OF EMPLOYEE RETENTION MECHANISMS. The Company depends on many
key employees, including its managing directors, and in particular on its senior
executive officers. The loss of any key employee could materially and adversely
affect the Company. While Hambrecht & Quist generally does not have employment
agreements with its employees, it attempts to retain its employees with
incentives such as long-term deferred compensation plans, the issuance of
Company stock subject to continued employment and the grant of options to buy
Company stock that vest over a number of years of employment. These incentives,
however, may be insufficient in light of the increasing competition for
experienced professionals in the securities industry, particularly if the
Company's stock price declines or fails to appreciate sufficiently to be a
competitive source of a portion of professional compensation. See "--Significant
Competition" and "Management--Compensation Plans."
LIMITATIONS ON GROWTH IN PERSONNEL. The Company expects further growth in
the number of its personnel, even if the current market decline continues.
Competition for employees with the qualifications desired by the Company is
intense, especially with respect to research and investment banking
professionals with expertise in industries in which underwriting or advisory
activity is robust. Competition for the recruiting and retention of employees
has recently increased the Company's compensation costs, and the Company expects
that continuing competition will cause its compensation costs to continue to
increase. There can be no assurance that the Company will be able to recruit a
sufficient number of new employees with the desired qualifications in a timely
manner. The failure to recruit new employees could materially and adversely
affect the Company's operating results.
SIGNIFICANT COMPETITION
The securities business is intensely competitive. Many of the Company's
competitors have greater capital, financial and other resources than the
Company. The Company competes for venture capital and other principal investment
opportunities in the United States through wholly owned subsidiaries and
internationally through entities in which it holds minority interests. The
Company competes worldwide for growth-oriented institutional investor clients
and for United States underwritings of equity offerings by emerging growth
companies in H&Q's areas of focus.
COMPETITION FROM NEW MARKET ENTRANTS. In addition to competition from firms
currently in the securities business, domestic commercial banks and investment
banking boutiques have recently entered the business. In recent years, large
international banks have entered the markets served by United States investment
banks, including the markets in which the Company competes. Certain large
international banks have hired investment banking, research and sales and
trading professionals from the Company and its competitors in the recent past,
and the Company expects that these and other competitors will continue to try to
recruit professionals away from the Company. The loss of any key professional
could materially and adversely affect the Company's operating results. The
Company expects competition from domestic and international banks to increase as
a result of recent and anticipated legislative and regulatory initiatives in the
United States to remove or relieve certain restrictions on commercial banks. The
Company's focus on growth companies also subjects it to direct competition from
a group of specialty securities firms and smaller investment banking boutiques
that specialize in providing services to the emerging growth company sector.
Such competition could adversely affect the Company's operating results, as well
as its ability to attract and retain highly skilled individuals. As a result of
increasing competition, revenues from individual underwriting transactions have
been increasingly allocated among a greater number of co-managers, a trend which
has resulted in reduced revenues for certain transactions.
COMPETITION ASSOCIATED WITH ELECTRONIC SECURITIES TRANSACTIONS. The Company
also faces competition from companies offering electronic brokerage services, a
rapidly developing industry. These competitors may have lower costs or provide
fewer services, and may offer these customers more attractive pricing or other
terms, than the Company offers. The Company also anticipates competition from
underwriters who attempt to effect public offerings for emerging growth
companies through new means of distribution, including transactions effected
using electronic media such as the Internet. In addition, disintermediation may
occur as issuers attempt to sell their securities directly to purchasers,
including sales using electronic media such as the Internet. To the
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extent that issuers and purchasers of securities transact business without the
assistance of financial intermediaries such as the Company, the Company's
operating results could be adversely affected. See "Business--Competition."
RISKS ASSOCIATED WITH FEDERAL, STATE AND FOREIGN REGULATION
The securities industry and the business of the Company are subject to
extensive regulation in the United States by the Securities and Exchange
Commission ("SEC"), state securities regulators and other governmental
regulatory authorities. The business of the Company also is regulated in the
United States by industry self-regulatory organizations ("SROs"), including the
National Association of Securities Dealers, Inc. ("NASD"), the NYSE and other
exchanges. In addition, the business of the Company is subject to regulation by
governmental authorities and SROs in other countries or territories in which the
Company operates, including France, Hong Kong, Japan, Malaysia, the Philippines,
Singapore, Taiwan, Thailand and the United Kingdom. The Company's international
operations also require compliance with the United States Foreign Corrupt
Practices Act. See "Business--Legal Proceedings" and "Regulation."
POTENTIAL LIMITS ON OPERATIONS DUE TO NET CAPITAL REQUIREMENTS. As a
registered broker-dealer and member of the NYSE, the Company's principal
subsidiary, Hambrecht & Quist LLC ("H&Q LLC"), is subject to the net capital
rules of the SEC, NYSE and NASD. The Company's other registered broker-dealer
subsidiary, RvR Securities Corp. ("RvR Securities"), is also subject to the net
capital rules of the SEC and NASD. These rules, which specify minimum net
capital requirements for registered broker-dealers and NYSE and NASD members,
are designed to assure that broker-dealers maintain adequate regulatory capital
in relation to their liabilities and the size of their customer business. These
requirements have the effect of requiring that at least a substantial portion of
a broker-dealer's assets be kept in cash or highly liquid investments.
Compliance with the net capital requirements could limit those operations that
require the intensive use of capital, such as underwriting and trading
activities. These rules also could restrict the Company's ability to withdraw
capital from H&Q LLC and RvR Securities even in circumstances where H&Q LLC and
RvR Securities have more than the minimum amount of required capital. See "Net
Capital Requirements."
COMPLIANCE WITH VENTURE CAPITAL REGULATIONS. In connection with the
Company's venture capital activities, H&Q and its affiliates, as well as the
venture capital funds that they manage, are relying on exemptions from
registration under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"), the Investment Company Act of 1940, as amended, state
securities laws and laws of various foreign countries. Failure to meet the
requirements of any such exemptions could have a material adverse effect on the
manner in which the Company, its affiliates and the venture capital funds they
manage carry out their investment activities and on the compensation received by
the Company and its affiliates from the venture capital funds.
RISK OF PENALTIES DUE TO NONCOMPLIANCE. Compliance with many of the
regulations applicable to the Company involves a number of risks, particularly
in areas where applicable regulations may be subject to varying interpretation.
In the event of non-compliance by H&Q LLC or RvR Securities with an applicable
regulation, governmental regulators and SROs may institute administrative or
judicial proceedings that may result in censure, fine, civil penalties
(including treble damages in the case of insider trading violations), the
issuance of cease-and-desist orders, the deregistration or suspension of the
non-compliant broker-dealer or investment adviser, the suspension or
disqualification of the broker-dealer's officers or employees or other adverse
consequences. The Company recently agreed to a censure and a $40,000 fine by the
NYSE relating to certain loans to brokerage customers in fiscal 1994 against
pledges of restricted securities. The imposition of any future penalties or
orders on H&Q LLC could have a material adverse effect on the Company's
operating results and financial condition. See "Regulation."
RISKS ASSOCIATED WITH CHANGING REGULATORY ENVIRONMENT. The regulatory
environment in which the Company operates is subject to change. The Company may
be adversely affected as a result of new or revised legislation or regulations
imposed by the SEC, other United States or foreign governmental regulatory
authorities or SROs. The Company also may be adversely affected by changes in
the interpretation or enforcement of existing laws and rules by these
governmental authorities and SROs.
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NASDAQ ANTITRUST LITIGATION. Much of the Company's underwriting and
market-making business involves securities traded on Nasdaq. Nasdaq's operations
have been the subject of extensive scrutiny in the media and by government
regulators, including by the Antitrust Division of the United States Department
of Justice. This scrutiny has included allegations of collusion among Nasdaq
market-makers. H&Q LLC and 23 other Nasdaq market-makers recently entered into a
Stipulation and Order with the Department of Justice in which they agreed not to
engage in any collusive activities relating to prices, quotes or spreads in
Nasdaq-traded securities. See "Business--Legal Proceedings--Nasdaq Antitrust
Litigation."
POTENTIAL ADVERSE EFFECTS OF PROPOSED CHANGES IN NASDAQ OPERATIONS. It has
been reported in the media that the SEC has submitted to the NASD a draft of a
disciplinary case the SEC may file against the NASD, as well as a report setting
out the SEC's findings in detail. The SEC's case reportedly concerns the NASD's
enforcement oversight of Nasdaq. According to these media reports, NASD
officials have proposed a number of changes to Nasdaq's operations, which
proposals currently are being reviewed by government regulators. The Company is
unable to predict the outcome of any of these proposals, and certain of the
changes proposed by NASD officials, if effected, could adversely affect the
Company's operating results.
RISK OF CHANGES IN OTHER BUSINESS REGULATIONS. The Company's businesses may
be materially affected not only by regulations applicable to it as a financial
market intermediary, but also by regulations of general application. For
example, the volume of the Company's underwriting, merger and acquisition and
principal investment businesses in a given time period could be affected by,
among other things, existing and proposed tax legislation, antitrust policy and
other governmental regulations and policies (including the interest rate
policies of the Federal Reserve Board) and changes in interpretation or
enforcement of existing laws and rules that affect the business and financial
communities. The level of business and financing activity in each of the
industries on which the Company focuses can be affected not only by such
legislation or regulations of general applicability, but also by
industry-specific legislation or regulations.
RISKS ASSOCIATED WITH PRINCIPAL INVESTMENT ACTIVITIES
The Company uses a portion of its own capital in a variety of principal
investment activities, each of which involves risks of illiquidity, loss of
principal and revaluation of assets. At June 30, 1996 the Company's principal
investments represented $25.4 million invested in non-marketable securities,
venture capital funds and investment partnerships and $58.4 million invested in
marketable securities. The Company purchases equity securities and, to a lesser
extent, debt securities, in venture capital and other high risk financings of
early-stage, pre-public or "mezzanine stage" and turnaround companies. The
Company also provides asset-based financing and purchases equity securities as
part of bridge or mezzanine financing transactions. The Company's nonmarketable
investments at June 30, 1996 valued at $48.8 million, and the report of the
Company's independent public accountants on the Company's combined financial
statements includes a statement regarding the inherent uncertainty of valuation
of the Company's nonmarketable investments. The Company's investments, like its
other activities, are concentrated in a small number of industries and
companies, and the companies in which the Company has invested as principal face
rapidly changing and highly competitive environments, increasing the risks of
illiquidity and loss of principal, and creating risks associated with asset
revaluation as market conditions change. In addition, the management of
principal investments often requires substantial attention from the Company's
professionals, particularly if the entity in which the Company has invested
experiences financial difficulties, a restructuring or a sale.
ILLIQUIDITY OF INVESTMENTS. The absence of a public market for securities
received in principal investments means that the Company will not receive a
return on its capital invested for an indeterminate period of time, if at all. A
public market for these securities may not develop for several years, if ever.
The timing of access to liquidity depends on the general market for initial
public offerings of securities or mergers and acquisitions as well as the
particular company's results and prospects and trends in the relevant industry.
Delayed access to liquidity could adversely affect the Company's returns on its
principal investments, which would adversely affect the Company's operating
results.
RISK OF LOSS OF CAPITAL. The Company also risks the loss of capital it has
invested as a principal. The companies in which H&Q invests often rely on new or
developing technologies or novel business models, or concentrate on markets
which have not yet developed and may never develop sufficiently to support
successful
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operations. Companies supported by venture capital have a high incidence of
operating losses and business failure, which typically results in loss of
capital invested. Companies to which H&Q provides mezzanine financing often
require substantial cash to support their operations, risking loss of H&Q's
principal if the company in which H&Q has invested is unable to raise additional
capital through an initial public offering of its securities. If a business that
has received asset-based financing from H&Q fails, H&Q will be required to
repossess collateral, which may not be salable at a price equal to H&Q's initial
investment. The entities in which H&Q invests as a principal often are unable to
obtain conventional financing. The equity securities that H&Q receives will be
subordinate to the issuer's debt, may also be subordinate to other classes of
equity and typically will not provide dividend income. Debt securities purchased
by H&Q may rank subordinate to other debt of the issuer. There can be no
assurance that H&Q will not experience significant losses as a result of its
principal investment activities. A material loss of capital would adversely
affect H&Q's operating results and financial condition.
VOLATILITY OF INVESTMENTS; ADJUSTMENTS TO CARRYING VALUE. H&Q may be
required to mark up or mark down the value of its principal investments as a
result of industry- or company-specific factors over which H&Q has no control.
Publicly traded securities held as principal investments, which at June 30, 1996
aggregated $58.4 million, are subject to significant volatility, increasing the
risk of a mark-down as a result of a decline in market prices generally or the
price of the particular security. For example, the Company's principal
investment in The BISYS Group, Inc. ("BISYS") generated a pretax investment gain
of $14.7 million for the nine months ended June 30, 1996, but would have
generated a pretax investment loss of $4.2 million between July 1, 1996 and July
24, 1996 if interim financial statements had been prepared for such period. If a
significant mark-down of a material asset were to occur in the future, the
Company's operating results and financial condition would be materially and
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Venture Capital and Principal
Investment Activities" and "--Risk Management", Notes 2 and 6 of Notes to
Combined Financial Statements--September 30, 1995 and Note 4 of Condensed Notes
to Combined Financial Statements--June 30, 1996.
RISKS ASSOCIATED WITH UNDERWRITING AND TRADING ACTIVITIES
The Company's underwriting, securities trading and market-making activities
are conducted by the Company as principal and subject the Company's capital to
significant risks, including market, credit, counterparty and liquidity risks.
These activities often involve the purchase, sale or short sale of securities as
principal in markets that may be characterized by relative illiquidity or that
may be particularly susceptible to rapid fluctuations in liquidity. The Company
from time to time has large position concentrations in securities of, or
commitments to, a single issuer, or issuers engaged in a specific industry,
particularly as a result of the Company's underwriting activities. The Company
tends to concentrate its trading positions and underwriting activities in a more
limited number of industry sectors and portfolio companies than many other
investment banks, which might result in higher trading losses than would occur
if the Company's positions and activities were less concentrated. In addition,
the trend in all major capital markets, for competitive and other reasons,
toward larger commitments on the part of lead underwriters means that, from time
to time, an underwriter (including a co-manager) may retain significant position
concentrations in individual securities. See "Business-- Risk Management."
LITIGATION AND POTENTIAL SECURITIES LAWS LIABILITY
Many aspects of the Company's business involve substantial risks of
liability. An underwriter is exposed to substantial liability under federal and
state securities laws, other federal and state laws and court decisions,
including decisions with respect to underwriters' liability and limitations on
indemnification of underwriters by issuers. For example, a firm that acts as an
underwriter may be held liable for material misstatements or omissions of fact
in a prospectus used in connection with the securities being offered or for
statements made by its securities analysts or other personnel.
INCREASING FREQUENCY OF SECURITIES LITIGATION. In recent years, there has
been an increasing incidence of litigation involving the securities industry,
including class actions that seek substantial damages. The Company has been
active in the underwriting of initial public offerings and follow-on offerings
of the securities of emerging and mid-size growth companies, which often involve
a higher degree of risk and are more volatile than the securities of more
established companies. In comparision with more established companies, such
emerging
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and mid-size growth companies are also more likely to be the subject of
securities class actions, to carry directors and officers liability insurance
policies with lower limits, or no such insurance, and to become insolvent. Each
of these factors increases the likelihood that an underwriter of an emerging or
mid-size growth company's securities will be required to contribute to any
adverse judgment or settlement of a securities lawsuit.
CLAIMS AGAINST UNDERWRITERS. The plaintiffs' attorneys in securities class
action lawsuits frequently name as defendants the managing underwriters of a
public offering. H&Q LLC is a named defendant in a number of class action
lawsuits relating to public offerings in which it served as a managing
underwriter. In addition, H&Q LLC is currently directly or indirectly subject to
over 30 shareholder class action lawsuits relating to public offerings in which
H&Q LLC served as a member of the underwriting syndicate but not as a managing
underwriter. Plaintiffs' attorneys also name as defendants investment banks
which provide advisory services in merger and acquisition transactions. H&Q LLC
is currently a defendant in one such lawsuit. The Company anticipates that
additional securities class action lawsuits naming H&Q LLC as a defendant will
be filed from time to time in the future, particularly in light of the increased
number of public offerings H&Q LLC has underwritten, and the increased number of
merger and acquisition transactions in which H&Q LLC has provided advisory
service, in recent years, and the fact that the securities involved in certain
of such transactions have experienced, or may in the future experience,
significant declines in market value. In such lawsuits, all members of the
underwriting syndicate typically are included as members of a defendant class
and/or are required by law, or pursuant to the terms of the underwriting
agreement, to bear a portion of any expenses or losses (including amounts paid
in settlement of the litigation) incurred by the underwriters as a group in
connection with the litigation, to the extent not covered by the indemnification
obligation of the issuer of the securities underwritten. H&Q LLC has on occasion
participated in settlements of these types of lawsuits by making payments to the
plaintiff class. There can be no assurance that the Company, H&Q LLC or RvR
Securities will not find it necessary to make substantial settlement payments in
the future. The Company has agreed to indemnify H&Q LLC against any expense or
liability it may incur in connection with any such lawsuits.
As the number of suits to which the Company is a party increases, the risk
to the Company's assets also increases. If the plaintiffs in any suits against
the Company were to successfully prosecute their claims, or if the Company were
to settle such suits by making significant payments to the plaintiffs, the
Company's operating results and financial condition could be materially and
adversely affected. As is common in the securities industry, the Company does
not carry insurance that would cover any such payments. In addition, the
Company's charter documents allow indemnification of the Company's officers,
directors and agents to the maximum extent permitted under Delaware law. The
Company has entered into indemnification agreements with these persons. The
Company has been and in the future may be the subject of indemnification
assertions under these charter documents or agreements by officers, directors or
agents of the Company who are or may become defendants in litigation.
DIVERSION OF MANAGEMENT ATTENTION. In addition to these financial costs and
risks, the defense of litigation has, to a certain extent, diverted, and is
expected to divert in the future, the efforts and attention of the Company's
management and staff. The amount of time that management and other employees are
required to devote in connection with the defense of litigation could be
substantial and might materially divert their attention from other
responsibilities within the Company. Securities class action litigation in
particular is highly complex and can extend for a protracted period of time,
thereby consuming substantial time and effort of the Company's management and
substantially increasing the cost of such litigation.
UNCERTAIN LEGAL ENVIRONMENT. The laws relating to securities class actions
are currently in a state of flux. The eventual impact of the Private Securities
Litigation Reform Act of 1995 on securities class action litigation is not
known. In addition, there are certain proposed California ballot initiative
provisions which the Company believes would, if passed, make it easier for
securities class action plaintiffs to litigate in California state court.
LITIGATION RISKS RELATED TO PRINCIPAL INVESTMENT ACTIVITIES. The Company
also has been subject to litigation in state and federal courts relating to
companies in which the Company has invested as a principal. The risk of such
litigation is magnified where H&Q has a substantial or controlling interest in a
company, or where one or more of H&Q's employees serves on a company's Board of
Directors. On occasion, such litigation has produced
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results materially adverse to H&Q. In particular, during 1991 and 1992, the
Company settled litigation relating to MiniScribe Corporation ("MiniScribe") at
an aggregate cost, including expenses, of approximately $59.8 million. All
payments relating to such MiniScribe settlements were made prior to May 31,
1996. There can be no assurance that the Company, as a result of its investments
as a principal or the service of the Company's employees as directors of other
entities or otherwise, will not lead to similar litigation or settlement
payments in the future.
RISKS ASSOCIATED WITH OTHER DISPUTES. In the normal course of business, the
Company is also a defendant in various civil actions and arbitrations arising
out of its activities as a broker-dealer in securities, as an underwriter, as an
employer and as a result of other business activities. The Company has in the
past made substantial payments in connection with the resolution of disputed
claims, and there can be no assurance that substantial payments in connection
with the resolution of disputed claims will not occur in the future.
An adverse resolution of any pending or future lawsuits against H&Q LLC, RvR
Securities or the Company could materially affect the Company's operating
results and financial condition. See "Business--Legal Proceedings."
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
Over the past several years, the Company has experienced significant growth
in its business activities and the number of its employees. This growth has
required and will continue to require increased investment in management
personnel, financial and management systems and controls, and facilities, which,
in the absence of continued revenue growth, would cause the Company's operating
margins to decline from current levels. In addition, as is common in the
securities industry, the Company is and will continue to be highly dependent on
the effective and reliable operation of its communications and information
systems. The Company believes that its current and anticipated future growth
will require implementation of new and enhanced communications and information
systems and training of its personnel to operate such systems. Any difficulty or
significant delay in the implementation or operation of existing or new systems
or the training of personnel could adversely affect the Company's ability to
manage growth. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Accounting, Administration and
Operations."
RISK OF SYSTEMS FAILURE
The Company's business is highly dependent on communications and information
systems. Any failure or interruption of the Company's systems, or of the systems
of the Company's clearing broker, could cause delays in the Company's securities
trading activities, which could have a material adverse effect on the Company's
operating results. There can be no assurance that the Company or its clearing
broker will not suffer any such systems failure or interruption, whether caused
by an earthquake, fire, other natural disaster, power or telecommunications
failure, act of God, act of war or otherwise, or that the Company's back-up
procedures and capabilities in the event of any such failure or interruption
will be adequate.
DEPENDENCE ON AVAILABILITY OF CAPITAL AND FUNDING
A substantial portion of the Company's total assets consists of highly
liquid marketable securities and short-term receivables arising from securities
transactions. The funding needs of the Company to date have been satisfied from
internally generated funds and paid-in capital. In addition, the Company borrows
limited amounts on a collateralized basis from a bank to support the activities
of its Executive Financial Services group. On a pro forma basis, the Company's
cash at June 30, 1996 would have been reduced prior to the completion of this
offering by approximately $9.3 million through the transactions described under
"Restructuring" and the satisfaction of commitments of Hambrecht & Quist L.P. to
make a tax distribution of a portion of the partnership's taxable income to its
partners ("Tax Distribution"). There can be no assurance that adequate financing
to support the Company's businesses will be available in the future on
attractive terms, or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" and "--Liquidity and
Capital Resources."
EFFECTS OF RESTRUCTURING
The transactions described in "Restructuring" will involve a distribution,
principally to the Company's existing equity securityholders, of $5.0 million in
cash, an additional cash amount for the Tax Distribution
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estimated to be approximately $2.0 million and a distribution of securities with
a book value at June 30, 1996 of approximately $20.6 million. These
distributions will not only reduce the Company's total assets and stockholders'
equity but will also reduce the amount of investment assets, including the
amount of non-marketable investments, from which the Company can generate future
net investment gains or losses. The restructuring transactions will also result
in a higher effective income tax rate on the Company's future taxable income.
Holders of interests in the entities participating in the restructuring
transactions who perfect their statutory dissenters' rights under the California
Corporations Code will not receive shares of Company Common Stock, but instead
will be entitled to have their interests purchased by the entity in which they
hold an interest for cash at fair market value, determined as of the day before
the first announcement of the terms of the restructuring transactions. To the
extent that holders of interests in the entities participating in the
restructuring transactions exercise their dissenters' rights, the Company will
be required to pay cash for dissenters' interests, and fewer shares of the
Company's Common Stock will be outstanding. Any substantial cash payments to
dissenters may have a material adverse effect on the Company's financial
condition. See "Restructuring."
RISKS OF POTENTIAL CONFLICTS OF INTEREST
Executive officers, directors and employees of the Company from time to time
invest, or receive a profit interest, in investments in private or public
companies or investment funds in which the Company, or an affiliate of the
Company, is an investor or for which the Company carries out investment banking
assignments, publishes research or acts as a market-maker. In addition, the
Company has in the past organized and may in the future organize businesses,
such as Hambrecht & Quist Guaranty Finance or Hambrecht & Quist Transition
Capital, in which employees of H&Q acquire minority interests. There are certain
risks that, as a result of such investment or profits interest, a director,
officer or employee may take actions which would conflict with the best
interests of Hambrecht & Quist. See "Business--Venture Capital and Principal
Investment Activities," and "Certain Transactions."
CONTROL OF THE COMPANY; ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
Upon the completion of this offering, the Company's current executive
officers and directors will beneficially own approximately 41.0% of the
outstanding Common Stock. Accordingly, these stockholders, if they were to act
as a group, may be able to elect all of the Company's directors, increase the
authorized capital and otherwise control the policies of the Company. Upon the
completion of this offering, the Company's Board of Directors will have the
authority to issue up to 5,000,000 shares of Preferred Stock and to determine
the price, rights, preferences and privileges of those shares without any
further vote or action by the stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
shares of Preferred Stock, while potentially providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. In addition, the Company is
subject to the provisions of Section 203 of the Delaware General Corporation
Law, which will prohibit the Company from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. Certain provisions of the Company's Certificate of
Incorporation and Bylaws, including provisions that provide for the Board of
Directors to be divided into three classes to serve for staggered three-year
terms, may have the effect of delaying or preventing a change of control of the
Company, which could adversely affect the market price of the Company's Common
Stock. See "Management," "Principal Stockholders" and "Description of Capital
Stock."
ABSENCE OF PRIOR MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market will develop
or, if developed, will be sustained following this offering. The initial public
offering price of the Common Stock will be determined through negotiations
between the Company and the Representatives of the Underwriters, based upon
several factors. For a discussion of the factors to be taken into account in
determining the initial public offering price, see "Underwriting." Certain
factors, such as sales of Common Stock into the market by existing stockholders,
fluctuations in operating results of the Company or its competitors, market
conditions for similar stocks and market conditions generally for
14
<PAGE>
emerging growth companies, particularly in the technology and healthcare
industries, could cause the market price of the Common Stock to fluctuate
substantially. In addition, the stock market has experienced significant price
and volume fluctuations that have particularly affected the market prices of
equity securities of companies and that have often been unrelated to the
operating performance of such companies. Accordingly, the market price of the
Common Stock may decline even if the Company's operating results or prospects
have not changed.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market, whether by purchasers in this offering or other stockholders of the
Company, could adversely affect the prevailing market price of the Common Stock,
and could impair the Company's future ability to raise capital through an
offering of its equity securities. Assuming no exercise of stock options after
June 30, 1996, and assuming transferability of shares which may be subject to
vesting or other contractual restrictions, immediately after the completion of
this offering there will be 22,169,064 shares of Common Stock outstanding, all
of which will be freely tradeable in the public markets, subject in certain
cases to the volume and other limitations set forth in Rule 144 promulgated
under the Securities Act of 1933 ("Securities Act"). All of the 18,669,064
shares outstanding immediately prior to this offering will be subject to lockup
restrictions ("Lockup"), unless released by all of Hambrecht & Quist LLC, Morgan
Stanley & Co. Incorporated and the Company. The Lockup prohibits the disposition
of any such shares until the date 18 months after the date of this Prospectus
("Effective Date"), provided that six months after the Effective Date, each
stockholder may sell the greater of 10,000 shares or 5% of the holder's shares
outstanding on the Effective Date (an aggregate maximum of approximately
2,014,000 shares), and 12 months after the Effective Date, each stockholder may
sell an additional number of shares equal to the greater of 10,000 shares or 5%
of the holder's shares outstanding on the Effective Date (an additional
aggregate maximum of approximately 1,472,000 shares). Any shares subject to the
Lockup may be released at any time with or without notice to the public. See
"Shares Eligible for Future Sale" and "Underwriting."
NO SPECIFIC USE OF PROCEEDS
The Company has not designated any specific use for the net proceeds from
the sale by the Company of Common Stock offered hereby. Rather, the Company
intends to use the net proceeds primarily for general corporate purposes,
including working capital and potential principal investments. Accordingly,
management will have significant flexibility in applying the net proceeds of
this offering. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in this offering will experience immediate
dilution in net tangible book value of $6.66 per share, based on an assumed
initial public offering price of $16.00 per share. To the extent that currently
outstanding options to purchase Common Stock are exercised, purchasers of Common
Stock will experience additional dilution. See "Dilution."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934. Such forward-looking statements may be deemed to include the Company's
plans to identify emerging trends and industries, expand the range of services
it offers, increase the number of its investor and company clients, expand its
role in capital markets outside the United States (particularly in Europe and
Asia), increase its principal investment activities, expand its client base and
investment banking activities in the branded consumer industry and increase the
number of its personnel. Actual results could differ from those projected in any
forward-looking statements for the reasons detailed in the other sections of
this "Risk Factors" portion of the Prospectus, or elsewhere in this Prospectus.
15
<PAGE>
THE COMPANY
Hambrecht & Quist Group, a Delaware corporation, was formed as a holding
company for all of the operations of Hambrecht & Quist following the
Restructuring described below. The Restructuring will take place prior to the
completion of this offering. The Company will be the successor to the businesses
conducted by Hambrecht & Quist Group, a California corporation established in
1983 ("Group California"), and Hambrecht & Quist L.P., a California limited
partnership established in 1993 ("LP"). In 1983, Group California succeeded to
the business of Hambrecht & Quist, a California partnership formed in 1968.
Unless the context otherwise requires, "Hambrecht & Quist," "H&Q" and the
"Company" refer to Hambrecht & Quist Group, a Delaware corporation, and its
predecessors, affiliates and subsidiaries. Hambrecht & Quist and H&Q are
registered trademarks of the Company.
Following the Restructuring, the Company will operate primarily as a holding
company and will indirectly own all of the subsidiaries and equity interests in
affiliated entities that presently are owned by either Group California or LP.
Hambrecht & Quist LLC ("H&Q LLC") is the Company's principal investment banking
subsidiary and securities broker-dealer.
The Company's other principal operating subsidiaries or affiliated entities,
which will be directly or indirectly wholly owned except as indicated, are as
follows: RvR Securities Corp. ("RvR Securities"), a registered broker-dealer
serving companies with smaller capitalizations than H&Q LLC's typical
underwriting clients; Hambrecht & Quist Capital Management Incorporated
("Capital Management"), a registered investment adviser to two publicly traded
closed-end mutual funds; Hambrecht & Quist Venture Partners, a California
Limited Partnership ("Venture Partners"), a venture capital fund management
partnership in which the Company has a controlling general partnership interest;
Hambrecht & Quist Guaranty Finance, LLC (together with its predecessor,
Hambrecht & Quist Guaranty Finance, L.P., "Guaranty Finance"), an 87.5%-owned
subsidiary of the Company engaged in asset-based financing; and Hambrecht &
Quist Transition Capital, LLC ("Transition Capital"), an 87.5%-owned subsidiary
of the Company formed in 1996 to provide bridge loans and mezzanine financings
to emerging growth companies.
In addition, the Company's international activities are carried out in part
through Hambrecht & Quist Saint Dominique, a 50%-owned joint venture formed in
1996 that provides investment banking services to emerging growth companies in
Europe.
The Company also maintains minority investments in H&Q Asia Pacific, Ltd.
("Asia Pacific"), which provides financial advisory and fund management services
in the Asia Pacific region, Beeson Gregory Holdings Limited, a London-based
brokerage firm and financial adviser specializing in growth companies, De Santis
Capital Management, L.P., a registered investment adviser, and EASDAQ S.A., a
Nasdaq-type stock market for emerging growth companies in Europe. The Company
also has a 20% interest in Lewco Securities Corp. ("Lewco"), which acts as a
clearing broker and depository for Schroder Wertheim & Co. and the Company.
The Company's executive offices are located at One Bush Street, San
Francisco, California 94104, and its telephone number is (415) 576-3300.
16
<PAGE>
RESTRUCTURING
Prior to the completion of this offering, the Company will engage in a
series of restructuring transactions (collectively, the "Restructuring").
Immediately prior to the Restructuring, the Company operated through two
entities, Group California and LP. A majority of the outstanding shares and
options of Group California are owned by members of the Board of Directors,
Managing Directors and Principals of the Company, and ownership positions of the
shareholders and optionholders of Group California and the beneficial owners of
partnership interests in LP are substantially the same.
Prior to the Restructuring, Group California owned 70% of H&Q LLC and all of
the Company's interests in its subsidiaries and affiliates, other than Guaranty
Finance, as well as certain securities held for investment; LP owned 30% of H&Q
LLC and 70% of Guaranty Finance; and Guaranty Finance was 15% owned indirectly
by Daniel H. Case III, President and Chief Executive Officer of the Company, and
15% owned indirectly by the President of the General Partner of Guaranty
Finance, who is otherwise unaffiliated with the Company.
The principal objective of the Restructuring is to eliminate the dual
ownership structure of Group California and LP in order to create a simpler
organizational structure, while retaining the tax efficiencies achieved to date
with respect to portfolio investments presently held by LP. In the
Restructuring, LP will distribute to a liquidating trust for the benefit of its
partners (i) $5.0 million in cash, (ii) an additional cash amount estimated to
be approximately $2.0 million (representing 50% of LP's profits between June 1,
1996 and the closing date of the Mergers, as defined below), and (iii) certain
securities with a book value as of June 30, 1996 of approximately $18.5 million,
including the securities to be distributed to LP from Guaranty Finance. These
securities represent investments that have a market value higher than their tax
basis and are being distributed in order to achieve the tax efficiencies
afforded by the LP partnership structure. The securities include 519,107 shares
of BISYS with a book value on June 30, 1996 of approximately $13.6 million
currently owned by LP, and other investments with a book value on such date of
approximately $4.9 million being distributed to LP by Guaranty Finance. Guaranty
Finance will also distribute to its minority equity holders securities with a
book value, as of June 30, 1996, of approximately $2.1 million. Immediately
following the LP and Guaranty Finance distributions, LP will be merged with and
into Hambrecht & Quist Group, a Delaware corporation ("Group Delaware"), and
Group California will merge with a subsidiary of Group Delaware and become a
wholly owned subsidiary of Group Delaware (the "Mergers"). Pursuant to the
Mergers, the partners of LP and the shareholders of Group California who do not
perfect their statutory dissenters' rights under the California Corporations
Code will receive 24 shares of Group Delaware Common Stock for each LP equity
ownership unit and four shares of Group Delaware Common Stock for each share of
Group California Common Stock. Such shares will be subject to the restrictions
on transfer set forth in "Shares Eligible for Future Sale." The information set
forth in this Prospectus assumes that the Mergers will become effective without
the exercise of dissenters' rights. The Mergers are intended to be non-taxable
transactions under Sections 351 and 368 of the Internal Revenue Code of 1986, as
amended. See "Risk Factors--Effects of Restructuring."
In June 1996, Group California created a trust ("Group Trust") for the
benefit of certain current and former employees and transferred its limited
partnership interest in LP to the Group Trust. Prior to the effectiveness of the
Mergers, Group California will purchase Mr. Case's interest in Guaranty Finance
at its fair market value. Mr. Case co-founded Guaranty Finance in 1983 and
purchased his interest at fair market value at the time Guaranty Finance was
initially capitalized in 1985. Subsequently, Mr. Case made additional
investments or increased his percentage ownership indirectly in Guaranty
Finance, principally by foregoing his share of a cash distribution that Group
California received from Guaranty Finance in 1992. The repurchase by Group
California of this interest will be effected in order to avoid the possibility
or appearance of a conflict of interest between Mr. Case and the Company, and to
align more directly Mr. Case's equity interests related to the Company with
those of other Company stockholders. In addition, Group California will purchase
a portion of the interest in Guaranty Finance held by the other minority
shareholder, and will sell interests in Guaranty Finance to certain Guaranty
Finance employees and to a non-officer employee of the Company who devotes
significant time to Guaranty Finance. As a result of such purchases and sales,
the Company will have an 87.5% interest in Guaranty Finance following the
Restructuring. Prior to the effectiveness of the Mergers, the Company will also
sell 12.5% of Transition Capital to certain employees and consultants of
Transition Capital and to a non-officer employee of the Company who devotes
significant time to Transition Capital. See "Certain Transactions."
The financial statements included elsewhere in this Prospectus include the
combined operations of Group California and LP. The entities are presented on a
combined basis without revaluation, as the entities have been operating under
common ownership and common management and, in fiscal 1996, will restructure
their operations to result in one surviving holding company.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby, based on an assumed initial public offering price of
$16.00 per share and after deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be approximately $51,280,000
($59,092,000 if the Underwriters' over-allotment option is exercised in full).
The proceeds will be used for general corporate purposes, including increased
levels of principal investments. Pending such use, the proceeds will be invested
in short-term securities. The Company expects that it will, from time to time,
engage in additional financings as the need arises to support the growth of the
Company's businesses. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Venture Capital and Principal Investment Activities."
DIVIDEND POLICY
The Company has not previously paid dividends on its Common Stock and has no
present intention to pay dividends in the future. The timing and amount of
future dividends, if any, will be determined by the Board and will depend, among
other factors, upon the Company's earnings, financial condition and cash
requirements at the time such payment is considered.
18
<PAGE>
CAPITALIZATION
The following table sets forth the Company's combined capitalization as of
June 30, 1996 (i) on an actual basis, giving effect to the issuance of four
shares of Group Delaware Common Stock for each share of Group California Common
Stock in the Restructuring, (ii) on a pro forma basis giving effect to all of
the transactions described under "Restructuring" and to the Tax Distribution and
(iii) on such pro forma basis, as further adjusted to reflect the receipt by the
Company of the net proceeds from the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $16.00 per share, after
deducting estimated underwriting discounts and commissions and offering expenses
and the application of the net proceeds therefrom. See "Use of Proceeds." This
table should be read in conjunction with the Combined Financial Statements--June
30, 1996 and Condensed Notes thereto, "Selected Combined Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt............................................................... $ -- $ -- $ --
---------- ---------- -----------
Stockholders' equity(1):
Preferred Stock, none authorized, actual; par value $0.01, 5,000,000 shares -- -- --
authorized, no shares issued and outstanding, pro forma and as adjusted...
Common Stock, no par value, 40,000,000 shares authorized, 16,081,168 shares 23,990 187 222
issued and outstanding, actual; par value $0.01, 100,000,000 shares
authorized, pro forma and as adjusted; 18,669,064 shares issued and
outstanding pro forma; 22,169,064 shares issued and outstanding as
adjusted..................................................................
Additional paid-in capital................................................... -- 44,814 96,059
Retained earnings............................................................ 104,469 110,724 110,724
---------- ---------- -----------
Total stockholders' equity................................................. 128,459 155,725 207,005
---------- ---------- -----------
Hambrecht & Quist, L.P. partners' capital.................................... 41,935 -- --
---------- ---------- -----------
Total long-term debt, stockholders' equity and partners' capital......... $ 170,394 $ 155,725 $ 207,005
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- ------------------------
(1) Excludes 5,697,520 shares of Common Stock issuable upon exercise of options
outstanding as of June 30, 1996 at a weighted average exercise price of
$7.15 per share, 3,000,000 shares of Common Stock reserved for issuance at
June 30, 1996 under the Company's 1996 Equity Plan and 26,140 shares of
Common Stock held by Group California. See "Management--Compensation Plans"
and Note 8 of Condensed Notes to Combined Financial Statements--June 30,
1996.
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996 was
approximately $155,725,000 or approximately $8.34 per share of Common Stock. Pro
forma net tangible book value per share represents the amount of the Company's
pro forma tangible assets, after giving effect to the Restructuring, but prior
to the sale of the shares offered hereby, less its pro forma total liabilities,
divided by the pro forma number of shares of Common Stock outstanding. After
giving effect to the sale of the 3,500,000 shares of Common Stock offered hereby
(at an assumed initial public offering price of $16.00 per share, after
deducting estimated underwriting discounts and commissions and offering
expenses), the pro forma net tangible book value of the Company as of June 30,
1996 would have been approximately $207,005,000, or approximately $9.34 per
share. This represents an immediate increase of $1.00 per share to existing
stockholders and an immediate dilution of $6.66 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<CAPTION>
Assumed initial public offering price per share(1)................ $ 16.00
<S> <C> <C>
Pro forma net tangible book value per share as of June 30,
1996........................................................... $ 8.34
Increase per share attributable to new investors................ 1.00
---------
Pro forma net tangible book value per share after the offering.... 9.34
---------
Dilution per share to new investors............................... $ 6.66
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing stockholders and by the investors purchasing shares of Common Stock
offered hereby:
<TABLE>
<CAPTION>
SHARES
PURCHASED TOTAL CONSIDERATION
------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................. 18,669,064 84.2% $ 45,001,021 44.6% $ 2.41
New investors(1).................................. 3,500,000 15.8 56,000,000 55.4 16.00
------------ ----- -------------- -----
Total........................................... 22,169,064 100.0% $ 101,001,021 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>
- ------------------------
(1) Before deducting estimated underwriting discounts and commissions and
offering expenses.
The foregoing computations exclude 5,697,520 shares of Common Stock issuable
upon exercise of options outstanding as of June 30, 1996, at a weighted average
exercise price of $7.15 per share, 3,000,000 shares of Common Stock reserved as
of June 30, 1996 for issuance under the Company's 1996 Equity Plan and 26,140
shares of Common Stock held by Group California. To the extent that any
outstanding options are exercised, there will be further dilution to new
investors. See "Management--Compensation Plans" and Note 8 of Condensed Notes to
Combined Financial Statements--June 30, 1996.
20
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The selected combined financial data set forth below include the combined
operations of Group California and LP and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements and Notes thereto included
elsewhere in this Prospectus. The combined statement of operations data for the
fiscal years ended September 30, 1993, 1994 and 1995 and the combined balance
sheet data as of September 30, 1994 and 1995 are derived from the audited
Combined Financial Statements and Notes thereto included elsewhere in this
Prospectus. The combined statement of operations data for the nine months ended
June 30, 1995 and 1996, and the combined balance sheet data as of June 30, 1996,
are derived from unaudited financial statements included elsewhere in this
Prospectus, and include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations of the Company
for such periods. The results for the year ended September 30, 1995 and the
nine-month period ended June 30, 1996 are not necessarily indicative of the
results to be expected for the entire year ending September 30, 1996 or any
future period. The combined balance sheet data as of September 30, 1991, 1992
and 1993 and the combined statement of operations data for the years ended
September 30, 1991 and 1992 have been derived from audited financial statements
of the Company which are not included in this Prospectus. The selected pro forma
combined financial data set forth below should be read in conjunction with the
Pro Forma Combined Balance Sheet as of June 30, 1996 and Notes thereto included
elsewhere in this Prospectus. The Pro Forma Combined Statements of Operations
for the year ended September 30, 1995 and the nine months ended June 30, 1996
present the results for the Company as if the Restructuring had occurred on
October 1, 1994, and are based on the historical Combined Financial Statements
after giving effect to the Restructuring. The pro forma adjustments are
described in the accompanying Notes to Pro Forma Combined Financial Statements.
21
<PAGE>
SELECTED COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
NINE MONTHS ENDED ENDED SEPTEMBER
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30, 30,
----------------------------------------------------- -------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1995 1996 1995
--------- --------- --------- --------- --------- --------- --------- ---------------
<CAPTION>
PRO FORMA(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Revenues:
Principal transactions...... $ 23,480 $ 33,438 $ 30,045 $ 36,411 $ 53,425 $ 36,316 $ 75,354 $ 53,425
Agency commissions.......... 11,135 12,557 14,221 14,242 24,603 15,911 29,094 24,603
Investment banking.......... 23,176 51,517 42,960 29,234 70,360 39,400 130,522 70,360
Corporate finance fees...... 7,409 8,371 9,993 18,561 20,709 14,530 31,947 20,709
Net investment gains........ 7,026 8,193 3,524 10,270 33,852 18,542 19,087 26,439
Other....................... 9,620 11,418 9,804 10,612 17,074 11,988 26,358 16,809
--------- --------- --------- --------- --------- --------- --------- -------
Total revenues.............. 81,846 125,494 110,547 119,330 220,023 136,687 312,362 212,345
--------- --------- --------- --------- --------- --------- --------- -------
Expenses:
Compensation and benefits... 37,424 58,044 54,917 60,175 105,370 68,750 159,738 105,370
Brokerage and clearance..... 5,611 6,184 6,892 7,367 10,441 6,678 10,017 10,441
Occupancy and equipment..... 6,003 6,040 6,045 6,679 7,803 5,511 7,146 7,803
Communications.............. 3,461 4,135 4,377 6,244 7,394 5,533 7,310 7,394
Interest.................... 303 1,141 1,464 987 1,266 727 1,041 1,266
Other(2).................... 44,382 33,226 10,256 11,315 15,131 10,790 19,717 15,131
--------- --------- --------- --------- --------- --------- --------- -------
Total expenses.............. 97,184 107,770 83,951 92,767 147,405 97,989 204,969 147,405
--------- --------- --------- --------- --------- --------- --------- -------
Minority interest(3).......... 453 794 352 526 719 454 874 300
--------- --------- --------- --------- --------- --------- --------- -------
Income (loss) before income
tax provision................ (15,791) 16,930 26,244 26,037 71,899 38,244 106,519 64,640
Income tax provision
(credit)..................... (5,878) 7,200 10,940 10,119 22,461 11,810 36,493 28,442
--------- --------- --------- --------- --------- --------- --------- -------
Net income (loss)............. $ (9,913) $ 9,730 $ 15,304 $ 15,918 $ 49,438 $ 26,434 $ 70,026 $ 36,198
--------- --------- --------- --------- --------- --------- --------- -------
--------- --------- --------- --------- --------- --------- --------- -------
Pro forma net income per
share(4)..................... $ 1.83
-------
-------
Pro forma weighted average
shares outstanding(4)........ 19,827
-------
-------
<CAPTION>
NINE MONTHS
ENDED
JUNE 30,
-------------
<S> <C>
1996
-------------
<S> <C>
COMBINED STATEMENT OF OPERATIONS
Revenues:
Principal transactions...... $ 75,354
Agency commissions.......... 29,094
Investment banking.......... 130,522
Corporate finance fees...... 31,947
Net investment gains........ 15,383
Other....................... 26,159
-------------
Total revenues.............. 308,459
-------------
Expenses:
Compensation and benefits... 159,738
Brokerage and clearance..... 10,017
Occupancy and equipment..... 7,146
Communications.............. 7,310
Interest.................... 1,041
Other(2).................... 19,717
-------------
Total expenses.............. 204,969
-------------
Minority interest(3).......... 364
-------------
Income (loss) before income
tax provision................ 103,126
Income tax provision
(credit)..................... 45,374
-------------
Net income (loss)............. $ 57,752
-------------
-------------
Pro forma net income per
share(4)..................... $ 2.78
-------------
-------------
Pro forma weighted average
shares outstanding(4)........ 20,769
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30, 1996
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30, ------------------------
----------------------------------------------------- ------------
1991 1992 1993 1994 1995 1996 ACTUAL PRO FORMA(1)
--------- --------- --------- --------- --------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Total assets.................. $ 106,314 $ 126,420 $ 131,878 $ 155,160 $ 319,630 $ 486,736 $ 486,736 $ 463,708
Debt obligations.............. 1,702 31,942 16,913 12,684 13,771 11,252 11,252 11,252
Stockholders' equity.......... 23,985 33,219 50,290 63,591 105,462 170,394 170,394 155,725
Book value per common share
outstanding.................. $ 8.34
OPERATING DATA:
Total employees(6)............ 291 327 350 426 498 617
Return on average equity...... -- 34% 37% 28% 58% 62%(7)
Compensation and benefits
expense as a percentage of
total revenues............... 46% 46% 50% 50% 48% 51%
Non-compensation and benefits
expense as a percentage of
total
revenues..................... 73% 40% 26% 27% 19% 14%
<CAPTION>
AS
ADJUSTED(1)(5)
-------------
<S> <C>
COMBINED BALANCE SHEET DATA:
Total assets.................. $ 514,988
Debt obligations.............. 11,252
Stockholders' equity.......... 207,005
Book value per common share
outstanding.................. $ 9.34
OPERATING DATA:
Total employees(6)............
Return on average equity......
Compensation and benefits
expense as a percentage of
total revenues...............
Non-compensation and benefits
expense as a percentage of
total
revenues.....................
</TABLE>
- ------------------------------
(1) Gives effect to the transactions described under "Restructuring" and to the
Tax Distribution.
(2) Includes $36.9 million in fiscal 1991 and $22.9 million in fiscal 1992 for
settlement of certain litigation relating to Miniscribe Corporation. See
"Business--Legal Proceedings."
(3) Represents the pro rata interest of owners other than the Company in the
earnings of Hambrecht & Quist Guaranty Finance.
(4) See Note 8 of Notes to Pro Forma Combined Financial Statements for a
discussion of the number of shares used in calculating pro forma net income
per share.
(5) As adjusted to reflect the sale of the shares of Common Stock offered hereby
at an assumed initial public offering price of $16.00 per share and the
application of the net proceeds therefrom. See "Use of Proceeds" and
"Capitalization"
(6) Shown at end of period.
(7) Shown on an annualized basis.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with "Selected Combined
Financial Data" and the Combined Financial Statements -- September 30, 1995 and
Notes thereto and Combined Financial Statements -- June 30, 1996 and Condensed
Notes thereto contained elsewhere in this Prospectus. In addition to historical
information, the following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from those anticipated in these forward-looking statements as a
result of certain factors, including those discussed in "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
EFFECTS OF RECENT MARKET CONDITIONS
The Company's business depends to a substantial extent on the market for
public equity offerings by emerging growth companies, particularly companies in
the technology and healthcare industries. These markets are affected by general
economic and market conditions, including fluctuations in interest rates, the
volume and price levels of securities and the flow of investor funds into and
out of equity mutual funds, and by factors that apply to particular industries,
such as technological advances and changes in the regulatory environment.
Substantial fluctuations can occur in the Company's operating results due to
these and other factors.
Market conditions for equity securities of emerging growth companies in the
technology, healthcare, business information and outsourcing services,
healthcare services and branded consumer industries were negatively affected by
the increase in interest rates during the second half of the fiscal year ended
September 30, 1994. Declining interest rates and an improving economic
environment contributed to a significant increase in activity in the equity
markets in the United States during fiscal 1995 and the nine months ended June
30, 1996. The investment climate for emerging growth company stocks,
particularly technology and healthcare stocks, was strong during these periods,
with a series of records established for the Nasdaq Composite Index and for the
Nasdaq average daily share volume. These factors, among others, resulted in
increased revenues in the Company's operations in fiscal 1995 and the first nine
months of fiscal 1996 and also contributed to improved valuations of the
Company's principal investments.
The Company's results of operations for the nine months ended June 30, 1996
were achieved during extremely favorable market conditions, which deteriorated
significantly beginning in May 1996. In recent weeks, the market for equity
securities in general, and for companies in the industries on which the Company
focuses in particular, has experienced a significant decline. For example, from
its all-time high on May 20, 1996 through July 23, 1996 the Hambrecht & Quist
Technology Index declined by 22.5%. As a result of this market decline, many
pending securities offerings have been delayed or canceled, including several
offerings which the Company was managing or co-managing. Certain offerings
completed in July 1996 have been effected at lower valuations and smaller total
dollar sizes than the price ranges indicated in the preliminary prospectuses for
these offerings.
The recent market decline and the resulting reduction in the Company's
business will cause the Company's revenues and net income in the quarter ending
September 30, 1996 to be substantially lower than its revenues and net income in
each of the first three quarters of fiscal 1996. Further, as a result of general
seasonal trends for quarters ending on September 30, the Company's fourth
quarter results are particularly dependent on revenues for the month of
September to offset typically lower revenues during the August vacation period.
Because of the volatility and uncertainties caused by present market conditions,
the Company's revenues for the month of September 1996 and the fourth quarter of
fiscal 1996 are particularly difficult to predict, and such revenues could be
even lower than present expectations if market conditions continue to
deteriorate. There can be no assurance that this market decline, or the related
adverse effect on the Company's operating results, will not continue or worsen.
23
<PAGE>
EFFECTS OF RESTRUCTURING AND TAX DISTRIBUTION
Group California succeeded in January 1983 to the business of Hambrecht &
Quist, a partnership formed in 1968. Between January 1983 and November 1993,
Group California conducted, either directly or through subsidiaries or
affiliates, all of the Company's activities. LP was formed in November 1993 for
the purpose of owning and managing investments in certain operating affiliates.
Fiscal 1994 net income reflects the tax efficiencies associated with such
reorganization. In May 1995, through a contribution of cash and securities, LP
acquired a 30% ownership interest in the Company's broker-dealer subsidiary that
was reorganized as H&Q LLC, leaving Group California with a 70% ownership
position. The Selected Combined Financial Data set forth herein includes the
combined operations of Group California and LP.
Immediately prior to the completion of this offering, the Company will
undertake the Restructuring, pursuant to which, among other things, (i) LP will
transfer $5.0 million in cash, an additional cash amount for the Tax
Distribution estimated to be approximately $2.0 million and assets whose book
value at June 30, 1996 was approximately $18.5 million to a liquidating trust
for the benefit of LP's partners, (ii) Guaranty Finance will distribute assets
whose book value at June 30, 1996 was approximately $2.1 million to its equity
owners other than LP, (iii) LP and Group California will enter into the Mergers,
pursuant to which LP will be merged into Group Delaware, Group California will
become a wholly owned subsidiary of Group Delaware, and Group Delaware will be a
holding company which beneficially owns all of Hambrecht & Quist's operations,
and (iv) the equity holders of Group California and LP will own shares of Group
Delaware Common Stock. See "Restructuring."
In addition to the Restructuring, prior to the completion of this offering,
LP will have paid to its partners approximately $800,000, which had been accrued
as of June 30, 1996 ("Tax Distribution"), in order to provide the partners with
sufficient cash to enable them to pay income taxes on partnership profits that
have been or will be allocated to the partners for income tax reporting
purposes.
The Restructuring and the Tax Distribution together will have the effect of
reducing the Company's total assets and stockholders' equity by approximately
$23.0 million and $14.7 million, respectively. The distribution of securities in
the Restructuring will not only reduce the Company's balance sheet, but also
will decrease the amount of investment assets from which the Company can expect
to generate future net investment gains or losses. In addition, the Company's
effective income tax rate following the Restructuring will increase because the
income of LP was not subject to corporate income tax.
COMPONENTS OF REVENUES AND EXPENSES
REVENUES. Principal transactions revenue includes net revenue from the
trading of securities by the Company as principal, including principal sales
credits and trading profits, and is primarily derived from the Company's
activities as a market-maker. Agency commissions revenue includes revenue
resulting from executing listed and over-the-counter transactions as agent,
including executing trades through a stock exchange. Investment banking revenue
includes the Company's underwriting revenue, composed of underwriting selling
concessions, management fees and underwriting fees. The Company believes that
revenue from principal transactions, agency commissions and investment banking
is substantially dependent on the market for public offerings of equity
securities by emerging growth companies, on the Company's ability to lead or
co-manage public offerings of the securities of such companies and on Nasdaq
trading volume and spreads in the securities of such companies.
Corporate finance fees includes the Company's merger and acquisition,
private placement and other corporate finance advisory fee revenues. Net
investment gains includes realized and unrealized gains on the Company's
long-term investment portfolio, which includes investments in publicly traded
and private companies and venture capital and public investment partnerships.
One such investment, BISYS, has had a significant effect on the Company's net
investment gains in recent years. In 1987, the Company made an investment in a
private company, Concord Holdings Corp. ("Concord"), which subsequently was
acquired by BISYS. Appreciation in the value of the Company's shares of Concord,
and subsequently in those of BISYS, resulted in pre-tax investment gains for the
Company amounting to $2.2 million, $5.5 million and $19.9 million in fiscal
1993, 1994 and 1995, respectively, and $14.7 million for the nine months ended
June 30, 1996. Approximately two-thirds of the Company's BISYS holdings will be
distributed as part of the Restructuring. Corporate finance fees and net
24
<PAGE>
investment gains or losses depend on a small number of significant transactions
and are likely to fluctuate significantly. Other revenue includes asset
management fees, profit participation distributions from managed venture
investment funds, interest and miscellaneous income.
EXPENSES. Compensation and benefits expense includes sales, trading and
incentive compensation, which are primarily variable based on revenue
production, and salaries, payroll taxes, employee benefits, temporary employee
costs and placement agency fees, which are relatively fixed in nature. Brokerage
and clearance expense includes the cost of securities clearance, floor brokerage
and exchange fees. The Company clears its securities transactions through Lewco,
which is owned by Schroder Wertheim & Co. (approximately 80%), the Company
(approximately 20%) and two other minority owners. The volume of transactions
which Lewco processes for these stockholders is generally proportional to their
ownership interests. The Company reimburses a proportionate share of Lewco's
expenses, net of certain revenues, based on the volume of the Company's
transactions which Lewco processes. Two of the Company's employees serve on
Lewco's six-member Board of Directors. As a result of its relationship with
Lewco, the Company benefits from the economies of scale provided by a large,
externally managed clearing organization. The consent of Lewco's other
stockholders is required for the Company to enter into clearing arrangements
with other broker-dealers. The master agreement relating to Lewco's clearing
arrangements terminates on September 30, 1996, although the Company anticipates
it will be renewed.
Occupancy and equipment expense includes the rent and utility charges paid
for the Company's facilities, expenditures for facilities repairs and upgrades,
and depreciation of computer, telecommunications and office equipment.
Communications expense includes charges from providers of telecommunications
services and news and market data services. Interest expense relates primarily
to bank borrowings.
Other expense includes professional services and litigation expenses, travel
and entertainment and miscellaneous expenses. Although the Company has not
experienced significant fluctuations from the settlement of lawsuits in the
ordinary course of business, a significant litigation judgment or settlement
could have a material adverse effect on the Company's operating results and
financial condition. In fiscal 1991 and 1992, the Company incurred $36.9 million
and $22.9 million, respectively, of pre-tax settlement expenses related to
litigation involving MiniScribe. Payments of the settlement accruals were made
in each fiscal year beginning in fiscal 1991 and ending in the third quarter of
fiscal 1996. As of May 31, 1996, all payments related to such litigation
settlements had been paid in full. See "Business--Legal Proceedings."
MINORITY INTEREST. Minority interest reflects the pro rata interest of the
owners other than the Company in earnings of Guaranty Finance. See
"Restructuring."
25
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
total revenues:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED SEPTEMBER
FISCAL YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30, 1995
30, ---------------
---------------------------------- ----------------------
1993 1994 1995 1995 1996 PRO FORMA(1)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Revenues:
Principal transactions................. 27.2% 30.5% 24.3% 26.6% 24.1% 25.2%
Agency commissions..................... 12.9 11.9 11.2 11.6 9.3 11.6
Investment banking..................... 38.9 24.5 32.0 28.8 41.8 33.1
Corporate finance fees................. 9.0 15.6 9.4 10.6 10.2 9.8
Net investment gains................... 3.2 8.6 15.4 13.6 6.1 12.5
Other.................................. 8.8 8.9 7.7 8.8 8.5 7.8
----- ----- ----- ----- ----- -----
Total revenues......................... 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- -----
Expenses:
Compensation and
benefits.............................. 49.7 50.4 47.9 50.3 51.1 49.6
Brokerage and clearance................ 6.2 6.2 4.7 4.9 3.2 4.9
Occupancy and
equipment............................. 5.4 5.6 3.5 4.0 2.3 3.7
Communications......................... 4.0 5.2 3.4 4.0 2.3 3.5
Interest............................... 1.3 0.9 0.6 0.5 0.3 0.6
Other.................................. 9.3 9.5 6.9 8.0 6.4 7.2
----- ----- ----- ----- ----- -----
Total expenses......................... 75.9 77.8 67.0 71.7 65.6 69.5
----- ----- ----- ----- ----- -----
Minority interest........................ 0.3 0.4 0.3 0.3 0.3 0.1
----- ----- ----- ----- ----- -----
Income before income tax provision....... 23.8 21.8 32.7 28.0 34.1 30.4
Income tax provision..................... 10.0 8.5 10.2 8.7 11.7 13.4
----- ----- ----- ----- ----- -----
Net income............................... 13.8% 13.3% 22.5% 19.3% 22.4% 17.0%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<CAPTION>
NINE MONTHS
ENDED JUNE
30, 1996
-------------
<S> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Revenues:
Principal transactions................. 24.5%
Agency commissions..................... 9.4
Investment banking..................... 42.3
Corporate finance fees................. 10.3
Net investment gains................... 5.0
Other.................................. 8.5
-----
Total revenues......................... 100.0
-----
Expenses:
Compensation and
benefits.............................. 51.8
Brokerage and clearance................ 3.2
Occupancy and
equipment............................. 2.3
Communications......................... 2.4
Interest............................... 0.3
Other.................................. 6.5
-----
Total expenses......................... 66.5
-----
Minority interest........................ 0.1
-----
Income before income tax provision....... 33.4
Income tax provision..................... 14.7
-----
Net income............................... 18.7%
-----
-----
</TABLE>
- ------------------------
(1) Gives effect to the Restructuring and the Tax Distribution. See
"Restructuring" and "--Overview."
NINE MONTHS ENDED JUNE 30, 1996 AND 1995
REVENUES. Total revenues increased 129% from $136.7 million in the 1995
fiscal period to $312.4 million in the 1996 fiscal period.
Principal transactions revenue increased 108% from $36.3 million in the 1995
fiscal period to $75.4 million in the 1996 fiscal period. This increase was due
to a significant increase in underwriting activity, resulting in substantial
after-market trading, an increase in Nasdaq market activity overall, as well as
the benefit derived from the Company's expansion of its equity sales and trading
capabilities.
Agency commissions increased 83% from $15.9 million in the 1995 fiscal
period to $29.1 million in the 1996 fiscal period. This increase was due to the
expansion of the Company's institutional listed equity business and an increase
in both the number of retail brokers in its Executive Financial Services group
and the average production of these brokers.
Investment banking revenue increased 231% from $39.4 million in the 1995
fiscal period to $130.5 million in the 1996 fiscal period, and increased as a
percentage of revenues from 28.8% to 41.8%. The Company managed or co-managed 39
public offerings during the 1995 fiscal period compared to 114 during the 1996
fiscal period.
Corporate finance fees increased 120% from $14.5 million in the 1995 fiscal
period to $31.9 million in the 1996 fiscal period. This increase was due to the
completion of several large advisory assignments during the 1996 fiscal period.
26
<PAGE>
Net investment gains for the period increased 3% from $18.5 million in the
1995 fiscal period to $19.1 million in the 1996 fiscal period. The net gains
related primarily to the Company's investment in BISYS, which accounted for
$13.1 million of total investment gains in the 1995 fiscal period and $14.7
million in the 1996 fiscal period.
Other revenue increased by 120% from $12.0 million in the 1995 fiscal period
to $26.4 million in the 1996 fiscal period. The increase was due primarily to an
increase in asset management fees, profit participation distributions from the
management of venture investments, and an increase in interest income on margin
loans outstanding.
EXPENSES. Total expenses increased 109% from $98.0 million in the 1995
fiscal period to $205.0 million for the 1996 fiscal period.
Compensation and benefits expense increased 132% from $68.8 million in the
1995 fiscal period to $159.7 million in the 1996 fiscal period. The increase was
due primarily to increased sales, trading and incentive compensation.
Compensation and benefits expense as a percentage of total revenues increased
from 50.3% to 51.1%; this change was attributable to a change in revenue mix and
the related differences in compensation payout rates for the different sources
of revenue. Average employee headcount was 443 in the 1995 fiscal period
compared to 557 in the 1996 fiscal period.
Brokerage and clearance expense increased 50% from $6.7 million in the 1995
fiscal period to $10.0 million in the 1996 fiscal period. As a percentage of
total revenues, brokerage and clearance expense decreased from 4.9% in the 1995
fiscal period to 3.2% in the 1996 fiscal period. The percentage decline was due
primarily to efficiencies experienced by Lewco.
Occupancy and equipment expense increased 30% from $5.5 million in the 1995
fiscal period to $7.1 million in the 1996 fiscal period as a result of
expenditures to repair and upgrade office facilities in San Francisco and New
York and an increase in depreciation expense due to acquisitions of computer and
telecommunications equipment.
Communications expense increased 32% from $5.5 million in the 1995 fiscal
period to $7.3 million in the 1996 fiscal period. This increase was due to
increases in telecommunications and market data expenses resulting from the
hiring of additional employees in the 1996 fiscal period.
Interest expense increased 43% from approximately $700,000 in the 1995
fiscal period to approximately $1.0 million in the 1996 fiscal period. This
increase related primarily to fluctuations in bank financing levels during the
two periods.
Other expense increased 83% from $10.8 million in the 1995 fiscal period to
$19.7 million in the 1996 fiscal period. Of this increase, $3.3 million was due
to increased accruals for professional services due to higher levels of business
activity, and the remainder was due primarily to increases in travel,
entertaining, conferences and miscellaneous expenses.
INCOME TAX PROVISION. The Company's effective income tax rate was 30.9% in
the 1995 fiscal period and increased to 34.3% in the 1996 fiscal period. The
Company's effective income tax rate in each fiscal period was less than the
combined federal and state statutory income tax rates because LP was not subject
to corporate federal or state income tax. The lower effective tax rate for the
nine months ended June 30, 1995 was due to the fact that net investment gains
were reported primarily through LP and, therefore, were not subject to corporate
income tax. The Restructuring will result in higher effective income tax rates
on the Company's future taxable income.
27
<PAGE>
FISCAL YEARS ENDED SEPTEMBER 30, 1995 AND 1994
REVENUES. Total revenues increased 84% from $119.3 million in fiscal 1994
to $220.0 million in fiscal 1995.
Principal transactions revenue increased 47% from $36.4 million in fiscal
1994 to $53.4 million in fiscal 1995. The increase was due in part to benefits
realized from investments made in prior periods in the Company's Nasdaq trading
capabilities as well as a significant improvement in market conditions during
the last six months of fiscal 1995.
Agency commissions increased 73% from $14.2 million in fiscal 1994 to $24.6
million in fiscal 1995. This increase resulted from increased market activity as
well as growth in the number of brokers in the Company's Executive Financial
Services and institutional equity businesses.
Investment banking revenue increased 141% from $29.2 million in fiscal 1994
to $70.4 million in fiscal 1995. This increase resulted from the increased level
of underwriting transactions in fiscal 1995, particularly in the technology and
healthcare industries. The Company managed or co-managed 36 public offerings in
fiscal 1994 and 71 in fiscal 1995.
Corporate finance fees increased 11% from $18.6 million in fiscal 1994 to
$20.7 million in fiscal 1995.
Net investment gains increased 229% from $10.3 million in fiscal 1994 to
$33.9 million in fiscal 1995. The Company's investment in BISYS accounted for
$5.5 million and $19.9 million of the total net investment gains in fiscal 1994
and fiscal 1995, respectively. No other single investment accounted for a
significant portion of the total gain.
Other revenue increased 61% from $10.6 million in fiscal 1994 to $17.1
million in fiscal 1995. This increase was due primarily to an increase in profit
participation distributions received from venture capital investment funds the
Company manages and higher margin interest income attributable to the
above-described expansion of the Executive Financial Services group.
EXPENSES. Total expenses increased 59% from $92.8 million in fiscal 1994 to
$147.4 million in fiscal 1995.
Compensation and benefits expense increased 75% from $60.2 million in fiscal
1994 to $105.4 million in fiscal 1995 but decreased as a percentage of total
revenues from 50.4% to 47.9%. This percentage decrease was attributable
primarily to a change in the mix of revenue in fiscal 1995, which included a
larger percentage of net investment gains with lower incremental compensation
costs. Average employee headcount was 396 in fiscal 1994 and 458 in fiscal 1995.
Brokerage and clearance expense increased 41% from $7.4 million in fiscal
1994 to $10.4 million in fiscal 1995, consistent with the increase in the
Company's brokerage business, partially offset by lower per ticket transaction
costs from economies of scale achieved by Lewco.
Occupancy and equipment expense increased 17% from $6.7 million in fiscal
1994 to $7.8 million in fiscal 1995, primarily due to a scheduled rent increase
for the Company's San Francisco office facility.
Communications expense increased 18% from $6.2 million in fiscal 1994 to
$7.4 million in fiscal 1995, due in part to increases in telephone, market
quotation and news services for new employees and an increase in
telecommunications supplies.
Interest expense increased 28% from $1.0 million in fiscal 1994 to $1.3
million in fiscal 1995, primarily due to an increase in borrowings to support
the operations of Guaranty Finance.
Other expense increased 34% from $11.3 million in fiscal 1994 to $15.1
million in fiscal 1995. Of the increase, $1.5 million was due to an increase in
the cost of the industry conferences sponsored by the Company. The balance of
the increase was primarily due to an increase in professional services resulting
from the overall increase in the Company's business activities.
INCOME TAX PROVISION. The Company's effective income tax rate was 38.9% in
fiscal 1994 and 31.2% in fiscal 1995. The Company's effective income tax rate in
each year was less than the combined federal and state statutory rate due to the
fact that H&Q LLC and LP were not subject to material federal or state income
tax. The decrease in the effective combined tax rate in fiscal 1995 was a result
of the higher percentage of the combined pretax income that was reported through
LP in fiscal 1995.
28
<PAGE>
FISCAL YEARS ENDED SEPTEMBER 30, 1994 AND 1993
REVENUES. Total revenues increased 8% from $110.5 million in fiscal 1993 to
$119.3 million in fiscal 1994. Underwriting and sales activity declined
significantly during the second half of fiscal 1994 as a result of many factors,
including rising interest rates.
Principal transactions revenue increased 21% from $30.0 million in fiscal
1993 to $36.4 million in fiscal 1994. The increase occurred primarily during the
first half of the year, prior to the aforementioned reduction in market
activity.
Agency commissions was unchanged at $14.2 million in each fiscal year. The
effect of the slowdown in market activity that occurred during the second half
of fiscal 1994 was offset in part by incremental revenue resulting from the
addition of new brokers in the Company's Executive Financial Services group.
Investment banking revenue decreased 32% from $43.0 million in fiscal 1993
to $29.2 million in fiscal 1994. This decline was due to a substantial reduction
in underwriting activity during the second half of fiscal 1994. The Company
managed or co-managed 45 public offerings during fiscal 1993 and 36 during
fiscal 1994.
Corporate finance fees increased 86% from $10.0 million in fiscal 1993 to
$18.6 million in fiscal 1994. This increase was principally the result of an
expansion in H&Q's mergers and acquisitions advisory business.
Net investment gains increased 191% from $3.5 million in fiscal 1993 to
$10.3 million in fiscal 1994. Net gains attributable to the Company's investment
in BISYS were $2.2 million and $5.5 million for fiscal 1993 and fiscal 1994,
respectively.
Other revenue increased 8% from $9.8 million in fiscal 1993 to $10.6 million
in fiscal 1994.
EXPENSES. Total expenses increased 11% from $84.0 million in fiscal 1993 to
$92.8 million in fiscal 1994.
Compensation and benefits expense increased 10% from $54.9 million in fiscal
1993 to $60.2 million in fiscal 1994. This increase was due primarily to an
increase in performance-related compensation. Compensation and benefits expense
as a percentage of total revenues increased from 49.7% to 50.4%. Average
employee headcount was 336 in fiscal 1993 and 396 in fiscal 1994.
Brokerage and clearance expense increased 7% from $6.9 million in fiscal
1993 to $7.4 million in fiscal 1994. The increase was consistent with the
increase in the Company's brokerage revenue.
Occupancy and equipment expense increased by 10% from $6.0 million in fiscal
1993 to $6.7 million in fiscal 1994. This increase reflected a small addition to
space leased in San Francisco as well as normal annual increases in occupancy
costs.
Communications expense increased by 42% from $4.4 million in fiscal 1993 to
$6.2 million in fiscal 1994. This increase was primarily due to increased
telecommunications expenditures.
Interest expense declined by 33% from $1.5 million in fiscal 1993 to $1.0
million in fiscal 1994. The decrease was due to lower interest incurred on the
principal amount of obligations incurred to settle certain MiniScribe litigation
as a result of scheduled repayments.
Other expense increased by 11% from $10.2 million in fiscal 1993 to $11.3
million in fiscal 1994. This increase was due primarily to increases in travel,
conference and professional services resulting from generally higher levels of
business activities.
INCOME TAX PROVISION. The Company's combined effective income tax rate was
41.7% for fiscal 1993 and 38.9% for fiscal 1994. The lower rate for fiscal 1994
was due to income reported by LP, an entity not subject to corporate tax, which
was formed in December 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its funding needs with its own
capital resources, consisting almost entirely of internally generated retained
earnings and, more recently, capital raised from the sale of its Common Stock to
employee shareholders. As of June 30, 1996, H&Q LLC had liquid assets consisting
primarily of cash and cash equivalents of $29.3 million and receivables of $60.3
million from Lewco, its clearing affiliate. The cash
29
<PAGE>
equivalents primarily consisted of United States Treasury bills with maturities
of 90 days or less. As of June 30, 1996, the Company had a bank line of credit
in the amount of $12.0 million, with a balance of $9.3 million outstanding and
Guaranty Finance had a bank line of credit of $15.0 million with a balance
outstanding of $2.0 million. While the Company has not required additional bank
financing during the past several years, it has in place a $20.0 million line of
credit agreement with a commercial bank. The Company's capital as of June 30,
1996 will be reduced prior to the completion of this offering by the
distribution in connection with the Tax Distribution and the Restructuring. See
"Restructuring" and "Overview."
The Company's balance sheet reflects the Company's relatively unleveraged
financial position. The ratio of assets to equity as of June 30, 1996 was
approximately 2.9:1. Upon the completion of this offering, this ratio will
decline to approximately 2.5:1. The Company's principal assets consist of
receivables from customers and Lewco, securities held for trading purposes,
short-term investments and securities held for investment purposes.
Substantially all of the Company's receivables are secured by customer
securities or security transactions in the process of settlement. Securities
held for trading purposes are actively traded and readily marketable. Short-term
investments are comprised primarily of United States Treasury securities with
maturities of less than one year. Securities held for investment purposes are
for the most part illiquid and are carried at valuations that reflect this lack
of liquidity.
H&Q LLC and RvR Securities, as broker-dealers, are registered with the SEC
and are members of the NASD and, in the case of H&Q LLC, the NYSE. As such, they
are subject to the capital requirements of these regulatory entities. Their
regulatory net capital has historically exceeded these minimum requirements. As
of June 30, 1996, H&Q LLC was required to maintain minimum regulatory net
capital in accordance with SEC rules of approximately $4.1 million and had total
regulatory net capital of approximately $40.2 million, or approximately $36.1
million in excess of its requirement. H&Q LLC's regulatory net capital is
expected to decline as a result of the Restructuring, and to increase upon the
completion of this offering. RvR Securities had total regulatory net capital of
$1.5 million and a minimum regulatory net capital requirement of $250,000. See
"Net Capital Requirements."
The Company believes that its current level of equity capital, combined with
funds anticipated to be generated from operations and the anticipated proceeds
of this offering, will be adequate to fund its operations for the foreseeable
future.
30
<PAGE>
BUSINESS
INDUSTRY BACKGROUND
During the last three decades, high-growth entrepreneurial companies have
played an increasingly important role in the United States and global economies.
These "growth companies," which are characterized by innovation and rapidly
evolving markets, have emerged in a number of industries. Technology-oriented
growth companies have evolved from a cyclical niche industry to a significant
driver of economic growth, job creation and business productivity. Healthcare
companies in the United States, while continuing to improve human health, have
responded to structural opportunities arising from the aging population and the
drive to reduce healthcare costs. Service companies have also become catalysts
for economic change as they add technology to traditional service offerings,
particularly in the healthcare, business information and outsourcing industries.
Branded consumer companies are responding to the convergence of changing
demographics, structural changes in distribution channels and the use of
information technology.
Since January 1991, publicly traded growth company securities in general,
and technology-related equity issues in particular, have generally outperformed
the broader market. For example, from January 1991 through July 23, 1996, the
H&Q Technology Index increased by 20.6% compounded annually, while the S&P 500
increased by 12.2% compounded annually. This general trend has been interrupted
from time to time by significant market declines. Recently, the H&Q Technology
Index declined by 22.5% from its all-time high on May 20, 1996 through July 23,
1996, while the S&P 500 decreased by 6.9% over the same period. During the last
five years there has also been a greatly increased inflow of funds for
investment in growth companies, which has led to increased demand by
institutional investors for investment information and analysis focused on the
growth company sector. Many of these investors believe that effective investment
participation in the rapidly changing growth company universe requires a deeper
understanding of underlying technologies, products and distribution channels
than is required to invest in more mature, less volatile or slower growing
sectors of the economy.
The unique characteristics of the growth company sector have led both growth
companies and growth-oriented investors to seek the services of investment
banking professionals with a high degree of industry knowledge and capital
market expertise. Growth companies in their early years of public trading
require a high level of research, sales and trading coverage and aftermarket
consultation from their investment bankers. In addition, as these companies
mature, the investment banks serving them must provide expert advice with
respect to strategic partnership and merger and acquisition transactions and
financing strategies. Investment banks serving growth companies must also meet
the investment needs of the entrepreneurs who manage such companies. Fund
managers and other growth-oriented investors require focused securities research
both to understand underlying technologies, products and distribution channels
for particular growth industries, and also to assist in identifying specific
growth companies that are the most likely to succeed in their respective market
segments.
HAMBRECHT & QUIST
Hambrecht & Quist is a major bracket investment bank focused on emerging
growth companies in the United States and, increasingly, worldwide. The
Company's core strength has been the early identification and sponsorship of
leading growth companies in its chosen areas of focus through analysis of
industry and technology trends. The Company leverages its industry expertise by
providing growth companies and growth investors with a full range of investment
banking and brokerage services, and by investing its own capital in emerging
growth companies.
Hambrecht & Quist was formed in 1968 to focus on the needs of emerging
growth companies and their investors. It has grown its business by expanding the
range of services it provides to growth companies and investors, by servicing
the needs of larger size companies, and by developing expertise in new
industries and markets. H&Q, from its inception, combined equity underwriting
and brokerage services for emerging growth companies with venture capital
investing. The Company has significantly expanded its underwriting capability by
increasing its corporate finance and syndicate personnel; added advisory
services in mergers, acquisitions, strategic partnerships and private
placements; and begun providing asset-based and mezzanine financing. H&Q also
has achieved a leading role in Nasdaq market-making for securities of companies
for which H&Q has served
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<PAGE>
as a managing underwriter, expanded the number of employees providing retail
brokerage services and increased its trading of NYSE-listed securities. From its
early concentration on the technology and healthcare industries, Hambrecht &
Quist has broadened its focus to encompass the branded consumer industry and
companies providing business information, outsourcing and healthcare services.
H&Q was founded with and maintains a commitment to working closely with
entrepreneurial companies and investors interested in such companies. H&Q
believes that it has developed a strong internal culture that emphasizes a
long-term investment outlook. H&Q believes that its client focus on rapidly
growing entrepreneurial companies and growth-oriented investors and its
tradition of principal investing, along with its broad internal distribution of
equity ownership, have combined to sustain this culture.
H&Q organizes its research and investment banking professionals into
industry teams. Each team, together with Hambrecht & Quist's venture capital
professionals, endeavors to develop and maintain an in-depth understanding of
the secular and cyclical trends driving that particular industry sector. In
addition, each team of professionals maintains close relationships not only with
private and public growth companies, but also with venture capital and key
institutional investors, technical experts, professional service providers and
other key industry participants. Through these relationships, H&Q gains the
opportunity to participate actively in the growth of promising entrepreneurial
companies.
Hambrecht & Quist believes that its industry focus and long-term
orientation, together with the depth of its resources committed to the growth
company sector, have made H&Q a leading provider of investment banking and
brokerage services for emerging growth companies. Hambrecht & Quist has managed
or co-managed more than 650 public offerings of equity securities for more than
440 growth companies, serving as lead manager in more than 260 of these
offerings.
STRATEGY
Hambrecht & Quist employs a research-oriented approach to building
relationships with growth companies and growth investors. The Company's overall
strategy is to continue its commitment to targeted high-growth industries and
investors in those industries by providing comprehensive research coverage, an
increasing range of investment banking and brokerage services, and investment
capital to entrepreneurial companies. The Company's strategy includes the
following key elements:
CONTINUOUSLY IDENTIFY EMERGING TRENDS AND INDUSTRIES. Hambrecht & Quist
intends to continue its tradition of identifying, in their nascent stages,
trends and industries that have the potential to become broad-based drivers
of economic growth and change. For example, H&Q was an early participant in
the personal computer, biotechnology, desktop publishing and Internet/World
Wide Web industries. H&Q supported entrepreneurial companies in these
industries with venture capital financing and research coverage early in
the industry's development. As these companies grew, H&Q managed or
co-managed their public stock offerings, including offerings by Apple,
Genentech, Adobe and Netscape, each a pioneer in its respective industry.
H&Q believes that its focus on the early identification of emerging trends
and industries provides it with a key competitive advantage.
LEAD WITH IN-DEPTH, FOCUSED INDUSTRY COVERAGE. H&Q believes that industry
specialization is crucial to meeting the demands of its clients for
sophisticated and informed investment advice. The Company organizes its
research, investment banking and venture capital activities along sharply
defined industry lines and periodically reexamines its industry categories
to ensure adequate coverage of emerging opportunities. For example, the
Company's software focus is divided into several subcategories, one of
which is enterprise software/Internet, which, in turn, has been subdivided
into client/server, productivity software, database, and Web
software/Internet segments. The Company's strategy is to continue to focus
on a limited number of high potential growth industries and the segments
within such industries.
BRING GROWTH COMPANIES TO GROWTH INVESTORS. H&Q's strategy is to add value
where growth capital and growth companies intersect. Because of its
fundamental understanding of the industries it covers and its long history
of providing services to emerging growth industries, H&Q believes it is
well-positioned to bring together growth companies and growth investors.
The Company's strategy is to maintain strong relationships with major
institutional investors in emerging growth companies. An important element
of
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<PAGE>
this strategy is the Company's sponsorship of regular conferences for
growth companies and growth-oriented investors, each focusing on a
different industry or geographic region. The Company's annual Technology
Conference and Healthcare Conference are recognized by the financial press
as leading conferences in their industries. The Company believes its
Branded Consumer, plaNET.wall.street (Internet Symposium) and other newer
conferences are gaining similar recognition in their respective areas.
ESTABLISH EARLY AND LASTING RELATIONSHIPS WITH ENTREPRENEURIAL
COMPANIES. H&Q's strategy is to build relationships with promising
entrepreneurial companies at an early stage in their development. H&Q often
establishes contact with such companies through its relationships with many
institutional venture capital investors managing large venture capital
funds. In some cases, H&Q participates directly in the growth of
entrepreneurial companies by providing venture capital, singly or alongside
other venture capital investors, or otherwise investing as a principal in
their early years. As these entrepreneurial companies grow, the Company
sustains these relationships through research coverage, equity and
convertible debt offerings, institutional and retail brokerage, Nasdaq
market-making and merger, acquisition and strategic partnering and general
corporate advice.
OFFER AN EXPANDED RANGE OF SERVICES TO CORPORATE CLIENTS. In recent years,
the Company has enhanced its equity underwriting and convertible debt
capability and its merger and acquisition advisory services while adding
new products and services, including private placement/structured finance
and a corporate services group. From January 1995 through June 1996, H&Q
increased its corporate finance personnel from 64 to 110 persons. The
Company has also added asset-based and mezzanine financing to its principal
investment activities. During this period, H&Q has increased its syndicate
personnel from seven to twelve persons, and has begun offering specialized
brokerage services to the venture capital industry. The Company's strategy
is to continue to expand the range of its investment banking services and
principal investment activities.
INCREASE DISTRIBUTION AND TRADING FOR GROWTH INVESTORS. Since January
1995, the Company has increased the number of employees in its Executive
Financial Services group from 70 to 125 persons, in domestic and
international institutional sales from 44 to 56 persons and in coverage and
position trading from 36 to 58 persons. During this period, the Company
also has increased the amount of capital available for both Nasdaq and
NYSE-listed securities trading operations. The Company intends to continue
these efforts, as well as to expand the number of research analysts and the
number of companies for which it provides research coverage.
EXPAND GLOBAL PRESENCE. H&Q's strategy is to extend its success in
financing domestic growth companies in United States capital markets to
non-U.S. companies and capital markets. In addition to its United States
underwritings of European, Israeli and Asian companies, the Company has
recently made investments in Europe through joint ventures focused on
enabling European companies to access United States capital markets, as
well as on making capital available locally to European growth companies.
H&Q also has a minority investment in Asia Pacific, which has extensive
operations providing venture capital to Asian growth companies, both as
principal and as a manager of Asian venture capital funds.
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<PAGE>
RESEARCH FOCUS
H&Q believes that industry specialization is crucial to meeting the demands
of its clients for sophisticated and informed investment and strategic advice.
The Company's approach is to serve its clients through an in-depth understanding
of sharply defined industry segments and the leading participants in those
segments. H&Q's research universe is presently divided into the industry groups
and industry segments set forth below. Rather than dedicating, for example, just
one senior analyst to cover all aspects of a broadly defined industry, the
Company dedicates focused research support to many segments within each of the
industries it serves. In certain instances an H&Q analyst provides coverage for
more than one industry segment.
HAMBRECHT & QUIST RESEARCH
[CHART]
There are four rectangular shaped boxes in the graphic.
In the upper middle part of the rectangular box at the top of the graphic is
a triangular shaped icon with the letter "T" inside with the word "Technology"
underneath. From the bottom of the icon labeled 'Technology' is a downward
vertical line which perpendicularly connects to a horizontal line from which six
short vertical lines connect to six small rectangular boxes below the horizontal
line. The small rectangular box on the far left contains the word
"Communications." The small rectangular box which is second from the left
contains the words "Distributed Systems." The small rectangular box which is
third from the left contains the words "Enterprise Software/Internet." The small
rectangular box which is third from the right contains the words "Semiconductor/
Capital Equipment." The small rectangular box which is on the far right contains
the words "Technical Systems."
From the bottom left corner of the small rectangular box containing the word
"Communications" is a downward vertical line from which five short horizontal
lines connect to five groups of words not enclosed by boxes. The first group of
words underneath the small rectangular box containing the word "Communications"
is "Internet Access." The second group of words underneath the small rectangular
box containing the word "Communications" is "Internetworking/LAN." The third
group of words underneath the small rectangular box containing the word
"Communications" is "Mobile." The fourth group of words underneath the small
rectangular box containing the word "Communications" is "Telecommunications
Equipment/WAN." The fifth group of words underneath the small rectangular box
containing the word "Communications" is "Wireless."
From the bottom left corner of the small rectangular box containing the
words "Distributed Systems" is a downward vertical line from which four short
horizontal lines connect to four groups of words not enclosed by boxes. The
first group of words underneath the small rectangular box containing the words
"Distributed Systems" is "Consumer Software & Digital Media." The second group
of words underneath the small rectangular box containing the words "Distributed
Systems" is "Internet Content." The third group of words underneath the small
rectangular box containing the words "Distribution" is "Distribution." The
fourth group of words underneath the small rectangular box containing the words
"Distributed Systems" is "PC Peripherals."
From the bottom left corner of the small rectangular box containing the word
"Enterprise Software/Internet" is a downward vertical line from which four short
horizontal lines connect to four groups of words not enclosed by boxes. The
first group of words underneath the small rectangular box containing the words
"Enterprise Software/ Internet" is "DRMS & Tools." The second group of words
underneath the small rectangular box containing the words "Enterprise
Software/Internet" is "Systems Management." The third group of words underneath
the small rectangular box containing the words "Enterprise Software/Internet" is
"Enterprise Applications." The fourth group of words underneath the small
rectangular box containing the words "Enterprise Software/Internet" is
"Productivity Software." The fifth group of words underneath the small
rectangular box containing the words "Enterprise Software/Internet" is "Web
Software."
From the bottom left corner of the small rectangular box containing the word
"Special Situations" is a downward vertical line from which two short horizontal
lines connect to two groups of words not enclosed by boxes. The first group of
words underneath the small rectangular box containing the words "Special
Situations" is "Imaging." The second group of words underneath the small
rectangular box containing the words "Special Situations" is "Services."
From the bottom left corner of the small rectangular box containing the
words "Technical Systems" is a downward vertical line from which three short
horizontal lines connect to three groups of words not enclosed by boxes. The
first group of words underneath the small rectangular box containing the words
"Technical Systems" is "Design Automation." The second group of words underneath
the small rectangular box containing the words "Technical Systems" is "Embedded
Control." The third group of words underneath the small rectangular box
containing the words "Technical Systems" is "Technical Software."
In the upper middle part of the rectangular box in the middle of the graphic
is a cross shaped icon containing a serpent wrapped around a barbed staff
representing a Caduceus with the words "Healthcare" underneath. From the bottom
of the icon labeled "Healthcare" is a downward vertical line which
perpendicularly connects to a horizontal line from which four short vertical
lines connect to four small rectangular boxes below the horizontal line. The
small rectangular box on the far left contains the word "Biotechnology." The
small rectangular box which is second from the left contains the words "Emerging
Pharmaceuticals/Drug Delivery." The small rectangular box which is second from
the right contains the words "Medical Devices." The small rectangular box which
is on the far right contains the words "Healthcare Services."
From the bottom left corner of the small rectangular box containing the
words, "Medical Devices" is a downward vertical line from which four short
horizontal lines connect to four groups of words not enclosed by boxes. The
first group of words underneath the small rectangular box containing the words
"Medical Devices" is "Cardiovascular." The second group of words underneath the
small rectangular box containing the words "Medical Devices" is "Orthopedics."
The third group of words underneath the small rectangular box containing the
words "Medical Devices" is "Urology." The fourth group of words underneath the
small rectangular box containing the words "Medical Devices" is "Women's
Health."
From the bottom left corner of the small rectangular box containing the
words "Healthcare Services" is a downward vertical line from which four short
horizontal lines connect to four groups of words not enclosed by boxes. The
first group of words underneath the small rectangular box containing the words
"Healthcare Services" is "CROS." The second group of words underneath the small
rectangular box containing the words "Healthcare Services" is "HMO." The third
group of words underneath the small rectangular box containing the words "Health
Care Services" is "Physician Network Management." The fourth group of words
underneath the small rectangular box containing the words "Healthcare Services"
is "Subacute."
In the upper middle part of the rectangular box in the bottom left of the
graphic is a square containing the words 'New logo to come. Below the square are
the words "Information Services.' Under the words "Information Services' is a
horizontal line from which connect four short vertical lines connecting to four
small rectangular boxes. The small rectangular box on the far left left contains
the words "Financial Services" The small rectangular box which is second from
the left contains the words "Healthcare Information Services." The small
rectangular box which is second from the right contains the words "Business
Services." The small rectangular box which is on the far right contains the
words "Special Situations."
From the bottom left corner of the small rectangular box containing the
words "Financial Services" is a downward vertical line from which two short
horizontal lines connect to two groups of words not enclosed by boxes. The first
group of words underneath the small rectangular box containing the words
"Financial Services" is "Internet." The second group of words underneath the
small rectangular box containing the words "Financial Services" is "Transaction
Processors."
In the upper middle part of the rectangular box in the bottom right of the
graphic is a square containing the words 'New logo to come.' There is a downward
vertical line from which four short horizontal lines connect to four groups of
words not enclosed by boxes. The first group of words underneath the small
rectangular box containing the words "New logo to come" is "Food and Beverage."
The second group of words beneath the small rectangular box containing the words
"New logo to come" is "Specialty Apparel." The third group of words beneath the
small rectangular box containing the words "New logo to come" is "Sports &
Leisure." The fourth group of words underneath the small rectangular box
containing the words "New logo to come" is "Services."
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In order to achieve this depth and specialization, the Company typically
recruits or trains analysts with significant industry and technical expertise,
in addition to financial services expertise. H&Q believes this specialized
approach enables it to generate analytical research that enhances the quality of
investment decisions in the fast-changing and technologically sophisticated
industries it covers.
H&Q's research analysts cover over 300 publicly traded companies. The
Company's analysts also periodically publish comprehensive studies of an
industry or a long-term investment theme. In addition to written publications,
the Company's analysts play a prominent role at the Company's investor
conferences by presenting summaries of key industry trends.
The Company's research analysts work closely with its investment banking and
venture capital professionals to identify promising privately held companies.
H&Q believes that early contacts with private companies are important not only
to develop its underwriting and principal transactions activities, but also to
achieve and maintain an understanding of the rapidly evolving growth industries
on which the Company focuses. The research analysts also, from time to time,
assist in screening and/or evaluating proposed principal investments for the
Company's venture capital and investment banking professionals. In addition,
H&Q's research analysts work closely with sales and trading professionals to
enhance the access of the Company's institutional investor clients to up-to-date
industry analysis.
H&Q has been recognized for its success in bringing together leading growth
companies and growth investors at the annual conferences it sponsors. Each
conference focuses on a different growth industry or geographic region. Since
October 1995, H&Q has sponsored the following investment conferences:
<TABLE>
<CAPTION>
HAMBRECHT & QUIST CONFERENCE DATE LOCATION
- ------------------------------------------------ ------------- --------------
<S> <C> <C>
plaNET.wall.street (Internet Symposium) October 1995 New York
Healthcare Conference January 1996 San Francisco
European Growth Company Conference February 1996 Paris
Interactive Entertainment Conference March 1996 Snowbird, Utah
Technology Conference April 1996 San Francisco
and plaNET.wall.street West
Investing in Life Sciences May 1996 London
Branded Consumer Growth Company Conference June 1996 Napa Valley
Annual Private Equity CFO Conference June 1996 San Francisco
</TABLE>
More than 675 public and private companies made presentations to investment
professionals, venture capitalists and other participants in the securities and
emerging growth company industries at the most recent sessions of the Company's
annual conferences. The Hambrecht & Quist Technology Conference, which held its
24th annual session in 1996, was the first annual investment conference focusing
exclusively on emerging growth companies in the technology sector. For 14 years,
the Company's annual Healthcare Conference has provided a forum for companies in
the healthcare industry to give presentations to growth investors, and was the
first conference of its kind. Since 1993, Hambrecht & Quist has sponsored an
annual conference focused on emerging branded consumer product companies. In
October 1995, H&Q sponsored the first major investment conference dedicated
solely to Internet-related companies, and held a follow-up conference in 1996.
To facilitate the analysis of long-term trends, the Company has developed
the H&Q Technology Index, the H&Q Growth Index and nine sector indices,
including the H&Q Branded Consumer Growth Index and the H&Q Internet Index. A
number of these indices are regularly cited in the media. These indices serve as
a tool for comparing certain industry groups with one another, with the
marketplace as a whole, and with the overall economy. Many growth companies use
the H&Q indices to compare their stock price performance with other companies,
for example, in annual proxy statements.
35
<PAGE>
INVESTMENT BANKING
H&Q is a major bracket underwriter dedicated to raising equity capital for,
and providing financial advice to, emerging growth companies within its areas of
focus throughout the United States and, increasingly, abroad. The securities
industry refers to an investment banking firm as a "major bracket" underwriter
if that firm receives a significant proportion of the underwriting syndicate
allocations when participating in public offerings managed by other investment
banks. Hambrecht & Quist provides its corporate clients with a broad range of
services, principally involving public offerings of equity and convertible debt
securities, private placements of equity securities, and advice in merger,
acquisition and strategic partnering transactions, as well as after-market
services and support.
H&Q's investment banking professionals focus their activities along the same
industry lines as the Company's research analysts. The Company believes that by
developing an in-depth understanding of the industries they serve, these
investment banking professionals enhance their ability to advise issuers with
respect to strategic and financing options.
The following table shows the distribution of the number of public offering
transactions managed or co-managed by H&Q since 1991 among the different
industries which the Company serves.
HAMBRECHT & QUIST'S MANAGED OR CO-MANAGED PUBLIC EQUITY OFFERINGS
JANUARY 1991 THROUGH JUNE 1996
[PIE CHART]
A pie chart representing Hambrecht & Quist Public Equity Offerings from
January 1991 through March 1996 is divided into four segments. The largest
segment represents "Technology" which accounts for 51% of the pie chart. The
second largest segment represents "Healthcare" which accounts for 33% of the pie
chart. The third largest segment represents "Services" which accounts for 12% of
the pie chart. The smallest segment represents "Branded Consumer" which accounts
for 4% of the pie chart.
DOMESTIC UNDERWRITING
H&Q is a leading underwriter of public offerings of equity securities for
emerging growth companies, based on the number of transactions completed since
January 1991 in which H&Q served as a managing or co-managing underwriter.
Between January 1991 and June 1996, the Company lead managed 170 offerings and
co-managed 165 offerings of equity and convertible debt securities by over 250
companies that raised an aggregate of over $17.9 billion. Of this amount,
approximately $10.2 billion was raised during the period from January 1995
through June 1996.
H&Q concentrates its domestic underwriting efforts in high-growth industry
sectors where the Company believes it has a relative competitive advantage due
to its investment banking relationships and its research, trading and
distribution capabilities. Within its selected industries, the Company
concentrates on emerging companies that it believes have the potential to become
industry leaders. H&Q believes that, based on the number of transactions
completed since January 1991 in which H&Q served as a managing or co-managing
underwriter, it is among the leading underwriters of software, communications
and biotechnology company securities, and has
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<PAGE>
established a strong record underwriting securities of computer hardware,
semiconductor, Internet, business information and outsourcing services and
healthcare services companies. The Company is also seeking to develop a strong
position as a managing underwriter of securities offerings by branded consumer
companies.
As a result of the high proportion of venture capital invested in emerging
growth companies in California and Massachusetts, H&Q's underwriting clients
have to date been concentrated in these states. Approximately 49% of the
companies for which H&Q served as manager or co-manager of a securities offering
between January 1994 and June 1996 had principal offices located in California,
and approximately 12% of these companies had principal offices located in
Massachusetts.
H&Q's strategy is to maintain long-term relationships with its corporate
clients by serving their capital raising needs beyond their initial public
offerings of securities. H&Q also seeks to increase its base of publicly held
clients by serving as a manager or co-manager in follow-on offerings for
companies that H&Q believes have attractive investment characteristics, whether
or not H&Q participated as a manager or co-manager in the initial public
offering of securities for such companies. The Company believes it has been
successful in retaining clients and obtaining new clients, based on the 57
transactions in which it has been retained or added as manager or co-manager of
follow-on offerings, in contrast to the 21 transactions in which competitors
replaced the Company in these roles.
The average size of the Company's managed or co-managed underwriting
transactions has increased from approximately $40.0 million in calendar 1991 to
approximately $60.0 million in calendar 1995. The Company has increased the
number of its managed or co-managed underwriting transactions above $50.0
million from 10 in calendar 1991 to 38 in calendar 1995 and 35 in the first six
months of calendar 1996. In calendar 1995, H&Q served as a manager or co-manager
of 12 underwriting transactions above $100 million.
The following table sets forth the distribution among industries, on a
calendar year basis, of public offerings completed between January 1991 and June
1996 in which the Company acted as manager or co-manager. Italicized data
indicates the number of transactions in which the Company served as lead
manager.
HAMBRECHT & QUIST'S MANAGED OR CO-MANAGED PUBLIC EQUITY OFFERINGS BY INDUSTRY
JANUARY 1991 THROUGH JUNE 1996
<TABLE>
<CAPTION>
NUMBER OF TRANSACTIONS COMPLETED
(NUMBER OF LEAD MANAGED TRANSACTIONS)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
INDUSTRY 1991 1992 1993 1994
- ---------------------------------------- ------- ------- ------- -------
Technology.............................. 15 (7) 13 (8) 22 (10) 19 (14)
Healthcare.............................. 21 (9) 19 (5) 20 (11) 11 (4)
Services................................ 6 (2) 6 (5) 3 (3) 4 (3)
Branded Consumer........................ -- (-) 1 (-) 2 (-) 3 (2)
- --- - --- - --- - ---
Total............................... 42 (18) 39 (18) 47 (24) 37 (23)
- --- - --- - --- - ---
- --- - --- - --- - ---
<CAPTION>
<S> <C> <C> <C> <C>
SIX MONTHS ENDED
JUNE 30,
INDUSTRY 1995 1996
- ---------------------------------------- ------- -----------
Technology.............................. 59 (32) 37 (19)
Healthcare.............................. 16 (11) 19 (6)
Services................................ 9 (5) 12 (5)
Branded Consumer........................ 6 (3) 1 (-)
- --- - ---
Total............................... 90 (51) 69 (30)
- --- - ---
- --- - ---
</TABLE>
H&Q has recently increased its expertise in providing private and public
offerings of convertible debt securities. Since January 1995, Hambrecht & Quist
has completed six convertible debt transactions (which are excluded from the
data above) involving an aggregate of $877.1 million in securities. To date,
underwriting revenues from convertible debt securities transactions have
comprised less than 5% of the Company's total revenues. To the extent that
interest rates and other market conditions are favorable, the Company expects
convertible debt securities to be a growing part of its underwriting business in
the future as its newly public corporate clients develop in size and begin to
leverage their balance sheets.
RvR Securities offers equity underwriting services to companies with smaller
capitalizations than H&Q LLC's typical underwriting clients. Since December
1993, RvR Securities has completed five underwriting transactions. These
transactions were all initial public offerings, ranging in size from $4.2
million to $14.4 million.
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The issuers were three technology companies, a branded consumer company and a
passenger airline company. Two of these companies subsequently became
underwriting clients of H&Q LLC. With respect to each of the five companies, RvR
Securities and/or H&Q LLC acted as a market-maker. RvR Securities does not
currently engage in any market-making activities. While RvR Securities' revenues
to date have not been material to the Company, RvR Securities enables H&Q to
provide a valuable service to these smaller capitalization growth companies and
to maintain a relationship that enhances opportunities for H&Q LLC to provide
underwriting and advisory services in the future.
Hambrecht & Quist provides after-market support to its underwriting clients
through the supply of information concerning institutional holdings within the
issuer's shareholder base, as well as data concerning the market performance of
the corporate client's stock, as well as other stocks in the issuer's industry.
The Company's Corporate Services group identifies and accesses relevant
research, company news, market trends, institutional ownership data, trading
activity and performance reporting, and arranges meetings with institutional
shareholders to assist newly public companies in developing their investor
relations efforts.
INTERNATIONAL ACTIVITIES
H&Q is actively developing its international investment banking business
both by assisting non-U.S. companies in raising capital in the United States and
by improving access to local capital for growth companies in other countries.
While revenues from international underwriting activities have grown as a
percentage of the Company's total revenues, during the 18-month period ended
June 30, 1996, these revenues comprised less than 5% of the Company's total
revenues.
The Company believes it has established itself in underwriting transactions
for European growth companies that seek to issue shares on Nasdaq. In the
18-month period from January 1995 through June 1996, the Company managed or
co-managed 15 equity offerings for non-U.S. companies, raising a total of $965.4
million. These transactions included six initial public offerings and two
follow-on public offerings on Nasdaq for European growth companies, and three
initial public offerings and two follow-on public offerings on Nasdaq for
Israeli growth companies. This level of underwriting activity for non-U.S.
companies represents a significant increase from the seven equity offerings,
raising a total of $215 million, in which the Company served as a manager or
co-manager during the four-year period from January 1991 through December 1994.
Hambrecht & Quist has developed strategic relationships with local financial
institutions in Europe in order to build relationships with leading European
growth companies and with the financial communities which serve these companies.
These relationships are also intended to develop H&Q's European investment
banking presence in anticipation of the launch of the EASDAQ market, currently
expected to occur in late 1996. EASDAQ's charter is to serve as a Nasdaq-type
stock market for emerging growth companies in Europe. H&Q is a charter member of
the European Association of Securities Dealers and a founding investor in
EASDAQ.
In January 1996, Hambrecht & Quist announced the formation of a 50%-owned
joint venture with Financiere Saint Dominique, a leading private equity investor
in France. The joint venture, Hambrecht & Quist Saint Dominique ("Saint
Dominique"), will be an underwriter and market-maker on the EASDAQ market, as
well as le Nouveau Marche, a Paris-based stock market for emerging growth
companies that was launched in February 1996. Saint Dominique has completed two
initial public offerings on le Nouveau Marche.
In the United Kingdom, H&Q holds a minority equity position in Beeson
Gregory, a London-based brokerage firm and financial advisor specializing in
growth companies. In addition, the Company recently opened a London
institutional sales office.
The Company's strategy in Asian markets has been to focus initially on
venture capital investments in promising growth companies through H&Q's minority
investment in Asia Pacific. H&Q believes that this strategy will enable the
Company to develop and maintain relationships with growth companies in the
region.
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The following table lists companies for which Hambrecht & Quist managed or
co-managed public offerings of equity or convertible debt securities completed
during the period from the beginning of fiscal 1996 (October 1, 1995) through
June 30, 1996:
HAMBRECHT & QUIST'S RECENT UNDERWRITING CLIENTS
OCTOBER 1995 THROUGH JUNE 1996
ACT Networks
Advent Software
Affiliated Computer Services
Alpha-Beta Technology
AMISYS Managed Care Systems
Applied Microsystems
Arbor Software
Arris Pharmaceuticals
ASE Test
Biochem Pharma
Biofield
Boston Beer
BroadVision
Centocor
Central Garden & Pet
Check Point Software
Citrix Systems
CompuCom Systems
Computervision
CSG Systems International
CyberCash
Data Translation
Dendrite International
Digital Generation Systems
Dura Pharmaceuticals
Edify
Elantec
Endo Vascular Technologies
ESS Technology
Farallon Communications
Forte Software
FPA Medical Management
GelTex Pharmaceuticals
Gemstar International Group
Genset
Gensym
GeoWorks
Gilead Sciences
GT Interactive Software
Guilford Pharmaceuticals
Gynecare
HCIA
Home Health Corp. of America
Houghten Pharmaceuticals
HPR
i2 Technologies
Incyte Pharmaceuticals
Individual
Infonautics
Innotech
Integrated Systems
Intevac
Iomega
Isocor
JDA Software
Jones Medical Industries
Lernout & Hauspie
Logic Works
Lumisys
Lycos
M.A.I.D.
Macronix International
Meridian Data
MetaTools
Metra Biosystems
Microware Systems
Oacis Healthcare Holdings
Optical Sensors
OrthoLogic
PC DOCS Group International
Photon Dynamics
Pixar
PLATINUM technology
Prism Solutions
Profit Recovery Group
Red Brick Systems
Renaissance Solutions
SangStat Medical
Saville Systems
Sawtek
Seattle Filmworks
Sequana Therapeutics
Siebel Systems
Sierra Semiconductor
Silicon Storage Technology
Silicon Valley Research
Sipex
Solectron
Sonus Pharmaceuticals
SpectraLink
SS&C Technologies
Starbucks
Tecnomatix Technologies
Telxon
Triple P
Verilink
Verity
Vincam Group
VocalTec
Xilinx
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MERGER AND ACQUISITION ADVISORY SERVICES
Hambrecht & Quist offers a broad range of merger and acquisition ("M&A")
advisory services to growth companies. The Company markets its M&A advisory
services both to H&Q's existing base of corporate clients and to other companies
that can benefit from the Company's expertise. The Company offers advisory
services with respect to purchases and sales of businesses; strategic and
cross-border partnerships; divestitures and corporate restructurings; hostile
takeover defense strategies; fairness opinions in acquisition, investment and
defensive transactions; and valuations of businesses and technology assets. From
January 1991 through June 1996, the Company provided M&A services in over 100
assignments representing approximately $8.7 billion of completed transactions.
Approximately one-half of these assignments were for companies whose first
transaction with H&Q was an M&A advisory assignment.
The Company's M&A expertise has been developed over the years and has been
supported by the close involvement of professionals from the industry groups in
both investment banking and research. The Company believes that early
identification of emerging industry and technical trends, together with focused
industry research coverage, enhances the effectiveness of its M&A professionals'
strategic and valuation advice. H&Q's M&A professionals combine industry,
technology, legal and accounting expertise with substantial transactional
experience. The group's success is reflected in the growth in the volume of
completed M&A transactions in which H&Q has provided advice to emerging growth
companies:
HAMBRECHT & QUIST'S MERGER AND ACQUISITION ADVISORY ASSIGNMENTS
JANUARY 1991 THROUGH JUNE 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
----------------------------------------------------- ENDED JUNE
1991 1992 1993 1994 1995 30, 1996
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Number of Completed Assignments........... 11 8 11 24 30 19
Aggregate Transaction Value $ 289 $ 174 $ 377 $ 2,028 $ 3,723 $ 2,119
(in millions)............................
</TABLE>
PRIVATE PLACEMENTS AND STRUCTURED FINANCE
H&Q formalized its private placement capabilities in 1991 with the creation
of a group which focuses on acting as placement agent in private securities
transactions. H&Q assists in the placement of these securities for a fee, but
without underwriting the offered securities. Acting as placement agent generally
entails advising the issuer regarding the structure and other aspects of the
financing, assisting in the preparation of appropriate disclosure documents and
soliciting prospective qualified investors. The private placement/structured
finance group places equity and fixed income securities with institutional
investors, private capital funds, strategic corporate investors and
sophisticated, high net worth individuals. Since 1991, the group has completed
over 35 private placement transactions, raising over $700 million for growth
companies, with 19 of these transactions completed since January 1995. This
group often serves corporate clients in their early stages and, as these
entrepreneurial companies grow, H&Q seeks to sustain the relationship and
provide other services. The group also assists publicly traded corporate clients
that undertake convertible debt financings or conduct private offerings of
registered and unregistered securities.
SALES, TRADING AND SYNDICATE
H&Q provides a broad range of sales and trading services to investors and
holds a leading position as a market-maker for the equity securities of emerging
growth companies for which H&Q has served as a managing or co-managing
underwriter. The Company leverages its research capability by identifying
companies that it believes have the potential to become leaders in their
respective industries and attempting to become a leading market-maker in the
shares of those companies, often taking large positions to satisfy the needs of
institutional clients for a liquid market in this group of companies.
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INSTITUTIONAL SALES AND TRADING
At June 30, 1996, H&Q had 32 institutional sales professionals covering
growth-oriented investors in many countries, primarily in North America, Western
Europe and Japan. H&Q's focus on growth industries enables its sales and trading
organization to develop an in-depth understanding of these sectors and companies
and to better serve its investor clients. The Company's institutional sales
activities are conducted from its offices in San Francisco, New York, Boston,
San Diego and London.
At June 30, 1996, H&Q had 17 trading professionals involved in market making
in both Nasdaq and exchange-listed securities. The most significant portion of
the Company's institutional revenues arises from trading in Nasdaq-listed
securities. At June 30, 1996, H&Q made a market in over 320 Nasdaq stocks.
During the period from January 1991 through June 1996, H&Q was one of the top
three market makers in over 65% of the Nasdaq-listed equity securities issued by
companies for which H&Q served as a manager or co-manager in a public offering.
Additionally, at June 30, 1996 H&Q had 25 coverage traders, servicing the
trading desks of major institutions worldwide. Orders are executed daily as
principal or agent in both the listed and Nasdaq markets for equities,
convertible and non-convertible debt, including municipal bonds, options and
other derivative securities. The Company's trading activities are conducted from
its offices in San Francisco, New York and Boston. Hambrecht & Quist clears its
trading transactions through Lewco.
EXECUTIVE FINANCIAL SERVICES
Since its founding in 1968, H&Q has provided retail brokerage services to
individual investors and small institutions interested in emerging growth
company securities. In 1994, this business unit was renamed Executive Financial
Services ("EFS") and its strategies were realigned in an effort to grow the
business. This strategic realignment entailed: (i) increasing the focus of this
business on broadening the range and depth of services provided to executives of
growth companies; (ii) providing appropriate services to all employees of this
client base, rather than only the top executives; (iii) attracting new high net
worth investors to H&Q by providing differentiated investment ideas and services
and (iv) recruiting and retaining additional experienced and productive brokers
to serve high net worth individuals.
The EFS group operates out of the Company's San Francisco, New York and
Boston offices. In addition to handling Nasdaq and exchange-listed brokerage
transactions, EFS brokers provide other services, including sales of restricted
securities, fixed income investments and consulting for options, hedging, the
selection of outside money managers, mutual funds and cash management. At June
30, 1996, the EFS group included 75 retail brokers.
VENTURE SERVICES
H&Q provides specialized services to the general and limited partners of
venture capital and buyout funds, corporate development functions within large
corporations and certain high net worth individuals who participate actively in
venture capital investments. These services include the sale of restricted
securities, management of in-kind stock distributions by venture capital funds
to their investors, sales of shelf-registered securities, private placements and
acquisition or sale of large equity positions. The Company also provides venture
capitalists with timely information concerning the publicly traded shares
included in venture capital investment portfolios. This group was established in
1994 as a separate department within H&Q in recognition of the strategic role
played by venture capital investors in H&Q's areas of focus and in establishing
and developing a close relationship between the Company and the companies in
which venture capitalists hold equity positions.
SYNDICATE
The Company participates in public offerings of securities either by acting
as manager or co-manager of an underwriting syndicate, or by acting as a member
of an underwriting syndicate managed by other investment banks. In both cases,
the Company risks its capital through its participation in a commitment to
purchase securities from an issuer and to resell them to the public. The
Company's syndicate activities include managing the marketing and book-building
process of underwritten transactions the Company is managing, participating in
discussions leading to the offering price of securities and the supervision of
initial market-making for lead-managed deals. The Syndicate department is also
responsible for developing and maintaining relationships with
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the syndicate departments of other investment banks. At June 30, 1996, the
Syndicate department was comprised of 12 employees, including two senior
managers who have an aggregate of over 50 years of experience in the securities
industry.
VENTURE CAPITAL AND PRINCIPAL INVESTMENT ACTIVITIES
From the Company's inception, venture capital investing has been an
important component of H&Q's strategy of identifying and building early
relationships with promising emerging growth companies. H&Q currently conducts a
broad range of venture capital and principal investment activities. H&Q intends
to increase the range and size of these activities.
INSTITUTIONAL VENTURE FUND MANAGEMENT
Hambrecht & Quist raised its first venture capital fund shortly after the
Company was founded. The institutional venture fund management business grew
substantially, and by the mid-1980s the Company, principally through affiliated
venture capital management partnerships, managed over $600.0 million in venture
capital assets. Each institutional fund was structured so that the Company
received management fees and a participation in any net profits of the fund.
In the late 1980s, the Company determined that its domestic venture
activities would be most effectively carried out through a strategy of making
fewer and smaller venture capital investments and more direct Company
participation in these investments. Since then, the Company has reduced the
number of investment professionals in its venture capital department.
Substantial assets and funds have been distributed as the previously raised
funds have matured, and assets under management by the venture capital group
currently amount to over $200.0 million.
SOLE PURPOSE VENTURE CAPITAL PARTNERSHIPS AND DIRECT STRATEGIC INVESTMENTS
Since 1992, the Company has made venture capital and mezzanine investments
by means of limited partnerships that are each formed for the sole purpose of
enabling the Company, its senior employees and others to invest in a specific
private company. The Company receives no management fees in connection with such
investments, but it participates in any profits of the partnerships. Certain of
the Company's professionals share in the profit participation of each
partnership based on their specific contribution to identifying, structuring and
managing the partnership's investment. In fiscal 1994 and 1995 and the nine
months ended June 30, 1996, approximately $15.4 million, $14.0 million and $14.0
million, respectively, was invested in such partnerships, of which $2.1 million,
$2.6 million and $2.7 million, respectively, was invested by the Company.
Since the mid-1980s, the Company has, from time to time, invested solely for
its own account in private companies that offer a strategic and financial
opportunity. The Company in recent years has also invested capital and obtained
minority, non-controlling interests in a number of complementary
asset-management organizations, including De Santis Capital Management, L.P., a
registered investment adviser.
STRATEGIC AND SPECIALTY FUNDS
ASIA PACIFIC. Asia Pacific was established in 1985 to provide financial
advisory and fund management services to investors and entrepreneurs throughout
the Asia Pacific region. As of June 30, 1996, Asia Pacific's operations were
among the largest of venture capital firms in the region, with 29 professionals
in seven countries. At such date, Asia Pacific managed 11 funds with a combined
total of approximately $445.0 million in committed capital. Of this amount,
$258.0 million had been invested in over 150 companies located in Asia,
including $8.5 million in ten companies located in the United States with
operations in Asia. Seven of these funds, totaling $198.0 million in committed
capital, are generally available for investment only in one specific country,
and four of these funds, totaling $246.1 million in committed capital, may be
invested in companies located in any one of a number of countries in a specified
region.
Hambrecht & Quist holds a minority interest in Asia Pacific's management
entity, with the majority interest held by Asia Pacific's management team. H&Q
also is entitled to certain participations in the profits of existing and future
Asia Pacific funds.
HAMBRECHT & QUIST CAPITAL MANAGEMENT. In 1987, the Company formed Hambrecht
& Quist Capital Management Incorporated ("Capital Management") to make and
manage investments in publicly traded and
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privately held companies principally engaged in the development, production or
distribution of products or services generally related to scientific advances in
healthcare, agriculture and environmental management. Capital Management manages
two publicly traded closed-end mutual funds: H&Q Healthcare Investors (NYSE:HQH)
and H&Q Life Sciences Investors (NYSE:HQL). At June 30, 1996, these funds had
combined net assets of approximately $276.0 million, of which approximately 32%
was comprised of venture capital and other investments subject to resale
restrictions. Capital Management is compensated solely on the basis of
management fees as a percentage of assets under management. Capital Management
is wholly owned by H&Q.
ADOBE VENTURES, L.P. In 1994, Hambrecht & Quist formed a limited
partnership with Adobe Systems Incorporated ("Adobe") that invests in companies,
products or technologies strategic to Adobe's interests. Adobe has committed
approximately $40.0 million in capital to date. The Company receives an annual
management fee based on assets under management and participates in any profits
of the partnership. Certain of the Company's venture capital professionals share
in the profit participation. At June 30, 1996, this fund had invested an
aggregate of approximately $26.0 million in 13 companies.
TI VENTURES L.P. In June 1996, Hambrecht & Quist formed a limited
partnership with Texas Instruments Incorporated ("TI") for the purpose of
investing in companies that operate in the field of digital communications, with
an emphasis on applications and markets requiring integrated technology, such as
digital video. TI has committed $30.0 million of capital to the partnership. The
Company will receive an annual management fee based on assets under management
and will participate in any profits of the partnership.
ASSET-BASED FINANCING AND MEZZANINE INVESTMENTS
HAMBRECHT & QUIST GUARANTY FINANCE. In 1983, the Company established the
entity that became Guaranty Finance to provide equipment leasing to emerging
technology companies. Today, Guaranty Finance provides secured, asset-based
financings that include tenant improvement and real estate leases, equipment
leases, accounts receivable and inventory financing and loan guarantees for
private and public emerging technology, biotechnology and healthcare companies.
Guaranty Finance provides financing that generally would not otherwise be
commercially available to emerging growth companies because they are perceived
as too risky, or because the financing is too customized in nature, to be
attractive to conventional sources of financing. In addition to receiving
payments on loans and leases, Guaranty Finance has the opportunity to purchase
warrants for structuring and providing the funding or for guaranteeing the
repayment of funds provided by a bank or other financial institution. As of June
30, 1996, Guaranty Finance had provided a total of $79.4 million of financing to
37 client companies in 59 transactions. Guaranty Finance's current portfolio of
financings aggregated approximately $18.9 million at June 30, 1996. After the
Restructuring, Hambrecht & Quist Group will own 87.5% of Guaranty Finance, with
the balance owned by Guaranty Finance's senior management and employees,
together with one non-officer employee of the Company who devotes significant
time to Guaranty Finance.
HAMBRECHT & QUIST TRANSITION CAPITAL. The Company recently formed
Transition Capital to provide bridge loans and mezzanine financings for emerging
growth companies. Transition Capital's investments will consist of secured and
unsecured debt with equity participation. The term of the loans will typically
be less than three years, and Transition Capital seeks to obtain financial
returns through interest income, fees and the receipt of warrants, rights to
convert loans into equity, or the right to share in profits. Transition
Capital's activities have not been significant, with only one financing, in the
amount of $3.8 million, completed through June 30, 1996. After the
Restructuring, Hambrecht & Quist Group will own 87.5% of Transition Capital,
with the balance owned by Transition Capital's senior management and employees,
together with one non-officer employee of the Company who devotes significant
time to Transition Capital.
ACCOUNTING, ADMINISTRATION AND OPERATIONS
H&Q's accounting, administration and operations personnel are responsible
for financial controls, internal and external financial reporting, compliance
with regulatory and legal requirements, office and personnel services, the
Company's management information and telecommunications systems, and the
processing of the Company's securities transactions. The Company's employees
perform most of these functions. With the exception of payroll processing, which
is performed by an outside service bureau, all data processing functions are
performed by the Company's management information systems department. The
Company believes that future growth will require implementation of new and
enhanced communications and information systems and
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training of its personnel to operate such systems. Any difficulty or significant
delay in the implementation or operation of new systems or the training of
personnel could adversely affect the Company's ability to manage growth. See
"Risk Factors--Management of Growth."
Lewco acts as a clearing broker and depository for the Company. A portion of
Lewco's expenses, net of certain revenues, are reimbursed by the Company based
on the level of transactions processed on behalf of the Company.
COMPETITION
The securities business is intensely competitive. Many of the Company's
competitors have greater capital, financial and other resources than the
Company. The Company competes worldwide for growth-oriented institutional
investor clients and for United States underwritings of equity offerings by
emerging growth companies in H&Q's areas of focus. The Company competes for
venture capital and other principal investment opportunities in the United
States through wholly owned subsidiaries and internationally through entities in
which it holds minority interests. In addition to competition from domestic and
foreign firms currently in the securities business, domestic commercial banks
and investment banking boutiques have recently entered the business. In recent
years, large international banks have attempted to enter the markets served by
United States investment banks, including the markets in which the Company
competes. These large international banks have hired investment banking,
research and sales and trading professionals from the Company and its
competitors in the past, and the Company expects that these and other
competitors will continue to try to recruit professionals away from the Company.
The loss of any key professional could materially and adversely affect the
Company's operating results. The Company expects competition from domestic and
international banks to increase as a result of recent and anticipated
legislative and regulatory initiatives in the United States to remove or relieve
certain restrictions on commercial banks. The Company's focus on growth
companies also subjects it to direct competition from a group of specialty
securities firms and smaller investment banking boutiques that specialize in
providing services to the emerging growth company sector. Such competition could
adversely affect the Company's operating results, as well as its ability to
attract and retain highly skilled individuals. As a result of increasing
competition, revenues from individual underwriting transactions have been
increasingly allocated among a greater number of co-managers, which has resulted
in reduced revenues for certain transactions.
The Company also faces competition from companies offering electronic
brokerage services, a rapidly developing and intensely competitive industry.
These competitors may undertake promotional activities focused on the Company's
brokerage customers and offer these customers more attractive pricing or other
terms than the Company offers. The Company also anticipates competition from
underwriters who attempt to effect public offerings for emerging growth
companies through new means of distribution, including using electronic media
such as the Internet. In addition, disintermediation may result as issuers
attempt to sell their securities directly to purchasers, including sales using
electronic media such as the Internet. To the extent that issuers and purchasers
of securities transact business without the assistance of financial
intermediaries such as the Company, the Company's operating results could be
adversely affected.
The principal competitive factors influencing the Company's business are its
professional staff, industry expertise, client relationships and its mix of
market and product capabilities.
EMPLOYEES
At June 30, 1996, the Company had a total of 617 employees, of whom 60 were
engaged in research, 110 in investment banking, 277 in sales, trading and
syndicate, 37 in venture capital, principal investment and money management
activities and 133 in accounting, administration and operations. Of these
employees, 320 were classified as professionals and 297 were classified in
support positions. None of the Company's employees are subject to a collective
bargaining agreement. The Company believes that its relations with its employees
are good.
PROPERTIES
The Company's principal executive offices in San Francisco, California
occupy approximately 132,000 square feet under leases which terminate December
31, 1998, subject to two 5-year extension options for the majority of the space.
The Company also leases approximately 33,000 square feet in New York, New York,
under
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a lease expiring in 2007; approximately 24,000 square feet in Boston,
Massachusetts, under a lease expiring in 1998, subject to an option to extend
the term; and approximately 2,000 square feet in San Diego, California, under a
lease expiring in 1999. The Company believes that its present facilities,
together with its current options to extend lease terms and occupy additional
space, are adequate for its current and projected needs.
LEGAL PROCEEDINGS
OVERVIEW
Many aspects of the Company's business involve substantial risks of
liability. An underwriter is exposed to substantial liability under federal and
state securities laws, other federal and state laws and court decisions,
including decisions with respect to underwriters' liability and limitations on
indemnification of underwriters by issuers. For example, a firm that acts as an
underwriter may be held liable for material misstatements or omissions of fact
in a prospectus used in connection with the securities being offered or for
statements made by its securities analysts or other personnel.
In recent years, there has been an increasing incidence of litigation
involving the securities industry, including class actions that seek substantial
damages. The Company has been active in the underwriting of initial public
offerings and follow-on offerings of the securities of emerging and mid-size
growth companies, which often involve a higher degree of risk and often are more
volatile than the securities of more established companies. In comparison with
more established companies, such emerging and mid-size growth companies are also
more likely to be the subject of securities class actions, to carry directors
and officers liability insurance policies with lower limits than more
established companies, and to become insolvent. Each of these factors increases
the likelihood that an underwriter of an emerging or mid-size growth company's
securities will be required to contribute to any judgment or settlement of a
securities lawsuit.
The plaintiffs' attorneys in securities class action lawsuits frequently
name as defendants in lawsuits the managing underwriters of a public offering.
H&Q LLC is named a defendant in a number of class action lawsuits relating to
public offerings in which it served as a managing underwriter. In addition, H&Q
LLC is currently directly or indirectly subject to over 30 shareholder class
action lawsuits relating to public offerings in which H&Q LLC served as a member
of the underwriting syndicate but not as a managing underwriter. Plaintiffs'
attorneys also name as defendants investment banks which provide advisory
services in merger and acquisition transactions. H&Q LLC is currently a
defendant in one such lawsuit. The Company anticipates that additional
securities class-action lawsuits naming H&Q LLC as a defendant will be filed
from time to time in the future, particularly in light of the increased number
of public offerings H&Q LLC has underwritten and the increased number of merger
and acquisition transactions in which H&Q LLC provided advisory services in
recent years and the fact that the securities sold in certain of such public
offerings have experienced or may in the future experience significant declines
in market value. In such lawsuits, all members of the underwriting syndicate
typically are included as members of a defendant class and/or are required by
law, or pursuant to the terms of the underwriting agreement, to bear a portion
of any expenses or losses (including amounts paid in settlement of the
litigation) incurred by the underwriters as a group in connection with the
litigation, to the extent not covered by the indemnification obligation of the
issuer of the securities underwritten. H&Q LLC has on occasion participated in
settlements of these types of lawsuits by making payments to the plaintiff
class. There can be no assurance that the Company, H&Q LLC or RvR Securities
will not find it necessary to make substantial settlement payments in the
future. The Company has agreed to indemnify H&Q LLC against any expense or
liability it may incur in connection with any such lawsuits.
As the number of suits to which the Company is a party increases, the risk
to the Company's assets also increases. If the plaintiffs in any suits against
the Company were to successfully prosecute their claims, or if the Company were
to settle such suits by making significant payments to the plaintiffs, the
Company's operating results and financial condition could be materially and
adversely affected. As is common in the securities industry, the Company does
not carry insurance that would cover any such payments. In addition, the
Company's charter documents allow indemnification of the Company's officers,
directors and agents to the maximum extent permitted under Delaware law. The
Company has entered into indemnification agreements with these
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persons. The Company has been and in the future may be the subject of
indemnification assertions under these charter documents or agreements by
officers, directors or agents of the Company who are or may become defendants in
litigation.
In addition to these financial costs and risks, the defense of litigation
has, to a certain extent, diverted, and is expected to divert in the future, the
efforts and attention of the Company's management and staff. The amount of time
which management and other employees are required to devote in connection with
the defense of litigation could be substantial and might materially divert their
attention from other responsibilities within the Company. Securities class
action litigation in particular is highly complex, and can extend for a
protracted period of time, thereby consuming substantial time and effort of the
Company's management and substantially increasing the cost of such litigation.
Further, the laws relating to securities class actions are currently in a state
of flux. The eventual impact of the Private Securities Litigation Reform Act of
1995 on securities class action litigation is not known. In addition, there are
certain proposed California ballot initiative provisions which, if passed, the
Company believes would make it easier for securities class action plaintiffs to
litigate in California state court.
The Company also has been subject to litigation in state and federal courts
relating to companies in which the Company has invested as a principal. The risk
of such litigation is magnified where H&Q has a substantial or controlling
interest in the Company, or where one or more of H&Q's employees serves on the
Company's Board of Directors. On occasion, such litigation has produced results
materially adverse to H&Q. In particular, during 1991 and 1992, the Company
settled litigation relating to MiniScribe at an aggregate cost, including
expenses, of approximately $59.8 million. All of such payments relating to such
MiniScribe settlements were made prior to May 31, 1996. There can be no
assurance that the Company, as a result of its investments as a principal, or
the service of the Company's employees as directors of other entities or
otherwise, will not lead to similar litigation or settlement payments in the
future.
In the normal course of business, the Company is also a defendant in various
civil actions and arbitrations arising out of its activities as a broker-dealer
in securities, as an underwriter, as an employer and as a result of other
business activities. H&Q has in the past made substantial payments in connection
with the resolution of disputed claims, and there can be no assurance that
substantial payments in connection with the resolution of disputed claims will
not occur in the future.
An adverse resolution of any pending or future lawsuits against H&Q LLC, RvR
Securities or the Company could materially affect the Company's operating
results and financial condition.
Set forth below are summaries of certain pending litigation matters to which
H&Q LLC is a party. The Company believes that the resolution of such matters and
the other pending litigation matters to which the Company is a party will not
have a material adverse effect on the Company's operating results or financial
condition.
SECURITIES LITIGATION
The following paragraphs describe litigation in which H&Q has been named as
a defendant relating to transactions in which H&Q LLC acted as a managing
underwriter or provided merger and acquisition advice.
ADOBE SECURITIES LITIGATION. On February 6, 1996, H&Q LLC and two of its
employees, one of whom is also an outside director of Adobe Systems, Inc.
("Adobe"), were named as defendants in a shareholders' securities class action
suit filed in the Superior Court of California, County of Santa Clara (STRAUSZ
ET AL. V. GESCHKE ET AL., Case No. CV755730). Other defendants include Adobe,
certain of Adobe's officers and directors, and certain former officers of Frame
Technology Corporation ("Frame"). The lawsuit relates to the merger of Frame
into Adobe in October 1995. H&Q LLC acted as a financial advisor to Frame in the
merger. The complaint alleges that the defendants made misrepresentations
regarding the merger and/or Adobe's and Frame's business operations and
prospects of the merged entity, and omitted to disclose material adverse facts
regarding the merger and business prospects and engaged in a scheme to defraud
investors, thereby artificially inflating the price of Adobe stock during the
class period. The lawsuit seeks unspecified damages including compensatory and
punitive damages, pre- and post-judgment interest, costs and attorneys' fees,
and equitable and injunctive relief based on alleged violations of California
law. The Adobe defendants and the H&Q
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defendants each filed a demurrer on the ground that the allegations were not
actionable under state law. In July 1996, the Court sustained the demurrer of
H&Q and its two defendant employees as to all causes of action and provided the
plaintiffs leave to amend.
COMPUTERVISION SECURITIES LITIGATION. In August 1992, H&Q LLC acted as one
of four co-managers of an underwriting of $600 million of debt and equity
securities issued by Computervision Corporation ("Computervision"). Numerous
class action suits were filed against H&Q and other defendants after
Computervision announced, in September 1992, that revenue and operating profit
for its third quarter would fall substantially below its plan and the previous
year's third quarter. These cases were eventually consolidated in the United
States District Court in Boston (IN RE COMPUTERVISION CORPORATION SECURITIES
LITIGATION, MDL Docket No. 964). The operative complaint alleges claims against
H&Q, the other managing underwriters, Computervision and certain of its officers
and directors, under various sections of the federal securities laws and a claim
for common law misrepresentation.
After completion of substantially all discovery, the Court, relying in part
on the fact that the prospectus "bespoke caution," issued a decision dismissing
every factual allegation in the complaint except one. In January 1995, the
plaintiffs served a motion for leave to file a further amended complaint. In
February 1995, the defendants served a response in opposition, and also served
summary judgment motions to dismiss the sole allegation that survived the motion
to dismiss. By stipulation in April 1995, plaintiffs subsequently withdrew the
sole surviving allegation. In September 1995, the court denied plaintiffs'
motion for leave to amend the complaint, dismissed plaintiffs' case and entered
judgment for all defendants. Plaintiffs have appealed these rulings to the First
Circuit Court of Appeals, which heard oral argument in May 1996. The appeal is
pending.
DATAWARE TECHNOLOGIES SECURITIES LITIGATION. Dataware Technologies, Inc.
("Dataware") effected a $29,250,000 initial public offering in July 1993
lead-managed by H&Q LLC. In December 1993, Dataware announced that its quarterly
earnings would be below expectations. Its share price dropped, and in November
1994, a shareholder class action suit was filed in the United States District
Court in Boston against the Company, certain of its officers and directors, and
the managing underwriters, including H&Q LLC, in connection with the company's
public offering, subsequent sales by its insiders and research reports issued by
H&Q LLC (IN RE: DATAWARE TECHNOLOGIES, INC. SECURITIES LITIGATION, Civ. No.
94-12250-DPW).
The parties have reached a settlement in this action and reported to the
court the fact that a settlement has been reached. H&Q LLC has been fully
indemnified by Dataware in connection with the settlement. It is expected that a
formal settlement agreement will be executed in the near future. A hearing for
preliminary court approval of the settlement is currently scheduled for August
2, 1996.
OAK TECHNOLOGY SECURITIES LITIGATION. On June 6, 1996, Oak Technology, Inc.
("Oak"), certain of its officers and directors, H&Q LLC, two of its employees
and others were named as defendants in a shareholders' securities class action
suit filed in the Superior Court of California, County of Santa Clara (HOCHMAN
ET AL. V. HSU ET AL., Case No. CV758510). On June 20, 1996, certain of Oak's
officers and directors and H&Q LLC were named as defendants in another
shareholders' securities class action suit filed in the Superior Court of
California, County of Santa Clara (GALLO ET AL. V. TSANG ET AL., Case No.
CV758799). H&Q LLC acted as the lead manager of Oak's February 1995 initial
public offering and May 1995 follow-on equity offering. The complaints allege,
among other things, that during the alleged class period of July 1995 to May
1996, H&Q LLC issued false research reports and otherwise engaged in wrongdoing
in order to please Oak and/or Oak's officers and directors. The lawsuits seek
unspecified damages based on alleged violations of California law. Defendants
have not yet filed any pleading responding to any of the complaints and no
discovery has occurred in any case. It is unknown at this time whether these
actions will be consolidated.
On July 3, 1996, certain of Oak's officers and directors and H&Q LLC were
named as defendants in two shareholder securities class action suits filed in
the Superior Court of California, County of Santa Clara (ROSSINI ET AL. V. TSANG
ET AL., Case No. CV759148; FENTON ET AL. V. TSANG ET AL., Case No. CV759145).
NASDAQ ANTITRUST LITIGATION
In December 1994, a consolidated amended complaint was filed in the United
States District Court for the Southern District of New York against 33
broker-dealer defendants, including H&Q LLC (94 Civ. 3996 (RWS),
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M.D.L. No. 1023). The consolidated amended complaint alleged that H&Q LLC and
other participants and market-makers on Nasdaq engaged in a conspiracy to fix
the "spread" between bid and asked prices for securities traded on the Nasdaq in
violation of Section 1 of the Sherman Act. The plaintiff class was alleged to
include persons throughout the United States who are customers of the defendants
or their affiliates and who purchased or sold securities on the Nasdaq during
the period from May 1, 1989 through May 27, 1994. Plaintiffs allege to have been
damaged in that they paid more for securities purchased on the Nasdaq, or
received less for securities sold, than they would have but for the alleged
conspiracy. The consolidated amended complaint seeks compensatory damages,
treble damages, declaratory and injunctive relief, attorneys' fees and costs.
Judgment against each of the defendants was sought on a joint and several basis.
In February 1995, H&Q LLC and the other defendants filed a motion to dismiss. In
August 1995, the Court granted such motion on the ground that plaintiffs had not
specified the stocks in which collusion allegedly occurred, but gave plaintiffs
leave to amend. The plaintiffs thereafter filed a Refiled Consolidated Complaint
in August, 1995 which is identical in substance to the dismissed pleading and
lists over 1,000 securities that plaintiffs allege were the subject of the
alleged conspiracy. H&Q LLC thereafter filed its answer, and discovery is
proceeding. Plaintiffs made, and defendants opposed, a motion for class
certification. Oral argument occurred on June 21, 1996, and the parties are
awaiting the Court's decision.
In December 1995, a class action suit alleging similar claims to the class
action pending in New York was filed in Alabama state court against the same
defendants. The Alabama case has been removed to federal court and transferred
to the federal judge hearing the pending New York action, a motion to remand the
case to state court has been denied and this action has been consolidated with
the class action pending in New York.
In addition, allegations of collusion among the market-makers became the
subject of investigations by the NASD, the SEC and the Antitrust Division of the
Department of Justice ("DOJ"). On July 16, 1996, H&Q LLC entered into a
Stipulation and Order resolving a civil complaint filed by the DOJ, alleging
that H&Q LLC and 23 other Nasdaq market makers violated Section 1 of the Sherman
Act in connection with certain market making practices (UNITED STATES OF AMERICA
V. ALEX. BROWN & SONS ET AL., CIV. NO. 96-CV-5313). The complaint alleged that
the defendants and other market makers engaged in activities that had the effect
of artificially inflating the quoted "inside spread" -- i.e., the difference
between the best buying price and the best selling price -- of certain Nasdaq
stocks. In entering into the Stipulation and Order, the parties agreed that the
defendants would not agree with other market-makers to set prices, quotes or
spreads in Nasdaq securities, or harass, intimidate or refuse to trade with
other market-makers for reducing their spread in any Nasdaq security or by
reason of the quantity of a Nasdaq security they are willing to trade at its
quoted price. In addition, the defendants each agreed to (i) designate an
antitrust compliance officer to instruct traders and others concerning the
requirements of the proposed order, (ii) listen to audio tapes of a portion of a
firm's trading activity on Nasdaq created under the order and (iii) allow
representatives of the DOJ, without pre-arrangement, to appear at a defendant's
offices to listen in on trader conversations the firm is taping as they are
occurring. The agreement also requires the defendants to pass on complaints of
possible violations or taped conversations to the DOJ, and to allow the DOJ to
bring civil or criminal contempt charges for willful violations of the order.
The Stipulation and Order are subject to approval by the United States District
Court for the Southern District of New York following a public hearing, and if
that Court approves the Stipulation and Order, the complaint will be dismissed
with prejudice.
RISK MANAGEMENT
The Company has established various policies and procedures for the
management of its exposure to operating, principal and credit risks. Operating
risk arises out of the daily conduct of the Company's business and relates to
the possibility that one or more of the Company's personnel could commit the
Company to imprudent business activities. Principal risk relates to the fact
that the Company owns a variety of investments which are subject to changes in
value and could result in the Company incurring material gains or losses. Credit
risk occurs because the Company extends credit to various of its customers in
the form of margin and other types of loans.
Operating risk is monitored by the Company's Risk Management Committee and
Commitment Committee. The Risk Management Committee reviews the overall business
activities of the Company and makes
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recommendations for addressing issues which, in the judgment of its members,
could result in a material loss to the Company. The Commitment Committee meets
weekly to evaluate and approve potential investment banking transactions prior
to their execution by the Company.
Principal risk is managed primarily through the daily monitoring of funds
committed to the various types of securities owned by the Company and by
limiting the exposure to any one investment or type of investment. The two most
common categories of securities owned are those related to the daily trading
activities of the Company's brokerage and underwriting operations and those
which arise out of the Company's principal investing activities. The Company
attempts to limit its exposure to market risk on securities held as a result of
its daily trading activities by limiting its inventory of trading securities to
that needed to provide the appropriate level of liquidity in the securities for
which it is a market maker. Security inventory positions are balanced daily.
The Company's credit risk is monitored by its Credit Committee, which
consists of senior management from its brokerage, operations, financial and
legal departments. This committee meets when specific situations arise to review
large, concentrated or high profile accounts and to take any appropriate actions
to limit the Company's exposure to loss on these accounts. Such actions
typically consist of setting higher margin requirements for large or
concentrated accounts, requiring a reduction of either the level of margin debt
or investment in high risk securities or, in some cases, requiring the transfer
of the account to another broker-dealer.
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REGULATION
H&Q's business and the securities industry in general are subject to
extensive regulation in the United States at both the Federal and state level,
as well as by SROs. Its business also is subject to regulation by various
foreign governments and regulatory bodies.
In the United States, a number of Federal regulatory agencies are charged
with safeguarding the integrity of the securities and other financial markets
and with protecting the interests of customers participating in those markets.
The SEC is the Federal agency that is primarily responsible for the regulation
of broker-dealers and investment advisers doing business in the United States,
and the Board of Governors of the Federal Reserve System promulgates regulations
applicable to securities credit transactions involving broker-dealers and
certain other United States institutions. Broker-dealers and investment advisers
are subject to registration and regulation by state securities regulators in
those states in which they conduct business. Industry SROs, each of which has
authority over the firms that are its members, include the NASD, the NYSE and
other securities exchanges.
H&Q LLC is registered as a broker-dealer with the SEC and in all of the 50
states, Puerto Rico and the District of Columbia, and is a member of, and
subject to regulation by, a number of securities industry SRO's, including the
NASD, the NYSE, the American, Chicago and Pacific Stock Exchanges, and the
Options Clearing Corporation. RvR Securities is registered as a broker-dealer
with the SEC and in 41 states, and is a member of the NASD. H&Q LLC also has a
20% interest in Lewco, which is registered as a broker-dealer with the SEC and
in 13 states and is a member of the NASD, the NYSE and other securities
exchanges.
As a result of federal and state registration and SRO memberships, H&Q LLC,
RvR Securities and Lewco are subject to overlapping schemes of regulation which
cover all aspects of their securities business. Such regulations cover matters
including capital requirements, the use and safekeeping of customers' funds and
securities, record keeping and reporting requirements, supervisory and
organizational procedures intended to assure compliance with securities laws and
to prevent the improper trading on material nonpublic information,
employee-related matters, including qualification and licensing of supervisory
and sales personnel, limitations on extensions of credit in securities
transactions, clearance and settlement procedures, requirements for the
registration, underwriting, sale and distribution of securities and rules of the
SROs designed to promote high standards of commercial honor and just and
equitable principles of trade. A particular focus of the applicable regulations
concerns the relationship between broker-dealers and their customers. As a
result, the many aspects of the broker-dealer customer relationship are subject
to regulation including in some instances "suitability" determinations as to
certain customer transactions, limitations in the amounts that may be charged to
customers, timing of proprietary trading in relation to customers' trades and
disclosures to customers.
Much of the Company's underwriting and market-making business involves
securities traded on Nasdaq. Nasdaq's operations have been the subject of
extensive scrutiny, in the media and by government regulators, including by the
Antitrust Division of the United States Department of Justice. This scrutiny has
included allegations of collusion among Nasdaq market-makers. H&Q LLC and 23
other Nasdaq market-makers recently entered into a Stipulation and Order with
the Department of Justice in which they agreed not to engage in any collusive
activities relating to prices, quotes or spreads in Nasdaq-traded securities.
It has been reported in the media that the SEC has submitted to the NASD a
draft of a disciplinary case the SEC may file against the NASD, as well as a
report setting out the SEC's findings in detail. The SEC's case reportedly
concerns the NASD's enforcement oversight of Nasdaq. According to these media
reports, NASD officials have proposed a number of changes to Nasdaq's
operations, which proposals currently are being reviewed by government
regulators. The Company is unable to predict the outcome of any of these
proposals, and certain of the changes proposed by NASD officials, if effected,
could adversely affect the Company's operating results.
Capital Management and two other subsidiaries, Atlantic Investment Advisers,
Inc. and Hambrecht & Quist Investment Advisers, Inc., are registered as
investment advisers with the SEC and in several states. As investment advisers
registered with the SEC, each is subject to the requirements of the Investment
Advisers Act and the SEC's regulations thereunder, as well as state securities
laws and regulations. Such requirements relate to, among other things,
limitations on the ability of investment advisers to charge performance-based or
non-
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refundable fees to clients, record-keeping and reporting requirements,
disclosure requirements, limitations on principal transactions between an
adviser or its affiliates and advisory clients, as well as general anti-fraud
prohibitions. The state securities law requirements applicable to registered
investment advisers are in certain cases more comprehensive than those imposed
under the Federal securities laws. In addition, Capital Management and the
mutual funds it manages are subject to the requirements of the Investment
Company Act of 1940 and the SEC's regulations thereunder.
H&Q LLC and Lewco also are subject to "Risk Assessment Rules" imposed by the
SEC. These rules require, among other things, that certain broker-dealers
maintain and preserve certain information, describe risk management policies and
procedures and report on the financial condition of certain affiliates whose
financial and securities activities are reasonably likely to have a material
impact on the financial and operational condition of the broker-dealers. Certain
"Materially Associated Persons" (as defined in the Risk Assessment Rules) of the
broker-dealers and the activities conducted by such Materially Associated
Persons may not be subject to regulation by the SEC. However, the possibility
exists that, on the basis of the information it obtains from the Risk Assessment
Rules, the SEC could seek legislative or regulatory changes in order to expand
its authority over the Company's unregulated subsidiaries either directly or
through its existing authority over the Company's regulated subsidiaries.
Violations of federal or state laws or regulations or rules of SROs could
subject the Company, its subsidiaries and/or its employees to disciplinary
proceedings or civil or criminal liability, including revocation of licenses,
censures, fines or temporary suspension or permanent bar from the conduct of
their business. Any such proceeding could have a material adverse effect upon
the Company's business.
H&Q LLC recently agreed to a censure and a $40,000 fine by the NYSE's
Enforcement Division relating to allegations that H&Q LLC, in certain loans to
customers against pledges of restricted or control securities in fiscal 1994,
violated NYSE requirements for net capital and customer reserve account
calculations, custody and control of customer securities, margin maintenance and
supervision. The settlement is subject to approval by an NYSE Hearing Panel,
review by the NYSE Board of Directors if requested by a Board member, and review
by the SEC on its own motion. The Company expects the settlement to become final
and to have no material adverse effect on the business or financial condition of
the Company or H&Q LLC.
In addition to being regulated in the United States, the Company's business
is subject to regulation by various foreign governments and regulatory bodies.
H&Q LLC is registered with and subject to regulation by the Ontario Securities
Commission, the Securities and Futures Authority of the United Kingdom pursuant
to the United Kingdom Financial Services Act of 1986, and the Ministry of
Finance, Tokyo, Japan. Foreign regulation governs all aspects of the investment
business, including regulatory capital, sales and trading practices, use and
safekeeping of customer funds and securities, record-keeping, margin practices
and procedures, registration standards for individuals, periodic reporting and
settlement procedures. In addition, Hambrecht & Quist Asset Management Ltd., a
subsidiary of the Company, is a member of and is subject to regulation by the
Investment Management Regulatory Organization Limited in the United Kingdom,
which regulates all aspects of its investment advisory business. The Company
recently formed and acquired an interest in H&Q Saint Dominique, a
broker-dealer, located in Paris, France. It is subject to regulation by the
Societe du Nouveau Marche, Societe de Bourse Francaise and La Commission
d'Operation de Bourse, and has applied to become an approved person of the NYSE.
In connection with the Company's venture capital activities, H&Q, its
affiliates and the venture capital funds which they manage are relying on
exemptions from registration under the Advisers Act, the Investment Company Act
of 1940, as amended, state securities laws and the laws of various foreign
countries. Failure to meet the requirements of any such exemptions could have a
material adverse effect on the manner in which the Company, its affiliates and
the venture capital funds carry out their investment activities and on the
compensation received by the Company and its affiliates from the venture capital
funds.
Additional legislation and regulations, including those relating to the
activities of broker-dealers and investment advisers, changes in rules
promulgated by the SEC or other United States or foreign governmental regulatory
authorities and SROs or changes in the interpretation or enforcement of existing
laws and rules may adversely affect the manner of operation and profitability of
the Company. H&Q's businesses may be materially
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affected not only by regulations applicable to it as a financial market
intermediary, but also by regulations of general application. For example, the
volume of H&Q's underwriting, merger and acquisition, or venture capital
activities in any year could be affected by, among other things, existing and
proposed tax legislation, antitrust policy and other governmental regulations
and policies (including the interest rate policies of the Federal Reserve Board)
and changes in interpretation or enforcement of existing laws and rules that
affect the business and financial communities.
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NET CAPITAL REQUIREMENTS
As broker-dealers registered with the SEC and member firms of the NYSE
and/or the NASD, H&Q LLC, RvR Securities and Lewco are each subject to the
capital requirements of the SEC, the NYSE and/or the NASD. These capital
requirements specify minimum levels of capital, computed in accordance with
regulatory requirements ("net capital"), that each firm is required to maintain
and also limit the amount of leverage that each firm is able to obtain in its
respective business.
H&Q LLC has elected to compute its net capital requirement under the
"alternative method" permitted by the SEC. Under this method, H&Q LLC is
required to maintain regulatory net capital, computed in accordance with the
SEC's regulations as supplemented by NYSE Rule 325, equal to the greater of $1.0
million or 2% of the amount of its securities "customer-related receivables,"
calculated in accordance with SEC's regulations.
The customer-related receivables referred to in the preceding paragraph
(also referred to as "aggregate debit items") represent the money owed to a
broker-dealer by its customers and certain other customer-related assets. "Net
capital" is essentially defined as net worth (assets minus liabilities, as
determined under generally accepted accounting principles), plus qualifying
subordinated borrowings, less the value of all of a broker-dealer's assets that
are not readily convertible into cash (such as goodwill, furniture, prepaid
expenses, exchange seats and unsecured receivables), and further reduced by
certain percentages (commonly called "haircuts") of the market value of a
broker-dealer's positions in securities and other financial instruments.
A failure of a broker-dealer to maintain its minimum required capital would
require it to cease executing customer transactions until it came back into
capital compliance, and could cause it to lose its membership on an exchange, or
in an SRO, its registration with the SEC, or require its liquidation. Further,
the decline in a broker-dealer's net capital below certain "early warning
levels," even though above minimum capital requirements, could cause material
adverse consequences to the broker-dealer. For example, the SEC's capital
regulations prohibit payment of dividends, redemption of stock and the
prepayment of subordinated indebtedness if a broker-dealer's net capital
thereafter would be less than 5% of aggregate debit items. These regulations
also prohibit principal payments in respect of subordinated indebtedness if a
broker-dealer's net capital thereafter would be less than 5% of aggregate debit
items. Under NYSE Rule 326, a member firm is required to reduce its business if
its net capital (after giving effect to scheduled maturities of subordinated
indebtedness or other planned withdrawals of regulatory capital during the
following six months) is less than 125% of its net capital minimum dollar amount
or 4% of aggregate debit items for 15 consecutive days. NYSE Rule 326 also
prohibits the expansion of a member's business if its net capital (after giving
effect to scheduled maturities of subordinated indebtedness or other planned
withdrawals of regulatory capital during the following six months) is less than
150% of its net capital minimum dollar amount or 5% of aggregate debt items for
15 consecutive days.
The SEC's capital rules also (i) require that broker-dealers notify it and
the NYSE, in writing, two business days prior to making withdrawals or other
distributions of equity capital or lending money to certain related persons, if
those withdrawals would exceed, in any 30-day period, 30% of the broker-dealer's
excess net capital and that they provide such notice within two business days
after any such withdrawal or loan that would exceed, in any 30-day period, 20%
of the broker-dealer's excess net capital, (ii) prohibit a broker-dealer from
withdrawing or otherwise distributing equity capital or making related party
loans if after such distribution or loan, the broker-dealer has net capital of
less than 120% of its net capital minimum dollar amount or 5% of aggregate debit
items and certain other circumstances, and (iii) provide that the SEC may, by
order, prohibit withdrawals of capital from a broker-dealer for a period of up
to 20 business days, if the withdrawals would exceed, in any 30-day period, 30%
of the broker-dealer's excess net capital and the SEC believes such withdrawals
would be detrimental to the financial integrity of the firm or would unduly
jeopardize the broker-dealer's ability to pay its customer claims or other
liabilities.
Compliance with regulatory capital requirements could limit those operations
of H&Q LLC, RvR Securities and Lewco that require the intensive use of capital,
such as underwriting and trading activities, and financing of customer account
balances, and also could restrict the Company's ability to withdraw capital from
its affiliated broker-dealers, which in turn could limit its ability to pay
dividends, repay debt and redeem or purchase shares of its outstanding capital
stock.
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The Company believes that at all times H&Q LLC, RvR Securities and Lewco
have been in compliance in all material respects with the applicable minimum
capital rules of the SEC, the NYSE, and the NASD. As of June 30, 1996, H&Q LLC
was required to maintain minimum "net capital," in accordance with SEC rules, of
approximately $4.1 million and had total net capital of approximately $40.2
million, or approximately $36.1 million in excess of the amount required. RvR
Securities also computes its minimum net capital requirement under the
alternative method. As of June 30, 1996, RvR Securities was required to maintain
minimum net capital of $250,000. Its total net capital on that date was $1.5
million, consisting primarily of equity capital and a $1.0 million subordinated
loan from H&Q Group. Lewco also computes its minimum net capital requirement
under the alternative method. As of June 30, 1996, Lewco was required to
maintain minimum net capital of $1.5 million. Lewco's total net capital on that
date was $8.5 million.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
June 30, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ----------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
60 Chairman of the Company and H&Q LLC; Director
William R. Hambrecht...............
38 President and Chief Executive Officer of the Company and H&Q LLC;
Director
Daniel H. Case III.................
60 Vice Chairman of the Company and H&Q LLC; Director
William R. Timken..................
49 Executive Vice President and Director of Institutional Equity, H&Q LLC
Paul L. Hallingby..................
43 Managing Director and Co-Director of Investment Banking, H&Q LLC
Cristina M. Morgan.................
47 Managing Director and Co-Director of Investment Banking, H&Q LLC
David M. McAuliffe.................
40 Managing Director and Director of Research, H&Q LLC
Bruce M. Lupatkin..................
54 Chief Financial Officer of the Company and H&Q LLC; Managing Director
of H&Q LLC
Raymond J. Minehan.................
47 General Counsel and Secretary of the Company and H&Q LLC; Managing
Director of H&Q LLC
Steven N. Machtinger...............
34 Vice President, Finance of the Company and H&Q LLC
Patrick J. Allen...................
61 Director
Howard B. Hillman (1)..............
55 Director
William E. Mayer (1)(2)............
66 Director
Edmund H. Shea, Jr. (2)............
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
WILLIAM R. HAMBRECHT is Chairman of Hambrecht & Quist Group and its
principal subsidiary, H&Q LLC. He has continuously served as an officer,
director or principal of those entities or their predecessors since he and the
late George Quist co-founded Hambrecht & Quist in 1968. Mr. Hambrecht is
primarily responsible for directing the Company's venture capital investment
activities. He also serves on the Boards of Directors of Adobe Systems
Incorporated, a print and electronic media software company, Red Brick Systems,
Inc., a provider of relational database products and services for data warehouse
applications, Castelle, a provider of network enhancement software and hardware,
and several privately held companies. He holds a B.A. degree from Princeton
University.
DANIEL H. CASE III joined the Company in 1981, and was initially an
associate and then a principal in the Corporate Finance Department. He also
served as Vice President and then a partner in the Venture Capital Department,
both in San Francisco and in London. In 1983, he co-founded the business which
became Hambrecht & Quist Guaranty Finance. Mr. Case rejoined Corporate Finance
in 1986 as co-director of mergers and acquisitions, and became Managing Director
and head of Investment Banking in December 1987. In October 1989, he was elected
Executive Vice President and in October 1991, he was elected to the Board of
Directors of the Company. In April 1992, he was elected President and Co-Chief
Executive Officer. He became Chief Executive Officer in October 1994. Mr. Case
also serves as a director of Rational Software Corporation, a maker of
object-oriented software development tools, Electronic Arts, a global
interactive entertainment software company, the Securities Industry Association
and the Bay Area Council. He has a B.A. in Economics and Public Policy from
Princeton University and studied management at the University of Oxford as a
Rhodes Scholar.
WILLIAM R. TIMKEN joined Hambrecht & Quist in 1969 and has been employed by
the Company in senior capacities since then. Mr. Timken was appointed Vice
Chairman of the Company in 1992. He is responsible for
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the activities of the Company's Syndicate Department. Mr. Timken is a past
member of the Board of Governors of the Pacific Stock Exchange and the Board of
Governors of the National Association of Securities Dealers, Inc. Mr. Timken
holds a B.A. degree in Economics from Colby College.
PAUL L. "BARNEY" HALLINGBY joined the Company in 1983 as an institutional
salesman. He was named Managing Director of the Research Department in June 1988
and was elected Executive Vice President in October 1990. In July 1992, he
became Managing Director of Sales and Trading, and in October 1994, he became
Managing Director of Institutional Equity. He holds a B.A. in Political Science
from the University of Pennsylvania and an M.B.A. in Finance from Columbia
University.
CRISTINA M. MORGAN joined the Company in 1982 as a research analyst, became
a principal in Corporate Finance in 1984 and has been a Senior Vice President of
H&Q LLC and its predecessor entity since March 1990. In 1990, Ms. Morgan was
elected Managing Director, Technology Equities in Corporate Finance, and in
1992, she was named Co-Director of Investment Banking. Ms. Morgan holds a B.S.
in Finance and an M.B.A. in Finance from Arizona State University.
DAVID M. MCAULIFFE joined the Company in July 1995 as Managing Director and
Co-Director of Investment Banking. Prior to joining the Company, Mr. McAuliffe
served in various capacities in the Investment Banking and Merchant Banking
divisions of Kidder Peabody & Co., an investment bank, from 1974 to 1995. From
April 1992 to May 1995, he served as Kidder Peabody & Co.'s Co-Director of the
Global Investment Banking Division. Mr. McAuliffe holds a B.A. in Accounting
from Boston College and an M.B.A. from Harvard Business School.
BRUCE M. LUPATKIN joined the Company in 1984 as a research analyst and
became a Senior Vice President of H&Q LLC and its predecessor in May 1991. In
1992, Mr. Lupatkin was named Co-Director of Research. Since October 1994, Mr.
Lupatkin has served as Director of Research. From October 1995 to June 1996, he
was also responsible for management of Institutional Sales for the west coast.
Mr. Lupatkin holds a B.S. in Chemistry from the University of Michigan and an
M.B.A. in Finance from the University of Texas.
RAYMOND J. MINEHAN has served as the Company's Chief Financial Officer and a
Managing Director since November 1989. Prior to joining H&Q, he had been with
Arthur Andersen LLP, a public accounting firm, in San Francisco since 1972, and
a partner with that firm from 1984 to 1989. Mr. Minehan holds a B.A. in Finance
and Accounting from Golden Gate University and is a Certified Public Accountant.
STEVEN N. MACHTINGER has served as the Company's General Counsel and
Secretary since 1988. He was named a Managing Director in 1990. Mr. Machtinger
was an attorney with the SEC from 1974 to 1983 and was General Counsel of Birr,
Wilson & Co., Inc., an investment bank, from 1983 to 1988. Mr. Machtinger holds
a B.A. in Government from Harvard College and a J.D. from the University of
California, Davis.
PATRICK J. ALLEN joined Hambrecht & Quist in May 1995 as Vice President,
Finance. From November 1993 to April 1995, Mr. Allen was Chief Operating Officer
of Cruttenden Roth, an investment bank. Mr. Allen was previously a Senior Vice
President with Kemper Securities, an investment bank, and held various positions
from 1988 to 1993, including Chief Financial Officer of a predecessor firm. Mr.
Allen had been an auditor with Price Waterhouse, a public accounting firm, in
Newport Beach from 1984 to 1988 and holds a B.S. in Business Administration from
California Polytechnic University in San Luis Obispo.
HOWARD B. HILLMAN joined the Board of Directors of the Company in July 1989.
He was an officer of Chemical Bank from 1960 to 1969 and has been a venture
capitalist since leaving Chemical Bank. Mr. Hillman became a Director of
Auto-trol Technology Corporation, a maker of computer-based technical
information management solutions, in 1973 and its President in April 1985. He
also currently serves as Auto-trol's Chairman. Mr. Hillman holds an A.B. in
Economics from Princeton and an M.B.A. from Harvard Business School.
WILLIAM E. MAYER has been a director of the Company since April 1992, except
during the period of March 1995 to January 1996. Since October 1992, Mr. Mayer
has been Dean of the College of Business and Management at the University of
Maryland, College Park. From September 1991 to July 1992, Mr. Mayer was Dean of
the Simon Graduate School of Business at the University of Rochester. He is the
former Chairman and Chief Executive Officer of CS First Boston Merchant Bank.
Before the establishment of CS First Boston Merchant Bank in 1990, he was
President and Chief Executive Officer of the First Boston Corporation.
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<PAGE>
Mr. Mayer serves as a director of Chart House Enterprises, a restaurant
management company, and Schuller Corporation, a manufacturer of insulation and
building products, and is a trustee of the Colonial Group of Mutual Funds, a
mutual fund company. Mr. Mayer holds a B.S. and an M.B.A. from the University of
Maryland.
EDMUND H. SHEA, JR. was elected a director of the Company in November 1986.
He is a co-founder of J.F. Shea Co., Inc., a diversified civil construction,
land development and venture capital company, and has served as its Executive
Vice President in charge of Venture Capital since 1968. Mr. Shea serves on the
Board of Directors of ADAC Laboratories, a supplier of radiology and laboratory
information systems, Ironstone Group, Inc., a real estate information services
company, and Vanguard Airlines, a passenger airline company. Mr. Shea is also on
the Advisory Committee of Bay Partners, a venture capital firm. Mr. Shea holds a
B.S. in Engineering from Massachusetts Institute of Technology.
BOARD COMMITTEES
The Audit Committee consists of Messrs. Hillman and Mayer. Among other
functions, the Audit Committee makes recommendations to the Board regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors, reviews the
Company's balance sheet, statement of operations and cash flows and reviews and
evaluates the Company's internal control functions.
The Compensation Committee consists of Messrs. Mayer and Shea. The
Compensation Committee administers the Company's 1996 Equity Plan and makes
recommendations to the Board concerning salaries and incentive compensation for
employees and consultants of the Company.
DIRECTOR COMPENSATION
The Company does not currently pay fees to its directors for attendance at
meetings. From time to time, the Company has sold Common Stock to its directors
and granted its directors options to purchase Common Stock of the Company. See
"Certain Transactions."
EXECUTIVE COMPENSATION
The following table shows compensation earned during the fiscal year ended
September 30, 1995 to (i) the Chief Executive Officer and (ii) the Company's
four other most highly compensated individuals who were serving as officers on
September 30, 1995 and whose salary plus bonus exceeded $100,000 for the fiscal
year ended September 30, 1995 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
FISCAL 1995 ANNUAL COMPENSATION ------------------------------
--------------------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED STOCK UNDERLYING ALL OTHER
COMPENSATION AWARDS OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($)(1) ($) ($) SARS (#) ($)(2)
- ------------------------------------ ---------- -------------- ----------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Daniel H. Case III ................. 300,000 2,000,000 -- -- 156,636 4,000
President, Chief Executive
Officer and Director(3)
William R. Hambrecht ............... 300,000 933,688(4) -- -- -- 4,000
Chairman and Director(4)
William R. Timken .................. 240,000 700,000 -- -- 40,000 4,000
Vice Chairman and Director(5)
Paul L. Hallingby .................. 240,000 907,000 -- -- 180,000 4,000
Executive Vice President,
Institutional Equity,
H&Q LLC(5)
Cristina M. Morgan ................. 240,000 1,425,363(6) -- -- 80,000 4,000
Managing Director, Co-Director of
Investment Banking, H&Q LLC(5)
</TABLE>
57
<PAGE>
- ------------------------
(1) Includes bonuses earned in fiscal 1995 and paid in fiscal 1996; excludes
bonuses earned in fiscal 1994 which were paid in fiscal 1995.
(2) Represents payments by the Company pursuant to the Company's Savings and
Employee Stock Ownership Plan under Internal Revenue Code Section 401(k).
(3) Excludes amounts received from Guaranty Finance. See "Certain Transactions."
(4) Includes $933,688 received in connection with participations in venture
capital funds profits provided by the Company. See "Certain Transactions."
(5) Excludes $28,933, $50,950 and $43,400 in SAR payouts received by Mr. Timken,
Mr. Hallingby and Ms. Morgan, respectively. See "--Aggregated SAR Payouts
for Fiscal 1995" and "Management--Compensation Plans."
(6) Includes $45,363 received in connection with participations in venture
capital funds profits provided by the Company. See "Certain Transactions."
OPTION AND SAR GRANTS DURING FISCAL 1995
The following tables set forth for each of the Named Executive Officers
certain information concerning stock options and SARs granted during fiscal
1995, giving effect to the Restructuring:
OPTIONS.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM (1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ----------------------------------------- ----------- ------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
William R. Hambrecht..................... -- -- -- -- -- --
Daniel H. Case III....................... 156,636 17.3% 4.7375 12/01/01 205,018 453,037
William R. Timken........................ -- -- -- -- -- --
Paul L. Hallingby........................ 40,000 4.4% 4.7375 10/01/01 52,355 115,692
Cristina M. Morgan....................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Potential Realizable Value is based on certain assumed rates of appreciation
pursuant to rules prescribed by the SEC. Actual gains, if any, on stock
option exercises are dependent on the future performance of the stock. There
can be no assurance that the amounts reflected in this table will be
achieved. In accordance with rules promulgated by the SEC, Potential
Realizable Value is based upon the exercise price of the options, which is
substantially less than the expected initial public offering price.
SARS.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS (1) VALUE AT ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL SARS APPRECIATION FOR
UNDERLYING GRANTED TO BASE SAR TERM (2)
SARS EMPLOYEES IN PRICE MATURITY --------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------------------- ----------- --------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
William R. Hambrecht.......................... -- -- -- -- -- --
Daniel H. Case III............................ -- -- -- -- -- --
William R. Timken............................. 40,000 2.7% 4.975 9/30/95 9,950 19,900
Paul L. Hallingby............................. 140,000 9.4% 4.975 9/30/95 34,825 69,650
Cristina M. Morgan............................ 80,000 5.4% 4.975 9/30/95 19,900 39,800
</TABLE>
58
<PAGE>
- ------------------------
(1) SARs are awarded for a term of one fiscal year. At the end of the fiscal
year the grantee is allocated an amount equal to the number of SARs granted
multiplied by the increase in the net book value per share (if any) of the
Company's stock during such period. This amount vests and is paid out over a
three year period with one third paid out in the first, second and third
years after the grant date if the grantee remains an employee of the
Company. See "Management--Compensation Plans."
(2) Potential Realizable Value is based on certain assumed rates of appreciation
pursuant to rules prescribed by the SEC.
AGGREGATED OPTION EXERCISES DURING FISCAL 1995 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers
certain information concerning options exercised during fiscal 1995 and the
number of shares subject to both exercisable and unexercisable stock options as
of September 30, 1995, giving effect to the Restructuring. Also reported are
values for "in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding options and the fair market value of
the Company's Common Stock as of September 30, 1995:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
NUMBER OF OPTIONS AT AT SEPTEMBER 30,
SHARES VALUE SEPTEMBER 30, 1995 (#) 1995 (1)($)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William R. Hambrecht........... -- -- -- -- -- --
Daniel H. Case III............. 110,000 274,875 1,045,928 192,900 4,053,856 466,444
William R. Timken.............. -- -- 32,000 8,000 141,360 35,340
Paul L. Hallingby.............. 70,000 203,975 74,000 76,000 199,465 156,210
Cristina M. Morgan............. 72,000 209,460 56,000 4,000 223,205 17,670
</TABLE>
- ------------------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at September 30, 1995 and the exercise
price of the Named Executive Officer's option. There was no established
public trading market for the Common Stock underlying the options as of
September 30, 1995. Accordingly, the amounts set forth have been calculated
based on the difference between the net book value per share at September
30, 1995 ($6.52 per share) and the exercise price of the option, which the
Company's Board of Directors determined to be the fair market value at the
date of grant.
AGGREGATED SAR PAYOUTS FOR FISCAL 1995
The following table sets forth for each of the Named Executive Officers
certain information concerning SAR payouts during fiscal 1995, the number of
securities underlying SARs outstanding at September 30, 1995 and the unrealized
value of unvested SARs at September 30, 1995.
<TABLE>
<CAPTION>
SAR PAYOUTS IN SECURITIES UNDERLYING UNREALIZED VALUE OF
FISCAL 1995 SARS AT SEPTEMBER 30, 1995 SARS AT SEPTEMBER 30, 1995
($)(1) (#SAR'S) ($)(2)
-------------- -------------------------- --------------------------
<S> <C> <C> <C>
William R. Hambrecht...................... -- -- --
Daniel H. Case III........................ -- -- --
William R. Timken......................... 28,933 120,000 144,633
Paul L. Hallingby......................... 50,950 280,000 433,250
Cristina M. Morgan........................ 43,400 200,000 133,117
</TABLE>
- ------------------------
(1) SAR payouts for fiscal 1995 reflect payouts of SARs granted during fiscal
1993 and 1994.
(2) The unrealized value of SARs at the fiscal year end is calculated by
aggregating the unvested and unpaid value of SARs granted in fiscal 1993,
1994 and 1995.
59
<PAGE>
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Daniel H. Case III in
1992. The currently effective provisions of this agreement provide that if H&Q
terminates Mr. Case's employment without cause, or if Mr. Case resigns within
six months after a change in control of H&Q, then (i) H&Q shall pay Mr. Case the
greater of $400,000 or 25% of his aggregate compensation received during the
preceding two years, (ii) 50% of his unvested options shall become vested, (iii)
all options may be exercised within two years after termination for cash or on a
net-exercise basis and (iv) unless within two years he becomes employed by
another full service investment bank, Mr. Case can co-invest during such period
in H&Q venture capital opportunities on the same basis as H&Q's executive
officers.
COMPENSATION PLANS
The Company's philosophy is to compensate employees based on their
individual performance and the Company's overall performance. Two main
principles guiding this philosophy are to pay market rates and to provide
long-term employee stock ownership. H&Q considers equity ownership by employees
to be critical to its long-term success. When calculating total compensation, it
considers both cash compensation and equity awarded through stock or options
that vest over time.
1996 BONUS AND DEFERRED SALES COMPENSATION PLAN. The Company's current
intention is to pay semi-annual bonuses under the 1996 Bonus and Deferred
Compensation Plan ("1996 Compensation Plan") to its research, investment
banking, trading and administrative professionals and to its other executive
officers. If an eligible employee's compensation amount equals or exceeds
$100,000 for the applicable six-month period, then 80% of the employee's bonus
will be paid in cash and 20% will consist of Common Stock, valued at 90% of
current market value. Institutional sales professionals will be paid 80% of
their commission earnings in cash and 20% in the form of Common Stock, valued at
90% of current market value, granted at the end of each six month period. The
stock will vest over three years following the date of grant. At the time of the
bonus payment, the employee will have the choice of declining to accept Common
Stock, and instead to receive cash in exchange for a three-year note payable to
the Company. Such stock will vest and such note will be forgiven by the Company
only to the extent that the employee is employed by the Company on the first
three anniversaries of the bonus date. Management currently expects that
approximately 2,000,000 shares will be issued under the 1996 Equity Plan as
contingent equity rights resulting from bonuses received under the 1996
Compensation Plan.
1996 EQUITY PLAN. In June 1996 the Company's Board of Directors adopted the
Company's 1996 Equity Plan (the "1996 Plan"). The 1996 Plan provides for the
granting to employees (including officers and employee directors) of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and for the granting to employees (including
officers and employee directors) and consultants of nonstatutory stock options.
The 1996 Plan also provides for the granting of contingent equity rights to
employees. Unless terminated sooner, the 1996 Plan will terminate automatically
in October 2006. The Board has authority to amend, suspend or terminate the 1996
Plan, provided that no such action may affect any shares of Common Stock
previously issued and sold or any option previously granted under the 1996 Plan.
A total of 3,000,000 shares of Common Stock has been reserved for issuance under
the 1996 Plan. Management presently intends to allocate approximately 1,000,000
shares for issuance upon the exercise of options and 2,000,000 shares for
issuance in connection with contingent equity rights resulting from bonuses
received under the 1996 Compensation Plan. As of the date of this Prospectus, no
options or contingent equity rights have been issued under the 1996 Plan.
The 1996 Plan may be administered by the Board of Directors or the
compensation committee. With respect to grants to directors and officers of the
Company who are subject to short-swing liability under Section 16(b) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), the
Administrator will be constituted in a manner intended to comply with the
requirements of Rule 16b-3 under the Exchange Act pertaining to the
disinterested administration of employee benefit plans. If the 1996 Plan
satisfies the requirements of Rule 16b-3, discretionary grants of options and
contingent equity rights under the 1996 Plan to persons subject to liability
under Section 16(b) will be exempt from such liability to the extent provided by
Rule 16b-3.
60
<PAGE>
The Administrator has the power to determine the terms of the options and
contingent equity rights granted, including the exercise price, the number of
shares subject to the option or contingent equity right and the exercisability
thereof, and the form of consideration payable upon exercise.
Options and contingent equity rights granted under the 1996 Plan are not
generally transferable by the grantee except by will or by the laws of descent
or distribution. Options are exercisable during the lifetime of the optionee
only by such optionee. Except in the case of a termination for "cause," options
granted under the 1996 Plan must be exercised within three months after the end
of the optionee's status as an employee or consultant of the Company, or within
six months after such optionee's death or disability, but in no event later than
the expiration of the option term. Unexercised options terminate upon a
termination for "cause." The exercise price of all nonstatutory stock options
granted under the 1996 Plan shall be determined by the Administrator.
With respect to any participant who owns stock possessing more than 10% of
the voting power of all classes of the Company's outstanding capital stock (a
"10% Shareholder"), the exercise price of any incentive stock option granted
must equal at least 110% of the fair market value on the date of grant. The
exercise price of incentive stock options for all other employees shall be no
less than 100% of the fair market value per share on the date of grant. The
maximum term of an option granted under the 1996 Plan may not exceed ten years
from the date of grant (five years in the case of an incentive stock option
granted to a 10% Shareholder).
In the event of a change of control of the Company, each outstanding option
under the 1996 Plan may be assumed or an equivalent option substituted by the
successor corporation or a parent or subsidiary of the successor corporation. In
the event that the option is not assumed or substituted, the vesting of the
option shall accelerate by 12 months, the optionee shall have the right to
exercise the option for a period of 15 days after receiving notice of such
change of control, and the option will terminate upon the expiration of such
period. In such event, the vesting of any unvested shares of stock granted under
a contingent equity right shall accelerate by 12 months.
1995 STOCK OPTION PLAN. The 1995 Stock Option Plan (the "1995 Option Plan")
was adopted by the Board of Directors of Group California and approved by the
shareholders of Group California. In connection with the Restructuring, options
granted under the 1995 Option Plan were assumed by the Company, and such options
became exercisable for Common Stock of the Company. At June 30, 1996, 4,153,640
shares were subject to outstanding options under the 1995 Option Plan. Following
the Restructuring, options granted under the 1995 Option Plan will remain
outstanding in accordance with their terms, but no further options will be
granted under the 1995 Option Plan.
1995 RESTRICTED STOCK PLAN. The 1995 Restricted Stock Plan (the "1995 Stock
Plan") was adopted by the Board of Directors and approved by the shareholders of
Group California. In connection with the Restructuring, shares of Common Stock
of Group California sold under the 1995 Stock Plan were exchanged for Common
Stock of the Company. At June 30, 1996, 1,867,980 shares had been sold under the
1995 Stock Plan. Following the Restructuring, no additional shares will be sold
under the 1995 Stock Plan.
1985 STOCK OPTION PLAN. The 1985 Stock Option Plan (the "1985 Option Plan")
was adopted by the Board of Directors of Group California and approved by the
shareholders of Group California. In connection with the Restructuring, options
granted under the 1985 Option Plan were assumed by the Company, and such options
became exercisable for Common Stock of the Company. The 1985 Plan provided for
the granting of options to purchase 4,000,000 shares of Common Stock of Group
California. At June 30, 1996, options to purchase 432,800 shares under the 1985
Option Plan were outstanding. Options granted under the 1985 Option Plan will
remain outstanding in accordance with their terms. The 1985 Option Plan expired
by its terms in 1994.
1995 PARTNERSHIP UNIT PLAN. The 1995 Limited Partnership Unit Plan (the
"Unit Plan") was adopted by LP in order to sell limited partnership units of LP
to directors, officers, and key employees of LP and Group California. A total of
35,008 limited partnership units were sold under the Unit Plan. In connection
with the Restructuring, LP was merged with and into the Company, and limited
partnership units granted under the Unit Plan were exchanged for shares of the
Company's Common Stock. Following the Restructuring, no further sales will be
made under the Unit Plan.
61
<PAGE>
OPTION GRANTS OUTSIDE OF PLANS. From time to time Group California has
granted options outside of its plans to certain officers and directors with the
exercise price in each case equal to Group California's net book value per
share, which approximated its fair market value, on the date of grant. At June
30, 1996, such options covered a total of 1,111,080 shares of the Company's
Common Stock.
SESOP. The Company has adopted a Savings and Employee Stock Ownership Plan
("SESOP") in which all salaried employees are eligible to participate after six
months of service. The SESOP is comprised of two major benefit plans: (1) a
salary deferral (or 401(k)) plan, in which the Company matches every dollar
contributed by employees with a dollar's worth of its Common Stock up to a
certain amount (currently $4,000.00 per year); and (2) a profit-sharing plan
which was instituted in 1976 for the predecessor partnership. Subsequent to the
adoption of the SESOP, no contributions to the profit-sharing plan have been
made, and none are anticipated in the future (although the plan continues to
allocate participant forfeitures). The Company's matching contributions and the
employees' own contributions are always fully vested. Employees' units in their
profit-sharing accounts begin vesting after three years of service, at 30%, and
become fully vested after seven years of service with the Company. The Company's
total matching contribution to the SESOP for fiscal 1995 was $1,246,645.
SAR PROGRAM. Effective October 1, 1992 the Company established a Stock
Appreciation Rights ("SAR") program for certain key executives. The SARs are
granted as of each October 1st, for a term of one year (to coincide with the
Company's fiscal year) and vest over three years. The Company awarded 1,260,000,
1,794,000, and 2,859,520 SARs as of October 1, 1993, 1994, and 1995,
respectively. The SARs will result in additional compensation to the executives
based on the increase, if any, in the Company's book value during the fiscal
year following the date of award. Effective March 31, 1996, 2,179,520 of the
SARs granted as of October 1, 1995 were revised to a six-month term ended March
31, 1996. The Company does not expect to make SAR grants in the future.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
for monetary damages to the maximum extent permitted by Delaware law. Such
limitation of liability has no effect on the availability of equitable remedies,
such as injunctive relief or rescission. The Company's Certificate of
Incorporation also provides for indemnification of any director, officer or
employee made party to any action by reason of the fact that the individual
holds such a position.
The Company's Bylaws provide that the Company will indemnify its directors
and officers and may indemnify its employees and agents (other than officers and
directors) against certain liabilities to the fullest extent permitted by
Delaware law. The Company is also empowered under its Bylaws to enter into
indemnification agreements with its directors and officers and to purchase
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation or serving in those and certain other positions at the
request of the Company. However, as a matter of policy the Company will
generally not indemnify employees for service on boards of directors of publicly
traded companies after the first meeting of shareholders following such a
company's initial public offering. The Company has entered into indemnification
agreements with each of its current directors and officers which provide for
indemnification of, and advancement of expenses to, such persons to the greatest
extent permitted by Delaware law, including by reason of action or inaction
occurring in the past and circumstances in which indemnification and advancement
of expenses are discretionary under Delaware law. It is the opinion of the staff
of the SEC that indemnification provisions such as those contained in these
agreements have no effect on a director's or officer's liability under the
federal securities laws.
62
<PAGE>
CERTAIN TRANSACTIONS
INCREASE IN EQUITY OWNERSHIP OF DANIEL H. CASE III
In March 1996, the Company's Board of Directors approved a series of
transactions proposed by the Company's Compensation Committee designed to
increase the equity ownership of Daniel H. Case III, the Company's President and
Chief Executive Officer to a level commensurate with his position and
responsibilities. Mr. Case was promoted to Chief Executive Officer effective
October 1, 1994. The Board of Directors decided at that time that Mr. Case's
access to equity ownership in the Company should be increased as of Mr. Case's
promotion date to be equivalent to the ownership position of Company Chairman
William R. Hambrecht. The Board delegated to the Compensation Committee the
determination of Mr. Case's equity programs. Because the Compensation
Committee's determination was not completed until early in fiscal 1996, Mr.
Case's options to purchase Common Stock, described below, were valued as of
September 30, 1995. As a partial make-up for this delay, the Board determined to
pay Mr. Case a bonus of $1,951,979 (the "Make-Up Bonus") which on a pre-tax
basis equalled the difference in the fair value of the Company's Common Stock
subject to such options between October 1994 and October 1995. In March 1996:
(i) the Board accelerated the vesting of options to purchase 161,576 shares of
Common Stock; (ii) Mr. Case exercised options covering 1,238,828 shares of
Common Stock, with a weighted average exercise price of approximately $2.838 per
share; (iii) Mr. Case paid the exercise price of such options by delivering
promissory notes for $3,515,352; (iv) Mr. Case resold 169,428 of the purchased
shares to the Company for $6.518 cash per share (the then fair market value of
the shares in the opinion of the Board of Directors), or a total of $1,104,247;
and (v) the Company's Board of Directors granted Mr. Case a nonstatutory stock
option to purchase 892,680 shares of Common Stock at an exercise price of $6.518
per share. Mr. Case also purchased 3,616 Units of LP with a promissory note for
$1,133,698. As part of the Restructuring, such Units were exchanged for 86,784
additional shares of Common Stock. Each of the above-referenced promissory notes
has a five-year term, bears interest at the rate of 6% per annum, and is to be
repaid from Mr. Case's cash bonuses at a rate of 20% of any such bonuses. Mr.
Case has applied all of the proceeds of the Make-Up Bonus described above after
withholding for taxes to prepay approximately $1,260,000 such notes. Mr. Case
also intends to apply a portion of his Restructuring distribution and a portion
of the Guaranty Finance transactions described below as an additional prepayment
of notes.
GUARANTY FINANCE
Prior to the Restructuring, LP owned 70% of Guaranty Finance and Mr. Case
indirectly owned approximately 15% of the outstanding equity of Guaranty Finance
and indirectly held an option to purchase approximately 3% additional equity of
Guaranty Finance. Mr. Case has also rendered certain consulting services to
Guaranty Finance. Mr. Case co-founded Guaranty Finance in 1983 and purchased his
interest at fair market value at the time Guaranty Finance was initially
capitalized in 1985. Subsequently, Mr. Case made additional investments or
increased his percentage ownership indirectly in Guaranty Finance, principally
by foregoing his share of a cash distribution that Group California received
from Guaranty Finance in 1992. During fiscal 1993, 1994 and 1995 and the nine
months ended June 30, 1996, Mr. Case received $86,300, $51,653, $241,189 and
$206,273, respectively, from Guaranty Finance as compensation for consulting
services, distribution on capital and profit sharing. Of such aggregate of
$585,415 paid to Mr. Case since October 1, 1992, the portions relating to
consulting services, profit sharing and distributions on capital were $86,250,
$166,689 and $332,477, respectively.
Guaranty Finance has repurchased all outstanding options to purchase
additional equity in Guaranty Finance and will (a) distribute certain
non-operating assets to its equity holders, including Mr. Case and LP, and (b)
accrue and pay out deferred profit-sharing obligations representing
approximately 10% of all net investment gains (the "Distribution"). Mr. Case
received $500,000 for his interest in the repurchased Guaranty Finance options.
In July 1996, Mr. Case applied this $500,000 toward the prepayment of notes
payable to the Company. Mr. Case's proportionate share of the Distribution had a
book value as of June 30, 1996 of approximately $1.3 million, of which
approximately $250,000 is subject to repayment in part if Mr. Case terminates
his employment with the Company prior to December 31, 1999.
In connection with the Restructuring and in order to avoid any appearance of
conflict of interest in the future, the Company will purchase Mr. Case's
interest in Guaranty Finance for $1,734,588 plus Mr. Case's
63
<PAGE>
proportionate part of the proceeds from the sales, after May 31, 1996 and prior
to the Restructuring, of any additional assets which otherwise would have been
distributed as part of the Distribution. The $1,734,588 represents the fair
market value at May 31, 1996, of Mr. Case's proportionate part of assets
expected to remain in Guaranty Finance after the Distribution. Following the
Restructuring, Mr. Case will have no further direct interest in the profits of
Guaranty Finance and has waived his rights to any further consulting fees or
profit sharing from Guaranty Finance.
ISSUANCES OF SECURITIES TO OFFICERS AND DIRECTORS
H&Q has made numerous sales of Common Stock to directors, executive officers
and other employees during the last three fiscal years and since the beginning
of the current fiscal year. The following table summarizes such sales, as
adjusted to reflect the Restructuring:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE
30, 1996
FISCAL 1993 (1) FISCAL 1994 (1) FISCAL 1995 (1) (1)
------------------------ ------------------------ ---------------------- -----------
AGGREGATE AGGREGATE AGGREGATE
PURCHASE PURCHASE PURCHASE
NAME SHARES (#) PRICE SHARES (#) PRICE SHARES (#) PRICE SHARES (#)
- -------------------------------------- ----------- ----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel H. Case III.................... 36,000 $ 86,980 265,852 $ 396,714 110,000 $ 266,125 1,955,708
William R. Hambrecht.................. 16,000 $ 44,880 323,296 $ 258,277 -- -- --
William R. Timken..................... 140,000 $ 297,840 165,600 $ 106,053 -- -- --
Cristina M. Morgan.................... 11,080 $ 25,152 66,880 $ 146,612 72,000 $ 171,390 115,845
Paul L. Hallingby..................... 50,000 $ 102,000 86,680 $ 145,445 85,680 $ 243,675 278,000
Bruce M. Lupatkin..................... -- -- 24,544 $ 29,767 60,000 $ 143,250 66,784
William E. Mayer...................... 20,000 $ 56,100 25,120 $ 80,651 22,400 $ 99,500 34,400
Edmund H. Shea, Jr.................... 6,664 $ 18,693 55,759 $ 35,709 -- -- 49,984
Patrick J. Allen...................... -- -- -- -- -- -- 37,520
Howard B. Hillman..................... 20,000 $ 56,100 9,120 $ 7,046 -- -- --
Steven N. Machtinger.................. 12,000 $ 33,660 15,840 $ 10,144 44,480 $ 122,100 46,561
David M. McAuliffe.................... -- -- -- -- 186,400 $1,078,225 13,281
Raymond J. Minehan.................... 12,000 $ 33,660 18,720 $ 11,989 60,000 $ 157,050 33,121
<CAPTION>
AGGREGATE
PURCHASE
NAME PRICE
- -------------------------------------- ---------
<S> <C>
Daniel H. Case III.................... $8,918,875
William R. Hambrecht.................. --
William R. Timken..................... --
Cristina M. Morgan.................... $ 642,086
Paul L. Hallingby..................... $1,596,974
Bruce M. Lupatkin..................... $ 477,323
William E. Mayer...................... $ 100,080
Edmund H. Shea, Jr.................... $ 151,964
Patrick J. Allen...................... $ 271,930
Howard B. Hillman..................... --
Steven N. Machtinger.................. $ 212,730
David M. McAuliffe.................... $ 174,386
Raymond J. Minehan.................... $ 164,941
</TABLE>
- ------------------------------
(1) Share number and aggregate purchase price figures have been adjusted to
reflect the exchange of Group California shares and LP units for shares of
Common Stock of the Company in connection with the Restructuring.
PARTICIPATION BY EMPLOYEES AND OFFICERS IN VENTURE CAPITAL INVESTMENTS
Employees and officers of the Company are required to offer to the Company
opportunities which they encounter to invest in private companies in the
Company's areas of focus. The Company has the right to take its desired
investment position in such opportunities. If the Company rejects such
opportunity, the originating employee may make such investment. If the Company
invests in such opportunities, it typically will invest an amount equal to at
least twice the amount of the largest investment by a Company employee. After
the Company takes its desired investment position it will typically syndicate
such opportunities for investment by eligible employees and selected outside
investors. Occasionally, H&Q will be asked to participate in an investment which
is not a candidate for syndication to all eligible H&Q employees. In such
instance, a small number of H&Q employees directly involved with the Company or
the transaction may invest side-by-side with H&Q (or one of its wholly-owned
subsidiaries) on a direct, non-syndicated basis. A Small Business Investment
Company that is wholly-owned by William R. Hambrecht and his family, and J.F.
Shea Co., Inc. and other affiliates of Edmund H. Shea, a director of the
Company, each regularly invests side-by-side with the Company's venture capital
funds and commits capital to venture capital funds affiliated with H&Q. Other
directors of the Company may also invest side-by-side with the Company's venture
capital funds or may commit capital to H&Q affiliated venture capital funds and
have from time to time done so. Side-by-side investments are generally made on
the same terms as those applicable to other participants in the same
transaction. The following table summarizes venture capital investments made and
capital committed to H&Q affiliated venture capital funds by the Company's
Directors and Executive Officers in each of the last three fiscal years and in
the nine months ended June 30, 1996:
64
<PAGE>
VENTURE INVESTMENTS BY OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
JUNE 30,
NAME FISCAL 1993 FISCAL 1994 FISCAL 1995 1996
- ------------------------------------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
William R. Hambrecht (1)(2)..................... $ 1,111,625 $ 1,455,106 $ 749,354 $ 900,562
Daniel H. Case III (3).......................... 234,449 152,145 238,196 272,218
William R. Timken (2)........................... 697,026 860,202 720,023 429,134
Paul L. Hallingby............................... 27,379 32,000 30,000 70,503
Cristina M. Morgan.............................. 111,173 88,075 71,215 151,522
David M. McAuliffe.............................. -- -- -- 15,000
Bruce M. Lupatkin............................... 45,565 31,792 21,000 60,492
Raymond J. Minehan.............................. -- -- 2,500 8,000
Steven N. Machtinger............................ 6,982 11,899 11,500 19,000
Patrick J. Allen................................ -- -- 7,000 4,500
William E. Mayer................................ 535,461 255,411 240,079 203,002
Howard B. Hillman............................... 567,935 524,313 598,113 460,499
Edmund H. Shea, Jr. (2)(4)...................... 6,076,133 8,189,895 3,190,322 5,645,774
</TABLE>
- ------------------------
(1) Includes investments made by a Small Business Investment Company owned by
Mr. Hambrecht and his family. Also includes investments in venture funds
managed by Asia Pacific.
(2) Includes investments in venture funds managed by Asia Pacific.
(3) Includes investments made by Stacey Case, Mr. Case's wife.
(4) Includes investments made by Edmund & Mary Shea Real Property Trust, and
J.F. Shea Co., Inc., which Mr. Shea may be deemed to control.
In addition to their pro rata return on investment, the Company allocates to
certain of its professionals, including certain of those listed above, a portion
of the profits realized from particular venture investments based on such
professionals' specific contributions to identifying, structuring and managing
the investment.
INDEBTEDNESS OF OFFICERS AND DIRECTORS
The Company's executive officers and directors listed below have been
indebted to the Company in the amounts and for the periods set forth below. The
purpose of the indebtedness in each case is to permit the exercise of options to
purchase Common Stock of the Company, to purchase restricted Common Stock of the
Company or to purchase LP units. All such indebtedness is due five years after
issuance, bears interest at approximately the minimum rate necessary to avoid
imputation of interest income for tax purposes and is secured by the shares
purchased with recourse against the borrower only to the extent of the
borrower's equity interest in the Company and the borrower's rights to receive
compensation from the Company. "Type A"
65
<PAGE>
indebtedness is repayable with 15% of the gross amount of each semi-annual
Company bonus withheld from the borrower's net pay. "Type B" indebtedness is
forgiven at the rate of 20% of the initial principal amount and accrued interest
at January 15, of each year of the term of such indebtedness.
<TABLE>
<CAPTION>
AGGREGATE BALANCE
HIGHEST BALANCE HIGHEST BALANCE DURING HIGHEST BALANCE DURING OUTSTANDING AS OF
DURING FISCAL 1993 FISCAL 1994 FISCAL 1995 JUNE 30, 1996
--------------------- ---------------------- ---------------------- ------------------------
TYPE A TYPE B TYPE A TYPE B TYPE A TYPE B TYPE A TYPE B
---------- --------- ---------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William R. Hambrecht............... $ -- $ -- $ -- $ 61,480 $ -- $ 49,184 $ -- $ 24,592
Daniel H. Case III(1).............. -- 84,100 -- 220,980 648,523 341,860 3,926,286 302,206
William R. Timken.................. 182,368 -- 72,368 -- -- -- -- --
Paul L. Hallingby(1)............... 162,610 -- 161,205 -- 499,963 -- 1,544,888 --
Cristina M. Morgan................. -- 84,100 -- 182,555 143,250 210,805 396,451 174,883
David M. McAuliffe................. -- -- -- -- -- 216,000 254,344 208,519
Bruce M. Lupatkin.................. -- 84,100 -- 67,280 359,250 50,460 584,999 16,820
Raymond J. Minehan................. 102,828 -- 92,328 -- 242,130 -- 308,470 --
Steven N. Machtinger............... 100,328 -- 79,828 -- 139,515 18,950 274,585 14,970
Patrick J. Allen................... -- -- -- -- 108,000 43,200 207,957 44,781
William E. Mayer................... -- -- -- -- -- -- 32,800 --
</TABLE>
- ------------------------
(1) Mr. Case's and Mr. Hallingby's indebtedness is repayable in installments of
20% of their respective cash bonuses, if any.
SECURITIES TRADING FOR EMPLOYEES
From time to time, directors, officers and other employees of the Company
may buy or sell securities to or from H&Q LLC as principal or through H&Q LLC as
agent in its capacity as a registered securities broker-dealer. Such
transactions are generally executed on terms (i.e., commissions, mark-ups and
mark-downs) more favorable to the employee-customer than those available to
similarly-situated non-employee customers of the Company.
66
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of June 30, 1996, and as
adjusted to reflect the completion of this offering, by (i) each Named Executive
Officer, (ii) each director, (iii) each holder of more than 5% of the Company's
Common Stock and (iv) all current directors and executive officers as a group.
Except as indicated in the footnotes to this table, the persons named in the
table have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY
NUMBER OF OWNED (1)
SHARES --------------------
BENEFICIALLY BEFORE AFTER
DIRECTORS, NAMED EXECUTIVE OFFICERS AND 5% BENEFICIAL OWNERS OWNED (1) OFFERING OFFERING
- -------------------------------------------------------------------------- ----------- --------- ---------
<S> <C> <C> <C>
William R. Hambrecht (2).................................................. 2,893,457 15.5% 13.1%
Daniel H. Case III (3).................................................... 2,000,777 10.7% 9.0%
William R. Timken (4)..................................................... 1,564,686 8.4% 7.0%
Paul L. Hallingby (5)..................................................... 639,587 3.4% 2.9%
Cristina M. Morgan (6).................................................... 404,959 2.2% 1.8%
William E. Mayer (7)...................................................... 112,800 * *
Howard B. Hillman (8)..................................................... 80,320 * *
Edmund H. Shea, Jr. (9)................................................... 524,583 2.8% 2.4%
Savings and Employee Stock Ownership Plan (10)............................ 1,918,198 10.3% 8.7%
All executive officers and directors as a group (13 persons) (11)......... 9,081,327 48.6% 41.0%
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of June 30, 1996 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of each other person. To the Company's knowledge,
except as set forth in the footnotes to this table and subject to applicable
community property laws, each person named in the table has sole voting and
investment power with respect to the shares set forth opposite such person's
name. Except as otherwise indicated, the address of each of the persons in
this table is care of Hambrecht & Quist, One Bush Street, San Francisco,
California 94104.
(2) Includes 27,601 shares held in trust by SESOP and in the Group Trust.
(3) Includes 18,185 shares held in trust by SESOP and in the Group Trust.
(4) Includes options to purchase 32,000 shares exercisable within 60 days of
June 30, 1996 and 27,086 shares held in trust by SESOP and in the Group
Trust.
(5) Includes options to purchase 16,000 shares exercisable within 60 days of
June 30, 1996 and 27,587 shares held in trust by SESOP and in the Group
Trust.
(6) Includes options to purchase 16,000 shares exercisable within 60 days of
June 30, 1996 and 26,233 shares held in trust by SESOP and in the Group
Trust.
(7) Includes options to purchase 8,000 shares exercisable within 60 days of June
30, 1996.
(8) Includes options to purchase 51,200 shares exercisable within 60 days of
June 30, 1996.
(9) Includes options to purchase 1,600 shares exercisable within 60 days of June
30, 1996.
(10) Represents shares held by SESOP for the benefit of employees of the
Company. See "Management-- Compensation Plans". The Trustee of the SESOP is
BZW Barclays Global Investors located at 420 Montgomery Street, Third Floor,
San Francisco, CA 94104. Each beneficiary is entitled to instruct the
Trustee as to the voting or tendering of any full or partial shares of
Company Stock held on his or her behalf. Excludes 230,184 shares held by
Group Trust.
(11) Includes options to purchase 136,800 shares exercisable within 60 days of
June 30, 1996 and 175,031 shares held in trust by SESOP and in the Group
Trust.
67
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Prior to the completion of this offering, the authorized capital stock of
the Company will consist of 100,000,000 shares of Common Stock, $0.01 par value
per share, and 5,000,000 shares of Preferred Stock, $0.01 par value per share.
COMMON STOCK
As of June 30, 1996, there were 18,669,064 shares of Common Stock
outstanding (after giving effect to the Restructuring) held of record by
approximately 266 stockholders. Holders of Common Stock are entitled to one vote
per share on all matters to be voted upon by the stockholders. Except as
otherwise provided by law, the holders of shares of Common Stock vote as one
class, together with any other class or series of stock conferred with general
class voting rights by the Company's Certificate of Incorporation. After the
completion of this offering, the officers and directors of the Company will
beneficially own, in the aggregate, approximately 41.0% of the outstanding
Common Stock. These persons may be able to elect all of the directors to be
elected at each annual meeting and to cast a sufficient number of votes to
control all other matters subject to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding Preferred Stock, the
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. Dividend payments and advances to the Company by H&Q
LLC are restricted by the provisions of the net capital rules of the NYSE, the
SEC and the NASD. See "Net Capital Requirements." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior liquidation rights of Preferred Stock, if any, then
outstanding. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable, and the shares of Common Stock to be outstanding upon
completion of the offering contemplated by this Prospectus will be fully paid
and non-assessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 5,000,000 shares of
Preferred Stock, none of which are outstanding. The Board of Directors has the
authority to issue the shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions granted to or imposed
upon any unissued shares of Preferred Stock and to fix the number of shares
constituting any series and the designations of such series, without any further
vote or action by the stockholders. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change of control of the Company. The Company has no present plans
to issue any of the Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and applicable law, could make the acquisition of the Company by means of a
tender offer, a proxy contest or otherwise and the removal of incumbent officers
and directors more difficult. The Company's Certificate of Incorporation
authorizes the Board of Directors to designate and issue Preferred Stock as
described above.
The Company's Bylaws permit the Board of Directors to establish by
resolution the authorized number of directors, and the Company currently has six
directors authorized. The Company's Bylaws also provide for a classified Board
of Directors divided into three classes: Class I expires at the annual meeting
of stockholders to be held in 1997; Class II expires at the annual meeting of
the stockholders to be held in 1998; and Class III expires at the annual meeting
of stockholders to be held in 1999. The Class I directors are Messrs. Hillman
and Timken; the Class II directors are Messrs. Case and Shea; and the Class III
directors are Messrs. Hambrecht and Mayer. At each annual meeting of
stockholders beginning with the 1997 annual meeting, the successors to directors
whose terms are expiring will be elected to serve from the time of election and
qualification until the third annual meeting following election and until their
successors have been duly elected and qualified. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of an
equal number of directors. This system of
68
<PAGE>
electing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of the Company and may maintain
the incumbency of the Board of Directors, as it generally makes it more
difficult for stockholders to replace a majority of the directors.
The Company's Bylaws also provide that a special meeting of stockholders may
be called only by the Company's Chief Executive Officer, the Chairman of the
Board, a majority of the members of the Company's Board of Directors or
stockholders holding shares entitled to cast 10% or more of the votes at a
meeting.
The Company is subject to Section 203 of the Delaware General Corporation
Law, which prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which such person became an interested
stockholder unless: (i) prior to such date, the Board of Directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or (ii) upon becoming an
interested stockholder, the stockholder then owned at least 85% of the voting
stock, as defined in Section 203; or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and by holders of at
least 66 2/3% of the corporation's outstanding voting stock, excluding shares
owned by the interested stockholder. For these purposes, the term "business
combination" includes mergers, asset sales and other similar transactions with
an "interested stockholder." An "interested stockholder" is a person who,
together with affiliates and associates, owns (or, within the prior three years,
did own) 15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, the Company will have outstanding
22,169,064 shares of Common Stock (assuming no exercise of options after June
30, 1996). Of these shares, the 3,500,000 shares sold in the offering will be
freely tradeable without restriction, except that any shares purchased by
"affiliates" of the Company, as that term is defined under the Securities Act of
1933, as amended (the "Securities Act"), may generally only be sold in
compliance with the volume limitations and other restrictions provided in Rule
144 promulgated under the Securities Act. In reliance upon "no-action" letters
issued by the SEC relating to transactions under Section 3(a)(10) of the
Securities Act, the 18,669,064 shares issued in the Restructuring will also be
freely tradeable without restriction under the Securities Act due to the
issuance of a permit qualifying the shares following a public hearing conducted
before the California Commissioner of Corporations on the fairness of the terms
and conditions of the Restructuring, except that any shares held by affiliates
may generally only be sold in compliance with the volume limitations and other
restrictions provided in Rule 144.
The 18,669,064 shares issued in the Restructuring, and the shares issuable
upon the exercise of options assumed in connection with the Restructuring, will
be subject to lockup restrictions (the "Lockup"), unless released earlier by all
of Hambrecht & Quist LLC, Morgan Stanley & Co. Incorporated and the Company. The
Lockup prohibits the disposition of any such shares until the date 18 months
after the date of this Prospectus ("Effective Date"); provided, however, that
six months after the Effective Date each stockholder may sell the greater of
10,000 shares or 5% of such stockholder's shares outstanding on the Effective
Date (an aggregate maximum of approximately 2,014,000 shares), and 12 months
after the Effective Date each stockholder may sell an additional amount equal to
the greater of 10,000 shares or 5% of the holder's shares outstanding on the
Effective Date (an additional aggregate maximum of approximately 1,472,000
shares). Any shares subject to the Lockup may be released at any time with or
without notice to the public.
In addition to the Lockup, certain stockholders will be subject to volume
limitations imposed by Rule 144 under the Securities Act, certain stockholders
are subject to vesting provisions, and certain stockholders (including the SESOP
and the Group Trust) are subject to other contractual restrictions on transfer.
At June 30, 1996, options to purchase 5,697,520 shares of Common Stock were
outstanding, and an additional 3,000,000 shares of Common Stock were reserved
for issuance under the Company's 1996 Equity Plan. The Company intends to file a
registration statement under the Securities Act approximately 180 days after the
date of this Prospectus to register shares to be issued pursuant to the stock
plans. Shares of Common Stock
69
<PAGE>
issued under the stock plans after the effective date of such registration
statement will be freely tradeable in the public market, subject to lockup
restrictions and subject in the case of sales by affiliates to the amount,
manner of sale, notice and public information requirements of Rule 144.
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market will develop
or, if developed, will be sustained following this offering. Sales of
substantial amounts of Common Stock in the public market could adversely affect
the market price of the Common Stock.
70
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
Morgan Stanley & Co. Incorporated and Smith Barney Inc., have severally agreed
to purchase from the Company the following respective numbers of shares of
Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC.............................................................
Morgan Stanley & Co. Incorporated.................................................
Smith Barney Inc..................................................................
----------
Total....................................................................... 3,500,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may re-allow a
concession not in excess of $ per share to certain other dealers. The
Underwriters have informed the Company that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 525,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent the Underwriters exercise such option, each of the Underwriters will have
a firm commitment to purchase approximately the same percentage thereof that the
number of shares of Common Stock to be purchased by it shown in the table above
bears to the total number of shares of Common Stock offered hereby. The Company
will be obligated, pursuant to the option, to sell shares to the Underwriters to
the extent the option is exercised. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of Common Stock
offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
The Company has agreed that it will not, without the Representatives' prior
written consent, offer, sell or otherwise dispose of any shares of Common Stock,
options, rights or warrants to acquire shares of Common Stock, or securities
exchangeable for or convertible into shares of Common Stock during the 180-day
period commencing on the date of this Prospectus, except that the Company may
grant additional options under its stock option plans.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price are prevailing
market
71
<PAGE>
conditions, revenues and earnings of the Company, market valuations of other
companies engaged in activities similar to the Company, estimates of the
business potential and prospects of the Company, the present state of the
Company's business operations, the Company's management and other factors deemed
relevant. The estimated initial public offering price range set forth on the
cover of this Prospectus is subject to change as a result of market conditions
and other factors.
Under the Rules of the NASD, when an NASD member such as H&Q LLC
participates in the distribution of its parent company's securities, the public
offering price can be no higher than that recommended by a "qualified
independent underwriter" meeting certain standards. In accordance with this
requirement, Morgan Stanley & Co. Incorporated has agreed to serve in such role
and to recommend a price in compliance with the Rules.
SUBSEQUENT RESTRICTIONS
NYSE Rule 312(g) prohibits a member corporation, after the distribution of
securities of its parent to the public, from effecting any transaction (except
on an unsolicited basis) for the account of any customer in, or making any
recommendation with respect to, any such security. Thus, following the offering
of the shares, H&Q LLC and the Company's other subsidiaries will not be
permitted to make recommendations regarding the purchase or sale of the
Company's Common Stock.
The current Rules of the NASD prohibit employees of the Company, their
spouses and, under certain circumstances, other members of their immediate
families who purchase any of the shares offered hereby from selling, pledging,
assigning, hypothecating or transferring such shares for a period of six months
following the date of the offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters will be passed upon
for the Underwriters by Cooley Godward Castro Huddleson & Tatum, San Francisco,
California. Each of these firms has in the past represented, and continues to
represent, the Company on a regular basis and in a variety of matters other than
this offering. In addition, an investment fund associated with Cooley Godward
Castro Huddleson & Tatum currently has approximately $200,000 invested in
certain limited partnerships established by the Company to make venture capital
investments.
EXPERTS
The audited financial statements included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, to the extent and for the periods indicated in
their reports, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the SEC, Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act of 1933, as amended, with respect
to the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Common Stock, reference is made to the Registration Statement and the exhibits
and schedules filed as part thereof. Statements contained in this Prospectus as
to the contents of any contract or document filed as an exhibit to the
Registration Statement is qualified by reference to such exhibit as filed. A
copy of the Registration Statement, and the exhibits and schedules thereto, may
be inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the Registration Statement may be obtained from such offices upon the payment of
the fees prescribed by the SEC. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
SEC's World Wide Web site is
http://www.sec.gov.
72
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Selected Pro Forma Financial Data (unaudited)......................................... F-2
Pro Forma Combined Balance Sheet as of June 30, 1996 (unaudited)...................... F-3
Pro Forma Combined Statements of Operations for the nine months ended June 30, 1996
and the year ended September 30, 1995 (unaudited).................................... F-4
Notes to Pro Forma Combined Financial Statements--June 30, 1996 (unaudited)........... F-6
Combined Balance Sheets as of September 30, 1995 and June 30, 1996 (unaudited)........ F-8
Combined Statements of Operations for the nine months ended June 30, 1995 and 1996
(unaudited).......................................................................... F-9
Combined Statements of Cash Flows for the nine months ended June 30, 1995 and 1996
(unaudited).......................................................................... F-10
Condensed Notes to Combined Financial Statements--June 30, 1996 (unaudited)........... F-11
Report of Independent Public Accountants.............................................. F-15
Combined Balance Sheets as of September 30, 1994 and 1995............................. F-16
Combined Statements of Operations for the years ended September 30, 1993, 1994 and
1995................................................................................. F-17
Combined Statements of Changes of Shareholders' Equity and Partners' Capital for the
years ended September 30, 1993, 1994 and 1995........................................ F-18
Combined Statements of Cash Flows for the years ended September 30, 1993, 1994 and
1995................................................................................. F-19
Notes to Combined Financial Statements--September 30, 1995............................ F-21
</TABLE>
F-1
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
The following Pro Forma Combined Balance Sheet as of June 30, 1996 presents
the Restructuring (see "Restructuring") as if it occurred on June 30, 1996. The
following Pro Forma Combined Statements of Operations for the nine months ended
June 30, 1996 and the year ended September 30, 1995 present the results for the
Company as if the Restructuring had occurred on October 1, 1994. The pro forma
information is based on the historical combined financial statements after
giving effect to the Restructuring. The pro forma adjustments are described in
the accompanying Notes to Pro Forma Combined Financial Statements.
These historical combined financial statements include the combined
operations of H&Q and LP. The entities are presented on a combined basis without
revaluation, as the entities have been operating under common ownership and
common management and, in fiscal 1996, the entities will restructure their
operations to result in one surviving holding company.
The pro forma financial statements have been prepared by the Company's
management. The pro forma financial statements do not indicate future results or
the results that would have occurred if the Restructuring had occurred on the
dates indicated. The pro forma financial statements should be read in
conjunction with the audited combined financial statements of the Company as of
September 30, 1994 and 1995, the notes thereto, and the unaudited combined
financial statements as of September 30, 1995 and June 30, 1996, the notes
thereto, and management's discussion thereof, contained elsewhere in this
Prospectus. See "Combined Financial Statements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The distributions reflected in the pro forma financial statements primarily
result from the desire to retain the tax efficiencies achieved to date with
respect to portfolio investments held by non-taxable entities. Most of the
security distributions relate to the distribution of remaining holdings of BISYS
common stock, which securities have generated substantial income for the Company
in recent periods.
F-2
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS COMBINED
---------- ------------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................................. $ 29,331 $ (2,400)(1) $ 19,983
(2,024)(2)
(4,090)(4)
(834)(6)
Receivables:
Customers........................................................... 192,740 192,740
Lewco Securities Corp............................................... 60,337 60,337
Syndicate managers.................................................. 21,369 21,369
Related parties..................................................... 9,103 9,103
Lease............................................................... 4,131 4,131
Other............................................................... 12,617 12,617
Marketable trading securities, at market value........................ 30,344 30,344
Long-term investments, at estimated fair value........................ 85,942 707(2) 66,007
(20,642)(3)
Deferred income taxes................................................. 27,495 6,255(5) 33,750
Furniture, equipment and leasehold improvements, net.................. 10,095 10,095
Leased assets, net.................................................... 2,576 2,576
Exchange memberships, at cost......................................... 656 656
---------- ------- ----------
Total assets...................................................... $ 486,736 $ (23,028) $ 463,708
---------- ------- ----------
---------- ------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY AND PARTNERS' CAPITAL
Payables:
Customers........................................................... $ 136,310 $ 136,310
Compensation and benefits........................................... 89,117 $ (4,090)(4) 85,027
Syndicate settlements............................................... 32,102 32,102
Income taxes payable................................................ 14,418 14,418
Trade accounts payable.............................................. 2,075 2,075
Accrued expenses and other.......................................... 17,058 17,058
Securities sold, not yet purchased, at market value................... 8,801 8,801
Debt obligations...................................................... 11,252 11,252
Payable to partners of Hambrecht & Quist, L.P......................... 834 (834)(6) --
---------- ------- ----------
Total liabilities................................................. 311,967 (4,924) 307,043
Minority interest in Hambrecht & Quist Guaranty Finance, L.P.......... 4,375 (1,317)(2) 940
(2,118)(3)
Shareholders' equity and partners' capital............................ 170,394 (2,400)(1) 155,725
(18,524)(3)
6,255(5)
---------- ------- ----------
Total liabilities and shareholders' equity and partners'
capital.......................................................... $ 486,736 $ (23,028) $ 463,708
---------- ------- ----------
---------- ------- ----------
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
F-3
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS COMBINED
---------- --------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Principal transactions................................................ $ 75,354 $ 75,354
Agency commissions.................................................... 29,094 29,094
Investment banking.................................................... 130,522 130,522
Corporate finance fees................................................ 31,947 31,947
Net investment gains from long-term investments....................... 19,087 $ (3,704)(3) 15,383
Other................................................................. 26,358 (108)(1) 26,159
(91)(2)
---------- ------- -----------
Total revenues...................................................... 312,362 (3,903) 308,459
---------- ------- -----------
Expenses:
Compensation and benefits............................................. 159,738 159,738
Brokerage and clearance............................................... 10,017 10,017
Occupancy and equipment............................................... 7,146 7,146
Communications........................................................ 7,310 7,310
Interest.............................................................. 1,041 1,041
Other................................................................. 19,717 19,717
---------- ------- -----------
Total expenses...................................................... 204,969 0 204,969
---------- ------- -----------
Minority interest in income of subsidiary............................... 874 (510)(2) 364
---------- ------- -----------
Income before income tax provision.................................... 106,519 (3,393) 103,126
Income tax provision.................................................... 36,493 8,881(7) 45,374
---------- ------- -----------
Net income............................................................ $ 70,026 $ (12,274) $ 57,752
---------- ------- -----------
---------- ------- -----------
Pro forma weighted average shares outstanding (8)....................... 20,769
Pro forma earnings per share (8)........................................ $ 2.78
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
F-4
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS COMBINED
---------- --------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Principal transactions................................................ $ 53,425 $ 53,425
Agency commissions.................................................... 24,603 24,603
Investment banking.................................................... 70,360 70,360
Corporate finance fees................................................ 20,709 20,709
Net investment gains.................................................. 33,852 $ (7,413)(3) 26,439
Other................................................................. 17,074 (144)(1) 16,809
(121)(2)
---------- ------- -----------
Total revenues...................................................... 220,023 (7,678) 212,345
---------- ------- -----------
Expenses:
Compensation and benefits............................................. 105,370 105,370
Brokerage and clearance............................................... 10,441 10,441
Occupancy and equipment............................................... 7,803 7,803
Communications........................................................ 7,394 7,394
Interest.............................................................. 1,266 1,266
Other................................................................. 15,131 15,131
---------- ------- -----------
Total expenses...................................................... 147,405 0 147,405
---------- ------- -----------
Minority interest in income of subsidiary............................... 719 (419)(2) 300
---------- ------- -----------
Income before income tax provision.................................... 71,899 (7,259) 64,640
Income tax provision.................................................... 22,461 5,981(7) 28,442
---------- ------- -----------
Net income............................................................ $ 49,438 $ (13,240) $ 36,198
---------- ------- -----------
---------- ------- -----------
Pro forma weighted average shares outstanding (8)....................... 19,827
Pro forma earnings per share (8)........................................ 1.83
</TABLE>
See Notes to Pro Forma Combined Financial Statements.
F-5
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
(1) Immediately prior to the Offering, LP will make a pro rata cash
distribution of $5,000 to a liquidating trust benefiting the partners of LP.
From the proceeds of the distribution, the partners of LP will repay
approximately $2,600 in notes receivable currently recorded as a reduction to
partners' capital. The net reductions to cash and cash equivalents and
shareholders' equity and partners' capital will be $2,400.
Interest income earned at approximately 6 percent during the period ended
June 30, 1996 and the year ended September 30, 1995, has been reduced by $108
and $144, respectively, to reflect the reduction in interest-earning cash
equivalents.
(2) Immediately prior to the Offering, H&Q will purchase an additional 17.5
percent of Guaranty Finance from other members (including 15 percent from H&Q's
CEO) for $2,024 cash. The amount paid represents the fair value of the 17.5
percent pro rata interest, which exceeds the pro rata carrying value of Guaranty
Finance by $707. As a result of this transaction, cash and cash equivalents will
be reduced by the amount of the $2,024 cash payment, minority interest liability
will be reduced by the $1,317 carrying value of the 17.5 percent interest
purchased and long-term investments carried at cost by Guaranty Finance will be
increased by the $707 difference between the amount paid and the carrying value.
Interest income earned at approximately 6 percent during the period ended
June 30, 1996 and the year ended September 30, 1995, has been reduced by $91 and
$121, respectively, to reflect the reduction in interest-earning cash
equivalents.
Minority interest expense recorded for the 30 percent minority interest in
Guaranty Finance's net income for the period ended June 30, 1996 and the year
ended September 30, 1995, has been reduced by $510 and $419, respectively, to
reflect the purchase of an additional 17.5 percent interest in Guaranty Finance.
(3) Immediately prior to the Offering, Guaranty Finance and LP will make pro
rata distributions of securities totaling $20,642 to their partners.
Guaranty Finance will distribute securities with a carrying and fair value
of $7,061. As the 70 percent limited partner of Guaranty Finance, LP will
receive $4,943 of securities and the 30 percent general partner of Guaranty
Finance will receive $2,118 of securities.
LP will distribute 519,107 shares of BISYS with a fair value and carrying
value of $13,581 to a liquidating trust benefiting the partners of LP along with
the $4,943 of securities distributed to LP by Guaranty Finance.
Long-term investments will be reduced by the amount of the securities
distributed by Guaranty Finance and LP as follows:
<TABLE>
<S> <C>
Securities distributed by Guaranty Finance:
To Guaranty Finance's general partner.................... $ 2,118
To LP and then distributed to LP partners................ 4,943
Securities distributed by LP............................... 13,581
---------
$ 20,642
---------
---------
</TABLE>
Minority interest liability will be reduced by the $2,118 of securities
distributed to Guaranty Finance's minority interestholder. Shareholders' equity
and partners' capital will be reduced by $18,524 of securities distributed by
LP, including the $4,943 distributed to LP by Guaranty Finance.
Net investment gains related to the securities distributed and recorded
during the period ended June 30, 1996 and the year ended September 30, 1995 have
been reduced by $3,704 and $7,413, respectively.
F-6
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
(4) In June 1996, H&Q distributed its limited partner interest in LP to a
liquidating trust benefiting certain current and former employees. In July 1996,
H&Q will distribute cash of $4,090 to the recipients of the LP limited partner
interest. Cash and cash equivalents and the recorded compensation payable for
the distribution will be reduced by $4,090.
(5) As a result of the merger of LP into H&Q, deferred income tax assets
will increase by approximately $6,255 for the tax effect of LP's previously
unrecorded temporary differences. As a partnership, LP was not subject to taxes
that result in temporary differences. The related income tax benefit of $6,255
is not reflected in the Pro Forma Combined Statements of Operations but will
increase net income reported in the Company's combined financial statements for
the quarter including the merger.
(6) Immediately prior to the Offering, the $834 liability to partners of LP
will be paid in cash. Cash and cash equivalents and the liability to partners
will be reduced by $834. An additional cash payment will be made to partners of
LP equal to 50 percent of LP's net profits from July 1, 1996 to the date of the
merger of LP into H&Q.
(7) The income tax provision has been adjusted to reflect a combined
effective income tax rate of 44 percent as applied to the pro forma results.
(8) Pro forma earnings per share are calculated using pro forma combined net
income divided by pro forma weighted average shares outstanding. Pro forma
weighted average shares outstanding include the shares to be issued prior to the
Offering related to the H&Q and LP merger.
F-7
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
COMBINED BALANCE SHEETS
AS OF SEPTEMBER 30, 1995, AND JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, JUNE 30,
1995 1996 1996(A)
-------------- -------------- -------------
<S> <C> <C> <C>
(UNAUDITED) (PRO FORMA)
<CAPTION>
(IN
THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 34,754,568 $ 29,330,982 $ 19,983
Receivables:
Customers................................................. 100,435,213 192,740,427 192,740
Lewco Securities Corp..................................... 41,990,309 60,336,730 60,337
Syndicate managers........................................ 9,538,902 21,369,191 21,369
Related parties........................................... 3,340,955 9,102,834 9,103
Lease..................................................... 3,255,635 4,130,773 4,131
Other..................................................... 3,274,378 12,616,266 12,617
Marketable trading securities, at market value.............. 26,224,167 30,343,943 30,344
Long-term investments, at estimated fair value.............. 70,822,157 85,942,718 66,007
Deferred income taxes....................................... 10,627,856 27,495,034 33,750
Furniture, equipment and leasehold improvements, net of
accumulated depreciation and amortization.................. 6,009,696 10,094,740 10,095
Leased assets, net of accumulated depreciation.............. 8,700,289 2,576,154 2,576
Exchange memberships, at cost............................... 656,000 656,000 656
-------------- -------------- -------------
Total assets............................................ $ 319,630,125 $ 486,735,792 $ 463,708
-------------- -------------- -------------
-------------- -------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY AND PARTNERS' CAPITAL
Payables:
Customers................................................. $ 71,654,381 $ 136,310,364 $ 136,310
Compensation and benefits................................. 46,227,242 89,116,709 85,027
Syndicate settlements..................................... 25,409,777 32,101,991 32,102
Income taxes payable...................................... 6,368,059 14,418,469 14,418
Trade accounts payable.................................... 944,775 2,074,472 2,075
Customer lease deposits................................... 478,603 -- --
Accrued expenses and other................................ 9,848,303 17,058,007 17,058
Securities sold, not yet purchased, at market value......... 25,218,036 8,801,200 8,801
Debt obligations............................................ 13,770,737 11,251,500 11,252
Payable to partners of Hambrecht & Quist, L.P............... 10,445,367 834,119 --
-------------- -------------- -------------
Total liabilities....................................... 210,365,280 311,966,831 307,043
Minority interest in Hambrecht & Quist Guaranty Finance,
L.P........................................................ 3,802,762 4,375,247 940
Commitments and contingencies
Shareholders' equity and partners' capital.................. 105,462,083 170,393,714 155,725
-------------- -------------- -------------
Total liabilities and shareholders' equity and partners'
capital................................................ $ 319,630,125 $ 486,735,792 $ 463,708
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
- ------------------------
(a) Refer to the Pro Forma Combined Financial Statements and the notes thereto,
contained elsewhere in this Prospectus.
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
--------------- --------------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Principal transactions...................................................... $ 36,315,833 $ 75,354,041
Agency commissions.......................................................... 15,910,962 29,094,102
Investment banking.......................................................... 39,400,246 130,521,396
Corporate finance fees...................................................... 14,529,947 31,946,871
Net investment gains from long-term investments............................. 18,541,835 19,087,264
Other....................................................................... 11,988,004 26,358,141
--------------- --------------
Total revenues.......................................................... 136,686,827 312,361,815
--------------- --------------
EXPENSES:
Compensation and benefits................................................... 68,750,392 159,738,075
Brokerage and clearance..................................................... 6,678,314 10,017,157
Occupancy and equipment..................................................... 5,510,580 7,145,896
Communications.............................................................. 5,533,161 7,309,838
Interest.................................................................... 726,594 1,041,166
Other....................................................................... 10,789,510 19,716,814
--------------- --------------
Total expenses.......................................................... 97,988,551 204,968,946
--------------- --------------
Income before minority interest and income tax provision................ 38,698,276 107,392,869
MINORITY INTEREST IN INCOME OF SUBSIDIARY..................................... 454,154 873,742
--------------- --------------
Income before income tax provision...................................... 38,244,122 106,519,127
--------------- --------------
INCOME TAX PROVISION.......................................................... 11,810,392 36,493,611
--------------- --------------
Net income.............................................................. $ 26,433,730 $ 70,025,516
--------------- --------------
--------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------------- --------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES............................................ $ (1,175,314) $ 10,974,359
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of long-term investments............................................ (7,662,263) (21,830,927)
Proceeds from sales/distributions of long-term investments.................... 10,758,032 25,797,630
Purchases of furniture, equipment and leasehold improvements.................. (2,230,530) (6,057,367)
Purchases of leased assets.................................................... (4,283,650) --
Proceeds from sales of leased assets.......................................... 627,357 7,725,273
Increase in lease receivables................................................. (966,781) (875,138)
------------- --------------
Net cash and cash equivalents provided by (used in) investing
activities............................................................... (3,757,835) 4,759,471
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations................................................ 6,341,982 14,879,539
Repayments of debt obligations................................................ (4,600,514) (17,398,776)
Proceeds from sales of common stock and partners' capital contributions....... 3,623,921 10,178,871
Repurchases of common stock and partners' capital withdrawals................. (1,228,337) (4,031,157)
Partners' capital distributions............................................... (995,971) (24,485,893)
Distributions to minority interestholder...................................... (210,000) (300,000)
------------- --------------
Net cash and cash equivalents provided by (used in) financing
activities............................................................... 2,931,081 (21,157,416)
------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ (2,002,068) (5,423,586)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................ 6,782,335 34,754,568
------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 4,780,267 $ 29,330,982
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
CONDENSED NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1 -- GENERAL
The information contained in the following notes to the combined financial
statements is condensed from that which would appear in the annual combined
financial statements; accordingly, the accompanying combined financial
statements should be read in conjunction with the 1995 combined financial
statements and related notes thereto and the proforma combined financial
statements and notes thereto contained elsewhere in this Prospectus. Any
capitalized terms used but not defined have the same meaning given to them in
the 1995 combined financial statements. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year-end. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for the entire year.
The combined financial statements included herein are unaudited; however,
they include all adjustments of a normal recurring nature which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at June 30, 1996, and the combined results of operations and cash flows
for the nine months ended June 30, 1995 and 1996.
NOTE 2 -- RECEIVABLES FROM RELATED PARTIES
Receivables from related parties include receivables of $2,912,333 and
$1,398,799 at September 30, 1995, and June 30, 1996, respectively, from Asia
Pacific. On April 1, 1996, H&Q entered into an agreement (the Recapitalization)
with Asia Pacific to reduce H&Q's ownership of Asia Pacific from 50 percent to
15 percent. Such reduction in ownership will be accomplished through the
issuance of shares to individual shareholders of Asia Pacific in consideration
of $850,000. H&Q will lend the $850,000 required for such share purchases. Also,
as part of the Recapitalization, H&Q's receivables from Asia Pacific will be
restructured into interest- and noninterest-bearing term notes receivable.
Also included in receivables from related parties at June 30, 1996, are
receivables of $6,781,883 for profit participation distributions and $922,152
for advances made to employees.
NOTE 3 -- MARKETABLE TRADING SECURITIES AND SECURITIES SOLD, NOT YET PURCHASED
At September 30, 1995, and June 30, 1996, marketable trading securities and
securities sold, not yet purchased, consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -------------
<S> <C> <C>
Marketable trading securities--
Equity securities.................................................... $21,385,307 $ 19,253,193
Convertible bonds.................................................... 3,941,812 9,655,170
Options.............................................................. 897,048 1,435,580
------------- -------------
$26,224,167 $ 30,343,943
------------- -------------
------------- -------------
Securities sold, not yet purchased--
Equity securities.................................................... $24,532,549 $ 8,496,991
Options.............................................................. 685,487 304,209
------------- -------------
$25,218,036 $ 8,801,200
------------- -------------
------------- -------------
</TABLE>
F-11
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
CONDENSED NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
NOTE 4 -- LONG-TERM INVESTMENTS
At September 30, 1995, and June 30, 1996, the Company's long-term
investments at estimated fair value consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -------------
<S> <C> <C>
Marketable equity securities available for sale by Guaranty Finance.... $10,120,625 $ 15,831,087
Marketable equity securities--other.................................... 10,182,058 21,296,481
BISYS Group, Inc. common stock--unrestricted........................... 6,000,000 --
------------- -------------
Total marketable investments....................................... 26,302,683 37,127,568
------------- -------------
BISYS Group, Inc. common stock--restricted............................. 21,481,390 21,260,040
Nonmarketable securities and investment partnership interests.......... 14,906,421 19,844,154
Affiliated venture capital funds....................................... 4,790,144 4,694,917
Venture capital funds managed by others................................ 1,231,240 905,761
Lewco Securities--
Equity ownership..................................................... 1,810,279 1,810,278
Subordinated note receivable......................................... 300,000 300,000
------------- -------------
Total nonmarketable investments.................................... 44,519,474 48,815,150
------------- -------------
Total long-term investments........................................ $70,822,157 $ 85,942,718
------------- -------------
------------- -------------
</TABLE>
The cost of the Company's long-term investments at September 30, 1995, and
June 30, 1996, was $32,432,684 and $50,926,831, respectively.
Following is an analysis of the net investment gains for the periods ended
June 30, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Realized gains......................................................... $ 1,994,000 $ 22,942,603
Change in unrealized gains and losses, net............................. 16,547,835 (3,855,339)
------------- -------------
Net investment gains from long-term investments.................... $ 18,541,835 $ 19,087,264
------------- -------------
------------- -------------
</TABLE>
At June 30, 1996, both H&Q and H&Q LLC own restricted shares of BISYS Group
Inc. (BISYS) common stock (which represents approximately 3.3 percent of the
total BISYS common stock outstanding at June 30, 1996). BISYS is a publicly
traded company subject to the Securities Act of 1933 which requires the public
filing of quarterly and annual financial statements on Form 10-Q and Form 10-K,
respectively. H&Q owns shares with a carrying value of $7,678,903 and H&Q LLC
owns shares with a carrying value of $13,581,137. Included in net investment
gains are realized and unrealized gains on BISYS holdings of $13,140,497 and
$14,687,227 at June 30, 1995 and 1996, respectively.
The cost and estimated fair values of investments in marketable equity
securities available for sale by Guaranty Finance at September 30, 1995 and June
30, 1996 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1995 1996
------------- -------------
<S> <C> <C>
Cost...................................................................... $ 7,239,834 $ 12,864,732
Gross unrealized gains.................................................... 3,497,951 4,110,129
Gross unrealized losses................................................... (617,160) (1,143,774)
------------- -------------
Estimated fair value...................................................... $10,120,625 $ 15,831,087
------------- -------------
------------- -------------
</TABLE>
Gross proceeds and gross realized gains from sales of investments of
marketable equity securities available for sale by Guaranty Finance for the
period ended June 30, 1996 total $3,499,294 and $1,558,405, respectively. There
were no realized losses during the period.
F-12
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
CONDENSED NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
NOTE 5 -- LEASED ASSETS
On May 1, 1996, Guaranty Finance sold its leased land and building with a
net book value of $4,296,990 to a third party. Proceeds of $8,208,945 were used
to repay the $5,000,000 nonrecourse loan. A $3,298,246 gain was recognized on
the sale.
NOTE 6 -- RELATED-PARTY TRANSACTIONS
INVESTMENT TRANSACTIONS
Included in other revenues are asset management fees that include management
fees from closed-end mutual funds and venture capital funds, and profit
participation distributions from venture capital funds of $4,812,738 and
$12,443,646 for the periods ended June 30, 1995 and 1996, respectively.
EMPLOYEE NOTES RECEIVABLE
As of September 30, 1995, and June 30, 1996, H&Q's notes receivable from
employees for their stock purchases were $7,659,714 and $10,464,219,
respectively, and LP's notes receivable from partners for their capital
contributions were $2,232,013 and $8,307,513, respectively.
NOTE 7 -- STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
During the period ended June 30, 1996, 2,080,348 shares of H&Q common stock
were issued to employees at either the employees' option exercise price or fair
market value in exchange for cash and notes receivable (see Note 6) totaling
$11,379,384. Also during the period ended June 30, 1996, 608,368 shares were
repurchased from terminated employees at fair market value for $3,610,813.
Also during the period, LP partners' capital contributions and withdrawals
totaled $11,223,568 and $420,344, respectively. Included in the LP partners'
capital contributions of $11,223,568 are contributions by H&Q of LP limited
partner units to a liquidating trust benefiting certain current and former
employees. Such LP limited partner units were valued at $3,692,129. Partners'
capital distributions of $14,874,645 were accrued as partners' capital
distribution payable and as a deduction to partners' capital. Approximately
$21,023,733 in partners' capital distributions were made during the nine months
ended June 30, 1996.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS
During the period ended June 30, 1996, the Company amended the 1995 stock
plan to provide for the granting of 4,972,000 options to purchase Company stock.
Details of stock options are as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES EXERCISE PRICE
----------- ---------------
<S> <C> <C>
Outstanding at September 30, 1994..................................... 3,372,276 $2.04 - $ 4.53
Granted............................................................. 904,636 $4.60 - $ 5.54
Exercised........................................................... (1,326,484) $2.10 - $ 2.88
Canceled............................................................ (16,000) $2.10
-----------
Outstanding at September 30, 1995..................................... 2,934,428 $2.04 - $ 5.54
Granted............................................................. 4,530,320 $6.52 - $13.75
Exercised........................................................... (1,609,628) $2.10 - $ 4.74
Canceled............................................................ (157,600) $2.62 - $ 5.54
-----------
Outstanding at June 30, 1996.......................................... 5,697,520 $2.04 - $13.75
-----------
-----------
</TABLE>
During the nine months ended June 30, 1996, 625,988 options were granted at
an exercise price below fair market value on the date of grant, resulting in a
$1,165,903 charge to compensation expense.
F-13
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
CONDENSED NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
NOTE 8 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
STOCK APPRECIATION RIGHTS
Effective October 1, 1995, 2,859,520 SARs were awarded to employees for the
fiscal 1996 service period. Effective March 31, 1996, modifications were made to
some employees' awards. Of the 2,859,520 SARs issued for the fiscal 1996 service
period, 180,000 SARs were canceled in exchange for issuances of stock and
approximately 2,179,520 were revised to a six-month service period ended March
31, 1996, from a fiscal year period ending September 30, 1996. The remaining
SARs stay in effect with their original terms. For the nine months ended June
30, 1995 and 1996, compensation expense recorded for SARs awards was $2,715,216
and $6,120,078, respectively.
The total SARs liability at June 30, 1996, included in compensation and
benefits payable, will be paid out as follows:
<TABLE>
<S> <C>
Fiscal 1997............................................ $4,266,633
Fiscal 1998............................................ 3,878,588
Fiscal 1999............................................ 2,632,826
----------
Total.............................................. $10,778,047
----------
----------
</TABLE>
NOTE 9 -- NET CAPITAL REQUIREMENTS
At September 30, 1995, and June 30, 1996, H&Q LLC's regulatory net capital
of $30,286,118 and $40,205,520, respectively, was 28 percent and 20 percent,
respectively, of aggregate debit items, and its net capital in excess of the
minimum required was $28,191,905 and $36,095,837, respectively.
NOTE 10 -- CONTINGENCIES
Lewco Securities Corp. (Lewco) conducts a stock borrow/stock lending
business. On behalf of Lewco, the Company has agreed to guarantee its
proportional share of secured loans resulting from this business. The Company's
contingent liability relating to its net unsecured position under this indemnity
agreement was $4,285,536 at June 30, 1996.
The Company has contingent liabilities, including contractual commitments
arising in the normal course of business, the resolution of which, in
management's opinion, will not have an adverse effect on the Company's financial
position.
As is the case with many firms in the securities industry, the Company is a
defendant or codefendant in a number of lawsuits that seek substantial and
usually unspecified damages. These suits have arisen in the normal course of the
Company's business and are incidental to the securities and investment banking
business. Most of the proceedings relate to public underwritings of securities
in which H&Q LLC participated as a manager, comanager or member of the
underwriting syndicate. These cases involve claims under federal and state
securities laws and seek compensatory and other monetary damages. It is possible
that H&Q and/or H&Q LLC may be called upon as a member of a class of defendants
or under the terms of the underwriting, indemnification or other agreements to
contribute to settlements or judgments arising out of these cases. The Company
is contesting the complaints in all cases and believes that there are
meritorious defenses in each of these lawsuits. Although the ultimate outcome of
such litigation cannot be ascertained at this time, it is the opinion of the
Company's management, based on discussions with counsel, that the resolution of
these actions and others will not have a material adverse effect on the
Company's financial statements taken as a whole.
H&Q has indemnified certain of its officers, directors and agents, and
certain of its affiliates, as permitted under California law. Under these
provisions, H&Q itself is and will be subject to indemnification assertions by
officers, directors, agents or certain of its affiliates who are or may become
defendants in litigation that may result in the normal course of business.
Although the ultimate outcome of indemnification assertions outstanding as of
June 30, 1996, cannot be ascertained at this time, it is the opinion of the
Company's management, based on discussions with counsel, that the resolution of
these assertions will not have a material adverse effect on the Company's
financial statements taken as a whole.
F-14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Hambrecht & Quist Group:
We have audited the accompanying combined balance sheets of Hambrecht &
Quist Group (a California corporation) and Hambrecht & Quist, L.P. (a California
limited partnership) as of September 30, 1994 and 1995, and the related combined
statements of operations, changes in shareholders' equity and partners' capital
and cash flows for the years ended September 30, 1993, 1994 and 1995. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Hambrecht &
Quist Group and Hambrecht & Quist, L.P. as of September 30, 1994 and 1995, and
the results of their operations and their cash flows for the years ended
September 30, 1993, 1994 and 1995, in conformity with generally accepted
accounting principles.
As discussed in Notes 2 and 6 to the combined financial statements,
long-term investments include nonmarketable investments amounting to $24,579,237
and $44,519,474 (39 and 42 percent of total shareholders' equity and partners'
capital) as of September 30, 1994 and 1995, respectively, which have been valued
at fair value as determined by management. We have reviewed the procedures
applied by management in valuing such investments and have inspected the
underlying documentation, and in the circumstances we believe the procedures are
reasonable and the documentation appropriate. However, because of the inherent
uncertainty of valuation, management's estimate of fair values may differ
significantly from the values that would have been used had a ready market
existed for the securities and the differences could be material.
ARTHUR ANDERSEN LLP
San Francisco, California,
January 11, 1996
F-15
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
COMBINED BALANCE SHEETS
AS OF SEPTEMBER 30, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................ $ 6,782,335 $ 34,754,568
Receivables:
Customers (net of allowance of $177,166 and $170,254, respectively)............ 42,840,120 100,435,213
Lewco Securities Corp.......................................................... 17,240,020 41,990,309
Syndicate managers............................................................. 421,658 9,538,902
Related parties................................................................ 2,417,360 3,340,955
Lease.......................................................................... 1,750,153 3,255,635
Other.......................................................................... 4,470,852 3,274,378
Marketable trading securities, at market value................................... 23,914,140 26,224,167
Long-term investments, at estimated fair value................................... 34,819,316 70,822,157
Deferred income taxes............................................................ 9,421,662 10,627,856
Furniture, equipment and leasehold improvements, net of accumulated depreciation
and amortization................................................................ 5,308,337 6,009,696
Leased assets, net of accumulated depreciation................................... 5,117,841 8,700,289
Exchange memberships, at cost (market value--$916,000 and $1,018,100,
respectively)................................................................... 656,000 656,000
-------------- --------------
Total assets............................................................... $ 155,159,794 $ 319,630,125
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY AND PARTNERS' CAPITAL
Payables:
Customers...................................................................... $ 24,089,348 $ 71,654,381
Compensation and benefits...................................................... 21,334,648 46,227,242
Syndicate settlements.......................................................... 1,735,621 25,409,777
Income taxes payable........................................................... 223,920 6,368,059
Trade accounts payable......................................................... 2,067,448 944,775
Customer lease deposits........................................................ 2,670,363 478,603
Accrued expenses and other..................................................... 4,223,073 9,848,303
Securities sold, not yet purchased, at market value.............................. 17,359,122 25,218,036
Debt obligations................................................................. 12,683,532 13,770,737
Payable to partners of Hambrecht & Quist, L.P.................................... 2,679,918 10,445,367
-------------- --------------
Total liabilities.......................................................... 89,066,993 210,365,280
-------------- --------------
Minority interest in Hambrecht & Quist Guaranty Finance, L.P..................... 2,502,081 3,802,762
-------------- --------------
Commitments and contingencies
Shareholders' equity and partners' capital:
Common stock (no par value--40,000,000 shares authorized in 1994 and 1995,
12,475,188 and 14,609,188 shares issued and outstanding in 1994 and 1995,
respectively)................................................................. 13,078,867 25,412,585
Notes receivable from employees for purchases of common stock.................. (966,315) (7,659,714)
Retained earnings.............................................................. 50,929,131 72,205,112
-------------- --------------
Total shareholders' equity................................................. 63,041,683 89,957,983
Hambrecht & Quist, L.P. partners' capital...................................... 549,037 15,504,100
-------------- --------------
Total shareholders' equity and partners' capital........................... 63,590,720 105,462,083
-------------- --------------
Total liabilities and shareholders' equity and partners' capital........... $ 155,159,794 $ 319,630,125
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES:
Principal transactions......................................... $ 30,045,592 $ 36,410,993 $ 53,424,647
Agency commissions............................................. 14,220,782 14,241,964 24,602,992
Investment banking............................................. 42,959,978 29,234,148 70,359,967
Corporate finance fees......................................... 9,992,668 18,561,517 20,709,345
Interest and dividends......................................... 2,793,020 3,361,970 3,157,489
Asset management fees.......................................... 5,183,960 4,984,956 10,067,390
Net investment gains from long-term investments................ 3,523,810 10,269,641 33,852,073
Leasing and other.............................................. 1,826,941 2,265,037 3,848,687
-------------- -------------- --------------
Total revenues............................................. 110,546,751 119,330,226 220,022,590
-------------- -------------- --------------
EXPENSES:
Compensation and benefits...................................... 54,916,825 60,175,102 105,370,141
Brokerage and clearance........................................ 6,891,548 7,367,023 10,441,253
Occupancy and equipment........................................ 6,045,172 6,678,675 7,802,859
Communications................................................. 4,377,354 6,244,066 7,394,101
Professional services.......................................... 3,006,635 3,700,241 5,347,739
Travel, entertainment and conference........................... 2,941,736 4,234,523 6,145,108
Interest....................................................... 1,464,298 987,456 1,265,966
Other.......................................................... 4,306,643 3,380,554 3,637,374
-------------- -------------- --------------
Total expenses............................................. 83,950,211 92,767,640 147,404,541
-------------- -------------- --------------
Income before minority interest and income tax provision... 26,596,540 26,562,586 72,618,049
MINORITY INTEREST IN INCOME OF SUBSIDIARY........................ 352,092 525,934 718,651
-------------- -------------- --------------
Income before income tax provision......................... 26,244,448 26,036,652 71,899,398
INCOME TAX PROVISION............................................. 10,940,013 10,119,459 22,461,147
-------------- -------------- --------------
Net income................................................. $ 15,304,435 $ 15,917,193 $ 49,438,251
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND PARTNERS' CAPITAL
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
HAMBRECHT & QUIST GROUP
--------------------------------------------------------------
NUMBER OF
COMMON COMMON NOTES RETAINED SUBTOTAL
SHARES STOCK RECEIVABLE EARNINGS H&Q GROUP
---------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1992....... 11,817,908 $ 9,817,433 $(1,153,443) $24,555,009 $33,218,999
<S> <C> <C> <C> <C> <C>
Sales of common stock........... 1,467,408 3,721,365 (1,677,273) -- 2,044,092
Reductions of notes received for
purchases of common stock...... -- -- 1,188,824 -- 1,188,824
Repurchases of common stock..... (524,980 ) (1,336,515) -- (129,974) (1,466,489)
Net income...................... -- -- -- 15,304,435 15,304,435
---------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1993....... 12,760,336 12,202,283 (1,641,892) 39,729,470 50,289,861
Sales of common stock or
partners' capital additions.... 901,472 3,342,896 (295,093) -- 3,047,803
Reductions of notes received for
purchases of common stock...... -- -- 970,670 -- 970,670
Repurchases of common stock or
partners' capital
withdrawals.................... (1,186,620) (2,466,312) -- (2,524,238) (4,990,550)
Net income...................... -- -- -- 13,723,899 13,723,899
Partners' capital distributions
payable........................ -- -- -- -- --
---------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1994....... 12,475,188 13,078,867 (966,315) 50,929,131 63,041,683
Adoption of SFAS 115 by Guaranty
Finance........................ -- -- -- -- --
Sales of common stock or
partners' capital additions.... 2,963,892 14,406,194 (7,935,534) -- 6,470,660
Reductions of notes received for
purchases of common stock...... -- -- 1,242,135 -- 1,242,135
Repurchases of common stock or
partners' capital
withdrawals.................... (829,892 ) (2,072,476) -- (2,396,760) (4,469,236)
Net income...................... -- -- -- 23,672,741 23,672,741
Partners' capital
distributions.................. -- -- -- -- --
Partners' capital distributions
payable........................ -- -- -- -- --
Net change in unrealized
investment gains of leasing
subsidiary..................... -- -- -- -- --
---------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1995....... 14,609,188 $25,412,585 $(7,659,714) $72,205,112 $89,957,983
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
<CAPTION>
HAMBRECHT & QUIST, L.P.
-------------------------------------------------------------------
UNREALIZED
PARTNERS' NOTES DISTRIBUTIONS GAINS, NET SUBTOTAL H&Q COMBINED
CAPITAL RECEIVABLE PAYABLE (NOTE 2) LP TOTAL
----------- ----------- -------------- ---------- ------------ ------------
BALANCE, SEPTEMBER 30, 1992....... $ 33,218,999
<S> <C> <C> <C> <C> <C> <C>
Sales of common stock........... 2,044,092
Reductions of notes received for
purchases of common stock...... 1,188,824
Repurchases of common stock..... (1,466,489)
Net income...................... 15,304,435
----------- ----------- -------------- ---------- ------------ ------------
BALANCE, SEPTEMBER 30, 1993....... 50,289,861
Sales of common stock or
partners' capital additions.... $ 1,322,324 $ (69,526) $ -- $ -- $ 1,252,798 4,300,601
Reductions of notes received for
purchases of common stock...... -- -- -- -- -- 970,670
Repurchases of common stock or
partners' capital
withdrawals.................... (217,137) -- -- -- (217,137) (5,207,687)
Net income...................... 2,193,294 -- -- -- 2,193,294 15,917,193
Partners' capital distributions
payable........................ -- -- (2,679,918) -- (2,679,918) (2,679,918)
----------- ----------- -------------- ---------- ------------ ------------
BALANCE, SEPTEMBER 30, 1994....... 3,298,481 (69,526) (2,679,918) -- 549,037 63,590,720
Adoption of SFAS 115 by Guaranty
Finance........................ -- -- -- 2,134,458 2,134,458 2,134,458
Sales of common stock or
partners' capital additions.... 2,557,915 (2,162,487) -- -- 395,428 6,866,088
Reductions of notes received for
purchases of common stock...... -- -- -- -- -- 1,242,135
Repurchases of common stock or
partners' capital
withdrawals.................... (1,241,100) -- -- -- (1,241,100) (5,710,336)
Net income...................... 25,765,510 -- -- -- 25,765,510 49,438,251
Partners' capital
distributions.................. (4,186,804) -- 4,186,804 -- -- --
Partners' capital distributions
payable........................ -- -- (11,952,253) -- (11,952,253) (11,952,253)
Net change in unrealized
investment gains of leasing
subsidiary..................... -- -- -- (146,980 ) (146,980) (146,980)
----------- ----------- -------------- ---------- ------------ ------------
BALANCE, SEPTEMBER 30, 1995....... $26,194,002 $(2,232,013) $ (10,445,367) $1,987,478 $ 15,504,100 $105,462,083
----------- ----------- -------------- ---------- ------------ ------------
----------- ----------- -------------- ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 15,304,435 $ 15,917,193 $ 49,438,251
------------ ------------ ------------
Adjustments to reconcile net income to net cash and cash equivalents
provided by operating activities--
Depreciation and amortization..................................... 2,624,400 3,229,208 5,664,070
Net investment gains from long-term investments................... (3,523,810) (10,269,641) (33,852,073)
Net gain on sales of leased assets................................ -- (1,613) (407,436)
Deferred tax provision (benefit).................................. (1,499,721) 2,005,896 (1,206,194)
Minority interest in income of subsidiary......................... 352,092 525,934 718,651
Net decrease in allowance for losses on guarantees, loans and
leases........................................................... -- (92,627) (610,837)
Changes in operating assets and liabilities--
Customers, net.................................................. 7,006,114 (1,264,519) (10,030,060)
Lewco Securities Corp........................................... (8,465,211) (2,666,093) (24,750,289)
Syndicate managers.............................................. (3,815,234) 4,969,031 (9,117,244)
Related parties and other receivables........................... (3,554,384) 57,131 (1,296,032)
Marketable trading securities, net.............................. (1,896,495) 1,194,830 1,262,314
Compensation and benefits payable............................... 5,158,694 2,186,557 27,533,054
Syndicate settlements........................................... 2,786,531 (4,764,232) 23,674,156
Income taxes payable............................................ 2,208,932 (1,176,471) 6,144,139
Trade accounts payable.......................................... -- 2,067,448 (1,122,673)
Customer lease deposits......................................... -- 2,670,363 (2,191,760)
Accrued expenses and other payables............................. (2,291,167) (1,945,820) 5,625,230
Other, net...................................................... (73,705) 732,684 (150,606)
------------ ------------ ------------
Total adjustments............................................. (4,982,964) (2,541,934) (14,113,590)
------------ ------------ ------------
Net cash and cash equivalents provided by operating
activities................................................... 10,321,471 13,375,259 35,324,661
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of long-term investments.................................. (2,298,867) (7,844,120) (10,690,049)
Proceeds from sales/distributions of long-term investments.......... 8,486,587 5,432,665 15,843,334
Purchases of furniture, equipment and leasehold improvements........ (1,944,937) (2,776,824) (3,060,061)
Purchases of leased assets.......................................... -- (2,180,943) (6,504,911)
Sales of leased assets.............................................. 6,831 -- 638,002
Increase in lease receivables....................................... -- (1,714,108) (1,505,482)
Proceeds from payments of lease receivables......................... -- 2,947,756 1,568,911
------------ ------------ ------------
Net cash and cash equivalents provided by (used in) investing
activities................................................... 4,249,614 (6,135,574) (3,710,256)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt obligations...................................... -- 1,100,000 19,738,066
Repayments of debt obligations...................................... (15,029,367) (5,328,968) (18,650,861)
Proceeds from sales of common stock................................. 3,360,748 3,257,770 5,072,335
Repurchases of common stock......................................... (1,466,489) (4,990,550) (4,469,236)
Partners' capital contributions..................................... -- 1,252,798 395,428
Partners' capital withdrawals....................................... -- (217,137) (1,241,100)
Partners' capital distributions..................................... -- -- (4,186,804)
Distributions to minority interestholder............................ -- (90,000) (300,000)
------------ ------------ ------------
Net cash and cash equivalents used in financing activities.... (13,135,108) (5,016,087) (3,642,172)
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS................................. 1,435,977 2,223,598 27,972,233
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................ 3,122,760 4,558,737 6,782,335
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.............................. $ 4,558,737 $ 6,782,335 $ 34,754,568
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-19
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
SCHEDULE OF SUPPLEMENTAL INFORMATION:
Taxes paid to taxing authorities.................................... $ 9,900,000 $ 9,174,792 $ 14,841,855
Interest paid....................................................... 1,104,883 2,121,126 4,617,047
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
H&Q long-term investments, net, were reclassified from/(to)
marketable securities.............................................. -- (656,084) 4,286,573
H&Q common stock sales and LP partners' capital contributions were
made with notes receivable from employees.......................... 1,677,273 364,619 10,098,021
H&Q common stock was issued to employees in exchange for reductions
in compensation and benefits payable............................... -- 1,355,290 3,055,280
Reductions to LP partners' capital were made via accruals of
distributions payable to partners.................................. -- 2,679,918 11,952,253
Unrealized gains, net, on long-term investments held by Guaranty
Finance were recorded as increases in equity and minority
interest........................................................... -- -- 2,880,791
Subordinated notes payable were issued by RvR Securities in exchange
for subordinated notes receivable of the same amount............... -- 1,800,000 --
A line of credit receivable was converted into preferred stock of
the issuer......................................................... 2,000,000 -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS
The financial statements include the combined operations of Hambrecht &
Quist Group, a California corporation (H&Q, Hambrecht & Quist or the Company),
and Hambrecht & Quist L.P., a California limited partnership (LP). The entities
are presented on a combined basis without revaluation, as the entities have been
operating under common ownership and common management and, in fiscal 1996, H&Q
and LP will make distributions and restructure their operations, which will
result in one surviving holding company, Hambrecht & Quist Group, a Delaware
corporation (Group Delaware).
PRIOR TO RESTRUCTURING
H&Q is owned primarily by its key employees. As of September 30, 1995,
approximately 13.70 percent of H&Q is owned by the Hambrecht & Quist Employee
Savings and Employee Stock Ownership Plan (see Note 12). As a privately held
company, all of H&Q's stock transactions are recorded pursuant to the terms of
the Hambrecht & Quist Group Shareholders' Agreement (the Agreement). Since
inception, all stock issuances and repurchases and all stock option grants have
been recorded using a formula value, as determined by management and required by
the Agreement. The formula value results in transactions being recorded at
premiums over the Company's GAAP net book value. The formula value approximates
fair market value. There is no public market for the Company's stock. As such,
selling shareholders are required to offer their shares to the Company first
before seeking an independent buyer. Historically, the Company has repurchased
all selling shareholders' shares.
H&Q operates primarily as a holding company with the following consolidated
operating subsidiaries. Hambrecht & Quist LLC, a Delaware limited liability
company (H&Q LLC), is a 70 percent owned investment banking subsidiary and
securities broker-dealer that primarily services companies in the technology,
healthcare, services and branded consumer products industries. RvR Securities
Corp., a California corporation (RvR Securities), is a wholly owned registered
broker-dealer serving companies with smaller capitalizations than H&Q LLC's
typical underwriting clients. Hambrecht & Quist Capital Management Incorporated,
a California corporation (Capital Management), is a wholly owned registered
investment adviser. Capital Management is the investment adviser to two publicly
traded closed-end mutual funds, H&Q Healthcare Investors and H&Q Life Sciences
Investors. Hambrecht & Quist Venture Partners, a California Limited Partnership
(Venture Partners), is a wholly owned venture capital fund management
partnership.
Other affiliates of the Company are not consolidated. H&Q owns a 50.0
percent interest in Hambrecht & Quist Asia Pacific, Ltd., a British Virgin
Islands limited liability company (Asia Pacific). Asia Pacific provides
financial advisory and fund management services in the Asia Pacific region. The
Company's investment in Asia Pacific is accounted for on a fair market value
basis. H&Q LLC owns a 20 percent interest in Lewco Securities Corporation, a
Delaware corporation (Lewco). Lewco is a clearing broker and depository for H&Q
LLC and Schroder Wertheim & Co. (Schroder), which owns the remaining 80 percent
interest. All expenses, net of certain revenues, are reimbursed proportionately
by both owners based on the volume of transactions processed on their behalf.
These costs are reported as expenses in the combined statement of operations.
H&Q LLC carries its investment in Lewco at H&Q LLC's interest in Lewco's net
assets, which approximates fair value. Other less significant affiliated
investment and venture capital partnerships are recorded in long-term
investments at their estimated fair value (see Note 2).
LP operates primarily as a holding partnership for certain current and prior
operating affiliates of H&Q. H&Q is the 1 percent general partner of LP, and the
same shareholders of H&Q are the limited partners. As of September 30, 1995, H&Q
also owns a 14.76 percent limited partnership interest. Similar to H&Q, all
partnership unit sales and repurchases have been recorded at the partnership's
formula value, as defined in the Hambrecht & Quist Limited Partnership
Agreement.
F-21
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
LP owns the remaining 30 percent interest of H&Q LLC and a 70 percent
limited partner interest in Hambrecht & Quist Guaranty Finance, L.P., a
California limited partnership (Guaranty Finance). Guaranty Finance is
consolidated in the combined financial statements. The 30 percent general
partner interest is owned by Guaranty Finance Management Corp., a California
corporation, which is owned almost equally by the CEO of H&Q and an independent
third party and is reported as minority interest in the combined financial
statements. Guaranty Finance provides secured, asset-based financings that
include tenant improvement and real estate leases, equipment leases, accounts
receivable and inventory financing, and loan guarantees for emerging technology,
biotechnology and healthcare companies. LP's other investments in public and
private companies are recorded in long-term investments at their market or
estimated fair value (see Note 2).
DISTRIBUTIONS AND RESTRUCTURING ACTIVITIES
H&Q plans to sell shares of its stock in an initial public offering (the
Offering) that will result in new shareholders owning a portion of the Company.
Prior to the Offering, the Company will make distributions and restructure (the
Transactions) in order to simplify its structure.
Guaranty Finance will distribute securities on a pro rata basis to its
partners. Guaranty Finance will merge into Hambrecht & Quist Guaranty Finance,
LLC (H&Q GF LLC), a new Delaware limited liability company. H&Q will purchase an
additional 17.5 percent of H&Q GF LLC from other members (including 15 percent
from H&Q's CEO).
H&Q will distribute its limited partnership interest in LP primarily to a
liquidating trust benefiting certain current and former employees. H&Q LLC will
distribute cash and securities to LP, resulting in a reduction in LP's ownership
in H&Q LLC. LP will distribute cash and securities to a liquidating trust
benefiting the partners of LP.
All shares of H&Q will be exchanged for four shares of Group Delaware, a new
Delaware holding company, and H&Q will become a subsidiary of Group Delaware.
All references to the number of shares and per-share amounts have been restated
to reflect the effect of the four-for-one exchange of shares.
LP will be merged into Group Delaware and the partners of LP who do not
perfect their statutory dissenters' rights under the California Corporations
Code will receive shares of the Company's common stock. Group Delaware will
transfer H&Q LLC and H&Q GF LLC to H&Q.
POST-TRANSACTIONS STRUCTURE
As a consequence of the foregoing and other Transactions, Group Delaware
will consolidate H&Q LLC and H&Q GF LLC. Its ownership of and accounting for
other subsidiaries and affiliates will be the same as H&Q and will be unaffected
by the Transactions listed above. LP will cease to exist.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND COMBINATION
All significant intercompany accounts and transactions have been eliminated
in consolidation and combination.
USE OF ESTIMATES
The preparation of these combined financial statements require the use of
certain estimates by management in determining the entity's assets, liabilities,
revenue and expenses. The most significant estimates with regard to these
financial statements relate to long-term investments, as discussed below. Actual
results could differ from those estimates.
F-22
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents
include cash on hand, demand deposits with banks, money market accounts and U.S.
Treasury bills totaling $6,782,335 and $34,754,568 at September 30, 1994 and
1995, respectively. Cash equivalents have original maturities of 90 days or
less.
SECURITIES TRANSACTIONS
Customers' securities transactions are recorded on a settlement-date basis,
with related commission income and expenses recorded on a trade-date basis.
Marketable securities owned and securities sold, not yet purchased are recorded
on a trade-date basis. Final underwriting settlements are recorded when
received.
MARKETABLE TRADING SECURITIES
Marketable trading securities and securities sold, not yet purchased are
reported at prevailing market prices. Realized and unrealized gains and losses
on market trading securities and securities sold, not yet purchased are included
in revenues from principal transactions.
LONG-TERM INVESTMENTS
Long-term investments include marketable equity securities and nonmarketable
equity and debt securities (which include restricted securities of publicly
traded companies, securities of private companies and investment partnership and
other venture capital interests).
H&Q and H&Q LLC own marketable equity securities and nonmarketable
investments. Marketable equity securities are reported at prevailing market
prices. Discounts are applied for holdings in excess of typical daily trading
volumes. Nonmarketable investments are not registered for public sale or carry
restrictions on sale
and are reported at estimated fair value as determined by management. Factors
considered by management in valuing nonmarketable investments include the type
of investment, purchase cost, marketability, restrictions on disposition,
subsequent purchases of the same or similar investments by other investors, and
current financial position and operating results of the investee entities.
Warrants and other rights to purchase nonmarketable investments are valued at
cost, which approximates estimated fair value. Realized and unrealized gains and
losses on long-term investments owned by H&Q and H&Q LLC are included in
revenues from net investment gains from long-term investments.
Also included in long-term investments are investments owned by Guaranty
Finance. Guaranty Finance primarily owns marketable equity securities available
for sale. Effective October 1, 1994, Guaranty Finance adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." As required by SFAS 115, Guaranty
Finance revalued its available-for-sale securities at market value and recorded
$3,049,227 as an increase to its partners' capital as of October 1, 1994. LP's
recorded portion of the unrealized net holding gain was $2,134,458 and is
recorded in LP's partners' capital. At September 30, 1995, Guaranty Finance's
unrealized net holding gain was $2,880,791. LP's recorded portion of the
unrealized net holding gain was $1,987,478 and is recorded in LP's partners'
capital. The minority interest holder's recorded portion of the unrealized net
holding gain was $893,313 and is recorded in Minority Interest in Guaranty
Finance. Prior to October 1, 1994, Guaranty Finance recorded its long-term
investments at the lower of cost or market.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are recorded at cost.
Depreciation of furniture and equipment is provided using accelerated and
straight-line methods. These assets are depreciated over periods
F-23
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ranging from five to seven years based on estimated useful lives. Leasehold
improvements are amortized over the lesser of the useful life of the improvement
or the term of the lease. Expenditures for repairs and maintenance that do not
significantly increase the life of the asset are charged to operations as
incurred.
LEASE RECEIVABLES AND LEASED ASSETS
Guaranty Finance leases land, a building, equipment and tenant improvements
under operating leases and direct financing leases. Assets leased under
operating leases are recorded at cost and are included in leased assets.
Depreciation of the building and tenant improvements is provided using
straight-line methods over 31.5 years and accelerated methods over 15 years.
Depreciation of leased equipment is provided using accelerated methods over five
to seven years. Direct financing leases are included in lease receivables and
are carried at the total of the future minimum lease payments less unearned
income.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No 109,
"Accounting for Income Taxes" (SFAS 109). Under this method, the Company
recognizes taxes payable or refundable for the current year and deferred tax
liabilities and assets for future consequences of events that have been
recognized in the Company's financial statements or tax returns.
No provision has been made in the financial statements for income taxes
related to the operations of LP. Pursuant to applicable federal and state income
tax regulations, all income or loss of LP is reportable by each partner directly
to the taxing authority.
PARTNERS' CAPITAL DISTRIBUTIONS PAYABLE
In accordance with the terms of the LP partnership agreement, an accrual has
been made for distributions to LP partners to satisfy their federal and state
income tax obligations for partnership taxable income. The accrual was
$2,679,918 and $10,445,367 at September 30, 1994 and 1995, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Substantially all of the Company's financial assets and liabilities are
carried at market or estimated fair value or are carried at amounts that
approximate current fair value because of their short-term nature. Estimates are
made at a specific point in time, based on relevant market information and
information about the financial instrument.
EARNINGS PER SHARE
Earnings per share are not presented, as they would not be meaningful
because of the impact of the Transactions (see Note 1).
STOCK OPTION PLANS
The Company uses the intrinsic value method to account for stock option
plans. Under this method, compensation expense is recognized for awards of
options to purchase shares of common stock to employees under compensatory plans
only if the fair market value of the stock at the option grant date (or other
measurement date, if later) is greater than the amount the employee must pay to
acquire the stock. In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS
123 permits companies to adopt a new fair value based method to account for
stock option plans or to continue using the intrinsic value method. If the
intrinsic value method is used, information concerning the pro forma effects on
net earnings and earnings per share of adopting the fair value based method is
required to be presented in the notes to the financial statements. The Company
intends to continue using the intrinsic value method and will provide the pro
forma disclosures in its 1997 financial statements, as required by SFAS 123.
F-24
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1993 and 1994 financial statements have been
reclassified to conform to the 1995 presentation.
NOTE 3 -- RECEIVABLES FROM AND PAYABLES TO CUSTOMERS
Receivables from and payables to customers include amounts due to or from
customers as a result of cash and margin transactions. Securities owned by
customers are held as collateral for these receivables. Such collateral is not
reflected in the combined financial statements.
NOTE 4 -- RECEIVABLES FROM RELATED PARTIES
Receivables from related parties include receivables of $2,176,299 and
$2,912,333 at September 30, 1994 and 1995, respectively, from Asia Pacific (see
Notes 1 and 11).
NOTE 5 -- MARKETABLE TRADING SECURITIES AND SECURITIES SOLD, NOT YET PURCHASED
At September 30, 1994 and 1995, marketable trading securities and securities
sold, not yet purchased, consisted of the following:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Marketable trading securities--
Equity securities....................................................... $ 13,352,773 $ 21,385,307
Convertible bonds....................................................... 10,320,641 3,941,812
Options................................................................. 240,726 897,048
------------- -------------
$ 23,914,140 $ 26,224,167
------------- -------------
------------- -------------
Securities sold, not yet purchased--
Equity securities....................................................... $ 16,855,598 $ 24,532,549
Convertible bonds....................................................... 257,500 --
Options................................................................. 246,024 685,487
------------- -------------
$ 17,359,122 $ 25,218,036
------------- -------------
------------- -------------
</TABLE>
F-25
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 6 -- LONG-TERM INVESTMENTS
At September 30, 1994 and 1995, the Company's long-term investments at
estimated fair value consisted of the following:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Marketable equity securities available for sale by Guaranty Finance....... $ 4,921,645 $ 10,120,625
Marketable equity securities--other....................................... 5,318,434 10,182,058
BISYS Group, Inc. common stock--unrestricted.............................. -- 6,000,000
------------- -------------
Total marketable investments.......................................... 10,240,079 26,302,683
------------- -------------
BISYS Group, Inc. common stock--restricted................................ 5,580,000 21,481,390
Nonmarketable securities and investment partnership interests............. 7,653,982 14,906,421
Affiliated venture capital funds.......................................... 6,829,447 4,790,144
Venture capital funds managed by others................................... 2,405,529 1,231,240
Lewco Securities--
Equity ownership........................................................ 1,810,279 1,810,279
Subordinated note receivable............................................ 300,000 300,000
------------- -------------
Total nonmarketable investments....................................... 24,579,237 44,519,474
------------- -------------
Total long-term investments........................................... $ 34,819,316 $ 70,822,157
------------- -------------
------------- -------------
</TABLE>
The cost of the Company's long-term investments at September 30, 1994 and
1995, were $26,935,646 and $32,432,684, respectively.
Following is an analysis of the net investment gains for the years ended
September 30, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------- -------------
<S> <C> <C> <C>
Realized gains.............................................. $ 4,165,589 $ 5,360,747 $ 3,346,270
Change in unrealized gains and losses, net.................. (641,779) 4,908,894 30,505,803
------------ ------------- -------------
Net investment gains from long-term investments........... $ 3,523,810 $ 10,269,641 $ 33,852,073
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
Both H&Q and H&Q LLC own shares of BISYS Group, Inc. (BISYS) common stock
(which represents approximately 6.1 percent of the total BISYS common stock
outstanding at September 30, 1995). BISYS is a publicly traded company subject
to the Securities Act of 1933 which requires the public filing of quarterly and
annual financial statements on Form 10-Q and Form 10-K, respectively. As of
September 30, 1995, H&Q owns restricted shares with a carrying value of
$5,136,390 and H&Q LLC owns both restricted and unrestricted shares with
carrying values of $16,345,000 and $6,000,000, respectively. Included in net
investment gains are realized and unrealized gains on investments in BISYS
common stock of $2,190,000, $5,457,500 and $19,948,390 for 1993, 1994 and 1995,
respectively.
The cost and estimated fair values of investments in marketable equity
securities available for sale by Guaranty Finance at September 31, 1995 are as
follows:
<TABLE>
<CAPTION>
1995
-------------
<S> <C>
Cost..................................................................................... $ 7,239,834
Gross unrealized gains................................................................... 3,497,951
Gross unrealized losses.................................................................. (617,160)
-------------
Estimated fair value..................................................................... $ 10,120,625
-------------
-------------
</TABLE>
F-26
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 6 -- LONG-TERM INVESTMENTS (CONTINUED)
Gross proceeds, gross realized gains, and gross realized losses from sales
of investments in marketable equity securities available for sale by Guaranty
Finance for the year ended September 30, 1995 total $2,926,358, $1,943,374 and
$73,373, respectively.
NOTE 7 -- FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The following summarizes the Company's furniture, equipment and leasehold
improvements as of September 30, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Furniture and equipment................................................... $ 12,615,904 $ 15,142,026
Leasehold improvements.................................................... 4,420,588 4,949,524
Less--Accumulated depreciation and amortization........................... (11,728,155) (14,081,854)
------------- -------------
$ 5,308,337 $ 6,009,696
------------- -------------
------------- -------------
</TABLE>
For the years ended September 30, 1993, 1994 and 1995, occupancy and
equipment expense included depreciation and amortization expense on furniture,
equipment and leasehold improvements of $1,865,774, $2,052,512 and $2,358,337,
respectively.
NOTE 8 -- LEASING ACTIVITIES
Guaranty Finance negotiates lease lines, purchases equipment, property and
leasehold improvements for lease to customers under the lines and administers
them. Guaranty Finance also negotiates and guarantees secured loans and lines of
credit for customers, which are generally funded and administered by a financial
partner, such as a bank or other financial institution. Guaranty Finance's
customers are primarily emerging technology companies.
At September 30, 1994 and 1995, lease receivables consist of direct
financing capital leases with terms ranging from three to four years of
$1,750,153 and $3,255,635, respectively. At September 30, 1994 and 1995, lease
receivables related to noncancelable operating leases are not material and are
included in other receivables. Future minimum rentals to be received under
direct financing leases and operating leases in effect at September 30, 1995,
are as follows:
<TABLE>
<CAPTION>
DIRECT
FINANCING NONCANCELABLE
LEASE OPERATING
RECEIVABLES LEASES
------------ -------------
<S> <C> <C>
1996............................................................. $ 1,502,136 $ 4,019,471
1997............................................................. 1,309,677 3,356,766
1998............................................................. 778,626 108,333
------------ -------------
Total minimum lease payments................................. 3,590,439 $ 7,484,570
-------------
-------------
Less--Unearned income............................................ (334,804)
------------
Present value of net minimum lease payments...................... $ 3,255,635
------------
------------
</TABLE>
F-27
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 8 -- LEASING ACTIVITIES (CONTINUED)
At September 30, 1994 and 1995, leased assets subject to noncancelable
operating leases consist of:
<TABLE>
<CAPTION>
1994 1995
------------ -------------
<S> <C> <C>
Land and building............................................... $ 5,000,000 $ 5,000,000
Equipment....................................................... 2,876,694 8,287,004
------------ -------------
7,876,694 13,287,004
Less--Accumulated depreciation.................................. (2,758,853) (4,586,715)
------------ -------------
$ 5,117,841 $ 8,700,289
------------ -------------
------------ -------------
</TABLE>
Guaranty Finance's depreciation expense on leased assets was $758,626,
$1,176,696 and $3,305,733 for the years ended September 30, 1993, 1994 and 1995,
respectively.
NOTE 9 -- DEBT OBLIGATIONS
Debt obligations consist of the following:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Lines of credit--
$7,500,000 bank line of credit (H&Q); interest at prime plus 1 percent (9.75
percent at September 30, 1995); collateralized in full by marketable securities
and certain customer receivables; average balance outstanding in 1994 and 1995
was $362,500 and $2,014,951, respectively; advances due December 31, 1995 $ 1,100,000 $ 3,823,790
$20,000,000 bank line of credit ($5,000,000 in 1994) (H&Q); interest at prime plus
2 percent (10.75 percent at September 30, 1995); unsecured; no amounts drawn in
1994 or 1995; advances payable within seven days; expires May 1996 -- --
$11,000,000 bank line of credit ($7,000,000 in 1994) (Guaranty Finance); interest
at prime plus 0.50 percent (9.25 percent at September 30, 1995); collateralized
in full by Guaranty Finance's assets, except for cash and marketable securities;
due December 10, 1995 -- 3,515,000
Notes payable--
Bank note payable (H&Q); interest at prime plus 1 percent (8.75 percent at
September 30, 1994); collateralized by H&Q LLC shares; repaid in 1995 5,000,000 --
Bank note payable (H&Q); noninterest-bearing; collateralized by nonmarketable
securities valued at $3,574,380 at September 30, 1994, and U.S. Treasury bills
valued at $636,659 at September 30, 1995; $687,500 due September 30, 1995;
$637,500 due September 30, 1996 1,325,000 637,500
Other--
Bank nonrecourse loan (Guaranty Finance); interest at 9 percent, payable monthly;
collateralized by land and a building leased to a customer; principal payments of
$63,338 due beginning in 1997 through 2007 5,000,000 5,000,000
Other 258,532 794,447
------------- -------------
$ 12,683,532 $ 13,770,737
------------- -------------
------------- -------------
</TABLE>
F-28
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 9 -- DEBT OBLIGATIONS (CONTINUED)
The average prime rate for 1994 and 1995 was 6.61 percent and 8.68 percent,
respectively.
The scheduled repayment of debt obligations is as follows:
<TABLE>
<S> <C>
1996........................................... $8,834,075
1997........................................... 63,338
1998........................................... 63,338
1999........................................... 63,338
2000........................................... 63,338
Thereafter..................................... 4,683,310
----------
$13,770,737
----------
----------
</TABLE>
Interest expense on debt obligations was $1,420,294, $932,974 and $960,353
during fiscal 1993, 1994 and 1995, respectively.
NOTE 10 -- INCOME TAXES
The income tax provision consisted of the following components for the years
ended September 30, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
STATE AND
FEDERAL CITY TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
1993--
Current....................................... $ 8,989,372 $ 3,450,362 $ 12,439,734
Deferred...................................... (673,418) (826,303) (1,499,721)
------------- ------------- -------------
Total....................................... $ 8,315,954 $ 2,624,059 $ 10,940,013
------------- ------------- -------------
------------- ------------- -------------
1994--
Current....................................... $ 5,833,636 $ 2,279,928 $ 8,113,564
Deferred...................................... 1,418,775 587,120 2,005,895
------------- ------------- -------------
Total....................................... $ 7,252,411 $ 2,867,048 $ 10,119,459
------------- ------------- -------------
------------- ------------- -------------
1995--
Current....................................... $ 15,702,697 $ 7,964,644 $ 23,667,341
Deferred...................................... (1,152,901) (53,293) (1,206,194)
------------- ------------- -------------
Total....................................... $ 14,549,796 $ 7,911,351 $ 22,461,147
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The net deferred income tax asset as of September 30, 1994 and 1995, is
composed of the following:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Deferred income tax asset--
Bonus accruals................................................ $ 6,042,535 $ 11,879,290
Litigation accruals........................................... 4,720,403 2,043,238
Other......................................................... 273,829 780,205
------------- -------------
11,036,767 14,702,733
Gross deferred income tax liabilities........................... (1,615,105) (4,074,877)
------------- -------------
Net deferred income tax asset............................... $ 9,421,662 $ 10,627,856
------------- -------------
------------- -------------
</TABLE>
There was no valuation allowance against deferred tax assets at September
30, 1994 and 1995.
F-29
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 10 -- INCOME TAXES (CONTINUED)
The following is a reconciliation of the income tax expense to the amount
computed by applying the federal statutory rate to income before income tax
expense:
<TABLE>
<CAPTION>
1993 1994 1995
------------------------ ------------------------ ------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tax expense computed at statutory
rate............................... $ 9,119,945 34.7% $ 9,112,828 35.0% $ 25,164,789 35.0%
State and local tax provision, net
of federal income tax benefit...... 1,961,708 7.5 1,735,734 6.7 5,244,299 7.3
Federal income tax rate change...... (182,388) (0.7) (66,993) (0.3) -- --
Nondeductible expenses.............. 40,748 0.2 105,543 0.4 155,164 0.2
LP income not subject to tax........ -- -- (767,653) (2.9) (8,103,105) (11.3)
------------- --- ------------- --- ------------- ---------
$ 10,940,013 41.7% $ 10,119,459 38.9% $ 22,461,147 31.2%
------------- --- ------------- --- ------------- ---------
------------- --- ------------- --- ------------- ---------
</TABLE>
NOTE 11 -- RELATED-PARTY TRANSACTIONS
INVESTMENT TRANSACTIONS
The Company makes investments in private companies directly and through the
venture capital funds it manages. Venture Partners manages the majority of the
Company's venture capital funds (see Note 1) and earns management fees and
profit participation distributions. Included in asset management fees are
management fees and profit participation distributions from venture capital
funds of $3,067,286, $2,768,287 and $7,653,320 for 1993, 1994 and 1995,
respectively.
Directors, officers and employees of H&Q or its subsidiaries may have
additional interests in such private companies directly or through various
affiliated venture capital or other investment entities. Such parties may also
be operating officers of and serve on the boards of directors of companies in
which the Company has invested.
Guaranty Finance provides lease financing to companies in which H&Q, its
subsidiaries and its affiliates have equity investments.
OPERATING ADVANCES
H&Q pays operating expenses on behalf of certain affiliates, primarily Asia
Pacific (see Notes 1 and 4) and is reimbursed for those expenses. Operating
expenses that have not yet been reimbursed are included in receivables from
related parties (see Note 4).
EMPLOYEE NOTES RECEIVABLE
In connection with sales of the Company's common stock, the Company received
notes from employees, which, at September 30, 1994 and 1995, had principal
balances of $966,315 and $7,659,714, respectively, and are treated as a
reduction of shareholders' equity. These notes bear interest at rates ranging
from 6 percent to 8 percent and have maturity dates ranging from 1996 through
2000.
Receivables from LP partners represent amounts due from partners, including
H&Q, for their capital contributions to LP. Such amounts are recorded as a
reduction of partners' capital. Receivables from LP partners were $69,526 and
$2,232,013 at September 30, 1994 and 1995, respectively.
LEWCO SECURITIES CORP.
H&Q LLC is a co-owner of Lewco (see Note 1), a securities clearing firm that
is a registered broker-dealer and member of each major stock exchange. H&Q LLC
holds a subordinated note for $300,000 issued by Lewco.
F-30
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 11 -- RELATED-PARTY TRANSACTIONS (CONTINUED)
The interest on this note is paid quarterly at the prime rate, with the
principal balance due December 31, 1999. The subordinated note receivable and
H&Q LLC's investment in Lewco are carried in long-term investments (see Note 6).
H&Q LLC uses Lewco, which renders its services to its owners on a cost-sharing
basis, to process its securities transactions and all other related clearing
services. Lewco also maintains the Company's customer and broker accounts.
Amounts receivable from Lewco result from customer and H&Q LLC proprietary
transactions. Interest on amounts receivable from Lewco is earned at a
fluctuating rate (5 percent at September 30, 1993, and 6.5 percent at September
30, 1994 and 1995) that generally corresponds to the broker call rate.
NOTE 12 -- EMPLOYEE BENEFIT PLANS
SAVINGS AND EMPLOYEE STOCK OWNERSHIP TRUST
Under a Savings and Employee Stock Ownership Trust (or SESOT), the Company
established an Employee Stock Ownership Plan (ESOP) and a profit-sharing plan
(PSP) with an employee salary deferral (or 401(k)) feature. Collectively, the
ESOP and PSP are referred to as the Hambrecht & Quist Group Savings and Employee
Stock Ownership Plan (the Plan or SESOP). Substantially all full-time employees
of H&Q and its subsidiaries and certain affiliates are eligible to participate
in the Plan.
Under the Plan, the Company matches employees' 401(k) PSP contributions up
to $4,000 per employee per year by making Company common stock contributions to
the ESOP. The Company may also make discretionary cash contributions to the PSP.
For 1993, 1994 and 1995, the Company recorded compensation expense of $799,565,
$1,059,812 and $1,246,645, respectively, to the ESOP under the matching
provision. No discretionary contributions were made to the PSP in 1993, 1994 or
1995.
STOCK OPTION PLANS
The Company has two stock option plans, a 1985 Plan and a 1995 Plan.
Additionally, the Company has granted stock options outside the 1985 and 1995
plans.
The Company's 1985 Plan, which provided for the granting of nonqualified
options to purchase 4,000,000 shares of the Company's common stock, expired
September 30, 1994, except as to the options then outstanding. The Company's
1995 Plan provides for the granting of incentive options and nonqualified
options to purchase 2,000,000 shares of the Company's common stock to officers
and key employees at a price not less than fair market value at the date the
option is granted. Outside the 1985 and 1995 plans, 1,448,020 options have been
granted to certain officers and directors. Such options were granted with an
exercise price equal to fair market value (see Notes 1 and 2), at the date of
grant.
Options become exercisable as determined at the date of grant by a committee
of the Board of Directors. Options expire 10 years after the date of grant
unless an earlier expiration date is set at the time of grant.
F-31
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 12 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Details of stock options are as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES EXERCISE PRICE
----------- --------------
<S> <C> <C>
Outstanding at September 30, 1992............................... 4,459,288 $ 2.04 - $3.08
Granted....................................................... 172,168 $ 2.81
Exercised..................................................... (932,796) $ 2.04 - $2.81
Canceled...................................................... (90,084) $ 2.10 - $2.81
-----------
Outstanding at September 30, 1993............................... 3,608,576 $ 2.04 - $3.08
Granted....................................................... 301,216 $ 3.84 - $4.53
Exercised (475,516) $ 2.10 - $2.88
Canceled...................................................... (62,000) $ 2.10 - $2.88
-----------
Outstanding at September 30, 1994 3,372,276 $ 2.04 - $4.53
Granted 904,636 $ 4.60 - $5.54
Exercised..................................................... (1,326,484) $ 2.10 - $2.88
Canceled...................................................... (16,000) $ 2.10
-----------
Outstanding at September 30, 1995............................... 2,934,428 $ 2.04 - $5.54
-----------
-----------
</TABLE>
Of the outstanding options at September 30, 1995, 1,668,404 had vested. As
of September 30, 1995, options to purchase 1,392,000 shares were available for
grant under the 1995 Plan.
No compensation expense was recorded in 1993, 1994 and 1995 because all
options were granted at H&Q's fair market value (see Notes 1 and 2).
STOCK APPRECIATION RIGHTS
In fiscal 1993, 1994 and 1995, the Company awarded Stock Appreciation Rights
(SARs) to key employees and executives. These SARs have a service period of one
year and result in additional cash compensation to the individuals based on the
increase in the Company's formula value (see Note 1) during the service period
to which the SARs relate. The SARs vest and are paid over three years, with
immediate cancellation of vesting upon employment termination. Compensation
expense recorded for SARs awards was $361,050, $785,258 and $4,210,216 for 1993,
1994 and 1995, respectively.
The following summarizes SARs as of September 30, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Initial grant................................. 1,044,000 1,260,000 1,794,000
Canceled...................................... (196,000) (142,000) (146,000)
---------- ---------- ----------
SARs remaining................................ 848,000 1,118,000 1,648,000
---------- ---------- ----------
---------- ---------- ----------
SARs issuance price........................... $ 2.81 $ 3.84 $ 4.98
</TABLE>
The total SARs liability at September 30, 1995, included in compensation and
benefits payable, will be paid out as follows:
<TABLE>
<CAPTION>
Fiscal 1996..................................... $2,117,425
<S> <C>
Fiscal 1997..................................... 1,824,159
Fiscal 1998..................................... 1,398,364
---------
Total......................................... $5,339,948
---------
---------
</TABLE>
F-32
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 12 -- EMPLOYEE BENEFIT PLANS (CONTINUED)
Subsequent to September 30, 1995, the Company issued 2,859,520 SARs that
will result in additional compensation to the awardees based on the increase in
the Company's net book value in the 1996 fiscal year. These SARs have a service
period of one year and vest and are paid over three years.
NOTE 13 -- NET CAPITAL REQUIREMENTS
As a registered broker-dealer, H&Q LLC is subject to the Securities and
Exchange Commission's Uniform Net Capital Rule 15c3-1 (the Rule) and the capital
rules of the New York Stock Exchange, Inc., of which H&Q LLC is a member. H&Q
LLC has elected to compute its net capital requirement under the "alternative"
method, which requires minimum net capital to be the greater of $1,000,000 or 2
percent of aggregate debit balances arising from customers' transactions, as
defined. The Rule also provides that equity capital may not be withdrawn or cash
distributions paid if the resulting net capital would be less than the amounts
required under the Rule. Accordingly, the payment of distributions and advances
to H&Q by H&Q LLC is limited to excess net capital under the most restrictive of
these requirements. At September 30, 1994 and 1995, H&Q LLC's regulatory net
capital of $14,994,039 and $30,286,118, respectively, was 38 percent and 28
percent, respectively, of aggregate debit items and its net capital in excess of
the minimum required was $13,994,039 and $28,191,905, respectively.
As a registered broker-dealer, RvR Securities is also subject to the Rule.
RvR Securities has also elected to compute its net capital requirement under the
alternative method. RvR Securities' minimum net capital requirement is $250,000.
At September 30, 1994 and 1995, RvR Securities had regulatory net capital under
Rule 15c3-1 of $895,904 and $345,010, respectively, and its net capital in
excess of the minimum required was $645,904 and $95,010, respectively.
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
Aggregate annual rentals for office space under noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
ENDING SEPTEMBER 30
- -----------------------------------------------------------
<S> <C>
1996....................................................... $ 4,897,824
1997....................................................... 4,926,256
1998....................................................... 4,686,662
1999....................................................... 1,818,796
Thereafter................................................. 151,158
-------------
$ 16,480,696
-------------
-------------
</TABLE>
Certain of these leases have escalation clauses. Rental expense, net of
sublease income, charged to occupancy and equipment expense for the years ended
September 30, 1993, 1994 and 1995, was $3,588,776, $3,731,112 and $4,297,622,
respectively.
Lewco Securities Corp. conducts a stock borrow/stock lending business. On
behalf of Lewco, the Company has agreed to guarantee its proportional share of
secured loans resulting from this business. The Company's contingent liability
relating to its net unsecured position under this indemnity agreement was
$72,211 and $3,796,907 at September 30, 1994 and 1995, respectively.
The Company has contingent liabilities, including contractual commitments
arising in the normal course of business, the resolution of which, in
management's opinion, will not have an adverse effect on the Company's financial
position.
F-33
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 14 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
As is the case with many firms in the securities industry, the Company is a
defendant or co-defendant in a number of lawsuits that seek substantial and
usually unspecified damages. These suits have arisen in the normal course of the
Company's business and are incidental to the securities and investment banking
business. Most of the proceedings relate to public underwritings of securities
in which H&Q LLC participated as a manager, co-manager or member of the
underwriting syndicate. These cases involve claims under federal and state
securities laws and seek compensatory and other monetary damages. It is possible
that H&Q and/or H&Q LLC may be called upon as a member of a class of defendants
or under the terms of the underwriting, indemnification or other agreements to
contribute to settlements or judgments arising out of these cases. The Company
is contesting the complaints in all cases and believes that there are
meritorious defenses in each of these lawsuits. Although the ultimate outcome of
such litigation cannot be ascertained at this time, it is the opinion of the
Company's management, based on discussions with counsel, that the resolution of
these actions and others will not have a material adverse effect on the
Company's financial statements taken as a whole.
H&Q has indemnified certain of its officers, directors, agents and certain
of its affiliates as permitted under California law. Under these provisions, H&Q
itself is and will be subject to indemnification assertions by officers,
directors, agents or certain of its affiliates who are or may become defendants
in litigation that may result in the normal course of business. Although the
ultimate outcome of indemnification assertions outstanding as of September 30,
1995, cannot be ascertained at this time, it is the opinion of the Company's
management, based on discussions with counsel, that the resolution of these
assertions will not have a material adverse effect on the Company's financial
statements taken as a whole.
NOTE 15 -- FINANCIAL INSTRUMENTS WITH MARKET RISK AND CONCENTRATIONS OF CREDIT
RISK
In the normal course of business, H&Q LLC enters into various financial
transactions with off-balance-sheet risk in connection with its proprietary
trading activities. These transactions primarily include purchases and sales of
index and equity options. H&Q LLC records its options at market value. H&Q LLC's
options are primarily executed to minimize its market risk exposure of its
underlying trading positions as well as to benefit from changing market
conditions. All options transacted by H&Q LLC are exchange-traded in organized
markets and have terms of less than one year. H&Q LLC's exposure to market risk
is determined by a number of factors, including the size, composition and
diversification of positions held and market volatility. Management actively
monitors its market risk exposure by reviewing the effectiveness of hedging
strategies and setting market risk limits. H&Q LLC's exposure to market risk is
immaterial.
The market values of options included in the balance sheets are as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Options included in--
Marketable securities..................................... $ 240,726 $ 897,048
Securities sold, not yet purchased........................ 246,024 685,487
</TABLE>
In the normal course of business, H&Q LLC's customer and correspondent
clearance activities involve the execution, settlement and financing of various
customer securities transactions. These activities may expose H&Q LLC to
off-balance-sheet credit risk in the event that the customer is unable to
fulfill its contracted obligations. H&Q LLC's customer securities activities are
transacted on either a cash or margin basis. In margin transactions, H&Q LLC
extends credit to the customer, subject to various regulatory and internal
margin requirements, collateralized by cash and securities in the customer's
account. H&Q LLC monitors collateral and required margin levels daily and,
pursuant to such guidelines, requests customers to deposit additional
F-34
<PAGE>
HAMBRECHT & QUIST GROUP AND HAMBRECHT & QUIST, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1995
NOTE 15 -- FINANCIAL INSTRUMENTS WITH MARKET RISK AND CONCENTRATIONS OF CREDIT
RISK (CONTINUED)
collateral or reduce securities positions when necessary. H&Q LLC is also
exposed to credit risk when its margin accounts or a margin account is
collateralized by a concentration of a particular security and when that
security decreases in value.
In addition, H&Q LLC executes and clears customer short-sale transactions.
Such transactions may expose H&Q LLC to off-balance-sheet risk in the event that
margin requirements are not sufficient to fully cover losses that customers may
incur. In the event that the customer fails to satisfy its obligations, H&Q LLC
may be required to purchase financial instruments at prevailing market prices in
order to fulfill the customer's obligations.
In accordance with industry practice, H&Q LLC records customer transactions
on a settlement-date basis, which is generally three business days after trade
date. H&Q LLC is therefore exposed to risk of loss on these transactions in the
event of the customers' or brokers' inability to meet the terms of their
contracts, in which case H&Q LLC may have to purchase or sell financial
instruments at prevailing market prices. Settlement of these transactions is not
expected to have a material effect on H&Q LLC's balance sheet.
As a securities broker-dealer, H&Q LLC provides services to diverse groups
of corporations and institutional and individual investors. A substantial
portion of H&Q LLC's transactions is executed with and on behalf of
institutional investors, including other broker-dealers, commercial banks,
insurance companies, pension plans, mutual funds and other financial
institutions. H&Q LLC's exposure to credit risk associated with the
nonperformance of these customers in fulfilling their contractual obligations
pursuant to securities transactions can be directly impacted by volatile trading
markets.
As of September 30, 1995, the Company did not have significant
concentrations of credit risk with any single counterparty or with any single
security.
NOTE 16 -- INDUSTRY SEGMENT AND GEOGRAPHIC AREA DATA
The Company is primarily engaged in a single line of business as a
securities firm, which comprises several types of services, such as principal
and agency transactions, underwriting and investment banking and long-term
equity investing. These activities constitute a single business segment.
The assets and revenues related to the company's foreign operations are not
significant.
F-35
<PAGE>
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary....................................... 3
Risk Factors.................................. 5
The Company................................... 16
Restructuring................................. 17
Use of Proceeds............................... 18
Dividend Policy............................... 18
Capitalization................................ 19
Dilution...................................... 20
Selected Combined Financial Data.............. 21
Management's Discussion and Analysis of
Financial Condition and
Results of Operations........................ 23
Business...................................... 31
Regulation.................................... 50
Net Capital Requirements...................... 53
Management.................................... 55
Certain Transactions.......................... 63
Principal Stockholders........................ 67
Description of Capital Stock.................. 68
Shares Eligible for Future Sale............... 69
Underwriting.................................. 71
Legal Matters................................. 72
Experts....................................... 72
Additional Information........................ 72
Index to Financial Statements................. F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3,500,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST LLC
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
, 1996
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
Common Stock being registered.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID BY
COMPANY
------------
<S> <C>
SEC registration fee...................................................................... $ 27,587
NASD filing fee........................................................................... 8,500
New York Stock Exchange listing fee....................................................... 81,100
Pacific Stock Exchange listing fee........................................................ 10,000
Printing and engraving.................................................................... 75,000
Legal fees and expenses................................................................... 300,000
Accounting fees and expenses.............................................................. 200,000
Blue sky fees and expenses................................................................ 15,000
Transfer agent and registrar fees and expenses............................................ 5,000
Miscellaneous............................................................................. 77,813
------------
Total................................................................................. $ 800,000
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eight of the registrant's Certificate of Incorporation (Exhibit 3.01
hereto) and Article VI of the registrant's Bylaws (Exhibit 3.02 hereto) provide
for indemnification of its directors, officers, employees and other agents to
the maximum extent permitted by the Delaware Law. In addition, the Registrant
has entered into Indemnification Agreements (Exhibit 10.19 hereto) with its
officers and directors. Reference is also made to the Underwriting Agreement
contained in Exhibit 1.01 hereto, which provides for the indemnification of
officers, directors and controlling persons of the Registrant against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the three year period ended June 30, 1996, the Registrant and its
predecessor entities, Hambrecht & Quist Group, a California corporation ("Group
California") and Hambrecht & Quist L.P., a California limited partnership ("LP")
sold the following securities without registration under the Securities Act:
(1) Group California sold a total of 5,730,012 shares of its Common Stock to
consultants, employees and directors of the Registrant and its subsidiaries
in a series of transactions, for aggregate consideration of $23,296,064 in
the form of cash and promissory notes.
(2) Group California granted options to purchase a total of 4,325,640 shares of
Common Stock to employees and directors of the Registrant and its
subsidiaries in a series of transactions under stock plans.
(3) Group California granted options to purchase 1,410,532 shares of Common
Stock to officers outside of stock plans.
(4) LP sold limited partnership units to each person holding stock or options of
the Company under a unit plan, with one LP unit issued for each 50 shares of
outstanding stock or stock subject to outstanding options.
(5) In addition, Registrant issued one share of Common Stock to an officer for
$1.00 cash.
There were no underwriters, brokers or finders employed in connection with
any of the transactions set forth above. The sales of the above securities were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, or
Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by
an issuer not involving a public offering or transactions pursuant to the
compensatory benefit plans and contracts relating to compensation. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were attached
to the certificates issued in such transactions. All recipients had adequate
access to information about the registrant.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- -------------------------------------------------------------------------------------------------------
<C> <C> <S>
1.01 -- Form of Underwriting Agreement.*
2.01 -- Agreement and Plan of Reorganization by and among Hambrecht & Quist Group, Hambrecht & Quist Group,
Inc., H & Q Reorganization Subsidiary, Inc., and Hambrecht & Quist, L.P., with exhibits, dated June
10, 1996.
3.01 -- Registrant's Certificate of Incorporation, dated June 6, 1996.+
3.02 -- Form of Registrant's Bylaws to be effective upon the closing of this offering.
4.01 -- Form of Specimen Certificate for Registrant's Common Stock.*
5.01 -- Opinion of Wilson Sonsini Goodrich & Rosati, A Professional Corporation.
10.01 -- Registrant's 1996 Equity Plan.
10.02 -- Hambrecht & Quist Group 1995 Restricted Stock Plan, 1995 Stock Option Plan, and Hambrecht & Quist, L.P.
1995 Limited Partnership Unit Plan.+
10.03 -- Form of Hambrecht & Quist Group 1995 Stock Option Plan Nonstatutory Stock Option Agreement.+
10.04 -- Hambrecht & Quist Group Savings and Employee Stock Ownership Plan, effective as of October 1, 1994.+
10.05 -- Lease between The Equitable Life Assurance Society of the United States and Hambrecht & Quist L.L.C.
dated January 27, 1988, as amended.
10.06 -- Assignment of Lease from Apple Computer, Inc. to Hambrecht & Quist L.L.C. dated March 27, 1996.
10.07 -- Lease between Hambrecht & Quist L.L.C. and Rowes Wharf Associates dated June 22, 1987, as amended.
10.08 -- Lease, Riders, and Addenda between 230 Park Avenue Associates and Hambrecht & Quist L.L.C. dated
December 1, 1995.
10.09 -- Line of Credit Agreement between The Bank of California, N.A. and Hambrecht & Quist Group, dated
October 29, 1993.+
10.10 -- Amended and Restated Line of Credit Agreement between The Bank of California, N.A., and Hambrecht &
Quist Group, dated March 21, 1996.+
10.11 -- Line of Credit Note between The Bank of California, N.A., and Hambrecht & Quist Group, dated March 21,
1996.+
10.12 -- Continuing Guaranty by Hambrecht & Quist Group in favor of The Bank of California, N.A., dated March
21, 1996.+
10.13 -- Employment Agreement between Hambrecht & Quist Group and Daniel H. Case III, dated June 17, 1996.+
10.14 -- Hambrecht & Quist L.L.C.'s Operating Agreement, dated March 6, 1995.+
10.15 -- Hambrecht & Quist 1996 Bonus and Deferred Sales Compensation Plan.*
10.16 -- Master Agreement between Hambrecht & Quist Incorporated, Wertheim Schroder & Co. Incorporated, WSCI
Limited Partnership and Lewco Securities Corp., dated December 23, 1991, as amended.+
10.17 -- Clearing and Other Services Agreement between Hambrecht & Quist Incorporated, Wertheim Schroder & Co.
Incorporated, WSCI Limited Partnership and Lewco Securities Corp., dated December 23, 1991, as
amended.+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- -------------------------------------------------------------------------------------------------------
10.18 -- Letter Agreement between Hambrecht & Quist Group and H&Q Asia Pacific, Ltd., dated April 1, 1996.+
<C> <C> <S>
10.19 -- Form of Indemnification Agreement.
10.20 -- Lease between The Equitable Life Assurance Society of the United States and Hambrecht & Quist LLC dated
November 9, 1988, as amended.
21.01 -- List of Subsidiaries of the Registrant.+
23.01 -- Consent of Independent Public Accountants.
23.02 -- Consent of Counsel (included in Exhibit 5.01).
24.01 -- Power of Attorney.+
</TABLE>
- ------------------------
+ Previously filed.
* To be provided by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment Number 1 to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on the 25th day of July 1996.
HAMBRECHT & QUIST GROUP, INC.,
a Delaware corporation
By: /s/_DANIEL H. CASE III____________
Daniel H. Case III,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ----------------------------------------- --------------
<C> <S> <C>
/s/WILLIAM R. HAMBRECHT*
(William R. Hambrecht) Chairman of the Board of Directors July 25, 1996
/s/DANIEL H. CASE III President, Chief Executive Officer and
(Daniel H. Case III) Director (Principal Executive Officer) July 25, 1996
/s/WILLIAM R. TIMKEN*
(William R. Timken) Vice Chairman of the Board of Directors July 25, 1996
Vice President and Chief Financial
/s/RAYMOND J. MINEHAN* Officer (Principal Financial and July 25, 1996
(Raymond J. Minehan) Accounting Officer)
/s/WILLIAM E. MAYER*
(William E. Mayer) Director July 25, 1996
/s/HOWARD B. HILLMAN*
(Howard B. Hillman) Director July 25, 1996
/s/EDMUND H. SHEA, JR.*
(Edmund H. Shea, Jr.) Director July 25, 1996
/s/LAWRENCE J. STUPSKI*
(Lawrence J. Stupski) Director July 25, 1996
* By: /s/DANIEL H. CASE III
Daniel H. Case III
Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- -------------------------------------------------------------------------------------------------------
<C> <C> <S>
2.01 -- Agreement and Plan of Reorganization by and among Hambrecht & Quist Group, Hambrecht & Quist Group,
Inc., H & Q Reorganization Subsidiary, Inc., and Hambrecht & Quist, L.P., with exhibits, dated June
10, 1996.
3.02 -- Form of Registrant's Bylaws to be effective upon the closing of this offering.
5.01 -- Opinion of Wilson Sonsini Goodrich & Rosati, A Professional Corporation.
10.01 -- Registrant's 1996 Equity Plan.
10.05 -- Lease between The Equitable Life Assurance Society of the United States and Hambrecht & Quist L.L.C.
dated January 27, 1988, as amended.
10.06 -- Assignment of Lease from Apple Computer, Inc. to Hambrecht & Quist L.L.C. dated March 27, 1996.
10.07 -- Lease and Fifth Amendment between Hambrecht & Quist L.L.C. and Rowes Wharf Associates dated February 6,
1996.
10.08 -- Lease, Riders, and Addenda between 230 Park Avenue Associates and Hambrecht & Quist L.L.C. dated
December 1, 1995.
10.19 -- Form of Indemnification Agreement.
10.20 -- Lease between the Equitable Life Assurance Society of the United States and Hambrecht & Quist L.L.C.
dated November 9, 1988, as amended.
23.01 -- Consent of Independent Public Accountants.
23.02 -- Consent of Counsel (included in Exhibit 5.01).
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
HAMBRECHT & QUIST GROUP,
a California Corporation
HAMBRECHT & QUIST GROUP, INC.
a Delaware Corporation
H & Q REORGANIZATION SUBSIDIARY, INC.
a California Corporation
AND HAMBRECHT & QUIST, L.P.,
a California Limited Partnership
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I - THE MERGERS. . . . . . . . . . . . . . . . . . . . . . . . 3
1.1 Mergers. . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Filing and Effectiveness . . . . . . . . . . . . . . . . 4
1.3 Closing. . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Effects of the Mergers . . . . . . . . . . . . . . . . . 4
1.5 Tax-Free Treatment . . . . . . . . . . . . . . . . . . . 5
ARTICLE II - EFFECT OF THE MERGER ON CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS AND ON PARTNERSHIP INTERESTS IN
THE CONSTITUENT LIMITED PARTNERSHIP; EXCHANGE OF
CERTIFICATES; SUPPLEMENTARY ACTION . . . . . . . . . . . . . . . 6
2.1 Effect on Capital Stock. . . . . . . . . . . . . . . . . 6
2.2 Effect on Partnership Interests. . . . . . . . . . . . . 9
2.3 Exchange of Certificates; Exchange of Interests . . . . 10
2.4 Supplementary Action . . . . . . . . . . . . . . . . . . 13
ARTICLE III - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . 14
3.1 Fairness Hearing and Permit. . . . . . . . . . . . . . . 14
3.2 Hambrecht & Quist California Shareholders' Consent . . . 14
3.3 LP Limited Partners' Consent . . . . . . . . . . . . . . 14
3.4 Hambrecht & Quist Group Stockholder's Consent. . . . . . 15
3.5 Termination of Shareholder Agreement . . . . . . . . . . 15
3.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . 15
3.7 Best Efforts . . . . . . . . . . . . . . . . . . . . . . 15
3.8 Qualifications; Franchise Tax . . . . . . . . . . . . . 15
3.9 Legal Conditions to the Mergers . . . . . . . . . . . . 15
ARTICLE IV - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . 16
4.1 Conditions to Each Party's Obligation to Effect
the Merger . . . . . . . . . . . . . . . . . . . . . . . 16
4.2 Conditions of Obligations of Hambrecht & Quist
Group and Merger Sub in Connection with the
California Merger . . . . . . . . . . . . . . . . . . . 17
4.3 Conditions of Obligations of Hambrecht & Quist
California in Connection with the California Merger. . . 17
4.4 Conditions of Obligations of LP . . . . . . . . . . . . 18
4.5 Conditions of Obligations of Hambrecht & Quist
Group with respect to the LP Merger. . . . . . . . . . . 18
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
ARTICLE V - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Termination . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . 18
6.1 Survival of Representations and Warranties . . . . . . . 18
6.2 Amendment. . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Extension; Waiver . . . . . . . . . . . . . . . . . . . 19
6.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Interpretation . . . . . . . . . . . . . . . . . . . . . 20
6.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . 20
6.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . 20
6.8 No Transfer . . . . . . . . . . . . . . . . . . . . . . 20
6.9 Severability . . . . . . . . . . . . . . . . . . . . . . 20
6.10 Other Remedies . . . . . . . . . . . . . . . . . . . . . 20
6.11 Further Assurances . . . . . . . . . . . . . . . . . . . 20
6.12 Absence of Third-Party Beneficiary Rights . . . . . . . 21
6.13 Mutual Drafting . . . . . . . . . . . . . . . . . . . . 21
6.14 Governing Law . . . . . . . . . . . . . . . . . . . . . 21
EXHIBITS
Exhibit 1.1(a) Agreement of Merger between Merger Sub and
Hambrecht & Quist California
Exhibit 1.1(b)(1) Agreement of Merger between LP and Hambrecht &
Quist Group
Exhibit 1.1(b)(2) Certificate of Merger between LP and Hambrecht &
Quist Group
Exhibit 1.4(a) Amended and Restated Articles of Incorporation of
Hambrecht & Quist Group
Exhibit 1.4(b) Amended and Restated Certificate of Incorporation
of Hambrecht & Quist Group, Inc.
Exhibit 2.1(c) Underwriters' Market Stand-off
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<PAGE>
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), is made and
entered into as of June 10, 1996 by and among Hambrecht & Quist Group, a
California corporation ("Hambrecht & Quist California"), Hambrecht & Quist
Group, Inc., a Delaware Corporation ("Hambrecht & Quist Group"), H & Q
Reorganization Subsidiary, Inc., a California corporation and wholly owned
subsidiary of Hambrecht & Quist Group ("Merger Sub"), and Hambrecht & Quist,
L.P. ("LP"), a California limited partnership (each, a "Party" and collectively,
the "Parties").
RECITALS
A. Hambrecht & Quist California is a corporation duly organized and
existing under the laws of the State of California and has an authorized
capital of 10,000,000 shares, all of which are designated "Common Stock", no
par value. As of May 31, 1996, 4,003,349 shares of Common Stock were issued
and outstanding and 1,333,846 options to purchase Common Stock were issued
and outstanding.
B. Hambrecht & Quist Group is a corporation duly organized and existing
under the laws of the State of Delaware and has an authorized capital of
105,000,000 shares, 100,000,000 of which are designated "Common Stock", $.0l
par value and 5,000,000 of which are designated "Preferred Stock", $.01 par
value. As of the date of this Agreement, one (1) share of Common Stock was
issued and outstanding and no shares of Preferred Stock were issued and
outstanding.
C. Merger Sub is a corporation duly organized and existing under the laws
of the State of California and has an authorized capital of 10,000 shares, all
of which are designated "Common Stock", $.001 par value. As of the date of
this Agreement, 10,000 shares of Common Stock were issued and outstanding, all
of which were held by Hambrecht & Quist Group.
D. LP is a limited partnership duly organized and existing under the laws
of the state of California. Hambrecht & Quist California is the sole general
partner of LP (the "General Partner") and has a one percent (1%) general
partnership interest in LP. As of May 31,1996, the outstanding limited
partnership interests, representing in the aggregate a 99% interest in LP,
consisted of 106,743.91 Class A Units, calculated on an as-converted basis,
(the "LP Units"), which are held by the partners of LP (the "Limited
Partners").
E. LP intends to establish, pursuant to a Liquidating Trust Agreement
with the trustees named therein (the "Liquidating Trust Agreement") a
Liquidating Trust (the "Liquidating Trust") for the benefit of the partners of
LP. LP intends to distribute, immediately prior to the LP Merger, as defined
below, the Assets, as defined in the Liquidating Trust Agreement, which will be
held in the Liquidating Trust for the benefit of the partners of LP in
accordance with the Liquidating Trust Agreement.
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<PAGE>
F. The boards of directors of Hambrecht & Quist Group, Hambrecht & Quist
California, and Merger Sub, respectively, have determined that it is advisable
and in the best interests of their respective entities and their respective
shareholders to merge Merger Sub with and into Hambrecht & Quist California in
a merger under Chapter 11 of the California General Corporation Law (the
"CGCL") (the "California Merger"). Under the terms of the merger, among other
things, all of the outstanding shares of Common Stock, no par value, of
Hambrecht & Quist California ("California Common Stock") shall be converted
into the right to receive a number of shares of Common Stock, $.01 par value,
of Hambrecht & Quist Group ("Group Common Stock") in the ratio and upon the
terms and conditions set forth in this Agreement.
G. The respective boards of directors of Hambrecht & Quist California,
Hambrecht & Quist Group, and Merger Sub have approved this Agreement and the
California Merger contemplated hereby and directed that this Agreement be
executed by the undersigned officers of such entities.
H. The board of directors of Hambrecht & Quist California has directed
that the principal terms of the California Merger be submitted to a vote of the
shareholders of Hambrecht & Quist California. Pursuant to Section 1201 of the
CGCL, the approval by affirmative vote of a majority of outstanding shares of
California Common Stock is required to approve the California Merger.
I. Pursuant to Section 1201(b) of the CGCL, no vote of Merger Sub
shareholders is required to approve the California Merger.
J. The board of directors of Hambrecht & Quist Group and Hambrecht &
Quist California, as the general partner of LP, have determined that it is
advisable and in the best interests of Hambrecht & Quist Group and its
stockholders and LP and its partners to merge LP with and into Hambrecht & Quist
Group in a merger pursuant to Article 7.5 of the California Revised Limited
Partnership Act ("CRLPA") and Section 263 of the Delaware General Corporation
Law (the "DGCL") (the "LP Merger"). Under the terms of the merger, among other
things, all of the partnership interests in LP shall be converted into the right
to receive a number of shares of Group Common Stock in the ratio and upon the
terms and conditions set forth in this Agreement.
K. Hambrecht & Quist California, the general partner of LP, has approved
this Agreement and the LP Merger contemplated hereby and has directed that the
principal terms of the LP Merger he submitted to a vote of the Limited Partners
and that this Agreement be executed by the General Partner. Pursuant to Section
263 of the DGCL and Section 15678.2 of the CRLPA, the approval of a majority in
interest of the holders of LP Units is required to approve the LP Merger.
L. The board of directors of Hambrecht & Quist Group has approved this
Agreement and the LP Merger contemplated hereby and has directed that the
principal terms of the LP Merger be submitted to a vote of the stockholder of
Hambrecht & Quist Group and that this Agreement be executed by the undersigned
officers of Hambrecht & Quist Group. Pursuant to Sections 263(c) and
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<PAGE>
251 of the DGCL, a vote of the sole stockholder of Hambrecht & Quist Group is
required to approve the LP Merger.
M. Hambrecht & Quist Group will, as part of the LP Merger, amend its
certificate of incorporation to change its name from Hambrecht & Quist Group,
Inc. to Hambrecht & Quist Group.
N. Hambrecht & Quist California will, as part of the California Merger,
amend its articles of incorporation to change its name from Hambrecht & Quist
Group to Hambrecht & Quist California.
0. The Parties intend, by executing this Agreement, to adopt, with
respect to the California Merger, a plan of reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986 (the "Code"), as amended, and,
with respect to the LP Merger, except with respect to cash payments in lieu of
fractional shares, a tax-free transaction under Section 351 of the Code.
P. The Parties desire to make certain agreements in connection with the
California Merger and the LP Merger (collectively, the "Mergers") and also to
prescribe various conditions to the Mergers.
NOW, THEREFORE, in consideration of the premises, mutual agreements and
covenants herein, the Parties hereby agree, subject to the terms and conditions
hereinafter set forth, as follows:
ARTICLE I
THE MERGERS
1.1 MERGERS.
(a) Subject to the terms and conditions of this Agreement and as
contemplated by the Agreement of Merger between Merger Sub and Hambrecht & Quist
California attached hereto as EXHIBIT 1.1(a)(the "Agreement of California
Merger"), Merger Sub will be merged with and into Hambrecht & Quist California
in accordance with the applicable provisions of the CGCL.
(b) Subject to the terms and conditions of this Agreement and as
contemplated by the Agreement of Merger between LP and Hambrecht & Quist Group
to be filed pursuant to Section 263 of the DCGL attached hereto as EXHIBIT
1.1(b)(1) (the "Agreement of LP Merger") and the Certificate of Merger of
Hambrecht & Quist Group and LP to be filed pursuant to Section 15678.4 of the
CRLPA attached hereto as EXHIBIT 1.1(b)(2) (the "California Certificate of LP
Merger"), LP will be merged with and into Hambrecht & Quist Group.
-3-
<PAGE>
(c) The California Merger and the LP Merger collectively shall herein
be called the "Mergers".
1.2 FILING AND EFFECTIVE
(a) Subject to the provisions of this Agreement, the Agreement of
California Merge, together with the required officers certificates, shall be
executed and filed with the California Secretary of State in accordance with the
CGCL following satisfaction or waiver of all of the conditions precedent set
forth in ARTICLE IV.
The date and time upon which the California Merger shall become effective
is herein called the "Effective Time of the California Merger" or "California
Effective Time." The date upon which the California Effective Time occurs shall
be herein called the "California Effective Date."
(b) Subject to the provisions of this Agreement, the Agreement of LP
Merger shall be executed and filed with the Delaware Secretary State in
accordance with the DGCL and the California Certificate of LP Merger with the
California Secretary of State shall be executed and filed in accordance with the
CRLPA following satisfaction or waiver of all of the Conditions Precedent set
forth in ARTICLE IV.
The date and time upon which the LP Merger shall become effective is herein
called the "Effective Time of the LP Merger" or "LP Effective Time." The date
upon which the LP Effective Time occurs shall be herein called the "LP Effective
Date."
1.3 CLOSING. The closing of the Mergers shall take place as soon as
practicable after each of the filings described in SECTION 1.2 has been made, at
the offices of Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo
Alto, California, unless a different date or place is agreed to in writing by
the Parties hereto.
1.4 EFFECTS OF THE MERGER.
(a) At the Effective Time of the California Merger,
(i) the separate existence of Merger Sub shall cease and
Merger Sub shall be merged with and into Hambrecht & Quist California (Hambrecht
& Quist California shall sometimes be referred to herein as the "Surviving
Subsidiary");
(ii) the Articles of Incorporation of Hambrecht & Quist
California will be amended and restated in their entirety to read as they appear
in Exhibit 1.4(a) until duly amended in accordance with the provisions thereof
and applicable law;
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<PAGE>
(iii) the By-Laws of Hambrecht & Quist California as in effect
immediately prior to the Effective Time of the California Merger shall be the
By-Laws of the Surviving Subsidiary until duly amended in accordance with the
provisions thereof and applicable law;
(iv) the officers and directors of Hambrecht & Quist California
immediately prior to the Effective Time of the California Merger shall be the
officers and directors, respectively, of the Surviving Subsidiary each to hold
office in accordance with the Articles and By-laws of the Surviving Subsidiary;
(v) the California Merger shall, from and after the Effective
Time of the California Merger, have all the effects provided by applicable law.
(b) At the effective time of the LP Merger,
(i) the separate existence of LP shall cease and LP shall be
merged with and into Hambrecht & Quist Group (Hambrecht & Quist Group shall
sometimes be referred to herein as the "Surviving Corporation");
(ii) the Certificate of Incorporation of Hambrecht & Quist
Group will be amended and restated in its entirety to read as it appears in
Exhibit 1.4(b) until duly amended in accordance with the provisions thereof and
applicable law;
(iii) the By-Laws of Hambrecht & Quist Group as in effect
immediately prior to the Effective Time of the LP Merger shall be the By-Laws of
the Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law;
(iv) the officers and directors of Hambrecht & Quist Group
immediately prior to the Effective Time of the LP Merger shall be the officers
and directors, respectively, of the Surviving Corporation, each to hold office
in accordance with the Certificate of Incorporation and By-laws of the Surviving
Corporation;
(v) the LP Merger shall, from and after the Effective Time of
the LP Merger, have all the effects provided by applicable law.
1.5 TAX-FREE TREATMENT. The California Merger is intended to be a tax-free
reorganization within the meaning of 368 of the Code. Except with respect to
cash payments in lieu of fractional shares, the LP Merger is intended to be tax-
free under Section 351 of the Code.
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<PAGE>
ARTICLE II
EFFECT OF THE MERGER ON CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS AND
ON PARTNERSHIP INTERESTS IN THE CONSTITUENT
LIMITED PARTNERSHIP; EXCHANGE OF
CERTIFICATES; SUPPLEMENTARY ACTION
2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time of the California
Merger, by virtue of the California Merger and without any action on the part of
any holder of any securities of Hambrecht & Quist California:
(a) CAPITAL STOCK OF MERGER SUB. All issued and outstanding shares of
capital stock of Merger Sub shall continue to be issued and outstanding and
shall be converted into 10,000 shares of California Common Stock. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of California Capital Stock.
(b) CANCELLATION OF CALIFORNIA COMMON STOCK.
(i) All shares of California Common Stock that are owned
directly or indirectly by Hambrecht & Quist California shall be canceled and no
Group Common Stock or other consideration shall be delivered in exchange
therefor.
(ii) Each holder of a certificate representing any shares of
California Common Stock after the Effective Time of the California Merger,
except the shares of California Common Stock issued upon conversion of shares of
Merger Sub, shall cease to have any rights with respect to such shares, except
the right either to (A) receive the California Merger Consideration Per Share,
(as defined in SECTION 2.1(c) below) multiplied by the number of shares
represented by such certificate, upon surrender of such certificate, or (B) to
exercise such holder's dissenters' rights as provided in SECTION 2.1(f) hereof
and the CGCL.
(c) CONVERSION OF CALIFORNIA COMMON STOCK OR CAPITAL STOCK RIGHTS OF
HAMBRECHT & QUIST CALIFORNIA. Each share of California Common Stock, except
canceled shares, Dissenting California Shares (as defined in SECTION 2.1(f)
below) and shares of California Common Stock issued upon conversion of shares of
Merger Sub but including shares issued upon the exercise of any Hambrecht &
Quist California Option (as defined in Section 2.1(d) below) prior to the
Effective Time of the California Merger, that is issued and outstanding
immediately prior to the Effective Time of the California Merger shall
automatically be canceled and extinguished and converted, without any action on
the part of the holder thereof, into the right to receive four (4) shares of
Group Common Stock (the "California Merger Consideration Per Share"). All shares
of Group Common Stock received pursuant to this SECTION 2.1(c) ("California
Merger Group Common Stock") shall be subject to the terms and conditions on
transfer of the "Underwriters' Market Stand-
-6-
<PAGE>
Off" set forth in EXHIBIT 2.1(c) and each certificate representing any such
share shall carry a legend describing the terms and conditions on transfer as
described in the Underwriters' Market Stand-Off. Any reference to California
Merger Group Common Stock, including without limitation references contained in
SECTION 2.1(d) below, shall be deemed to refer to Group Common Stock restricted
by the Underwriters' Market Stand-Off. The ratio pursuant to which each share of
California Common Stock & Quist California, including assumed convertible and
exercisable securities, will be exchanged for shares of Hambrecht & Quist Group,
determined in accordance with the foregoing provisions, is hereinafter referred
to as the "California Exchange Ratio."
(d) ASSUMPTION OF HAMBRECHT & QUIST CALIFORNIA OPTIONS.
(i) At the Effective Time of the California Merger, each
unexpired and unexercised option to purchase shares of California Common Stock
(a "Hambrecht & Quist California Option") granted under the stock option plans
and agreements of Hambrecht & Quist California outstanding immediately prior to
the Effective Time of the California Merger shall be assumed by Hambrecht &
Quist Group (an "Assumed Hambrecht & Quist California Option") together with the
stock option plans under which those options are outstanding (the "Assumed
Option Plans"). Each Hambrecht & Quist California Option so assumed by Hambrecht
& Quist Group will continue to have, and be subject to, substantially the same
terms and conditions set forth in the documents governing such Hambrecht & Quist
California Option, including the Assumed Option Plans, immediately prior to the
Effective Time of the California Merger, except that (A) such Assumed Hambrecht
& Quist California Option will be exercisable for that number of whole shares of
California Merger Group Common Stock (which shall be subject to the
Underwriters' Market Stand-Off) equal to the product of the number of shares of
California Common Stock that were purchasable under such Assumed Hambrecht &
Quist California Option immediately prior to the Effective Time of the
California Merger multiplied by the California Exchange Ratio, and (B) the per
share exercise price for the shares of California Merger Group Common Stock
issuable upon exercise of such Assumed Hambrecht & Quist California Option will
be equal to the quotient obtained by dividing the exercise price per share of
California Common Stock (on an as converted to Common Stock basis) at which such
Assumed Hambrecht & Quist California Option was exercisable immediately prior to
the Effective Time of the California Merger by the California Exchange Ratio,
rounded up to the nearest whole cent. Consistent with the terms of the Hambrecht
& Quist California Options and the documents governing such Hambrecht & Quist
California Options, including the Assumed Option Plans, the California Merger
will not terminate or accelerate any Assumed Hambrecht & Quist California Option
or any right of exercise, vesting or repurchase relating thereto with respect to
shares of California Merger Group Common Stock acquired upon exercise of the
Assumed Hambrecht & Quist California Option. Holders of Assumed Hambrecht &
Quist California Options will not be entitled to acquire California Common Stock
following the Merger.
(ii) As soon as practicable after the Effective Time of the
California Merger, Hambrecht & Quist Group shall issue to each holder of an
Assumed Hambrecht & Quist California Option a document evidencing the stock
option assumption by Hambrecht & Quist Group.
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<PAGE>
The right to receive an Assumed Hambrecht & Quist California Option may not be
assigned or transferred, except as provided under the Assumed Option Plan under
which that option was granted. Any attempted assignment contrary to this
SECTION 2.1(d) shall be null and void.
(iii) It is the intention of the Parties that the Hambrecht &
Quist California Options assumed by Hambrecht & Quist Group qualify following
the Effective Time of the California Merger as incentive stock options as
defined in Section 422 of the Code to the extent the Hambrecht & Quist
California Options qualified as incentive stock options prior to the Effective
Time of the California Merger.
(e) CALIFORNIA COMMON STOCK SUBJECT TO REPURCHASE. All shares of
California Merger Group Common Stock that are received in the California Merger
in exchange for shares of California Common Stock that, under applicable stock
purchase, stock restriction or similar agreements with Hambrecht & Quist
California, are unvested or subject to a repurchase option or other condition of
forfeiture which by its terms does not terminate due to the California Merger
("Hambrecht & Quist California Restricted Stock") will also be unvested or
subject to the same repurchase option or other condition, as the case may be,
and all such repurchase options shall automatically inure to Hambrecht & Quist
Group in the California Merger and shall thereafter be exercisable by Hambrecht
& Quist Group upon the same terms and conditions in effect for Hambrecht & Quist
California immediately prior to the Effective Time of the California Merger,
except that the shares purchasable under any such repurchase option shall be
shares of California Merger Group Common Stock and the price payable by
Hambrecht & Quist Group shall be equal to the quotient determined by dividing
the aggregate purchase price at which the California Common Stock was
repurchasable under each applicable agreement by the California Exchange Ratio
and rounding the resulting aggregate price payable by Hambrecht & Quist Group to
the nearest whole cent. The certificates evidencing such shares will be marked
with appropriate legends.
(f) DISSENTERS' RIGHTS. If, as of the Effective Time of the
California Merger, holders of California Common Stock have properly exercised
and not lost dissenters' rights ("Dissenting California Shares") in connection
with the California Merger under Chapter 13 of the CGCL, such Dissenting
California Shares shall not be converted into California Merger Group Common
Stock but shall be converted into the right to receive such consideration as may
be determined to be due with respect to such Dissenting California Shares
pursuant to the CGCL. Hambrecht & Quist California shall give Hambrecht & Quist
Group prompt notice of any demand received by Hambrecht & Quist California to
require Hambrecht & Quist California to purchase shares of California Common
Stock, and Hambrecht & Quist Group shall have the right to participate in all
negotiations and proceedings with respect to such demand. Each holder of
Dissenting California Shares (a "Dissenting California Security Holder") who,
pursuant to the provisions of the CGCL, becomes entitled to payment of the value
of shares of California Common Stock shall receive payment therefor (but only
after the value therefor shall have been agreed upon or finally determined
pursuant to such provisions). In the event of a legal obligation, after the
Effective Time of be California Merger, to deliver shares of California Merger
Group Common Stock to any holder of
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shares of California Common Stock who shall have failed to make an effective
purchase demand or shall have lost his status as a Dissenting California
Security Holder, Hambrecht & Quist Group shall issue and deliver, upon surrender
by such Dissenting California Security Holder of his certificate or certificates
representing shares of California Common Stock, the shares of California Merger
Group Common Stock to which such Dissenting California Security Holder is then
entitled under this SECTION 2.1.
(g) ADJUSTMENT TO EXCHANGE RATIO. If, between the date of this
Agreement and the Effective Time of the California Merger, the outstanding
shares of California Common Stock shall have been changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, the
California Exchange Ratio shall be correspondingly adjusted.
2.2 EFFECT ON PARTNERSHIP INTERESTS. As of the Effective Time of the LP
Merger, by virtue of the LP Merger and without any action on the part of any
partner, limited or general, of LP:
(a) CANCELLATION OF GENERAL PARTNERSHIP INTEREST: CONVERSION OF
GENERAL PARTNERSHIP. The General Partner shall cease to have any rights with
respect to its general partnership interest in LP except the right to receive
the number of shares of Hambrecht & Quist Group Common Stock equal to the
number of outstanding LP Units at the Effective Time of the LP Merger divided
by 99 and multiplied by 24 (the "LP Merger General Partner Consideration Per
Share"). All shares of Hambrecht & Quist Group Common Stock received pursuant
to this SECTION 2.2(a) ("LP Merger General Partner Group Common Stock") shall
be subject to the terms and conditions on transfer of the "Underwriters'
Market Stand-Off" set forth in EXHIBIT 2.1(c) and each such share shall carry
a legend describing the terms and conditions on transfer as described in the
Underwriters' Market Stand-Off. Any reference herein to LP Merger General
Partner Group Common Stock shall be deemed to refer to Group Common Stock
restricted by the Underwriters' Market Stand-Off.
(b) CANCELLATION OF LP UNITS. Each holder of an LP Unit after the
Effective Time of the LP Merger shall cease to have any rights with respect to
such LP Unit, except the right either to receive the LP Merger Consideration Per
Share, as defined in SECTION 2.2(c) below, plus any cash in lieu of fractional
shares pursuant to SECTION 2.2(e) below, upon delivery of written notice of
ownership and surrender of such Units, or to exercise such holder's dissenters'
rights as provided in SECTION 2.2(d) hereof and the CRLPA.
(c) CONVERSION OF LP UNITS. Each LP Unit outstanding prior to the
Effective Time of the LP Merger except Dissenting LP Units (as defined in
SECTION 2.2(d) below) shall automatically be canceled and extinguished and
converted, without any action on the part of the holder thereof, into the right
to receive 24 shares of Group Common Stock (the "LP Merger Consideration Per
Share"). All shares of Group Common Stock received pursuant to this SECTION
2.2(c) ("LP Merger Group Common Stock") shall be subject to the terms and
conditions on transfer of the "Underwriters' Market Stand-Off" set forth in
EXHIBIT 2.1(c) and each such share shall carry a legend describing the terms and
conditions on transfer as described in the Underwriters' Market Stand-Off. Any
reference
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herein to LP Merger Group Common Stock shall be deemed to refer to Group Common
Stock restricted by the Underwriters' Market Stand-Off. The ratio pursuant to
which each LP Unit will be exchanged for shares of Hambrecht & Quist Group,
determined in accordance with the foregoing provisions, is hereinafter referred
to as the "LP Exchange Ratio."
(d) DISSENTERS' RIGHTS. If, as of the Effective Time of the LP Merger,
holders of LP Units have properly exercised and not lost dissenters' rights
("Dissenting LP Units") in connection with the LP Merger under Article 7.6 of
the CRLPA, such Dissenting LP Units shall not be converted into LP Merger Group
Common Stock but shall be converted into the right to receive such consideration
as may be determined to be due with respect to such Dissenting LP Units pursuant
to the CRLPA. LP shall give Hambrecht & Quist Group prompt notice of any demand
received by LP to require LP to purchase LP Units, and Hambrecht & Quist Group
shall have the right to participate in all negotiations and proceedings with
respect to such demand. Each holder of Dissenting LP Units (a "Dissenting LP
Unitholder") who, pursuant to the provisions of the CGCL, becomes entitled to
payment of the value of LP Units shall receive payment therefor (but only after
the value therefor shall have been agreed upon or finally determined pursuant to
such provisions). In the event of a legal obligation, after the Effective Time
of the LP Merger, to deliver shares of LP Merger Group Common Stock to any
holder of LP Units who shall have failed to make an effective purchase demand or
shall have lost his status as a Dissenting LP Unitholder, Hambrecht & Quist
Group shall issue and deliver, upon delivery by such Dissenting LP Unitholder of
a written notice of the ownership and surrender of such LP Units, the shares of
LP Merger Group Common Stock to which such Dissenting LP Unitholder is then
entitled under this SECTION 2.2.
(e) FRACTIONAL SHARES. No fractional shares of LP Merger Group Common
Stock or LP Merger General Partner Group Common Stock shall be issued, but in
lieu thereof each holder of LP Units and the General Partner who would
otherwise be entitled to receive a fraction of a share of LP Merger Group
Common Stock or LP Merger General Partner Group Common Stock shall receive
from Hambrecht & Quist Group an amount of cash equal to the price at which
shares of Group Common Stock are offered to the public pursuant to Hambrecht
& Quist Group's initial public offering multiplied by the fraction of a share
of LP Merger Group Common Stock or LP Merger General Partner Group Common
Stock to which such holder would otherwise be entitled. The fractional
interests of each holder of LP Units shall be aggregated, so that no holder
of LP Limited Partnership Units shall receive cash in an amount greater than
the value of one (1) full share of LP Merger Group Common Stock or LP Merger
General Partner Group Common Stock.
(f) ADJUSTMENT TO EXCHANGE RATIO. If, between the date of this
Agreement and the Effective Time of the LP Merger, the outstanding LP Units
shall have been changed into a different number of Units or a different class by
reason of any reclassification, recapitalization, split-up, combination,
exchange of Units or readjustment, the LP Exchange Ratio shall be
correspondingly adjusted.
2.3 EXCHANGE OF CERTIFICATES; EXCHANGE OF INTERESTS.
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(a) EXCHANGE AGENT. Prior to the Closing Date, Hambrecht & Quist
Group shall appoint a third party to act as exchange agent (the "Exchange
Agent") in the Mergers.
(b) HAMBRECHT & QUIST GROUP TO PROVIDE COMMON STOCK AND CASH.
Promptly after the earlier of (i) the Effective Date of the California Merger
and (ii) the Effective Date of the LP Merger (but in no event later than thirty
(30) business days thereafter), Hambrecht & Quist Group shall make available for
exchange in accordance with this ARTICLE II, through such reasonable procedures
as Hambrecht & Quist Group may adopt, the California Merger Group Common Stock
issuable pursuant to SECTION 2.1 in exchange for outstanding shares of
California Common Stock, the LP Merger Group Common Stock issuable pursuant to
SECTION 2.2 in exchange for LP Units, and the LP Merger General Partner Group
Common Stock issuable pursuant to SECTION 2.2 in exchange for the general
partnership interest in LP, and cash in an amount sufficient to satisfy any
obligations with respect to fractional shares pursuant to SECTION 2.2(e).
(c) EXCHANGE PROCEDURES FOR CALIFORNIA COMMON STOCK. Within thirty
(30) calendar days after the Effective Time of the California Merger, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time of the California
Merger represented outstanding shares of California Common Stock (the
"California Certificates") whose interests are being converted into California
Merger Group Common Stock pursuant to SECTION 2.1 hereof (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the California Certificates shall pass, only upon delivery of
the California Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Hambrecht & Quist Group may reasonably specify)
and (ii) instructions for use in effecting the surrender of the California
Certificates in exchange for California Merger Group Common Stock. Upon
surrender of a California Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be appointed by Hambrecht & Quist Group,
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, the holder of such California
Certificate shall be entitled to receive in exchange therefor the number of
shares of California Merger Group Common Stock to which the holder of such
certificate is entitled pursuant to SECTION 2.1 hereof The California
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of California Common Stock that is not registered on the
transfer records of Hambrecht & Quist California, the appropriate number of
shares of California Merger Group Common Stock may be delivered to a transferee
if the California Certificate representing such California Common Stock is
presented to the Exchange Agent and accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this SECTION
2.3, each California Certificate shall be deemed at all times after the
Effective Time of the California Merger to represent the right to receive upon
such surrender the number of shares of California Merger Group Common Stock as
provided by this Article II and the provisions of the CGCL but shall, subject to
SECTION 2.1(f), have no other right; provided, however, that customary and
appropriate certifications and indemnities allowing exchange against lost or
destroyed certificates shall be provided; and provided further that nothing in
this SECTION 2.3(c) shall require Hambrecht & Quist Group to issue California
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Merger Group Common Stock to any holder of California Common Stock who shall
fail to surrender a certificate representing such shares or the certification
and indemnities relating to a lost certificate. Notwithstanding the foregoing,
neither the Exchange Agent nor any Party hereto shall be liable to a holder of
shares of California Common Stock for any California Merger Group Common Stock
delivered to a public official pursuant to applicable abandoned property,
escheat and similar laws. Promptly following the date that is six (6) months
after the California Effective Date, the Exchange Agent shall return to the
Surviving Subsidiary all shares of California Merger Group Common Stock in its
possession relating to the transactions described in this Agreement, and the
Exchange Agent's duties shall terminate. Thereafter, each holder of a California
Certificate may surrender such Certificate to the Surviving Subsidiary and
(subject to applicable abandoned property, escheat and similar laws) receive in
exchange therefor the shares of California Merger Group Common Stock to which
such holder is entitled pursuant hereto.
(d) EXCHANGE PROCEDURES FOR LP GENERAL PARTNER. Within thirty (30)
calendar days after the Effective Time of the LP Merger, the Exchange Agent
shall deliver to the General Partner, whose interest is being converted into LP
Merger General Partner Group Common Stock pursuant to SECTION 2.2 hereof
certificates representing the total number of LP Merger General Partner Group
Common Stock to which the holder of such general partnership interest is
entitled pursuant to SECTION 2.2 hereof. The general partnership interest shall
forthwith be canceled. Until the shares are delivered as contemplated by this
SECTION 2.3(d), the general partnership interest in LP shall be deemed at all
times after the Effective Time of the LP Merger to represent the right to
receive the number of shares of LP Merger General Partner Group Common Stock as
provided by this Article II and the provisions of the CGCL but shall have no
other right.
(e) EXCHANGE PROCEDURES FOR LP LIMITED PARTNERSHIP UNITS. Within
thirty (30) calendar days after the Effective Time of the LP Merger, the
Exchange Agent shall mail to each holder of record of LP Units immediately prior
to the Effective Time of the LP Merger whose interests are being converted into
LP Merger Group Common Stock pursuant to SECTION 2.2 hereof (i) a letter of
transmittal and (ii) instructions for use in effecting the surrender of the LP
Units in exchange for Hambrecht & Quist Group Common Stock. Upon delivery of a
written notice of ownership and surrender of LP Units to the Exchange Agent or
to such other agent or agents as may be appointed by Hambrecht & Quist Group,
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, the holder of any such LP Units shall
be entitled to receive in exchange therefor the number of shares of LP Merger
Group Common Stock, and cash in lieu of any fractional LP Units, to which the
holder of such LP Units is entitled pursuant to SECTION 2.2 hereof. The LP Unit
so surrendered shall forthwith be canceled. In the event of a transfer of
ownership of an LP Unit that is not registered on the transfer records of LP,
the appropriate number of shares of LP Merger Group Common Stock may be
delivered to a transferee if written notice of the ownership and surrender of
the LP Unit is presented to the Exchange Agent and accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable transfer taxes have been paid. Until surrendered as contemplated by
this SECTION 2.3, each LP Unit shall be deemed at all times after the Effective
Time of the LP Merger to represent the right
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to receive upon written notice of such surrender the number of shares of LP
Merger Group Common Stock, and cash in lieu of any fractional LP Units, as
provided by this Article II and the provisions of the CGCL but shall, subject to
SECTION 2.2(d), have no other right, provided that nothing in this SECTION
2.3(d) shall require Hambrecht & Quist Group to exchange LP Merger Group Common
Stock to any holder of LP Units who shall fail to deliver a written notice of
the surrender of such LP Units. Notwithstanding the foregoing, neither the
Exchange Agent nor any Party hereto shall be liable to a holder of shares of LP
Units for any LP Merger Group Common Stock delivered to a public official
pursuant to applicable abandoned property, escheat and similar laws. Promptly
following the date that is six (6) months after the LP Effective Date, the
Exchange Agent shall return to the Hambrecht & Quist Group all shares of LP
Merger Group Common Stock in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of an LP Unit may deliver written notice of the
surrender of such Unit to Hambrecht & Quist Group and (subject to applicable
abandoned property, escheat and similar laws) receive in exchange therefor the
shares of LP Merger Group Common Stock to which such holder is entitled pursuant
hereto.
(f) NO FURTHER OWNERSHIP RIGHTS IN CAPITAL STOCK HAMBRECHT & QUIST
CALIFORNIA. All California Group Common Stock delivered upon the surrender for
exchange of shares of California Common Stock in accordance with the terms
hereof shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of California Common Stock. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Subsidiary of the shares of California Common Stock which were outstanding
immediately prior to the Effective Time of the California Merger. If, after the
Effective Time of the California Merger, California Certificates are presented
to the Surviving Subsidiary for any reason, they shall be canceled and exchanged
as provided in this ARTICLE II.
(g) NO FURTHER OWNERSHIP RIGHTS IN GENERAL PARTNERSHIP INTEREST IN
LP. LP Merger General Partner Group Common Stock delivered in exchange for the
general partnership interest of LP in accordance with the terms hereof shall be
deemed to have been delivered in full satisfaction of all rights pertaining to
such general partnership interest in LP.
(h) NO FURTHER OWNERSHIP RIGHTS IN LIMITED PARTNERSHIP UNITS OF LP.
LP Merger Group Common Stock delivered upon the delivery of written notice of
surrender of LP Units in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such LP
Units. If, after the Effective Time of the LP Merger, written notice of
surrender of outstanding LP Units is given to Hambrecht & Quist Group, such LP
Units shall be canceled and exchanged as provided in this Article II.
2.4 SUPPLEMENTARY ACTION.
(a) If at any time after the Effective Time of the California Merger,
any further assignment or assurances in law or any other things necessary or
desirable to vest or perfect or
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confirm of record in the Surviving Subsidiary the title to any property or
rights of either Hambrecht & Quist California or Merger Sub, or otherwise to
carry out the provisions of this Agreement, the officers and directors of
Surviving Subsidiary are hereby authorized and empowered, in the name of and on
behalf of Hambrecht & Quist California and Merger Sub, to execute and deliver
any and all things necessary or proper to vest or to perfect or confirm title to
such property or rights in the Surviving Subsidiary, and otherwise to carry out
the purposes and provisions of this Agreement.
(b) If at any time after the Effective Time of the LP Merger, any
further assignment or assurances in law or any other things necessary or
desirable to vest or perfect or confirm of record in Hambrecht & Quist Group the
title to any property or rights of LP, or otherwise to carry out the provisions
of this Agreement, the officers and directors of Hambrecht & Quist Group are
hereby authorized and empowered, in the name of and on behalf of LP, to execute
and deliver any and all things necessary or proper to vest or to perfect or
confirm title to such property or rights in Hambrecht & Quist Group, and
otherwise to carry out the purposes and provisions of this Agreement.
ARTICLE III
ADDITIONAL AGREEMENTS
3.1 FAIRNESS HEARING AND PERMIT. The Parties shall prepare an Application
for Qualification of Securities by Permit under Section 25121 of the California
Corporate Securities Law of 1968, as amended (the "CCSL"), a related Notice of
Hearing and a written consent solicitation or other disclosure material (the
"Disclosure Document") to be supplied to the securityholders of Hambrecht &
Quist California and the LP Unitholders in connection with the transactions
contemplated hereby (collectively, the "Hearing Documents"). The Parties will
file the Hearing Documents as promptly as practicable with the California
Department of Corporations and request a hearing on the fairness of the Mergers
pursuant to Section 25142 of the CCSL. The Parties will thereafter endeavor in
good faith to obtain a finding of fairness and the issuance of a Permit (as
defined in the Section 25121 of the CCSL) to such effect by the California
Department of Corporations as result of such hearing, but they shall in no event
be required to alter the terms of the Mergers in order to obtain such finding
and issuance.
3.2 HAMBRECHT & QUIST CALIFORNIA SHAREHOLDERS' CONSENT. Hambrecht & Quist
California shall solicit the consent of its shareholders as promptly as
practicable after the date of issuance of a permit as described in SECTION 3.1
for the purpose of obtaining shareholder approval required in connection with
the transactions contemplated hereby, and shall use its best effort to obtain
such approval.
3.3 LP LIMITED PARTNERS' CONSENT. LP shall solicit the consent of its
limited partners as promptly as practicable after the date of issuance of a
permit as described in SECTION 3.1 for the
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purpose of obtaining limited partner approval required in connection with the
transactions contemplated hereby, and shall use its best effort to obtain such
approval.
3.4 HAMBRECHT & QUIST GROUP STOCKHOLDER'S CONSENT. Hambrecht & Quist Group
shall solicit the consent of its sole stockholder as promptly as practicable
after the date of issuance of a permit as described in SECTION 3.1 for the
purpose of obtaining stockholder approval required in connection with the
transactions contemplated hereby, and shall use its best effort to obtain such
approval.
3.5 TERMINATION OF SHAREHOLDER AGREEMENT. The board of directors of
Hambrecht & Quist California has agreed and hereby consents to permanently waive
as of the Effective Time of the California Merger all rights pursuant to Section
11 of the Shareholder Agreement (the "Shareholder Agreement") dated January 1,
1983, as amended, entered into among Hambrecht & Quist California and certain
holder of Hambrecht & Quist California common stock, and to release all Shares,
Shareholders and their Transferees (as defined in the Shareholder Agreement )
pursuant to Section 11 of the Shareholder Agreement and hereby votes to
terminate the Shareholder Agreement pursuant to Section 15 of the Shareholder.
In connection with the solicitation of the shareholders of Hambrecht & Quist
California of approval of the principal terms of the California Merger,
Hambrecht & Quist California shall solicit votes to terminate the Shareholder
Agreement pursuant to Section 15 thereof.
3.6 CONSENTS. Each of the Parties shall promptly apply for or otherwise
seek, and use its commercially reasonable efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Mergers.
Hambrecht & Quist California shall use its best efforts to obtain all necessary
consents, waivers and approvals under any of Hambrecht & Quist California's
agreements, contracts, licenses or leases in connection with the California
Merger, except such consents and approvals as Hambrecht & Quist Group and
Hambrecht & Quist California agree Hambrecht & Quist California shall not seek
to obtain. LP shall use its best efforts to obtain all necessary consents,
waivers and approvals under any of LP's agreements, contracts, licenses or
leases in connection with the LP Merger, except such consents and approvals as
Hambrecht & Quist Group and LP agree LP shall not seek to obtain.
3.7 BEST EFFORTS. Each of the Parties shall use best efforts to effectuate
the transactions contemplated hereby and to fulfill and cause to be fulfilled
the conditions to closing under this Agreement.
3.8 QUALIFICATIONS: FRANCHISE TAX. Hambrecht & Quist Group shall qualify
to do business as a foreign corporation in the State of California and in
connection therewith irrevocably appoint an agent for service of process as
required under the provisions of Section 2105 of the CGCL and shall file any and
all documents with the California Franchise Tax Board necessary for the
assumption by Hambrecht & Quist Group of all of the tax liabilities of LP
3.9 LEGAL CONDITIONS TO THE MERGERS.
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Each of the Parties shall take all reasonable actions necessary to comply
promptly with all legal requirements that may be imposed on such party with
respect to the Mergers and will promptly cooperate with and furnish information
to the other Parties in connection with any such requirements imposed upon any
of the Parties or any other subsidiary of any of the Parties in connection with
the Mergers. Each of the Parties will take, and cause its subsidiaries to take,
all reasonable actions to obtain (and to cooperate with the other Parties in
obtaining) any consent, authorization, order or approval of, or exemption by,
any Governmental Entity (as defined in SECTION 4.1(a) below) required to be
obtained or made by such Party or any of its subsidiaries in connection with the
Mergers or the taking of any action contemplated thereby or by this Agreement,
and to defend such lawsuits or other legal proceedings challenging this
Agreement or the consummation of the transactions contemplated hereby as the
Parties deem advisable in good faith, to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the Parties
to consummate the transactions contemplated hereby as the Parties deem advisable
in good faith, and to effect all necessary registrations and filings and
submissions of information as the Parties deem advisable in good faith, required
by any Governmental Entity, and to fulfill all conditions to this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each Party to effect the Mergers shall be subject to
the satisfaction prior to the Closing of the following conditions:
(a) APPROVALS: HART-SCOTT-RODINO; FIRPTA. All authorizations,
consents, orders or approvals of, or declarations or filings with, or
expiration of waiting periods imposed by, any court, administrative agency,
commission, regulatory authority or other governmental or administrative body
or instrumentality, whether domestic or foreign (a "Governmental Entity")
necessary for the consummation of the transactions contemplated by this
Agreement shall have been filed, occurred or been obtained. Such filings and
consents include, but are not limited to, requirements under federal and
state securities laws, a Notification and Report Form under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and any submissions
required thereunder and any filings required by the the Internal Revenue
Service under Treasury Reg. Section 1.897-2(h) ("FIRPTA"), relating to stock
that is a "U.S. Real Property Interest."
(b) ISSUANCE OF PERMIT. The California Department of Corporations
shall have issued a Permit under Section 25121 of the CCSL, covering the offer
and issuance of the Hambrecht & Quist Group Common Stock and the assumption of
exercisable securities following a hearing as to the fairness of the Mergers
conducted pursuant to Section 25142 of the CCSL.
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(c) HAMBRECHT & QUIST CALIFORNIA SHAREHOLDER APPROVAL. The principal
terms of the California Merger shall, pursuant to Section 1201 of the CGCL, have
been approved and adopted by the affirmative vote of a majority of outstanding
shares of California Common Stock outstanding.
(d) LIMITED PARTNERSHIP APPROVAL. The principal terms of the LP
Merger shall, pursuant to Section 15678.2 of the CRLPA, have been approved and
adopted by holders of a majority of LP Units.
(e) HAMBRECHT & QUIST GROUP STOCKHOLDER APPROVAL. The principal terms
of the LP Merger shall pursuant to Section 251 of the DGCL shall have been
approved and adopted by an affirmative vote of the sole stockholder of Hambrecht
& Quist Group.
(f) TAX-FREE TREATMENT. Each of Hambrecht & Quist California,
Hambrecht & Quist Group and LP shall have received a written opinion from Greene
Radovksy Maloney & Share in form and substance reasonably satisfactory to the
board of directors of Hambrecht & Quist Group to the effect that the California
Merger will constitute a tax-free reorganization within the meaning of Section
368 of the Code and, except with respect to cash paid in lieu of fractional
shares, the LP Merger will be tax-free under Section 351 of the Code. In
preparing the Hambrecht & Quist California, Hambrecht & Quist Group and LP tax
opinions, counsel may make reasonable assumptions related thereto and may rely
on (and to the extent reasonably required, the Parties, holders of California
Common Stock and LP limited partners shall make) reasonable representations
related thereto.
(g) EFFECTIVE REGISTRATION STATEMENT FOR INITIAL PUBLIC OFFERING
CONTEMPLATED. Both the board of directors of Hambrecht & Quist California and
Hambrecht & Quist Group respectively shall have determined that, in their
reasonable business judgment, a registration statement with respect to an
initial public offering of the Common Stock of Hambrecht & Quist Group is
reasonably certain to become effective with one week of such determination.
4.2 CONDITIONS OF OBLIGATIONS OF HAMBRECHT & QUIST GROUP AND MERGER SUB IN
CONNECTION WITH THE CALIFORNIA MERGER. The obligations of Hambrecht & Quist
Group and Merger Sub to effect the California Merger are subject to the
following condition, unless waived by Hambrecht & Quist Group and Merger Sub:
(a) PERFORMANCE OF OBLIGATIONS OF HAMBRECHT & QUIST CALIFORNIA.
Hambrecht & Quist California shall have performed in all material respects all
obligations and covenants required to be performed by it under this Agreement
and the Agreement of California Merger prior to the Closing Date.
4.3 CONDITIONS OF OBLIGATIONS OF HAMBRECHT & QUIST CALIFORNIA IN
CONNECTION WITH THE CALIFORNIA MERGER. The obligation of Hambrecht & Quist
California to effect the California Merger is subject to the following
condition, unless waived by Hambrecht & Quist California:
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(a) PERFORMANCE OF OBLIGATIONS OF HAMBRECHT & QUIST GROUP. Hambrecht
& Quist Group shall have performed in all material respects all obligations and
covenants required to be performed by it under this Agreement and the Agreement
of California Merger prior to the Closing Date.
4.4 CONDITIONS OF OBLIGATIONS OF LP. The obligation of LP to effect the LP
Merger is subject to the following condition, unless waived by LP:
(a) PERFORMANCE OF OBLIGATIONS OF HAMBRECHT & QUIST GROUP. Hambrecht
& Quist group shall have performed in all material respects all obligations and
covenants required to be performed by it under this Agreement, the Agreement of
LP Merger and the California Certificate of Merger prior to the Closing Date.
4.5 CONDITIONS OF OBLIGATIONS OF HAMBRECHT & QUIST GROUP WITH RESPECT TO
THE LP MERGER. The obligation of Hambrecht & Quist Group to effect the LP Merger
is subject to the following condition, unless waived by Hambrecht & Quist Group:
(a) PERFORMANCE OF OBLIGATIONS OF LP. LP shall have performed in all
material respects all obligations and covenants required to be performed by it
under this Agreement, the Agreement of LP Merger and the California Certificate
of Merger prior to the Closing Date.
ARTICLE V
TERMINATION
5.1 TERMINATION.
(a) This Agreement may be terminated at any time prior to the earlier
of (i) the California Effective Time and (ii) the LP Effective Time, whether
before or after approval of the Mergers by the security holders of Hambrecht &
Quist California and the limited partners of LP, by mutual agreement among
Hambrecht & Quist California as General Partner of LP and the Boards of
Directors of Hambrecht & Quist California and Hambrecht & Quist Group;
(b) Where action is taken to terminate this Agreement pursuant to
this SECTION 5.1, it shall be sufficient authorization for such action to be
authorized by the board of directors of the party taking such action, or in the
case of LP, Hambrecht & Quist California as general partner of LP
ARTICLE VI
GENERAL PROVISIONS
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6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties in this Agreement or delivered pursuant to this Agreement shall
terminate at such time as the later of (i) the California Effective Time and
(ii) the LP Effective Time. Except for fraud, no securityholder of Hambrecht &
Quist California or any officer, director, or employee of Hambrecht & Quist
California or of Hambrecht & Quist Group or any limited partner of LP, shall
have any liability hereunder Hambrecht & Quist Group shall have no liability
hereunder except for its actual fraud, and only to the extent that the facts and
circumstances underlying such actual fraud were known to an executive officer or
member of the Hambrecht & Quist Group board of directors.
6.2 AMENDMENT. This Agreement may be amended by the Parties hereto at any
time before or after approval of the California Merger by the shareholders of
Hambrecht & Quist California or the LP Merger by the limited partners of LP;
provided, however, that following approval of the Merger by the shareholders of
Hambrecht & Quist California, no amendment shall be made which by law requires
the further approval of such shareholders without obtaining such further
approval and that following approval of the LP Merger by the limited partners of
LP, no amendment shall be made which by law requires the further approval of
such limited partners without obtaining such approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
Parties hereto.
6.3 EXTENSION; WAIVER. At any time prior to the earlier of (i) the
California Effective Time and (ii) the LP Effective Time, each of Hambrecht &
Quist Group, Hambrecht & Quist California and LP, to the extent legally allowed,
(a) may extend the time for the performance of any of the obligations or other
acts of the other, (b) may waive any inaccuracies in the representations and
warranties made to it contained herein or in any document delivered pursuant
hereto, and (c) may waive compliance with any of the agreements or conditions
for the benefit of it contained herein. Any agreement on the part of a Party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
6.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given (a) on the same day if delivered personally,
(b) three (3) business days after being mailed by registered or certified mail
(return receipt requested), or (c) on the same day if sent by telecopy,
confirmation received, to the Parties at the following addresses and telecopy
numbers (or at such other address or number for a Party as shall be specified by
like notice):
(w) Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Attn: Daniel H. Case III
Telephone No: (415) 576-3300
Facsimile No: (415) 576-3320
With copy to:
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(v) Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304
Attn: Francis S. Currie
Telephone No: (415) 493-9300 x5150
Facsimile No: (415) 493-6811
6.5 INTERPRETATION. When a reference is made in this Agreement to Sections
or Exhibits, such references shall be to a Section or Exhibit to this Agreement
unless otherwise indicated. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation."
6.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the Parties and delivered to each of the other Parties.
6.7 ENTIRE AGREEMENT. This Agreement and the documents and instruments and
other agreements among the Parties delivered pursuant hereto constitute the
entire agreement among the Parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the Parties with respect to the subject matter hereof and are not intended to
confer upon any other person any rights or remedies hereunder except as
otherwise expressly provided herein.
6.8 NO TRANSFER. This Agreement and the rights and obligations set forth
herein may not be transferred or assigned by operation of law or otherwise
without the consent of each Party] hereto. This Agreement is binding upon and
will inure to the benefit of the Parties hereto and their respective successors
and permitted assigns.
6.9 SEVERABILITY. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the Parties hereto. The Parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
6.10 OTHER REMEDIES. Any and all remedies herein expressly conferred upon a
Party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby or by law or equity on such Party; and the exercise of any one
remedy will not preclude the exercise of any other.
6.11 FURTHER ASSURANCES. Each Party agrees to cooperate fully with the
other Parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other Party to evidence and reflect the transactions
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described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
6.12 ABSENCE OF THIRD-PARTY BENEFICIARY RIGHTS. No provision of this
Agreement is intended, or will be interpreted, to provide to or create for any
third-party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, employee, partner or any Party hereto or any
other person or entity, and all provisions hereof will be personal solely
between the Parties to this Agreement.
6.13 MUTUAL DRAFTING. This Agreement is the joint product of Hambrecht &
Quist Group, Hambrecht & Quist California, LP, and each provision hereof has
been subject to the mutual consultation, negotiation and agreement of Hambrecht
& Quist Group, Hambrecht & Quist California and LP, and shall not be construed
for or against any Party hereto.
6.14 GOVERNING LAW. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
California (without giving effect to its choice of law principles), except to
the extent that the substantive provision of the DGCL applies to the Mergers.
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IN WITNESS WHEREOF, Hambrecht & Quist Group, Hambrecht & Quist California,
Merger Sub, and LP have caused this Agreement to be signed, all as of the date
first written above.
HAMBRECHT & QUIST GROUP,
a California Corporation
By: /s/ Daniel H. Case III
__________________________
Daniel H. Case III, President
HAMBRECHT & QUIST GROUP, INC.
a Delaware corporation
By:/s/ Daniel H. Case III
__________________________
Daniel H. Case III, President
H & Q REORGANIZATION SUBSIDIARY
a California corporation
By:/s/ Daniel H. Case III
as attorney-in-fact for Steven N. Machtinger
__________________________
Steven N. Machtinger, President
HAMBRECHT & QUIST, L.P.
a California Limited Partnership
By: Hambrecht & Quist Group,
a California corporation, as General Partner
By:/s/ Daniel H. Case III
__________________________
Daniel H. Case III, President
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Exhibit 1.1(a)
AGREEMENT OF MERGER
Merging
H & Q REORGANIZATION SUBSIDIARY, INC, A CALIFORNIA CORPORATION
with and into
HAMBRECHT & QUIST GROUP., A CALIFORNIA CORPORATION
This AGREEMENT MERGER (the "Agreement"), is made and entered into as of
June 10, 1996 by and between Hambrecht & Quist Group, a California corporation
("Hambrecht & Quist California" or the "Company") and H & Q Reorganization
Subsidiary, Inc. a California corporation ("Merger Sub") (Hambrecht & Quist
California and Merger Sub, together, the "Constituent Corporations") and the
wholly owned subsidiary of Hambrecht & Quist Group, Inc., a Delaware corporation
("Parent") (each, a "Party" and collectively, the "Parties").
RECITALS
A. Parent, Hambrecht & Quist California, Hambrecht & Quist, L.P., a
California limited partnership, and Merger Sub have entered into that certain
Agreement and Plan of Reorganization dated June 10, 1996 (the "Reorganization
Agreement"), providing, among other things, for the execution and filing of
this Merger Agreement and the merger of Merger Sub with and into Hambrecht &
Quist California upon the terms set forth in the Reorganization Agreement and
this Merger Agreement (the "Merger").
B. The respective Boards of Directors of each of the Constituent
corporations deem it advisable and in the best interests of each of such
corporations and their respective stockholders that Merger Sub be merged with
and into Hambrecht & Quist California.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants, promises and mutual
agreements contained in this Merger Agreement, the Constituent Corporations
hereby agree that Merger Sub shall be merged with and into Hambrecht & Quist
California in accordance with the Reorganization Agreement and the provisions
of the laws of the State of California, upon the terms and subject to the
conditions set forth as follows:
<PAGE>
ARTICLE I
THE MERGER
1.1 FILING. This Merger Agreement, together with the officers'
certificates of each of the Constituent Corporations required by the General
Corporation Law of the State of California (the "California Law", shall be filed
with the Secretary of State of the State of California at the time specified in
the Reorganization Agreement.
1.2 EFFECTIVENESS. The Merger shall become effective upon the filing of
this Merger Agreement with the Secretary of State of the State of California
(the "Effective Time").
1.3 MERGER. At the Effective Time, Merger Sub shall be merged into
Hambrecht & Quist California and the separate corporate existence of Merger
Sub shall thereupon cease. Hambrecht & Quist California will be the
Surviving Corporation in the merger and the separate corporate existence of
Hambrecht & Quist California shall continue unaffected and unimpaired by
the Merger.
1.4 FURTHER ACTION. If at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Merger
Agreement or to vest the Surviving Corporation with the full right, title
and possession to all assets, property, rights, privileges, immunities,
powers and franchises of either or both of the constituent corporations,
the officers and directors of the Surviving Corporation are fully
authorized (in the name of either or both of the constituent Corporations
or otherwise) to take all such action.
ARTICLE 2
CORPORATE GOVERNANCE MATTERS
The Articles of Incorporation of the Surviving Corporation shall be
amended and restated in full as of the Effective Time as set forth in
Exhibit A attached hereto.
ARTICLE 3
MANNER OF CONVERTING SHARES OF THE CONSTITUENT CORPORATIONS
3.1 EFFECT ON CAPITAL STOCK. As of the Effective Time of the Merger, by
virtue of the Merger and without any action on the part of any holder of
any securities of the Company:
(A) CAPITAL STOCK OF MERGER SUB. All issued and outstanding shares of
capital stock of Merger Sub shall continue to be issued and outstanding and
shall be converted into 10,000 shares of the common stock of the Surviving
Corporation (the "California Common Stock"). Each stock certificate
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of Merger Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of California Capital Stock.
(b) CANCELLATION OF CALIFORNIA COMMON STOCK.
(i) All shares of California Common Stock that are owned
directly or indirectly by the Company shall be canceled and no common stock of
Parent or other consideration shall be delivered in exchange therefor.
(ii) Each holder of a certificate representing any shares of
California Common Stock after the Effective Time of the Merger, except
shares of California Common Stock issued upon conversion of shares of
Merger Sub, shall cease to have any rights with respect to such shares,
except the right either to (A) receive the California Merger Consideration
Per Share, (as defined in Section 3.1(c) below) multiplied by the number of
shares represented by such certificate, upon surrender of such
certificate, or (B) to exercise such holder's dissenters' rights as
provided in Section 3. 1 (f) hereof and the California Law.
(c) CONVERSION OF CALIFORNIA COMMON STOCK OR CAPITAL STOCK RIGHTS OF
HAMBRECHT & QUIST CALIFORNIA. Each share of California Common stock, except
canceled shares, Dissenting California Shares (as defined in Section
3.1(f) below) and shares of California Common Stock issued upon conversion
of shares of Merger Sub, but including shares issued upon the exercise of
any Hambrecht & Quist California Option (as defined in Section 3.1(d)
below) prior to the Effective Time of the Merger, that is issued and
outstanding immediately prior to the Effective Time of the Merger shall
automatically be canceled and extinguished and converted, without any
action on the part of the holder thereof, into the right to receive four
(4) shares of Common Stock of Parent ("Group Common Stock") (the "Merger
Consideration Per Share"). All shares of Group Common Stock received
pursuant to this Section 3.1(c) ("California Merger Group Common Stock")
shall be subject to restrictions on transfer of the "Underwriters' Market
Stand-Off" set forth in Exhibit B hereto and each certificate representing
any such share shall carry a legend describing the terms and conditions on
transfer as described in the Underwriters' Market Stand-Off Any reference
to California Merger Group Common Stock, including without limitation
references contained in Section 3.1(d) below, shall be deemed to refer to
Group Common Stock so restricted. The ratio pursuant to which each share
of California Common Stock including assumed convertible and exercisable
securities, will be exchanged for shares of Common Stock of Parent,
determined in accordance with the foregoing provisions, is hereinafter
referred to as the "Exchange Ratio."
(d) ASSUMPTION OF HAMBRECHT & QUIST CALIFORNIA OPTIONS.
(i) At the Effective Time of the Merger, each unexpired and
unexercised option to purchase shares of California Common Stock (a "Hambrecht
& Quist California Option") granted under the stock option plans and agreements
of Hambrecht & Quist California outstanding immediately prior to the Effective
Time of the Merger shall be assumed by Parent (an "Assumed Hambrecht & Quist
California Option") together with the stock option plans under which those
options are outstanding (the "Assumed Option Plans"). Each Hambrecht & Quist
California Option so assumed
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by Parent will continue to have, and be subject to, substantially the same
terms and conditions set forth in the documents governing such Hambrecht &
Quist California Option, including the Assumed Option Plans, immediately
prior to the Effective Time of the Merger, except that (A) such Assumed
Hambrecht & Quist California Option will be exercisable for that number of
whole shares of California Merger Group Common Stock (which shall be
subject to the restrictions on transfer) equal to the product of the number
of shares of California Common Stock that were purchasable under such
Assumed Hambrecht & Quist California Option immediately prior to the
Effective Time of the California Merger multiplied by the Exchange Ratio,
and (B) the per share exercise price for the shares of California Merger
Group Common Stock issuable upon exercise of such Assumed Hambrecht & Quist
California Option will be equal to the quotient obtained by dividing the
exercise price per share of California Common Stock (on an as converted to
Common Stock basis) at which such Assumed Hambrecht & Quist California
Option was exercisable immediately prior to the Effective Time of the
Merger by the Exchange Ratio, rounded up to the nearest whole cent.
Consistent with the terms of the Hambrecht & Quist California Options and
the documents governing such Hambrecht & Quist California Options,
including the Assumed Option Plans, the Merger will not terminate or
accelerate any Assumed Hambrecht & Quist California Option or any right of
exercise, vesting or repurchase relating thereto with respect to shares of
California Merger Group Common Stock acquired upon exercise of the Assumed
Hambrecht & Quist California Option. Holders of Assumed Hambrecht & Quist
California Options will not be entitled to acquire California Common Stock
following the Merger.
(ii) As soon as practicable after the Effective Time of the
Merger, Hambrecht & Quist Group shall issue to each holder of an Assumed
Hambrecht & Quist California Option a document evidencing the stock option
assumption by parent. The right to receive an Assumed Hambrecht & Quist
California Option may not be assigned or transferred, except as provided
under the Assumed Option Plan under which that option was granted. Any
attempted assignment contrary to this Section 3.1(d) shall be null and void.
(iii) It is the intention of the Parties that the
Hambrecht & Quist California Options assumed by Hambrecht & Quist Group
qualify following the Effective Time of the Merger as incentive stock
options as defined in Section 422 of me Internal Revenue Code of 1986, as
amended (the "Code") to the extent the Hambrecht & Quist California Options
qualified as incentive stock options prior to the Effective Time of the
Merger.
(e) CALIFORNIA COMMON STOCK SUBJECT TO REPURCHASE. ALL SHARES OF
California Merger Group Common Stock that are received in the Merger in
exchange for shares of California Common Stock that, under applicable stock
purchase, stock restriction or similar agreements with Hambrecht & Quist
California, are unvested or subject to a repurchase option or other
condition of forfeiture which by its terms does not terminate due to the
Merger ("Hambrecht & Quist California Restricted Stock") will also be
unvested or subject to the same repurchase option or other condition, as
the case may be, and all such repurchase options shall automatically inure
to Parent in the Merger and shall thereafter be exercisable by Parent upon
the same terms and conditions in effect for Hambrecht & Quist California
immediately prior to the Effective Time of the Merger, except that the
shares purchasable under any such repurchase option shall be shares of
Merger Group Common Stock and the price payable by Parent shall be equal to
the quotient determined by dividing the aggregate purchase price at which
the California Common Stock was repurchasable under each applicable
agreement by the Exchange Ratio and rounding the resulting aggregate price
payable by Hambrecht & Quist Group to the nearest whole cent. The
certificates evidencing such shares will be marked with appropriate legends.
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(f) DISSENTERS' RIGHTS. If, as of the Effective Time of the Merger,
holders of California Common Stock have properly exercised and not lost
dissenters' rights ("Dissenting California Shares") in connection with the
Merger under Chapter 13 of the California Law, such Dissenting California
Shares shall not be converted into California Merger Group Common Stock but
shall be converted into the right to receive such consideration as may be
determined to be due with respect to such Dissenting California Shares
pursuant to the California Law. Hambrecht & Quist California shall give
Parent prompt notice of any demand received by Hambrecht & Quist California
to require Hambrecht & Quist California to purchase shares of California
Common Stock, and Parent shall have the right to participate in all
negotiations and proceedings with respect to such demand. Each holder of
Dissenting California Shares (a "Dissenting California Security Holder")
who, pursuant to the provisions of the California Law, becomes entitled to
payment of the value of shares of California Common Stock shall receive
payment therefor (but only after the value therefor shall have been agreed
upon or finally determined pursuant to such provisions). In the event of
a legal obligation, after the Effective Time of the Merger, to deliver
shares of Merger Group Common Stock to any holder of shares of California
Common Stock who shall have failed to make an effective purchase demand or
shall have lost his status as a Dissenting California Security Holder,
Parent shall issue and deliver, upon surrender by such Dissenting
California Security Holder of his certificate or certificates representing
shares of California Common Stock, the shares of California Merger Group
Common Stock to which such Dissenting California Security Holder is then
entitled under this Section 3.1.
3.2 SURRENDER OF CERTIFICATES; PAYMENT OF MERGER CONSIDERATION.
(a) EXCHANGE AGENT. Prior to the Closing Date, Parent shall appoint a
third party to act as exchange agent (the "Exchange Agent") in the Mergers.
(b) HAMBRECHT & QUIST GROUP TO PROVIDE COMMON STOCK AND CASH.
Promptly after the earlier of (i) the Effective Date of this Merger and
(ii) the effective Date of the LP Merger (as defined in the Reorganization
Agreement) (but in no event later than thirty (30) business days
thereafter), Parent shall make available for exchange in accordance with
this Article 2, through such reasonable procedures as Parent may adopt,
the California Merger Group Common Stock issuable pursuant to Section 3.1
in exchange for outstanding shares of California Common Stock.
(c) EXCHANGE PROCEDURES FOR CALIFORNIA COMMON STOCK. Within thirty
(30) calendar days after the Effective Time of the Merger, the Exchange
Agent shall mail to each holder of record of a certificate or certificates
that immediately prior to the Effective Time of the Merger represented
outstanding shares of California Common Stock (the "California
Certificates") whose interests are being converted into California Merger
Group Common Stock pursuant to Section 3.1 hereof (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the California Certificates shall pass, only upon
delivery of the California Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Hambrecht & Quist Group may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the California Certificates in exchange for California Merger
Group Common Stock. Upon surrender of a California Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Parent, together with such
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letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the holder of such California Certificate shall be
entitled to receive in exchange therefor the number of shares of California
Merger Group Common Stock to which the holder of such certificate is
entitled pursuant to Section 3.1 hereof. The California Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of California Common Stock that is not registered on the transfer
records of Hambrecht & Quist California, the appropriate number of shares
of California Merger Group Common Stock may be delivered to a transferee if
the California Certificate representing such California Common Stock is
presented to the Exchange Agent and accompanied by all documents required
to evidence and effect such transfer and to evidence that any applicable
stock transfer taxes have been paid. Until surrendered as contemplated by
this Section 3.2, each California Certificate shall be deemed at all times
after the Effective Time of the Merger to represent the right to receive
upon such surrender the number of shares of California Merger Group Common
Stock as provided by this Article 3 and the provisions of the California
Law but shall, subject to Section 3.1(f), have no other right; provided,
however, that customary and appropriate certifications and indemnities
allowing exchange against lost or destroyed certificates shall be provided;
and provided further that nothing in this Section 3.2(c) shall require
Parent to issue California Merger Group Common Stock to any holder of
California Common Stock who shall fail to surrender a certificate
representing such shares or the certification and indemnities relating to a
lost certificate. Notwithstanding the foregoing, neither the Exchange
Agent nor any Party hereto shall be liable to a holder of shares of
California Common Stock for any California Merger Group Common Stock
delivered to a public official pursuant to applicable abandoned property,
escheat and similar laws. Promptly following the date that is six (6)
months after the California Effective Date, the Exchange Agent shall return
to the Surviving Corporation all shares of California Merger Group Common
Stock in its possession relating to the transactions described in his
Agreement, and the Exchange Agent's duties shall terminate. Thereafter
each holder of a California Certificate may surrender such Certificate to
the Surviving Corporation and (subject to applicable abandoned property,
escheat and similar laws) receive in exchange therefor the shares of
California Merger Group Common Stock to which such holder is entitled
pursuant hereto.
(d) NO FURTHER OWNERSHIP RIGHTS IN CAPITAL STOCK OF HAMBRECHT & QUIST
CALIFORNIA. All California Merger Group Common Stock delivered upon the
surrender for exchange of shares of California Common Stock in accordance
with the terms hereof shall be deemed to have been delivered in full
satisfaction of all rights pertaining to such shares of California Common
Stock. There shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of California
Common Stock which were outstanding immediately prior to the Effective Time
of the California Merger. If, after the Effective Time of the Merger,
California Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article 3.
ARTICLE 4
TERMINATION AND AMENDMENT
4.1 TERMINATION. Notwithstanding the approval of this Merger Agreement by
the sole stockholder of Merger Sub and the shareholders of Hambrecht &
Quist California, this Merger
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Agreement shall terminate forthwith in the event that the Reorganization
Agreement shall be terminated as therein provided.
4.2 AMENDMENT. This Merger Agreement may be amended by the parties hereto
at any time before or after approval hereof by the shareholders of either
Merger Sub or Hambrecht & Quist California, but, after any such approval,
no amendment shall be made without the further approval of such
shareholders if such amendment would (i) have a material adverse effect on
the shareholders of either Merger Sub or Hambrecht & Quist California, (ii)
change any of the principal terms of the Merger Agreement, or (iii) change
any time of the Articles of Incorporation of the Surviving Corporation.
This Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
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IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement as
of the date first written above.
Hambrecht & Quist Group, H & Q Reorganization Subsidiary, Inc.,
a California corporation a California corporation
By: _____________________ By: ________________________
Daniel H. Case III, Steven N. Machtinger,
President and Chief Executive President, Chief Executive
Officer Officer and Secretary
By: ______________________
Steven N. Machtinger,
Secretary
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EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
Hambrecht & Quist Group
ONE. The name of this corporation is Hambrecht & Quist California.
TWO. The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
THREE. This corporation is authorized to issue only one class of
stock, designated "Common Stock" and the total number of shares which this
corporation is authorized to issue is ten thousand (10,000).
FOUR. (a) The liability of the directors of the corporation
for monetary damages shall be eliminated to the fullest extent permissible
under California law.
(b) The corporation is authorized to provide indemnification
of agents (as defined in Section 317 of the California Corporations Code)
through bylaw provisions, agreements with the agents, vote of shareholders
or disinterested directors, or otherwise, in excess of the indemnification
otherwise permitted by Section 317 of the limits set forth in Section 204
of the California Corporations Code with respect to actions for breach of
duty to the corporation or its shareholders. The corporation is further
authorized to provide insurance for agents as set forth in Section 317 of
the California Corporations Code, provided that, in cases where the
corporation owns all or a portion of the shares of the company issuing the
insurance policy, the company and/or the policy must meet one of the two
sets of conditions set forth in Section 317, as amended.
(c) Any repeal or modification of the foregoing provisions of this
Article Four by the shareholders of this corporation shall not adversely
affect any right or protection of an agent of this corporation existing at
the time of such repeal or modification.
<PAGE>
EXHIBIT B
UNDERWRITERS' MARKET STAND-OFF
In addition to other applicable restrictions, all shares of Common
Stock (i) issued by Hambrecht & Quist Group in connection with the Mergers
or (ii) issuable upon the exercise of options or other rights to acquire
such shares assumed by Hambrecht & Quist Group in connection with the
Mergers (together, the "Merger Shares") shall be issued subject to the
resale restrictions set forth in this Exhibit. All capitalized terms and
entity names used in this Exhibit and not otherwise defined shall have the
meanings ascribed to them in the Agreement and Plan of Reorganization dated
June 10, 1996 to which this Exhibit is attached.
1. EIGHTEEN MONTH LOCKUP. For a period of eighteen (18) months after the date
(the "Trade Date") of the initial public offering (the "Offering") of
Hambrecht & Quist Group Common Stock ("Common Stock"), no person holding
Merger Shares or having the right to obtain Merger Shares as described in
clause (ii) of the preceding paragraph (each such person, a "Holder")
shall, directly or indirectly, sell, offer, contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge or otherwise
dispose of any Merger Shares or any securities convertible into or
exchangeable or exercisable for Merger Shares, without the prior written
consent of each of (i) Hambrecht & Quist Group, (ii) Hambrecht & Quist LLC
and (iii) Morgan Stanley & Co. Incorporated.
2. EXCEPTION FOR SHARES ACQUIRED AFTER OFFERING. The foregoing restrictions
shall not apply to securities of Hambrecht & Quist Group acquired after
the Trade Date except to the extent that such securities are acquired
pursuant to the exercise, conversion, or exchange of securities of
Hambrecht & Quist Group held immediately prior to the Trade Date.
3. SCHEDULED PARTIAL RELEASES. Notwithstanding the restrictions set forth in
Section 1, a portion of the Merger Shares held by each Holder shall be
released from such restrictions as follows:
(a) FIRST RELEASE. On the date six months following the Trade Date, a
number of Merger Shares equal to the greater of (i) 10,000 or (ii) five
percent (5%) of the outstanding Common Stock owned directly by such Holder
immediately prior to the record date relating to the votes of
securityholders with respect to the Mergers, (the "Owned Shares") shall be
permanently released from the restrictions of Section 1.
(b) SECOND RELEASE. On the date twelve months following the Trade Date, an
additional number of Merger Shares equal to the greater of (i) 10,000 or
(ii) five percent (5%) of the Owned Shares shall be permanently released
from the restrictions of Section 1.
(c) AGGREGATION WITH TRANSFEREES. In the event that a Holder transfers
Merger Shares to a permitted transferee pursuant to Section 4, below, the
number of Merger Shares to be released from the restrictions of Section 1
under this Section 3 shall be calculated without regard to such transfers
and the particular Merger Shares held or transferred by the transferring
Holder (the "Transfer Merger Shares") to be released shall be allocated
among the Holder and all such transferees (and transferees of
<PAGE>
such transferees, if any) of such Holder pro rata in proportion to the
number of Transfer Merger Shares held by each of them.
4. CERTAIN PERMITTED TRANSFERS. Notwithstanding the foregoing, (i) if the
Holder is an individual, he or she may transfer any shares of Merger Shares
or securities convertible into or exchangeable or exercisable for the Merger
Shares either during his or her lifetime or on death by will or intestacy to
his or her immediate family or to a trust the beneficiaries of which are
exclusively the Holder and/or a member or members of his or her immediate
family, (ii) if the Holder is a partnership, it may transfer any shares of
Merger Shares or securities convertible into or exchangeable or exercisable
for the Merger Shares to its constituent partners, retired partners or the
estates of constituent partners or retired partners (including partners which
are corporations and which may transfer such securities to their respective
shareholders) or (iii) if the Holder is a limited liability company, it may
transfer any shares of Merger Shares or securities convertible into or
exchangeable or exercisable for the Merger Shares to its members (including
members which are corporations and which may transfer such securities to
their respective shareholders); PROVIDED, HOWEVER, that prior to any such
transfer each transferee (including shareholders of corporate transferees to
whom such shares are subsequently transferred) shall execute an agreement,
satisfactory to Morgan Stanley & Co. Incorporated, pursuant to which each
transferee shall agree to receive and hold such shares of Merger Shares, or
securities convertible into or exchangeable or exercisable for the Merger
Shares, subject to the provisions hereof, and there shall be no further
transfer except in accordance with the provisions hereof. For the purposes of
this paragraph, "immediate family" shall mean spouse, lineal descendant,
father, mother, brother or sister of the transferor.
5. BINDING ON SUCCESSORS: STOP TRANSFER INSTRUCTIONS: LEGEND. The restrictions
contained herein shall be binding upon the Holder's heirs, legal
representatives, successors and assigns. Hambrecht & Quist Group shall
issue stop transfer instructions to its transfer agent against the transfer
of Merger Shares except in compliance with the terms of this Exhibit. Each
certificate evidencing Merger Shares shall be imprinted with a legend
substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE, ARE SUBJECT TO A
LOCKUP PERIOD OF EIGHTEEN MONTHS FOLLOWING THE PUBLIC OFFERING OF
THE ISSUERS COMMON STOCK PURSUANT TO THE FIRST REGISTRATION
STATEMENT OF THE ISSUER FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AS SET FORTH IN EXHIBIT 2.1 (c) TO THAT CERTAIN AGREEMENT
AND PLAN OF REORGANIZATION DATED JUNE 10, 1996, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER SUCH LOCKUP
PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.
6. THIRD PARTY BENEFICIARIES. Hambrecht & Quist LLC, Morgan Stanley & Co.
Incorporated and Smith Barney Inc., as managing underwriters of the
Offering, are hereby expressly made third party beneficiaries entitled to
the benefits of this Underwriters' Market Stand-off.
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<PAGE>
HAMBRECHT & QUIST GROUP
(A CALIFORNIA CORPORATION)
OFFICERS' CERTIFICATE OF APPROVAL OF
AGREEMENT OF MERGER
Daniel H. Case III and Steven N. Machtinger hereby certify that:
1. They are the President and Secretary, respectively, of Hambrecht &
Quist Group, a California corporation (the "Corporation").
2. The Agreement of Merger to which this Certificate is attached (the "Merger
Agreement") has been duly approved by the Board of Directors of the
Corporation.
3. The Corporation has one class of stock outstanding, designated "Common
Stock" of which 4,003,349 were outstanding and entitled to vote on the
merger.
4. The principal terms of the merger contemplated by the Merger Agreement
were approved by the Corporation by a vote of a number of shares of each
class which equaled or exceeded the vote required. The vote required was
greater than 50% of the outstanding shares of Common Stock.
Each of the undersigned declares under penalty of perjury under the
laws of the State of California that the matters set forth in this
Certificate are true and correct of his own knowledge.
Executed at San Francisco, California on June _____, 1996.
______________________
Daniel H. Case III,
President
______________________
Steven N. Machtinger,
Secretary
<PAGE>
H & Q REORGANIZATION SUBSIDIARY, INC.
(A CALIFORNIA CORPORATION)
OFFICERS' CERTIFICATE OF APPROVAL OF
AGREEMENT OF MERGER
Steven N. Machtinger hereby certifies that:
1. I am the President and Secretary of H & Q Reorganization Subsidiary, Inc.,
a California corporation (the "Corporation").
2. The Agreement of Merger to which this Certificate is attached (the "Merger
Agreement") has been duly approved by the Board of Directors and
Shareholder of the Corporation.
3. The Corporation has one class of stock outstanding designated "Common
Stock", of which 10,000 shares were outstanding and entitled to vote on
the merger.
4. The principal terms of the merger contemplated by the Merger Agreement were
approved by the Corporation by a vote of a number of shares of each class
which equaled or exceeded the vote required. The vote required was greater
than 50% of the outstanding shares of Common Stock.
5. The required vote of the stockholders of Hambrecht & Quist Group, Inc., a
Delaware corporation, the parent of the Corporation was obtained.
The undersigned declares under penalty of perjury under the laws of the
State of California that the matters set forth in this Certificate are true
and correct of his own knowledge.
Executed at San Francisco, California on June , 1996.
----
________________________
Steven N. Machtinger,
President and Secretary
<PAGE>
Exhibit 1.1(b)(1)
Agreement of Merger between LP and Hambrecht & Quist California
OFFICER'S CERTIFICATE
HAMBRECHT & QUIST GROUP, INC.
I, Daniel H. Case III, the President of Hambrecht & Quist Group, Inc.,
pursuant to Section 102(a)(1) of the Delaware General Corporation Law and in
connection with the Amended and Restated Certificate of Incorporation of
Hambrecht & Quist Group, Inc., attached hereto to be filed in connection with
the Agreement of Merger between this corporation and Hambrecht & Quist, L.P., a
California limited partnership, which will, among other things, change the name
of this corporation from "Hambrecht & Quist Group, Inc." to "Hambrecht & Quist
Group", I do hereby certify that Hambrecht & Quist Group, Inc. has total assets
in excess of 10 million dollars.
Executed this_________ day of ________________ ,1996 at San Francisco,
California.
By: ___________________________
---------------------------
Daniel H. Case III, President
Under penalty of perjury, this signature constitutes acknowledgement that
this instrument is the act and deed of Hambrecht & Quist Group, Inc., and that
the facts stated herein are true.
By: ___________________________
---------------------------
Daniel H. Case III, President
ATTEST:
________________________________
- --------------------------------
Steven N. Machtinger, Secretary
<PAGE>
CERTIFICATE OF THE SECRETARY
OF
HAMBRECHT & QUIST GROUP, INC.,
a Delaware Corporation.
I, Steven Machtinger, the Secretary of Hambrecht & Quist Group, Inc.,
hereby certify that the Agreement of Merger to which this certificate is
attached, after having been first duly signed on behalf of the corporation by
the President and Secretary of said corporation, was duly approved and adopted
by the written consent of stockholders holding a majority of the outstanding
stock entitled to vote thereon.
Executed on this _________________ day of July, 1996.
---------------------------
Steven N. Machtinger
Secretary
<PAGE>
AGREEMENT OF MERGER
Merging
HAMBRECHT & QUIST, L.P., A CALIFORNIA LIMITED PARTNERSHIP
with and into
HAMBRECHT & QUIST GROUP, INC., A DELAWARE CORPORATION
(PURSUANT TO SECTION 263 OF THE GENERAL CORPORATION LAW OF DELAWARE)
This AGREEMENT OF MERGER (the "Merger Agreement"), is made and entered into
as of June 10, 1996 by and between Hambrecht & Quist Group, Inc., a Delaware
corporation ("Hambrecht & Quist Group", the "Company" or the "Surviving
Corporation") and Hambrecht & Quist, L.P., a California limited partnership
("LP") (each, a "Party" together, the "Parties" or "Constituent Entities").
RECITALS
A. Hambrecht & Quist Group, Hambrecht & Quist Group, a California
corporation ("Hambrecht & Quist California"), LP, and H & Q Reorganization
Subsidiary, Inc., a California corporation, have entered into that certain
Agreement and Plan of Reorganization dated June 10, 1996 (the "Reorganization
Agreement"), providing, among other things, for the execution and filing of this
Merger Agreement and the merger of LP with and into Hambrecht & Quist Group upon
the terms set forth in the Reorganization Agreement and this Merger Agreement
(the "Merger").
B. The board of directors of Hambrecht & Quist Group deems it advisable
and in the best interests of its stockholders and Hambrecht & Quist California,
the General Partner of LP (the "General Partner"), deems it advisable and in the
best interests of LP and its partners that LP be merged with and into Hambrecht
& Quist Group.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants, promises and mutual
agreements contained in this Merger Agreement, the Constituent Entities hereby
agree that LP shall be merged with and into Hambrecht & Quist Group in
accordance with the Reorganization Agreement and the provisions of the laws of
the State of Delaware and the laws of the State of California, upon the terms
and subject to the conditions set forth as follows:
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<PAGE>
ARTICLE I
THE MERGER
1.1 FILING. This Merger Agreement shall be filed with the Secretary
of State of the State of Delaware and a Certificate of Merger shall be filed
with the Secretary of State of the State of California at the time specified in
the Reorganization Agreement.
1.2 EFFECTIVENESS. The Merger shall become effective upon the filing
of this Merger Agreement with the Secretary of State of the State of Delaware
(the "Effective Time").
1.3 MERGER. At the Effective Time, LP shall be merged into Hambrecht
& Quist Group and the separate legal existence of LP shall thereupon cease.
Hambrecht & Quist Group will be the Surviving Corporation in the merger.
1.4 FURTHER ACTION. If at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Merger Agreement or to vest the Surviving Corporation with the full right, title
and possession to all assets, property, rights, privileges, immunities, powers
and franchises of either or both of the Constituent Entities, the officers and
directors of the Surviving Corporation are fully authorized (in the name of
either or both of the Constituent Entities or otherwise) to take all such
action.
ARTICLE 2
CORPORATE GOVERNANCE MATTERS
The Certificate of Incorporation of the Surviving Corporation shall be
amended and restated in full as of the Effective Time as set forth in Exhibit A
attached hereto.
ARTICLE 3
MANNER OF CONVERTING SECURITIES OF THE CONSTITUENT ENTITIES
3.1 EFFECT ON PARTNERSHIP INTERESTS. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of any
partner, limited or general, of LP:
(a) CANCELLATION OF GENERAL PARTNERSHIP INTEREST: CONVERSION OF
GENERAL PARTNERSHIP. The General Partner shall cease to have any rights with
respect to its general partnership interest in LP except the right to receive
the number of shares of Common Stock of the Company equal to the number of
outstanding LP Units at the Effective Time divided by 99 and multiplied by 24
("Group Common Stock") (the "LP Merger General Partner Consideration Per
Share"). All shares of Hambrecht & Quist Group Common Stock received
pursuant to this Section 3.1(a) ("LP Merger General Partner Group Common
Stock") shall be subject to the terms and conditions on transfer of the
"Underwriters' Market Stand-Off" set forth in Exhibit B and each such share
shall carry a legend describing the terms and conditions on transfer as
-3-
<PAGE>
described in the Underwriters' Market Stand-Off. Any reference herein to LP
Merger General Partner Group Common Stock shall be deemed to refer to Group
Common Stock so restricted.
(b) CANCELLATION OF LP UNITS. Each holder of a Class A limited
partnership Unit ("LP Unit") (as defined in that certain Agreement and Articles
of Limited Partnership by and among General Partner and the limited partners of
LP dated November 1, 1993, as amended), after the Effective Time of the Merger
shall cease to have any rights with respect to such LP Unit, except the right
either to receive the LP Merger Consideration Per Share, as defined in Section
3.1(c) below, plus any cash in lieu of fractional shares pursuant to Section
3.1(e) below, upon delivery of written notice of ownership and surrender of such
Units, or to exercise such holder's dissenters' rights as provided in Section
3.1(d) hereof and the California Revised Limited Partnership Act ("CRLPA").
(c) CONVERSION OF LP UNITS. Each LP Unit outstanding prior to the
Effective Time of the LP Merger except Dissenting LP Units (as defined in
Section 3.1(d) below) shall automatically be canceled and extinguished and
converted, without any action on the part of the holder thereof, into the right
to receive twenty four (24) shares of Group Common Stock (the "LP Merger
Consideration Per Share"). All shares of Group Common Stock received pursuant
to this Section 3.1(c) ("LP Merger Group Common Stock") shall be subject to
terms and conditions on transfer of the Underwriters' Market Stand-Off and each
such share shall carry a legend describing the terms and conditions on transfer
as described in the Underwriters' Market Stand-Off. Any reference herein to LP
Merger Group Common Stock shall be deemed to refer to Group Common Stock so
restricted. The ratio pursuant to which each LP Unit will be exchanged for
shares of Hambrecht & Quist Group, determined in accordance with the foregoing
provisions, is hereinafter referred to as the "LP Exchange Ratio."
(d) DISSENTERS' RIGHTS. If, as of the Effective Time of the Merger,
holders of LP Units have properly exercised and not lost dissenters' rights
("Dissenting LP Units") in connection with the LP Merger under Article 7.6 of me
CRLPA, such Dissenting LP Units shall not be converted into LP Merger Group
Common Stock but shall be converted into the right to receive such consideration
as may be determined to be due with respect to such Dissenting LP Units pursuant
to the CRLPA. LP shall give Hambrecht & Quist Group prompt notice of any demand
received by LP to require LP to purchase LP Units, and Hambrecht & Quist Group
shall have the right to participate in all negotiations and proceedings with
respect to such demand. Each holder of Dissenting LP Units (a "Dissenting LP
Unitholder") who, pursuant to the provisions of the CRLPA, becomes entitled to
payment of the value of LP Units shall receive payment therefor (but only after
the value therefor shall have been agreed upon or finally determined pursuant to
such provisions). In the event of a legal obligation, after the Effective Time
of the Merger, to deliver shares of LP Merger Group Common Stock to any holder
of LP Units who shall have failed to make an effective purchase demand or shall
have lost his status as a Dissenting LP Unitholder, Hambrecht & Quist Group
shall issue and deliver, upon delivery by such Dissenting LP Unitholder of a
written notice of the ownership and surrender of such LP Units, the shares of LP
Merger Group Common Stock to which such Dissenting LP Unitholder is then
entitled under this Section 3.1.
(e) FRACTIONAL SHARES. No fractional shares of LP Merger Group
Common Stock or LP Merger General Partner Group Common Stock shall be issued,
but in lieu thereof each holder of LP Units and the General Partner who would
otherwise be entitled to receive a fraction of a share of LP Merger Group
Common Stock or LP Merger General Partner Group Common Stock shall receive
from Hambrecht & Quist Group an amount of cash equal to the price at which
shares of Group Common Stock are offered to the public pursuant to Hambrecht
& Quist Group's initial public offering multiplied by the fraction of a share
of LP Merger Group Common Stock or LP Merger General Partner Group Common
Stock to which such holder would otherwise be entitled. The fractional
interests of each
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<PAGE>
holder of LP Units shall be aggregated, so that no holder of LP Limited
Partnership Units shall receive cash in an amount greater than the value of one
(1) full share of LP Merger Group Common Stock.
3.2 EXCHANGE OF CERTIFICATES; EXCHANGE OF INTERESTS.
(a) EXCHANGE AGENT. Prior to the Closing Date, Hambrecht & Quist
Group shall appoint a third party to act as exchange agent (the "Exchange
Agent") in the Merger.
(b) HAMBRECHT & QUIST GROUP TO PROVIDE COMMON STOCK AND CASH.
Promptly after the earlier of (i) the Effective Date of the California Merger as
defined in the Reorganization Agreement and (ii) the Effective Date of the LP
Merger (but in no event later than thirty (30) business days thereafter),
Hambrecht & Quist Group shall make available for exchange in accordance with
this Article 3, through such reasonable procedures as Hambrecht & Quist Group
may adopt, the LP Merger Group Common Stock issuable pursuant to Section 3.1 in
exchange for LP Units, and the LP Merger General Partner Group Common Stock
issuable pursuant to Section 3.1 in exchange for the general partnership
interest in LP, and cash in an amount sufficient to satisfy any obligations with
respect to fractional shares pursuant to Section 3.1(e).
(c) EXCHANGE PROCEDURES FOR LP GENERAL PARTNER. Within thirty (30)
calendar days after the Effective Time of the LP Merger, the Exchange Agent
shall deliver to the General Partner, whose interest is being converted into LP
Merger General Partner Group Common Stock pursuant to Section 3.1 hereof
certificates representing the total number of LP Merger General Partner Group
Common Stock to which the holder of such general partnership interest is
entitled pursuant to Section 3.1 hereof. The general partnership interest shall
forthwith be canceled. Until the shares are delivered as contemplated by this
Section 3.2, the general partnership interest in LP shall be deemed at all times
after the Effective Time of the Merger to represent the right to receive the
number of shares of LP Merger General Partner Group Common Stock as provided by
this Article 3 and the provisions of the CRLPA but shall have no other right.
(d) EXCHANGE PROCEDURES FOR LP UNITS. Within thirty (30) calendar
days after the Effective Time of the Merger, the Exchange Agent shall mail to
each holder of record of LP Units immediately prior to the Effective Time of the
Merger whose interests are being converted into LP Merger Group Common Stock
pursuant to Section 3.1 hereof (i) a letter of transmittal and (ii) instructions
for use in effecting the surrender of the LP Units in exchange for LP Merger
Group Common Stock. Upon delivery of a written notice of ownership and
surrender of LP Units to the Exchange Agent or to such other agent or agents as
may be appointed by Hambrecht & Quist Group, together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, the holder of any such LP Units shall be entitled to receive in
exchange therefor the number of shares of LP Merger Group Common Stock, and cash
in lieu of any fractional LP Units, to which the holder of such LP Units is
entitled pursuant to Section 3.1 hereof The LP Unit so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of an LP Unit
that is not registered on the transfer records of LP, the appropriate number of
shares of LP Merger Group Common Stock may be delivered to a transferee if
written notice of the ownership and surrender of the LP Unit is presented to the
Exchange Agent and accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable transfer taxes have been paid.
Until surrendered as contemplated by this Section 3.2, each LP Unit shall be
deemed at
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<PAGE>
all times after the Effective Time of the Merger to represent the right to
receive upon written notice of such surrender the number of shares of LP Merger
Group Common Stock, and cash in lieu of any fractional LP Units, as provided by
this Article 3 and the provisions of the CRLPA but shall, subject to Section
3.1(d), have no other right, provided that nothing in this Section 3.2(d) shall
require Hambrecht & Quist Group to exchange LP Merger Group Common Stock to any
holder of LP Units who shall fail to deliver a written notice of the surrender
of such LP Units. Notwithstanding the foregoing, neither the Exchange Agent nor
any Party hereto shall be liable to a holder of shares of LP Units for any LP
Merger Group Common Stock delivered to a public official pursuant to applicable
abandoned property, escheat and similar laws. Promptly following the date that
is six (6) months after the Effective Time, the Exchange Agent shall return to
the Hambrecht & Quist Group all shares of LP Merger Group Common Stock in its
possession relating to the transactions described in this Agreement, and the
Exchange Agent's duties shall terminate. Thereafter, each holder of an LP Unit
may deliver written notice of the surrender of such Unit to Hambrecht & Quist
Group and (subject to applicable abandoned property, escheat and similar laws)
receive in exchange therefor the shares of LP Merger Group Common Stock to which
such holder is entitled pursuant hereto.
(e) NO FURTHER OWNERSHIP RIGHTS IN GENERAL PARTNERSHIP INTEREST IN
LP. LP Merger General Partner Group Common Stock delivered in exchange for the
general partnership interest of LP in accordance with the terms hereof shall be
deemed to have been delivered in full satisfaction of all rights pertaining to
such general partnership interest in LP.
(f) NO FURTHER OWNERSHIP RIGHTS IN LIMITED PARTNERSHIP UNITS OF LP.
LP Merger Group Common Stock delivered upon the delivery of written notice of
surrender of LP Units in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such LP
Units. If, after the Effective Time of the LP Merger, written notice of
surrender of outstanding LP Units is given to Hambrecht & Quist Group, such LP
Units shall be canceled and exchanged as provided in this Article 3.
ARTICLE 4
TERMINATION AND AMENDMENT
4.1 TERMINATION. Notwithstanding the approval of this Merger
Agreement by the limited partners of LP and stockholders of Hambrecht & Quist
Group, this Merger Agreement shall terminate forthwith in the event that the
Reorganization Agreement shall be terminated as therein provided.
4.2 AMENDMENT. This Merger Agreement may be amended by the parties
hereto at any time before or after approval hereof by the limited partners of LP
or the stockholders Hambrecht & Quist California, but, after any such approval,
no amendment shall be made without the further approval of such shareholders if
such amendment would (i) have a material adverse effect on the limited partners
of either LP or stockholders of Hambrecht & Quist Group, (ii) change any of the
principal terms of the Merger Agreement. This Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Merger Agreement
as of the date first written above.
Hambrecht & Quist Group, H & Q Reorganization Subsidiary, Inc.,
a California corporation a California corporation
By: By:
--------------------------------- -----------------------------------
Daniel H. Case III Daniel H. Case, III
President and Chief Executive President and Chief Executive
Officer Officer
By: By:
--------------------------------- -----------------------------------
Steven N. Machtinger, Steven N. Machtinger,
Secretary Secretary
Under penalty of perjury, this signature constitutes the acknowledgment
that this instrument is the act and deed of Hambrecht & Quist Group, Inc., and
that the facts stated herein are true.
By:
----------------------------------
Daniel H. Case, III
President and Chief Executive
Officer
ATTEST:
- -----------------------------------
Steven N. Machtinger,
Secretary
-7-
<PAGE>
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HAMBRECHT & QUIST GROUP, INC.
ONE. The name of this corporation is Hambrecht & Quist Group.
TWO. The address of the corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THREE. The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOUR. (a) CLASSES OF STOCK AUTHORIZED. The corporation is
authorized to issue two classes of stock to be designated, respectively, "Common
Stock" and "Preferred Stock." The total number of shares of Common Stock that
the corporation is authorized to issue is 100,000,000, with a par value of $0.01
per share. The total number of shares of Preferred Stock that the corporation
is authorized to issue is 5,000,000 with a par value of $0.01 per share. The
shares of Common Stock may be issued from time to time for such consideration as
the board of directors may determine.
(b) DESIGNATION OF FUTURE SERIES OF PREFERRED STOCK. The
Board of Directors is authorized, subject to any limitations prescribed by
the law of the State of Delaware, to provide in a resolution or resolutions
for the issuance of the shares of Preferred Stock in one or more series, and,
by filing a Certificate of Designation pursuant to the applicable law of the
State of Delaware, to establish from time to time the number of shares to be
included in each such series, to fix the designation, powers, preferences and
rights of the shares of each such series and any qualifications, limitations
or restrictions thereof, and to increase or decrease the number of shares of
any such series (but not below the number of shares of such series then
outstanding). The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
Stock of the Company entitled to a vote, unless a vote of any other holders
is required pursuant to a Certificate of Designation establishing a series of
Preferred Stock.
(c) VOTING RIGHTS OF COMMON STOCK. Each holder of shares
of Common Stock shall be entitled to one vote for each share of Common Stock
held of record on all matters on which the holders of Common Stock are entitled
to vote.
<PAGE>
FIVE. In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the corporation is expressly authorized to
adopt, amend or repeal the Bylaws of the corporation.
SIX. Elections of directors need not be by written ballot unless the
Bylaws of the corporation shall so provide.
SEVEN. (a) LIMITATION OF DIRECTOR'S LIABILITY. To the fullest
extent permitted by the General Corporation Law of Delaware as the same exists
or as may hereafter be amended, a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.
(b) INDEMNIFICATION OF CORPORATE AGENTS. The corporation
shall indemnify to the fullest extent permitted by law any person made or
threatened to be made a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that he, his
testator or intestate is or was a director, officer or employee of the
corporation or any predecessor of the corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
corporation or any predecessor to the corporation.
(c) REPEAL OR MODIFICATION. Neither any amendment or
repeal of this Article Seven, nor the adoption of any provision of this
corporation's Certificate of Incorporation inconsistent with this Article Seven,
shall eliminate or reduce the effect of this Article Seven, in respect of any
matter occurring, or any action or proceeding accruing or arising or that, but
for this Article Seven, would accrue or arise, prior to such amendment, repeal
or adoption of an inconsistent provision.
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<PAGE>
EXHIBIT B
UNDERWRITERS' MARKET STAND-OFF
In addition to other applicable restrictions, all shares of Common
Stock (i) issued by Hambrecht & Quist Group in connection with the Mergers or
(ii) issuable upon the exercise of options or other rights to acquire such
shares assumed by Hambrecht & Quist Group in connection with the Mergers
(together, the "Merger Shares") shall be issued subject to the resale
restrictions set forth in this Exhibit. All capitalized terms and entity names
used in this Exhibit and not otherwise defined shall have the meanings ascribed
to them in the Agreement and Plan of Reorganization dated June 10, 1996 to which
this Exhibit is attached.
1. EIGHTEEN MONTH LOCKUP. For a period of eighteen (18) months after the
date (the "Trade Date") of the initial public offering (the "Offering") of
Hambrecht & Quist Group Common Stock ("Common Stock"), no person holding Merger
Shares or having the right to obtain Merger Shares as described in clause (ii)
of the preceding paragraph (each such person, a "Holder") shall, directly or
indirectly, sell, offer, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of any Merger
Shares or any securities convertible into or exchangeable or exercisable for
Merger Shares, without the prior written consent of each of (i) Hambrecht &
Quist Group, (ii) Hambrecht & Quist LLC and (iii) Morgan Stanley & Co.
Incorporated.
2. EXCEPTION FOR SHARES ACQUIRED AFTER OFFERING. The foregoing restrictions
shall not apply to securities of Hambrecht & Quist Group acquired after the
Trade Date except to the extent that such securities are acquired pursuant to
the exercise, conversion, or exchange of securities of Hambrecht & Quist Group
held immediately prior to the Trade Date.
3. SCHEDULED PARTIAL RELEASES. Notwithstanding the restrictions set forth
in Section 1, a portion of the Merger Shares held by each Holder shall be
released from such restrictions as follows:
(a) FIRST RELEASE. On the date six months following the Trade Date, a
number of Merger Shares equal to the greater of (i) 10,000 or (ii) five percent
(5%) of the outstanding Common Stock owned directly by such Holder immediately
prior to the record date relating to the votes of securityholders with respect
to the Mergers, (the "Owned Shares") shall be permanently released from the
restrictions of Section 1.
(b) SECOND RELEASE. On the date twelve months following the Trade
Date, an additional number of Merger Shares equal to the greater of (i) 10,000
or (ii) five percent (5%) of the Owned Shares shall be permanently released from
the restrictions of Section 1.
(c) AGGREGATION WITH TRANSFEREES. In the event that a Holder transfers
Merger Shares to a permitted transferee pursuant to Section 4, below, the number
of Merger Shares to be released from the restrictions of Section 1 under this
Section 3 shall be calculated without regard to such transfers and the
particular Merger Shares held or transferred by the transferring Holder (the
"Transfer Merger Shares") to be released shall be allocated among the Holder and
all such transferees (and transferees of such
<PAGE>
transferees, if any) of such Holder pro rata in proportion to the number of
Transfer Merger Shares held by each of them.
4. CERTAIN PERMITTED TRANSFERS. Notwithstanding the foregoing, (i) if the
Holder is an individual, he or she may transfer any shares of Merger Shares or
securities convertible into or exchangeable or exercisable for the Merger Shares
either during his or her lifetime or on death by will or intestacy to his or her
immediate family or to a trust the beneficiaries of which are exclusively the
Holder and/or a member or members of his or her immediate family, (ii) if the
Holder is a partnership, it may transfer any shares of Merger Shares or
securities convertible into or exchangeable or exercisable for the Merger Shares
to is constituent partners, retired partners or the estates of constituent
partners or retired partners (including partners which are corporations and
which may transfer such securities to their respective shareholders) or (iii) if
the Holder is a limited liability company, it may transfer any shares of Merger
Shares or securities convertible into or exchangeable or exercisable for the
Merger Shares to its members (including members which are corporations and which
may transfer such securities to their respective shareholders); PROVIDED,
HOWEVER, that prior to any such transfer each transferee (including shareholders
of corporate transferees to whom such shares are subsequently transferred) shall
execute an agreement, satisfactory to Morgan Stanley & Co. Incorporated,
pursuant to which each transferee shall agree to receive and hold such shares of
Merger Shares, or securities convertible into or exchangeable or exercisable for
the Merger Shares, subject to the provisions hereof, and there shall be no
further transfer except in accordance with the provisions hereof, For the
purposes of this paragraph "immediate family" shall mean spouse, lineal
descendant, father, mother, brother or sister of the transferor.
5. BINDING ON SUCCESSORS: STOP TRANSFER INSTRUCTIONS: LEGEND. The
restrictions contained herein shall be binding upon the Holder's heirs, legal
representatives, successors and assigns. Hambrecht & Quist Group shall issue
stop transfer instructions to its transfer agent against the transfer of Merger
Shares except in compliance with the terms of this Exhibit. Each certificate
evidencing Merger Shares shall be imprinted with a legend substantially as
follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCKUP PERIOD
OF EIGHTEEN MONTHS FOLLOWING THE PUBLIC OFFERING OF THE ISSUERS COMMON
STOCK PURSUANT TO THE FIRST REGISTRATION STATEMENT OF THE ISSUER FILED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AS SET FORTH IN EXHIBIT
2.1(c) TO THAT CERTAIN AGREEMENT AND PLAN OF REORGANIZATION DATED JUNE
10, 1996, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH LOCKUP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.
6. THIRD PARTY BENEFICIARIES. Hambrecht & Quist LLC, Morgan Stanley & Co.
Incorporated and Smith Barney Inc., as managing underwriters of the Offering,
are hereby expressly made third party beneficiaries entitled to the benefits of
this Underwriters' Market Stand-off.
-2-
<PAGE>
Exhibit 1.1(b)(2)
Form 9
State of California
Secretary of State
CERTIFICATE OF MERGER
[Preprinted Form Omitted]
Box 1: Hambrect & Quist Group, Inc.
Box 3: One Bush Street
San Francisco, CA 94104
Box 4: Deleware
Box 5: Hambrecht & Quist, L.P.
Box 7: CA
Box 8: July 1996
Box 9: Hambrecht & Quist, L.P. 50%
Box 12: Hambrect & Quist Group, Inc. Hambrecht & Quist, L.P.
1993-3 SUPPLEMENT
<PAGE>
Exhibit 1.4(a)
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
HAMBRECHT & QUIST GROUP
ONE. The name of this corporation is Hambrecht & Quist California.
TWO. The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE. This corporation is authorized to issue only one class of stock,
designated "Common Stock," and the total number of shares which this corporation
is authorized to issue is ten thousand (10,000).
FOUR. (a) The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
(b) The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) through
bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors, or otherwise, in excess of the indemnification
otherwise permitted by Section 317 of the limits set forth in Section 204 of the
California Corporations Code with respect to actions for breach of duty to the
corporation or its shareholders. The corporation is further authorized to
provide insurance for agents as set forth in Section 317 of the California
Corporations Code, provided that, in cases where the corporation owns all or a
portion of the shares of the company issuing the insurance policy, the company
and/or the policy must meet one of the two sets of conditions set forth in
Section 317, as amended.
(c) Any repeal or modification of the foregoing provisions of
this Article Four by the shareholders of this corporation shall not adversely
affect any right or protection of an agent of this corporation existing at the
time of such repeal or modification.
<PAGE>
Exhibit 1.4(b)
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HAMBRECHT & QUIST GROUP, INC.
ONE. The name of this corporation is Hambrecht & Quist Group.
TWO. The address of the corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THREE. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOUR. (a) CLASSES OF STOCK AUTHORIZED. The corporation is authorized
to issue two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares of Common Stock that the
corporation is authorized to issue is 100,000,000, with a par value of $0.01 per
share. The total number of shares of Preferred Stock that the corporation is
authorized to issue is 5,000,000 with a par value of $0.01 per share. The
shares of Common Stock may be issued from time to time for such consideration as
the board of directors may determine.
(b) DESIGNATION OF FUTURE SERIES OF PREFERRED STOCK. The Board
of Directors is authorized, subject to any limitations prescribed by the law of
the State of Delaware), to provide in a resolution or resolutions for the
issuance of the shares of Preferred Stock in one or more series, and, by filing
a Certificate of Designation pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be included in
each such series, to fix the designation, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding). The
number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Stock of the Company entitled to a
vote, unless a vote of any other holders is required pursuant to a Certificate
of Designation establishing a series of Preferred Stock.
(c) VOTING RIGHTS OF COMMON. Each holder of shares of Common
Stock shall be entitled to one vote for each share of Common Stock held of
record on all matters on which the holders of Common Stock are entitled to vote.
FIVE. In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the corporation is expressly authorized to
adopt, amend or repeal the Bylaws of the corporation.
<PAGE>
SIX. Elections of directors need not be by written ballot unless the
Bylaws of the corporation shall so provide.
SEVEN. (a) LIMITATION OF DIRECTOR'S LIABILITY. To the fullest extent
permitted by the General Corporation Law of Delaware as the same exists or as
may hereafter be amended, a director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
(b) INDEMNIFICATION OF CORPORATE AGENTS. The corporation shall
indemnify to the fullest extent permitted by law any person made or threatened
to be made a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he, his testator or
intestate is or was a director, officer or employee of the corporation or any
predecessor of the corporation or serves or served at any other enterprise as a
director, officer or employee at the request of the corporation or any
predecessor to the corporation.
(c) REPEAL OR MODIFICATION. Neither any amendment or repeal of
this Article Seven, nor the adoption of any provision of this corporation's
Certificate of Incorporation inconsistent with this Article Seven, shall
eliminate or reduce the effect of this Article Seven, in respect of any matter
occurring, or any action or proceeding accruing or arising or that, but for this
Article Seven, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
-2-
<PAGE>
EXHIBIT 2.1(c)
UNDERWRITERS' MARKET STAND-OFF
In addition to other applicable restrictions, all shares of Common Stock
(i) issued by Hambrecht & Quist Group in connection with the Mergers or (ii)
issuable upon the exercise of options or other rights to acquire such shares
assumed by Hambrecht & Quist Group in connection with the Mergers (together, the
"Merger Shares") shall be issued subject to the resale restrictions set forth in
this Exhibit. All capitalized terms and entity names used in this Exhibit and
not otherwise defined shall have the meanings ascribed to them in the Agreement
and Plan of Reorganization dated June 10, 1996 to which this Exhibit is
attached.
1. EIGHTEEN MONTH LOCKUP. For a period of eighteen (18) months after the date
(the "Trade Date") of the initial public offering (the "Offering") of Hambrecht
& Quist Group Common Stock ("Common Stock"), no person holding Merger Shares or
having the right to obtain Merger Shares as described in clause (ii) of the
preceding paragraph (each such person, a "Holder") shall, directly or
indirectly, sell, offer, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of any Merger
Shares or any securities convertible into or exchangeable or exercisable for
Merger Shares, without the prior written consent of each of (i) Hambrecht &
Quist Group, (ii) Hambrecht & Quist LLC and (iii) Morgan Stanley & Co.
Incorporated.
2. EXCEPTION FOR SHARES ACQUIRED AFTER OFFERING. The foregoing restrictions
shall not apply to securities of Hambrecht & Quist Group acquired after the
Trade Date except to the extent that such securities are acquired pursuant to
the exercise, conversion, or exchange of securities of Hambrecht & Quist Group
held immediately prior to the Trade Date.
3. SCHEDULED PARTIAL RELEASES. Notwithstanding the restrictions set forth in
Section 1, a portion of the Merger Shares held by each Holder shall be released
from such restrictions as follows:
(a) FIRST RELEASE. On the date six months following the Trade Date, a
number of Merger Shares equal to the greater of (i) 10,000 or (ii) five percent
(5%) of the outstanding Common Stock owned directly by such Holder immediately
prior to the record date relating to the votes of securityholders with respect
to the Mergers, (the "Owned Shares") shall be permanently released from the
restrictions of Section 1.
(b) SECOND RELEASE. On the date twelve months following the Trade Date,
an additional number of Merger Shares equal to the greater of (i) 10,000 or (ii)
five percent (5%) of the Owned Shares shall be permanently released from the
restrictions of Section 1.
(c) AGGREGATION WITH TRANSFEREES. In the event that a Holder transfers
Merger Shares to a permitted transferee pursuant to Section 4, below, the number
of Merger Shares to be released from the restrictions of Section 1 under this
Section 3 shall be calculated without regard to such transfers and the
particular Merger Shares held or transferred by the transferring Holder (the
"Transfer Merger Shares") to be released shall be allocated among the Holder and
all such transferees (and transferees of
<PAGE>
such transferees, if any) of such Holder pro rata in proportion to the number of
Transfer Merger Shares held by each of them.
4. CERTAIN PERMITTED TRANSFERS. Notwithstanding the foregoing, (i) if the
Holder is an individual, he or she may transfer any shares of Merger Shares or
securities convertible into or exchangeable or exercisable for the Merger Shares
either during his or her lifetime or on death by will or intestacy to his or her
immediate family or to a trust the beneficiaries of which are exclusively the
Holder and/or a member or members of his or her immediate family, (ii) if the
Holder is a partnership, it may transfer any shares of Merger Shares or
securities convertible into or exchangeable or exercisable for the Merger Shares
to its constituent partners, retired partners or the estates of constituent
partners or retired partners (including partners which are corporations and
which may transfer such securities to their respective shareholders) or (iii) if
the Holder is a limited liability company, it may transfer any shares of Merger
Shares or securities convertible into or exchangeable or exercisable for the
Merger Shares to its members (including members which are corporations and which
may transfer such securities to their respective shareholders); PROVIDED,
HOWEVER, that prior to any such transfer each transferee (including shareholders
of corporate transferees to whom such shares are subsequently transferred) shall
execute an agreement, satisfactory to Morgan Stanley & Co. Incorporated,
pursuant to which each transferee shall agree to receive and hold such shares of
Merger Shares, or securities convertible into or exchangeable or exercisable for
the Merger Shares, subject to the provisions hereof, and there shall be no
further transfer except in accordance with the provisions hereof. For the
purposes of this paragraph, "immediate family" shall mean spouse, lineal
descendant, father, mother, brother or sister of the transferor.
5. BINDING ON SUCCESSORS: STOP TRANSFER INSTRUCTIONS: LEGEND. The
restrictions contained herein shall be binding upon the Holder's heirs, legal
representatives, successors and assigns. Hambrecht & (Quist Group shall issue
stop transfer instructions to its transfer agent against the transfer of Merger
Shares except in compliance with the terms of this Exhibit. Each certificate
evidencing Merger Shares shall be imprinted with a legend substantially as
follows:
TRUE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCKUP PERIOD
OF EIGHTEEN MONTHS FOLLOWING THE PUBLIC OFFERING OF THE ISSUERS COMMON
STOCK PURSUANT TO THE FIRST REGISTRATION STATEMENT OF THE ISSUER FILED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AS SET FORTH IN EXHIBIT
2.1(c) TO THAT CERTAIN AGREEMENT AND PLAN OF REORGANIZATION DATED JUNE 10,
1996, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH LOCKUP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.
6. THIRD PARTY BENEFICIARIES. Hambrecht & Quist LLC, Morgan Stanley & Co.
Incorporated and Smith Barney Inc., as managing underwriters of the Offering,
are hereby expressly made third party beneficiaries entitled to the benefits of
this Underwriters' Market Stand-off.
<PAGE>
BYLAWS
OF
HAMBRECHT & QUIST GROUP, INC.
AS AMENDED AND RESTATED JULY 9, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I - CORPORATE OFFICES..................................................1
1.1 REGISTERED OFFICE...................................................1
1.2 OTHER OFFICES.......................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS..........................................1
2.1 PLACE OF MEETINGS...................................................1
2.2 ANNUAL MEETING......................................................1
2.3 SPECIAL MEETING.....................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS....................................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........................3
2.6 QUORUM..............................................................3
2.7 ADJOURNED MEETING; NOTICE...........................................4
2.8 VOTING..............................................................4
2.9 WAIVER OF NOTICE....................................................5
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............5
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.........5
2.12 PROXIES.............................................................6
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE...............................6
2.14 INSPECTORS OF ELECTION..............................................7
ARTICLE III - DIRECTORS........................................................8
3.1 POWERS..............................................................8
3.2 NUMBER OF DIRECTORS.................................................8
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF
DIRECTORS...........................................................8
3.4 RESIGNATION AND VACANCIES...........................................9
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE...........................10
3.6 FIRST MEETINGS.....................................................10
3.7 REGULAR MEETINGS...................................................10
3.8 SPECIAL MEETINGS; NOTICE...........................................10
3.9 QUORUM.............................................................11
3.10 WAIVER OF NOTICE...................................................11
3.11 ADJOURNED MEETING; NOTICE..........................................11
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A
MEETING............................................................11
3.13 FEES AND COMPENSATION OF DIRECTORS.................................12
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<PAGE>
TABLE OF CONTENTS
PAGE
----
3.14 APPROVAL OF LOANS TO OFFICERS......................................12
3.15 REMOVAL OF DIRECTORS...............................................12
ARTICLE IV - COMMITTEES.......................................................13
4.1 COMMITTEES OF DIRECTORS............................................13
4.2 COMMITTEE MINUTES..................................................13
4.3 MEETINGS AND ACTION OF COMMITTEES..................................13
ARTICLE V - OFFICERS..........................................................14
5.1 OFFICERS...........................................................14
5.2 ELECTION OF OFFICERS...............................................14
5.3 SUBORDINATE OFFICERS...............................................14
5.4 REMOVAL AND RESIGNATION OF OFFICERS................................14
5.5 VACANCIES IN OFFICES...............................................15
5.6 CHAIRMAN OF THE BOARD..............................................15
5.7 PRESIDENT..........................................................15
5.8 VICE PRESIDENTS....................................................15
5.9 SECRETARY..........................................................15
5.10 CHIEF FINANCIAL OFFICER............................................16
5.11 COMPENSATION.......................................................17
5.12 AUTHORITY AND DUTIES OF OFFICERS...................................17
ARTICLE VI - INDEMNITY........................................................17
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..........................17
6.2 INDEMNIFICATION OF OTHERS..........................................18
6.3 INSURANCE..........................................................18
ARTICLE VI - RECORDS AND REPORTS..............................................18
7.1 MAINTENANCE AND INSPECTION OF RECORDS..............................18
7.2 INSPECTION BY DIRECTORS............................................19
7.3 ANNUAL STATEMENT TO STOCKHOLDERS...................................19
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.....................19
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<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE VIII - GENERAL MATTERS................................................20
8.1 CHECKS.............................................................20
8.2 BANK ACCOUNTS......................................................20
8.3 EXECUTION OF CORPORATE CONTRACTS AND
INSTRUMENTS........................................................20
8.4 LOANS..............................................................20
8.5 STOCK CERTIFICATES; PARTLY PAID SHARES.............................21
8.6 SPECIAL DESIGNATION ON CERTIFICATES................................21
8.7 LOST CERTIFICATES..................................................22
8.8 CONSTRUCTION; DEFINITIONS..........................................22
8.9 DIVIDENDS..........................................................22
8.10 FISCAL YEAR........................................................22
8.11 SEAL...............................................................22
8.12 TRANSFER OF STOCK..................................................23
8.13 STOCK TRANSFER AGREEMENTS..........................................23
8.14 REGISTERED STOCKHOLDERS............................................23
ARTICLE IX - AMENDMENTS.......................................................23
ARTICLE X - DISSOLUTION.......................................................23
ARTICLE XI - CUSTODIAN........................................................24
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES........................24
11.2 DUTIES OF CUSTODIAN................................................25
-iii-
<PAGE>
BYLAWS
OF
HAMBRECHT & QUIST GROUP, INC.
AS AMENDED AND RESTATED JULY 9, 1996
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is CT CORPORATION SYSTEM.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors or by the written
consent of all of the persons entitled to vote at such meeting, such written
consent shall be filed with the Secretary of the Corporation. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected
and any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
(a) Special meetings of the stockholders, for any purpose or
purposes, may be called by the Board of Directors, the Chairman of the board of
Directors, the President, or the holders of shares entitled to cast not less
than ten percent (10%) of the votes at the meeting.
(b) Upon written request to the Chairman of the Board of Directors,
the President, any Vice President or the Secretary of the corporation by any
person or persons (other than the Board of Directors) entitled to call a special
meeting of the stockholders, such officer forthwith shall cause notice to be
given to the stockholders entitled to vote, that a meeting will be held at a
time requested by the person or persons calling the meeting, such time to be not
less than thirty-five (35) nor more than sixty (60) days after receipt of such
request. If such notice is not given within twenty (20) days after receipt of
such request, the person or persons calling the meeting may be given notice
thereof in the manner provided by law or in these Bylaws. Nothing contained in
this Section 7 shall be construed as limiting, fixing or affecting the time or
date when a meeting of stockholders called by action of the Board of Directors
may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
Except as otherwise may be required by law and subject to subsection 2.3(b)
above, written notice of each meeting of stockholders shall be given to each
stockholder entitled to vote at that meeting (see Section 2.8 below), by the
secretary, Assistant Secretary or other person charged with that duty, not less
than ten (10) (or, if sent by third class mail, thirty (30)) nor more than sixty
(60) days before such meeting.
Notice of any meeting of stockholders shall state the date, place and hour
of the meeting and,
(a) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transaction at such
meeting;
(b) in the case of an annual meeting, the general nature of matters
which the Board of Directors, at the time the notice is given, intends to
present for action by the stockholders;
(c) in the case of any meeting at which directors are to be elected,
the names of the nominees intended at the time of the notice to be presented by
management for election; and
(d) in the case of any meeting, if action is to be taken on any of
the following proposals, the general nature of such proposal:
(1) a proposal to approve a transaction within the provisions of
Delaware General Corporations law, Section 144 (relating to certain transactions
in which a director has an interest);
-2-
<PAGE>
(2) a proposal to approve a transaction within the provisions of
Delaware General Corporation Law, Section 254 (relating to amending the
Certificate of Incorporation of the corporation);
(3) a proposal to approve a transaction within the provisions of
Delaware General Corporation Law, Sections 251 (relating to merger or
consolidation); and
(4) a proposal to approve a transaction within the provisions of
Delaware General Corporation Law, Section 275 (dissolution).
At a special meeting, notice of which has been given in accordance with
this Section, action may not be taken with respect to business, the general
nature of which has not been stated in such notice. At an annual meeting,
action may be taken with respect to business stated in the notice of such
meeting, given in accordance with this section, and, subject to subsection
2.4(d) above, with respect to any other business as may properly come before the
meeting.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of any meeting of stockholders shall be given either personally or
by first-class mail, or, if the corporation has outstanding shares held of
record by 500 or more persons on the record date for such meeting, third-class
mail, or telegraphic or other written communication, addressed to the
stockholder at the address of that stockholder appearing on the books of the
corporation or given by the stockholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that stockholder by first-
class mail or telegraphic or other written COMMUNICATION to the corporation's
principal executive office, or if published at least once in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written communication.
If any notice addressed to a stockholder at the address of that stockholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the stockholder at that address, all
future notices shall be deemed to have been duly given without further mailing
if these shall be available to the stockholder on written demand by the
stockholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice.
An affidavit of the secretary or an assistant secretary or of the transfer
agent of the corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
2.6 QUORUM
(a) At any meeting of the stockholders, a majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum.
If a quorum is present, the affirmative
-3-
<PAGE>
vote of the majority of shares represented at the meeting and entitled to vote
on any matter shall be the act of the stockholder, unless the vote of a greater
number of voting by classes is required by law or by the Articles of
Incorporation, and except as provided in subsection (b) below.
(b) The stockholders present at a duly called or held meeting of the
stockholders at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum, provided that any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
(c) In the absence of a quorum, no business other than adjournment
may be transacted, except as described in subsection (b) above.
2.7 ADJOURNED MEETING; NOTICE
Any meeting of stockholders may be adjourned from time to time, whether or
not a quorum is present, by the affirmative vote of a majority of shares
represented at such meeting either in person or by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than forty-five (45) days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting.
2.8 VOTING
(a) The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these
bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners of stock and to voting trusts and other voting agreements).
Except as provided in this Section 2.8, or as may be otherwise provided in
the certificate of incorporation, each stockholder shall be entitled to one vote
for each share of capital stock held by such stockholder.
(b) Until such time as the corporation becomes a "listed corporation"
within the meaning of Section 301.5 of the California Corporations Code, at a
stockholders' meeting at which directors are to be elected, or at elections held
under special circumstances, a stockholder shall be entitled to cumulate votes
(i.e., cast for any candidate a number of votes greater than the number of votes
which such stockholder normally is entitled to cast). Each holder of stock, or
of any class or classes or of a series or series thereof, who elects to cumulate
votes shall be entitled to as many votes as equals the number of votes which
(absent this provision as to cumulative voting) he would be entitled to cast for
the election of directors with respect to his shares of stock multiplied by the
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number of directors to be elected by him, and he may cast all of such votes for
a single director or may distribute them among the number to be voted for, or
for any two or more of them, as he may see fit; provided, however, no
stockholder shall be entitled to so cumulate such stockholder's votes unless the
candidates for which such stockholder is voting have been placed in nomination
prior to the voting and a stockholder has given notice at the meeting, prior to
the vote, of an intention to cumulate votes.
(c) At such time as the corporation becomes a listed corporation
within the meaning of Section 301.5 of the California Corporations Code and
thereafter, stockholders shall not be entitled to cumulate votes.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws. All waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
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2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.12 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after eleven (11) months from its date,
unless the proxy provides for a longer period. A proxy shall be deemed signed
if the stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
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2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Stock of the corporation held by its subsidiary or subsidiaries are not
entitled to vote in any matter.
2.14 INSPECTORS OF ELECTION
Before any meeting of stockholders, the Board of Directors may appoint any
persons, other than nominees for the office, to act as inspectors of election at
the meeting or its adjournment. If no inspectors of election are so appointed,
the chairman of the meeting may, and on the request of any stockholder or a
stockholder's proxy shall, appoint inspectors of election at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting on the request of one or more stockholders or proxies,
the majority of shares represented in person or proxy shall determine whether
one (1) or three (3)inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the chairman of the
meeting may, and upon the request of any stockholder or a stockholder's proxy
shall, appoint a person to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
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(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The authorized number of directors shall be seven (7). This number may be
changed by a duly adopted amendment to the certificate of incorporation or by an
amendment to this bylaw adopted by the vote or written consent of the holders of
a majority of the stock issued and outstanding and entitled to vote or by
resolution of a majority of the board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
(a) For so long as the Board of Directors consists of more than two
directors, the directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as
possible, of one-third (1/3) of the total number of directors constituting
the entire Board of Directors. At any time following the effectiveness of
this provision, but before the first annual meeting of the stockholders held
after the effectiveness of this provision, the Board of Directors may
designate by resolution the classification of existing directors, with the
initial terms of such directors as follows: Class I directors shall have an
initial one-year term, Class II directors an initial two-year term and Class
III directors an initial three-year term. At the first annual meeting of the
stockholders held after the effectiveness of this provision and at each
succeeding annual meeting of stockholders, successors to the class of
directors whose term expires at such annual meeting shall be elected for
three-year terms. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number
of directors in each class as nearly equal as possible, and any additional
directors of any class elected to fill a vacancy resulting from an increase
in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. Notwithstanding the
foregoing,
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this provision will become effective only when the corporation becomes a "listed
corporation" within the meaning of Section 301.5 of the California Corporations
Code, until such time, all directors shall be elected at each annual meeting of
stockholders to hold office until the next annual meeting.
(b) A director shall hold office until the annual meeting for the
year in which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Except as otherwise
required by law, any vacancy on the Board of Directors that results from an
increase in the number of directors or any other vacancy occurring in the Board
of Directors shall be filled by a majority of the directors then in office, even
if less than a quorum, or by a sole remaining director. Any director elected to
fill a vacancy not resulting from an increase in the number of directors shall
have the same remaining term as that of his or her predecessor.
(c) Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or
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guardian of a stockholder, or other fiduciary entrusted with like responsibility
for the person or estate of a stockholder, may call a special meeting of
stockholders in accordance with the provisions of the certificate of
incorporation or these bylaws, or may apply to the Court of Chancery for a
decree summarily ordering an election as provided in Section 211 of the General
Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
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3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
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3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
The Board of Directors may declare vacant the office of a director who has
been declared of unsound mind by an order of court or who has been convicted of
a felony.
The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal; provided, however, that
unless the entire Board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to
such removal, would be sufficient to elect that director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
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Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
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4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary, and a Chief Financial
Officer, and any such other officers with such titles and duties as the Board of
Directors may determine.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
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5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 CHAIRMAN OF THE BOARD
The Chairman of the Board, if there be such an officer, shall, if present,
preside at all meetings of the Board of Directors and shall exercise and perform
such other powers and duties as may be assigned from time to time by the Board
of Directors or prescribed by these Bylaws. If no President is appointed, the
Chairman of the Board is the general manager and Chief Executive Officer of the
corporation, and shall exercise all powers of the President described in Section
42 below.
5.7 PRESIDENT
Subject to such powers, if any, as may be given by the Board of Directors
to the Chairman of the Board, if there be such an officer, the President shall
be the general manager and Chief Executive Officer of the corporation and shall
have general supervision and control over the business and affairs of the
corporation, subject to the control of the Board of Directors. The President
may sign and execute, in the name of the corporation, any instrument authorized
by the Board of Directors, except when the signing and execution thereof shall
have been expressly delegated by the Board of Directors or by these Bylaws to
some other officer or agent of the corporation. The President shall have all
the general powers and duties of management usually vested in the president of a
corporation, and shall have such other powers and duties as may be prescribed
from time to time by the Board of Directors or these Bylaws. The President
shall have discretion to prescribe the duties of other officers and employees of
the corporation in a manner not inconsistent with the provisions of these Bylaws
and the directions of the Board of Directors.
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5.8 VICE PRESIDENTS
In the absence or disability of the President, in the event of a vacancy in
the office of President, or in the event such officer refuses to act, the Vice
President shall perform all the duties of the President and, when so acting,
shall have all the powers of, and be subject to all the restrictions on, the
President. If at any such time the corporation has more than one Vice
President, the duties and powers of the President shall pass to each Vice
President in order of such Vice President's rank as fixed by the Board of
Directors or, if the Vice Presidents are not so ranked, to the Vice President
designated by the Board of Directors. The Vice Presidents shall have such other
powers and perform such other duties as may be prescribed for them from time to
time by the Board of Directors or pursuant to Sections 35 and 36 of these Bylaws
or otherwise pursuant to these Bylaws.
5.9 SECRETARY
The Secretary shall:
(a) Keep, or cause to be kept, minutes of all meetings of the
corporation's stockholders, Board of Directors, and committees of the Board of
Directors, if any. Such minutes shall be kept in written form.
(b) Keep, or cause to be kept, at the principal executive office of
the corporation, or at the office of its transfer agent or registrar, if any, a
record of a corporation's stockholders, showing the names and addresses of all
stockholders and the number of classes of shares held by each. Such records
shall be kept in written form or any other form capable of being converted into
written form.
(c) Keep, or cause to be kept, at the principal executive office of
the corporation, or if the principal office is not in California, at its
principal business office in California, an original or copy of these Bylaws, as
amended.
(d) Give, or cause to be given, notice of all meetings of
stockholders, directors and committees of the Board of Directors, as required by
law or by these Bylaws.
(e) Keep the seal of the corporation, if any, in safe custody.
(f) Exercise such powers and perform such duties as are usually
vested in the office of secretary of a corporation, and exercise such other
powers and perform such other duties as may be prescribed from time to time by
the Board of Directors or these Bylaws.
If any Assistant Secretaries are appointed, the Assistant Secretary,
or one of the Assistant Secretaries in the order of their rank as fixed by the
Board of Directors or, if they are not so ranked, the Assistant Secretary
designated by the Board of Directors, in the absence or disability of the
Secretary or in the event of such officer's refusal to act or if a vacancy
exists in the office of
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Secretary, shall perform the duties and exercise the powers of the Secretary and
discharge such duties as may be assigned from time to time pursuant to these
Bylaws or by the Board of Directors.
5.10 CHIEF FINANCIAL OFFICER
The Chief Financial Officer shall:
(a) Be responsible for all functions and duties of the treasurer of
the corporation.
(b) Keep and maintain, or cause to be kept and maintained, adequate
and correct books and records of account for the corporation.
(c) Receive or be responsible for receipt of all monies due and
payable to the corporation from any source whatsoever; have charge and custody
of, and be responsible for, all monies and other valuables of the corporation
and be responsible for deposit of all such monies in the name and to the credit
of the corporation with such depositories as may be designated by the Board of
Directors or a duly appointed and authorized committee of the Board of
Directors.
(d) Disburse or be responsible for the disbursement of the funds of
the corporation as may be ordered by the Board of Directors or a duly appointed
and authorized committee of the Board of Directors.
(e) Render to the Chief Executive Officer and the Board of Directors
a statement of the financial condition of the corporation if called upon to do
so.
(f) Exercise such powers and perform such duties as are usually
vested in the office of chief financial officer of a corporation, and exercise
such other powers and perform such other duties as may be prescribed by the
Board of Directors or these Bylaws.
If any Assistant Financial Officer is appointed, the Assistant
Financial Officer, or one of the Assistant Financial Officers, if there are more
than one, in the order of their ranks as fixed by the Board of Directors or, if
they are not so ranked, the Assistant Financial Officers designated by the Board
of Directors, shall, in the absence or disability of the Chief Financial Officer
or in the event of such officer's refusal to act, perform the duties and
exercise the powers of the Chief Financial Officer, and shall have such powers
and discharge such duties as may be assigned from time to time pursuant to these
Bylaws or by the Board of Directors.
5.11 COMPENSATION
The compensation of the officers shall be fixed from time to time by the
Board of Directors, and no officer shall be prevented from receiving such
compensation by reason of the fact that such officer is also a director of the
corporation.
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5.12 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
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venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether
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a director is entitled to the inspection sought. The Court may summarily order
the corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 BANK ACCOUNTS
The Board of Directors or its duly appointed and authorized committee from
time to time may authorize the opening and keeping of general and/or special
bank accounts with such banks, trust companies, or other depositories as may be
selected by the Board of Directors, its duly appointed and authorized committee
or by any officer or officers, agent or agents, of the corporation to whom such
power may be delegated from time to time by the Board of Directors. The Board
of Directors or its duly appointed and authorized committee may make such rules
and regulations with respect to said bank accounts, not inconsistent with the
provisions of these Bylaws, as are deemed advisable.
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8.3 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 LOANS
No loans shall be contracted on behalf of the corporation and no negotiable
paper shall be issued in its name, unless and except as authorized by the Board
of Directors or its duly appointed and authorized committee. When so authorized
by the Board of Directors or such committee, any officer or agent of the
corporation may effect loans and advances at any time for the corporation from
any bank, trust company, or other institution, or from any firm, corporation or
individual, and for such loans and advances may make, execute and deliver
promissory notes, bonds or other evidences of indebtedness of the corporation
and, when authorized as aforesaid, may mortgage, pledge, hypothecate or transfer
any and all stocks, securities and other property, real or personal, at any time
held by the corporation, and to that end endorse, assign and deliver the same as
security for the payment of any and all loans, advances, indebtedness, and
liabilities of the corporation. Such authorization may be general or confined
to specific instances.
8.5 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the
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corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.6 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.7 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.9 DIVIDENDS
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
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The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.10 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.11 SEAL
This Corporation shall have a corporate seal, which shall have the name of
the Corporation inscribed thereon and shall otherwise be in such form as may be
approved from time to time by the Board of Directors.
8.12 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.13 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.14 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
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ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(a) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(b) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(c) the corporation has abandoned its business and has failed within
a reasonable time to take steps to dissolve, liquidate or distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
HAMBRECHT & QUIST GROUP, INC.
CERTIFICATE BY SECRETARY OF ADOPTION BY STOCKHOLDERS' VOTE
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of Hambrecht & Quist Group, Inc. and that the foregoing
Amended and Restated Bylaws, comprising twenty-five (25) pages, were approved by
the written consent, pursuant to Section 228 of the Delaware General Corporation
Law and Section 2.10 of the Bylaws, of the sole stockholder exercising the
majority of the voting power of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 9th day of July 1996.
---------------------------------------
Steven N. Machtinger, Secretary
<PAGE>
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
TELEPHONE 415-493-9300 FACSIMILE 415-493-6811
_____, 1996
Hambrecht & Quist Group, Inc.
One Bush Street
San Francisco, CA 94104
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you
with the Securities and Exchange Commission (the "Registration Statement") in
connection with the registration under the Securities Act of 1933, as
amended, of ________ shares of Common Stock of Hambrecht & Quist Group, Inc.
(the "Shares"). As your counsel in connection with this transaction, we have
examined the proceedings proposed to be taken in connection with said sale
and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being
taken or contemplated by us, as your counsel, to be taken prior to the
issuance of the Shares, the Shares when issued and sold in the manner
referred to in the Registration Statement will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement, and further consent to the use of our name wherever
appearing in the Registration Statement, including the prospectus
constituting a part hereof, and any amendment thereto and any registration
statement for the same offering covered by this Registration Statement that
is to be effective upon filing pursuant to Rule 462(b) and all post-effective
amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
HAMBRECHT & QUIST GROUP, INC.
1996 EQUITY PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer the Employees, Directors and
Consultants an opportunity to acquire a proprietary interest in the success of
the Company and to increase such interest by purchasing Shares of the Company's
Common Stock. Options granted under the Plan may include NSOs as well as ISOs
intended to qualify under Section 422 of the Code. Contingent Equity Rights may
also be granted under the Plan.
SECTION 2. DEFINITIONS.
(a) "APPLICABLE LAWS" shall mean the legal requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction where Options or Rights are, or will be, granted
under the Plan.
(b) "BOARD" shall mean the Company's Board of Directors, as constituted
from time to time.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" shall mean a committee of the Board, as described in
Section 3(a) hereof, or, if no such committee has been appointed, the Board.
(e) "COMPANY" shall mean Hambrecht & Quist Group, Inc., a Delaware
corporation.
(f) "CONSULTANT" shall mean any person, including an advisor, engaged by
the Company or a Subsidiary to render services and who is compensated for such
services. The term shall also include any Director, whether or not compensated
for his or her services as a Director.
(g) "CONTINGENT EQUITY RIGHT" shall mean the cash-denominated bonus amount
that is earned by an Employee over a given six-month bonus period and that is
paid in Restricted Stock pursuant to Section 9.
(h) "DIRECTOR" shall mean a member of the Board.
(i) "EMPLOYEE" shall mean any individual who is an employee (within the
meaning of Section 3401(c) of the Code and the regulations thereunder) of the
Company or a Subsidiary. Neither service as a Director nor payment of a
Director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
<PAGE>
(j) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(l) "FAIR MARKET VALUE" shall mean, as of any date, the value of the Stock
determined as follows:
(i) If the Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq National
Market or the Nasdaq SmallCap Market of the Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales are reported) as quoted on such exchange or system for the last market
trading day prior to the date of determination, as reported in THE WALL STREET
JOURNAL or such other source as the Committee deems reliable.
(ii) If the Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Stock on the last market
trading day prior to the date of determination, as reported in THE WALL STREET
JOURNAL or such other source as the Committee deems reliable.
(iii) In the absence of an established market for the Stock,
its Fair Market Value shall be determined in good faith by the Committee.
(m) "ISO" shall mean an incentive stock option described in Section 422 of
the Code.
(n) "NSO" shall mean an Option not intended to qualify as an ISO.
(o) "OFFICER" shall mean a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" shall mean an ISO or NSO granted under the Plan.
(q) "OPTIONEE" shall mean an individual who holds an Option.
(r) "PLAN" shall mean this Hambrecht & Quist Group, Inc. 1996 Equity Plan.
(s) "RESTRICTED STOCK" shall mean shares of Common Stock granted under a
Contingent Equity Right and subject to a repurchase right of the Company as
specified in the Restricted Stock Agreement.
(t) "RESTRICTED STOCK AGREEMENT" means a written agreement between the
Company and the Optionee evidencing the terms and restrictions applying to stock
granted under a Contingent Equity Right.
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(u) "RIGHT" means a Contingent Equity Right.
(v) "RULE 16B-3" shall mean Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(w) "SECTION 16(B)" shall mean Section 16(b) of the Exchange Act.
(x) "SERVICE" shall mean service as an Employee, Consultant or Director of
the Company or a Subsidiary.
(y) "SHARE" shall mean a share of Stock, as adjusted in accordance with
Section 10 hereof.
(z) "STOCK" shall mean the Common Stock of the Company.
(aa) "STOCK OPTION AGREEMENT" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(bb) "SUBSIDIARY" shall mean any corporation, if the Company and/or one or
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
(cc) "TEST RATE" shall mean the lowest rate of interest which will not
result in the imputation of additional interest under the applicable provision
of the Code.
SECTION 3. ADMINISTRATION.
(a) PROCEDURE.
(i) If permitted by Rule 16b-3, the Plan may be administered by
different bodies with respect to Directors, Officers who are not Directors, and
Employees who are neither Directors nor Officers.
(ii) With respect to Options and Rights granted to Employees and
Consultants who are also Officers or Directors subject to Section 16(b) of the
Exchange Act, the Plan shall be administered by (A) the Board, if the Board may
administer the Plan in a manner complying with the rules under Rule 16b-3
relating to the disinterested administration of employee benefit plan under
which Section 16(b) exempt discretionary grants and awards of equity securities
are to be made, or (B) a Committee designated by the Board to administer the
Plan, which Committee shall be constituted to comply with the rules under
Rule 16b-3 related to the disinterested administration of employee benefit plans
under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and appoint
additional members, remove members (with or without cause) and
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substitute new members, fill vacancies (however caused), and remove all member
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities are to be made.
(iii) With respect to Options and Rights granted to Employees
and Consultants who are neither Directors nor Officers of the Company, the Plan
shall be administered by (A) the Board, or (B) a Committee designated by the
Board, which Committee shall be constituted to satisfy Applicable Laws. Once
appointed, such Committee shall serve in its designated capacity until otherwise
directed by the Board. The Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by Applicable Laws.
(b) COMMITTEE PROCEDURES. The Board shall designate one of the members of
the Committee as chairman. The Committee may hold meetings at such times and
places as it shall determine. The acts of a majority of the Committee members
present at meetings at which a quorum exists, or acts reduced to or approved in
writing by a majority of all Committee members, shall be valid acts of the
Committee.
(c) COMMITTEE RESPONSIBILITIES. Subject to the provisions of the Plan and
any directions of the Board, the Committee shall have full authority and
discretion to take the following actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(iv) To determine when Options and Rights are to be granted under the
Plan;
(v) To select the Optionees and the Employees to whom Rights are to
be granted;
(vi) To determine the number of Shares to be made subject to each
Option and Right;
(vii) To prescribe the terms and conditions of each Option and Right,
including (without limitation) the Exercise Price, to determine whether any
Option is to be classified as an ISO or as a NSO, and to specify the provisions
of the Stock Option Agreement or Restricted Stock Agreement relating to such
Option or Right;
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(viii) To amend any outstanding Stock Option Agreement or Restricted
Stock Agreement, subject to applicable legal restrictions and to the consent of
the Optionee who entered into such agreement; and
(ix) To take any other actions deemed necessary or advisable for the
administration of the Plan.
All decisions, interpretations and other actions of the Committee shall be
final and binding on all Optionees and on all persons deriving their rights from
an Optionee. No member of the Committee shall be liable for any action that he
or she has taken or has failed to take in good faith with respect to the Plan or
any Option or Right.
SECTION 4. ELIGIBILITY.
(a) GENERAL RULE. Only Employees (including Officers and Directors of the
Company who are also Employees) shall be eligible for grants of ISOs and Rights;
all Employees, Consultants and Directors of the Company or a Subsidiary shall be
eligible for grants of NSOs.
(b) TEN-PERCENT STOCKHOLDERS. An Employee who owns more than 10 percent
of the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an ISO
unless (i) the Exercise Price under such Option is at least 110 percent of the
Fair Market Value of a Share on the date of grant and (ii) such Option by its
terms is not exercisable after the expiration of five years from the date of
grant.
(c) ATTRIBUTION RULES. For purposes of Subsection (b) above, in
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for his or her brothers, sisters, spouse,
ancestors and lineal descendants. Stock owned, directly or indirectly, by or
for a corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which such Employee holds an option shall not be counted.
(d) OUTSTANDING STOCK. For purposes of Subsection (b) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant of the Option to the Optionee. "Outstanding stock" shall not include
reacquired shares or shares authorized for issuance under outstanding options
held by the Optionee or by any other person.
(e) LIMITATIONS. The following limitations shall apply to grants of
Options to Employees:
(i) No Employee shall be granted, in any fiscal year of the Company,
Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial employment, an Employee
may be granted Options to purchase up to an additional 500,000 Shares which
shall not count against the limit set forth in subsection (i) above.
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(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 10.
(iv) If an Option is canceled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction described
in Section 10), the canceled Option will be counted against the limit set forth
in subsection (i) above. For this purpose, if the exercise price of an Option
is reduced, the transaction will be treated as a cancellation of the Option and
the grant of a new Option.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. The aggregate number of Shares which may be issued
under the Plan shall not exceed 3,000,000 Shares, subject to adjustment pursuant
to Section 10 hereof. The number of Shares that may be issued upon exercise of
Options shall not exceed 1,000,000 Shares, subject to adjustment as above. The
number of Shares that may be issued upon exercise of Rights shall not exceed
2,000,000 Shares, subject to adjustment as above. The number of Shares which
are subject to Options and Rights outstanding at any time under the Plan shall
not exceed the number of Shares which then remain available for issuance upon
exercise of Options and Rights, respectively, under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option for any
reason expires is canceled or otherwise terminated, the Shares allocable to the
unexercised portion of such Option shall again be available for the purposes of
the Plan. In the event that Restricted Stock is forfeited to the Company, such
Shares shall again be available for grant under the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions which are
not inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 10 hereof. The Stock
Option Agreement shall also specify whether the Option is an ISO or a NSO.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price shall not be less than 85 percent of the
Fair Market Value, in the case of an NSO, or 100 percent of the Fair Market
Value, in the case of an ISO, of a Share on the date of grant, except as
otherwise provided in Section 4(b). Subject to the preceding sentence, the
Exercise Price under any
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Option shall be determined by the Committee at its sole discretion. The
Exercise Price shall be payable in accordance with Section 7 hereof.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any Federal, state, local or foreign withholding tax obligations
that may arise in connection with such exercise. The Optionee shall also make
such arrangements as the Committee may require for the satisfaction of any
Federal, state, local or foreign withholding tax obligations that may arise in
connection with the disposition of Shares acquired by exercising an Option.
(e) EXERCISABILITY AND TERM. Each Option shall be exercisable at such
times and under such conditions as specified in the Stock Option Agreement.
Options held by an Officer, Director or Consultant may be subject to additional
or greater restrictions. The Stock Option Agreement shall also specify the term
of the Option. The term shall not exceed ten years from the date of grant,
except as otherwise provided in Section 4(b) hereof.
(f) NONTRANSFERABILITY. During an Optionee's lifetime, his or her
Option(s) shall be exercisable only by the Optionee and shall not be
transferable. In the event of an Optionee's death, his or her Option(s) shall
not be transferable other than by will or by the laws of descent and
distribution.
(g) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's Service
terminates for any reason other than the Optionee's death, then his or her
Option(s) shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (e) above;
(ii) The date three months after the termination of the Optionee's
Service (other than upon a discharge for Cause (defined below) or because the
Optionee is disabled);
(iii) The time when the Optionee is notified (orally or in writing)
that he or she is being discharged for Cause; or
(iv) The date six months after the termination of the Optionee's
service because the Optionee is disabled.
"Cause" shall mean (i) gross negligence by the Optionee in the performance
of his or her duties; (ii) any act of fraud, misappropriation, dishonesty,
embezzlement or similar conduct against the Company; (iii) conviction of a
felony or any crime involving moral turpitude; or (iv) willful and continuing
failure by the Optionee to comply with any policy of the Company which is
applicable to Employees of the Company.
The Optionee may exercise all or part of his or her Option(s) to the extent
exercisable on the date of termination at any time before the expiration of such
Option(s) under this subsection (g). The balance of such Option(s) shall lapse
when the Optionee's Service terminates. In the event that
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the Optionee dies after the termination of the Optionee's Service but before the
expiration of his or her Option(s), all or part of such Option(s) may be
exercised (prior to expiration) to the extent exercisable on the date of
termination by the executors or administrators of the Optionee's estate or by
any person who has acquired such Option(s) directly from the Optionee by bequest
or inheritance.
(h) LEAVE OF ABSENCE. For purposes of Subsection (g) above, Service shall
be deemed to continue while the Optionee is on military leave, sick leave, or
other bona fide leave of absence (as determined by the Committee). The
foregoing notwithstanding, in the case of an ISO granted under the Plan, Service
shall not be deemed to continue beyond the first 90 days of such leave, unless
the Optionee's reemployment rights are guaranteed by statute or by contract.
(i) DEATH OF OPTIONEE. If an Optionee dies while he or she is in Service,
then his or her Option(s) shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (e) above;
or
(ii) The date six months after the Optionee's death.
All or part of the Optionee's Option(s) may be exercised at any time before
the expiration of such Option(s) under the preceding sentence by the executors
or administrators of the Optionee's estate or by any person who has acquired
such Option(s) directly from the Optionee by bequest or inheritance, but only to
the extent that such Option(s) had become exercisable before his or her death.
(j) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by an Option until the date of the issuance of a stock certificate for
such Shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property), distributions or
other rights for which the record date is prior to the date when such stock
certificate is issued, except as provided in Section 10 hereof.
(k) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Within the
limitations of the Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) for the granting of new Options in substitution therefor.
The foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
(l) RESTRICTIONS ON TRANSFER OF SHARES. Subject to the limitations of
applicable state and federal securities law, any Shares issued upon exercise of
any Option shall, in addition to federal and state securities laws restrictions,
be subject to such special rights of repurchase, rights of first refusal and
other transfer restrictions as the Committee may determine. Such restrictions
shall be set forth in the applicable Stock Option Agreement and shall apply in
addition to any general transfer restrictions that may apply to all holders of
Shares and that may be permitted under applicable state and federal securities
law.
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(m) BUYOUT PROVISIONS. The Committee may at any time offer to buy out for
a payment in cash an Option previously granted, or authorize an Optionee to
elect to cash out an Option previously granted, in either case at such time and
based upon such terms and conditions as the Committee shall establish. Any such
buy-out offer or cash-out election made with respect to Options granted or held
by persons subject to Section 16 of the Exchange Act shall comply with the
applicable provisions of Rule 16b-3 of the Exchange Act.
(n) RULE16B-3. Options granted to individuals subject to Section 16 of
the Exchange Act must comply with the applicable provisions of Rule 16b-3 and
shall contain such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 to the Exchange
Act with respect to Plan transactions.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The Committee shall determine the acceptable form of
consideration for exercising an Option, including the method of payment. In the
case of an ISO, the Committee shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist entirely of
(i) cash; (ii) check; (iii) surrender of stock as described in Subsection (b)
below; (iv) promissory note as described in Subsection (c) below; (v) delivery
of a properly executed exercise notice together with such other documentation as
the Committee and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the exercise price; (vii) any combination of the foregoing methods of
payment; or (viii) any other means by which the Committee, in its sole
discretion, determines both to provide legal consideration for the Shares and to
be consistent with the purposes of the Plan.
(b) SURRENDER OF STOCK. To the extent that this Subsection (b) is
applicable, payment may be made with Shares which have already been owned by the
Optionee for more than six months and which are surrendered to the Company in
good form for transfer. Such Shares shall be valued at their Fair Market Value
on the date when the new Shares are purchased under the Plan.
(c) PROMISSORY NOTES. To the extent that this Subsection (c) is
applicable, payment may be made with a limited-recourse promissory note executed
by the Optionee. Such note shall bear interest at a rate not less than the
applicable Test Rate. Subject to the preceding sentence, the Committee (at is
sole discretion) shall specify the term, interest rate, amortization
requirements (if any), and other provisions of such note. The Committee may
require that the Optionee pledge his or her Shares to the Company for the
purpose of securing the payment of such note, and the committee may require that
the certificate(s) representing such Shares be held in escrow in order to
perfect the Company's security interest.
SECTION 8. LIMITATION ON ANNUAL ISO AWARDS.
To the extent that the aggregate Fair Market Value (determined as of the
date when an Option is granted) of the stock for which any ISO first becomes
exercisable in any calendar year under this
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Plan and under all other plans maintained by the Company or its Subsidiaries
exceeds $100,000, such excess Shares shall be treated as having been granted
subject to an NSO.
SECTION 9. CONTINGENT EQUITY RIGHTS.
(a) GENERAL. The Company's 1996 Bonus Plan provides that, if the amount
of an Employee's compensation for a given six-month period exceeds $100,000, 80%
of the amount of such Employee's bonus (the "Bonus Amount") for such six-month
period shall be paid in cash. The remaining 20% may, at the election of the
Employee and subject to the consent of the Committee, be paid either in cash,
subject to the terms of the 1996 Bonus Plan, or in the form of a Contingent
Equity Right granted under this Plan.
(b) FORM OF PAYMENT. Each Contingent Equity Right shall be paid in the
form of Restricted Stock. The number of Shares shall be determined by dividing
the cash-denominated value of 20% of the Bonus Amount by 90% of the Fair Market
Value of a Share on the date of grant of the Right, rounded up to the nearest
whole Share. The payment of the Restricted Stock shall be evidenced by a Notice
of Award of Restricted Stock that, together with a Restricted Stock Agreement,
shall specify the applicable vesting restrictions, the amount of Restricted
Stock awarded, and such other terms and conditions as the Committee, in its sole
discretion, shall determine.
(c) TERMINATION OF EMPLOYMENT. In the event a Participant's status as an
Employee of the Company terminates for any or no reason, any unvested Restricted
Stock previously awarded to the Participant shall be forfeited to the Company
without consideration to the Participant.
(d) RULE 16B-3. Contingent Equity Rights granted to persons subject to
Section 16(b), and Shares granted to persons in connection with such Rights,
shall be subject to any restrictions applicable thereto in compliance with Rule
16b-3.
(e) OTHER PROVISIONS. The Restricted Stock Agreement shall contain such
other terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Committee in its sole discretion. In addition, the provisions
of Restricted Stock Agreements need not be the same with respect to each
purchaser.
(f) RIGHTS AS A STOCKHOLDER. Once Restricted Stock is granted to an
Employee pursuant to a Contingent Equity Right, such Employee shall have rights
equivalent to those of a stockholder and shall be a stockholder when the grant
is entered upon the records of the duly authorized transfer agent of the
Company. No adjustment shall be made for a dividend or other right for which
the record date is prior to the date the Restricted Stock is granted, except as
provided in Section 10 of the Plan.
(g) NON-TRANSFERABILITY OF RIGHTS. Rights may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution.
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SECTION 10. ADJUSTMENT OF SHARES.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of shares of Stock covered by each
outstanding Option and Right, and the number of shares of Stock which have been
authorized for issuance under the Plan but as to which no Options or Rights have
yet been granted or which have been returned to the Plan upon cancellation or
expiration of an Option or Right, as well as the price per share of Stock
covered by each such outstanding Option or Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Stock, or any other increase or decrease in the
number of issued shares of Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Stock subject to an Option or Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution
or liquidation of the Company, the Committee shall notify each Optionee as soon
as practicable prior to the effective date of such proposed transaction. The
Committee in its discretion may provide for an Optionee to have the right to
exercise his or her Option until ten (10) days prior to such transaction as to
some or all of the Stock covered thereby, including Shares as to which the
Option would not otherwise be exercisable. In addition, the Committee may
provide that any Company repurchase option applicable to any Shares purchased
upon exercise of an Option or Right shall lapse as to some or all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent not previously exercised, Options and
Rights shall terminate immediately prior to the consummation of such proposed
action.
(c) CHANGE OF CONTROL. In the event of a Change of Control (as defined
below) of the Company, outstanding Options may be assumed or equivalent options
substituted by the successor corporation or a parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for an Option, such Option shall thereupon become vested to
the extent that it would otherwise have been vested twelve months after the date
of the Change of Control, regardless of whether the Optionee continues to be an
Employee or Consultant following the Change of Control. In such event, the
Committee shall notify the Optionee that such Option shall be exercisable for a
period of fifteen (15) days from the date of such notice, and such Option shall
terminate upon the expiration of such period.
In addition, in such event any shares granted under a Right shall
automatically become vested to such extent.
For purposes of this Section 10(c), an Option shall be considered
assumed if, following the Change of Control, the option or right confers the
right to purchase or receive, for each
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Share of Optioned Stock subject to the Option immediately prior to the Change of
Control, the consideration (whether stock, cash, or other securities or
property) received in the Change of Control by holders of Stock for each Share
held on the effective date of the Change of Control (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the Change of Control is not solely common stock of
the successor corporation or its parent corporation, the Committee may, with the
consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its parent corporation equal in fair market value to the per share consideration
received by holders of Stock in the Change of Control.
For purposes of this Section 10(c), a "Change of Control" of the
Company shall be deemed to occur upon any of the following: (i) a merger or
other reorganization in which the stockholders of the Company immediately prior
to such transaction do not hold directly or indirectly at least 50% of the
voting power of the surviving entity or the parent corporation of the surviving
entity immediately following such merger or other reorganization; or (ii) the
sale of all or substantially all of the Company's assets.
SECTION 11. LEGAL REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.
SECTION 12. NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any Option or Right granted under the Plan,
shall be construed to give any person any right to remain an Employee, Director,
Consultant or stockholder. The Company and its Subsidiaries reserve the right
to terminate any person's Service at any time, with or without cause.
SECTION 13. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the effective date of its adoption by the Board, subject to the
approval of the Company's stockholders. The Plan shall terminate automatically
ten years after its effective date, and may be terminated on any earlier date
pursuant to Subsection (b) below.
(b) STOCKHOLDER APPROVAL. The Board may at any time amend, alter, suspend
or terminate the Plan. The Company shall obtain stockholder approval of any
Plan amendment to the extent necessary and desirable to comply with Rule 16b-3
or with Section 422 of the Code (or any successor rule or statute or other
applicable law, rule or regulation, including the requirements of any exchange
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or quotation system on which the Stock is listed or quoted). Such stockholder
approval, if required, shall be obtained in such a manner and to such a degree
as is required by the applicable law, rule or regulation.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
or Right granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Shares previously granted or sold, or
any Option or Right previously granted under the Plan.
SECTION 14. USE OF PROCEEDS.
All cash proceeds received by the Company from the sale of Shares under the
Plan shall be used for general corporate purposes.
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OFFICE LEASE
One Bush Street
San Francisco, California
BASIC LEASE INFORMATION
Date: January 27, 1988
Landlord: The Equitable Life Assurance Society of the United States, a New York
corporation
Tenant: Hambrecht & Quist Incorporated, a California corporation
Initial Premises (section 1.1): Floors 14, 15, 16, 17 and 18
Term (section 2.1): Ten (10) years, subject to extension in accordance with
sections 2.6 and 2.7 of the Lease
Commencement Date (section 2.1): November 1, 1988
Expiration Date (section 2.1): October 31, 1998
Interim Rent (section 2.2): One hundred ninety thousand eight hundred
thirty-one and sixty-seven hundredths dollars ($190,831.67)
Base Rent (section 3.1(a)): The amounts set forth in section 3.1(a) of this
Lease
Base Expense Year (section 3.1(b)): 1989
Base Tax Year (section 3.1(c)): 1989
Rent Credit (section 3.1(e)): Two million three hundred eight thousand two
hundred sixty dollars ($2,308,260)
Tenant's Percentage Share (section 4.1): Twenty-nine and forty-one hundredths
percent (29.41%)
Liability Insurance Amount (section 11.3): Five million dollars ($5,000,000)
Tenant's Address (section 23.1): Hambrecht & Quist Incorporated, 235
Montgomery Street, San Francisco, California 94104, attention: Timothy M.
Spicer, Senior Vice President
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Landlord's Address (section 23.1): The Equitable Life Assurance Society of
the United States, c/o Equitable Real Estate Investment Management, Inc.,
One Bush Street, San Francisco, California 94104, attention: Property
Manager; with a copy to The Equitable Life Assurance Society of the United
States, c/o Equitable Real Estate Investment Management, Inc., 1900 Steuart
Tower, One Market Plaza, San Francisco, California 94105, attention:
Property Management
Real Estate Brokers (section 24.5): Equitable Real Estate Investment
Management, Inc. and Damon Raike & Company
Exhibit A-1 - Plans Outlining the Initial Premises
Exhibit A-2 - Plan Outlining the Storage Space
Exhibit A-3 - Plan Outlining the Equipment Space
Exhibit B - Improvement of the Initial Premises
Tenant's Plans Date (paragraph 2(a)): March 15, 1988
Landlord's Contribution (paragraph 4): Three million two hundred seventy-
one thousand four hundred dollars ($3,271,400)
Exhibit C - Rules and Regulations
The foregoing Basic Lease Information is incorporated in and made a
part of the Lease to which this Basic Lease Information is attached. If there
is any conflict between this Basic Lease Information and the Lease, the latter
shall control.
HAMBRECHT & QUIST THE EQUITABLE LIFE ASSURANCE
INCORPORATED, a California SOCIETY OF THE UNITED STATES
corporation a New York corporation
By /s/ By /s/
--------------------------- --------------------------
Title Chairman Title Attorney in Law
---------------------- --------------------
By /s/
---------------------------
Title SVP Finance
---------------------
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<PAGE>
TABLE OF CONTENTS
Article Page
- ------- ----
1. Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4. Operating Expenses and Property Taxes. . . . . . . . . . . . . . . 25
5. Other Taxes Payable by Tenant. . . . . . . . . . . . . . . . . . . 28
6. Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8. Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9. Maintenance and Repairs. . . . . . . . . . . . . . . . . . . . . . 36
10. Damage or Destruction. . . . . . . . . . . . . . . . . . . . . . . 37
11. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12. Compliance With Legal Requirements . . . . . . . . . . . . . . . . 40
13. Assignment and Subletting. . . . . . . . . . . . . . . . . . . . . 41
14. Rules and Regulations. . . . . . . . . . . . . . . . . . . . . . . 45
15. Entry by Landlord. . . . . . . . . . . . . . . . . . . . . . . . . 45
16. Events of Default and Remedies . . . . . . . . . . . . . . . . . . 46
17. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . 50
18. Subordination, Merger and Sale . . . . . . . . . . . . . . . . . . 51
19. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . 53
20. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
21. Additional Floor and Pavilion. . . . . . . . . . . . . . . . . . . 54
22. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
23. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
24. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Exhibit A-1 - Plans Outlining the Initial Premises
Exhibit A-2 - Plan Outlining the Storage Space
Exhibit A-3 - Plan Outlining the Equipment Space
Exhibit B - Improvement of the Initial Premises
Exhibit C - Rules and Regulations
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OFFICE LEASE
THIS LEASE, made as of the date specified in the BASIC LEASE INFORMATION,
by and between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New
York corporation ("Landlord"), and HAMBRECHT & QUIST INCORPORATED, a California
corporation ("Tenant").
W I T N E S S E T H:
ARTICLE 1
PREMISES
1.1 Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, for the term and subject to the covenants hereinafter set forth, to
all of which Landlord and Tenant hereby agree, the space on the floors specified
in the BASIC LEASE INFORMATION (the "Initial Premises"), as outlined on the
floor plans attached hereto as Exhibit A-1, in the building (the "Building")
known as One Bush Street, San Francisco, California, which includes the land
(Assessor's Lot 11, Block 290) on which the Building is located. Tenant shall
have the right to use, in common with others, the entrances, lobbies, stairs and
elevators of the Building for access to the Premises (as hereinafter defined)
and the plazas, walkways and grounds surrounding the Building. All of the
windows and outside decks, balconies and walls of the Building 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, subject to the provisions of this Lease.
1.2 No easement for light, air or view is included with or
appurtenant to the Premises. Any diminution or shutting off of light, air or
view by any structure which may hereafter be erected (whether or not constructed
by Landlord) shall in no way affect this Lease or impose any liability on
Landlord.
1.3 During the term of this Lease, Tenant shall have the right to
park forty (40) automobiles in the garage of the Building. Such parking rights
shall be on a monthly basis, shall be available at all times (twenty-four (24)
hours each day, seven (7) days each week and three hundred sixty-five (365) days
each year), and shall be used only for parking automobiles of Tenant's officers,
employees, customers and subtenants. No parking spaces shall be
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reserved for the exclusive use of Tenant. During the first Lease Year (as
hereinafter defined), Tenant may use such parking rights without charge.
Beginning on the first day of the second Lease Year and continuing thereafter
during the term of this Lease, Tenant shall pay the regular monthly parking
rates charged from time to time by Landlord (or the parking operator) for such
parking rights. Tenant's parking rights shall be subject to the parking rules
and regulations established from time to time by Landlord (or the parking
operator) and all laws now or hereafter in effect. Tenant shall have the right
at any time and from time to time, by giving written notice to Landlord, to
terminate all or any part of such parking rights, which notice shall specify the
number of such parking rights to be terminated and the effective date of such
termination. After each such effective date, Tenant's right to use and
obligation to pay for the number of such parking rights specified in such notice
shall terminate. If Tenant exercises such right, Landlord and Tenant each shall,
promptly after Tenant exercises such right, execute and deliver to the other an
amendment to this Lease which sets forth the number of such parking rights that
are terminated and the effective date of such termination, but such number of
such parking rights shall terminate as of such effective date in accordance with
this section 1.3 whether or not such amendment is executed.
1.4 Subject to the provisions of this section 1.4, Tenant shall have
the right to lease the entire thirteenth floor of the Building (the "First
Expansion Space"). Tenant may exercise the right to lease the First Expansion
Space only by giving Landlord written notice of exercise of such right on or
before the last day of the fourth Lease Year and only if no Event of Default (as
hereinafter defined) exists under this Lease when Tenant exercises such right.
Subject to postponement in accordance with this section 1.4, the effective date
(the "First Expansion Effective Date") on which Tenant leases the First
Expansion Space shall be a date between the first day of the fifty-fifth month
and the first day of the sixty-sixth month, inclusive, of the term of this Lease
to be determined by Landlord. Landlord shall determine the First Expansion
Effective Date and give Tenant a written notice in which Landlord designates the
First Expansion Effective Date at least six (6) months before the First
Expansion Effective Date. If Landlord does not give such designation notice by
the end of the fifty-ninth month of the term of this Lease, the First Expansion
Effective Date shall be the first day of the sixty-sixth month of the term of
this Lease, subject to postponement in accordance with this section 1.4. If
Tenant fails to exercise the right to lease the First Expansion Space in
accordance with this section 1.4, such right shall terminate. If Tenant
exercises such right in accordance with this section 1.4,
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the First Expansion Space shall be added to the Initial Premises and this Lease
on the First Expansion Effective Date and the First Expansion Space shall be
included in the Premises for the remaining term of this Lease on and after the
First Expansion Effective Date. Tenant's obligation to pay rent for the First
Expansion Space shall commence on the First Expansion Effective Date. As of the
First Expansion Effective Date, Tenant's Percentage Share (as hereinafter
defined) shall be increased by five and eighty-eight hundredths percent (5.88%).
Tenant shall lease and accept the First Expansion Space in its "as is" condition
on the First Expansion Effective Date and Landlord shall have no obligation to
alter, remodel or improve the First Expansion Space for Tenant. Tenant shall
perform all alteration, remodeling and improvement work in the First Expansion
Space in accordance with section 8.1 hereof. Landlord shall give Tenant an
allowance in the amount of three hundred fifty-five thousand eight hundred
twenty-five dollars ($355,825) for the design and construction of improvements
in the First Expansion Space, which Landlord shall pay directly to Tenant's
architects, engineers and contractors for the account of Tenant, in installments
as design services are rendered or improvement work is performed, upon
Landlord's receipt from Tenant of a request for payment accompanied by written
invoices and other written evidence reasonably satisfactory to Landlord showing
that the costs have been incurred for the design or improvement of the First
Expansion Space, until such allowance is exhausted. Landlord shall make the
First Expansion Space available to Tenant solely for the purpose of Tenant's
constructing improvements in the First Expansion Space at least two (2) months
before the First Expansion Effective Date. Landlord shall not be liable to
Tenant for any loss or damage for any failure to make the First Expansion Space
available to Tenant or to deliver possession of the First Expansion Space to
Tenant by reason of the holding over or retention of possession by any previous
tenant or occupant of the First Expansion Space without Landlord's consent, nor
shall any such failure impair the validity of this Lease or extend the term of
this Lease. Landlord shall use reasonable efforts to recover possession of the
First Expansion Space as soon as reasonably practicable. The First Expansion
Effective Date shall be postponed for the period of any delay in Landlord's
making the First Expansion Space available as required by this section 1.4.
Notwithstanding the foregoing, if Tenant assigns this Lease or subleases more
than one-half of the Premises (as hereinafter defined) before the end of the
fourth Lease Year, Tenant shall have no right to lease the First Expansion
Space, this section 1.4 shall automatically cease to be effective, and, if
Tenant exercised such right in accordance with this section 1.4 on or before the
end of the fourth Lease Year, such exercise shall, at the option of
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Landlord, become void and the First Expansion Space shall not be added to the
Initial Premises or this Lease. Landlord and Tenant each shall, promptly after
the First Expansion Effective Date has been determined, execute and deliver to
the other an amendment to this Lease which sets forth the First Expansion
Effective Date, but the First Expansion Space shall be added to the Initial
Premises and this Lease on the First Expansion Effective Date in accordance with
this section 1.4 whether or not such amendment is executed. The provisions of
this section 1.4 relating to the construction of improvements in the First
Expansion Space and postponement of the First Expansion Effective Date are
subject to section 1.6 hereof.
1.5 Subject to the provisions of this section 1.5, Tenant shall have
the right to lease the entire twelfth floor of the Building (the "Second
Expansion Space"). Notwithstanding the preceding sentence, if Tenant fails to
exercise the right to lease the First Expansion Space in accordance with section
1.4 hereof, Landlord shall have the right, by giving written notice to Tenant at
any time on or before the date on which Landlord gives the written notice
designating the Second Expansion Effective Date (as hereinafter defined), to
substitute the entire thirteenth floor of the Building as the Second Expansion
Space, in which event the entire thirteenth floor of the Building shall be the
Second Expansion Space under this section 1.5. Tenant may exercise the right to
lease the Second Expansion Space only by giving Landlord written notice of
exercise of such right on or before the last day of the ninth Lease Year and
only if no Event of Default exists under this Lease when Tenant exercises such
right. Subject to postponement in accordance with this section 1.5, the
effective date (the "Second Expansion Effective Date") on which Tenant leases
the Second Expansion Space shall be a date between the first day of the one
hundred fifteenth month and the first day of the one hundred twenty-sixth month,
inclusive, of the term of this Lease to be determined by Landlord. Landlord
shall determine the Second Expansion Effective Date and give Tenant a written
notice in which Landlord designates the Second Expansion Effective Date at least
six (6) months before the Second Expansion Effective Date. If Landlord does not
give such designation notice by the end of the one hundred nineteenth month of
the term of this Lease, the Second Expansion Effective Date shall be the first
day of the one hundred twenty-sixth month of the term of this Lease, subject to
postponement in accordance with this section 1.5. If Tenant fails to exercise
the right to lease the Second Expansion Space in accordance with this section
1.5, such right shall terminate. If Tenant exercises such right in accordance
with this section 1.5, the Second Expansion Space shall be added to the Initial
Premises and this Lease on the
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Second Expansion Effective Date and the Second Expansion Space shall be included
in the Premises for the remaining term of this Lease on and after the Second
Expansion Effective Date. Tenant's obligation to pay rent for the Second
Expansion Space shall commence on the Second Expansion Effective Date. As of
the Second Expansion Effective Date. Tenant's Percentage Share shall be
increased by five and eighty-eight hundredths percent (5.88%). Tenant shall
lease and accept the Second Expansion Space in its "as is" condition on the
Second Expansion Effective Date and Landlord shall have no obligation to alter,
remodel or improve the Second Expansion Space for Tenant. Tenant shall perform
all alteration, remodeling and improvement work in the Second Expansion Space in
accordance with section 8.1 hereof. Landlord shall make the Second Expansion
Space available to Tenant solely for the purpose of Tenant's constructing
improvements in the Second Expansion Space at least two (2) months before the
Second Expansion Effective Date. Landlord shall not be liable to Tenant for any
loss or damage for any failure to make the Second Expansion Space available to
Tenant or to deliver possession of the Second Expansion Space to Tenant by
reason of the holding over or retention of possession by any previous tenant or
occupant of the Second Expansion Space without Landlord's consent, nor shall any
such failure impair the validity of this Lease or extend the term of this Lease.
Landlord shall use reasonable efforts to recover possession of the Second
Expansion Space as soon as reasonably practicable. The Second Expansion
Effective Date shall be postponed for the period of any delay in Landlord's
making the Second Expansion Space available as required by this section 1.5.
Notwithstanding the foregoing, if Tenant fails to exercise the right to extend
the term of this Lease for the First Extended Term (as hereinafter defined) in
accordance with section 2.6 hereof, or if Tenant assigns this Lease or subleases
more than one-half of the Premises before the end of the ninth Lease Year,
Tenant shall have no right to lease the Second Expansion Space, this section 1.5
shall automatically cease to be effective, and, if Tenant exercised such right
in accordance with this section 1.5 on or before the end of the ninth Lease
Year, such exercise shall, at the option of Landlord, become void and the Second
Expansion Space shall not be added to the Initial Premises or this Lease.
Landlord and Tenant each shall, promptly after the Second Expansion Effective
Date has been determined, execute and deliver to the other an amendment to this
Lease which sets forth the Second Expansion Effective Date, but the Second
Expansion Space shall be added to the Initial Premises and this Lease on the
Second Expansion Effective Date in accordance with this section 1.5 whether or
not such amendment is executed. The provisions of this section 1.5 relating to
the construction of improvements in the Second Expansion Space and post-
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ponement of the Second Expansion Effective Date are subject to section 1.6
hereof.
1.6 As used in this section 1.6, "Expansion Space" shall mean the
First Expansion Space for purposes of section 1.4 hereof and the Second
Expansion Space for purposes of section 1.5 hereof and "Expansion Effective
Date" shall mean the First Expansion Effective Date for purposes of section 1.4
hereof and the Second Expansion Effective Date for purposes of section 1.5
hereof. Notwithstanding sections 1.4 and 1.5 hereof to the contrary, Tenant
shall have the right, by giving written notice to Landlord on the date on which
Tenant gives the written notice exercising the right to lease the Expansion
Space, to require Landlord to construct the improvements in the Expansion Space.
If Tenant exercises such right in accordance with this section 1.6, Landlord
shall be obligated to construct the improvements in the Expansion Space as
follows: Exhibit B attached hereto shall apply to the improvements to be
constructed and installed in the Expansion Space, and Landlord and Tenant shall
perform their respective obligations in accordance with Exhibit B, except that
references in Exhibit B to the "Commencement Date" and the "Initial Premises"
shall mean the Expansion Effective Date and the Expansion Space, respectively;
the second sentence of paragraph 1 of Exhibit B shall not apply; "Tenant's Plans
Date" in paragraph 2(a) of Exhibit B shall be the date five (5) months before
the Expansion Effective Date (determined pursuant to section 1.4 or 1.5 hereof,
as appropriate); and paragraph 4 of Exhibit B shall not apply. The Expansion
Space shall not be added to the Initial Premises and this Lease until Landlord
has substantially completed the improvements in the Expansion Space and
delivered possession of the Expansion Space to Tenant in accordance with this
section 1.6. If Landlord, for any reason whatsoever, does not substantially
complete the improvements in the Expansion Space and deliver possession of the
Expansion Space to Tenant on the Expansion Effective Date in accordance with
this section 1.6, this Lease shall not be void or voidable and Landlord shall
not be liable to Tenant for any loss or damage resulting therefrom but, in such
event, the Expansion Effective Date shall be postponed until the date on which
Landlord substantially completes the improvements in the Expansion Space and
delivers possession of the Expansion Space to Tenant in accordance with this
section 1.6. Landlord shall construct or install in the Expansion Space the
improvements to be constructed or installed by Landlord pursuant to Exhibit B
(the "Expansion Work") in a good and workmanlike manner and in compliance with
all legal requirements. Landlord shall give written notice to Tenant at least
thirty (30) days before the approximate date on which the Expansion Work will be
substantially complete in accordance with this section 1.6,
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but the failure to give such notice shall not be a default by Landlord under
this Lease, and Landlord shall give written notice to Tenant when the Expansion
Work is substantially complete and possession of the Expansion Space is to be
delivered by Landlord to Tenant. For the purposes of this section 1.6,
"substantial completion" shall mean (a) the asbestos abatement work for the
Expansion Space has been completed in accordance with specifications prepared by
Versar, Inc., (b) Landlord has executed and delivered to Tenant a certificate in
which Landlord certifies to Tenant that the asbestos abatement work for the
Expansion Space has been completed in accordance with specifications prepared by
Versar, Inc. and that the Expansion Space is free from friable asbestos, (c) the
Expansion Work is sufficiently complete so Tenant can occupy the Expansion
Space, except for normal punch list items not materially affecting Tenant's use
of the Expansion Space, (d) Tenant has direct access from the street to the
elevator lobby on the floor where the Expansion Space is located, (e) all
services and utilities to be furnished by Landlord to the Expansion Space under
this Lease are available, and (f) a final inspection and approval required for a
temporary certificate of occupancy or other necessary governmental approval for
the Expansion Space has been obtained by Landlord. Landlord shall deliver
possession of the Expansion Space to Tenant, and the Expansion Space shall be
added to the Initial Premises and this Lease, on the Expansion Effective Date or
the date of substantial completion of the Expansion Work, whichever is later.
Tenant's obligation to pay rent for the Expansion Space shall commence on the
Expansion Effective Date or the date of substantial completion of the Expansion
Work, whichever is later. Tenant shall accept the Expansion Space on the
Expansion Effective Date or the date of substantial completion of the Expansion
Work, whichever is later, which acceptance shall constitute agreement by Tenant
that the Expansion Space is in the condition required by this Lease, except for
defects in the Expansion Work and subject to normal punch list items specified
by Tenant to Landlord in writing within thirty (30) days after substantial
completion of the Expansion Work. If Landlord is delayed in substantially
completing the Expansion Work as a result of Tenant's failure to prepare, submit
or approve plans and specifications and cost estimates in accordance with
Exhibit B, or Tenant's changes in plans and specifications, or Tenant's
requirement of any improvements, fixtures, equipment or other items that cannot
reasonably be fabricated, procured, constructed or installed within the time
between Tenant's Plans Date (as specified in this section 1.6) and the Expansion
Effective Date (determined pursuant to section 1.4 or 1.5 hereof, as
appropriate), or interruption, interference or delay caused by any of Tenant's
architects, engineers, contractors, subcontractors, laborers or
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suppliers, or Tenant's failure to take any action required by this Lease to be
taken by Tenant, or the occurrence of any other delay caused by Tenant, then, on
the Expansion Effective Date, Tenant shall pay to Landlord, as additional rent,
the Base Rent (as hereinafter defined) for the Expansion Space determined
pursuant to section 3.1(a) hereof, calculated on a per diem basis, multiplied by
the number of days of such delay.
1.7 As used in this Lease, the "Premises" shall mean and include the
Initial Premises, the First Expansion Space (if and when added to the Initial
Premises pursuant to section 1.4 hereof), and the Second Expansion Space (if and
when added to the Initial Premises pursuant to section 1.5 hereof).
1.8 During the term of this Lease, Tenant shall have the exclusive
right to use the space (the "Storage Space") on the nineteenth floor of the
Building as outlined on the floor plan attached hereto as Exhibit A-2 for
storage purposes. Tenant shall use the Storage Space solely for the storage of
Tenant's (and any subtenant's) personal property and no other purpose. Tenant
shall accept the Storage Space in its "as is" condition on the Commencement Date
and Landlord shall have no obligation to alter, remodel or improve the Storage
Space for Tenant, except Landlord shall, at Landlord's expense, construct any
necessary partitions to separate the Storage Space from adjoining space.
Landlord shall furnish normal electricity to the Storage Space for ordinary
lighting in the Storage Space, but Landlord shall have no obligation to furnish
any other service to the Storage Space. The Storage Space shall not be included
in the area of the Premises for purposes of calculating Tenant's Percentage
Share. Except for the foregoing, all obligations of Tenant under this Lease
shall apply to the Storage Space insofar as appropriate.
1.9 During the term of this Lease, Tenant shall have the right to use
the space (the "Equipment Space") on the service level (second level below
grade) of the Building as outlined on the floor plan attached hereto as Exhibit
A-2 for data processing purposes. Tenant shall use the Equipment Space solely
for the operation of Tenant's (and any subtenant's) computers, data processing
equipment and related facilities and no other purpose. Tenant shall accept the
Equipment Space in its "as is" condition on the Commencement Date and Landlord
shall have no obligation to alter, remodel or improve the Equipment Space for
Tenant. Landlord shall furnish normal electricity for operating the computers,
data processing equipment and related facilities in the Equipment Space, but
Landlord shall have no obligation to furnish any other service to the Equipment
Space. Landlord shall have
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the right to install a meter to measure the electricity furnished by Landlord to
the Equipment Space and, if Landlord installs such meter, Tenant shall pay to
Landlord, upon billing by Landlord, as additional rent, the actual installation
and maintenance cost of such meter. The Equipment Space shall not be included
in the area of the Premises for purposes of calculating Tenant's Percentage
Share. Except for the foregoing, all obligations of Tenant under this Lease
shall apply to the Equipment Space insofar as appropriate. Tenant shall have the
right, by giving written notice to Landlord on or before the Commencement Date,
to terminate the right to use the Equipment Space and to eliminate the Equipment
Space from this Lease, in which event Tenant's right to use and obligation to
pay rent for the Equipment Space shall terminate and the Equipment Space shall
be eliminated from this Lease. If Tenant exercises such right, Landlord and
Tenant each shall, promptly after Tenant exercises such right, execute and
deliver to the other an amendment to this Lease which terminates the right to
use the Equipment Space and eliminates the Equipment Space from this Lease, but
the right to use the Equipment Space shall terminate and the Equipment Space
shall be eliminated from this Lease in accordance with this section 1.9 whether
or not such amendment is executed.
1.10 During the term of this Lease, Tenant shall have the right to
use certain space (the "Roof Space"), consisting of approximately sixteen (16)
square feet but not more than twenty-five (25) square feet, on the roof of the
Building for communications facilities purposes. Landlord shall designate in
writing the exact size and location of the Roof Space in connection with
Landlord's approval of Tenant's plans and specifications for the facilities to
be installed on the Roof Space. Landlord shall have the right, at any time and
from time to time before the Commencement Date and during the term of this
Lease, by giving at least thirty (30) days' prior written notice to Tenant, to
substitute other space on the roof of the Building designated by Landlord as the
Roof Space, which substitute space shall be suitable for Tenant's communications
facilities purposes as provided in this section 1.10, and to relocate Tenant's
communications facilities to such substitute space. Landlord shall have the
right, at Landlord's expense, to require Tenant to move Tenant's communications
facilities to such substitute space. Tenant shall move such communications
facilities promptly after Landlord gives such notice. After such substitution of
space on the roof of the Building and relocation of Tenant's communications
facilities, such substitute space shall be the Roof Space for purposes of this
section 1.10. Except in an emergency, Landlord shall not disturb Tenant's
communications facilities on the Roof Space. Tenant shall use the Roof Space
solely for the
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installation and operation of a microwave antenna, a satellite dish and related
communications equipment, which shall not exceed the structural load-bearing
capacity of the roof of the Building and shall not be visible from the grounds
surrounding the Building, and no other purpose. Tenant shall use the facilities
on the Roof Space solely for transmissions and receptions in connection with the
operation of Tenant's (and any subtenant's) business at the Premises. Tenant
shall accept the Roof Space in its "as is" condition on the Commencement Date
and Landlord shall have no obligation to alter, remodel or improve the Roof
Space for Tenant. Landlord shall furnish normal electricity to the Roof Space
for operating the communications facilities on the Roof Space, but Landlord
shall have no obligation to furnish any other service to the Roof Space. The
Roof Space shall not be included in the area of the Premises for purposes of
calculating Tenant's Percentage Share. Except for the foregoing, all obligations
of Tenant under this Lease shall apply to the Roof Space insofar as appropriate.
Tenant shall, at Tenant's expense, install all communications facilities on the
Roof Space in accordance with plans and specifications approved in writing by
Landlord and otherwise in accordance with section 8.2 hereof. Tenant shall, at
Tenant's expense, paint such facilities in a color approved in writing by
Landlord. Prior to installation of any such facilities, Tenant shall obtain all
permits, licenses, certificates and approvals from all governmental authorities
that have jurisdiction over the installation of such facilities. Landlord shall
have no liability with respect to the design, adequacy, construction,
installation, use, operation, maintenance or repair of any such facilities.
Tenant shall, at all times during the term of this Lease, comply with the
requirements of all permits, licenses, certificates and approvals issued by any
governmental authority and with all laws, ordinances, rules and regulations now
or hereafter in force relating to the design, installation, construction, use,
operation, maintenance or repair of such facilities. Tenant shall not design,
install, construct, use, operate, maintain or repair any such facilities in such
a manner that such design, installation, construction, use, operation,
maintenance or repair causes a nuisance, or disturbs any tenant or occupant now
or hereafter occupying any part of the Building, or interferes with any system
or function now or hereafter located in the Building, or disrupts the normal
operation, maintenance or repair of the Building by Landlord. Tenant shall not
enlarge any such facilities, or increase the size or number of any such
facilities, or change the color of any such facilities without the prior written
consent of Landlord (which consent shall not be unreasonably withheld or
delayed). On or before the end of the term of this Lease, Tenant shall, at the
expense of Tenant, dismantle and remove all such facilities and all
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alterations, additions, improvements and changes thereto and Tenant shall
restore the roof and any other portions of the Building to the condition in
which they existed before the installation and construction of such facilities
and all such alterations, additions, improvements and changes. All plans and
specifications and contractors for any installation, construction, dismantling
or removal work performed by Tenant shall be subject to the prior written
approval of Landlord. Tenant shall, at all times during the term of this Lease,
maintain and repair all such facilities and keep all such facilities clean and
in good order and operating condition. Landlord shall have the exclusive right
to perform all maintenance and repair work on the roof of the Building. All
reasonable maintenance and repair work on the roof of the Building necessitated
by Tenant's use of the Roof Space under this Lease shall be performed by
Landlord at Tenant's expense and Tenant shall pay to Landlord, upon billing by
Landlord, as additional rent, all costs and expenses incurred by Landlord in
performing such maintenance and repair work. Tenant shall indemnify and defend
Landlord against and hold Landlord harmless from all claims, demands,
liabilities, damages, losses, costs and expenses, including, without limitation,
reasonable attorneys' fees, arising out of or resulting from the design,
installation, construction, use, operation, maintenance or repair of the
facilities on the Roof Space. Notwithstanding section 3.1(a) hereof to the
contrary, the obligation of Tenant to pay the Base Rent for the Roof Space shall
not commence until Tenant has installed communications facilities on the Roof
Space and shall terminate if Tenant removes such communications facilities from
the Roof Space.
1.11 Landlord and Tenant confirm that, for purposes of this Lease,
each of floors 12, 13, 14, 15, 16, 17 and 18 of the Building contains sixteen
thousand three hundred fifty-seven (16,357) square feet of rentable area; the
Building contains two hundred seventy-eight thousand sixty-nine (278,069) square
feet of rentable area; each of floors 12, 13, 14, 15, 16, 17 and 18 of the
Building contains fourteen thousand two hundred thirty-three (14,233) square
feet of usable area; the Storage Space contains three thousand three hundred
sixty-nine (3,369) square feet of usable area; and the Equipment Space contains
one thousand eight hundred twenty-eight (1,828) square feet of usable area.
Landlord and Tenant agree that the foregoing data are the result of negotiation
and compromise between Landlord and Tenant solely for purposes of this Lease
rather than any particular formula, methodology or measurement, that the
foregoing data shall not be subject to redetermination, and that the foregoing
data shall bind Landlord and Tenant for purposes of this Lease, but no other
purpose.
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ARTICLE 2
TERM
2.1 The term of this Lease shall be the term specified in the BASIC
LEASE INFORMATION, which shall commence on the commencement date specified in
the BASIC LEASE INFORMATION (the "Commencement Date") and, unless sooner
terminated or extended as hereinafter provided, shall end on the expiration date
specified in the BASIC LEASE INFORMATION (the "Expiration Date").
Notwithstanding the preceding sentence, the term of this Lease shall not
commence until Landlord has substantially completed the improvements in the
Initial Premises and delivered possession of the Initial Premises to Tenant in
accordance with section 2.2 hereof. If Landlord, for any reason whatsoever,
does not substantially complete the improvements in the Initial Premises and
deliver possession of the Initial Premises to Tenant on the Commencement Date in
accordance with section 2.2 hereof, this Lease shall not be void or voidable
(except as hereinafter provided) and Landlord shall not be liable to Tenant for
any loss or damage resulting therefrom (except as hereinafter provided) but, in
such event, the Commencement Date shall be postponed until the date on which
Landlord substantially completes the improvements in the Initial Premises and
delivers possession of the Initial Premises to Tenant in accordance with section
2.2 hereof and the Expiration Date shall be extended for an equal period
(subject to adjustment in accordance with section 2.4 hereof).
2.2 Landlord shall construct or install in the Initial Premises the
improvements to be constructed or installed by Landlord pursuant to Exhibit B
("Landlord's Work") in a good and workmanlike manner and in compliance with all
legal requirements. Landlord shall give written notice to Tenant at least
thirty (30) days before the approximate date on which Landlord's Work will be
substantially complete in accordance with this section 2.2, but the failure to
give such notice shall not be a default by Landlord under this Lease, and
Landlord shall give written notice to Tenant when Landlord's Work is
substantially complete and possession of the Initial Premises is to be delivered
by Landlord to Tenant. For the purposes of this section 2.2, "substantial
completion" shall mean (a) the asbestos abatement work for the Initial Premises
has been completed in accordance with specifications prepared by Versar, Inc.,
(b) Landlord has executed and delivered to Tenant a certificate in which
Landlord certifies to Tenant that the asbestos abatement work for the Initial
Premises has been completed in accordance with specifications prepared by
Versar, Inc. and that the Initial Premises is free from friable asbestos, (c)
Landlord's Work is sufficiently
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complete so Tenant can occupy the Initial Premises, except for normal punch list
items not materially affecting Tenant's use of the Initial Premises, (d) Tenant
has direct access from the street to the elevator lobby on each floor where the
Initial Premises are located, (e) all services and utilities to be furnished by
Landlord to the Initial Premises under this Lease are available, and (f) a final
inspection and approval required for a temporary certificate of occupancy or
other necessary government approval for the Initial Premises has been obtained
by Landlord, Landlord shall deliver possession of the initial Premises to Tenant
on the Commencement Date or the date of substantial completion of Landlord's
Work, whichever is later. Tenant shall accept the Initial Premises on the
Commencement Date or the date of substantial completion of Landlord's Work,
whichever is later, which acceptance shall constitute agreement by Tenant that
the Initial Premises are in the condition required by this Lease, except for
defects in Landlord's Work and subject to normal punch list items specified by
Tenant to Landlord in writing within thirty (30) days after substantial
completion of Landlord's Work. Landlord warrants to Tenant that materials and
equipment furnished by Landlord as Landlord's Work will be of good quality and
new unless otherwise required or permitted by the final plans and specifications
(subject to any changes approved by Landlord and Tenant) approved by Landlord
and Tenant pursuant to Exhibit B, that Landlord's Work will be free from defects
not inherent in the quality required or permitted by the final plans and
specifications (subject to any changes approved by Landlord and Tenant) approved
by Landlord and Tenant pursuant to Exhibit B, and that Landlord's Work will
conform with the requirements of the final plans and specifications (subject to
any changes approved by Landlord and Tenant) approved by Landlord and Tenant
pursuant to Exhibit B. Any of Landlord's Work not conforming to these
requirements, including substitutions not properly approved and authorized by
Landlord and Tenant, may be considered defective. Landlord's warranty excludes
remedy for damage or defect caused by abuse, modifications not executed by
Landlord's contractor, improper or insufficient maintenance, improper operation,
or normal wear and tear under normal usage. If required by Tenant, Landlord
shall furnish satisfactory evidence as to the kind and quality of materials and
equipment included in Landlord's Work. If, within one (1) year after the date
of substantial completion of Landlord's Work, any of Landlord's Work is found to
be defective or not substantially in accordance with the requirements of the
final plans and specifications (subject to any changes) approved by Landlord and
Tenant pursuant to Exhibit B, Landlord shall correct it promptly after receipt
of written notice from Tenant to do so unless Tenant has previously given
Landlord a written acceptance of such condition.
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Tenant shall give such notice promptly after discovery of the condition. If
Landlord is delayed in substantially completing Landlord's Work as a result of
Tenant's failure to prepare, submit or approve plans and specifications and cost
estimates in accordance with Exhibit B, or Tenant's changes in plans and
specifications, or Tenant's requirement of any improvements, fixtures, equipment
or other items that cannot reasonably be fabricated, procured, constructed or
installed within the time between Tenant's Plans Date (as defined in Exhibit B)
and the Commencement Date (in which case Landlord shall notify Tenant no later
than when Landlord approves Tenant's Plans (as defined in Exhibit B) of any of
the foregoing which cannot be accomplished within such time), or interruption,
interference or delay caused by any of Tenant's architects, engineers,
contractors, subcontractors, laborers or suppliers, or Tenant's failure to take
any action required by this Lease to be taken by Tenant, or the occurrence of
any other delay caused by Tenant as described in Exhibit B, then, on the
Commencement Date, Tenant shall pay to Landlord, as additional rent, the monthly
interim rent specified in the BASIC LEASE INFORMATION (the "Interim
Rent"), calculated on a per diem basis, multiplied by the number of days of such
delay. Landlord shall, as soon as reasonably practicable before or after the
Commencement Date, subject to scheduling requirements and vacation of occupied
space, complete all asbestos abatement work for the entire Building in
accordance with specifications prepared by Versar, Inc. Any asbestos abatement
work that has not been completed on the Commencement Date shall be prosecuted
with reasonable diligence thereafter, subject to scheduling requirements and
vacation of occupied space, and performed in such a manner as to cause no
unreasonable interference to Tenant. On the Commencement Date, Landlord shall
give a written notice to Tenant in which Landlord reports the status of
completion of all asbestos abatement work for the entire Building and, if any
such work has not been completed, sets forth a schedule for completion of such
work.
2.3 If any part of the Initial Premises is substantially complete and
ready for occupancy by Tenant prior to the Commencement Date, Tenant may, at
Tenant's election, with the prior written approval of Landlord, take early
occupancy of such part of the Initial Premises prior to the Commencement Date
but the term of this Lease shall not commence until the Commencement Date. If
Tenant takes early occupancy of part of the Initial Premises under this section
2.3, such early occupancy shall be on and subject to all of the covenants in
this Lease, all of which shall be binding on and apply to Tenant during such
early occupancy, except Tenant shall pay to Landlord, as additional rent, the
Interim Rent, calculated on a per diem basis, pro rata in the proportion that
the area in the Initial Premises occupied
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by Tenant bears to the total area in the Initial Premises, for the period from
such early occupancy to the Commencement Date. Tenant shall give Landlord
written notice of Tenant's request to take early occupancy of any part of the
Initial Premises at least ten (10) days prior to the requested date of such
early occupancy, which notice shall specify the requested date of early
occupancy and the part of the Initial Premises to be occupied. Tenant shall pay
the Interim Rent in respect of early occupancy under this section 2.3 to
Landlord on the Commencement Date. If the entire Initial Premises is
substantially complete and ready for occupancy by Tenant prior to the
Commencement Date, Tenant shall have the right, but no obligation, to take early
occupancy of the entire Initial Premises prior to the Commencement Date and the
term of this Lease shall commence on such date of early occupancy by Tenant, in
which event the Commencement Date shall be accelerated to such date of early
occupancy and the Expiration Date shall be advanced by an equal period (subject
to adjustment in accordance with section 2.4 hereof). Tenant shall give
Landlord written notice of Tenant's determination to take early occupancy of the
entire Initial Premises at least ten (10) days prior to such early occupancy,
which notice shall specify the date of early occupancy.
2.4 If the Commencement Date as determined in accordance with section
2.1 or 2.3 hereof would not be the first day of the month and the Expiration
Date would not be the last day of the month, then the Commencement Date shall be
the first day of the next calendar month following the date so determined
pursuant to section 2.1 or 2.3 hereof and the Expiration Date shall be the last
day of the appropriate calendar month so the term of this Lease shall be the
full term set forth in section 2.1 hereof. The period of the fractional month
between the date so determined pursuant to section 2.1 or 2.3 hereof and the
Commencement Date shall be on and subject to all of the covenants in this Lease,
all of which shall be binding on and apply to Tenant during such period, except
the term of this Lease shall not commence until the Commencement Date and Tenant
shall pay to Landlord, as additional rent, the Interim Rent, calculated on a per
diem basis, for such period. Tenant shall pay the Interim Rent in respect of
such period to Landlord on the Commencement Date, Landlord and Tenant each
shall, promptly after the Commencement Date and the Expiration Date have been
determined, execute and deliver to the other an amendment to this Lease which
sets forth the Commencement Date and the Expiration Date for this Lease, 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.
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2.5 If Landlord does not substantially complete Landlord's Work and
deliver possession of the Initial Premises to Tenant in accordance with section
2.2 hereof on or before January 1, 1989, subject to extension as hereinafter
provided, then the Rent Credit (as hereinafter defined) shall be increased at
the rate of six thousand two hundred seventy-three and ninety-two hundredths
dollars ($6,273.92) per day for each day after January 1, 1989, subject to
extension as hereinafter provided, until Landlord substantially completes
Landlord's Work and delivers possession of the Initial Premises to Tenant in
accordance with section 2.2 hereof, but the total amount of such increase in the
Rent Credit shall not exceed six hundred fifty thousand dollars ($650,000).
Such date of January 1, 1989, shall be extended for the period of all delay in
Landlord's substantially completing Landlord's Work and delivering possession of
the Initial Premises to Tenant in accordance with section 2.2 hereof resulting
from any force or event that cannot be reasonably anticipated or controlled by
Landlord or any delay described in section 2.2 hereof for which Tenant is
responsible. If Landlord does not substantially complete Landlord's Work and
deliver possession of the Initial Premises to Tenant in accordance with section
2.2 hereof on or before July 31, 1989, subject to extension as hereinafter
provided, then Tenant shall have the right, exercisable only by giving written
notice of termination to Landlord on or after August 1, 1989, subject to
extension as hereinafter provided, but before substantial completion of
Landlord's Work and delivery of possession of the Initial Premises to Tenant in
accordance with section 2.2 hereof, to terminate this Lease, in which event this
Lease shall terminate on the date such written notice is given. Such dates of
July 31, 1989, and August 1, 1989, shall be extended for the period of all delay
in Landlord's substantially completing Landlord's Work and delivering possession
of the Initial Premises to Tenant in accordance with section 2.2 hereof
resulting from any delay described in section 2.2 hereof for which Tenant is
responsible.
2.6 Subject to the provisions of this section 2.6, Tenant shall have
the right to extend the term of this Lease for an additional term (the "First
Extended Term") of five (5) years. The First Extended Term shall commence on
the first day of the eleventh Lease Year and, unless sooner terminated as
hereinafter provided, shall end five (5) years thereafter on the last day of the
fifteenth Lease Year, Tenant may exercise such right only by giving Landlord
written notice of exercise of such right on or before the last day of the ninth
Lease Year and only if no Event of Default exists under this Lease when Tenant
exercises such right. If Tenant fails to exercise such right in accordance with
this section 2.6, such right shall terminate. If
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Tenant exercises such right in accordance with this section 2.6, the term of
this Lease shall be extended for the First Extended Term. Landlord and Tenant
each shall, promptly after the first day of the First Extended Term, execute and
deliver to the other an amendment to this Lease which sets forth the extension
of the term of this Lease for the First Extended Term, but the term of this
Lease shall be extended for the First Extended Term in accordance with this
section 2.6 whether or not such amendment is executed.
2.7 Subject to the provisions of this section 2.7, Tenant shall have
the right to extend the term of this Lease for a further additional term (the
"Second Extended Term") of five (5) years. The Second Extended Term shall
commence on the first day of the sixteenth Lease Year and, unless sooner
terminated as hereinafter provided, shall end five (5) years thereafter on the
last day of the twentieth Lease Year. Tenant may exercise such right only by
giving Landlord written notice of exercise of such right on or before the last
day of the fourteenth Lease Year and only if no Event of Default exists under
this Lease when Tenant exercises such right. If Tenant fails to exercise such
right in accordance with this section 2.7, such right shall terminate. If Tenant
exercises such right in accordance with this section 2.7, the term of this Lease
shall be extended for the Second Extended Term. Notwithstanding the foregoing,
if Tenant fails to extend the term of this Lease for the First Extended Term in
accordance with section 2.6 hereof, Tenant shall have no right to extend the
term of this Lease for the Second Extended Term and this section 2.7 shall
automatically cease to be effective. Landlord and Tenant each shall, promptly
after the first day of the Second Extended Term, execute and deliver to the
other an amendment to this Lease which sets forth the extension of the term of
this Lease for the Second Extended Term, but the term of this Lease shall be
extended for the Second Extended Term in accordance with this section 2.7
whether or not such amendment is executed.
2.8 As used in this Lease, "Lease Year" shall mean each period of
twelve (12) calendar months, beginning on the Commencement Date (as adjusted
pursuant to section 2.4 hereof), during the term of this Lease.
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ARTICLE 3
RENT
3.1 Tenant shall pay to Landlord the following amounts as rent for
the Premises, the Storage Space, the Equipment Space and the Roof Space (each
determined separately):
(a) During the term of this Lease, Tenant shall pay to Landlord, as
base monthly rent, the amounts of monthly rent specified in this section 3.1(a)
(the "Base Rent"):
(i) For the Initial Premises, the Storage Space, the Equipment Space
and the Roof Space, during the period from the first month through the
sixtieth month, inclusive, of the term of this Lease, the Base Rent shall
be one hundred ninety thousand eight hundred thirty-one and sixty-seven
hundredths dollars ($190,831.67), three thousand three hundred sixty-nine
dollars ($3,369), three thousand forty-six and sixty-seven hundredths
dollars ($3,046.67) and one hundred dollars ($100), respectively, per
month;
(ii) For the First Expansion Space, during the period, if any, from
the First Expansion Effective Date through the sixtieth month, inclusive,
of the term of this Lease, the Base Rent shall be thirty-eight thousand one
hundred sixty-six and thirty-three hundredths dollars ($38,166.33) per
month;
(iii) For the Initial Premises, the Storage Space, the Equipment Space
and the Roof Space, during the period from the sixty-first month through
the one hundred twentieth month, inclusive, of the term of this Lease, the
Base Rent shall be two hundred thirty-one thousand seven hundred twenty-
four and seventeen hundredths dollars ($231,724.17), three thousand three
hundred sixty-nine dollars ($3,369), three thousand eight hundred eight and
thirty-three hundredths dollars ($3,808.33) and one hundred dollars ($100),
respectively, per month;
(iv) For the First Expansion Space, during the period from the First
Expansion Effective Date or the sixty-first month, whichever is later,
through the one hundred twentieth month, inclusive, of the term of this
Lease, the Base Rent shall be forty-six thousand three hundred forty-
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four and eighty-three hundredths dollars ($46,344.83) per month;
(v) For the Second Expansion Space, during the period, if any, from
the Second Expansion Effective Date through the one hundred twentieth
month, inclusive, of the term of this Lease, the Base Rent shall be forty-
six thousand three hundred forty-four and eighty-three hundredths dollars
($46,344.83) per month;
(vi) For the Initial Premises, the Storage Space, the Equipment Space
and the Roof Space, during the First Extended Term, the Base Rent shall be
equal to ninety-five percent (95%) of the prevailing fair market rental
value of the Initial Premises, the Storage Space, the Equipment Space and
the Roof Space, respectively, on the first day of the First Extended Term,
on and subject to the covenants (except the amount of Base Rent) in this
Lease, based on then current rent being offered and accepted for comparable
space in comparable buildings (including, without limitation, other space
in the Building) in the central financial district of San Francisco leased
on terms comparable to this Lease as of the first day of the First Extended
Term. Such fair market rental value shall be determined by written
agreement between Landlord and Tenant. If Landlord and Tenant do not agree
in writing on such fair market rental value by the date three (3) months
prior to the first day of the First Extended Term, such fair market rental
value shall be determined by appraisal in accordance with section 3.1(f)
hereof;
(vii) For the First Expansion Space, during the First Extended Term,
the Base Rent shall be equal to one-fifth of the amount of the Base Rent
for the Initial Premises determined pursuant to section 3.1(a)(vi) hereof;
(viii) For the Second Expansion Space, during the period from the Second
Expansion Effective Date or the first day of the First Extended Term,
whichever is later, through the end of the First Extended Term, inclusive,
the Base Rent shall be equal to one-fifth of the amount of the Base Rent
for the Initial Premises determined pursuant to section 3.1(a)(vi) hereof;
and
(ix) For the Premises, the Storage Space, the Equipment Space and the
Roof Space, during the
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Second Extended Term, the Base Rent shall be equal to one hundred percent
(100%) of the prevailing fair market rental value of the Premises, the
Storage Space, the Equipment Space and the Roof Space, respectively, on the
first day of the Second Extended Term, on and subject to the covenants
(except the amount of Base Rent) in this Lease, based on then current rent
being offered and accepted for comparable space in comparable buildings
(including, without limitation, other space in the Building) in the central
financial district of San Francisco leased on terms comparable to this
Lease as of the first day of the Second Extended Term. Such fair market
rental value shall be determined by written agreement between Landlord and
Tenant. If Landlord and Tenant do not agree in writing on such fair market
rental value by the date three (3) months prior to the first day of the
Second Extended Term, such fair market rental value shall be determined by
appraisal in accordance with section 3.1(f) hereof.
(b) During each calendar year or part thereof during the term of this
Lease subsequent to the base expense calendar year specified in the BASIC LEASE
INFORMATION (the "Base Expense Year"), Tenant shall play to Landlord, as
additional monthly rent, Tenant's Percentage Share of the total dollar increase,
if any, in all Operating Expenses (as hereinafter defined) paid or incurred by
Landlord in such calendar year or part thereof over the Operating Expenses paid
or incurred by Landlord in the Base Expense Year.
(c) During each calendar year or part thereof during the term of this
Lease subsequent to the base tax calendar year specified in the BASIC LEASE
INFORMATION (the "Base Tax Year"), Tenant shall pay to Landlord, as additional
monthly rent, Tenant's Percentage Share of the total dollar increase, if any, in
all Property Taxes (as hereinafter defined) paid or incurred by Landlord in such
calendar year or part thereof over the Property Taxes paid or incurred by
Landlord in the Base Tax Year. Notwithstanding the foregoing, Tenant shall not
be obligated to pay Tenant's Percentage Share of the portion of any increase in
Property Taxes resulting solely from a reassessment of the Building caused by a
sale or any other transfer of the Building completed during the period from the
first day of the first Lease Year through the last day of the fifth Lease Year,
inclusive. With respect to any sale or other transfer of the Building, and any
resulting reassessment of the Building and increase in Property Taxes, completed
on the first day of the sixth Lease Year or thereafter, Tenant shall pay
Tenant's Percentage Share of the total dollar increase in
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all Property Taxes over the Base Tax Year in accordance with this section 3.1(c)
without regard to the preceding sentence. If Tenant assigns this Lease, the
preceding two (2) sentences shall automatically cease to be effective and, upon
the effective date of such assignment, Tenant shall pay Tenant's Percentage
Share of the total dollar increase in all Property Taxes over the Base Tax Year
in accordance with this section 3.1(c) without regard to the preceding two (2)
sentences.
(d) Throughout the term of this Lease, Tenant shall pay, as
additional rent, all other amounts of money and charges required to be paid by
Tenant under this Lease, whether or not such amounts of money and charges are
designated "additional rent." As used in this Lease, "rent" shall mean and
include all Interim Rent, Base Rent, additional monthly rent and additional rent
payable by Tenant in accordance with this Lease.
(e) Landlord shall give Tenant a rent credit in the amount specified
in the BASIC LEASE INFORMATION (the "Rent Credit"), subject to increase and
decrease in accordance with section 2.5 hereof and paragraph 4 of Exhibit B,
respectively, against the Interim Rent and the Base Rent for the Initial
Premises. The Rent Credit shall be applied against the Interim Rent and the Base
Rent for the Initial Premises that first becomes due and payable during the term
of this Lease and shall satisfy the obligation of Tenant to pay such Interim
Rent and Base Rent until the Rent Credit is exhausted.
(f) For the purposes of sections 3.1(a)(vi) and 3.1(a)(ix) hereof, if
Landlord and Tenant do not agree on the fair market rental value of the portion
of the Premises or the Storage Space, the Equipment Space or the Roof Space
required by section 3.1(a)(vi) or 3.1(a)(ix) hereof by the date three (3) months
prior to the first day of the First Extended Term or the first day of the Second
Extended Term, as the case may be, such fair market rental value shall be
determined as follows: Landlord and Tenant each shall appoint one (1) appraiser
within fifteen (15) days after a written request for appointment of appraisers
has been given by either Landlord or Tenant to the other. If either Landlord or
Tenant fails to appoint its appraiser within such period of fifteen (15) days,
such appraiser shall be appointed by the Superior Court of the State of
California in and for the City and County of San Francisco upon application of
the other. Each such appraiser shall appraise the portion of the Premises or the
Storage Space, the Equipment Space or the Roof Space required by section
3.1(a)(vi) or 3.1(a)(ix) hereof, as appropriate, and submit his written report
setting forth the appraised fair market rental value to Landlord and Tenant
within thirty (30) days after the
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appointment of both such appraisers (or as soon thereafter as practicable). If
the higher appraised value in such two (2) appraisals is not more than one
hundred five percent (105%) of the lower appraised value, the fair market rental
value of the appropriate portion of the Premises or the Storage Space, the
Equipment Space or the Roof Space shall be the average of the two (2) appraised
values. If the higher appraised value is more than one hundred five percent
(105%) of the lower appraised value, Landlord and Tenant shall agree upon and
appoint a neutral third appraiser within fifteen (15) days after both of the
first two (2) appraisals have been submitted to Landlord and Tenant. If Landlord
and Tenant do not agree and fail to appoint such neutral third appraiser within
such period of fifteen (15) days, such neutral third appraiser shall be
appointed by the Superior Court of the State of California in and for the City
and County of San Francisco upon application of either Landlord or Tenant. The
neutral third appraiser shall appraise the appropriate portion of the Premises
or the Storage Space, the Equipment Space or the Roof Space required by section
3.1(a)(vi) or 3.1(a)(ix) hereof, as appropriate, and submit his written report
setting forth the appraised fair market rental value to Landlord and Tenant
within thirty (30) days after his appointment (or as soon thereafter as
practicable). The fair market rental value of the appropriate portion of the
Premises or the Storage Space, the Equipment Space or the Roof Space shall be
the average of the two (2) appraised values in such three (3) appraisals that
are closest to each other (unless the differences are equal, in which case the
three (3) appraised values shall be averaged). The fair market rental value of
the appropriate portion of the Premises or the Storage Space, the Equipment
Space or the Roof Space, determined in accordance with this section 3.1(f),
shall be conclusive and binding upon Landlord and Tenant. Any proceedings in
connection with the determination of such fair market rental value shall be
conducted in the City and County of San Francisco in accordance with California
Code of Civil Procedure sections 1280 to 1294.2 (including section 1283.05) or
successor California laws then in effect relating to arbitration. All
appraisers appointed by Landlord or Tenant, or both of them, shall be members of
the American Institute of Real Estate Appraisers of the National Association of
Realtors (or its successor), or real estate professionals qualified by
appropriate training or experience, and have at least five (5) years of
experience dealing with commercial real estate in San Francisco. The appraisers
shall have no power or authority to amend or modify this Lease in any respect
and their jurisdiction is limited accordingly. Landlord and Tenant each shall
pay the fee and expenses charged by its appraiser plus one-half of the fee and
expenses charged by the neutral third appraiser. If the fair market rental
value of the
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appropriate portion of the Premises or the Storage Space, the Equipment Space or
the Roof Space has not been determined in accordance with this section 3.1(f) by
the first day of the First Extended Term or the first day of the Second Extended
Term, as the case may be, Tenant shall continue to pay the Base Rent in effect
immediately preceding such date until such fair market rental value has been
determined, and Tenant shall pay Landlord any deficiency in the payment of the
new Base Rent resulting therefrom within thirty (30) days after such
determination. Landlord and Tenant each shall, promptly after the new Base Rent
has been determined in accordance with section 3.1(a)(vi) or 3.1(a)(ix) hereof
or this section 3.1(f), execute and deliver to the other an amendment to this
Lease which sets forth the new Base Rent, but the new Base Rent shall become
effective whether or not such amendment is executed.
3.2 The additional monthly rent payable pursuant to sections 3.1(b)
and 3.1(c) hereof shall be calculated and paid in accordance with the following
procedures:
(a) on or before the first day of each calendar year during the term
of this Lease, or as soon thereafter as practicable, Landlord shall give Tenant
written notice of Landlord's estimate of the amounts payable under sections
3.1(b) and 3.1(c) hereof for the ensuing calendar year. On or before the first
day of each month during such ensuing calendar year, Tenant shall pay to
Landlord one-twelfth of such estimated amounts. If such notice is not given for
any calendar year, Tenant shall continue to pay on the basis of the prior year's
estimate until the month after such notice is given, and subsequent payments by
Tenant shall be based on Landlord's current estimate. If at any time it appears
to Landlord that the amounts payable under sections 3.1(b) and 3.1(c) hereof for
the current calendar year will vary from Landlord's estimate by more than five
percent (5%), 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.
(b) Within a reasonable time after the end of each calendar year,
Landlord shall give Tenant a written statement of the amounts payable under
sections 3.1(b) and 3.1(c) hereof for such calendar year certified by Landlord.
If such statement shows an amount owing by Tenant that is less than the
estimated payments for such calendar year previously made by Tenant, Landlord
shall credit the excess to the next succeeding monthly installments payable
under sections 3.1(b) and 3.1(c) hereof or, if this Lease has terminated for any
reason, Landlord shall pay the excess to Tenant within twenty (20) days after
Landlord gives such
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statement to Tenant. If such statement shows an amount owing by Tenant that is
more than the estimated payments for such calendar year previously made by
Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days
after such statement has been given. Landlord shall keep at the Building, for a
period of at least twelve (12) months after the expiration of each calendar
year, complete and accurate books, records and supporting documents in
connection with Landlord's statement of Tenant's Percentage Share of increases
in Operating Expenses and Property Taxes. Tenant or Tenant's authorized agent
or representative shall have the right to inspect the books of Landlord relating
to Operating Expenses and Property Taxes, after giving reasonable prior written
notice to Landlord and during the business hours of Landlord at Landlord's
office in the Building or at such other location as Landlord may designate, for
the purpose of verifying or contesting the information in such statement.
Failure by Landlord to give any notice or statement to Tenant under this section
3.2 shall not waive Landlord's right to receive, or Tenant's obligation to pay,
the amounts payable by Tenant under sections 3.1(b) and 3.1(c) hereof.
(c) If the term of this Lease ends on a day other than the last day
of a calendar year, the amounts payable by Tenant under sections 3.1(b) and
3.1(c) hereof applicable to the calendar year in which the end of the term
occurs shall be prorated according to the ratio which the number of days in such
calendar year to and including the end of the term bears to three hundred sixty-
five (365). Termination of this Lease shall not affect the obligations of
Landlord and Tenant pursuant to section 3.2(b) hereof to be performed after such
termination.
3.3 Tenant shall pay all Base Rent and additional monthly rent under
section 3.1 hereof to Landlord, in advance, on or before the first day of each
and every calendar month during the term of this Lease. Tenant shall pay all
rent to Landlord without notice, demand, deduction or offset, except as
expressly permitted by this Lease, in lawful money of the United States of
America, at the address of Landlord specified in the BASIC LEASE INFORMATION, or
to such other person or at such other place as Landlord may from time to time
designate in writing.
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ARTICLE 4
OPERATING EXPENSES AND PROPERTY TAXES
4.1 As used in this Lease, "Tenant's Percentage Share" shall mean the
percentage specified in the BASIC LEASE INFORMATION.
4.2 As used in this Lease, "Operating Expenses" shall mean all costs
and expenses paid or incurred by Landlord in connection with the ownership,
management, operation, maintenance or repair of the Building or providing
services in accordance with this Lease, including, without limitation, the
following: salaries, wages, other compensation, taxes and benefits (including,
without limitation, payroll, social security, workers' compensation,
unemployment, disability and similar taxes and payments) for personnel engaged
in the management, operation, maintenance or repair of the Building (with an
equitable allocation to the Building in the case of any such personnel who also
perform services for or devote time to any property other than the Building);
uniforms provided to such personnel; premiums and other charges for all
property, rental value, liability and other insurance carried by Landlord
relating to the Building or the use or occupancy of the Building; water and
sewer charges or fees; license, permit and inspection fees; electricity, chilled
water, air conditioning, gas, fuel, steam, heat, light, power and other
utilities; sales, use and excise taxes on goods and services purchased by
Landlord and includable in Operating Expenses; telephone, delivery, postage,
stationery supplies and other expenses; reasonable management fees and expenses;
equipment lease payments; repairs to and maintenance of the Building, including,
without limitation, Building systems and accessories thereto and repair and
replacement of worn-out or broken equipment, facilities, parts and
installations, but excluding the replacement of major Building systems and
repairs and replacements for which Landlord is entitled to be reimbursed from
proceeds of any insurance or warranty or by Tenant or any other tenant of the
Building; janitorial, window cleaning, security, guard, extermination, water
treatment, garbage and waste disposal, rubbish removal, plumbing and other
services; inspection or service contracts for elevator, electrical, mechanical
and other Building equipment and systems; supplies, tools, materials and
equipment; accounting, legal and other professional fees and expenses (excluding
legal fees incurred by Landlord relating to disputes with specific tenants or
the negotiation, interpretation or enforcement of specific leases); 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 Building;
the cost of furniture,
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draperies, carpeting and other customary and ordinary items of personal property
(excluding paintings, sculptures or other works of fine art) provided by
Landlord for use in common areas of the Building or in the Building office, such
costs to be reasonably amortized as determined by Landlord; all costs and
expenses resulting from work, labor, supplies, materials or services resulting
from compliance with any laws, ordinances, rules, regulations or orders
applicable to the Building; fair market rental value for office space (not
exceeding three thousand (3,000) square feet) reasonably necessary for the
proper management and operation of the Building; all costs and expenses of
contesting by appropriate legal proceedings any matter concerning managing,
operating, maintaining or repairing the Building, or the validity or
applicability of any law, ordinance, rule, regulation or order relating to the
Building, or the amount or validity of any Property Taxes; reasonable
depreciation as determined by Landlord on all personal property, fixtures and
equipment (including window washing machinery) used in the management,
operation, maintenance or repair of the Building and on exterior window
coverings provided by Landlord and carpeting in public corridors and common
areas; and the cost, reasonably amortized over the reasonable useful life of the
improvement as determined by Landlord, together with interest at the rate of ten
percent (10%) per annum, or such higher annual rate as Landlord may actually
have to pay, on the unamortized balance, of all capital improvements made to the
Building or capital assets acquired by Landlord after completion of renovation
of the Building as a labor-saving or energy-saving device or to effect other
economies in the management, operation, maintenance or repair of the Building,
provided the reduction in Operating Expenses resulting therefrom reasonably
justifies the expenditure, or made to the Building after the date of this Lease
that are required to comply with any law, ordinance, rule, regulation or order
that was not applicable to the Building at the time that permits for the
renovation of the Building were obtained. Actual Operating Expenses for the
Base Expense Year and each subsequent calendar year shall be adjusted to equal
Landlord's reasonable estimate of operating Expenses for a full calendar year
with the total area of the Building occupied during such full calendar year.
The determination of Operating Expenses shall be in accordance with generally
accepted accounting principles applied on a consistent basis. Notwithstanding
anything to the contrary contained in this section 4.2, Operating Expenses shall
not include the following: Legal fees, brokerage commissions, advertising costs
or other related expenses incurred in connection with leasing or attempting to
lease or selling or attempting to sell the Building; repairs, alterations,
additions, improvements or replacements made to rectify or correct any defect in
the design, materials or
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workmanship of the Building or common areas; any improvements, alterations or
expenditures of a capital nature, except as expressly provided in this section
4.2; damage and repairs for which Landlord is entitled to be reimbursed from
proceeds under any insurance policy carried by Landlord in connection with the
Building; damage and repairs necessitated by the gross negligence or willful
misconduct of Landlord or Landlord's officers, employees, contractors or agents;
salaries of executive and administrative personnel to the extent such personnel
do not devote time to or perform services for the management, operation,
maintenance or repair of the Building or common areas; Landlord's general
overhead expense other than Building office overhead; bad debt expense and
payments of principal or interest on any mortgage or other encumbrance; legal
fees, accountants' fees and other expenses incurred in connection with disputes
with tenants or other occupants of the Building or associated with the
enforcement of any leases or defense of Landlord's title to or interest in the
Building or any part thereof; costs (including permit, license and inspection
fees) incurred in renovating or otherwise improving, decorating, painting or
altering space for tenants or other occupants of the Building; services
furnished to any other tenant of the Building which are not furnished to Tenant
or quantities of such services furnished to any other tenant of the Building
which materially exceed the quantity of such services furnished to Tenant in
relation to the portions of the space in the Building leased by such other
tenant and Tenant, respectively; services furnished to Tenant or any other
tenant of the Building for which Landlord is separately and directly entitled to
be reimbursed by Tenant or any other tenant of the Building; advertising or
promotional expenses; and costs of installing, operating and maintaining any
specialty service operated by Landlord, such as a broadcast facility, dining
facility or athletic club. Landlord shall not collect in excess of one hundred
percent (100%) of all Operating Expenses, subject to the right of Landlord to
estimate and collect such excess until such excess is appropriately credited or
refunded to the tenants of the Building, nor shall Landlord recover, through
Operating Expenses, any item of cost more than once. Tenant shall only be liable
for Operating Expenses paid or incurred by Landlord which are allocable to the
term of this Lease.
4.3 As used in this Lease, "Property Taxes" shall mean all taxes,
assessments, excises, levies, fees and charges (and any tax, assessment, excise,
levy, fee or charge levied wholly or partly in lieu thereof or as a substitute
therefor or as an addition thereto) of every kind and description, general or
special, ordinary or extraordinary, foreseen or unforeseen, secured or
unsecured, whether or not now customary or within the contemplation of
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Landlord and Tenant, that are levied, assessed, charged, confirmed or imposed by
any public or government authority on or against, or otherwise with respect to,
the Building or any part thereof or any personal property used in connection
with the Building. If the Building is not assessed on a fully completed basis
for all or any part of the Base Tax Year, until it is so assessed, Property
Taxes for the Base Tax Year shall be established by multiplying Landlord's
reasonable estimate of such assessed valuation by the applicable tax rates for
the Base Tax Year. As soon as the Building is assessed on a fully completed
basis and the Property Taxes for the Base Year can be determined, any necessary
adjustment resulting from such estimate shall be made, including any necessary
adjustment in the amount of Tenant's Percentage Share of increases in Property
Taxes over the Base Tax Year paid or payable by Tenant pursuant to section
3.1(c) hereof. Property Taxes shall not include net income (measured by the
income of Landlord from all sources or from sources other than solely rent),
franchise, documentary transfer, inheritance or capital stock taxes of Landlord,
unless levied or assessed against Landlord in whole or in part in lieu of or as
a substitute for any Property Taxes. Property Taxes shall not include any tax,
assessment, excise, levy, fee or charge paid by Tenant pursuant to section 5.1
hereof. Property Taxes shall not include interest on taxes or penalties
resulting from Landlord's failure to pay taxes, increases in taxes specifically
attributable to additional improvements to the premises of the other tenants of
the Building to the extent such tax increases are separately itemized or
identified by the taxing authority in such a way as to allow specific allocation
by Landlord to such other tenant, or taxes which constitute payments to a
governmental agency for the right to make improvements to the Building, unless
such improvements would be includable in Operating Expenses pursuant to section
4.2 hereof.
ARTICLE 5
OTHER TAXES PAYABLE BY TENANT
5.1 In addition to all monthly rent and other charges to be paid by
Tenant under this Lease, Tenant shall reimburse Landlord upon demand for all
taxes, assessments, excises, levies, fees and charges, including, without
limitation, all other payments related to the cost of providing facilities or
services, whether or not now customary or within the contemplation of Landlord
and Tenant, that are payable by Landlord and levied, assessed, charged,
confirmed or imposed by any public or government authority upon, or measured by,
or reasonably attributable to (a) the
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Premises, (b) the cost or value of Tenant's equipment, furniture, fixtures and
other personal property located in the Premises or the cost or value of any
leasehold improvements made in or to the Premises by or for Tenant, regardless
of whether title to such improvements is vested in Tenant or Landlord, but only
to the extent such taxes, assessments, excises, levies, fees or charges are
separately itemized or identified by the taxing authority in such a way as to
allow specific allocation by Landlord to Tenant, (c) any rent payable under this
Lease, including, without limitation, any gross income tax or excise tax levied
by any public or government authority with respect to the receipt of any such
rent, (d) the possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises, or (e) this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises. Such taxes, assessments, excises,
levies, fees and charges shall not include net income (measured by the income of
Landlord from all sources or from sources other than solely rent), franchise,
documentary transfer, inheritance or capital stock taxes of Landlord, unless
levied or assessed against Landlord in whole or in part in lieu of, as a
substitute for, or as an addition to any such taxes, assessments, excises,
levies, fees and charges. All taxes, assessments, excises, levies, fees and
charges payable by Tenant under this section 5.1 shall be deemed to be, and
shall be paid as, additional rent.
ARTICLE 6
USE
6.1 The Premises shall be used for general office purposes and, to
the extent related to Tenant's business, for the operation of a securities
trading floor, video conferencing facilities, computer, data processing and
copying facilities, kitchen and dining room facilities for the officers,
employees and customers of Tenant, but not for the use of the general public,
and other incidental uses, and no other purpose. Tenant shall not do or permit
to be done in, on or about the Premises, nor bring or keep or permit to be
brought or kept therein, anything which is prohibited by or will in any way
conflict with any law, ordinance, rule, regulation or order now in force or
which may hereafter be enacted, or which is not among the permitted purposes
described in the first sentence of this section 6.1 or incidental thereto and
which is prohibited by any property insurance policy carried by Landlord for the
Building, or will in any way increase the existing rate of, or cause a
cancellation of, or affect any property or other insurance
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for the Building or any part thereof or any of its contents Tenant shall not
bring or keep, or permit to be brought or kept, in the Premises or the Building
any toxic or hazardous substance, material or waste or any other contaminant or
pollutant, except any of the foregoing which is commonly used in business
offices but only in quantities necessary for normal use. Tenant shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of Landlord or other tenants of the
Building, or injure or annoy them. Tenant shall not use or allow the Premises to
be used for any improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises or
commit or suffer to be committed any waste in, on or about the Premises. Tenant
shall not bring or keep in the Premises any furniture, equipment, materials or
other objects which overload the Premises or any portion thereof in excess of
fifty (50) pounds per square foot live or dead load, which is the normal load-
bearing capacity of the floors of the building.
ARTICLE 7
SERVICES
7.1 Landlord shall supply to the Premises during reasonable and usual
business hours, as determined by Landlord, but which shall be at least 8 A.M. to
6 P.M., Monday through Friday, except for New Year's Day, President's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving, Christmas, labor
holidays and such other holidays as are generally recognized in San Francisco,
California, and subject to the Rules and Regulations (as hereinafter defined)
established by Landlord, normal heating, ventilating and air conditioning
reasonably required for the comfortable occupation of the Premises. Landlord
shall also supply to the Premises at all times normal elevator service, normal
electricity for lighting and the operation of desktop office machines, and
water. Landlord shall also supply to the Premises lighting replacement for
Building standard lights, restroom supplies and window washing when needed, as
determined by Landlord and subject to the Rules and Regulations, but window
washing shall be performed not less than three (3) times a year. Landlord shall,
upon reasonable prior request by Tenant, supply to the Premises additional
heating, ventilating or air conditioning (as requested by Tenant) during times
other than the reasonable and usual business hours described in the first
sentence of this section 7.1. Tenant shall pay to Landlord, upon billing by
Landlord, as additional rent, the actual cost incurred by Landlord, as
reasonably determined by Landlord, for such additional
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heating, ventilating and air conditioning. Landlord shall also furnish security
service for the Building (not Tenant or the Premises) and janitor service to the
Premises during the times and in the manner that such services are customarily
furnished in comparable first-class office buildings in the central financial
district of San Francisco. Landlord shall not be liable for any criminal acts
of others or for any direct, consequential or other loss or damage related to
any malfunction, circumvention or other failure of such security service.
Landlord shall not be in default under this Lease or be liable for any damage or
loss directly or indirectly resulting from, nor shall the rent be abated (except
as hereinafter provided) or a constructive or other eviction be deemed to have
occurred by reason of, any installation, use or interruption of use of any
equipment in connection with the furnishing of any of the foregoing services,
any failure to furnish or delay in furnishing any such services when such
failure or delay is caused by accident or breakdown or any condition beyond the
reasonable control of Landlord or by the making of repairs or improvements to
the Premises or to the Building, or any limitation, curtailment, rationing or
restriction on use of water, electricity, gas or any form of energy serving the
Premises or the Building, whether such results from mandatory restrictions or
voluntary compliance with guidelines. Landlord shall use diligent efforts to
correct any interruption in the furnishing of such services.
7.2 If Landlord is not able, for a reason within the reasonable
control of Landlord, to supply any service described in section 7.1 hereof to
the Premises which is essential for Tenant's use of the Premises for the
permitted purposes described in section 6.1 hereof and the failure to supply any
such essential service materially impairs Tenant's ability to carry on its
business in the Premises for a period of ten (10) consecutive business days, the
Base Rent and additional rent payable by Tenant under this Lease shall be
abated, based on the extent to which such failure to supply any such essential
service materially impairs Tenant's ability to carry on its business in the
Premises, commencing on the eleventh business day of such material impairment of
Tenant's business and continuing until such essential service has been restored
or the failure to supply such essential service no longer materially impairs
Tenant's ability to carry on its business in the Premises. Landlord shall use
diligent efforts to restore such essential service. Tenant shall have no right
to any abatement of the Base Rent and additional rent payable by Tenant under
this Lease if, and to the extent that, Landlord's inability to supply any such
essential service to the Premises is caused by Tenant, or Tenant's officers,
employees, contractors, agents, licensees or invitees, or by any force or event
that
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cannot be reasonably anticipated or controlled by Landlord. Notwithstanding
anything to the contrary contained in this section 7.2, no inability or delay by
Landlord in providing any such essential service shall constitute an actual or
constructive eviction, in whole or in part, or release Tenant from any
obligation of Tenant under this Lease (except an abatement of the Base Rent and
additional rent in accordance with this section 7.2).
7.3 If Tenant uses heat generating machines, equipment or computers
or lighting other than Building standard lights in the Premises which affect the
temperature otherwise maintained by the air conditioning system, Landlord shall
have the right to install supplementary air conditioning units in the Premises
and Tenant shall pay to Landlord the cost thereof, including the costs of
installation, operation, maintenance and repair thereof, as reasonably
determined by Landlord, upon billing by Landlord. If Tenant uses electricity in
excess of three and fifty-one hundredths (3.51) watts per usable square foot of
the Premises and the Equipment Space per hour, in the aggregate, determined on a
monthly basis, Tenant shall pay to Landlord, upon billing by Landlord, the cost
of such excess, as reasonably determined by Landlord. Tenant shall pay to
Landlord, upon billing by Landlord, the cost of all additional services consumed
by Tenant, in excess of the amount that would reasonably be incurred for a
normal business office operating during the reasonable and usual business hours
described in the first sentence of section 7.1 hereof, as a result of the
operation of Tenant's computers or equipment, the number of hours Tenant
operates, or any other feature of the conduct of Tenant's business in the
Premises, all as reasonably determined by Landlord based on the actual
additional cost incurred by Landlord. All costs payable by Tenant under this
section 7.3 shall be deemed to be, and shall be paid as, additional rent.
ARTICLE 8
ALTERATIONS
8.1 Tenant shall not make any alterations, additions or improvements
in or to the Premises or any part thereof, or attach any fixtures or equipment
thereto, without Landlord's prior written consent. Notwithstanding the
preceding sentence, Tenant may make such alterations, additions or improvements
without Landlord's consent only if the total cost of such alterations, additions
or improvements is ten thousand dollars ($10,000) or less and such alterations,
additions or improvements will not affect in any way the structural, exterior or
roof elements of the
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Building or the elevator, mechanical, electrical, plumbing or life safety
systems of the Building, but Tenant shall give prior written notice of any such
alterations, additions or improvements to Landlord. Whenever the consent or
approval of Landlord is required under this section 8.1, such consent or
approval shall not be unreasonably withheld or delayed. All alterations,
additions and improvements (except the initial improvements to be constructed or
installed by Landlord at Landlord's expense and Tenant's expense, respectively,
as specified in Exhibit B) in or to the Premises to which Landlord consents
shall be made by Tenant at Tenant's sole cost and expense as follows:
(a) Tenant shall submit to Landlord, for Landlord's written approval,
complete plans and specifications for all work to be done by Tenant. Such plans
and specifications shall be prepared by responsible licensed architect(s) and
engineers approved in writing by Landlord, shall comply with all applicable
codes, laws, ordinances, rules and regulations, shall not adversely affect the
Building shell or core or any systems, components or elements of the Building,
shall be in a form sufficient to secure the approval of all government
authorities with jurisdiction over the approval thereof, and shall be otherwise
satisfactory to Landlord in Landlord's reasonable discretion. Tenant shall
notify Landlord in writing of the licensed architects and engineers whom Tenant
proposes to engage to prepare such plans and specifications. Landlord shall
notify Tenant promptly in writing whether Landlord approves or disapproves such
architects and engineers.
(b) Landlord shall notify Tenant promptly in writing whether Landlord
approves or disapproves such plans and specifications and, if Landlord
disapproves such plans and specifications, Landlord shall describe in writing
the revisions which Landlord requires in order to obtain Landlord's approval.
Thereafter, Tenant may submit to Landlord revised plans and specifications
addressing the revisions required by Landlord. Such revisions shall be subject
to Landlord's prior written approval. Tenant shall pay all costs, including the
fees and expenses of the licensed architects and engineers, in preparing such
plans and specifications.
(c) All changes in the plans and specifications approved by Landlord
shall be subject to Landlord's prior written approval. If Tenant wishes to make
any such change in such approved plans and specifications, Tenant shall have
Tenant's architects and engineers prepare plans and specifications for such
change and submit them to Landlord for Landlord's written approval. Landlord
shall notify Tenant in writing promptly whether Landlord approves or
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disapproves such change and, if Landlord disapproves such change, Landlord shall
describe in writing the reasons for disapproval. Such change in the plans and
specifications may be revised by Tenant and resubmitted to Landlord for
Landlord's written approval. After Landlord's written approval of such change,
such change shall become part of the plans and specifications approved by
Landlord.
(d) Tenant shall pay for all work (including, without limitation, the
cost of all utilities, permits, fees, taxes, and property and liability
insurance premiums in connection therewith) required to make the alterations,
additions and improvements. Tenant shall engage responsible licensed
contractors) approved in writing by Landlord to perform all work. Tenant shall
notify Landlord in writing of the licensed contractors) whom Tenant proposes to
engage for the work. Landlord shall notify Tenant promptly in writing whether
Landlord approves or disapproves such contractor(s). All contractors and other
persons shall at all times be subject to Landlord's reasonable control while in
the Building. Tenant shall pay to Landlord any additional direct costs (beyond
the normal services provided to tenants in the Building) and shall reimburse
Landlord for all reasonable expenses incurred by Landlord in connection with the
review, approval and supervision of any alterations, additions or improvements
made by Tenant. Under no circumstances shall Landlord be liable to Tenant for
any liability, 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.
(e) Tenant shall give written notice to Landlord of the date on which
construction of any work will be commenced at least five (5) days prior to such
date. Tenant shall cause all work to be performed by the licensed contractor(s)
approved in writing by Landlord in accordance with the plans and specifications
approved in writing by Landlord and in full compliance with all applicable
codes, laws, ordinances, rules and regulations. Tenant shall keep the Premises
and the Building free from mechanics', materialmen's and all other liens arising
out of any work performed, labor supplied, materials furnished or other
obligations incurred by Tenant. Tenant shall promptly and fully pay and
discharge all claims on which any such lien could be based. Tenant shall have
the right to contest the amount or validity of any such lien, provided Tenant
gives prior written notice of such contest to Landlord, prosecutes such contest
by appropriate proceedings in good faith and with diligence, and, upon request
by Landlord, furnishes such bond as may be required by law to protect the
Building and the Premises from such lien. Landlord shall have the
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right to post and keep posted on the Premises any notices that may be provided
by law or which Landlord may deem to be proper for the protection of Landlord,
the Premises and the Building from such liens. Landlord shall have the right to
take any other action Landlord deems necessary to remove or discharge liens or
encumbrances not being contested by Tenant in accordance with this section 8.1,
at the expense of Tenant, if Tenant fails to remove or discharge any such lien
or encumbrance within ten (10) days after written notice from Landlord.
8.2 Subject to the rights and obligations of Tenant under this
section 8.2, all alterations, additions, fixtures and improvements, including,
without limitation, carpeting and all other improvements made pursuant to
Exhibit B, whether temporary or permanent in character, made in or to the
Premises by Landlord or Tenant, shall become part of the Building and Landlord's
property. Upon termination of this Lease, Tenant shall have the right, at
Tenant's expense, to remove all or any part of such alterations, additions,
fixtures and improvements from the Building, but Tenant shall, at Tenant's
expense, repair all damage caused by any such removal. All movable furniture,
equipment, trade fixtures, computers, office machines and other personal
property shall remain the property of Tenant. Upon termination of this Lease,
Tenant shall, at Tenant's expense, remove all movable furniture, equipment,
trade fixtures, computers, office machines and other personal property from the
Building and repair all damage caused by any such removal. In the process of
approving any alterations, additions or improvements in or to the Premises or
any part thereof pursuant to section 8.1 hereof, Landlord shall have the right,
by giving written notice to Tenant when Landlord approves any such alterations,
additions or improvements, to require Tenant to remove any such alterations,
additions or improvements designated by Landlord, in which event, upon
termination of this Lease, Tenant shall, at Tenant's expense, remove all such
alterations, additions and improvements designated by Landlord from the Building
and repair all damage caused by any such removal. Tenant shall complete all
such removal and repair work under this section 8.2 within thirty (30) days
after termination of this Lease. Upon termination of this Lease, Landlord shall
have the right to restore the openings for the internal stairwells between the
floors of the Premises to the condition in which the Premises existed before
such openings were made. If Landlord performs such restoration work before
another tenant occupies the floor in question, Tenant shall, upon billing by
Landlord, pay to Landlord the actual cost of such restoration work incurred by
Landlord, but not more than twenty thousand dollars ($20,000) for each such
opening. Termination of this Lease shall not affect the obligations
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of Tenant pursuant to this section 8.2 to be performed after such termination.
ARTICLE 9
MAINTENANCE AND REPAIRS
9.1 Landlord shall maintain and repair the public and common areas of
the Building, such as plazas, lobbies, stairs, corridors and restrooms, the
structural, roof and exterior elements of the Building, and the elevator,
mechanical (heating, ventilating and air conditioning) and electrical systems of
the Building and keep such areas, elements and systems in reasonably good order
and condition. Any damage in or to any such areas, elements or systems caused
by Tenant or any agent, employee, contractor, licensee or invitee of Tenant
shall be repaired by Landlord at Tenant's expense and Tenant shall pay to
Landlord, upon billing by Landlord, as additional rent, the cost of such repairs
incurred by Landlord.
9.2 Tenant shall, at all times during the term of this Lease and at
Tenant's sole cost and expense, maintain and repair the Premises and every part
thereof and all equipment, fixtures and improvements therein and keep all of the
foregoing clean and in reasonably good order and operating condition, ordinary
wear and tear and damage thereto by fire or other casualty excepted, and
excluding maintenance and repair of the areas, elements and systems of the
Building to be maintained and repaired by Landlord pursuant to section 9.1
hereof, Tenant hereby waives all rights under California Civil Code section 1941
and all rights to make repairs at the expense of Landlord or in lieu thereof to
vacate the Premises as provided by California Civil Code section 1942 or any
other law, statute or ordinance now or hereafter in effect. Subject to section
8.2 hereof, Tenant shall, at the end of the term of this Lease, surrender to
Landlord the Premises and all alterations, additions, fixtures and improvements
therein or thereto in the same condition as when received, ordinary wear and
tear and damage thereto by fire or other casualty excepted, and excluding areas,
elements and systems of the Building to be maintained and repaired by Landlord
pursuant to section 9.1 hereof.
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ARTICLE 10
DAMAGE OR DESTRUCTION
10.1 If the Building or the Premises, or any part thereof, is damaged
by fire or other casualty before the Commencement Date or during the term of
this Lease, and this Lease is not terminated pursuant to section 10.2 hereof,
Landlord shall repair such damage and restore the Building and the Premises to
substantially the same condition in which the Building and the Premises existed
before the occurrence of such fire or other casualty and this Lease shall,
subject to this section 10.1, remain in full force and effect. If such fire or
other casualty damages the Premises or common areas of the Building necessary
for Tenant's use and occupancy of the Premises, then, during the period the
Premises are rendered unusable by such damage, Tenant shall be entitled to a
reduction in Base Rent in the proportion that the area of the Premises rendered
unusable by such damage bears to the total area of the Premises. Landlord shall
not be obligated to repair any damage to, or to make any replacement of, any
movable furniture, equipment, trade fixtures or personal property in the
Premises. Tenant shall, at Tenant's sole cost and expense, repair and replace
all such movable furniture, equipment, trade fixtures and personal property.
Such repair and replacement by Tenant shall be done in accordance with Article 8
hereof. Tenant hereby waives California Civil Code sections 1932(2) and 1933(4)
providing for termination of hiring upon destruction of the thing hired.
10.2 If the Building or the Premises, or any part thereof, is damaged
by fire or other casualty before the Commencement Date or during the term of
this Lease and (a) such fire or other casualty occurs during the last twelve
(12) months of the term of this Lease and the repair and restoration work to be
performed by Landlord in accordance with section 10.1 hereof cannot, as
reasonably estimated by Landlord, be completed within two (2) months after the
occurrence of such fire or other casualty or (b) the repair and restoration work
to be performed by Landlord in accordance with section 10.1 hereof cannot, as
reasonably estimated by Landlord, be completed within nine (9) months after the
occurrence of such fire or other casualty, then, in any such event, Landlord
shall have the right, by giving written notice to Tenant within sixty (60) days
after the occurrence of such fire or other casualty, to terminate this Lease as
of the date of such notice. If any such fire or other casualty does not
materially damage the Premises, Landlord shall have no right to terminate this
Lease unless Landlord also terminates the leases of all other tenants of the
Building. If such fire or other casualty materially
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damages the Premises or materially interferes with Tenant's access to or use of
the Premises, the reasonable estimates required pursuant to clauses (a) and (b)
of this section 10.2 shall be made jointly by mutual agreement of Landlord and
Tenant, and Tenant shall have the same right as Landlord, subject to the
conditions in this section 10.2, to terminate this Lease. If neither Landlord
nor Tenant exercises the right to terminate this Lease in accordance with this
section 10.2, Landlord shall promptly commence and diligently prosecute the
repair of such damage and the restoration of the Building and the Premises in
accordance with section 10.1 hereof and this Lease shall, subject to section
10.1 hereof, remain in full force and effect. A total destruction of the
Building shall automatically terminate this Lease effective as of the date of
such total destruction.
ARTICLE 11
INSURANCE
11.1 Tenant hereby waives all claims against Landlord for damage to
or loss or theft of any property or for any bodily or personal injury, illness
or death of any person in, on or about the Premises or the Building arising at
any time and from any cause whatsoever, other than by reason of the negligence
or willful misconduct of Landlord or Landlord's officers, employees, agents or
contractors. Tenant shall indemnify and defend Landlord against and hold
Landlord harmless from all claims, demands, liabilities, damages, losses, costs
and expenses, including, without limitation, reasonable attorneys' fees, for any
damage to any property (including property of employees and invitees of Tenant)
or for any bodily or personal injury, illness or death of any person (including
employees and invitees of Tenant) occurring in, on or about the Premises or any
part thereof arising at any time during the term of this Lease and from any
cause whatsoever, other than by reason of the negligence or willful misconduct
of Landlord or Landlord's officers, employees, agents or contractors, or
occurring in, on or about any part of the Building other than the Premises when
such damage, bodily or personal injury, illness or death is caused by any act or
omission of Tenant or its officers, employees, agents, contractors, invitees or
licensees. Landlord shall indemnify and defend Tenant against and hold Tenant
harmless from all claims, demands, liabilities, damages, losses, costs and
expenses, including, without limitation, reasonable attorneys' fees, for any
damage to any property (including property of employees and invitees of Tenant)
or for any bodily and personal injury, illness or death of any person (including
employees and invitees of Tenant) occurring in, on or about the Premises
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or the Building or any part thereof arising at any time during the term of this
Lease caused by the negligence or willful misconduct of Landlord or Landlord's
officers, employees, agents or contractors. This section 11.1 shall survive the
termination of this Lease with respect to any damage, bodily or personal injury,
illness or death occurring prior to such termination.
11.2 Tenant shall, at Tenant's sole cost and expense, obtain and keep
in force during the term of this Lease comprehensive general liability
insurance, including contractual liability (specifically covering this Lease),
fire legal liability, and premises operations, with a minimum combined single
limit in the amount specified in the BASIC LEASE INFORMATION per occurrence for
bodily or personal injury to, illness of, or death of persons and damage to
property occurring in, on or about the Premises or the Building.
11.3 Landlord shall obtain and keep in force during the term of this
Lease reasonable property and liability insurance for the Building with
coverages and in amounts comparable to those maintained for other first-class
office buildings in the San Francisco financial district.
11.4 All insurance required under this Article 11 and all renewals
thereof shall be issued by good and responsible companies qualified to do and
doing business in the State of California. All liability insurance under
section 11.2 hereof shall expressly provide that the policy shall not be
cancelled or altered without thirty (30) days' prior written notice to Landlord
and shall remain in effect notwithstanding any such cancellation or alteration
until such notice shall have been given to Landlord and such period of thirty
(30) days shall have expired. All liability insurance under section 11.2 hereof
shall name Landlord and any holder of a mortgage or deed of trust encumbering
the Building designated by Landlord as an additional insured, shall be primary
and noncontributing with any insurance which may be carried by Landlord, and
shall expressly provide that Landlord, although named as an insured, shall
nevertheless be entitled to recover under the policy for any loss, injury or
damage to Landlord. Upon the issuance thereof, Tenant shall deliver each such
policy or a certified copy and a certificate thereof to Landlord for retention
by Landlord. If Tenant fails to insure or fails to furnish to Landlord upon
notice to do so any such policy or certified copy and certificate thereof as
required, Landlord shall have the right from time to time to effect such
insurance for the benefit of Tenant or Landlord or both of them and all premiums
paid by Landlord shall be payable by Tenant as additional rent on demand.
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11.5 Tenant waives on behalf of its insurers under all policies of
property, liability and other insurance (excluding workers' compensation) now or
hereafter existing during the term hereof and purchased by Tenant insuring or
covering the Premises, or any portion or any contents thereof, or any operations
therein, all rights of subrogation which any insurer might otherwise, if at all,
have to any claims of Tenant against Landlord. Landlord waives on behalf of its
insurers under all policies of property, liability and other insurance
(excluding workers' compensation) now or hereafter existing during the term
hereof and purchased by Landlord insuring or covering the Building or any
portion or any contents thereof, or any operations therein, all rights of
subrogation which any insurer might otherwise, if at all, have to any claims of
Landlord against Tenant. Landlord and Tenant each shall, prior to or immediately
after the date of this Lease, procure from each of the insurers under all
policies of property, liability and other insurance (excluding workers'
compensation) now or hereafter existing during the term hereof and purchased by
it insuring or covering the Building or the Premises, or any portion or any
contents thereof, or any operations therein, a waiver of all rights of
subrogation which the insurer might otherwise, if at all, have to any claims of
Landlord or Tenant against the other as required by this section 11.5.
ARTICLE 12
COMPLIANCE WITH LEGAL REQUIREMENTS
12.1 Tenant shall, at its sole cost and expense, promptly comply with
all laws, ordinances, rules, regulations, orders and other requirements of any
government or public authority now in force or which may hereafter be in force,
with the requirements of any board of fire underwriters or other similar body
now or hereafter constituted, and with any direction or certificate of occupancy
issued pursuant to any law by any governmental agency or officer, insofar as any
thereof relate to or affect the condition, use or occupancy of the Premises or
the operation, use or maintenance of any equipment, fixtures or improvements in
the Premises, excluding requirements not reasonably necessitated by Tenant's
acts or particular use of the Premises or by improvements or alterations made by
or for Tenant.
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ARTICLE 13
ASSIGNMENT AND SUBLETTING
13.1 Except for permitted assignments and subleases pursuant to section
13.2 hereof and permitted occupancy agreements pursuant to section 13.6
hereof, Tenant shall not, directly or indirectly, without the prior written
consent of Landlord (which consent shall not be unreasonably withheld or
delayed), assign this Lease or any interest herein or sublease the Premises
or any part thereof, or permit the use or occupancy of the Premises by any
person or entity other than Tenant. Tenant shall not, directly or
indirectly, without the prior written consent of Landlord, pledge, mortgage
or hypothecate this Lease or any interest herein. This Lease shall not, nor
shall any interest herein, be assignable as to the interest of Tenant
involuntarily or by operation of law without the prior written consent of
Landlord. Any of the foregoing acts without such prior written consent of
Landlord shall be void and shall, at the option of Landlord, constitute a
default that entitles Landlord to terminate this Lease. Without limiting or
excluding other reasons for withholding Landlord's consent, Landlord shall
have the right to withhold consent if the proposed assignee or subtenant or
the use of the Premises to be made by the proposed assignee or subtenant is
not consistent with the character and nature of other tenants and uses in the
Building or is prohibited by this Lease or if it is not demonstrated to the
satisfaction of Landlord that the proposed assignee or subtenant has good
business and moral character and reputation and is financially able to
perform all of the obligations of Tenant under this Lease. Tenant agrees
that the instrument by which any assignment or sublease to which Landlord
consents is accomplished shall expressly provide that the assignee or
subtenant will perform all of the covenants to be performed by Tenant under
this Lease (in the case of a sublease, only insofar as such covenants relate
to the portion of the Premises subject to such sublease) as and when
performance is due after the effective date of the assignment or sublease and
that Landlord will have the right to enforce such covenants directly against
such assignee or subtenant, Any purported assignment or sublease without an
instrument containing the foregoing provisions shall be void. Tenant shall
in all cases remain liable and responsible for the performance by any
assignee or subtenant of all such covenants.
13.2 Tenant shall have the right to assign this Lease or sublease all or
any portion of the Premises to any entity that, directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under
common control with Tenant, or any entity that results from
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a merger with or consolidation of Tenant, or any entity that purchases
substantially all of the assets of Tenant and carries on the business of
Tenant in the Premises. The consent of Landlord shall not be required for
any assignment or sublease permitted by this section 13.2, but Tenant shall,
at least thirty (30) days before completing any such assignment or sublease,
give written notice to Landlord identifying the assignee or subtenant by name
and address and describing the basis on which such assignment or sublease
qualifies as a permitted assignment or sublease under this section 13.2.
Tenant shall give Landlord such additional information concerning the
assignee or subtenant or the terms of the assignment or sublease as Landlord
reasonably requests. Sections 13.3 and 13.4 hereof shall not apply to any
assignment or sublease permitted by this section 13.2.
13.3 Except for permitted assignments and subleases pursuant to section
13.2 hereof and permitted occupancy agreements pursuant to section 13.6
hereof, if Tenant wishes to assign this Lease or sublease all or any part of
the Premises, Tenant shall give written notice to Landlord identifying the
intended assignee or subtenant by name and address and specifying all of the
terms of the intended assignment or sublease. Tenant shall give Landlord
such additional information concerning the intended assignee or subtenant or
the intended assignment or sublease as Landlord reasonably requests. For a
period of thirty (30) days after such notice is given by Tenant, Landlord
shall have the right, by giving written notice to Tenant, (a) to consent in
writing to the intended assignment or sublease, or (b) to enter into an
assignment of this Lease or a sublease of the Premises, as the case may be,
with Tenant upon the terms set forth in such notice, or (c) in the case of an
assignment of this Lease or a sublease of the entire Premises for the balance
of the term of this Lease, to terminate this Lease, 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 its termination
right. If Landlord does not exercise a right set forth in clause (a), (b) or
(c) of the preceding sentence by giving written notice to Tenant within such
period of thirty (30) days, Landlord shall be deemed to consent in writing to
the intended assignment or sublease pursuant to clause (a) of the preceding
sentence. If Landlord elects to enter into an assignment of this Lease or a
sublease of the Premises or to terminate this Lease, Landlord may enter into
a new lease or agreement covering the Premises or any portion thereof with
the intended assignee or subtenant on such terms as Landlord and such
assignee or subtenant may agree or enter into a new lease or agreement
covering the Premises or any portion thereof with any other person. In such
event, Tenant shall not be entitled to any portion of the profit, if any,
which
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Landlord may realize on account of such new lease or agreement. If Landlord
elects to terminate this Lease, 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 except for matters
occurring or obligations arising hereunder prior to the date of such
termination.
13.4 Except for permitted assignments and subleases pursuant to
section 13.2 hereof and permitted occupancy agreements pursuant to section 13.6
hereof, if Landlord consents in writing (or Landlord is deemed to consent in
writing in accordance with section 13.3 hereof), Tenant may complete the
intended assignment or sublease subject to the following covenants: (a) the
assignment or sublease shall be on the same terms as set forth in the written
notice given by Tenant to Landlord, (b) no assignment or sublease shall be
valid and no assignee or subtenant shall take possession of the Premises or any
part thereof until an executed duplicate original of such assignment or
sublease, in compliance with section 13.1 hereof, has been delivered to
Landlord, (c) no assignee or subtenant shall have a right further to assign or
sublease, and (d) all "excess rent" (as hereinafter defined) derived from such
assignment or sublease shall be divided and paid twenty-five percent (25%) to
Landlord and seventy-five percent (75%) to Tenant, Landlord's share of such
excess rent shall be deemed to be, and shall be paid by Tenant to Landlord as,
additional rent. Tenant shall pay Landlord's share of such excess rent to
Landlord within five (5) days after such excess rent is paid to Tenant. As
used in this section 13.4, "excess rent" shall mean the amount by which the
total money and other economic consideration to be paid by the assignee or
subtenant as a result of an assignment or sublease, whether denominated rent or
otherwise, exceeds, in the aggregate, the total amount of rent which Tenant is
obligated to pay to Landlord under this Lease (prorated to reflect the rent
allocable to the portion of the Premises subject to such assignment or
sublease), less the reasonable costs paid by Tenant for additional improvements
installed in the portion of the Premises subject to such assignment or sublease
by Tenant at Tenant's sole cost and expense for the specific assignee or
subtenant in question and reasonable leasing commissions (and excluding
carrying costs due to vacancy or any other cause) paid by Tenant in connection
with such assignment or sublease, which costs of additional improvements and
leasing costs shall be amortized without interest over the term of such
assignment or sublease.
13.5 No assignment or sublease whatsoever shall release Tenant from
Tenant's obligations and liabilities under this Lease or alter the primary
liability of Tenant to
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pay the rent and to perform all other obligations to be performed by Tenant
hereunder. The acceptance of rent by Landlord from any other person shall not
be deemed to be a waiver by Landlord of any provision of this Lease. Consent to
one assignment or sublease shall not be deemed consent to any subsequent
assignment or sublease. If any assignee, subtenant or successor of Tenant
defaults in the performance of any obligation to be performed by Tenant under
this Lease, Landlord may proceed directly against Tenant without the necessity
of exhausting remedies against such assignee, subtenant or successor. Landlord
may consent to subsequent assignments or subleases or amendments or
modifications to this Lease, which do not increase Tenant's obligations under
this Lease, with assignees, subtenants or successors of Tenant, upon giving
notice to Tenant or any successor of Tenant but without obtaining any consent
thereto from Tenant or any successor of Tenant, and such action shall not
release Tenant from liability under this Lease.
13.6 Tenant shall have the right to enter into occupancy agreements,
whether or not denominated a sublease agreement, with other persons or entities
which entitle such persons or entities to occupy space in the Premises, but only
if (a) no partition walls are installed for such occupant other than an ordinary
office to enclose such occupant's space, (b) no separate entrance to the
elevator lobby or common area on a floor is installed for such occupant, and (c)
the total amount of all space in the Premises occupied by all such occupants
shall not exceed, in the aggregate, one-half floor, The consent of Landlord
shall not be required for any occupancy agreement which satisfies the
requirements of this section 13.6, but Tenant shall, within thirty (30) days
after completing any such occupancy agreement, give written notice to Landlord
identifying the occupant by name and address, specifying the space to be
occupied by such occupant, and describing the basis on which such occupant
qualifies as a permitted occupancy agreement under this section 13.6. Tenant
shall give Landlord such additional information concerning any such occupant or
the terms of any occupancy agreement as Landlord reasonably requests. Sections
13.3 and 13.4 hereof shall not apply to any occupancy agreement permitted by
this section 13.6. No occupancy agreement permitted by this section 13.6 shall
constitute a "sublease" for other purposes of this Lease.
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ARTICLE 14
RULES AND REGULATIONS
14.1 Tenant shall faithfully observe and comply with the rules and
regulations (the "Rules and Regulations") set forth in Exhibit C attached hereto
and, after notice thereof, all modifications thereof and additions thereto from
time to time made in writing by Landlord. Landlord shall enforce the Rules and
Regulations and any modifications thereof or additions thereto in a
nondiscriminatory manner. If there is any conflict, this Lease shall prevail
over the Rules and Regulations and any modifications thereof or additions
thereto, No Rules and Regulations established by Landlord shall unreasonably
interfere with Tenant's use and enjoyment of the Premises in accordance-with
this Lease. Landlord shall not be responsible to Tenant for the noncompliance
by any other tenant or occupant of the Building with any Rules and Regulations.
ARTICLE 15
ENTRY BY LANDLORD
15.1 Landlord may enter the Premises at any time to (a) inspect the
Premises, (b) exhibit the Premises to prospective purchasers, lenders or, during
the last year of the term of this Lease, tenants, (c) determine whether Tenant
is performing all of its obligations hereunder, (d) supply any service to be
provided by Landlord, (e) post notices of nonresponsibility, and (f) make any
repairs to the Premises, or make any repairs to any adjoining space or utility
services, or make any repairs, alterations or improvements to any other portion
of the Building, provided Tenant's access to the Premises shall not be blocked
and all such work shall be done as promptly as reasonably practicable and so as
to cause as little interference to Tenant as reasonably practicable. If
Landlord is required to perform work in the Premises for a reason within the
reasonable control of Landlord and such work in the Premises materially impairs
Tenant's ability to carry on its business in the Premises for a period of ten
(10) consecutive business days, the Base Rent and additional rent payable by
Tenant under this Lease shall be abated, based on the extent to which such work
in the Premises materially impairs Tenant's ability to carry on its business in
the Premises, commencing on the eleventh business day of such material
impairment of Tenant's business and continuing until such work in the Premises
no longer materially impairs Tenant's ability to carry on its business in the
Premises. Tenant shall have no right to any abatement of the Base Rent and
additional rent
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payable by Tenant under this Lease if, and to the extent that, the reason for
such work in the Premises is caused by Tenant, or Tenant's officers, employees
contractors, agents, licensees or invitees, or by any force or event that cannot
be reasonably anticipated or controlled by Landlord. In the case of entry for
the purpose of inspecting the Premises or exhibiting the Premises, Landlord
shall give reasonable prior notice, but at least twenty-four (24) hours in
advance, to Tenant and shall use reasonable efforts to schedule such entry at a
mutually convenient time so that Landlord may be accompanied by a representative
of Tenant during such entry. Tenant waives all claims for damages for any injury
or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises or any other loss occasioned by
such entry in accordance with this section 15.1, unless caused by the negligence
or willful misconduct of Landlord or Landlord's officers, employees, agents or
contractors. Landlord shall at all times have and retain a key with which to
unlock all of the doors in, on or about the Premises (excluding Tenant's vaults,
safes, securities cage and similar areas designated in writing by Tenant in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem necessary to open such doors in an emergency to obtain entry
to the Premises. Any entry to the Premises obtained by Landlord by any of such
means shall not under any circumstances be construed or deemed to be a forcible
or unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof. For the
purposes of this section 15.1, an "emergency" shall mean any condition,
circumstance, force or event which, in the reasonable opinion of Landlord or any
of Landlord's officers, employees, agents or contractors, creates a risk of
injury to or death of any person or damage to any property and which requires
immediate action to reduce or eliminate such risk.
ARTICLE 16
EVENTS OF DEFAULT AND REMEDIES
16.1 The occurrence of any one or more of the following events ("Event
of Default") shall constitute a breach of this Lease by Tenant:
(a) Tenant fails to pay any Interim Rent or any Base Rent or
additional monthly rent under section 3.1 hereof as and when such rent becomes
due and payable and such failure continues for more than five (5) days after
Landlord gives written notice thereof to Tenant; or
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(b) 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
fifteen (15) 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, shall be required to establish an
Event of Default in the same calendar year; or
(c) Tenant fails to perform or observe any other agreement, covenant
or condition of this Lease to be performed or observed by Tenant as and when
performance or observance is due and such failure continues for more than
fifteen (15) days after Landlord gives written notice thereof to Tenant;
provided, however, that if, by the nature of such agreement, covenant or
condition, such failure cannot reasonably be cured within such period of fifteen
(15) days, an Event of Default shall not exist as long as Tenant commences with
due diligence and dispatch the curing of such failure within such period of
fifteen (15) days and, having so commenced, thereafter prosecutes with diligence
and dispatch and completes the curing of such failure; or
(d) Tenant (i) 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, (ii)
makes an assignment for the benefit of its creditors, (iii) 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 (iv) takes
action for the purpose of any of the foregoing; or
(e) Without consent by Tenant, a court or government authority enters
an order, and such order is not vacated within sixty (60) days, (i) 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 (ii)
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 (iii) ordering the dissolution, winding-up or
liquidation of Tenant; or
(f) This Lease or any estate of Tenant hereunder is levied upon
under any attachment or execution and such
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attachment or execution is not vacated within sixty (60) days; or
(g) Tenant abandons the Premises and another Event of Default occurs.
16.2 If an Event of Default occurs, Landlord at any time shall have
the right 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:
(a) The worth at the time of award of all unpaid rent which had been
earned at the time of termination;
(b) 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;
(c) 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
(d) All other amounts necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its 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 (a) and (b) 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 (c) 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 (a), (b) and (c) above, the rent reserved in this Lease shall be
deemed to be the total rent payable by Tenant under Articles 3 and 5 hereof.
16.3 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 the right to enforce all its rights and
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remedies under this Lease, including the right 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 Tenant's right to possession unless written notice of termination is given by
Landlord to Tenant.
16.4 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.
16.5 All agreements, covenants and conditions to be performed or observed
by Tenant under this Lease shall be at Tenant's sole cost and expense and
without any abatement of rent (except as otherwise expressly permitted by this
Lease). If Tenant fails to pay any sum of money required to be paid by Tenant
hereunder or fails to perform any other act on Tenant's part to be performed
hereunder, Landlord shall have the right, but shall not be obligated, and
without waiving or releasing Tenant from any obligations of Tenant, to make any
such payment or to perform any such other act on Tenant's part to be made or
performed in accordance with this Lease. All sums so paid by Landlord and all
necessary incidental costs shall be deemed additional rent hereunder and shall
be payable by Tenant to Landlord on demand, together with interest on all such
sums from the date of expenditure by Landlord to the date of repayment by Tenant
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 date of expenditure or, if there is no such maximum annual interest
rate, at the rate of eighteen percent (18%) per annum. Landlord shall have, in
addition to all other rights and remedies of Landlord, the same rights and
remedies in the event of the nonpayment of such sums plus interest by Tenant as
in the case of default by Tenant in the payment of rent.
16.6 If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any movable furniture, equipment, trade fixtures or
personal property belonging to Tenant and left in the Premises shall be deemed
to be abandoned, at the option of Landlord, and Landlord shall have the right to
sell or otherwise dispose of such personal property in any commercially
reasonable manner.
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ARTICLE 17
EMINENT DOMAIN
17.1 If twenty-five percent (25%) or less of the area of the Premises
is taken by exercise of the power of eminent domain before the Commencement Date
or during the tern of this Lease, this Lease shall terminate as to the portion
of the Premises so taken as of the date of such taking and shall remain in full
force and effect as to the portion of the Premises not so taken, and the Base
Rent shall be reduced as of the date of such taking in the proportion that the
area of the Premises so taken bears to the total area of the Premises, unless
the taking of the portion of the Premises so taken materially interferes with
Tenant's use of the portion of the Premises not so taken, in which event Tenant
shall have the right, by giving written notice to Landlord within thirty (30)
days after the date of such taking, to terminate this Lease. If more than
twenty-five percent (25%), but less than all, of the area of the Premises is
taken by exercise of the power of eminent domain before the Commencement Date or
during the term of this Lease, Landlord and Tenant each shall have the right, by
giving written notice to the other within thirty (30) days after the date of
such taking, to terminate this Lease. If either Landlord or Tenant exercises any
such right to terminate this Lease in accordance with this section 17.1, this
Lease shall terminate as of the date of such taking. If neither Landlord nor
Tenant exercises such right to terminate this Lease in accordance with this
section 17.1, this Lease shall terminate as to the portion of the Premises so
taken as of the date of such taking and shall remain in full force and effect as
to the portion of the Premises not so taken, and the Base Rent shall be reduced
as of the date of such taking in the proportion that the area of the Premises so
taken bears to the total area of the Premises. If all of the Premises is taken
by exercise of the power of eminent domain before the Commencement Date or
during the term of this Lease, this Lease shall terminate as of the date of such
taking.
17.2 If all or any part of the Premises is taken by exercise of the
power of eminent domain, all awards, compensation, damages, income, rent and
interest payable in connection with such taking shall, except as expressly set
forth in this section 17.2, be paid to and become the property of Landlord, and
Tenant hereby assigns to Landlord all of the foregoing, but if this Lease is not
terminated pursuant to section 17.1 hereof, Landlord shall use such condemnation
proceeds to restore the portion of the Premises not so taken to the condition in
which such portion existed before the taking, to the extent reasonably
practicable
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under the circumstances. Without limiting the generality of the foregoing,
Tenant shall have no claim against Landlord or the entity exercising the power
of eminent domain for the value of the leasehold estate created by this Lease or
any unexpired term of this Lease. Tenant shall have the right to claim and
receive directly from the entity exercising the power of eminent domain only the
share of any award determined to be owing to Tenant for the taking of
improvements installed in the portion of the Premises so taken by Tenant at
Tenant's sole cost and expense based on the unamortized cost actually paid by
Tenant for such improvements, for the taking of Tenant's movable furniture,
equipment, trade fixtures and personal property, for loss of goodwill, for
interference with or interruption of Tenant's business, and for removal and
relocation expenses.
17.3 Notwithstanding sections 17.1 and 17.2 hereof to the contrary, if the
use of all or any part of the Premises is taken by exercise of the power of
eminent domain during the term of this Lease on a temporary basis for a period
less than the term of this Lease remaining after such taking, this Lease shall
continue in full force and effect, Tenant shall continue to pay all of the rent
and to perform all of the covenants of Tenant in accordance with this Lease, to
the extent reasonably practicable under the circumstances, and the condemnation
proceeds in respect of such temporary taking shall be paid to Tenant.
17.4 As used in this Article 17, a "taking" means the acquisition of all or
part of the Premises for a public use by exercise of the power of eminent domain
and the taking shall be considered to occur as of the earlier of the date on
which possession of the Premises (or part so taken) by the entity exercising the
power of eminent domain is authorized as stated in an order for possession or
the date on which title to the Premises (or part so taken) vests in the entity
exercising the power of eminent domain.
ARTICLE 18
SUBORDINATION, MERGER AND SALE
18.1 Subject to the requirements in this section 18.1, this Lease shall be
subject and subordinate at all times to the lien of all mortgages and deeds of
trust securing any amount or amounts whatsoever which may now exist or hereafter
be placed on or against the Building or on or against Landlord's interest or
estate therein, all without the necessity of having further instruments executed
by Tenant to effect such subordination. Notwithstanding the foregoing, the
subordination of this Lease to any such
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mortgage or deed of trust is expressly conditional upon the holder thereof
agreeing, in such deed of trust or mortgage or in a separate agreement, that, in
the event of a foreclosure of any such mortgage or deed of trust or of any other
action or proceeding for the enforcement thereof, or of any sale thereunder,
Tenant shall not be named or joined in any action or proceeding to enforce such
mortgage or deed of trust unless required by law to perfect the proceeding and
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. Tenant shall attorn to the person who acquires Landlord's
interest hereunder through any such mortgage or deed of trust and such person
shall be bound to Tenant in accordance with section 18.3 hereof. Tenant agrees
to execute, acknowledge and deliver upon demand such further instruments
evidencing such subordination of this Lease to the lien of all such mortgages
and deeds of trust as may reasonably be required by Landlord, but Tenant's
covenant to subordinate this Lease to mortgages or deeds of trust hereafter
executed is conditioned upon each such senior mortgage or deed of trust, or a
separate subordination agreement, containing the commitments specified in the
preceding sentence. Landlord shall, within ninety (90) days after the date of
this Lease, obtain and deliver to Tenant a nondisturbance agreement containing
the commitments set forth in this section 18.1 executed by the holder of any
existing mortgage or deed of trust encumbering the Building or any part thereof.
18.2 The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not work a merger and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies or operate as
an assignment to Landlord of any or all such subleases or subtenancies.
18.3 If the original Landlord hereunder, or any successor owner of the
Building, sells or conveys the Building, all liabilities and obligations on the
part of the original Landlord, or such successor owner, under this Lease
accruing after such sale or conveyance shall terminate and the original
Landlord, or such successor owner, shall automatically be released therefrom,
and thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner.
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ARTICLE 19
ESTOPPEL CERTIFICATE
19.1 At any time and from time to time but in any event within ten
(10) business days after written request by Landlord or Tenant to the other
party, such other party shall execute, acknowledge and deliver to the requesting
party a certificate certifying: (a) that this Lease is unmodified and in full
force and effect (or, if there have been modifications, that this Lease is in
full force and effect as modified, and stating the date and nature of each
modification); (b) the Commencement Date and the Expiration Date determined in
accordance with Article 2 hereof and the date, if any, to which all rent and
other sums payable hereunder have been paid; (c) that no notice has been
received by such other party of any default by such other party hereunder which
has not been cured, except as to defaults specified in such certificate; (d)
that the requesting party is not in default hereunder, except as to defaults
specified in such certificate; and (e) such other matters as may be reasonably
requested by the requesting party or any actual or prospective purchaser,
mortgage lender, assignee or subtenant. Any such certificate may be relied upon
by the requesting party and any actual or prospective purchaser or mortgage
lender of the Building or any part thereof and any actual or prospective
assignee or subtenant of this Lease or the Premises or any part thereof. At any
time and from time to time, but in any event within ten (10) days after written
request by Landlord, Tenant shall deliver to Landlord copies of all current
annual reports of Tenant.
ARTICLE 20
HOLDING OVER
20.1 If, without objection by Landlord, Tenant holds possession of the
Premises after expiration of the term of this Lease, Tenant shall become a
tenant from month to month upon the terms herein specified but at a Base Rent
equal to one hundred fifty percent (150%) of the Base Rent being paid by Tenant
at the expiration of the term of this Lease pursuant to Article 3 hereof,
payable in advance on or before the first day of each month. Such month to
month tenancy may be terminated by either Landlord or Tenant by giving thirty
(30) days' written notice of termination to the other at any time.
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ARTICLE 21
ADDITIONAL FLOOR AND PAVILION
21.1 After Landlord executes the first lease on the eleventh floor of
the Building (the "Additional Floor") and such lease expires, and before
Landlord completes a subsequent lease for all or any part of the Additional
Floor, Landlord shall, by giving written notice of availability of the
Additional Floor to Tenant, give Tenant the first right to negotiate with
Landlord to lease the entire Additional Floor. If Tenant wishes to negotiate
with Landlord to lease the entire Additional Floor, Tenant shall give written
notice in response to Landlord within thirty (30)days after the date of
Landlord's notice of availability. If Tenant does not give such response notice
to Landlord within such period of thirty (30) days, this section 21.1 shall
terminate and have no further force or effect, and thereafter Landlord shall
have the right to lease all or any part of the Additional Floor without regard
to this section 21.1. If Tenant gives such response notice to Landlord within
such period of thirty (30) days, then, for a period of thirty (30) days after
such response notice is given by Tenant, Landlord and Tenant shall negotiate in
good faith to lease the entire Additional Floor to Tenant, but neither Landlord
nor Tenant shall be obligated to agree on or to enter into such lease. If
Landlord and Tenant do not agree to lease the entire Additional Floor to Tenant
within such period of thirty (30) days, this section 21.1 shall terminate and
have no further force or effect, and thereafter Landlord shall have the right to
lease all or any part of the Additional Floor without regard to this section
21.1. At any time and from time to time after this section 21.1 has terminated,
Tenant shall, upon written demand from Landlord, confirm in writing to Landlord
that this section 21.1 has terminated.
21.2 If the entire free-standing building located at the corner of
Market, Sutter and Sansome Streets and known as 532 Market Street (the
"Pavilion") becomes available for lease during the term of this Lease, before
Landlord completes a lease for all or any part of the Pavilion, Landlord shall,
by giving written notice of availability of the Pavilion to Tenant, give Tenant
the first right to negotiate with Landlord to lease the entire Pavilion. If
Tenant wishes to negotiate with Landlord to lease the entire Pavilion, Tenant
shall give written notice in response to Landlord within thirty (30) days after
the date of Landlord's notice of availability. If Tenant does not give such
response notice to Landlord within such period of thirty (30) days, this section
21.2 shall terminate and have no further force or effect, and thereafter
Landlord shall have
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the right to lease all or any part of the Pavilion without regard to this
section 21.2. If Tenant gives such response notice to Landlord within such
period of thirty (30) days, then for a period of thirty (30) days after such
response notice is given by Tenant, Landlord and Tenant shall negotiate in good
faith to lease the entire Pavilion to Tenant, but neither Landlord nor Tenant
shall be obligated to agree on or to enter into such lease. If Landlord and
Tenant do not agree to lease the entire Pavilion to Tenant within such period of
thirty (30) days, this section 21.2 shall terminate and have no further force or
effect, and thereafter Landlord shall have the right to lease all or any part of
the Pavilion without regard to this section 21.2. Landlord shall have the right,
in the sole discretion of Landlord, before Landlord gives such notice of
availability to Tenant, to make any alterations, additions, improvements or
changes in the Pavilion. At any time and from time to time after this section
21.2 has terminated, Tenant shall, upon written demand from Landlord, confirm in
writing to Landlord that this section 21.2 has terminated.
ARTICLE 22
WAIVER
22.1 The waiver by Landlord or Tenant of any breach of any covenant in
this Lease shall not be deemed to be a waiver of any subsequent breach of the
same or any other covenant in this Lease, nor shall any custom or practice which
may grow up between Landlord and Tenant in the administration of this Lease be
construed to waive or to lessen the right of Landlord or Tenant to insist upon
the performance by Landlord or Tenant in strict accordance with this Lease. The
subsequent acceptance of rent hereunder by Landlord or the payment of rent by
Tenant shall not waive any preceding breach by Tenant of any covenant in this
Lease, nor cure any Event of Default, nor waive any forfeiture of this Lease or
unlawful detainer action, other than the failure of Tenant to pay the particular
rent so accepted, regardless of Landlord's or Tenant's knowledge of such
preceding breach at the time of acceptance or payment of such rent.
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ARTICLE 23
NOTICES
23.1 All notices and other communications which may or are required to
be given by either Landlord or Tenant to the other under this Lease shall be
deemed to have been properly given only when made in writing and hand delivered
or deposited in the United States mail, postage prepaid, certified with return
receipt requested, and addressed as follows: to Tenant, before the Commencement
Date, at the address of Tenant specified in the BASIC LEASE INFORMATION, but
after the Commencement Date, at the Premises, or at such other place as Tenant
may from time to time designate in a notice to Landlord; and to Landlord at the
address of Landlord specified in the BASIC LEASE INFORMATION, or at such other
place as Landlord may from time to time designate in a notice to Tenant. Such
notices and other communications shall be effective upon hand delivery, if hand
delivered, or receipt (evidenced by the certified mail receipt), if mailed.
ARTICLE 24
MISCELLANEOUS
24.1 The words "Landlord" and "Tenant" as used herein shall include
the plural as well as the singular. If there is more than one Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several. If
Landlord consists of more than one party, the obligations hereunder imposed upon
Landlord shall be joint and several. Time is of the essence of this Lease and
each and all of its provisions. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option for lease,
and it is not effective as a lease or otherwise until execution and delivery by
both Landlord and Tenant. Subject to Article 13 hereof, this Lease shall benefit
and bind Landlord and Tenant and the personal representatives, heirs, successors
and assigns of Landlord and Tenant. If any provision of this Lease is determined
to be illegal or unenforceable, such determination shall not affect any other
provision of this Lease and all such other provisions shall remain in full force
and effect. If Tenant requests the consent or approval of Landlord to any
assignment, sublease or other action by Tenant, Tenant shall pay on demand to
Landlord all costs and expenses, including, without limitation, reasonable
attorneys' fees, incurred by Landlord in connection therewith. This Lease shall
be governed by and construed in accordance with the laws of the State of
California.
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24.2 Tenant acknowledges that the late payment by Tenant of any monthly
installment of Base Rent or additional monthly rent will cause Landlord to
incur costs and expenses, the exact amount of which is extremely difficult
and impractical to fix. Such costs and expenses will include, without
limitation, administration and collection costs and processing and accounting
expenses. Therefore, if any monthly installment of Base Rent or additional
monthly rent is not received by Landlord from Tenant within five (5) business
days after such installment is due, Tenant shall immediately pay to Landlord
a late charge equal to four percent (4%) of such delinquent installment.
Landlord and Tenant agree that such late charge represents a reasonable
estimate of such costs and expenses and is fair compensation to Landlord for
its loss suffered by Tenant's failure to make timely payment. In no event
shall such late charge be deemed to grant to Tenant a grace period or
extension of time within which to pay any monthly rent or prevent Landlord
from exercising any right or remedy available to Landlord upon Tenant's
failure to pay each installment of monthly rent due under this Lease in a
timely fashion, including the right to terminate this Lease. All amounts of
money payable by Tenant to Landlord hereunder, if not paid when due, shall
bear interest from the due date until paid 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 such due date or, if
there is no such maximum annual interest rate, at the rate of eighteen
percent (18%) per annum.
24.3 If there is any legal action or proceeding between Landlord and
Tenant to enforce any provision of this Lease or to protect or establish any
right or remedy of either Landlord or Tenant hereunder, the unsuccessful party
to such action or proceeding shall pay to the prevailing party all costs and
expenses, including reasonable attorneys' fees, incurred by such prevailing
party in such action or proceeding and in any appeal in connection therewith.
If such prevailing party recovers a judgment in any such action, proceeding or
appeal, such costs, expenses and attorneys' fees shall be included in and as a
part of such judgment.
24.4 Exhibit A-1 (Plans Outlining the Initial Premises), A-2 (Plan
Outlining the Storage Space), A-3 (Plan Outlining the Equipment Space), Exhibit
B (Improvement of the Initial Premises) and Exhibit C (Rules and Regulations)
are attached to and made a part of this Lease.
24.5 Landlord and Tenant each warrants and represents to the other that
it has negotiated this Lease directly with the real estate brokers specified
in the BASIC
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LEASE INFORMATION and has not authorized or employed, or acted by implication to
authorize or to employ, any other real estate broker or salesman to act for it
in connection with this Lease. Landlord shall pay the compensation due such
real estate brokers in accordance with the separate agreements between Landlord
and such real estate brokers.
24.6 Landlord and Tenant each represents and warrants to the other
that (a) it is duly incorporated and validly existing under the laws of its
state of incorporation, (b) it is qualified to do business in California, (c) it
has full corporate right, power and authority to enter into this Lease and to
perform all of its obligations hereunder, and (d) each person signing this Lease
on behalf of the corporation 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 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.
24.7 Tenant shall have the exclusive right to affix the words "Hambrecht &
Quist Building" in letters above the main lobby entrance to the Building. The
size, design, color and materials of such lettering shall be subject to the
prior written approval of Landlord and the San Francisco Landmarks Preservation
Advisory Board, the San Francisco Planning Department and the San Francisco
Planning Commission. Such lettering shall not be illuminated. Such lettering
shall be installed by Landlord at the expense of Tenant pursuant to Exhibit B.
Tenant shall prepare and submit to Landlord for the approval of Landlord and the
San Francisco Landmarks Preservation Advisory Board, the San Francisco Planning
Department and the San Francisco Planning Commission complete plans and
specifications for such lettering. No change in such name or lettering, as a
result of a change in Tenant's name or otherwise, shall be made without the
prior written approval of Landlord. Landlord shall maintain such lettering.
Tenant's rights under this section 24.7 shall terminate upon termination of this
Lease or if Tenant assigns this Lease or occupies less than four (4) entire
floors of the Premises. Upon termination of Tenant's rights under this section
24.7, Landlord shall have the right to remove such lettering and restore the
main lobby entrance to the Building. Tenant shall not use the words "Hambrecht
& Quist Building" in connection with any media advertising without the written
approval of Landlord; provided, however, that Tenant may use the words
"Hambrecht & Quist Building" on letterhead and other stationery items, and in
business communications in reference to the location
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of Tenant's business. Tenant shall not use the name of the Building, which shall
be "One Bush Street" unless changed by Landlord, for any purpose whatsoever
other than as the address of the business to be conducted by Tenant in the
Premises. Landlord shall use the name of the Building, which shall be "One Bush
Street" unless changed by Landlord, in all marketing, media advertising and
promotion of the Building.
24.8 Tenant shall, during the term of this Lease, upon paying all of
the rent and performing all of the covenants of Tenant in accordance with this
Lease, peaceably and quietly enjoy the Premises, subject to the covenants and
conditions of this Lease.
24.9 Tenant shall have the right to use an equitable proportion of
space in the directory of the Building for the display of the name and location
of Tenant and principal officers, employees and subtenants of Tenant based on
the space in the Building leased by Tenant in relation to the total space in the
Building.
24.10 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. 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. This Lease may not
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be amended or modified in any respect whatsoever except by an instrument in
writing signed by Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Office
Lease as of the date first hereinabove written.
HAMBRECHT & QUIST THE EQUITABLE LIFE ASSURANCE
INCORPORATED, a California SOCIETY OF THE UNITED STATES,
corporation a New York corporation
By /s/ [Signature unreadable] By /s/ [Signature unreadable]
--------------------------- ---------------------------
Title Chairman Title Attorney in Fact
------------------------ ------------------------
By [Signature unreadable]
---------------------------
Title SVP Finance
------------------------
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Exhibit A-1, 18th Floor
[Graphic depiction omitted]
<PAGE>
Exhibit A-1, 17th Floor
[Graphic depiction omitted]
<PAGE>
Exhibit A-1, 16th Floor
[Graphic depiction omitted]
<PAGE>
Exhibit A-1, 15th Floor
[Graphic depiction omitted]
<PAGE>
Exhibit A-1, 14th Floor
[Graphic depiction omitted]
<PAGE>
Exhibit A-2, 19th Floor
[Graphic depiction omitted]
<PAGE>
Exhibit A-3, Service Plan
[Graphic depiction omitted]
<PAGE>
EXHIBIT B
IMPROVEMENT OF THE INITIAL PREMISES
1. THE WORK. Landlord, through Landlord's contractor, shall
construct and install in the Initial Premises, substantially in accordance
with plans, working drawings and specifications ("Tenant's Plans") prepared
by Tenant's architects and engineers and approved by Landlord, the
improvements (the "Work") described in Tenant's Plans (except work described
in paragraph 6 hereof). The costs of preparing Tenant's Plans and performing
the Work shall be allocated between, and paid by, Landlord and Tenant as set
forth in this Exhibit B. The Work shall be performed in a good and
workmanlike manner and in accordance with applicable laws and regulations.
The quantities, character and manner of construction and installation of the
Work shall be subject to all limitations and restrictions imposed by laws,
regulations and guidelines relating to health, safety, the environment,
handicapped persons and conservation of energy adopted by any public or
government authority.
2. TENANT'S PLANS.
(a) As soon as reasonably possible, but in any event on or before
"Tenant's Plans Date" specified in the BASIC LEASE INFORMATION, Tenant shall
submit Tenant's Plans to Landlord for Landlord's written approval (which
shall not be unreasonably withheld or delayed). Tenant's Plans shall be
prepared by Interior Architects or by other qualified licensed architects and
engineers retained by Tenant and approved in writing by Landlord (which shall
not be unreasonably withheld), shall comply with all applicable codes, laws,
ordinances, rules and regulations, shall be in a form sufficient to secure
the approval of all government authorities with jurisdiction over the
approval thereof, and shall be otherwise satisfactory to Landlord in
Landlord's reasonable discretion. Tenant's Plans shall be complete plans,
working drawings and specifications for the layout, improvement and finish of
the Initial Premises consistent with the design and construction of the
Building, including mechanical and electrical drawings and decorating plans,
showing the following:
(i) Location and type of all partitions;
(ii) Location and type of all doors, with hardware and keying
schedule;
(iii) Ceiling plans, including light fixtures;
Exhibit B-1
<PAGE>
(iv) Location of telephone equipment room, with all special electrical
and cooling requirements;
(v) Location and type of all electrical outlets, switches, telephone
outlets, and lights;
(vi) Location of all sprinklers;
(vii) Location and type of all equipment requiring special electrical
requirements;
(viii) Location, weight per square foot and description of any heavy
equipment or filing system exceeding fifty (50) pounds per square
foot live and dead load;
(ix) Requirements for special air conditioning or ventilation;
(x) Location and type of plumbing;
(xi) Location and type of kitchen equipment;
(xii) Indicate critical dimensions necessary for construction; and
(xiii) Corridor entrances, bracing or support of special walls or
glass partitions, and any other items or information requested by Landlord.
(b) As soon as reasonably possible, but in any event within one
(1) month after Tenant's Plans Date, Tenant shall submit supplemental plans,
which shall become part of Tenant's Plans upon written approval by Landlord,
to Landlord for Landlord's written approval (which shall not be unreasonably
withheld or delayed) showing the following:
(i) Type and color of floor covering;
(ii) Location, type and color of wall covering;
(iii) Location, type and color of paint or finishes; and
(iv) Details showing all millwork with verified dimensions and
dimensions of all equipment to be built in.
(c) Tenant's Plans shall be subject to Landlord's prior written
approval (which shall not be unreasonably
Exhibit B-2
<PAGE>
withheld or delayed). If Landlord reasonably disapproves Tenant's Plans, or
any portion thereof, Landlord shall promptly give notice to Tenant setting
forth the reasons for such disapproval and shall consult with Tenant
regarding possible revisions which Landlord would approve. As promptly as
reasonably possible thereafter, but not later than five (5) business days
after Landlord's notice, Tenant shall submit to Landlord revised Tenant's
Plans incorporating the revisions required by Landlord. Such revisions shall
be subject to Landlord's written approval (which shall not be unreasonably
withheld or delayed).
(d) Tenant shall promptly pay when due the entire cost of all space
planning, design, architectural and engineering services necessary for the
preparation of Tenant's Plans. All interior decorating services, such as the
selection of wall paint colors and wall coverings, fixtures, carpeting and all
other decorator selection work, required by Tenant shall be provided by Tenant
at Tenant's expense.
3. CONSTRUCTION. Upon completion of Tenant's Plans and approval
of Tenant's Plans by Landlord, Landlord shall have Landlord's contractor
prepare, on the basis of Tenant's Plans, and furnish to Landlord and Tenant
a reasonably itemized estimate of the cost of the Work. Landlord shall give
Tenant's architects, engineers and consultants a reasonable opportunity to
consult with Landlord's contractor in the preparation of such cost estimate.
Within five (5) business days after receipt of such cost estimate, Tenant
shall approve or disapprove such cost estimate in writing. Landlord shall
have no obligation to perform any Work in the Initial Premises until Tenant
has approved either such cost estimate or a revised cost estimate submitted
by Landlord's contractor after Tenant has revised Tenant's Plans (subject to
the prior written approval of Landlord which shall not be unreasonably
withheld) to permit such revised cost estimate. Tenant's approval of a cost
estimate shall constitute authorization for Landlord to perform the Work
substantially in accordance with Tenant's Plans, In the absence of such
authorization, Landlord shall not be obligated to commence the Work.
Landlord's contractor shall complete the Work in the Initial Premises
substantially in accordance with Tenant's Plans. Tenant shall promptly pay
when due the entire cost of all of the Work (including, without limitation,
the cost of all utilities, permits, fees, taxes, and property and liability
insurance in connection therewith) required by Tenant's Plans upon receipt of
monthly progress statements from Landlord as prepared by Landlord's
contractor.
Exhibit B-3
<PAGE>
4. LANDLORD'S CONTRIBUTION. As Landlord's contribution for the costs
of preparing Tenant's Plans and performing the Work and other work by Tenant
described in paragraph 6 hereof, Landlord shall give Tenant an allowance in
the amount of "Landlord's Contribution" specified in the BASIC LEASE
INFORMATION. Landlord shall pay Landlord's Contribution directly to Tenant's
architects, engineers, consultants or suppliers or to Landlord's contractor
for the account of Tenant, in installments as professional services for
Tenant's Plans are rendered or the Work is performed, upon Landlord's receipt
from Tenant of a request for payment accompanied by written invoices and
other written evidence reasonably satisfactory to Landlord showing the costs
incurred, until Landlord's Contribution is exhausted. Tenant shall have the
right from time to time to increase Landlord's Contribution by a total amount
not to exceed one million seven hundred seventeen thousand four hundred
eighty-five dollars ($1,717,485) and to reduce the Rent Credit by an equal
amount. Whenever Tenant wishes to increase Landlord's Contribution and to
decrease the Rent Credit, Tenant shall give Landlord a written notice
specifying the amount by which Landlord's Contribution is to be increased and
the Rent Credit is to be decreased, and such amount shall be added to
Landlord's Contribution and subtracted from the Rent Credit. The total
amount of such increase in Landlord's Contribution and corresponding decrease
in the Rent Credit shall in no event be more than the maximum amount set
forth in this paragraph 4. Landlord and Tenant each shall, promptly after any
such increase in Landlord's Contribution and decrease in the Rent Credit,
execute and deliver to the other an amendment to this Lease which sets forth
such increase and decrease, but such increase and decrease shall be effective
in accordance with this paragraph 4 whether or not such amendment is executed.
5. CHANGES. If Tenant requests any change in Tenant's Plans or
the Work, Tenant shall request such change in a written notice to Landlord.
Each such request shall be accompanied by plans, drawings and specifications
prepared by Tenant's architects or engineers, at Tenant's expense, necessary
to show and explain such change from the previously approved Tenant's Plans.
All changes in Tenant's Plans shall be subject to the prior written approval
of Landlord (which shall not be unreasonably withheld). If Landlord approves
a change, Landlord shall have Landlord's contractor give Tenant an estimate
of the construction cost, if any, which will be incurred for such change.
Tenant shall, within two (2) business days after receipt of such estimate,
notify Landlord in writing to proceed or not to proceed with such change. In
the absence of such written notice to proceed, Landlord shall not be
obligated to make the change requested by Tenant and Landlord shall proceed
Exhibit B-4
<PAGE>
with the Work in accordance with the previously approved Tenant's Plans.
6. OTHER WORK BY TENANT. All work not within the scope of the
normal construction trades employed on the Building, such as the furnishing
and installing of furniture, telephone equipment and wiring and office
equipment, shall be furnished and installed by Tenant at Tenant's expense.
Tenant shall adopt a schedule in conformance with the schedule of Landlord's
contractors and conduct Tenant's work in such a manner as to maintain
harmonious labor relations and as not to interfere with or delay the work of
Landlord's contractors. Tenant's contractors, subcontractors and labor shall
be acceptable to and approved in writing by Landlord (which shall not be
unreasonably withheld) and shall be subject to the administrative supervision
of Landlord's general contractor. Landlord shall provide reasonable access
and entry to the Initial Premises to Tenant and Tenant's contractors and
subcontractors and reasonable opportunity and time and reasonable use of
facilities to enable Tenant to adapt the Initial Premises for Tenant's use.
7. REQUIREMENTS. Any work performed at the Building or on the
Initial Premises by Tenant or Tenant's contractor in connection with
improvements shall be subject to the following additional requirements:
(a) Such work shall not proceed until Landlord has approved (which
shall not be unreasonably withheld or delayed) in writing: (i) Tenant's
contractor, (ii) the amount and coverage of public liability and property
damage insurance, with Landlord named as an additional insured, carried by
Tenant's contractor, (iii) complete and detailed plans and specifications for
such work, and (iv) a schedule for the work.
(b) All work shall be done in conformity with a valid permit when
required, a copy of which shall be furnished to Landlord before such work is
commenced. In any case, all such work shall be performed in accordance with
all applicable laws. Notwithstanding any failure by Landlord to object to
any such work, Landlord shall have no responsibility for Tenant's failure to
comply with applicable laws.
(c) All work by Tenant or Tenant's contractor shall be done with
union labor in accordance with all union labor agreements applicable to the
trades being employed.
(d) All work by Tenant or Tenant's contractor shall be scheduled,
on a reasonable basis, through Landlord.
Exhibit B-5
<PAGE>
(e) Tenant or Tenant's contractor shall arrange for necessary
utility, hoisting and elevator service, on a nonexclusive basis, with
Landlord's contractor and shall pay such reasonable costs for such services
as may be charged by Landlord's contractor. Landlord shall have the right to
require any necessary movement of materials by the elevator to be done after
regular working hours at the expense of Tenant.
(f) Tenant's entry on the Initial Premises for any purpose,
including, without limitation, inspection or performance of improvement work
by Tenant, prior to the Commencement Date shall be subject to all of the
covenants of this Lease except the payment of rent. Entry by Tenant shall
include entry by Tenant's officers, employees, contractors, licensees,
agents, servants, guests, invitees or visitors.
Exhibit B-6
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. COMMON AREAS. The sidewalks, halls, passages, exits, entrances,
elevators and stairways of the Building shall not be obstructed by Tenant or
used for any purpose other than for ingress to and egress from the Premises.
The halls, passages, exits, entrances, elevators and stairways are not for
the general public and Landlord shall in all cases have the right to control
and prevent access thereto of all persons (including, without limitation,
messengers or delivery personnel not wearing uniforms) whose presence in the
judgment of Landlord would be prejudicial to the safety, character,
reputation or interests of the Building and its tenants. Neither Tenant nor
any agent, employee, contractor, invitee or licensee of Tenant shall go upon
the roof of the Building. Landlord shall have the right at any time, without
the same constituting an actual or constructive eviction and without
incurring any liability to Tenant therefor, to change the arrangement or
location of entrances or passageways, doors or doorways, corridors,
elevators, stairs, toilets and common areas of the Building.
2. SIGNS. No sign, placard, picture, name, advertisement or
notice visible from the exterior of the Premises shall be inscribed, painted,
affixed or otherwise displayed by Tenant on any part of the Building or the
Premises without the prior written consent of Landlord. Landlord will adopt
and furnish to tenants general guidelines relating to signs inside the
Building. Tenant agrees to conform to such guidelines. All approved signs
or lettering shall be printed, painted, affixed or inscribed at the expense
of Tenant by a person approved by Landlord. Material visible from outside the
Building will not be permitted.
3. PROHIBITED USES. The Premises shall not be used for the
storage of merchandise held for sale to the general public or for lodging.
No cooking shall be done or permitted on the Premises except that private use
by Tenant of microwave ovens and Underwriters' Laboratory-approved equipment
for brewing coffee, tea, hot chocolate and similar beverages will be
permitted, provided that such use is in accordance with all applicable
federal, state and municipal laws, codes, ordinances, rules and regulations.
Tenant shall not place any load on the floors of the Building exceeding fifty
(50) pounds per square foot, live or dead load. Tenant shall not use
electricity for lighting, machines or equipment in excess of four (4) watts
per square foot.
4. JANITORIAL SERVICE. Tenant shall not employ any person other
than the janitor of Landlord for the purpose
Exhibit C-1
<PAGE>
of cleaning the Premises unless otherwise agreed to by Landlord in writing.
Except with the written consent of Landlord, no persons other than those
approved by Landlord shall be permitted to enter the Building for the purpose
of cleaning the Premises. Tenant shall not cause any unnecessary labor by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness. Landlord shall not be responsible to Tenant for any
loss of property in the Premises, however occurring, or for any damage done
to the effects of Tenant by the janitor or any other employee or any other
person.
5. KEYS. 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. Tenant shall not alter any lock or
install a new or additional lock or any bolt on any door of the Premises.
Tenant, upon the termination of this Lease, shall deliver to Landlord all
keys to doors in the Building.
6. MOVING PROCEDURES. Landlord shall designate appropriate entrances
for deliveries or other movement to or from the Premises of equipment,
materials, supplies, furniture or other property, and Tenant shall not use
any other entrances for such purposes. All moves shall be scheduled and
carried out during nonbusiness hours of the Building. All persons employed
and means or methods used to move equipment, materials, supplies, furniture
or other property in or out of the Building must be approved by Landlord
prior to any such movement. Landlord shall have the right to prescribe the
maximum weight, size and position of all equipment, materials, furniture or
other property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on a platform of such thickness as is necessary
properly to distribute the weight. Landlord will not be responsible for loss
of or damage to any such property from any cause, and all damage done to the
Building by moving or maintaining such property shall be repaired at the
expense of Tenant.
7. NO NUISANCES. Tenant shall not use or keep in the Premises or the
Building any kerosene, gasoline or inflammable or combustible fluid or
material other than limited quantities thereof reasonably necessary for the
operation or maintenance of office equipment. Tenant shall not use any
method of heating or air conditioning other than that supplied by Landlord.
Tenant shall not use or keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors or
Exhibit C-2
<PAGE>
vibrations, or interfere in any way with other tenants or those having
business in the Building, nor shall any animals be brought or kept in the
Premises or the Building.
8. CHANGE OF ADDRESS. Landlord shall have the right, exercisable
without notice and without liability to Tenant, to change the name or street
address of the Building or the room or suite number of the Premises.
9. BUSINESS HOURS. Landlord establishes the hours of 8 A.M. to 6 P.M.
Monday through Friday, except union holidays and legal holidays, as
reasonable and usual business hours for the purposes of section 7.1 of this
Lease. If Tenant requests electricity or heat or air conditioning or any
other services during any other hours or on any other days, and if Landlord
is able to provide the same, Tenant shall pay Landlord such charge as
Landlord shall establish from time to time for providing such services during
such hours. Any such charges which Tenant is obligated to pay shall be
deemed to be additional rent under this Lease.
10. ACCESS TO BUILDING. Landlord reserves the right to exclude from
the Building during the evening, night and early morning hours beginning at 6
P.M. and ending at 8 A.M. Monday through Friday, and at all hours on
Saturdays, Sundays, union holidays and legal holidays, all persons who do not
present identification acceptable to Landlord, Tenant shall provide Landlord
with a list of all persons authorized by Tenant to enter the Premises 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. In the case of invasion, mob,
riot, public excitement 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.
11. BUILDING DIRECTORY. The directory of the Building will be provided
for the display of the name and location of Tenant and a reasonable number of
the principal officers and employees of Tenant at the expense of Tenant.
Landlord reserves the right to restrict the amount of directory space
utilized by Tenant but Tenant shall be entitled to an equitable proportion of
such directory space in relation to the portion of the space in the Building
leased by Tenant.
12. WINDOW COVERINGS. No curtains, draperies, blinds, shutters,
shades, screens or other coverings, hangings or decorations shall be attached
to, hung or placed in, or
Exhibit C-3
<PAGE>
used in connection with any window of the Building without the prior written
consent of Landlord. In any event, with the prior written consent of Landlord,
such items shall be installed on the office side of Landlord's standard window
covering and shall in no way be visible from the exterior of the Building.
Tenant shall keep window coverings closed when the effect of sunlight (or the
lack thereof) would impose unnecessary loads on the Building's air conditioning
systems.
13. FOOD AND BEVERAGES. Tenant shall not obtain for use in the
Premises ice, drinking water, food, beverage, towel or other similar
services, except at such reasonable hours and under such reasonable
regulations as may be established by Landlord.
14. PROCEDURES WHEN LEAVING. Tenant shall ensure that the doors of the
Premises are closed and locked and that all water faucets, water apparatus
and utilities are shut off before Tenant and its employees leave the Premises
so as to prevent waste or damage. For any default or carelessness in this
regard, Tenant shall be liable and pay for all damage and injuries sustained
by Landlord or other tenants or occupants of the Building. On
multiple-tenancy floors, Tenant shall keep the doors to the Building
corridors closed at all times except for ingress and egress.
15. BATHROOMS. 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, 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 paid by Tenant if caused by Tenant
or its agents, employees, contractors, invitees or licensees.
16. PROHIBITED ACTIVITIES. Except with the prior written consent of
Landlord, Tenant shall not sell at retail newspapers, magazines, periodicals,
theatre or travel tickets or any other goods or merchandise to the general
public in or on the Premises, nor shall Tenant carry on or permit or allow
any employee or other person to carry on the business of stenography,
typewriting, printing or photocopying or any similar business in or from the
Premises for the service or accommodation of occupants of any other portion
of the Building, nor shall the Premises be used for manufacturing of any
kind, or any business or activity other than that specifically provided for
in this Lease.
17. NO ANTENNA. Tenant shall not install any radio or television
antenna, loudspeaker, or other device on the roof or exterior walls of the
Building. No television
Exhibit C-4
<PAGE>
or radio or recorder shall be played in such a manner as to cause a nuisance
to any other tenant.
18. VEHICLES. There shall not be used in any space, or in the public
halls of the Building, either by Tenant or others, any hand trucks except
those equipped with rubber tires and side guards or such other material
handling equipment as Landlord approves. No other vehicles of any kind shall
be brought by Tenant into the Building or kept in or about the Premises.
19. TRASH REMOVAL. Tenant shall store all its trash and garbage within
the 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 office building
trash and garbage in the City and County of San Francisco without being in
violation of any law or ordinance governing such disposal. All garbage and
refuse disposal shall be made only through entryways and elevators provided
for such purposes and at such times as Landlord shall designate. Tenant
shall crush and flatten all boxes, cartons and containers. Tenant shall pay
extra charges for any unusual trash disposal.
20. NO SOLICITING. Canvassing, soliciting, distribution of handbills
or any other written material and peddling in the Building are prohibited,
and Tenant shall cooperate to prevent the same.
21. SERVICES. The requirements of Tenant will be attended to only upon
application in writing at the office of the Building. Personnel of Landlord
shall not perform any work or do anything outside of their regular duties
unless under special instructions from Landlord.
22. WAIVER. 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
of the tenants of the Building.
23. SUPPLEMENTAL TO LEASE. These Rules and Regulations are in addition
to, and shall not be construed to in any way modify or amend, in whole or in
part, the covenants of this Lease.
24. AMENDMENTS AND ADDITIONS. Landlord reserves the right to make such
other rules and regulations, and to
Exhibit C-5
<PAGE>
amend or repeal these Rules and Regulations, as in Landlord's judgment may
from time to time be desirable for the safety, care and cleanliness of the
Building and for the preservation of good order therein.
Exhibit C-6
<PAGE>
LEASE AMENDMENT NO. ONE
THIS AMENDMENT, made as of November 9, 1988, by and between THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation
("Landlord"), and HAMBRECHT & QUIST INCORPORATED, a California corporation
("Tenant"),
W I T N E S S E T H:
RECITAL OF FACTS:
Landlord and Tenant entered into the Office Lease (the "Lease") dated
January 27, 1988. Landlord and Tenant will amend the Lease as set forth in this
Amendment.
N o w, T h e r e f o r e, for valuable consideration, receipt of which
is acknowledged, Landlord and Tenant agree as follows:
1. AMENDMENT OF LEASE. Effective as of the date of this Amendment,
the Lease is amended as follows:
(a) A new section 16.7 is hereby added to the Lease as follows:
"16.7 The occurrence of an `Event of Default' under the Office Lease
dated November 9, 1988, between Landlord and Tenant shall constitute an
Event of Default under this Lease."
(b) The first sentence of section 21.1 of the Lease is hereby amended
in its entirety to read as follows:
"21.1 After Landlord executes the first lease on the tenth floor of
the Building (the `Additional Floor') and such lease expires, and before
Landlord completes a subsequent lease for all or any part of the Additional
Floor, Landlord shall, by giving written notice of availability of the
Additional Floor to Tenant, give Tenant the first right to negotiate with
Landlord to lease the entire Additional Floor."
-1-
<PAGE>
2. LEGAL EFFECT. Except as amended by this Amendment, the Lease is
unchanged and, as so amended, the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
Amendment No. One as of the date first hereinabove written.
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES,
a New York corporation
By /s/
------------------------------------
Title Attorney in Fact
------------------------------
HAMBRECHT & QUIST INCORPORATED,
a California corporation
By /s/
------------------------------------
Title SVP Finance
------------------------------
-2-
<PAGE>
LEASE AMENDMENT NO. TWO
THIS AMENDMENT, made as of August 1, 1989, by and between THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation ("Landlord"), and
HAMBRECHT & QUIST INCORPORATED, a California corporation ("Tenant"),
W I T N E S S E T H:
RECITAL OF FACTS:
Landlord and Tenant entered into the Office Lease (the "Lease") dated January
27, 1988. Landlord and Tenant will amend the Lease as set forth in this
Amendment.
Now, Therefore, for valuable consideration, receipt of which is acknowledged,
Landlord and Tenant agree as follows:
1. In accordance with Exhibit B-4, paragraph 4 of the Lease ("Landlord's
Contribution"), Tenant exercised its right to increase Landlord's
Contribution by the amount of one million seven hundred seventeen thousand
four hundred eighty-five dollars ($1,717,485) and to reduce the Rent Credit
by an equal amount. Therefore, Tenant's Rent Credit is decreased
from two million three hundred eight thousand two hundred sixty dollars
($2,308,260) to five hundred ninety thousand seven hundred and seventy-five
dollars ($590,775) and Landlord's Contribution is increased from three
million two hundred seventy-one thousand four hundred dollars ($3,271,400)
to four million nine hundred eighty-eight thousand eight hundred eighty-
five dollars ($4,988,885).
2. In accordance with Article 2 of the Lease ("Term), Tenant exercised its
right to occupy a portion of the Initial Premises which were substantially
completed prior to the Commencement Date. Tenant and Landlord now agree
that the following schedule truly reflects the dates upon which various
portions of the Initial Premises were substantially completed and Tenant
took early occupancy:
Floor 18 December 1, 1988
Floor 17 December 1, 1988
Floor 16 December 15, 1988
Storage Space December 1, 1988
Equipment Space December 1, 1988
3. It is further agreed that Floor 15 was substantially completed and Tenant
occupied this portion of the Premises on January 1, 1989.
-1-
<PAGE>
4. It is further agreed that Floor 14 was substantially completed and Tenant
occupied this portion of the Premises on January 15, 1989. Tenant hereby
agrees to forever waive its rights under Article 2, Section 2.4 to demand
that Landlord increase the Rent Credit on account of Landlord's failure to
deliver possession of this portion of the Initial Premises with Landlord's
Work substantially complete on or before January 1, 989. Landlord hereby
agrees that Tenant shall not be responsible for any rental due for this
portion of the Initial Premises prior to the date of Tenants' actual
occupancy on January 15, 1989.
5. In accordance with Article 2 of the Lease ("Term"), Landlord and Tenant
shall each execute and deliver to the other an amendment to the Lease which
sets forth the Commencement Date and Expiration Date for the Lease. Now,
therefore, Landlord and Tenant agree that the term of said Lease shall
commence January 1, 1989 and expire December 31, 1998.
All other terms and conditions of the Lease are hereby reaffirmed as being
in full force and effect.
HAMBRECHT & QUIST INCORPORATED THE EQUITABLE LIFE
a California corporation ASSURANCE SOCIETY OF THE
UNITED STATES,
a New York corporation
By: /s/ By /s/
-------------------------- --------------------------
Title: Senior Vice President Title Attorney-in-Fact
----------------------- -----------------------
-2-
<PAGE>
ASSIGNMENT OF LEASE
This Assignment of Lease (Assignment) is made as of MARCH 27, 1996 between
Apple Computer, Inc. ("Assignor"), and Hambrecht & Quist L.L.C. ("Assignee").
Recitals
The Equitable Life Assurance Society of the United States ("Landlord"), as
landlord, and Assignor, as Tenant, executed a lease dated as of April 19, 1990
("Lease"), and as amended by the attached documents, a copy of which is attached
and incorporated by reference as Exhibit A, pursuant to which Landlord leased to
Tenant and Tenant leased from Landlord that certain property commonly known as
One Bush Street, 10th Floor, San Francisco for a term of 8 yrs 5 mos (length of
term), commencing on 8/6/90 (original commencement date), and ending on 12/31/98
(expiration date), subject to earlier termination as provided in the Lease.
Section 1. Assignment
Commencing 5/1/96 Assignor assigns and transfers to Assignee all right,
title, and interest in the Lease and Assignee accepts from Assignor all right,
title, and interest, subject to the terms and conditions set forth in this
Assignment.
Section 2. Assumption of Lease Obligations
Assignee hereby assumes and agrees to perform and fulfill all the terms,
covenants, conditions, and obligations required to be performed and fulfilled by
Assignor as lessee under the Lease, including the making of all payments due to
or payable on behalf of Lessor under the Lease as they become due and payable.
Section 3. Assignor's Covenants
Assignor covenants that the copy of the Lease attached as Exhibit A is a
true and accurate copy of the Lease as currently in effect and that there exists
no other agreement affecting Assignor's tenancy under the Lease.
Section 4. Litigation Costs
If any litigation between Assignor and Assignee arises out of this
Assignment or concerning the meaning of interpretation of this Assignment, the
losing party shall pay the prevailing party's costs and expenses of this
litigation, including, without limitation, reasonable attorney fees.
Section 5. Indemnification
Assignor indemnifies Assignee from and against any loss, cost, or expense,
including attorney fees and court costs relating to the failure of Assignor to
fulfill Assignor's obligations under the Lease, and accruing with respect to the
period on or prior to the date of this Assignment. Assignee indemnifies
Assignor from and against any loss, cost, or expense, including attorney fees
and court costs relating to the failure of Assignee to fulfill obligations under
the Lease, and accruing with respect to the period subsequent to the date of
this Assignment.
Section 6. Successors and Assign
This Assignment shall be binding on and inure to the benefit of the parties
to it, their heirs, executors, administrators, successors in interest, and
assigns.
<PAGE>
ASSIGNMENT OF LEASE
Section 7. Governing Law
This Assignment shall be governed by and construed in accordance with California
law.
The parties have executed this Assignment as of the date first above written.
Assignor: Apple Computer, Inc.
------------------------------------
By: /s/ Robert A. [Last name unreadable]
------------------------------------------
Date: 4/4/96
----------------------------------------
Assignee: Hambrecht & Quist L.L.C.
-------------------------------------
By: [Signature unreadable]
------------------------------------------
Date: 4/2/96
----------------------------------------
Consent of Landlord
The undersigned, as Landlord under the Lease, consents to this Assignment
of the Lease to Assignee, provided however, that notwithstanding this Assignment
and the undersigned's consent to this Assignment. Assignor and Assignee shall
remain jointly, and severally liable and obligated as tenant under the Lease and
the undersigned does not waiver or relinquish any rights under the Lease against
Assignor or Assignee.
Landlord: /s/ John F. Faust
------------------------------------
John F. Faust
By: Investment Officer
------------------------------------------
Date: 4/9/96
----------------------------------------
<PAGE>
One Bush Street
OFFICE LEASE
April 19, 1990
LANDLORD: TENANT:
The Equitable Life Assurance Apple Computer, Inc.
Society of the United States, a California Corporation
a New York Corporation
<PAGE>
OFFICE LEASE
BASIC LEASE INFORMATION
Article:
A. Date: April 19, 1990
B. Landlord: The Equitable Life Assurance Society of the United States, a New
York Corporation
C. Tenant: Apple Computer, Inc. a California Corporation.
D. Building (Paragraph 1 (a)): One Bush Street, San Francisco, California
94104, which includes the land (Assessor's Lot 11 and 12, Block 290) on
which the Building is located. 281,520 rentable square feet. Legal
Description - see Exhibit D.
E. Premises (Paragraph 1 (b)): The entire 10th floor comprising 16,560
rentable square feet.
F. Term Commencement (Paragraph 2): Upon substantial completion (see Addendum
Paragraph 3) of improvements to the Premises estimated to be Aug. 1, 1990
G. Term Expiration (Paragraph 2): July 31, 1995
H. Base Rent (Paragraph 3 (a)):
Year 1: $422,280.00 per annum, $35,190.00 per month.
Year 2: $438,840.00 per annum, $36,570.00 per month.
Year 3: $455,400.00 per annum, $37,950.00 per month.
Year 4: $488,520.00 per annum, $40,710.00 per month.
Year 5: $505,080.00 per annum, $42,090.00 per month.
I. Base Year (Paragraph 1 (c)): 1990
J. Tenant's Percentage Share (Paragraph 1 (h)): 5.8823%
K. Security Deposit (Paragraph 32): None
L. Tenant's Address
for Notices (Paragraph 14): with a copy to Tenant at Premises:
Apple Computer, Inc. Apple Computer, Inc.
20525 Mariani Ave. One Bush Street - Suite 1000
Cupertino, CA 95014 San Francisco, CA 94104
Attn: Real Estate Dept., M/S53A
M. Landlord's Address
for Notices (Paragraph 14):
Equitable Real Estate Investment Management, Inc.,
One Bush Street, San Francisco, California 94104
Attention: Property Manager
<PAGE>
Basic Lease Information (cont'd.)
N. Brokers (Paragraph 39): Cushman and Wakefield
O. Exhibit(s) and Addendum (Paragraph 41):
Exhibit A - Demised Premises
Exhibit B - Rules and Regulations
Exhibit C - Improvement of the Premises
Exhibit D - Legal Description
Addendum
The provisions of the Lease identified above in parentheses are those provisions
where references to particular Basic Lease Information appear. Each such
reference shall incorporate the applicable Basic Lease Information. In the
event of any conflict between any Basic Lease Information and the Lease, the
latter shall control.
TENANT LANDLORD
Apple Computer, Inc. The Equitable Life Assurance Society of
- ------------------------------------ -----------------------------------------
a California Corporation the United States, a New York Corporation
- ------------------------------------ -----------------------------------------
By /s/ Joseph A. Graziano By /s/ James [Last name unreadable]
---------------------------------- --------------------------------------
Its JOSEPH A. GRAZIANO Its Attorney in fact
------------------------------ ----------------------------------
Sr. Vice President and
Chief Financial officer
By By
---------------------------------- --------------------------------------
Its Its
------------------------------- -----------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term; Condition of Premises. . . . . . . . . . . . . . . . . . . . . . 2
3. Rental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Escalation Rent Payments . . . . . . . . . . . . . . . . . . . . . . . 3
5. Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
6. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. Impositions Payable by Lessee. . . . . . . . . . . . . . . . . . . . . 4
8. Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
10. Repairs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
11. Destruction or Damage. . . . . . . . . . . . . . . . . . . . . . . . . 6
12. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
13. Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
14. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
15. Compliance with Legal Requirements . . . . . . . . . . . . . . . . . . 7
16. Assignment and Subletting. . . . . . . . . . . . . . . . . . . . . . . 7
17. Rules; No Discrimination . . . . . . . . . . . . . . . . . . . . . . . 9
18. Entry by Landlord. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
19. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
20. Termination Upon Default . . . . . . . . . . . . . . . . . . . . . . . 10
21. Continuation After Default . . . . . . . . . . . . . . . . . . . . . . 11
22. Other Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
23. Landlord's Right to Cure Defaults. . . . . . . . . . . . . . . . . . . 11
24. Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
25. Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
26. Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
27. No Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
28. Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
29. Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 12
30. No Light, Air, or View Easement. . . . . . . . . . . . . . . . . . . . 12
31. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
32. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
33. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
34. Notices and Consents . . . . . . . . . . . . . . . . . . . . . . . . . 13
35. Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 13
36. Corporate Authority. . . . . . . . . . . . . . . . . . . . . . . . . . 13
37. Partnership Authority. . . . . . . . . . . . . . . . . . . . . . . . . 13
38. Limitation of Liability to Building. . . . . . . . . . . . . . . . . . 13
39. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
40. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
41. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
42. Additional Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit A - Demised Premises
Exhibit B - Rules and Regulations
Exhibit C - Improvement of the Premises
Exhibit D - Legal Description
Addendum
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OFFICE LEASE
THIS LEASE, dated April 19, 1990, for purposes of reference only, is made
and entered into by and between The Equitable Life Assurance Society of the
United States, a New York Corporation ("Landlord") and Apple Computer, Inc. a
California Corporation ("Tenant").
WITNESSETH:
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord
the premises described in Paragraph 1 (b) below for the term and subject to the
terms, covenants, agreements and conditions hereinafter set forth, to each and
all which Landlord and Tenant hereby mutually agree.
1. DEFINITIONS. Unless the context otherwise specifies or requires, the
following terms shall have the meanings herein specified:
(a) The term "Building" shall mean the land and other real property
described in the Basic Lease Information, as well as any property interest in
the area of the streets bounding the parcel described in the Basic Lease
Information, and all other improvements on or appurtenances to said parcel or
said streets.
(b) The term "Premises" shall mean the portion of the Building located
on the floor(s) specified in the Basic Lease Information which is crosshatched
on the floor plan(s) attached to this Lease as EXHIBIT A.
(c) The term "Base Year" shall mean the calendar year specified in the
Basic Lease Information as the Base Year.
(d) The term "Operating Expenses" shall mean (1) all costs of
management, operation and maintenance of the Building, including, without
limitation: wages, salaries and payroll of employees; property management
fees; janitorial, maintenance, guard and other services; Building office rent
or rental value; power, water, waste disposal and other utilities; materials
and supplies; maintenance, replacements and repairs; premiums for insurance,
including earthquake insurance and the deductible portion of any insured
loss; and depreciation on personal property; and (2) the cost of any capital
improvements made to the Building by Landlord during or after the Base Year
that are reasonably anticipated to reduce other Operating Expenses or are
required for the health and safety of tenants, or made to the Building by
Landlord after the date of this Lease that are required under any
governmental law or regulation that was not applicable to the Building at the
time it was constructed, such cost or allocable portion thereof to be
amortized over such reasonable period as Landlord shall determine together
with interest on the unamortized balance at the rate of 10% per annum or such
higher rate as may have been paid by Landlord on funds borrowed for the
purpose of constructing such capital improvements. Operating Expenses shall
not include: Property Taxes; depreciation on the Building other than
depreciation on exterior window covering provided by Landlord and carpeting
in public corridors and common areas; costs of tenants' improvements; real
estate brokers' commissions; interest (except as stated in clause (2) above);
and capital items other than those referred to in clause (2) above. Actual
Operating Expenses for both the Base Year and each subsequent calendar year
shall be adjusted to equal Landlord's reasonable estimate of Operating
Expenses had the total rentable area of the Building been Occupied. Landlord
and Tenant acknowledge that certain of the costs of management, operation and
maintenance of the Building and certain of the costs of the capital
improvements referred to in clause (2) above may be allocated exclusively to
a single component of the Building (e.g., to an office area, a retail area or
a parking facility) and certain of such costs may be allocated among such
components. The determination of such costs and their allocation shall be in
accordance with generally accepted accounting principles applied on a
consistent basis. See Addendum.
(e) The term "Base Operating Expenses" shall mean the Operating
Expenses paid or incurred by Landlord in the Base Year.
(f) The term "Property Taxes" shall mean all real property taxes and
assessments (and any tax levied against the Building or the rents earned in
connection with the Building wholly or partly
<PAGE>
in lieu thereof) levied against the Building, and all real estate tax consultant
expenses and attorneys' fees incurred for the purpose of maintaining an
equitable assessed valuation of the Building.
(g) The term "Base Property Taxes" shall mean the amount of Property
Taxes paid by Landlord allocable to the Base Year.
(h) The term "Tenant's percentage share" shall mean the percentage
figure specified in the Basic Lease Information.
2. TERM; CONDITION OF PREMISES. The term of this Lease shall commence
and, unless sooner terminated as hereinafter provided, shall end on the dates
respectively specified in the Basic Lease Information. If Landlord has
undertaken in this Lease to make any alterations to the Premises prior to
commencement of the term and the alterations are completed prior to the date
set forth in the Basic Lease Information for commencement of the term, if Tenant
desires to take occupancy in advance of such date and Landlord consents to such
prior occupancy Landlord shall deliver the Premises to Tenant on such advance
date as shall be mutually approved by Landlord and Tenant and, notwithstanding
anything to the contrary contained herein, the term of the Lease shall commence
upon such delivery. If Landlord, for any reason whatsoever, cannot deliver the
Premises to Tenant at the commencement of the term, this Lease shall not be void
or voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom, but in that event rental shall be waived for the period
between the commencement of the term and the time when Landlord delivers the
Premises to Tenant. No delay in delivery of the Premises shall operate to
extend the term hereof. See Addendum and Exhibit C.
3. RENTAL.
(a) Tenant shall pay to Landlord throughout the term of this Lease as
rental for the Premises the sum specified in the Basic Lease Information as the
Base Rent, provided that the rental payable during each calendar year subsequent
to the Base Year shall be the Base Rent, increased by Tenant's percentage share
of the total dollar increase, if any, in Operating Expenses paid or incurred by
Landlord in such year over the Base Operating Expenses, and also increased by
Tenant's percentage share of the total dollar increase, if any, in Property
Taxes paid by Landlord in such year over the Base Property Taxes. Tenant
acknowledges that the Basic Lease Information may set forth different percentage
shares of Operating Expenses and Property Taxes or a single percentage share
applicable to both. The increased rental due pursuant to this Paragraph (a) is
hereinafter referred to as "Escalation Rent." (See Addendum.)
(b) Rental shall be paid to Landlord on or before the first day of the
term hereof and on or before the first day of each and every successive calendar
month thereafter 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, the monthly rental for the first
and last fractional months of the term hereof shall be appropriately prorated.
(c) All sums of money due from Tenant hereunder not specifically
characterized as rental shall constitute additional rent, and if any such sum is
not paid when due it shall nonetheless be collectible as additional rent with
the next installment of rental thereafter falling due, but nothing contained
herein shall be deemed to suspend or delay the payment of any sum of money at be
time it becomes due and payable hereunder, or to limit any other remedy of
Landlord.
(d) Tenant hereby acknowledges that late payment by Tenant to Landlord
of rent and other sums due hereunder after the expiration of any applicable
grace period described in Paragraph 19(a) will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be difficult to
ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed on Landlord by the
terms of any encumbrances covering the Building and the Premises. Accordingly,
if any installment of rent or any other sums due from Tenant shall not be
received by Landlord prior to the expiration of any applicable grace period
described in Paragraph 19(a), Tenant shall pay to Landlord a late charge equal
to 2% of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant. Acceptance of such late charge by Landlord
shall in no event constitute a waiver of Tenant's default with respect to such
overdue amount, nor prevent Landlord from exercising any of the other rights and
remedies granted hereunder.
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(e) Any amount due from Tenant, if not paid when first due, shall bear
interest from the date due until paid at an annual rate equal to 2% over the
annual prime rate of interest announced publicly by Citibank, N.A., in New York,
New York from time to time (but in no event in excess of the maximum rate of
interest permitted by law), provided that interest shall not be payable on late
charges incurred by Tenant nor on any amounts upon which late charges are paid
by Tenant to the extent such interest would cause the total interest to be in
excess of that legally permitted. Payment of interest shall not excuse or cure
any default hereunder by Tenant.
(f) All payments due from Tenant shall be paid to Landlord, without
deduction or offset, in lawful money of the United States of America at
Landlord's address for notices hereunder, or to such other person or at such
other place as Landlord may from time to time designate by notice to Tenant.
4. ESCALATION RENT PAYMENTS.
(a) With respect to each calendar year during the term of this Lease
subsequent to the Base Year, Tenant shall pay to Landlord as additional rent, at
the times hereinafter set forth, an amount equal to the Escalation Rent. Prior
to or anytime after the commencement of any calendar year subsequent to the Base
Year Landlord may, but shall not be required to, notify Tenant of Landlord's
estimate of the amount, if any, of the Escalation Rent for such current calendar
year. Tenant shall pay to Landlord on the first day of each calendar month
during such current calendar year one-twelfth (1/12) of the amount of any such
estimated Escalation Rent for such current calendar year payable by Tenant
hereunder. If at any time or times Landlord determines that the amount of any
Escalation Rent payable by Tenant for the current year will vary from its
estimate by more than 5%, Landlord may, by notice to Tenant, no more than once
per year, revise Landlord's estimate for such year, and subsequent payments by
Tenant for such year shall be based on such revised estimate. Following the
close of each calendar year, Landlord shall deliver to Tenant a statement of the
actual amount of Escalation Rent for the immediately preceding year, accompanied
by a statement made by an independent accounting or auditing officer designated
by Landlord showing the Operating Expenses and Property Taxes on the basis of
which Escalation Rent was determined. The statement of said accounting or
auditing officer shall be final and binding upon Landlord and Tenant. All
amounts payable by Tenant as shown on said statement, less any amounts
theretofore paid by Tenant on account of Landlord's earlier estimate of
Escalation Rent for such calendar year made pursuant to this Paragraph 4, shall
be paid by or, if Tenant theretofore shall have paid more than such amounts,
reimbursed to Tenant within 30 days after delivery of said statement to Tenant.
Tenant may audit Landlord's records of Operating Expenses and Property Taxes
within one year of the date that Landlord provides Tenant with Landlord's
statement of actual Escalation Rent for the preceding year. Tenant must request
this right to audit within 60 days of the date Tenant receives Landlord's
statement of actual Escalation Rent.
(b) If this Lease shall terminate on a day other than the last day of
a calendar year, the amount of any Escalation Rent payable by Tenant for the
calendar year in which the Lease terminates shall be prorated on the basis by
which the number of days from the commencement of said calendar year to and
including said date on which this Lease terminates bears to 365 and shall be due
and payable when rendered notwithstanding termination of this Lease. Escalation
Rent Allocable to the calendar year in which this Lease terminates shall be
deemed to have been incurred evenly over the entire twelve-month period of that
calendar year.
5. USE. The Premise shall be used for general office purposes,
demonstration, training computer sales, and any related activities, events, and
meetings and no other. Tenant shall not do or permit to be done in or about the
Premises, nor bring or keep or permit to be brought or kept therein, anything
which is prohibited by or would in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may hereafter
be enacted or promulgated, or which is prohibited by the standard form of fire
insurance policy, or would in any way increase the existing rate of or affect
any fire or other insurance upon the Building or any of its contents, or cause a
cancellation of any insurance policy covering the Building or any part thereof
or any of its contents. Tenant shall not do or permit anything to be done in or
about the Premises which would in any way obstruct or interfere with the rights
of other tenants of the Building, or injure or annoy them, or use or allow the
Premises to be used for any unlawful purposes, nor shall Tenant cause,
maintain or permit any nuisance or waste in, on or about the Premises.
6. SERVICES.
(a) Landlord shall maintain the public and common areas of the
Building, including lobbies, stairs, elevators, corridors and restrooms,
windows, mechanical, plumbing and electrical equipment, and the structure itself
in accordance with standards of first class office buildings in the area except
for damage occasioned by the act of Tenant, its employees, agents, contractors
or invitees, which damage shall be repaired by Landlord at Tenant's expense.
3
<PAGE>
(b) Landlord shall furnish the Premises with (1) electricity for
lighting and the operation of customary office machines, (2) heat and air
conditioning to the extent reasonably required for the comfortable occupancy by
Tenant in its use of the Premises during the period from 8 a.m. to 6 p.m. on
weekdays (except holidays), or such shorter period as may be prescribed by any
applicable policies or regulations adopted by any utility or governmental
agency, (3) elevator service, (4) lighting replacement (for building standard
lights), (5) restroom supplies, (6) window washing with reasonable frequency,
and (7) security guards and services and daily janitor service during the times
and in the manner that such services are customarily furnished in comparable
office buildings in the area. Landlord may establish reasonable measures to
conserve energy, including but not limited to, automatic switching of lights
after hours, so long as such measures do not unreasonably interfere with
Tenant's use of the Premises. Landlord shall not be in default hereunder or be
liable for any damages directly or indirectly resulting from, nor shall the
rental herein reserved be abated by reason of (i) the installation, use or
interruption of use of any equipment in connection with the furnishing of any of
the foregoing services, (ii) failure to furnish or delay in furnishing any such
services when such failure or delay is caused by accident or any condition
beyond the reasonable control of Landlord or by the making of necessary repairs
or improvements to the Premises or to the Building, or (iii) the limitation,
curtailment, rationing or restrictions on use of water, electricity, gas or any
other form of energy serving the Premises or the Building. Landlord shall use
reasonable efforts diligently to remedy any interruption in the furnishing of
such services. Landlord's charges for after-hours services requested by Tenant
shall not exceed the actual costs incurred by Landlord in providing such
services.
(c) Whenever heat-generating equipment or lighting other than building
standard lights are used in the Premises by Tenant which affect the temperature
otherwise maintained by the air-conditioning system, Landlord shall have the
right, after notice to Tenant, to install supplementary air conditioning
facilities in the Premises or otherwise modify the ventilating and air
conditioning system serving the Premises, and the cost of such facilities and
modifications shall be borne by Tenant. Tenant shall also pay the cost of
providing all cooling energy to the Premises in excess of that required for
normal office use or during hours requested by Tenant when air conditioning is
not otherwise furnished by Landlord. If there is installed in the Premises
lighting requiring power in excess of that required for normal office use in the
Building or if there is installed in the Premises equipment requiring power in
excess of that required for normal desk-top office equipment or normal copying
equipment, Tenant shall pay for the cost of such excess power, together with
the cost of installing any additional risers or other facilities that may be
necessary to furnish such excess power to the Premises.
(d) In the event that Landlord, at Tenant's request, provides services
to Tenant that are not otherwise provided for in this Lease, Tenant shall pay
Landlord's reasonable charges for such services upon billing therefor.
7. IMPOSITIONS PAYABLE BY LESSEE. In addition to the monthly rental and
other charges to be paid by Tenant hereunder, Tenant shall pay or reimburse
Landlord for any and all of the following items (hereinafter collectively
referred to as "Impositions"), whether or not now customary or in the
contemplation of the parties hereto: taxes (other than local, state and federal
personal or corporate income taxes measured by the net income of Landlord from
all sources), assessments (including, without limitation, all assessments for
public improvements, services or benefits, irrespective of when commenced or
completed), excises, levies, business taxes, license, permit, inspection and
other authorization fees, transit development fees, assessments or charges for
housing funds, service payments in lieu of taxes and any other fees or charges
of any kind, which are levied, assessed, confirmed or imposed by any public
authority, but only to the extent the Impositions are (a) 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 the cost of
value of any leasehold improvements made in or to the Premises by or for Tenant,
regardless of whether title to such improvements shall be in Tenant or Landlord;
(b) upon or measured by the monthly rental or other charges payable hereunder,
including, without limitation, any gross receipts 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; (c)
upon, with respect to or by reason of the development, possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises or any portion thereof; or (d) 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 reimburse Landlord for the Impositions but it is lawful to increase the
monthly rental to take into account Landlord's payment of the Impositions, the
monthly rental payable to Landlord shall be revised to net Landlord the same net
return without reimbursement of the Impositions as would have been received by
Landlord with reimbursement of the Impositions.
4
<PAGE>
decorate or paint the Premises or any part thereof, except as specifically
herein set forth. No representations respecting the condition of the Premises
or the Building have been made by Landlord to Tenant, except as specifically
herein set forth.
11. DESTRUCTION OR DAMAGE.
(a) In the event the Premises or the portion of the Building necessary
for Tenant's use and reasonable enjoyment of the Premises are damaged by fire,
earthquake, act of God, the elements or other casualty, Landlord shall repair
the same, subject to the provisions of this Paragraph hereinafter set go forth,
if (i) such repairs can, in Landlord's reasonable opinion, be made within a
period of 120 days after commencement of the repair work, (ii) the cost of
repairing damage for which Landlord is not insured shall be less than ten
percent (10%) of the then full insurable value of the Premises with respect to
repairing any damage to the Premises or five percent (5%) of the then full
insurable value of the Building with respect to repairing any damage to other
areas of the Building, and (iii) the damage or destruction does not occur during
the last twelve (12) months of the term of this Lease or any extension thereof.
If the damage or destruction occurs during the final twelve (12) months of the
term of this lease or any extension thereof, and in Landlord's reasonable
opinion the damage or destruction can be repaired within 60 days of the date of
the damage or destruction, then Landlord shall repair such damage or destruction
and this lease shall remain in full force and effect. This Lease shall remain
in full force and effect except that so long as the damage or destruction is not
caused by the fault or negligence of Tenant, its contractors, agents,
employees or invitees, an abatement of rental shall be allowed Tenant for
such part of the Premises as shall be rendered unusable by Tenant in the conduct
of its business during the time such part is so unusable. If such damage or
destruction is caused by the fault or negligence of Tenant, or contractors,
agents, employees, or invitees, an abatement of rental shall be allowed Tenant
only to the extent that Landlord is reimbursed by insurance proceeds. Landlord
shall make reasonable efforts to collect such proceeds.
(b) As soon as is reasonably possible following the occurrence of any
damage, Landlord shall notify Tenant of the estimated time and cost required for
the repair or restoration of the Premises or the portion of the Building
necessary for Tenant's occupancy. If, in Landlord's opinion, such repairs cannot
be made within 120 days as set forth in Paragraph (a) (i) above, Landlord or
Tenant may elect by written notice to the other within 30 days after Landlord's
notice of estimated time and cost is given, to terminate this Lease effective as
of the date of such damage or destruction. If Landlord is not obligated to
effect the repair based upon the circumstances set forth in paragraphs (a) (ii)
or (a) (iii) above, Landlord shall have the right to terminate this Lease, by
written notice to Tenant within 30 days after Landlord's notice of time and cost
is given, effective as of the date of such damage or destruction. If neither
party so elects to terminate this Lease, this Lease shall continue in full force
and effect, but the rent shall be partially abated as hereinabove in this
paragraph provided, and Landlord shall proceed diligently to repair such damage.
(c) A total destruction of the Building shall automatically terminate
this Lease. Tenant waives California Civil Code Sections 1932(2) and 1933(4)
providing for termination of hiring upon destruction of the thing hired.
(d) In no event shall Tenant be entitled to any compensation or
damages from Landlord, specifically including, but not limited to, any
compensation or damages for (i) loss of the use of the whole or any part of the
Premises, (ii) damage to Tenant's personal property in or improvements to the
Premises, or (iii) any inconvenience, annoyance or expense occasioned by such
damage or repair (including moving expenses and the expense of establishing and
maintaining any temporary facilities).
(e) Landlord, in repairing the Premises, shall not be required to
repair any injury or damage to the personal property of Tenant, or to make any
repairs to or replacement of any alterations, additions, improvements or
fixtures installed on the Premises by or for Tenant, except the alterations made
for Tenant by Landlord pursuant to Exhibit C to this Lease.
12. INSURANCE.
(a) Tenant agrees to procure and maintain in force during the term
hereof, at Tenant's sole cost and expense, comprehensive general liability
insurance with limits not less than $1,000,000. Such insurance policy shall
name Landlord, Landlord's managing agent and any other party designated by
Landlord as additional insureds; shall be issued by insurance companies
licensed to do business in the State of California and otherwise reasonably
acceptable to Landlord; and shall provide that such insurance may not be
canceled nor amended without thirty (30) days prior written notice to
Landlord. Tenant may carry said insurance under a blanket policy. See
Addendum.
6
<PAGE>
(b) A certificate of insurance shall be delivered to Landlord by
Tenant prior to commencement of the terms of this Lease and upon each renewal of
such insurance.
(c) Tenant shall, prior to and throughout the term of this Lease,
procure from each of its insurers under all policies of fire, theft, public
liability, workers' compensation and any other insurance policies of Tenant
now or hereafter existing, pertaining in any way to the Premises or the Building
or any operation therein, a waiver, as set forth in Paragraph 13 of this Lease
of all rights of subrogation which the insurer might otherwise, if at all, have
against the Landlord or any officer, agent or employee of Landlord (including
Landlord's managing agent).
13. SUBROGATION. Landlord and Tenant shall each obtain from its
respective insurers under all proper policies of insurance maintained by either
of them at any time during the term hereof insuring or covering the Building or
any portion thereof or operations therein, a waiver of all rights of subrogation
which the insurer of one party might have against the other party, and Landlord
and Tenant shall each indemnify the other against and reimburse the other for
any and all loss or expense, including reasonable attorneys' fees, resulting
from the failure to obtain such waiver.
14. INDEMNIFICATION. See Addendum.
15. COMPLIANCE WITH LEGAL REQUIREMENTS. Tenant, at its sole cost and
expense, shall promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force, with the requirements of any board of fire underwriters
or other similar body now or hereafter constituted, with any direction or
occupancy certificate issued pursuant to any law by any public officer or
officers, as well as the provisions of all recorded documents affecting the
Premises (including, without limitation, any ground lease, mortgage or
covenants, conditions and restrictions), insofar as any thereof relate to or
affect the condition, use or occupancy of the Premises, including structural
utility system and life safety system changes necessitated by Tenant's acts,
particular use of the Premises or by improvements made by or for Tenant. See
Addendum.
16. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not, without the prior consent of Landlord, which consent
shall not be unreasonably withheld by Landlord, transfer, assign or hypothecate
this Lease or any interest herein, sublet the Premises or any part thereof, or
permit the use of the Premises by any party other than Tenant. This Lease shall
not, nor shall any interest herein, be assignable as to the interest of Tenant
by operation of law without the consent of Landlord, which consent shall not be
unreasonably withheld. Any of the foregoing acts without such consent shall be
void and shall, at the option of Landlord, terminate this Lease. In connection
with each consent requested by Tenant, Tenant shall submit to Landlord the terms
of the proposed transaction, the identify of the parties to the transaction, the
proposed documentation for the transaction, and all other information reasonably
requested by Landlord concerning the proposed transaction and the parties
involved.
(b) If the Tenant is a privately held corporation, or is an unincorporated
association or partnership, the transfer, assignment, or hypothecation of any
stock or interest in such corporation, association, or partnership in excess of
fifty percent (50%) in the aggregate shall be deemed an assignment or transfer
within the meaning and provisions of this Paragraph 16. If Tenant is a publicly
held corporation, the public trading of stock in Tenant shall not be deemed an
assignment or transfer within the meaning of this Paragraph.
(c) Without limiting the other instances in which it may be reasonable for
Landlord to withhold its consent to an assignment or subletting, Landlord and
Tenant acknowledge that it shall be reasonable for Landlord to withhold its
consent in the following instances:
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(1) if at the time consent is requested or at any time prior to
the granting of consent, Tenant is in default under this Lease or would be in
default under this Lease but for the pendency of any grace or cure period under
Paragraph 19 below;
(2) if the proposed assignee or sublessee is a governmental
agency;
(3) if, in Landlord's reasonable judgment, the use of the
Premises by the proposed assignee or sublessee would not be comparable to the
types of office use by other tenants in the Building, would entail any
alterations which would lessen the value of the leasehold improvements in the
Premises, would result in more than a reasonable number of occupants per floor,
or would conflict with any so-called "exclusive" or percentage lease then in
favor of another tenant of the Building;
(4) if, in Landlord's reasonable judgment, the financial worth of
the proposed assignee or sublessee does not meet the credit standards applied by
Landlord for other tenants under leases with comparable terms, or the character,
reputation, or business of the proposed assignee or sublessee is not consistent
with the quality of the other tenancies in the Building;
(5) if the subletting would result in the division of the
Premises into three or more units; and
(6) if the proposed assignee or sublessee is an existing tenant
of the Building and Landlord has comparable space available for lease by such
tenant in the Building.
(d) If at any time during the term of this Lease Tenant desires to
assign its interest in this Lease or sublet all or any part of the Premises,
Tenant shall give notice to Landlord setting forth the terms of the proposed
assignment or subletting ("Tenant's Notice"). Landlord shall have the option,
exercisable by notice given to Tenant within 15 days after Tenant's Notice is
given ("Landlord's Option Period"), either (1) to consent to the assignment
in which event the provisions of paragraph (g) shall be applicable, or to
consent to the subletting in which event the provisions of paragraph (h)
shall be applicable; (3) in the event of a proposed assignment, to terminate
this Lease and to retake possession of the Premises; or (4) in the event of a
proposed subletting of the entire Premises, or a portion of the Premises for
all or substantially all of the remainder of the term, to terminate this
Lease with respect to, and to retake possession of, such space, together
with, if only a portion of the Premises is involved, such rights of access to
and from such portion as may be reasonably required for its use and
enjoyment. If Landlord does not exercise one of such options, Tenant shall be
free for a period of 120 days after Landlord's Option Period, to assign its
entire interest in this Lease or to sublet such space to the entity specified
in Tenant's Notice upon the terms set forth therein or to any third party
upon the same terms set forth in Tenant's Notice, subject to obtaining
Landlord's prior consent as herein above provided.
(e) Notwithstanding the provisions of paragraphs (a) and (b) above,
Tenant may assign this Lease or sublet the Premises or any portion thereof, with
prior notice to Landlord but without the necessity of Landlord's consent and
without extending any option to Landlord pursuant to Paragraph (d) above and
without paying to Landlord any of the sums referenced in paragraphs (g) and (h)
below, to any corporation which controls, is controlled by or is
under common control with Tenant, to any corporation resulting from the merger
or consolidation with Tenant, or to any person or entity which acquires all the
assets of Tenant as a going concern of the business that is being conducted on
the Premises.
(f) No sublessee (other than Landlord if it exercises its option
pursuant to Paragraph (d) above) shall have a right further to sublet without
Landlord's prior consent, which Tenant acknowledges may be withheld in
Landlord's absolute discretion, and any assignment by a sublease of its sublease
shall be subject to Landlord's prior consent in the same manner as if Tenant
were entering into a new sublease. No sublease, once consented to by Landlord,
shall be modified or terminated by Tenant without Landlord's prior consent,
which consent shall not be unreasonably withheld.
(g) In the case of an assignment to an entity other than Landlord, 50%
of any sums or other economic consideration received by Tenant as a result of
such assignment shall be paid to Landlord after first deducting the unamortized
cost of leasehold improvements paid for by Tenant, and the cost of any real
estate commissions incurred by Tenant in connection with such assignment.
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(h) In the case of a subletting to an entity other than Landlord, 50%
of any sums or economic consideration received by Tenant as a result of such
subletting shall be paid to Landlord after first deducting (1) the rental due
hereunder, prorated to reflect only rental allocable to the sublet portion of
the Premises, (2) the cost of leasehold improvements made to the sublet portion
of the Premises at Tenant's cost, amortized over the term of this Lease except
for leasehold improvements made for the specific benefit of the sublessee, which
shall be amortized over the term of the sublease, and (3) the cost of any real
estate commissions incurred by Tenant in connection with such subletting,
amortized over the term of the sublease.
(i) Regardless of Landlord's consent, no subletting or assignment
shall release Tenant of Tenant's obligation or alter the primary liability of
Tenant to pay the rental and to perform all other obligations to be performed by
Tenant hereunder. The acceptance of rental by Landlord from any other person
shall not be deemed to be a waiver by Landlord of any provision hereof. Consent
to one assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by any assignee of Tenant or
any successor of Tenant in the performance of any of the terms hereof, Landlord
may proceed directly against Tenant without the necessity of exhausting remedies
against such assignee or successor. Landlord may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Tenant, without notifying Tenant, or any successor of
Tenant, and without obtaining its or their consent thereto, and such action
shall not relieve Tenant of liability under this Lease.
(j) In the event Tenant shall assign this Lease or sublet the
Premises or request the consent of Landlord to any assignment, subletting,
hypothecation or other action requiring Landlord's consent hereunder, then
Tenant shall pay Landlord's then reasonable and standard processing fee and
Landlord's reasonable attorneys' fees incurred in connection therewith which
shall not exceed $500 except in the case of an hypothecation.
17. RULES; NO DISCRIMINATION. Tenant shall faithfully observe and
comply with the rules and regulations annexed to this Lease, and after notice
thereof, all reasonable modifications thereof and additions thereto from time
to time promulgated in writing by Landlord. Landlord shall not be responsible
to Tenant for the nonperformance by any other tenant or occupant of the
Building of any of said rules and regulations. Tenant specifically covenants
and agrees that Tenant shall not discriminate against or segregate any person
or group of persons on account of race, sex, creed, color, national origin,
or ancestry in the occupancy, use, sublease, tenure or enjoyment of the
Premises.
18. ENTRY BY LANDLORD. Landlord may enter the Premises at reasonable
hours and after reasonable prior notice to Tenant, to (a) inspect same; (b)
exhibit the same to prospective purchasers, lenders or tenants, provided,
however, that Landlord shall only exhibit the Premises to prospective tenants
during the final 90 days of Tenant's occupancy of the Premises; (c) determine
whether Tenant is complying with all its obligations hereunder; (d) supply
janitor service and any other service to be provided by Landlord to Tenant
hereunder; (e) post notices of nonresponsibility; and (f) make repairs required
of Landlord under the terms hereof or repairs to any adjoining space or utility
services or make repairs, alterations improvements to any other portion of the
Building; provided, however, that all such work shall be done as promptly as
reasonably possible and that all such entry shall be effected and all such
work shall be performed so as to cause as little interference to Tenant as
reasonably possible. Tenant hereby waives any claim for damages for any
inconvenience to or interference with Tenant's business or any loss of occupancy
or quiet enjoyment of the Premises occasioned by such entry. Landlord shall at
all times have and retain a key with which to unlock all of the doors in, on or
about the Premises (excluding Tenant's vaults, safes and similar areas
designated in writing by Tenant in advance); and Landlord shall have the right
to use any and all means which Landlord may deem proper to open Tenant's doors
in an emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord in an emergency shall not be construed or deemed
to be a forcible or unlawful entry into or a detainer of the Premises or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof. Whenever reasonably possible Landlord shall be accompanied by an
employee of Tenant and shall comply with the security and safety procedures
delineated by such employee to Landlord while in the Premises.
19. EVENTS OF DEFAULT. The following events shall constitute Events of
Default under this Lease:
(a) a default by Tenant in the payment when due of any rent or other
sum payable hereunder and the continuation of such default for a period of 10
days after written notice by Landlord, provided that if Tenant has failed
three or more times in any twelve-month period to pay any rent or other sum
within 10 days after the due date, no grace period shall thereafter be
applicable hereunder;
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(b) a default by Tenant in the performance of any of the other terms,
covenants, agreements or conditions contained herein and, if the default is
curable, the continuation of such default for a period of 30 days after notice
by Landlord or beyond the time reasonably necessary for cure if the default is
of a nature to require more than 30 days to remedy, provided that if Tenant has
defaulted in the performance of the same obligation three or more times in any
twelve-month period and notice of such default has been given by Landlord in,
each instance, no cure period shall thereafter be applicable hereunder;
(c) the bankruptcy or insolvency of Tenant, transfer by Tenant in
fraud of creditors, an assignment by Tenant for the benefit of creditors, or the
commencement of any proceedings of any kind by or against Tenant under any
provision of the Federal Bankruptcy Act or under any other insolvency,
bankruptcy or reorganization act unless, in the event any such proceedings are
involuntary, Tenant is discharged from the same within 60 days thereafter;
(d) the appointment of a receiver for a substantial part of the assets
of Tenant;
(e) the abandonment of the Premises; and
(f) the levy upon this Lease or any estate of Tenant hereunder by any
attachment or execution and the failure to have such attachment or execution
vacated within 20 days thereafter.
20. TERMINATION UPON DEFAULT. Upon the occurrence of any Event of Default
by Tenant hereunder, Landlord may, at its option and without any further notice
or demand, in addition to any other rights and remedies given hereunder or by
law, terminate this Lease and exercise its remedies relating thereto in
accordance with the following provisions:
(a) Landlord shall have the right, so long as the Event of Default
remains uncured, to give notice of termination to Tenant, and on the date
specified in such notice this Lease shall terminate.
(b) In the event of any such termination of this Lease, Landlord may
then or at any time thereafter by judicial process, re-enter the Premises and
remove therefrom all persons and property and again repossess and enjoy the
Premises, without prejudice to any other remedies that Landlord may have by
reason of Tenant's default or of such termination.
(c) In the event of any such termination of this Lease, and in
addition to any other rights and remedies Landlord may have, Landlord shall have
all of the rights and remedies of a landlord provided by Section 1951.2 of the
California Civil Code. The amount of damages which Landlord may recover in
event of such termination shall include without limitation, (1) the worth at the
time of award (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) of
the amount by which the unpaid rent for the balance of the term after the time
of award exceeds the amount of rental loss that Tenant proves could be
reasonably avoided, (2) all legal expenses and other related costs incurred by
Landlord following Tenant's default, (3) all costs incurred by Landlord in
restoring the Premises to good order and condition, or in remodeling, renovating
or otherwise preparing the Premises for reletting, and (4) all costs (including,
without limitation, any brokerage commissions) incurred by Landlord in reletting
the Premises.
(d) After terminating this Lease, Landlord may remove any and all
personal property located in the Premises and place such property in a public or
private warehouse or elsewhere at the sole cost and expense of Tenant. In the
event that Tenant shall not immediately pay the cost of storage of such property
after the same has been stored for a period of thirty (30) days or more,
Landlord may sell any or all thereof at a public or private sale in such manner
and at such times and places as Landlord in its sole discretion may deem proper.
Tenant waives all claims for damages that may be caused by Landlord's removing
or storing or selling the property as herein provided, and Tenant shall
indemnify and hold Landlord free and harmless from and against any and all
losses, costs and damages, including without limitation all costs of court and
attorneys' fees of Landlord occasioned thereby.
(e) In the event of the occurrence of any of the events specified in
paragraph 19(c) of this Lease, if Landlord shall not choose to exercise, or by
law shall not be able to exercise, its rights hereunder to terminate this Lease,
then, in addition to any other rights of Landlord hereunder or by law,
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neither Tenant, as debtor-in-possession, nor any trustee or other person
(collectively, the "Assuming Tenant") shall be entitled to assume this Lease
unless on or before the date of such assumption, the Assuming Tenant (a) cures,
or provides adequate assurance that the Assuming Tenant will promptly cure, any
existing default under this Lease, (b) compensates, or provides adequate
assurance that the Assuming Tenant will promptly compensate, Landlord for any
pecuniary loss (including, without limitation, attorneys' fees and
disbursements) resulting from such default, and (c) provides adequate assurance
of future performance under this Lease. For purposes of this subparagraph (e),
"adequate assurance" of such cure, compensation or future performance shall be
effected by the establishment of an escrow fund for the amount at issue or by
bonding.
21. CONTINUATION AFTER DEFAULT. Even though Tenant has breached this
Lease and abandoned the Premises, this Lease shall continue in effect for so
long as Landlord does not terminate Tenant's right to possession, and Landlord
may enforce all its rights and remedies under this Lease, including the right to
recover the rental 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 Tenant's right to possession.
22. OTHER RELIEF. The remedies provided for in this Lease are in addition
to any other remedies available to Landlord at law or in equity by statute or
otherwise.
23. LANDLORD'S RIGHT TO CURE DEFAULTS. All agreements and provisions to be
performed by Tenant under any of the terms of this Lease shall be at its sole
cost and expense and without any abatement of rental. If Tenant shall fail to
pay any sum of money, other than rental, required to be paid by it hereunder or
shall fail to perform any other act on its part to be performed hereunder and
such failure shall continue for 20 days after notice thereof by Landlord, or
such longer period as may be allowed hereunder, Landlord may, but shall not be
obligated so to do, and without waiving or releasing Tenant from any obligations
of Tenant, make any such payment or perform any such other act on Tenant's part
to be made or performed as in this Lease provided. All sums so paid by Landlord
(with interest at an annual rate equal to 2% over the annual prime rate of
interest announced publicly by Citibank, N.A., in New York, New York from time
to time, but in no event in excess of the maximum interest rate permitted by
law) and all necessary incidental costs shall be payable to Landlord on demand.
24. ATTORNEYS' FEES. See Addendum.
25. EMINENT DOMAIN. If all or any part of the Premises shall be taken as
a result of the exercise of the power of eminent domain, this Lease shall
terminate as to the part so taken as of the date of taking, and, in the case of
a partial taking, either Landlord or Tenant shall have the right to terminate
this Lease as to the balance of the Premises by notice to the other within 30
days after such date, provided, however, that a condition to the exercise by
Tenant of such right to terminate shall be that the portion of the Premises
taken shall be of such extent and nature as substantially to handicap, impede or
impair Tenant's use of the balance of the Premises. In the event of any taking,
Landlord shall be entitled to any and all compensation, damages, income, rent,
awards, or any interest therein whatsoever which may be paid or made in
connection therewith, and Tenant shall have no claim against Landlord for the
value of any unexpired term of this Lease or otherwise. In the event of a
partial taking of the Premises which does not result in a termination of this
Lease, the monthly rental thereafter to be paid shall be equitably reduced as of
the date of taking.
26. SUBORDINATION
(a) This Lease shall be subject and subordinate to any ground lease,
mortgage, deed of trust or any other hypothecation for security now or
hereafter placed upon the Building and to any and all advances made on the
security thereof or Landlord's interest therein, and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding the foregoing, if any
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mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage or deed of trust or prior to its ground lease, and shall
give notice thereof to Tenant, this Lease shall be deemed prior to the mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of the mortgage, deed of trust or ground lease or the date of
recording thereof. In the event any mortgage or deed of trust to which this
Lease is subordinate is foreclosed or a deed in lieu of foreclosure is given to
the mortgagee or beneficiary, Tenant shall attorn to the purchaser at the
foreclosure or to the grantee under the deed in lieu of foreclosure; in the
event any ground lease to which this Lease is subordinate is terminated, Tenant
shall attorn to the ground lessor. Tenant agrees to execute any documents
reasonably required to effectuate such subordination, to make this Lease prior
to the lien of any mortgage or deed of trust or ground lease, or to evidence
such attornment.
(b) In the event any mortgage or deed of trust to which this Lease is
subordinate is foreclosed or a deed in lieu of foreclosure is given to the
mortgagee or beneficiary, or in the event any ground lease to which this Lease
is subordinate is terminated, this Lease shall not be barred, terminated, cut
off or foreclosed nor shall the rights and possession of Tenant hereunder be
disturbed if Tenant shall not then be in default in the payment of rental and
other sums due hereunder or otherwise be in default under the terms of this
Lease, and if Tenant shall attorn to the purchaser, grantee, ground lessor as
provided in Paragraph (a) above or, if requested, enter into a new lease for the
balance of the term hereof upon the same terms and provisions as are contained
in this Lease. Tenant's covenant under Paragraph (a) above to subordinate this
Lease to any ground lease, mortgage, deed of trust or other hypothecation
hereafter executed is conditioned upon each such senior instrument containing
the commitments specified in this Paragraph (b).
27. NO MERGER. The voluntary or other surrender of this Lease by Tenant,
or a mutual cancellation thereof, shall not work a merger, and shall, at the
option of Landlord, terminate all or any existing subleases or subtenancies, or
operate as an assignment to it of any or all such subleases or subtenancies.
28. SALE. In the event the original Landlord hereunder, or any successor
owner of the Building, shall sell or convey the Building, all liabilities and
obligations on the part of the original Landlord, or such successor owner, under
this Lease accruing thereafter shall terminate, and thereupon all such
liabilities and obligations shall be binding upon the new owner. Tenant agrees
to attorn to such new owner.
29. ESTOPPEL CERTIFICATE. At any time and from time to time but on not
less than 15 days' prior notice by Landlord, Tenant shall execute, acknowledge,
and deliver to Landlord, promptly upon request, a certificate certifying (a)
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that this Lease is in full force and effect, as modified,
and stating the date and nature of each modification), (b) the date, if any, to
which rental and other sums payable hereunder have been paid, (c) that no notice
has been received by Tenant of any default which has not been cured, except as
to defaults specified in the certificate, and (d) such other matters as may be
reasonably requested by Landlord. Any such certificate may be relied upon by
any prospective purchaser, mortgagee or beneficiary under any deed of trust on
the Building or any part thereof.
30. NO LIGHT, AIR, OR VIEW EASEMENT. Any diminution or shutting off of
light, air or view by any structure which may be erected on lands adjacent to
the Building shall in no way affect this Lease or impose any liability on
Landlord
31. HOLDING OVER.
(a) If, without objection by Landlord, Tenant holds possession of the
Premises after expiration of the term of this Lease, Tenant shall become a
tenant from month to month upon the terms herein specified but at a monthly
rental equivalent to 125% of the then prevailing monthly rental paid by Tenant
at the expiration of the term of this Lease, payable in advance on or before the
first day of each month. Each party shall give the other notice at least one
month prior to the date of termination of such monthly tenancy of its intention
to terminate such tenancy.
(b) If, over Landlord's objection, Tenant holds possession of the
Premises after expiration of the term of this Lease or expiration of its
holdover tenancy, without limiting the liability of Tenant for its unauthorized
occupancy of the Premises, Tenant shall pay rent at a monthly rental equivalent
to [omitted] of the then prevailing monthly rental paid by Tenant at the
expiration of the term of this Lease and shall indemnify Landlord and any
replacement tenant for the Premises for any damages or loss suffered by either
Landlord or the replacement tenant resulting from Tenant's failure timely to
vacate the Premises.
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32. [omitted]
33. WAIVER. The waiver by Landlord of any agreement, condition or
provision herein contained shall not be deemed to be a waiver of any subsequent
breach of the same or any other agreement, condition or provision herein
contained, nor shall any custom or practice which may grow up between the
parties in the administration of the terms hereof be construed to waive or to
lessen the right of Landlord to insist upon the performance by Tenant in strict
accordance with such terms. The subsequent acceptance of rental hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any agreement, condition or provision of this Lease, other than the failure of
Tenant to pay the particular rental so accepted, regardless of Landlord's
knowledge of the preceding breach at the time of acceptance of the rental.
34. NOTICES AND CONSENTS. All notices, consents, demands and other
communications from one party to the other that are given pursuant to the terms
of this Lease shall be in writing and shall be deemed to have been fully given 3
days after deposited in the United States mail, certified or registered, postage
prepaid, and addressed as follows: to Tenant at the address specified in the
Basic Lease Information, or to such other place as Tenant may from time to time
designate in a notice to Landlord; to Landlord at the address specified in the
Basic Lease Information, or to such other place as Landlord may from time to
time designate in a notice to Tenant.
35. COMPLETE AGREEMENT. There are no oral agreements between Landlord and
Tenant affecting this Lease, and this Lease supersedes and cancels any and all
previous negotiations, arrangements, brochures, agreements, and understandings
if any, between Landlord and Tenant or displayed by Landlord to Tenant with
respect to the subject matter of this Lease, the Building or related facilities.
There are no representations between Landlord and Tenant other than those
contained in this Lease and all reliance with respect to any representations is
solely upon such representations. All implied warranties, including implied
warranties of merchantability and fitness, are excluded.
36. CORPORATE AUTHORITY. If Tenant signs as a corporation, each of the
persons executing his Lease on behalf of Tenant warrants that Tenant is a duly
authorized and existing corporation, that Tenant has and is qualified to do
business in California, that the corporation has full right and authority to
enter into this Lease, and that each and both of the persons signing on behalf
of the corporation were authorized to do so.
37. PARTNERSHIP AUTHORITY. If Tenant is a partnership, joint venture, or
other unincorporated association, each individual executing this Lease an behalf
of Tenant warrants that this lease is binding on Tenant and that each and both
of the persons signing on behalf of Tenant were authorized to do so.
38. LIMITATION OF LIABILITY TO BUILDING. The liability of Landlord to
Tenant for any default by Landlord under this Lease or arising in connection
with Landlord's operation, management, leasing, repair, renovation, alteration,
or any other matter relating to the Building or the Premises, shall be limited
to the interest of Landlord in the Building. Tenant agrees to look solely to
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Landlord's interest in the Building for the recovery of any judgment against
Landlord, and Landlord shall not be personally liable for any such judgment or
deficiency after execution thereon. The limitations of liability contained in
this Paragraph 38 shall apply equally and inure to the benefit of Landlord, its
successors and their respective, present and future partners of all tiers,
beneficiaries, officers, directors, trustees, shareholders, agents and
employees, and their respective heirs, successors and assigns. Under no
circumstances shall any present or future general partner of Landlord (if
Landlord is a partnership) or individual trustee or beneficiary (if Landlord or
any partner of Landlord is a trust) have any liability for the performance of
Landlord's obligations under this Lease.
39. BROKERS. Tenant confirms and represents that Tenant has contacted and
dealt with solely the broker identified in the Basic Lease Information and that
no other broker has participated in the negotiation of this Lease or is entitled
to any commission in connection with this Lease.
40. MISCELLANEOUS. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. If there be more than one Tenant,
the obligations hereunder imposed upon Tenant shall be joint and several. Time
is of the essence of this Lease and each and all of its provisions. Submission
of this instrument for examination or signature by Tenant does not constitute a
reservation of or option for lease, and it is not effective as a lease or
otherwise until execution and delivery by both Landlord and Tenant. The
agreements, conditions and provisions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, executors,
administrators, successors and assigns of the parties hereto. Tenant shall not,
without the consent of Landlord, use the name of the Building for any purpose
other than as the address of the business to be conducted by Tenant in the
Premises. If any provision of this Lease shall be determined to be illegal or
unenforceable, such determination shall not affect any other provision of this
Lease and all such other provisions shall remain in full force and effect. This
Lease shall be governed by and construed pursuant to the laws of the State of
California.
41. EXHIBITS. The exhibit(s) and addendum, if any, specified in the Basic
Lease Information are attached to this Lease and by this reference made a part
hereof.
42. ADDITIONAL PROVISIONS.
IN WITNESS WHEREOF, the parties have executed this Lease on the respective
dates indicated below:
TENANT LANDLORD
Apple Computer, Inc. The Equitable Life Assurance Society of
- ----------------------------------- -----------------------------------------
a California Corporation the United States, a New York Corporation
- ----------------------------------- -----------------------------------------
By /s/ Joseph A. Graziano By /s/ James [last name unreadable]
-------------------------------- --------------------------------------
Its JOSEPH A. GRAZIANO Its Attorney in Fact
----------------------------- -----------------------------------
Sr. Vice President and
Chief Financial Officer
By By
--------------------------------- ---------------------------------------
Its Its
------------------------------ ------------------------------------
Date of Execution Date of Execution
by Tenant: 4-19-90 by Landlord: 4-20-90
------------------------ ----------------------------
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[Graphic Omitted]
ONE BUSH STREET
10TH FLOOR
Exhibit A to the Lease dated April 19, 1990.
Premises crosshatched.
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. The sidewalks, halls, passages, exits, entrances, shopping malls,
elevators, escalators and stairways of the Building shall not be obstructed by
any of the tenants or used by them for any purpose other than for ingress to and
egress from their respective Premises. The halls, passages, exits, entrances,
shopping malls, elevators, escalators and stairways are not for the general
public, and Landlord shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of Landlord would
be prejudicial to the safety, character, reputation, and interests of the
Building and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom any tenant normally deals
in the ordinary course of its business, unless such persons are engaged in
illegal activities. No tenant and no employee or invitee of any tenant shall go
upon the roof of the Building except such roof or portion thereof as may be
contiguous to the Premises of a particular tenant and may be designated in
writing by Landlord as a roof deck or roof garden area.
2. No sign, placard, picture, name, advertisement or notice visible from
the exterior of any tenant's Premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant on any part of the Building without the prior
written consent of Landlord. Landlord will adopt and furnish to tenants general
guidelines relating to signs inside the Building on the office floors. Each
tenant shall conform to such guidelines, but may request approval of Landlord
for modifications, which approval will not be unreasonably withheld. All
approved signs or lettering on doors shall be printed, painted, affixed or
inscribed at the expense of the tenant by a person approved by Landlord, which
approval will not be unreasonably withheld. Material visible from outside the
Building will not be permitted.
3. The Premises shall not be used for the storage of merchandise held for
sale to the general public or for lodging. No cooking shall be done or
permitted by any tenant on the Premises, except that use by the tenant of food
and beverage vending machines and Underwriters' Laboratory approved microwave
ovens and equipment for brewing coffee, tea, hot chocolate and similar beverages
shall be permitted, provided that such use is in accordance with all applicable
federal, state and city laws, codes, ordinances, rules and regulations.
4. No tenant shall employ any person or persons other than Landlord's
janitorial service for the purpose, of cleaning the Premises, unless otherwise
approved by 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.
Janitor service will not be furnished on nights when rooms are occupied after
9:30 P.M., unless, by prior arrangement with Landlord, service is extended to a
later hour for specifically designated rooms.
5. Landlord will furnish each tenant free of charge with two keys to each
door lock in its Premises. Landlord may make a reasonable charge for any
additional keys. No tenant shall have any keys made. 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 consent of Landlord. The tenant shall in each case furnish
Landlord with a key for any such lock. Each tenant, upon the termination of its
tenancy, shall deliver to Landlord all keys to doors in the Building which shall
have been furnished to the tenant.
6. The freight elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord in its discretion
shall deem appropriate. The persons employed to move such equipment in or out
of the Building must be acceptable to Landlord. Landlord shall have the right
to prescribe the weight, size and position of all equipment, materials,
furniture or other property brought into the Building. Heavy objects shall, if
considered necessary by Landlord, stand on wood strips of such thickness as is
necessary properly to distribute the weight. Landlord will not be responsible
for loss of or damage to any such property from any cause, and all damage done
to the Building by moving or maintaining such property shall be repaired at the
expense of the tenant.
7. No tenant shall use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material other than limited
quantities thereof reasonably necessary for the operation or maintenance of
office equipment, or, without Landlord's prior approval, use any method of
heating or air conditioning other than that supplied by Landlord. No tenant
shall use or keep or permit to be used or kept any foul or noxious gas or
substance in the
B-1
<PAGE>
Premises, or permit or suffer the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Building by
reason of noise, odors or vibrations, or interfere in any way with other tenants
or those having business therein.
8. Landlord shall have the right, exercisable without notice and without
liability to any Tenant, to change the name and street address of the Building.
9. Landlord reserves the right to exclude from the Building between the hours
of 6 P.M. and 7 A.M. and at all hours on Saturdays, Sundays and legal 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 act 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. In the case of
invasion, mob, riot, public excitement 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.
10. The directory of the Building will be provided for the display of the name
and location of tenants and a reasonable number of the principal officers and
employees of tenants, and, Landlord reserves the right to exclude any other
names therefrom. Any additional name which a tenant desires to have added to
the directory shall be subject to Landlord's approval and may be subject to at
charge therefor.
11. 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 exterior window in the Building without the prior
consent of Landlord. If consented to by Landlord, such items shall be installed
on the office side of the standard window covering and shall in no way be
visible from the exterior of the Building.
12. Messenger services and suppliers of bottled water, food, beverages, and
other products or services shall be subject to such reasonable regulations as
may be adopted by Landlord, Landlord may establish a central receiving station
in the Building for delivery and pick-up by all messenger services, and may
limit delivery and pick-up at tenant Premises to Building personnel.
13. Each tenant shall see that the doors of its Premises are closed and locked
and that all water faucets or apparatus, cooking facilities and office equipment
(excluding office equipment required to be operative at all times) are shut off
before the tenant or its employees leave the Premises at night, so as to prevent
waste or damage, and for any default or carelessness in this regard the tenant
shall be responsible for any damage sustained by other tenants or occupants of
the Building or Landlord. On multiple-tendency floors, all tenants shall keep
the doors to the Building corridors closed at all times except for ingress and
egress.
14. The toilets, urinals, wash bowls and other restroom facilities shall not be
used for any purpose other than that for which they were constructed, 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.
15. Except with the prior consent of Landlord, no tenant shall sell, or permit
the sale at retail, of newspapers, magazines, periodicals, theatre tickets or
any other goods or merchandise to the general public in or on the 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 the 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
manufacturing of any kind, or any business or activity other than that
specifically provided for in such tenant's lease.
16. No tenant shall install any antenna, loudspeaker, or other device on the
roof or exterior walls of the Building unless otherwise allowed pursuant to
this Lease.
17. There shall not be used in any portion of the Building, by any tenant or its
invitees, any hand trucks or other material handling equipment except those
equipped with rubber tires and side guards unless otherwise approved by
Landlord.
B-2
<PAGE>
18. Each tenant shall store its refuse within its Premises. No material shall
be placed in the refuse 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 refuse in the City and County of San Francisco without being in
violation of any law or ordinance governing such disposal. All refuse disposal
shall be made only through entry ways and elevators provided for such purposes
and at such times as Landlord shall designate.
19. Canvassing, peddling, soliciting, and distribution of handbills or any
other written materials in the Building are prohibited, and each tenant shall
cooperate to prevent the same.
20. The requirements of the tenants will be attended to only upon application
by telephone or in person at the office of the Building. Employees of Landlord
shall not perform any work or do anything outside of their regular duties unless
under special instructions from Landlord.
21. 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 of the tenants of the Building.
22. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of Premises in the Building.
23. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building, and for the preservation of good order
therein.
B-3
<PAGE>
EXHIBIT C
IMPROVEMENT OF THE PREMESIS
l. THE WORK. Landlord, through Landlord's contractor, shall
construct and install in the Premises, substantially in accordance with plans,
working drawings and specifications ("Tenant's Plans") prepared by Tenant's
architects and engineers and approved by Landlord, the improvements (the "Work")
described in Tenant's Plans (except work described in Paragraph 7 hereof). The
costs of preparing Tenant's Plans and performing the Work shall be allocated
between, and paid by Landlord and Tenant, as set forth in this EXHIBIT C. The
Work shall be performed in a good and workmanlike manner and in accordance with
applicable laws and regulations. The quantities, character and manner of
construction and installation of the Work shall be subject to all limitations
and restrictions imposed by laws, regulations and guidelines relating to health,
safety, the environment, handicapped persons and conservation of energy adopted
by any public or government authority.
2. TENANT'S PLANS.
(a) As soon as reasonably possible, but in any event on or before
"Tenant's Plans Date" which is agreed to be April 15, 1990, Tenant shall submit
Tenant's Plans to Landlord for Landlord's written approval (which shall not be
unreasonably withheld or delayed), Tenant's Plans shall be prepared by
Whisler-Patri Architects or by other qualified licensed architects and engineers
retained by Tenant and approved in writing by Landlord (which shall not be
unreasonably withheld), shall comply with all applicable codes, laws,
ordinances, rules and regulations, shall be in a form sufficient to secure the
approval of all government authorities with jurisdiction over the approval
thereof, and shall be otherwise satisfactory to Landlord in Landlord's
reasonable discretion, Tenant's Plans shall be complete plans, working drawings
and specifications for the layout, improvement and finish of the Premises
consistent with the design and construction of the Building, including
mechanical and electrical drawings and decorating plans, showing the following:
(i) Location and type of all partitions;
(ii) Location and type of all doors, with hardware and keying
schedule;
(iii) ceiling plans, including light fixtures;
(iv) Location of telephone equipment room, with all special
electrical and cooling requirements;
(v) Location and type of all electrical outlets, switches,
telephone outlets, and lights;
(vi) Location of all sprinklers and hydraulic calculations;
(vii) Location and type of all equipment requiring special electrical
requirements
(viii) Location, weight per square foot and description of any heavy
equipment or filing system exceeding fifty (50) pounds per square foot
live and dead load;
Exhibit C-1
<PAGE>
(ix) Requirements for special air conditioning or ventilation;
(x) Location and type of plumbing;
(xi) Location and type of kitchen equipment;
(xii) Indicate critical dimensions necessary for construction; and
(xiii) corridor entrances, bracing or support of special walls or
glass partitions, and any other items or information requested by
Landlord.
(b) As soon as reasonably possible, but in any event within two (2)
weeks after Tenant's Plans Date, Tenant shall submit supplemental plans, which
shall become part of Tenant's Plans upon written approval by Landlord, to
Landlord for Landlord's written approval (which shall not be unreasonably
withheld or delayed) showing the following:
(i) Type and color of floor covering;
(ii) Location, type and color of wall covering;
(iii) Location, type and color of paint or finishes; and
(iv) Details showing all millwork with verified dimensions and
dimensions of all equipment to be built in.
(c) Tenant's Plans shall be subject to Landlord's prior written
approval (which shall not be unreasonably withheld or delayed). Within 7 days
after Landlord's receipt of Tenant's Plans, Landlord will give written notice to
Tenant either approving or disapproving Tenant's Plans. If Landlord disapproves
Tenant's Plans, Landlord's notice shall set forth the reasons for such
disapproval and Landlord shall consult with Tenant regarding possible revisions
which Landlord would approve. As promptly as reasonably possible thereafter,
but not later than 7 days after Landlord's notice, Tenant shall submit to
Landlord revised Tenant's Plans incorporating the revisions required by
Landlord, Such revisions shall be subject to Landlord's written approval (which
shall not be unreasonably withheld or delayed).
(d) With the exception of the initial space planning costs which
Landlord has already incurred, Tenant shall promptly pay when due the entire
cost of all design, architectural and engineering services necessary for the
preparation of Tenant's Plans. All interior decorating services, such as the
selection of wall paint colors and wall coverings, fixtures, carpeting and all
other decorator selection work, required by Tenant shall be provided by Tenant
at Tenant's expense.
3. CONSTRUCTION. Upon completion of Tenant's Plans and approval of
Tenant's Plans by Landlord, Landlord shall have Landlord's contractors) prepare,
on the basis of Tenant's Plans, and furnish to Landlord and Tenant one or more
itemized bids fore the cost of the Work, Landlord shall give Tenant's
architects, engineers and consultants the opportunity to specify alternates and
itemizations to Landlord's contractor(s) to be included in such bid(s). Within
five (5) business days after receipt of such cost estimate, Tenant shall approve
or disapprove such bid(s) in writing. If Tenant disapproves such bid, Tenant
may submit revised Tenant's plans to Landlord's contractor for
Exhibit C-2
<PAGE>
revised bid, however Tenant shall be responsible for any resulting delays
incurred beyond the 5 day bid approval period. Landlord shall have no
obligation to perform any Work in the Premises until Tenant has approved
either such bid(s) or a revised bid submitted by Landlord's contractor after
Tenant has revised Tenant's Plans (subject to the pre-written approval of
Landlord which shall not be unreasonably withheld) to permit such revised
bid, Tenant's approval of a bid shall constitute authorization for Landlord
to perform the Work substantially in accordance with Tenant's Plans. In the
absence of such authorization, Landlord shall not be obligated to commence
the Work, Landlord's contractor shall complete the Work in the Premises
substantially in accordance with Tenant's Plans. Tenant shall promptly pay
when due the entire cost of all of the Work (including, without limitation,
the cost of all utilities, permits, fees, taxes and property and liability
insurance in connection therewith) required by Tenant's Plans upon receipt of
monthly progress statements from Landlord as prepared by Landlord's
contractor.
4. LANDLORD'S CONTRIBUTION. As Landlord's contribution for the
costs of preparing Tenant's Plans and performing the Work, Landlord shall give
Tenant an allowance in the amount of "Landlord's Contribution" which is agreed
to be the sum of $662,400.00. Landlord shall, at the request of Tenant, finance
for Tenant up to an additional amount of $82,800.00 of the cost of performing
the Work in excess of Landlord's Contribution, provided that Tenant shall
execute and deliver to Landlord an amendment to the Lease providing for the
repayment to Landlord of such additional amount (with interest at the rate of
10% per annum) as additional Base Rent, in equal monthly installments each month
during the initial five-year term of the Lease. Landlord shall pay Landlord's
Contribution directly to Tenant's architects, engineers, consultants or
suppliers or to Landlord's contractor for the account of Tenant, in installments
as professional services for Tenant's Plans are rendered or the Work is
performed, upon Landlord's receipt of a request for payment, accompanied by
written invoices and other written evidence reasonably satisfactory to Landlord
showing the costs incurred (unless Landlord has already received such invoices
directly from Landlord's contractor), until Landlord's Contribution is
exhausted. Landlord shall pay Landlord's Contribution directly to Tenant for
any architectural costs which Tenant pays directly to Tenant's architect upon
receiving written evidence of costs being incurred and paid. If the costs
incurred in preparing Tenant's Plans and performing the Work are less than
Landlord's Contribution, then upon substantial completion of the Work and
occupancy of the Premises by Tenant, Tenant shall receive a credit against the
Base Rent first due under this Lease in an amount by which such costs were less
than the Landlord's Contribution. If the costs incurred in preparing Tenant's
Plans and performing the Work exceed Landlord's Contribution and the excess
costs are not to be financed for Tenant by Landlord as provided above, then
Tenant shall pay all such sums promptly upon presentation of invoices for Work
completed submitted by Landlord or Landlord's contractor.
5. CHANGES. If Tenant requests any change in Tenant's Plans or
the Work, Tenant shall request such change in a written notice to Landlord. Each
such request shall be accompanied, if necessary, by plans, drawings and
specifications prepared by Tenant's architects or engineers, at Tenant's
expense, necessary to show and explain such change from the previously approved
Tenant's Plans. All changes in Tenant's Plans shall be subject to the prior
written approval of
Exhibit C-3
<PAGE>
Landlord (which shall not be unreasonably withheld). If Landlord approves a
change, Landlord shall have Landlord's contractor give Tenant an estimate of the
construction cost, if any, and delay in Substantial Completion of the Work, if
any, which will be incurred for such change. Tenant shall, within two (2)
business days after receipt of such estimate, notify Landlord in writing to
proceed or not to proceed with such change. In the absence of such written
notice to proceed, Landlord shall not be obligated to make the change requested
by Tenant and Landlord shall proceed with the Work in accordance with the
previously approved Tenant's Plans.
6. DELAY. Tenant shall be liable for, and shall pay all costs and
expenses incurred by Landlord in connection with any delay ("Tenant Delay") in
the commencement or completion of the Work caused by (i) Tenant's failure
promptly to approve (if required) the plans and specifications for the Work,
(ii) Tenant's requirement of additional or different Work, (iii) interruption of
the work in question to accommodate performance of other Tenant requested work
outside the scope of the Work in question (iv) any changes, additions, or
alterations to the Work which are requested by Tenant as to which Landlord has
notified Tenant that such change will cause a delay, (v) Tenant's failure to
take any action required of Tenant under the Lease or Addendum, (vi) any
interruption or interference in the construction caused by Tenant or its
architects, planners, engineers, contractors, subcontractors, laborers or
suppliers, or (vii) any other delay requested or caused by Tenant.
7. OTHER WORK BY TENANT. All work not within the scope of the
normal construction trades employed on the Building, such as the furnishing and
installing of furniture, telephone equipment, and office equipment, shall be
furnished and installed by Tenant at Tenant's expense and shall not be paid with
Landlord's contribution, Tenant shall adopt a schedule in conformance with the
schedule of Landlord's contractors and conduct Tenant's work in such a manner as
to maintain harmonious labor relations and as not to interfere with or delay the
work of Landlord's contractors, Tenant's contractors, subcontractors and labor
must be approved in writing by Landlord (which approval shall not be
unreasonably withheld) and shall be subject to the administrative supervision of
Landlord's general contractor, however there shall be no fee for such
supervision. Landlord shall provide reasonable access and entry to the Premises
to Tenant and Tenant's contractors and subcontractors and reasonable opportunity
and time and reasonable use of facilities to enable Tenant to adapt the Premises
for Tenant's use.
8. REQUIREMENTS. Any work performed at the Building or on the
Premises by Tenant or Tenant's contractor in connection with improvements shall
be subject to the following additional requirements:
(a) Such work shall not proceed until Landlord has approved (which
approval shall not be unreasonably withheld or delayed) in writing: (i) Tenant's
contractor, (ii) the amount and coverage of public liability and property damage
insurance, with Landlord named as an additional insured, carried by Tenant's
contractor, (iii) complete and detailed plans and specifications for such work,
and (iv) a schedule for the work.
(b) All work shall be done in conformity with a valid permit when
required, a copy of which shall be furnished to Landlord before such work is
commenced. In any case, all such work shall be performed in accordance with all
applicable laws. Notwithstanding any failure by Landlord to object to any such
work, Landlord shall have no responsibility for Tenant's failure to comply with
applicable laws.
Exhibit C-4
<PAGE>
(c) All work by Tenant or Tenant's contractor shall be done with
union labor in accordance with all union labor agreements applicable to the
trades being employed.
(d) All work by Tenant or Tenant's contractor shall be scheduled,on
a reasonable basis, through Landlord.
(e) Tenant or Tenant's contractor shall arrange for necessary
utility, hoisting and elevator service, on a nonexclusive basis, with Landlord's
contractor. Landlord shall have the right to require any necessary movement of
materials by the elevator to be done after regular working hours at the expense
of Tenant.
(f) Tenant's entry on the Premises for any purpose, including,
without limitation, inspection or performance of improvement work by Tenant,
prior to the Commencement Date shall be subject: to all of the covenants of this
Lease except the payment of rent. Entry by Tenant shall include entry by
Tenant's officers, employees, contractors, licensees, agents, servants, guests,
invitees or visitors.
9. Base Building Items: The Landlord shall provide. the following
base building items at no cost to the Tenant:
(a) One additional Transformer (45 KVA)
(b) One additional Circuit Panel
42 circuit
125 amp
3 phase
120/208 volt
Exhibit C-5
<PAGE>
EXHIBIT D
LEGAL DESCRIPTION
All of the real property situate in the City and County of San Francisco
State of California, described as follows:
PARCEL ONE:
BEGINNING at the point of intersection of the southerly line of Bush street
with the easterly line of Sansome Street: running thence southerly along said
line of Sansome Street 154 fast and 6 inches; thence at a right angle easterly
97 feet; thence at a right angle southerly 89 feet and 9-l/2 inches to the
northwesterly line of Market Street; thence deflecting 125 degrees 45' 51" to
the left from the preceding course and running northeasterly along said line of
Market, Street 219 feet and 4-3/8 inches to the westerly line of Battery Street;
thence deflecting 54 degrees 14' 09" to the left from the preceding course and
running northerly along said line of Battery Street 116 feet and 1 inch to the
southerly line of Bush streets thence at a tight angle westerly along said line
of Bush Street 275 feet to the point of beginning.
Being a portion of 50 VARA BLOCK N0. 40.
PARCEL TWO
BEGINNING at a point on the easterly line of Sansome Street, distant
thereon 154 feet and 6 inches southerly from the southerly line of Bush street;
running thence easterly at a right angle to said line of Sansome Street 97 feet;
thence at a right angle southerly 89 feet and 9-l/2 inches to the northwesterly
line of Market Street; thence deflecting 54 degrees 14' 09" to the right from
the preceding course and running southwesterly along said line of Market Street
53 feet and 4-7/8 inches to the northerly line of Sutter Street thence
deflecting 35 degrees 45' 91" to the right from the preceding course and running
westerly along said line of Sutter Street 53 feet and 6 inches to the easterly
line of Sansome street, thence at a right angle northerly along said line of
Sansome street 121 toot to the point of beginning.
Being a portion of 50 VARA BLOCK NO. 40.
<PAGE>
ADDENDUM TO OFFICE LEASE
This ADDENDUM TO OFFICE LEASE shall constitute a part of that certain
ONE BUSH STREET OFFICE LEASE dated as of April 19, 1990 (the "Lease") between
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York
corporation ("Landlord") and APPLE COMPUTER, INC., a California corporation
("Tenant"). Landlord and Tenant desire to amend the Lease as hereinafter
provided.
NOW, THEREFORE, notwithstanding anything to the contrary contained in
the Lease, Landlord and Tenant agree as follows:
1. DEFINITIONS. The definitions in the Lease and its exhibits shall
also apply to this Addendum unless herein otherwise indicated.
2. RENT CREDIT. Tenant shall receive a concession in the Base Rent
first due under the Lease, as specified in Article H of the Basic Lease
Information, in an amount equal to the first six (6) months of Base Rent, i.e.
Two Hundred Eleven Thousand One Hundred Forty Dollars ($211,140.00).
Accordingly, no Base Rent shall be payable for the first six (6) months of the
term of the Lease. Thereafter, throughout the term of the Lease, Base Rent shall
be as provided in Article H of the Basic Lease information and shall be due and
payable in accordance with the terms of the Lease.
3. SUBSTANTIAL COMPLETION AND TERM COMMENCEMENT. As used herein and
in the Lease, the term "Substantial Completion" shall mean the date when the
Work (defined in EXHIBIT C to the Lease) has been completed substantially in
accordance with Tenant's Plans (defined in EXHIBIT C to the Lease) except for
the completion of (a) finishing details of construction and
<PAGE>
decoration, (b) mechanical and other adjustments, or (c) items commonly found on
an architectural "punch list," all of which do not materially interfere with
Tenant's permitted use of the Premises. Substantial Completion shall also be
deemed to have occurred notwithstanding the fact that Landlord's contractor may
not have completed the "punch list" or similar corrective work. Notwithstanding
any provision of the Lease to the contrary, Term Commencement shall be the
earlier of (a) the date of Substantial Completion of the Work, or (b) if there
has been any Tenant Delay, the date upon which Substantial Completion would have
occurred in the absence of such Tenant Delay. Landlord and Tenant agree to
exert reasonable efforts to effect Substantial Completion by August 1, 1990.
Landlord agrees diligently to pursue completion of all punch list
items. To that end, Landlord, Landlord's contractor, and Tenant's architect
shall each promptly prepare and exchange drafts of a punch list which shall be
corrected and compiled by Landlord into a punch list report. If Landlord fails,
diligently to pursue completion of the work set forth on the punch list report
within a reasonable period of time, Tenant may advise Landlord in writing of
Tenant's intention to contract with a third party to complete such work. If it
would have been reasonably possible for Landlord to complete the work on the
punch list report within fourteen (14) days after receipt of such a notice from
Tenant and Landlord fails to do so, then Tenant may contract with a third party
(approved by Landlord, which approval shall not be unreasonably withheld or
delayed) to complete the work at Landlord's expense.
Tenant agrees to acknowledge in writing the date of Substantial
Completion and the date of Term Commencement, as and when requested to do so by
Landlord. Notwithstanding any
-2-
<PAGE>
provision of the Lease to the contrary, Landlord shall not be liable to Tenant
or others for any damage, loss, cost or expense resulting because of a delay in
completion of the Work, provided, however, that if Substantial Completion of the
Work, for reasons and circumstances within Landlord's control, has not occurred
by December 15, 1990 plus the number of days, if any, of Tenant Delay, Tenant
shall have the right to terminate the Lease by written notice delivered to
Landlord on December 15, 1990.
4. DETERMINATION OF FAIR MARKET RENTAL VALUE. Whenever, pursuant to
this Addendum, fair market rental value is to be determined by real estate
brokers, the procedures of this Paragraph 4 shall apply.
Each party shall select (and pay the fees of) a disinterested
real estate broker with at least five (5) years of commercial real estate office
leasing experience in the City and County of San Francisco. Each party shall,
within ten (10) days after the notice of request for the determination of fair
market rental value by brokers, notify the other party of the name and address
of the real estate broker selected by such party. If either Landlord or Tenant
shall fail timely to so select a broker, the selected broker shall select the
second broker (subject to the above selection criteria) within ten (10) days
after the failure of Landlord or Tenant, as the case may be, to so select. The
two brokers selected shall attempt to determine the fair market rental value of
the space in question for the period in question. Such brokers shall, within
thirty (30) days after the selection of the last of them, complete their
determinations of fair market rental value and submit their reports to Landlord
and Tenant. If the determinations vary by 5% or less of the higher
determination, the fair market rental
-3-
<PAGE>
value shall be the average of the two determinations. If the determinations
vary by more than 5% of the higher determination, the two brokers shall, within
ten (10) days after submission of the last of the reports, appoint a third
broker who shall be similarly qualified. If the two brokers shall be unable to
agree timely on the selection of a third broker, then the third broker shall be
appointed by the presiding Judge of the Superior Court in and for the City and
County of San Francisco. The third broker shall, within thirty (30) days after
his or her appointment, choose as the fair market rental value of the space in
question for the period in question the determination of one of the other two
brokers and notify Landlord and Tenant of his or her choice. The third broker
shall have no right to propose a middle ground, Landlord and Tenant shall each
pay the respective fees of its selected broker, or of the broker selected on its
behalf by the other's selected broker if Landlord or Tenant shall fail to timely
appoint, as provided above. The fees of a third broker, if there be one, shall
be paid one-half by Landlord and one-half by Tenant. The term "fair market
rental value" as used in this Addendum shall mean the monthly rental rate per
square foot prevailing at the commencement of the period in question (with a
base year of the year in which such period commences) under leases for lease
terms equal to the term in question then being entered into by building owners
(as contrasted to subleases then being entered into by tenants) for general
office uses of comparable space in first class office buildings in the financial
district of San Francisco, California, but in no event less than the Base Rent
payable under the Lease immediately prior to the commencement of the period in
question.
Until such time as the rent is determined as aforesaid, Tenant
shall pay as Base Rent for the space in
-4-
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question, rental at the rate which was last in effect under the Lease, and upon
the final resolution of such rent pursuant to the foregoing provisions of this
Paragraph, the parties shall forthwith settle accounts and either pay or return
an appropriate amount to reflect such resolution.
5. EARLY EXPANSION SPACE. If before April 30, 1990, an area of a
size between 3,000 and 5,000 rentable square feet becomes available for lease
from Landlord on one or more of the floors of the Building and such area is not
under negotiation for lease by Landlord to a prospective tenant, Landlord will,
within three (3) business days of receipt of written request from Tenant,
identify to Tenant the area and floor if such an area is so available on only
one floor of the Building or if such an area is available on more than one of
such floors, Landlord will select one of such floors and designate to Tenant the
area on such floor. Such designated area is hereinafter called the "Early
Expansion Space". Subject to the terms of this Paragraph, Tenant shall have one
option (the "Early Expansion Option") to have the Early Expansion Space added to
the Premises on August 1, 1990 (the "Early Expansion Effective Date"), if at
all, by written notice of exercise of such option given to Landlord no later
than May 31, 1990. If Tenant fails to so exercise the Early Expansion Option,
it shall terminate. Upon a timely exercise of the Early Expansion Option, the
Early Expansion Space shall be added to the Premises on the Early Expansion
Effective Date for the remaining term of the Lease upon all the terms, covenants
and conditions contained in the Lease, with the specific understanding that Base
Rent for the Early Expansion Space, commencing with the Early Expansion
Effective Date, shall be the equivalent of the per rentable square foot Base
Rent plus Escalation Rent payable by Tenant
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under the Lease with respect to the Premises on the Early Expansion Effective
Date and thereafter (including scheduled Base Rent increases) multiplied by the
number of rentable square feet of the Early Expansion Space and the Base Year
with respect to the Early Expansion Space shall be 1990. Base Rent for the
Early Expansion Space shall be due and payable from and after the Early
Expansion Effective Date. Promptly after Tenant's exercise of the Early
Expansion Option as aforesaid, Landlord agrees to prepare, and Landlord and
Tenant agree to execute and deliver, an appropriate amendment to the Lease to
reflect as of the Early Expansion Effective Date the increase in the rentable
area of the Premises, the increase in the Base Rent theretofore specified in
Article H of the Basic Lease Information and the increased Tenant's Percentage
Share specified in Article J of the Basic Lease Information which shall be an
amount determined by dividing the rentable square footage of the Early Expansion
Space by 281,520. Tenant shall accept the Early Expansion Space in its "as is"
condition on the Early Expansion Effective Date and Landlord shall have no
obligation to alter, remodel or improve the Early Expansion Space. However, if
Tenant intends to improve the Early Expansion Space, Landlord will provide to
Tenant (in accordance with the terms of EXHIBIT C to the Lease) an allowance to
be applied toward the cost of such improvements in an amount determined by
multiplying the rentable square footage of the Early Expansion Space by Forty
Dollars ($40.00). The aforesaid allowance shall be made available to Tenant in
accordance with the terms of EXHIBIT C to the Lease. As conditions precedent to
Tenant's rights under this Paragraph, at the time Tenant gives Landlord notice
of its exercise of the Early Expansion Option, the Lease must be in full force
and effect, no Events of Default must then exist, Tenant's interest
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<PAGE>
under the Lease must not have been assigned by operation of law or otherwise
(except pursuant to an assignment with respect to which Landlord has agreed in
the Lease to give its consent), and Tenant must not have sublet any of the
original Premises. The foregoing conditions are for the benefit of and may be
waived by Landlord.
Landlord shall not be liable for any loss or damage for any
failure to deliver possession of the Early Expansion Space to Tenant by reason
of the holding over or retention of possession by a tenant or occupant of the
Early Expansion Space and no such failure shall impair the validity of the Lease
or extend its term. Landlord will, however, exert reasonable efforts to cause
the holdover tenant or occupant to deliver possession of the Early Expansion
Space.
6. FIRST OFFER SPACE. Each time, between Term Commencement and the
third anniversary of Term Commencement, Landlord signs a lease with another
tenant for less than a full floor of the Building which results in an area being
available for lease on that floor of a size between 3,000 and 5,000 rentable
square feet (the "First Offer Space"), provided no Events of Default then exist
under the Lease, Landlord shall give notice to Tenant of the availability of the
First Option Space. Upon receipt of such notice, Tenant shall have the right to
meet and negotiate in good faith with Landlord for the lease of the First Option
Space. If within fifteen (15) days of Tenant's receipt of the aforesaid notice
Landlord and Tenant agree in writing upon the terms and conditions upon which
the First Offer Space shall be added to the Premises, Landlord shall prepare and
Landlord and Tenant will promptly execute and deliver an amendment to the Lease
to reflect the changes required as a consequence of such addition. If within
fifteen (15) days of Tenant's receipt of the aforesaid notice, Landlord
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and Tenant fail to agree in writing upon the terms and conditions upon which the
First Offer Space shall be added to the Premises, Tenant shall have no right to
lease the First Offer Space and Landlord may lease the First Offer Space to any
other party; provided, however, that Landlord will not lease the First Offer
Space to another party on terms more favorable to such party than those last
offered to Tenant by Landlord if no Events of Default then exist under the
Lease, unless Landlord notifies Tenant of such more favorable terms and again
offers the First Offer Space to Tenant upon such terms, which offer must be
accepted, if at all, unconditionally and in writing within fifteen (15) days
after Landlord's notice to Tenant.
7. EXPANSION SPACE. Provided Tenant shall not have assigned any of
its interest in the Lease or sublet any portion of the Premises (except to an
entity described in Paragraph 16(e) of the Lease) prior to the last day of the
30th month following Term Commencement, then subject to the terms of this
Paragraph 7, Tenant shall have one option (the "Expansion Option") to add to the
Premises, for the balance of the term of the Lease, an area of a size between
3,000 and 5,000 rentable square feet (to be determined by Landlord) on a floor
of the Building to be designated by Landlord (the "Expansion Space"), as
follows:
(a) Landlord will use reasonable best efforts to provide the
Expansion Space on the ninth floor of the Building if an area of a size between
3,000 and 5,000 rentable square feet is available for lease on that floor on the
Availability Date (hereinafter defined). Tenant agrees to accept the Expansion
Space in its "as is" condition on the Availability Date and Landlord shall have
no obligation to alter, remodel or improve the Expansion Space. However, if the
Expansion Space has not been improved with acoustical ceiling, ceiling lights
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and distributed heating, ventilating and air conditioning by the date Tenant
exercises its option to lease the Expansion Space, then Landlord will provide to
Tenant (in accordance with the terms of EXHIBIT C to the Lease) an allowance to
be applied toward the cost of improving the Expansion Space in an amount
determined by multiplying the rentable square footage of the Expansion Space by
Sixteen Dollars ($16.00). The aforesaid allowance shall be made available to
Tenant in accordance with the terms of EXHIBIT C to the Lease and Tenant shall
use such allowance for the alteration, remodeling and improvement of the
Expansion Space in accordance with said EXHIBIT C and Paragraph 8 of the Lease.
Tenant shall not take occupancy of the Expansion Space before the Availability
Date;
(b) The Expansion Space shall be available to Tenant on a date
to be selected by Landlord (the "Availability Date") which shall be between the
first day of the thirty-seventh and the last day of the forty-third months
following Term Commencement;
(c) Landlord shall give Tenant written notice ("Landlord's
Notice") of the Availability Date and of the location and size of the Expansion
Space no later than the last day of the twenty-eighth month following the Term
Commencement. Subject to the terms of this Paragraph 7, Tenant shall have one
option to have the Expansion Space added to the Premises on the Availability
Date upon all the terms, covenants and conditions contained in the Lease except
that Tenant's Percentage Share specified in Article J of the Basic Lease
Information shall be increased by an amount determined by dividing the rentable
square feet of the Expansion Space by 281,520 and the Base Rent for the
Expansion Space, commencing with the Availability Date, shall be the equivalent
of the per rentable square foot Base Rent plus Escalation Rent payable by the
Tenant under the Lease
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with respect to the Premises on the Availability Date and thereafter (including
scheduled Base Rent increases) multiplied by the number of rentable square feet
of the Expansion Space;
(d) The Expansion Option shall be exercised, if at all, by
written notice of exercise given to Landlord not later than three months after
Tenant's receipt of the Landlord's Notice. If Tenant fails to so exercise the
Expansion Option it shall terminate. Upon a timely exercise of the Expansion
Option, Landlord shall prepare and Landlord and Tenant shall execute and deliver
an appropriate amendment to the Lease to reflect, as of the Availability Date
(i) the increase in the net rentable area of the Premises, (ii) the increase in
the Base Rent theretofore specified in Article H of the Basic Lease information,
and (iii) the increase in Tenant's Percentage-Share specified in Article J of
the Basic Lease Information;
(e) As conditions precedent to Tenant's right to the Expansion
Option, at the time the Expansion Option is exercised and on the Availability
Date, the Lease must be in full force and effect, no Events of Default must then
exist, Tenant's interest under the Lease must not have been assigned by
operation of law or otherwise (except to an entity described in Paragraph 16(e)
of the Lease) and Tenant must not have sublet any of the Premises (except to an
entity described in Paragraph 16(e) of the Lease). The foregoing conditions are
for the benefit of and may be waived by Landlord; and
(f) Landlord shall not be liable for any loss or damage for any
failure to deliver possession of the Expansion Space to Tenant by reason of the
holding over or retention of possession by a tenant or occupant of the Expansion
Space and no such failure shall impair the validity of the Lease or extend its
term. Landlord will, however, exert reasonable efforts to
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cause the holdover tenant or occupant to deliver possession of the Expansion
Space.
8. OPTIONS TO EXTEND TERM. Tenant shall have two options
(collectively the "Options" and individually an "Option") to extend the term of
the Lease for two (2) additional consecutive two (2) year periods, the first of
which shall commence on Term Expiration and end two (2) years thereafter (the
"First Renewal Option") and the second of which shall commence on the second
anniversary of Term Expiration and end two (2) years thereafter (the "Second
Renewal Option"), provided that:
(a) The First Renewal Option shall be exercised, if at all, by
written notice of exercise delivered to Landlord no later than the last day of
the 51st month of the term of the Lease, and the Second Renewal Option shall be
exercised, if at all, by written notice of exercise delivered to Landlord no
later than the last day of the 75th month of the term of the Lease. If Tenant
fails to so exercise the First Renewal Option, both of the Options shall
terminate. If Tenant so exercises the First Renewal Option but fails to so
exercise the second Renewal Option, the Second Renewal Option shall terminate;
(b) At the time each Option is exercised and at the commencement
of the term of each Option, the Lease must be in full force and effect, no
Events of Default must then exist, and Tenant's interest under the Lease must
not have been assigned by operation of law or otherwise (except to an entity
described in Paragraph 16(e) of the Lease). Each Option shall apply only to the
portion of the Premises which is occupied by Tenant on the commencement of the
term of such Option and no subtenants or occupants of any part of the Premises
(except Tenant or an entity described in Paragraph 16(e) of the Lease) shall
have any rights under this paragraph 8;
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(c) All of the terms, covenants and conditions of the Lease
shall remain in effect during the term of each Option except that the Base Rent
for the Premises for the term of each Option shall be an amount equal to the
fair market rental value of the Premises for the term of that Option and there
shall be no free rent or free parking and there shall be no payments by Landlord
as or for tenant improvements to the Premises for the term of either Option.
Any improvements to the Premises made by Tenant at Tenant's sole expense, other
than those improvements made pursuant to EXHIBIT C to the Lease, shall be
excluded from consideration in determining the fair market rental value of the
Premises. Landlord and Tenant shall meet, negotiate and attempt to agree upon
the fair market rental value for the Premises for the term of that Option. If
Landlord and Tenant have not agreed in writing on such fair market rental value
within sixty (60) days after Landlord's receipt of Tenant's written notice of
exercise of that Option pursuant to subparagraph (a) above, then, upon written
notice of either party to the other requesting a determination of such fair
market rental value by real estate brokers, such fair market rental value shall
be determined by real estate brokers in accordance with the terms of paragraph 4
of this Addendum; and
(d) Promptly after the exercise of each Option as aforesaid,
Landlord shall prepare and Landlord and Tenant shall execute and deliver an
appropriate amendment to the Lease to reflect the extended term of the Lease and
the Base Rent for the term of such Option.
9. RELOCATION ALLOWANCE. Within thirty (30) days after the date upon
which Tenant takes occupancy of the Premises and the term of the Lease
commences, Landlord will pay to Tenant the sum of Thirty-Three Thousand One
Hundred Twenty Dollars ($33,120) for relocating to the Premises.
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10. PARKING. Provided there are not then any Events of Default,
Tenant shall have the right to park up to a maximum of 20 automobiles in the
basement parking facilities of the Building during the term of the Lease. Such
parking shall be on a month-to-month and nonexclusive basis, at the then
applicable parking rates established from time to time by Landlord and subject
to all rules and regulations applicable to such parking. Beginning with the
first day of the seventh month of the term of the Lease, and at any time
thereafter during the term of the Lease, if Tenant is not exercising its parking
rights on a continuous basis for all twenty cars, then Landlord may
correspondingly decrease the number of cars which Tenant shall thereafter have
the right to park. However, Tenant may regain its aforesaid parking rights at a
later date to the extent that parking is available and not committed to other
Building tenants in their leases.
As a concession to Tenant, Landlord will permit Tenant to park 10
automobiles in the parking facilities of the Building for the first six months
of the term of the Lease, free of charge.
11. SIGNAGE FOR COMPETITORS. To the extent permitted by law,
Landlord agrees that during the first five years of the term of the Lease,
Landlord shall not provide special lobby signage (other than on the lobby
directory), or signage or name identity on the exterior of the Building to any
tenant whose primary business is the manufacture of computer hardware or
software; unless Tenant first consents in writing to such signage, which consent
shall be at Tenant's reasonable discretion.
12. ANTENNA. During the term of the Lease, as it may be extended,
Landlord shall permit Tenant to install, maintain, operate, replace, repair and
remove (collectively, the
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(h) Tenant shall, at its sole cost and expense, obtain and
comply with all governmental permits, licenses, certificates, approvals and the
like, required for the Construction and for the operation of the Antenna;
(i) Tenant shall at all times maintain and operate the Antenna
(a) in a manner so as not to damage the Building or cause the roof to leak,
and (b) in a manner so as not to interfere with the use or operation of
television, radio, electronic, microwave or other communications equipment of
others;
(j) Tenant will, from time to time, relocate the Antenna upon
Landlord's request and at Landlord's expense, to other areas of the roof of
the Building provided such areas are suitable for the Antenna's intended
purposes; and
(k) At the expiration of the Lease, or upon earlier
termination of the Lease, Tenant will, at its sole cost and expense, upon
request of Landlord, dismantle and remove the Antenna from the roof of the
Building and restore the roof and all other portions of the Building affected
by such removal to the condition in which they existed before the
Construction.
13. AMENDMENT OF PARAGRAPH 1(d) OF THE LEASE. A new unnumbered
paragraph is hereby added at the end of Paragraph 1(d) of the Lease, to read as
follows:
"Operating Expenses shall also include such other items as are
now or hereafter customarily included in the cost of managing, operating,
maintaining, repairing and replacing commercial real property under
generally accepted accounting or management principles or practices now in
force or hereafter established. Notwithstanding the foregoing, no costs
incurred for the following shall be included in Operating Expenses:
(a) Leasing commissions, attorneys' fees, costs and
disbursements and other expenses incurred in connection with negotiations
or disputes with present or prospective tenants or other occupants of the
Building or associated with the enforcement of any leases or the defense of
Landlord's title to or interest in the Building or any part thereof;
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<PAGE>
(b) Costs incurred in renovating or otherwise improving or
decorating, painting or redecorating space for lease to tenants of the
Building;
(c) Landlord's costs of any services provided to tenants of the
Building for which Landlord is reimbursed by such tenants as an additional
charge or rental over and above the Base Rent and escalations payable
under the lease with such tenant; provided that if Landlord is entitled to
be reimbursed for any such cost, Landlord shall use its best efforts to
obtain such reimbursement and shall credit to operating expenses any
reimbursed costs.
(d) Rentals and other related expenses incurred in leasing air
conditioning systems, elevators or other equipment for the Building
ordinarily considered to be of a capital nature, except equipment used in
providing janitorial services or rented on a temporary or emergency basis;
(e) Costs of acquiring (as compared to leasing) paintings,
sculptures or other art objects for the Building;
(f) Reserves for Operating Expenses;
(g) Costs with respect to the parking facilities of the Building
for San Francisco parking taxes, wages and benefits of attendants or for
management fees;
(h) Advertising and promotional expenditures;
(i) Except as provided in Paragraph 1(d) of this Lease, interest
on or amortization of debt;
(j) Any amount for managing the Building in excess of the amount
which would have been charged for such management by a first class
professional building manager not affiliated with Landlord; or
(k) Costs of removing "hazardous material" (as those words are
defined by federal, state or local law on the date of this Lease) from the
Building, costs of responding to any claim of hazardous material
contamination in the Building, or the amount of any judgment or other costs
incurred in connection with the exposure to or release of hazardous
material in the Building except (i) any costs or judgments incurred because
of the presence, storage, use, release or disposal of "hazardous material"
(as those words may be defined under federal, state or local law on the
date of this Lease or thereafter) by or on behalf of Tenant, and (ii) any
costs of monitoring and investigating the Building or the real property
upon which the Building is situated to determine the presence of hazardous
materials, all of which costs shall be considered Operating Expenses if not
otherwise the sole responsibility of Tenant under the terms of this Lease
or the law (not to exceed $50,000 annually)."
14. AMENDMENT OF PARAGRAPH 8 OF THE LEASE.
Subparagraph (c) of paragraph 8 of the Lease is hereby deleted in its entirety
and the following is substituted in its place:
"(c) Landlord entered into a contract for the removal of
asbestos-containing fireproofing material from the Building except the
mechanical room on the 19th floor
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<PAGE>
of the Building. Landlord has retained a consultant to monitor the air in
the Building for asbestos-containing material. To the best of Landlord's
knowledge, any asbestos-containing fireproofing material remaining in the
Building is contained and its removal is not required under present law.
Furthermore, Landlord has been informed by its consultant that the removal
of asbestos-containing fireproofing material from the 10th floor of the
Building was performed in accordance with then-applicable law and that no
hazardous level of asbestos-containing fireproofing material remains on
such floor. Upon request by Tenant, Landlord shall provide Tenant with all
material information then in Landlord's possession regarding the presence
of any asbestos-containing fireproofing material in the Building. No work
affecting such fireproofing material shall be undertaken without compliance
with all then-applicable procedures, including procedures promulgated by
Landlord, relating to work involving material containing asbestos."
A subparagraph (d) is hereby added at the end of paragraph 8 of
the Lease, to read as follows:
"(d) Notwithstanding the last sentence of subparagraph (b)
above, Tenant shall be entitled to all depreciation, amortization and other
tax benefits with respect to (i) trade fixtures installed in the Premises
at Tenant's expense and alterations to the Premises made and paid for by
Tenant (as compared to the trade fixtures or improvements paid for by
Landlord pursuant to EXHIBIT C to the Lease), and (ii) Tenant's personal
property in the Premises (collectively, "Tenant's Property") and Tenant
shall be deemed the owner of Tenant's Property for such purposes. Except
for Tenant's Property which cannot be removed from the Premises without
structural injury to the Premises or the Building, Tenant may remove
Tenant's Property from the Premises at any time so long as no Events of
Default then exist and Tenant repairs all damages caused by such removal.
At the time Tenant requests Landlord's consent to an alteration of the
Premises or, if no such consent is required, upon request of Tenant,
Landlord shall advise Tenant in writing if Landlord reserves the right to
require Tenant to remove such alteration from the Premises upon the
expiration of the term of this Lease."
15. AMENDMENT OF PARAGRAPH 12 OF THE LEASE. A new subparagraph (d)
is hereby added at the end of paragraph 12 of the Lease, to read as follows:
"(d) Landlord agrees to procure and maintain in force during the
term of this Lease all risk extended coverage insurance with a limit of not
less than the full replacement cost of the Building. Such insurance shall
be issued by a company or companies licensed to do business in the State of
California. Landlord may provide such insurance under a blanket policy."
16. AMENDMENT OF PARAQRAPH 14 OF THE LEASE.
Paragraph 14 of the Lease is hereby deleted in its entirety.
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SUBSTANTIAL COMPLETION AND
COMMENCEMENT OF TERM AGREEMENT
Dated February 12, 1991
WHEREAS, by Lease dated April 19, 1990, as same may have been amended, The
Equitable Life Assurance Society of the United States (Landlord) leased to Apple
Computer, Inc. (Tenant) the area described therein in One Bush Street for a term
of five years; and
WHEREAS, it is herewith agreed that the requirements for substantial completion
as defined in the Lease were fulfilled for the Premises on August 6, 1990;
NOW, THEREFORE, the parties hereto agree that the term of said lease shall
commence August 6, 1990 and expire July 31, 1995.
All other terms and conditions of said lease are hereby reaffirmed as being in
full force and effect.
Tenant Landlord
Apple Computer, Inc. The Equitable Life
Assurance Society of the
United States
By /s/ A. Burward-Hoy By /s/ James Prane
------------------------------- ----------------------------------
Its Real Estate Specialist Its Attorney-In-Fact
------------------------------ ---------------------------------
<PAGE>
SUBSTANTIAL COMPLETION AND
--------------------------
COMMENCEMENT OF TERM AGREEMENT
------------------------------
Dated February 12, 1991
WHEREAS, by Lease dated April 19, 1990, as same may have been amended, The
Equitable Life Assurance Society of the United States (Landlord) leased to Apple
Computer, Inc. (Tenant) the area described therein in One Bush Street for a term
of five years; and
WHEREAS, it is herewith agreed that the requirements for substantial completion
as defined in the Lease were fulfilled for the Promises an August 6, 1990;
NOW, THEREFORE, the parties hereto agree that the term of said lease shall
commence August 6, 1990 and expire July 31, 1995.
All other terms and conditions of said lease are hereby reaffirmed as being in
full force and effect.
Tenant Landlord
Apple Computer, Inc. The Equitable Life Assurance
society of the United States
By By
/s/ Signature Unreadable /s/ Signature Unreadable
Its Its
Real Estate Specialist Attorney in Fact
<PAGE>
LEASE
By and Between
ROWES WHARF ASSOCIATES,
Landlord
And
HAMBRECHT & QUIST, INC.,
Tenant
<PAGE>
EXHIBIT l, SHEET 1
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts
(the "Building")
REFERENCE DATA
Execution
Date: June 22, 1987
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Tenant: Hambrecht & Quist, Inc.
------------------------------------------------------------------
(name)
a California corporation
------------------------------------------------------------------
(description of business organization)
235 Montgomery Street, San Francisco, California 94104
------------------------------------------------------------------
(principal place of business - mailing address)
LANDLORD: ROWES WHARF ASSOCIATES, a joint venture by and between THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES (a New York
corporation) and ROWES WHARF LIMITED PARTNERSHIP (a Massachusetts
limited partnership). Landlord is the Tenant under a Ground Lease
of the Project Site, as hereinafter defined, dated July 25, 1985 by
and between the Boston Redevelopment Authority, as Landlord, and
Rowes Wharf Associates, as Tenant, notice of which is recorded at
Book 11846, Page 173 in the Suffolk Registry of Deeds; and Landlord
is the Tenant under an Office/Retail Unit Lease of the Unit, as
hereinafter defined, dated as of July 25, 1985 by and between the
Boston Redevelopment Authority, as Landlord, and Rowes Wharf
Associates, as Tenant, notice of which is recorded at Book 11846,
Page 180 in said Deeds. Whenever the term "Ground Lease" is used
in this Lease, such term shall mean the above-referenced Ground
Lease, during the term of said Ground Lease, and shall thereafter
mean the above-referenced Office/Retail Unit Lease during the term
of said Office/Retail Unit Lease.
PROJECT
SITE: Premises situated on Atlantic Avenue, Boston, Massachusetts,
constituting both land and water area, as more particularly
described in the Master Deed hereinafter referenced.
PROJECT: The multi-use project (to be) constructed on the Project Site.
UNIT: The Office/Retail Unit in that certain condominium ("Condominium")
known as The Condominium at Rowes Wharf (to be) created by the
Master Deed referred to in the Ground Lease, as more particularly
described in the Office/Retail Unit Lease. The Unit is located on
the Project Site. The
Please Initial
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<PAGE>
EXHIBIT l, SHEET 2
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts
(the "Building")
Tenant: Hambrecht & Quist, Inc.
-----------------------
Execution Date: June 22, 1987
-------------
portion of the Building in which the Premises are located is
contained within the Unit,
Art. 2 Premises: An area on the fourth (4th) floor of the Building,
substantially as shown on Lease Plan. Exhibit 2.
Art. 3.1 Specified Commencement Date: March 9, 1988
Art. 3.2 Termination Date: Ten (10) years after the Term Commencement Date
Art. 4.3 Final Plans Date: November 9, 1987
Art. 5 Use of Premises: General business offices
Art. 6 Yearly Rent:
Lease Year* Yearly Rent
----------- -----------
1** Thirty ($30.00) Dollars per square foot of Total
Rentable Area of the premises per annum.
2 Thirty-One ($31.00) Dollars per square foot of Total
Rentable Area of the premises per annum.
3-5 Thirty-Eight ($38.00) Dollars per square foot of
Total Rentable Area of the premises per annum.
6-10 The Yearly Rent during this time period shall be
based upon the Fair Market Rental Value, as defined
in Paragraph 3 of the Rider to the Lease, of the
premises then demised to Tenant as of Lease Year 6
(provided, however, that there shall be no change in
Operating Costs in the Base Year
- ---------------
* For the purposes hereof, "Lease Year" shall be defined as any twelve (12)
month period commencing as of the Term Commencement Date as of any
anniversary of the Term Commencement Date.
**Subject to Article 6.6*
Please Initial
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<PAGE>
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
("the Building")
FIRST AMENDMENT
September 4. 1987
LANDLORD: Rowes Wharf Associates
TENANT: Hambrecht & Quist, Inc.
ORIGINAL ORIGINAL
LEASE PREMISES: An area on the fourth (4th) floor of the Building,
DATA: substantially is shown on Lease Plan, Exhibit 2 dated
June 22, 1987.
LEASE
EXECUTION
DATE: June 22, 1987
TERMINATION
DATE: Ten (10) years after the Term
Commencement Date in respect of the
Original Premises.
PREVIOUS
LEASE
AMENDMENTS: None
FIRST
AMENDMENT
ADDITIONAL
PREMISES: An area consisting of approximately 3,065
square feet of Total Rentable Area on the
fourth (4th) floor of the Building, contiguous
to the Original Premises, substantially as
shown on Lease Plan, Exhibit 2, First Amendment
dated September 4, 1987, a copy of which is
attached hereto and incorporated by reference
herein.
WHEREAS, Tenant desires to lease additional premises in the Building, to
wit, the First Amendment Additional Premises; and
WHEREAS, Landlord is willing to lease the First Amendment Additional
Premises to Tenant on the terms and conditions hereinafter set forth;
NOW THEREFORE, the above-described lease, ("the Lease"), is hereby amended
as follows:
<PAGE>
EXHIBIT l, SHEET 3
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts
(the "Building")
Tenant: Hambrecht & Quist, Inc.
Execution Date: June 22, 1987
In no event shall the Yearly Rent during this time
period exceed Forty-Six ($46.00) Dollars per square
foot or Total Rentable Area of the premises per
annum, with no change in the definition of what
constitutes Operating Costs in the Base Year as set
forth below.
Art. 7 Total Rentable Area: 14,323 square feet
Art. 8. Electric current will not be furnished by Landlord to Tenant.
Art. 9 Operating Expense Escalation:
Operating Costs in the Base Year: The product of (x) $10.00
multiplied by (y) the sum total (aggregate) of the Total Rentable
Areas of the Unit which, for the purposes hereof, shall not include
any areas designated by Landlord for retail use, so long as the cost
of operating services for such retail tenants are not included in
Operating Costs.
Tenant's Proportionate Share: A fraction, the numerator of which
is the Total Rentable Area of the premises and the denominator of
which is the sum total (aggregate) of the Total Rentable Areas of the
Unit, limited as aforesaid.
Art. 12; Additional insured Parties: Boston Redevelopment Authority;
13(d);The Board of Managers of The Condominium at Rowes Wharf
15.2;
18
Art. 29.3 Broker: The Robbins Group[
Art. 29.5 Arbitration: Massachusetts; Superior Court
Exhibit Dates: Lease Plan, Exhibit 2 dated June 22, 1987
Please Initial
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<PAGE>
1. DEMISE OF THE FIRST AMENDMENT ADDITIONAL PREMISES.
Landlord hereby demises and leases to Tenant, and Tenant hereby hires and
takes from Landlord, the First Amendment Additional Premises for a term
commencing as of the Term Commencement Date in respect of the First Amendment
Additional Premises. Said demise of the First Amendment Additional Premises
shall be upon all of the same terms and conditions of the Lease (including,
without limitation, Yearly Rent, rental rate and operating Costs in the Base
Year) except:
A. The Term Commencement Date in respect of the First Amendment
Additional Premises shall be the date the First Amendment Additional Premises
are deemed ready for Tenant's occupancy under the provisions of Article 4.2,
subject to the provisions of the last sentence of Article 3.1(b).
B. The Specified Commencement Date in respect of the First
Amendment Additional Premises is March 9, 1988.
C. The Termination Date in respect of the First Amendment
Additional Premises shall be the date ten (10) years after the Term
Commencement Date in respect of the Original Premises.
D. The Rent Commencement Date in respect of the First Amendment
Additional Premises (i.e. the date on which Tenant's obligation to pay Yearly
Rent in respect of the First Amendment Additional Premises commences to
accrue) shall be the date eight (8) months after the Term Commencement Date
in respect of the Original Premises.
E. The Final Plans Date in respect of the First Amendment
Additional Premises is November 9, 1987.
F. Paragraph 2 of the Rider to the Lease is hereby deleted in its
entirety and of no further force or effect.
G. Notwithstanding anything to the contrary in Subparagraph E(l)
of Article 16-18* of the Lease contained, the definition of the "Permitted
Sublet Area" is hereby deleted and the following is substituted in its place:
"Permitted Sublet Area" shall be defined as any portion of the
premises (including the First Amendment Additional Premises)
containing no more than 3,000 square feet of Total Rentable Area in
total.
H. Any other provisions of the Lease inconsistent with this
Amendment or the state of facts contemplated hereby.
<PAGE>
2. EXHIBIT 1.
Exhibit 1, Sheets 1, 2, 3 and 4 dated June 22, 1987 is hereby deleted in its
entirety and Revised Exhibit 1, First Amendment, Sheets 1, 2, 3, 4 and 5 dated
September 4, 1987, attached hereto and incorporated herein by reference, is
substituted in its place.
3. PARKING.
During the term of the Lease in respect of the First Amendment Additional
Premises, the Landlord will make available to Tenant three (3) additional
parking spaces for use in the Garage. Tenant's use of said additional parking
spaces shall be on all of the same terms and conditions applicable to the
parking spaces made available to Tenant pursuant to Paragraph 1 of the Rider to
the Lease.
4. Titles and paragraph headings are for reference purposes and the
convenience of the parties only and shall have no bearing upon nor force or
effect in respect of the interpretation and application of the substantive
provisions in this Amendment contained.
As herein amended, the Lease is ratified, approved, and confirmed in all
respects.
WHEREFORE, the parties have hereunto set their hands and seals as of the
date first written above,
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES HAMBRECHT & QUIST, INC.
By: By:
-------------------------- --------------------------
A General Partner of Rowes (Name) (Title)
Wharf Limited Partnership Hereunder Duly Authorized
Date Signed: Date Signed: October 12, 1987
----------------- -----------------
<PAGE>
REVISED EXHIBIT 1, FIRST AMENDMENT, SHEET 1
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
REFERENCE DATA
Execution Date: September 4, 1987
-----------------
Tenant: Hambrecht & Quist, Inc.
--------------------------------------------------------------
(name)
a California corporation
--------------------------------------------------------------
(description of business organization)
235 Montgomery Street, San Francisco, California 94104
--------------------------------------------------------------
(principal place of business - mailing address)
LANDLORD: ROWES WHARF ASSOCIATES, a joint venture by and between THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES (a New York
corporation) and ROWES WHARF LIMITED PARTNERSHIP (a Massachusetts
limited partnership). Landlord is the Tenant under a Ground Lease
of the Project Site, as hereinafter defined, dated July 25, 1985 by
and between the Boston Redevelopment Authority, as Landlord, and
Rowes Wharf Associates, as Tenant, notice of which is recorded at
Book 11846, Page 173 in the Suffolk Registry of Deeds; and Landlord
is the Tenant under an Office/Retail Unit Lease of the Unit, as
hereinafter defined, dated as of July 25, 1985 by and between the
Boston Redevelopment Authority, as Landlord, and Rowes Wharf
Associates, as Tenant, notice of which is recorded at Book 11846,
Page 180 in said Deeds. Whenever the term "Ground Lease" is used
in this Lease, such term shall mean the above-referenced Ground
Lease, during the term of said Ground Lease, and shall thereafter
mean the above-referenced Office/Retail Unit Lease during the term
of said Office/Retail Unit Lease.
PROJECT
SITE: Premises situated on Atlantic Avenue, Boston, Massachusetts,
constituting both land and water area, as more particularly
described in the Master Deed hereinafter referenced.
PROJECT: The multi-use project (to be) constructed on the Project Site.
UNIT: The Office/Retail Unit in that certain condominium ("Condominium")
known as The Condominium at Rowes Wharf (to be) created by the
Master Deed referred to in the Ground Lease, as more particularly
described in the Office/Retail Unit Lease. The Unit is located on
the Project Site. The
Please Initial
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<PAGE>
REVISED EXHIBIT 1, FIRST AMENDMENT, SHEET 2
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
Tenant: Hambrecht & Quist, Inc.
Execution Date: September 4, 1987
portion of the Building in which the Premises are located is
contained within the Unit.
Art. 2 Original Premises: An area on the fourth (4th) floor of the
Building, substantially as shown on Lease Plan,
Exhibit 2.
First Amendment
Additional Premises: An area on the fourth (4th) floor of the
Building, contiguous to the Original
Premises, substantially as shown on Lease
Plan, Exhibit 2, First Amendment.
Art. 3.1 Specified Commencement Date in
respect of the Original Premises: March 9, 1988
Specified Commencement Date in
respect First Amendment Additional
Premises: March 9, 1988
Art. 3.2 Termination Date: Ten (10) years after the Term Commencement Date
in respect of the Original Premises.
Art. 4.3 Final Plans Date in respect of Original Premises and First Amendment
Additional Premises: November 9, 1987
Art. 5 Use of Premises: General business offices
Please Initial
/s/
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<PAGE>
REVISED EXHIBIT 1, FIRST AMENDMENT, SHEET 3
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
Tenant: Hambrecht & Quist, Inc.
Execution Date: September 4, 1987
Art. 6 Yearly Rent:
Lease Year* Yearly Rent
----------- -----------
1** Thirty ($30.00) Dollars per square
foot of the Total Rentable Area of
the Original Premises and the
First Amendment Additional
Premises.
2 Thirty-One ($31.00) Dollars per
square foot of the Total Rentable
Area of the Original Premises and
the First Amendment Additional
Premises.
3-5 Thirty-Eight ($38.00) Dollars per
square foot of the Total Rentable
Area of the Original Premises and
the First Amendment Additional
Premises.
6-10 The Yearly Rent during this time
period shall be based upon the
Fair Market Rental Value, as
defined in Paragraph 3 of the
Rider to the Lease, of the
premises then demised to Tenant as
of the commencement of Lease Year
6 (provided, however, that there
shall be no change in Operating
Costs in the Base Year). In no
event shall the Yearly Rent during
this time period exceed Forty-Six
($46.00) Dollars per square foot
of Total Rentable Area of the
- ----------------
* For the purposes hereof, "Lease Year" shall be defined as any twelve-(12)
month period commencing as of the Term Commencement Date in respect of the
Original Premises or as of any anniversary of the Term Commencement Date in
respect of the Original Premises.
**Subject to Art. 6-6* of the Lease and to Paragraph 1(D) of the First
Amendment.
Please Initial
/s/
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<PAGE>
REVISED EXHIBIT 1, FIRST AMENDMENT, SHEET 4
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
Tenant: Hambrecht & Quist, Inc.
Execution Date: September 4, 1987
premises per annum, with no change in the
definition of what constitutes Operating
Costs in the Base Year as set forth below.
Art. 7 Total Rentable Area: Original Premises 14,323 square feet
First Amendment
Additional Premises 3,065 square feet
------
Total 17,388 square feet
Art. 8. Electric current will not be furnished by Landlord to Tenant.
Art. 9 Operating Expense Escalation
in respect of Original Premises*
and First Amendment Additional Premises*
Operating Costs in the Base Year: The product of (x) $10.00
multiplied by (y) the sum total (aggregate) of the Total Rentable
Areas of the Unit which, for the purposes hereof, shall not include
any areas designated by Landlord for retail use, so long as the cost
of operating services for such retail tenants are not included in
Operating Costs.
Tenant's Proportionate Share: A fraction, the numerator of which
is the Total Rentable Area of the Original Premises and the First
Amendment Additional Premises and the denominator of which is the sum
total (aggregate) of the Total Rentable Areas of the Unit, limited as
aforesaid.
Art. 12; Additional Insured Parties: Boston Redevelopment Authority; The
13(d); Board of Managers of The Condominium at Rowes Wharf
15.2;
18
Art. 29.3 Broker: The Beacon Companies
--------------------
- ----------------
*Tenant's obligation to pay Operating Expense Excess in respect of the Original
Premises and the First Amendment Additional Premises shall not commence to
accrue until the Rent Commencement Date in respect of the Original Premises.
Please Initial
/s/
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<PAGE>
REVISED EXHIBIT 1, FIRST AMENDMENT, SHEET 5
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
Tenant: Hambrecht & Quist, Inc.
Execution Date: September 4, 1987
Art. 29.5 Arbitration: Massachusetts; Superior Court
Exhibit Dates: Lease Plan, Exhibit 2 dated June 22, 1987
Lease Plan, Exhibit 2, First Amendment dated
September 4, 1987
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES HAMBRECHT & QUIST, INC.
c/o Rowes Wharf Limited Partnership 235 Montgomery Street
One Post Office Square San Francisco, California 94104
Boston, Massachusetts 02109
By By: /s/
--------------------------------- ---------------------------------
General Partner (Name) (Title)
Rowes Wharf Limited Partnership Hereunto Duly Authorized
Date Signed: Date Signed: 10/12/87
----------------------- ------------------------
Please Initial
/s/
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<PAGE>
LEASE PLAN
EXHIBIT 2
FIRST AMENDMENT
TENANT: Hambrecht & Quist
<PAGE>
THIS INDENTURE OF LEASE made and entered into on the Execution Date as
stated in Exhibit 1 and between the Landlord and the Tenant named in Exhibit
1.
Landlord does hereby demise and lease to Tenant, and Tenant does hereby
hire and take from Landlord, the premises hereinafter mentioned and described
(hereinafter referred to as "premises"), upon and subject to the covenants,
agreements, terms, provisions and conditions of this Lease for the term
hereinafter stated:
1. REFERENCE DATA
Each reference in this Lease to any of the terms and titles contained in
any Exhibit attached to this Lease shall be deemed and construed to
incorporate the data stated under that term or title in such Exhibit.
2. DESCRIPTION OF DEMISED PREMISES
2.1 DEMISED PREMISES. The premises are that portion of the Building
(being constructed) as described in Exhibit 1 (as the same may from time to
time be constituted after changes therein, additions thereto and eliminations
therefrom pursuant to rights of Landlord hereinafter reserved) and is
hereinafter referred to as "Building", substantially as shown hatched or
outlined on the Lease Plan (Exhibit 2) hereto attached and incorporated by
reference as a part hereof.
2.2 APPURTENANT RIGHTS. Tenant shall have, as appurtenant to the
premises, rights to use in common, with others entitled thereto, subject to
reasonable rules from time to time made by Landlord of which Tenant is given
notice: (a) the common lobbies, hallways, stairways and elevators of the
portion of the Building which is located within the Unit, serving the
premises in common with others, (b) common walkways necessary for access to
the Building, and (c) if the premises include less than the entire rentable
area of any floor, the common toilets and other common facilities of such
floor; and no other appurtenant rights or easements.
2.3 EXCLUSIONS AND RESERVATIONS. All the perimeter walls of the
premises except the inner surfaces thereof, any balconies (except to the
extent same are shown as part of the premises on the Lease Plan (Exhibit 2)
in which event, however, Tenant's sole right with respect to such balconies
shall be the right to use such balconies), terraces or roofs adjacent to the
premises, and any space in or adjacent to the premises used for shafts,
stacks, pipes, conduits, wires and appurtenant fixtures, fan rooms, ducts,
electric or other utilities, sinks or other Building, Project, or Unit
facilities, and the use thereof, are expressly excluded from the premises and
reserved to Landlord. Landlord hereby reserves a right of access through the
premises for the purposes of operation, maintenance, decoration and repair.
3. TERM OF LEASE
3.1 DEFINITIONS. As used in this Lease the words and terms which follow
mean and include the following:
1
<PAGE>
(a) "Specified Commencement Date" - The date (as stated in Exhibit 1)
on which it is estimated that the premises will be ready for Tenant's
occupancy for its use as stated in Exhibit 1.
(b) "Term Commencement Date" - If the "Term Commencement Date" is a
date certain agreed upon by the parties at the time of the execution of this
Lease, such date shall be inserted in Exhibit 1; otherwise, the "Term
Commencement Date" is the date on which the premises are ready for Tenant's
occupancy (as defined in Article 4.2) for use as set forth in Exhibit 1. If
the premises are not ready for such occupancy but if, pursuant to permission
therefor duly given by Landlord, Tenant takes possession of the whole or any
part of the premises for use as set forth in Exhibit 1, "Term Commencement
Date" shall be the date on which Tenant takes such possession.
3.2 HABENDUM. TO HAVE AND TO HOLD the premises for a term of years
commencing on the Term Commencement Date and ending on the Termination Date
as stated in Exhibit 1 or on such earlier date upon which said term may
expire or be terminated pursuant to any of the conditions of limitation or
other provisions of this Lease or pursuant to law (which date for the
termination of the term hereof will hereafter be called "Termination Date").
Notwithstanding the foregoing, if the Termination Date as stated in Exhibit 1
shall fall on other than the last day of a calendar month, said Termination
Date shall be deemed to be the last day of the calendar month in which said
Termination Date occurs.
3.3 DECLARATION FIXING TERM COMMENCEMENT DATE. As soon as may be after
the execution date hereof, each of the parties hereto agrees, upon demand of
the other party, to join in the execution, in recordable form, of a statutory
notice, memorandum, etc. of lease and/or written declaration in which shall
be stated such Term Commencement Date and (if need be) the Termination Date.
If this Lease is terminated before the term expires, then upon Landlord's
request the parties shall execute, deliver and record an instrument
acknowledging such fact and the date of termination of this Lease; and Tenant
hereby appoints Landlord its attorney-in-fact in its name and behalf to
execute such instrument if Tenant shall fail to execute and deliver such
instrument after Landlord's request therefor within ten (10) days.
4. READINESS FOR OCCUPANCY - ENTRY BY TENANT PRIOR TO TERM
COMMENCEMENT DATE
4.1 COMPLETION DATE - DELAYS. Subject to delay by causes beyond the
reasonable control of Landlord or caused by the action or inaction of Tenant,
Landlord shall use reasonable speed and diligence in the construction of the
Building and to have the premises ready for Tenant's occupancy on the
Specified Commencement Date. The failure to have the premises ready for
Tenant's occupancy on the Specified Commencement Date shall in no way affect
the validity of this Lease or the obligations of Tenant hereunder nor shall
the same be construed in any way to extend the term of this Lease. If the
premises are not ready for Tenant's occupancy within the meaning of Article
4.2 hereof on the Specified Commencement Date, Tenant shall not have any
claim against Landlord, and Landlord shall have no liability to Tenant, by
reason thereof.
4.2 WHEN PREMISES DEEMED READY. The premises shall be conclusively
deemed ready for Tenant's occupancy as soon as the initial installations and
painting to be done by Landlord (referred to in Exhibit 3, "Memorandum of
Work and Installations to be Initially Performed and Furnished in the
Premises", annexed hereto and made a part hereof) in the premises have been
substantially completed by Landlord insofar as is practicable in view of
delays or defaults, if any, of Tenant or its contractors, as hereinafter
specified, and the elevator, plumbing, air conditioning and electric
facilities are initially substantially available to Tenant, in accordance
with the obligations assumed
2
<PAGE>
by Landlord hereunder. In addition, the premises shall not be deemed ready for
Tenant's occupancy until Landlord has delivered to Tenant a partial
certificate of occupancy, unless such failure is based upon the fact that
Tenant's plans do not comply with law. Notwithstanding the foregoing, if
Tenant engages its own contractors to perform any portion of the work to be
performed in the initial preparation of the premises, Landlord shall be
relieved of its responsibility for obtaining such partial certificate of
occupancy to the extent that Landlord's failure to obtain such partial
certificate of occupancy is based upon any aspect of the work performed by
Tenant's contractors. Such facilities shall not be deemed to be unavailable
if only minor or insubstantial details of construction, decoration or
mechanical adjustments remain to be done or if such facilities are reduced or
their availability delayed as a reasonable and necessary incident in
connection with the opening of the Building, the Unit, or the Project. The
premises shall not be deemed to be unready for Tenant's occupancy or
incomplete if only minor or insubstantial details of construction, decoration
or mechanical adjustments remain to be done in the premises or any part
thereof, or if the delay in the availability of the premises for occupancy is
(i) due to special work (i.e. long-lead time items of which Landlord advises
Tenant in writing at the time that Landlord approves Tenant's plans),
changes, alterations or additions required or made by Tenant in the layout or
finish of the premises or any part thereof, (ii) caused in whole or in part
by Tenant through the delay of Tenant in submitting any plans and/or
specifications, supplying information, approving plans, specifications or
estimates, giving authorizations or otherwise or (iii) caused in whole or in
part by delay and/or default on the part of Tenant or its contractors
including, without limitation, the utility companies and other entities
furnishing communications, data processing or other service or equipment. If
the premises are deemed ready for Tenant's occupancy, pursuant to the
foregoing, (and the term shall have commenced by reason thereof), but the
premises are not in fact actually ready for Tenant's occupancy, Tenant shall
not (except with Landlord's consent) be entitled to take possession of the
premises for use as set forth in Exhibit 1 until the premises are in fact
actually ready for such occupancy. Landlord's architect's certificate of
substantial completion, as hereinabove stated, given in good faith, or of any
other facts pertinent to this Article 4.2 shall be deemed conclusive of the
statements therein contained and binding upon Tenant. Any of Landlord's work
in the premises not fully completed on the Term Commencement Date shall
thereafter be so completed with reasonable diligence by Landlord.
4.3 PLANS AND SPECIFICATIONS. Tenant shall be solely responsible for
the timely preparation and submission to Landlord of the final architectural,
electrical and mechanical construction drawings, plans and specifications
(called "plans") necessary to construct the premises for Tenant's occupancy,
which plans shall be subject to approval by Landlord's architect and
engineers and shall comply with their requirements to avoid aesthetic or
other conflicts with the design and function of the balance of the Building,
the Unit, or the Project. If requested by Tenant, Landlord's architect will
prepare the plans necessary for such construction at Tenant's cost (including
charges for not only building standard work, but also for special services of
the Landlord's architect and engineer not included in the design of space for
occupancy using building standard partitioning, floors, ceiling and
mechanical and electrical service). Such special services shall include, but
not be limited to, design of built-in equipment, interior design embracing
materials and finishes other than building standard, design of private
lavatories and other special purpose rooms and interior decorating. Whether
or not the layout and plans are prepared with the help (in whole or in part)
of Landlord's architect, Tenant agrees to remain solely responsible for the
timely preparation and submission of all such plans and all costs related
thereto. Notwithstanding anything to the contrary herein contained, in the
event that Tenant engages Landlord's architect and engineers to prepare
Tenant's plans, Landlord shall pay for the architectural and engineering fees
incurred by Tenant in preparing Tenant's final approved plans;
except that Landlord shall not be responsible for any changes made by Tenant
after Landlord has approved Tenant's plans. Tenant has assured itself by
direct communication with the architect and engineers (Landlord's or its own,
as the case may be) that the final approved plans can be delivered to
Landlord on or before the Final Plans Date as stated in Exhibit 1, provided
that Tenant promptly furnishes complete information concerning its
requirements to said architect and engineers as and when requested by them;
and Tenant covenants and agrees to cause said final, approved plans and
specifications to be delivered to Landlord on or before said Final Plans Date
and to devote such time as may be necessary in consultation with said
architect and engineers to enable them to complete and submit all plans
within the required time limit. Time is of the essence in respect of
preparation and submission of plans by Tenant. (The word "architect" as used
in this Article 4 shall include an interior space designer or planner.)
3
<PAGE>
4.4 PREPARATION OF PREMISES.
(a) By Landlord. Except as is otherwise herein provided or as may be
otherwise approved by the Landlord, all work necessary to prepare the
premises for Tenant's occupancy, including work to be performed at Tenant's
expense, shall be performed by contractors employed by Landlord and Landlord
shall obtain bids from at least two (2) subcontractors and to use reasonable
efforts to obtain bids from at least one (1) more subcontractor ("Additional
Subcontractor") within each of the following trades:
glass and glazing;
millwork;
plumbing;
carpeting; and
electrical
Landlord's failure to obtain a bid from an Additional Subcontractor shall not
be deemed to be a default of Landlord's obligations under this Article
4.4(a)-4*, if the reason for such failure is that an Additional Subcontractor
has not responded to Landlord in a time period which would delay Landlord's
schedule for the completion of Landlord's work. Tenant shall, subject to
Articles 4, 12 and 13 of the Lease, have the right to engage its own
contractors to perform work in the initial preparation of the premises for
Tenant's occupancy. In the event that Tenant shall engage its own
contractors to perform such work, Tenant shall pay to Landlord the cost of
services provided by Landlord or Landlord's contractor to Tenant and to
Tenant's contractors while performing such work, which services shall
include, but not be limited to, cleaning, security, rubbish removal,
electricity, toilet facilities, and elevators.
(b) By Tenant. Subject always to the provisions of Articles 4.2 and 4.3,
if other than building standard work is to be performed in preparing the
premises for Tenant's occupancy by contractors other than those employed by
Landlord, Landlord will give Tenant reasonable advance notice of the date on
which the premises will be ready for such other contractors and a reasonable
time will be allowed from such date for doing the work to be performed by such
other contractors. Tenant acknowledges and agrees that all work performed in
the construction of the Project shall be performed in accordance with the
requirements of Section 33.2 of the Ground Lease, a copy of which is attached
hereto as Exhibit 6. In the event that Tenant engages any separate contractors
in the initial construction of the premises, Tenant and Tenant's contractors
shall comply with the provisions of the plan submitted by Landlord to the
Boston Redevelopment Authority as set forth in said Section 33.2. Tenant shall
incorporate the requirement for such compliance in its agreement with any
contractor engaged by Tenant in the initial construction of the premises.
(c) If any work, including but not by way of limitation, installation of
built-in equipment by the manufacturer or distributor thereof, shall be
performed by contractors not employed by Landlord, Tenant shall take all
necessary reasonable measures to the end that such contractor shall cooperate
in all ways with Landlord's contractors to avoid any delay to the work being
performed by Landlord's contractors or conflict in any other way with the
performance of such work.
4.5 QUALITY AND COST OF MATERIALS. If the premises shall not have been
constructed for a prior tenant, all materials and workmanship to be furnished
and installed by Landlord shall be in accordance with building standard as
detailed and defined in Exhibit 3 hereof. Any construction or finish of
previously constructed premises, whether by Landlord or Tenant, shall equal or
exceed the specifications and quantities provided in Exhibit 3. Tenant shall
bear all other costs of preparing the premises for its occupancy in accordance
with the final plans including, without limitation, the cost of substitutes for
any items specified in Exhibit 3.
4.6 TENANT'S DELAY - ADDITIONAL COSTS. If Tenant fails or omits to make
timely submission to Landlord of the plans referred to in Article 4.3, or
other pertinent information, or delays in submitting any other plans or
specifications, or in supplying information, or in approving plans,
specifications or estimates, or in giving authorizations or fails to comply
with Section 4.4(c) hereof, or otherwise fails to honor or perform its
obligations under this Lease, any additional cost to Landlord in connection
with the completion of the premises in accordance with the terms of this
Lease and Exhibit 3 shall be promptly paid by Tenant to Landlord if such
additional cost is in whole or in part the result of such failure, omission
or delay of Tenant. For the purposes of the next preceding sentence, the
expression "additional cost to Landlord" shall mean the cost over and above
such cost as would have been the aggregate cost to Landlord of completing the
premises in accordance with the terms of this Lease and Exhibit 3 had there
been no such failure, omission or delay. Nothing contained in this Article
4.6 shall limit or qualify or prejudice any other covenants, agreements,
terms, provisions and conditions contained in this Lease, including, but not
limited to Article 4.2.
4.7 ENTRY BY TENANT PRIOR TO TERM COMMENCEMENT DATE. With Landlord's
prior written consent, which shall not be unreasonably withheld, Tenant shall
have the right to enter the premises prior to the Term Commencement Date,
during normal business hours and without payment of rent, to perform such
work or decoration as is to be performed by, or under the direction or
control of, Tenant
4
<PAGE>
and as is otherwise in compliance with the terms of this Lease. Such right of
entry shall be deemed a license from Landlord to Tenant, and any entry
thereunder shall be at the risk of Tenant.
4.8 CONCLUSIVENESS OF LANDLORD'S PERFORMANCE. Landlord warrants that
Landlord's work will be performed in a good and workmanlike manner and shall
be free of defects and deficiencies in materials or workmanship for a period
of one (1) year from the date of final completion of Landlord's Work. Tenant
shall be conclusively deemed to have agreed that Landlord has performed all
of its obligations under this Article 4, including, without limitation the
foregoing warranty, unless not later than the date one (1) year the Term
Commencement Date Tenant shall give Landlord written notice specifying the
respects in which Landlord has not performed any such obligation.
4.9 TENANT PAYMENTS OF CONSTRUCTION COST. Landlord shall have the same
rights and remedies which Landlord has upon the nonpayment of Yearly Rent and
other charges due under this Lease for nonpayment of any amounts which Tenant
is required to pay to Landlord or Landlord's contractor in connection with the
construction and initial preparation of the premises (including, without
limitation, any amounts which Tenant is required to pay in accordance with
Articles 4.5 and 4.6 hereof) or in connection with any construction in the
premises performed for Tenant by Landlord, Landlord's contractor or any other
person, firm or entity after the Term Commencement Date.
5. USE OF PREMISES
5.1 PERMITTED USE. Tenant shall continuously during the term hereof
occupy and use the premises only for the purposes as stated in Exhibit 1 and
for no other purposes. Service and utility areas (whether or not a part of
the premises) shall be used only for the particular purpose for which they
were designed. Without limiting the generality of the foregoing, Tenant
agrees that it shall not use the premises or any pan thereof, or permit the
premises or any part thereof to be used for the preparation or dispensing of
food, whether by vending machines or otherwise. Notwithstanding the
foregoing, but subject to the other terms and provisions of this Lease,
Tenant may, with Landlord's prior written consent, which consent shall not be
unreasonably withheld, install at its own cost and expense so-called hot-cold
water fountains, coffee makers vending machines, a microwave oven and
so-called Dwyer refrigerator-sink-stove combinations for the preparation of
beverages and foods, provided that no cooking, frying, etc., are carried on
in the premises to such extent as requires special exhaust venting, Tenant
hereby acknowledging that the Building or the Project is not engineered to
provide any such special venting.
5.2 PROHIBITED USES. Notwithstanding any other provision of this Lease,
Tenant shall not use, or suffer or permit the use or occupancy of, or suffer
or permit anything to be done in or anything to be brought into or kept in or
about the premises or the Building or any part thereof (i) which would
violate any of the covenants, agreements, terms, provisions and conditions of
this Lease, of the Ground Lease or otherwise applicable to or binding upon
the premises; (ii) an any unlawful purposes or in any unlawful manner; (iii)
which, in the reasonable judgment of Landlord shall in any way (a) impair the
appearance or reputation of the Project or (b) impair, interfere with or
otherwise diminish the quality of any of the Building or Project services or
the proper and economic heating, cleaning, air conditioning or other
servicing of the Building or premises, or with the use or occupancy of any of
the other areas of the Building, or occasion discomfort, inconvenience or
annoyance to, any of the other tenants or occupants of the Building or of the
Project; or (iv) which is inconsistent with the maintenance of the Building
and the Unit as an office building complex of the first class in the quality
of its maintenance, use, or occupancy. Tenant shall not install or use any
electrical or other equipment of any kind which, in the reasonable judgment
of Landlord, might cause any such impairment, interference, discomfort,
inconvenience or annoyance.
5.3 LICENSES AND PERMITS. If any governmental license or permit shall
be required for the proper and lawful conduct of Tenant's business, and if
the failure to secure such license or permit would in any way affect
Landlord, the premises, the Building, the Project or Tenant's ability to
perform any of its obligations under this Lease, Tenant, at Tenant's expense,
shall duly procure and thereafter maintain
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such license and submit the same to inspection by Landlord. Tenant, at Tenant's
expense, shall at all times comply with the terms and conditions of each such
license or permit. Tenant shall furnish all data and information to
Governmental authorities and Landlord as requested in accordance with legal,
regulatory, licensing or other similar requirements as they relate to Tenant's
use or occupancy of the premises or the Building.
6. RENT
During the term of this Lease the Yearly Rent and other charges at the rate
stated in Exhibit 1, shall be payable by Tenant to Landlord by monthly
payments, as stated in Exhibit 1, in advance and without demand on the first
day of each month for and in respect of such month. The rent and other
charges reserved and convenanted to be paid under this Lease shall commence
on the Term Commencement Date. Notwithstanding anything to the contrary in
the Lease contained, Tenant's obligation to pay Yearly Rent shall not
commence to accrue until the date ("Rent Commencement Date") eight (8) months
after the Term Commencement Date. If, by reason of any provisions of this
Lease, the rent reserved hereunder shall commence or terminate on any day
other than the first day of a calendar month, the rent for such calendar
month shall be prorated. The rent shall be payable to Landlord or, if
Landlord shall so direct in writing, to Landlord's agent or nominee, in
lawful money of the United States which shall be legal tender for payment of
all debts and dues, public and private, at the time of payment, at the office
of Landlord or such place as Landlord may designate, and the rent and other
charges in all circumstances shall be payable without any setoff or deduction
whatsoever. Rental and any other sums due hereunder not paid within ten (10)
days after the date due shall bear interest for each month or fraction
thereof from the due date until paid computed at the annual rate of two
percentage points over the so-called prime rate then currently from time to
time charged to its most favored corporate customers by the largest national
bank (N.A.) located in the city in which the Building is located, or at any
applicable lesser maximum legally permissible rate for debts of this nature.
7. RENTABLE AREA - ADJUSTMENT OF RENT
Total Rentable Area and Net Rentable Area of the premises shall be
determined in accordance with Exhibit 5.
S. SERVICES FURNISHED BY LANDLORD
8.1 ELECTRIC CURRENT.
(a) As stated in Exhibit 1, Landlord will either furnish to Tenant, as an
incident of this Lease, electric current for the operation of lighting fixtures,
the 120-volt electrical outlets initially installed in the premises and such
other installations and facilities as stated in Exhibit 3, or Landlord will
require Tenant to contract with the company supplying electric current for the
purchase and obtaining by Tenant of electric current directly from such company
to be billed directly to, and paid for by, Tenant. If Landlord is furnishing
Tenant with electric current hereunder, the Yearly Rent includes the cost of
such electric current per square foot of Total Rentable Area (hereafter called
"Base Electric Cost"), as set forth on Exhibit 1, based upon a rate (hereafter
called "Electric Rate") as set forth on Exhibit 1. The term "Base Electric Cost"
as used in this Lease, shall be defined as the composite, effective cost per
annum, as of the Execution Date, of electric current per square foot of the Unit
Total Rentable Area for those portions of the Unit as to which Landlord is
providing electric current. "Electric Rate," as used in this Lease, shall be
defined as the composite effective rate per kilowatt-hour taking into account
the base utility rate, fuel adjustment factor, premium charges or credits for
hours of use, and any other charges which Landlord is required to pay in
connection with furnishing electricity to the Unit.
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(b) If Landlord is furnishing Tenant electric current hereunder, then upon
written demand by Landlord upon Tenant, Tenant shall, to the extent permitted by
law, pay Landlord such an amount as shall reimburse Landlord for any increase
in the cost to Landlord of the services to be furnished by Landlord to Tenant
pursuant to this Article 8.1 including, without limitation, a cost increase
due to a change in rates charged by the supplier of electric current. Landlord
may make demand upon Tenant for reimbursement pursuant to this Subparagraph
8.l(b) no more frequently than monthly. Whenever a reimbursement shall be
demanded by Landlord, Landlord shall furnish to Tenant a statement in writing of
Landlord's computation of the appropriate amount of said reimbursement; such
statement shall include sufficient detail to enable Tenant to verify Landlord's
determination of the amount of the reimbursement referred to therein and, if
requested by Tenant, such cost and other records of Landlord as were used by it
as the basis for such computation. The amount of such reimbursement, as
specified in any such statement of Landlord, shall become binding upon the
parties hereto unless within thirty (30) days after Landlord shall have
furnished to Tenant such statement, Tenant pays the amount billed and with such
payment notifies Landlord in writing that Tenant disputes the amount of such
reimbursement as determined by Landlord as aforesaid. In such event the amount
of such reimbursement shall, unless the amount of the adjustment is otherwise
mutually agreed upon, be determined by arbitration as hereinafter provided, with
an appropriate payment to be made thereafter in accordance with such arbitration
decision. Any such reimbursement shall become effective as of the date of the
making of the demand upon which said reimbursement is predicated.
(c) If Landlord is furnishing Tenant electric current hereunder,
Landlord, at any time, at its option and upon not less than thirty (30) days'
prior written notice to Tenant, may discontinue such furnishing of electric
current to the premises; and in such case Tenant shall contract with the
company supplying electric current for the purchase and obtaining by Tenant
of electric current directly from such company. In the event Tenant itself
contracts for electricity with the supplier, either initially or pursuant to
Landlord's option as above stated, Landlord shall (i) permit, or obtain
permission, for the Project's risers, conduits and feeders to the extent
available, suitable and safely capable, to be used for the purpose of
enabling Tenant to purchase and obtain electric current directly from
such company, (ii) without cost or charge to Tenant, make such alterations
and additions to the electrical equipment and/or appliances in the Unit or in
the Project as such company shall specify for the purpose of enabling Tenant
to purchase and obtain electric current directly from such company, and (iii)
at Landlord's expense, furnish and install in or near the premises any
necessary metering equipment used in connection with measuring Tenant's
consumption of electric current and Tenant, at Tenant's expense, shall
maintain and keep in repair such metering equipment. In the event that
Landlord shall exercise such option, the Yearly Rent otherwise payable under
this Lease shall be decreased by an amount equal to the product of: (i) the
Base Electric Cost, multiplied by (ii) the Total Rentable Area of the
premises.
(d) Whether or not Landlord is furnishing electric current to Tenant, if
Tenant shall require electric current for use in the premises in excess of such
reasonable quantity to be furnished for such use as hereinabove provided and if
(i) in Landlord's reasonable judgment the Project's facilities are inadequate
for such excess requirements or (ii) such excess use shall result in an
additional burden on the Project's air conditioning system and additional cost
to Landlord on account thereof then, as the case may be, (x) Landlord upon
written request and at the sole cost and expense of Tenant, will furnish and
install such additional wire, conduits, feeders, switchboards and appurtenances
as reasonably may be required to supply such additional requirements of Tenant
if current therefor be available to Landlord, provided that the same shall be
permitted by applicable laws and insurance regulations and shall not cause
damage to the Building, the Unit, or the Project or the premises or cause or
create a dangerous or hazardous condition or entail excessive or unreasonable
alterations or repairs or interfere with or disturb other tenants or occupants
of the Building, the Unit, or the Project or (y) Tenant shall reimburse Landlord
for such additional cost, as aforesaid.
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(e) Landlord, at Tenant's expense and upon Tenant's request, shall
purchase and install all replacement lamps of types generally commercially
available (including, but not limited to, incandescent and fluorescent) used in
the premises. (See Exhibit 3 in respect of initial lamping.)
(f) Landlord shall not in any way be liable or responsible to Tenant for
any loss, damage or expense which Tenant may sustain or incur if the quantity,
character, or supply of electrical energy is changed or is no longer available
or suitable for Tenant's requirements.
(g) Tenant agrees that it will not make any material alteration or
material addition to the electrical equipment and/or appliances in the premises
without the prior written consent of Landlord in each instance first obtained,
which consent will not be unreasonably withheld, and will promptly advise
Landlord of any other alteration or addition to such electrical equipment and/or
appliances.
8.2 WATER. Landlord shall furnish hot and cold water for ordinary
premises cleaning, toilet, lavatory and drinking purposes. If Tenant
requires, uses or consumes water for any purpose other than for the
aforementioned purposes, Landlord may (i) assess a reasonable charge for the
additional water so used or consumed by Tenant or (ii) install a water meter
and thereby measure Tenant's water consumption for all purposes. In the
latter event, Landlord shall pay the cost of the meter and the cost of
installation thereof and shall keep said meter and installation equipment in
good working order and repair. Tenant agrees to pay for water consumed, as
shown on said meter, together with the sewer charge based on said meter
charges, as and when bills are rendered, and on default in making such
payment Landlord may pay such charges and collect the same from Tenant. All
piping and other equipment and facilities for use of water outside the
Building core will be installed and maintained by Landlord at Tenant's sole
cost and expense.
8.3 ELEVATORS, HEAT, CLEANING.
(a) Landlord at its expense shall: (i) provide necessary elevator
facilities (which may be manually or automatically operated, either or both
as Landlord may from time to time elect) on Mondays through Fridays,
excepting legal holidays, which holidays are set forth on Exhibit 7, attached
hereto and made a part hereof from 8:00 a.m. to 6:00 p.m. and on Saturdays,
excepting legal holidays, from 8:00 a.m. to 1:00 p.m. (called "business
days") and have one elevator in operation available for Tenant's use,
non-exclusively, together with others having business in the Building, at all
other times; (ii) furnish heat (as may reasonably be required for the
comfortable occupancy of the premises by Tenant) to the premises during the
normal heating season on business days; and (iii) cause the office areas of
the premises to be cleaned on business days (except on Saturdays) provided
the same are kept in order by Tenant. Either Exhibit 4 (if annexed hereto)
or, otherwise, the cleaning standards generally prevailing in first-class
office buildings in the city or town where the Building is located, shall
represent substantially the extent and scope of the cleaning by Landlord
referred to in this Article 8.3.
(b) The parties agree and acknowledge that, despite reasonable precautions
in selecting cleaning and maintenance contractors and personnel, any property or
equipment in the premises of a delicate, fragile or vulnerable nature may
nevertheless be damaged in the course of cleaning and maintenance services being
performed. Accordingly, Tenant shall take reasonable protective
precautions with such property and equipment.
8.4 AIR CONDITIONING. Landlord shall through the air conditioning
equipment of the Project furnish to and distribute in the premises air
conditioning as normal seasonal changes may require on
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business days during the hours as aforesaid in Article 8.3 when air
conditioning may reasonably be required for the comfortable occupancy of the
premises by Tenant. Tenant agrees to lower and close the blinds or drapes
when necessary because of the sun's position, whenever the air conditioning
system is in operation, and to cooperate fully with Landlord with regard to,
and to abide by all the reasonable regulations and requirements which
Landlord may prescribe for the proper functioning and protection of the air
conditioning system. The air conditioning system referred to in this Article
8.4 shall be capable of providing 76 degrees F dry bulb and 50% relative
humidity with outside conditions of 88 degrees F dry bulb and 71 degrees F
wet bulb. The foregoing design conditions shall be based upon an occupancy
within each separately partitioned area in the premises of not more than one
person per 100 square feet of Net Rentable Area and upon a combined lighting
and standard electrical load not to exceed 3 1/2 watts per square foot of Net
Rentable Area.
8.5 ADDITIONAL HEAT, CLEANING AND AIR CONDITIONING SERVICES.
(a) Landlord will use reasonable efforts upon reasonable advance written
notice from Tenant of its requirements in that regard, to furnish additional
heat, cleaning or air conditioning services to the premises on days and at
times other than as above provided.
(b) Tenant will pay to Landlord a reasonable charge (i) for any such
additional heat, cleaning or air conditioning service required by Tenant, (ii)
for any extra cleaning of the premises required because of the carelessness or
indifference of Tenant or because of the nature of Tenant's business, and (iii)
for any cleaning done at the request of Tenant of any portions of the premises
which may be used for storage, shipping room or other non-office purposes. If
the cost to Landlord for cleaning the premises shall be increased due to the
installation in the premises, at Tenant's request, of any materials or finish
other than those which are building standard, Tenant shall pay to Landlord an
amount equal to such increase in cost.
8.6 ADDITIONAL AIR CONDITIONING EQUIPMENT. In the event Tenant requires
additional air conditioning for business machines, meeting rooms or other
special purposes, or because of occupancy or excess electrical loads, any
additional air conditioning units, chillers, condensers, compressors, ducts,
piping and other equipment, such additional air conditioning equipment will be
installed and maintained by Landlord at Tenant's sole cost and expense, but
only if, Tenant has obtained Landlord's prior written consent, which consent
shall not be unreasonably withheld and if the same will not cause damage or
injury to the Project or create a dangerous or hazardous condition or entail
excessive or unreasonable alterations, repairs or expense or interfere with or
disturb other tenants; and Tenant shall reimburse Landlord in such an amount as
will compensate it for the cost incurred by it in operating such additional air
conditioning equipment.
8.7 REPAIRS. Except as otherwise provided in Articles 18 and 20, and
subject to Tenant's obligations in Article 14, Landlord shall keep and maintain
the roof, exterior walls, structural floor slabs, columns, elevators, public
stairways and corridors, lavatories, equipment (including, without limitation,
sanitary, electrical, heating, air conditioning, or other systems) and other
common facilities of the Project in good condition and repair.
8.8 INTERRUPTION OR CURTAILMENT OF SERVICES. When necessary by reason of
accident or emergency, or for repairs, alterations, replacements or
improvements which in the reasonable judgment of Landlord are desirable or
necessary to be made or of difficulty or inability in securing supplies or
labor, or of strikes, or of any other cause beyond the reasonable control of
Landlord, whether such other cause be similar or dissimilar to those
hereinabove specifically mentioned until said cause has been removed, Landlord
reserves the right to interrupt, curtail, stop or suspend (i) the furnishing
of heating, elevator, air conditioning, and cleaning services and (ii) the
operation of the plumbing and electric
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systems. Landlord shall exercise reasonable diligence to eliminate the cause
of any such interruption, curtailment, stoppage or suspension, but there shall
be no diminution or abatement of rent or other compensation due from Tenant to
Landlord hereunder, nor shall this Lease be affected or any of the Tenant's
obligations hereunder reduced, and the Landlord shall have no responsibility or
liability for any such interruption, curtailment, stoppage, or suspension of
services or systems.
A. Notwithstanding anything to the contrary in
this Lease contained, if the premises shall lack any service
which Landlord is required to provide hereunder (thereby
rendering the premises or a portion thereof untenantable) for
a period of fourteen (14) consecutive days, the
untenantability of which substantially adversely affects the
continued operation in the ordinary course of Tenant's
business, then, provided that such untenantability and
Landlord's inability to cure such condition is not caused by
the fault or neglect of Tenant or Tenant's agents, employees
or contractors, or causes beyond Landlord's reasonable
control, Yearly Rent and Operating Expense Excess shall
thereafter be abated in proportion to such untenantability
until the day such condition is completely corrected.
B. Notwithstanding anything to the contrary in this Lease
contained, if the premises shall lack any service which
Landlord is required to provide hereunder (thereby rendering
the premises or a portion thereof untenantable) for a period
of thirty (30) consecutive days, the untenantability of which
substantially adversely affects the continued operation in
the ordinary course of Tenant's business, then, provided that
such untenantability and Landlord's inability to cure such
condition is not caused by the fault or neglect of Tenant, or
Tenant's agents, employees or contractors, Yearly Rent and
Operating Expenses Excess shall thereafter be abated in
proportion to such untenantability until the day such
condition is completely corrected.
8.9 ENERGY CONSERVATION. Notwithstanding anything to the contrary in this
Article 8 or in this Lease contained, Landlord may institute, and Tenant shall
comply with, such policies, programs and measures as may be necessary,
required, or expedient for the conservation and/or preservation of energy or
energy services, or as may be necessary or required to comply with applicable
codes, rules, regulations or standards.
8.10 MISCELLANEOUS. Other than air conditioning, all services provided by
Landlord to Tenant are based upon an assumed maximum premises population of one
person per two hundred (200) square feet of Total Rentable Area, which limit
Tenant shall in no event exceed.
8.11 PERFORMANCE OF LANDLORD'S OBLIGATIONS. Wherever in this Article 8 or
in Articles 18, 19, and 20 Landlord has an affirmative obligation or a right to
take discretionary action in connection with the performance of services,
maintenance, repairs, or insurance, Landlord shall either perform such
obligation or such obligation or discretionary action may be performed by the
responsible party.
9. ESCALATION
9.1 DEFINITIONS. As used in this Article 9, the words and terms which
follow mean and include the following:
(a) "Operating Year" shall mean a calendar year in which occurs any part
of the term of this Lease.
(b) "Operating Costs in the Base Year" shall be the amount as stated in
Exhibit 1.
(c) "Tenant's Proportionate Share" shall be the figure as stated in
Exhibit 1.
(d) "Operating Costs" shall mean all costs incurred and expenditures of
whatever nature made by Landlord or an Underlying Party, as defined in
Paragraph (a) of Article 23 of this Lease, in the operation and management,
for repair and replacements, cleaning and maintenance of the Unit and the
grounds of the Project, including, without limitation, vehicular and
pedestrian passageways included within the common areas of the Condominium,
related equipment, facilities and appurtenances, elevators, cooling and
heating equipment (not including, however, mortgage charges, brokerage
commissions, salaries of executives and owners not directly employed in the
management/operation of the Unit, the cost of work done by Landlord or an
Underlying Party for a particular tenant for which Landlord has the right to
be reimbursed by such tenant, and such portion of expenditures as are not
properly chargeable against income), provided, however, that (i) if, during
the term of this Lease, Landlord or an Underlying Party shall replace any
capital items or make any capital expenditures (collectively called "capital
expenditures") the total amount of which is not properly includible in
Operating Costs for the Operating Year in which they were made, there shall
nevertheless be included in such Operating Costs and in Operating Costs for
each succeeding Operating Year the amount, if any, by which the annual
charge-off (determined as hereinafter provided) of such capital expenditure
(less insurance proceeds, if any, collected by Landlord or such Underlying
Party by reason of damage to, or destruction of the capital item being
replaced) exceeds
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the annual charge-off of the capital expenditure for the item being replaced;
and (ii) if a new capital item is acquired which does not replace another
capital item which was worn out, has become obsolete, etc., then there shall be
included in Operating Costs for each Operating Year in which and after such
capital expenditure is made the annual charge-off of such capital expenditure.
(Annual charge-off shall be determined by (i) dividing the original cost of the
capital expenditure by the number of years of useful life thereof [The useful
life shall be reasonably determined by Landlord in accordance with generally
accepted accounting principles and practices in effect at the time of
acquisition of the capital item.]; and (ii) adding to such quotient an interest
factor computed on the unamortized balance of such capital expenditure at an
annual rate of either one percentage point over the AA Bond rate [Standard &
Poor's corporate composite or, if unavailable, its equivalent] as reported in
the financial press at the time the capital expenditure is made or, if the
capital item is acquired through third-party financing, then the actual
[including fluctuating] rate paid by Landlord in financing the acquisition of
such capital item.) Provided, further, that if Landlord reasonably concludes on
the basis of engineering estimates that a particular capital expenditure will
effect savings in Unit operating expenses including, without limitation, energy-
related costs, and that such annual projected savings will exceed the annual
charge-off of capital expenditure computed as aforesaid, then and in such
events, the annual charge-off shall be determined by dividing the amount of such
capital expenditure by the number of years over which the projected amount of
such savings shall fully amortize the cost of such capital item or the amount of
such capital expenditure; and by adding the interest factor, as aforesaid.
Operating Costs shall include, but not be limited to, the following:
REAL ESTATE TAXES: The product of: (i) a fraction, the numerator of which
is the Total Rentable Area of the Unit, excluding the portions of the Unit
designated by Landlord for retail use, and the denominator of which is the
Total Rentable Area of the Unit, multiplied by (ii) the Real Estate Taxes and
other taxes, levies and assessments imposed upon the Unit and upon any
personal property of Landlord used in the operation thereof, or Landlord's
interest in the Unit or such personal property; charges, fees and assessments
for transit, housing, police, fire or other governmental services or
purported benefits to the Unit; service or user payments in lieu of taxes;
and any and all other taxes, levies, betterments, assessments and charges
arising from the ownership, leasing, operating, use or occupancy of the Unit
or based upon rentals derived therefrom, which are or shall be imposed by
National, State, Municipal or other authorities. As of the Execution Date,
Real Estate Taxes shall not include any franchise, rental, income or profit
tax, capital levy or excise, provided, however, that any of the same and any
other tax, excise, fee, levy, charge or assessment, however described, that
may in the future be levied or assessed as a substitute for or an addition
to, in whole or in part, any tax, levy or assessment which would otherwise
constitute Real Estate Taxes, whether or not now customary or in the
contemplation of the parties on the Execution Date of this Lease, shall
constitute Real Estate Taxes, but only to the extent calculated as if the
Landlord's interest in the Unit is the only real estate owned by Landlord.
Real Estate Taxes shall also include expenses of tax abatement or other
proceedings contesting assessments or levies. Until the fiscal/tax year in
which the Unit is assessed as a separate tax parcel by the City of Boston,
the real estate taxes allocable to the Unit shall be determined for any
fiscal/tax year as the product of forty-seven (47%) percent of the assessed
value of the Project, multiplied by the tax rate applicable to commercial
property in the City of Boston in respect of such fiscal/tax year.
Equitable credit against Real Estate Taxes shall be given for any refund
obtained by reason of a reduction in any Real Estate Taxes by the Assessors or
the administrative, judicial or other governmental agency responsible therefor.
The original computations, as well as reimbursement or payments of additional
charges, if any, or allowances, if any, under the provisions of Article 9.2
shall be based on the original assessed valuations with adjustments to be made
at a later date when
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the tax refund, if any, shall be paid to Landlord by the taxing authorities.
Expenditures for legal fees and for other similar or dissimilar expenses
incurred in obtaining the tax refund may be charged against the tax refund
before the adjustments are made for an Operating Year.
TAXES (OTHER THAN REAL ESTATE TAXES): Sales, Federal Social Security,
Unemployment and Old Age Taxes and contributions and State Unemployment taxes
and contributions accruing to and paid by the Landlord on account of all
employees of Landlord who are employed in, about or on account of the Unit,
except that taxes levied upon the net income of the Landlord and taxes
withheld from employees, and "Taxes" as defined in Article 9.1 (d) shall not
be included herein, provided however, that with respect to any employee who
performs services for buildings other than the Building, the wages, costs,
and taxes payable or allocable to such employee shall be equitably
apportioned among the buildings to which such employee renders services based
upon the time which such employee spent performing services for each such
building.
WATER: All charges and rates connected with water supplied to the Unit and
related sewer use charges.
HEAT: All charges connected with heat supplied to the Unit.
WAGES: Wages and cost of all employee benefits of all employees of the
Landlord who are employed in, about or on account of the Unit, provided
however, that with respect to any employee who performs services for
buildings other than the Building, the wages, costs, and taxes payable or
allocable to such employee shall be equitably apportioned among the buildings
to which such employee renders services based upon the time which such
employee spent performing services for each such building.
CLEANING: The cost of labor and material for cleaning the Unit, including
the interior of windows.
ELEVATOR MAINTENANCE: All expenses for or on account of the upkeep and
maintenance of all elevators in the Unit.
ELECTRICITY: The cost of all electric current for the operation of any
machine, appliance or device used for the operation of the premises and the
Unit, including the cost of electric current for the elevators, lights, air
conditioning and heating, but not including electric current which is paid for
directly to the utility by the user/tenant in the Unit. (If and so long as
Tenant is billed directly by the electric utility for its own consumption as
determined by its separate meter, then Operating Costs shall include only Unit
and public area electric current consumption and not any demised premises
electric current consumption. Wherever separate metering is unlawful,
prohibited by utility company regulation or tariff or is otherwise
impracticable, relevant consumption figures for the purposes of this Article 9
shall be determined by fair and reasonable allocations and engineering
estimates made by Landlord. Furthermore, if and to the extent that the
Operating-Costs-in-the-Base-Year figure shall include any component
representing the cost to the Landlord of electric current supplied to any
tenant's premises under so-called "rent-inclusion" lease arrangements, then if
such cost is eliminated from Operating Costs in an Operating Year in accordance
with the foregoing provisions, the figure for Operating Costs in the Base Year
for the purposes of this Article 9 shall likewise be reduced by the amount of
such cost component.)
INSURANCE, ETC.: Fire, casualty, liability and such other insurance as may from
time to time be required by lending institutions on first-class office
buildings in the City or Town wherein the Project is located, excluding,
however those insurance coverages which are included in Common Area Charges, as
hereinafter set forth, and all other expenses customarily incurred in
connection with the operation and maintenance of first-class office buildings
in the City or Town wherein the Project is located.
COMMON AREA CHARGES: Whereas the Unit is part of the Condominium, Operating
Costs shall include any common area and any other charges which Landlord is
required to pay to The Board of Managers of the Condominium ("Common Area
Charges"). Common Area Charges include, without limitation, the following
costs: all charges and rates connected with water supplied to the Unit and
related sewer use charges; all charges connected with air conditioning
supplied to the Unit, the cost of labor and material for cleaning the grounds
and paved areas of the Project and the ex-
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terior of windows; fire, casualty, liability, and such other insurance as may
be required under the Underlying Instruments, as defined in Paragraph (a) of
Article 23. Capital expenditures which are included in Common Area Charges
shall be included in Operating Costs, subject to the following: (i) if such
capital expenditure is allocable solely to the Unit, then only the annual
charge-off in respect of such capital expenditure shall be included in any
Operating Year, as set forth above; (ii) if such capital expenditure is borne
by more than one unit owner in the Project, then, unless the capital
expenditure is being amortized by the Underlying Party, only the annual
charge-off in respect of such capital expenditure shall be included in any
Operating Year, as set forth above; and (iii) capital expenditures, amortized
by an Underlying Party, are includible in Operating Costs in the Operating
Year in which they are included in Common Area Charges. Notwithstanding the
foregoing, Operating Costs shall not include the following Common Area
Charges: the costs of operating and maintaining the maritime facilities of
the Project (as provided in Section l(a)(5) of Article VI of the By-Laws of
the Condominium), the costs of operating and maintaining the parking garage
within the Project (as provided in Section l(a)(2) of Article VI of the
By-Laws of the Condominium), and Development Impact Project Exactions
assessed by the City of Boston (as provided in Section l(b) of Article VI of
the By-Laws of the Condominium). Notwithstanding anything to the contrary
herein contained, the cost of a new (in distinction to one which replaces
another capital item which was worn out, has become obsolete etc.) capital
item (and the annual charge-off with respect thereto) shall be excluded from
Operating Costs if such new capital item is neither (i) required by
applicable law or regulation; nor (ii) reasonably projected to reduce the
cost of operating the Building, e.g. energy-conservation measures. Operating
Costs shall not include repair or replacement of any defects in the initial
construction of the Project.
REDUCTIONS IN OPERATING COSTS ON ACCOUNT OF RETAIL AREAS OF THE UNIT: Operating
Costs for any Operating Year shall be reduced by: (i) the product of: (x) a
fraction, the numerator of which is the Total Rentable Area of the portion of
the Unit designated by Landlord for retail use, and the denominator of which is
the Total Rentable Area of the Unit, multiplied by (y) those Common Area Charges
payable by Landlord in such Operating Year, and (ii) the cost of any services
not included in Common Area Charges rendered by Landlord to such retail areas of
the Unit.
9.2 OPERATING EXPENSE EXCESS. If the Operating Costs in any Operating
Year exceed the Operating Costs in the Base Year, as set forth in Exhibit 1,
Tenant shall pay to Landlord Tenant's Proportionate Share of such excess,
such amount being hereinafter referred to as "OPERATING EXPENSE EXCESS."
Operating Expense Excess shall be due when billed by Landlord. In
implementation and not in limitation of the foregoing, Tenant shall remit to
Landlord pro rata monthly installments on account of projected Operating
Expense Excess, calculated by Landlord on the basis of the most recent
Operating Costs data or budget available. If the total of such monthly
remittances on account of any Operating Year is greater than the actual
Operating Expense Excess for such Operating Year, Tenant may credit the
difference against the next installment of rent or other charges due to
Landlord hereunder. If the total of such remittances is less than actual
Operating Expense Excess for such Operating Year, Tenant shall pay the
difference to Landlord when billed therefor. Landlord will furnish to Tenant,
at the end of each year, a statement prepared by Landlord's Chief Financial
Officer, setting forth in detail the basis for the computation of any
increase in Tax or Operating Costs for each year.
Tenant shall have the right to examine and photocopy (at Tenant's cost
and expense) all documentation and calculations prepared in the determination
of Operating Expense Excess. Such documentation and calculation shall be made
available to Tenant at the offices where Landlord keep such records during
normal business hours within a reasonable time after Landlord receives a
written request from Tenant to make such examination. Tenant shall have the
right to make such examination no more than once in respect of any period in
which Landlord has given Tenant a statement of actual Operating Costs for
such period. Any request for examination in respect of any Operating Year may
be made no more than one hundred twenty (120) days after Landlord advises
Tenant of the actual amount of Operating Costs in respect of such period.
9.3 PART YEARS. If the Term Commencement Date or the Termination Date
occurs in the middle of an Operating Year, Tenant shall be liable for only that
portion of the Operating Expense Excess, in respect of such Operating Year,
represented by a fraction the numerator of which is the number of days of the
herein term which falls within the Operating Year and the denominator Of which
is three hundred sixty-five (365).
9.4 DISPUTES, ETC. Any disputes arising under this Article 9 may, at the
election of either party, be submitted to arbitration as hereinafter provided.
Any obligations under this Article 9 which shall not have been paid at the
expiration or sooner termination of the term of this Lease shall survive such
expiration and shall be paid when and as the amount of same shall be
determined to be due.
10. CHANGES OR ALTERATIONS BY LANDLORD
Landlord reserves the right, exercisable by itself, its nominee, or by
any Underlying Party, at any time and from time to time without the same
constituting an actual or constructive eviction and without incurring any
liability to Tenant therefor or otherwise affecting Tenant's obligations under
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this Lease, to make such changes, alterations, additions, improvements,
repairs or replacements in or to the Project (including the premises) and the
fixtures and equipment thereof, as well as in or to the street entrances,
halls, passages, elevators, escalators, and stairways thereof, as it may deem
necessary or desirable, and to change the arrangement and/or location of
entrances or passageways, doors and doorways, and corridors, elevators,
stairs, toilets, or other public parts of the Unit or of the Project,
provided, however, that there be no unreasonable obstruction of the right of
access to, or unreasonable interference with the use of the premises by
Tenant. Nothing contained in this Article 10 shall be deemed to relieve
Tenant of any duty, obligation or liability of Tenant with respect to making
any repair, replacement or improvement or complying with any law, order or
requirement of any governmental or other authority. Landlord reserves the
right to adopt and at any time and from time to time to change the name or
address of the Building and the Project. Neither this Lease nor any use by
Tenant shall give Tenant any right or easement for the use of any door or
any passage or any concourse connecting with any other building or to any
public convenience, and the use of such doors, passages and concourses and of
such conveniences may be regulated or discontinued at any time and from time
to time by Landlord without notice to Tenant and without affecting the
obligation of Tenant hereunder or incurring any liability to Tenant therefor,
provided, however, that there be no unreasonable obstruction of presentable
access to, or unreasonable interference with the use of the premises by
Tenant.
If at any time any windows of the premises are temporarily closed or
darkened for any reason whatsoever including but not limited to, Landlord's
own acts, Landlord shall not be liable for any damage Tenant may sustain
thereby and Tenant shall not be entitled to any compensation therefor nor
abatements of rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction.
11. FIXTURES, EQUIPMENT AND IMPROVEMENTS - REMOVAL BY TENANT
All fixtures, equipment, improvements and appurtenances attached to or
built into the premises prior to or during the term, whether by Landlord at
its expense or at the expense of Tenant (either or both) or by Tenant shall
be and remain part of the premises and shall not be removed by Tenant during
or at the end of the term unless otherwise expressly provided in this Lease.
All electric, plumbing, heating and sprinkling systems, fixtures and outlets
vaults, paneling, molding, shelving, radiator enclosures, cork, rubber,
linoleum and composition floors, ventilating, silencing, air conditioning and
cooling equipment, shall be deemed to be included in such fixtures,
equipment, improvements and appurtenances, whether or not attached to or
built into the premises. Where not built into the premises, all removable
electric fixtures, carpets, drinking or tap water facilities, furniture, or
trade fixtures or business equipment shall not be deemed to be included in
such fixtures, equipment, improvements and appurtenances and may be, and upon
the request of Landlord will be, removed by Tenant upon the condition that
such removal shall not materially damage the premises or the Building and
that the cost of repairing any damage to the premises or the Building arising
from installation or such removal shall be paid by Tenant.
12. ALTERATIONS AND IMPROVEMENTS BY TENANT
Tenant shall make no alterations, decorations, installations, removals,
additions or improvements in or to the premises without Landlord's prior
written consent and then only those (i) which equal or exceed the
specifications and quantities provided in Exhibit 3, and (ii) made by
contractors
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or mechanics approved by Landlord Tenant shall have the right, without
Landlord's prior written consent, during the term of the Lease, to make
decorations in the premises, provided that if Tenant hires a contractor to
perform such decorations, Tenant shall give Landlord reasonable advance
notice prior to the performance of such work. No installations or work shall
be undertaken or begun by Tenant until (i) Landlord has approved written
plans and specifications and a time schedule therefor; (ii) Tenant has made
provision for either written waivers of liens from all contractors, laborers
and suppliers of materials for such installations or work, the filing of lien
bonds on behalf of such contractors, laborers and suppliers, or other
appropriate protective measures approved by Landlord; and (iii) Tenant has
procured appropriate surety payment and performance bonds which shall name
Landlord and the Additional Insured Parties (if any) listed on Exhibit 1 as
additional obligees and has filed lien bond(s) (in jurisdictions where
available) on behalf of such contractors, laborers and suppliers. No
amendments or additions to such plans and specifications shall be made
without the prior written consent of Landlord. Landlord's consent and
approval required under this Article 12 shall not be unreasonably withheld.
Any such work, alterations, decorations, installations, removals, additions
and improvements shall be done at Tenant's sole expense and at such times and
in such manner as Landlord may from time to time designate. If Tenant shall
make any alterations, decorations, installations, removals, additions or
improvements then Landlord may elect to require the Tenant at the expiration
or sooner termination of the term of this Lease to restore the premises to
substantially the same condition as existed at the Term Commencement Date.
Tenant shall pay, as an additional charge, the entire increase in real estate
taxes on the Unit which shall, at any time prior to or after the Term
Commencement Date, result from or be attributable to any alteration, addition
or improvement to the premises made by or for the account of Tenant in excess
of the specifications and quantities provided in Exhibit 3. Notwithstanding
anything to the contrary herein contained:
1. Tenant shall have the right, without obtaining Landlord's
consent, to make interior nonstructural alterations,
additions, or improvements, provided however that Tenant:
a. Shall give prior written notice to Landlord of such
alterations, additions or improvements;
b. Tenant shall submit to Landlord plans for such
alterations, additions, or improvements if Tenant
utilizes plans for such alterations, additions or
improvements; and
c. that such alterations, additions or improvements shall
not materially, adversely affect any of the Building's
systems.
13. TENANT'S CONTRACTORS - MECHANICS' AND OTHER LIENS - STANDARD OF TENANT'S
PERFORMANCE - COMPLIANCE WITH LAWS
Whenever Tenant shall make any alterations, decorations, installations,
removals, additions or improvements in or to the premises - whether such work
be done prior to or after the Term Commencement Date - Tenant will strictly
observe the following covenants and agreements:
(a) Tenant agrees that it will not, either directly or indirectly, use any
contractors and/or materials if their use will create any difficulty, whether
in the nature of a labor dispute or otherwise, with other contractors and/or
labor engaged by Tenant or Landlord or others in the construction, maintenance
and/or operation of the Project or any part thereof.
(b) In no event shall any material or equipment be incorporated in or
added to the premises, so as to become a fixture or otherwise a part of the
Building, in connection with any such alteration, decoration, installation,
addition or improvement which is subject to any lien, charge, mortgage or
other encumbrance of any kind whatsoever or is subject to any security
interest or any form of title retention agreement. Any mechanic's lien filed
against the premises or the Project for work claimed to have been done for,
or materials claimed to have been furnished to, Tenant shall be discharged by
Tenant within ten (10) days thereafter, at Tenant's expense, by filing the
bond required by law or otherwise. if Tenant fails so to discharge any lien,
Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord
for any expense or cost incurred by Landlord in so doing within fifteen (15)
days after rendition of a bill therefor. Notwithstanding the foregoing,
Tenant shall have the right to grant security interests and/or to lease its
business equipment and personal property in the premises provided that such
lessor or secured party agrees:
1. That it will repair any damage to the Building or the premises
caused by the installation or removal of any such equipment or
personal property;
2. That it will give Landlord not less than five
(5) days advance written notice prior to
making any entry into the premises; and
3. That it will not hold any auction or foreclosure sale on the
premises.
4. That it will have the right to remove such equipment or
property only during the term of this Lease.
(c) All installations or work done by Tenant shall be at its own expense
and shall at all times comply with (i) laws, rules, orders and regulations of
governmental authorities having jurisdiction thereof; (ii) orders, rules and
regulations of any Board of Fire Underwriters, or any other body here-after
constituted exercising similar functions, and governing insurance rating
bureaus; (iii) Rules and Regulations of Landlord; and (iv) plans and
specifications prepared by and at the expense of Tenant theretofore submitted
to and approved by Landlord.
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(d) Tenant shall procure all necessary permits before undertaking any
work in the premises; do all of such work in a good and workmanlike manner,
employing materials of good quality and complying with all governmental
requirements; and defend, save harmless, exonerate and indemnify Landlord,
and the Additional Insured Parties (if any) listed on Exhibit 1, from all
injury, loss or damage to any person or property occasioned by or growing out
of such work. Tenant shall cause contractors employed by Tenant to carry
Worker's Compensation Insurance in accordance with statutory requirements,
Automobile Liability Insurance, and Comprehensive General Liability
Insurance, (which General Liability Insurance shall name Landlord and the
Additional Insured Parties (if any) listed on Exhibit 1 as additional insured
parties), covering such contractors on or about the premises in the amounts
stated in Article 15 hereof or in such other reasonable amounts as Landlord
shall require and to submit certificates evidencing such coverage to Landlord
prior to the commencement of such work.
14. REPAIRS BY TENANT - FLOOR LOAD
14.1 REPAIRS BY TENANT. Tenant shall keep all and singular the premises
neat and clean (including periodic rug shampoo and waxing of tiled floors and
cleaning of blinds and drapes) and in such repair, order and condition as the
same are in on the Term Commencement Date or may be put in during the term
hereof, reasonable use and wearing thereof and damage by fire or by other
casualty excepted. Tenant shall make, as and when needed as a result of
misuse by, or neglect or improper conduct of, Tenant or Tenant's servants,
employees, agents, contractors, invitees, or licensees or otherwise, all
repairs in and about the premises necessary to preserve them in such repair,
order and condition, which repairs shall be in quality and class equal to the
original work. Landlord may, upon reasonable advance notice to Tenant except
that no notice shall be required in an emergency, elect, at the expense of
Tenant, to make any such repairs or to repair any damage or injury to the
Building or the premises caused by moving property of Tenant in or out of the
Building, or by installation or removal of furniture or other property, or by
misuse by, or neglect, or improper conduct of, Tenant or Tenant's servants,
employees, agents, contractors, or licensees.
14.2 FLOOR LOAD - HEAVY MACHINERY. Tenant shall not place a load upon any
floor of the premises exceeding the floor load per square foot of area which
such floor was designed to carry and which is allowed by law. Landlord reserves
the right to prescribe the weight and position of all business machines and
mechanical equipment, including safes, which shall be placed so as to distribute
the weight. Business machines and mechanical equipment shall be placed and
maintained by Tenant at Tenant's expense in settings sufficient in Landlord's
judgment to absorb and prevent vibration, noise and annoyance. Tenant shall not
move any safe, heavy machinery, heavy equipment, freight, bulky matter, or
fixtures into or out of the Building without Landlord's prior written consent.
If such safe, machinery, equipment, freight, bulky matter or fixtures requires
special handling, Tenant agrees to employ only persons holding a Master Rigger's
License to do said work, and that all work in connection therewith shall comply
with applicable laws and regulations. Any such moving shall be at the sole risk
and hazard of Tenant and Tenant will defend, indemnify and save Landlord
harmless against and from any liability, loss, injury, claim or suit resulting
directly or indirectly from such moving. Proper placement of all such business
machines, etc., in the premises shall be Tenant's responsibility.
15. INSURANCE, INDEMNIFICATION, EXONERATION AND EXCULPATION
15.1 GENERAL LIABILITY INSURANCE. Tenant shall procure, keep in force and
pay for Comprehensive General Liability Insurance insuring Tenant on an
occurrence basis against all claims and demands for personal injury liability
(including, without limitation, bodily injury, sickness, disease, and death) or
damage to property which may be claimed to have occurred from and after the time
Tenant and/or its contractors enter the premises in accordance with Article 4 of
this Lease, of not less than Two Million ($2,000,000) Dollars in the event of
personal injury to any number of persons
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arising out of any one occurrence and not less than Five Hundred Thousand
($500,000.00) Dollars in the event of damage to property, arising out of any
one occurrence from time to time thereafter shall be not less than such
higher amounts, if procurable, as may be reasonably required by Landlord and
are customarily carried by responsible office tenants in the City or Town
wherein the Project is located.
15.2 CERTIFICATES OF INSURANCE. Such insurance shall be effected with
insurers approved by Landlord, authorized to do business in the State wherein
the Project is situated under valid and enforceable policies wherein Tenant
names Landlord and the Additional Insured Parties (if any) as are listed on
Exhibit 1 as additional insureds. Such insurance shall provide that it shall
not be cancelled or modified without at least thirty (30) days' prior written
notice to each insured named therein. On or before the time Tenant and/or
its contractors enter the premises in accordance with Articles 4 and 14 of
this Lease and thereafter not less than fifteen (15) days prior to the
expiration date of each expiring policy, original copies of the policies
provided for in Article 15.1 issued by the respective insurers, or
certificates of such policies setting forth in full the provisions thereof
and issued by such insurers together with evidence satisfactory to Landlord
of the payment of all premiums for such policies, shall be delivered by
Tenant to Landlord and certificates as aforesaid of such policies shall upon
request of Landlord, be delivered by Tenant to the holder of any mortgage
affecting the premises.
15.3 GENERAL. Tenant will save Landlord and the Additional Insured
Parties (if any) as are listed on Exhibit 1 harmless, and will exonerate,
defend and indemnify Landlord and said Additional Insured Parties, from and
against any and all claims, liabilities or penalties asserted by or on behalf
of any person, firm, corporation or public authority arising from the
Tenant's breach of the Lease or:
(a) On account of or based upon any injury to person, or loss of or damage
to property, sustained or occurring on the premises on account of or based upon
the act, omission, fault, negligence or misconduct of any person whomsoever
(other than Landlord, or Landlord's agents, employees, or contractors);
(b) On account of or based upon any injury to person, or loss of or damage
to property, sustained or occurring elsewhere (other than on the premises) in
or about the Building, the Unit, or the Project (and, in particular, without
limiting the generality of the foregoing, on or about the elevators, stairways,
public corridors, sidewalks, concourses, arcades, malls, galleries, vehicular
tunnels, approaches, areaways, roof, or other appurtenances and facilities used
in connection with the Building, the Unit, or the Project, or premises) arising
out of the use or occupancy of the Building, the Unit, or the Project, or
premises by the Tenant, or by any person claiming by, through or under Tenant,
or on account of or based upon the act, omission, fault, negligence or
misconduct of Tenant, its agents, employees or contractors; and
(c) On account of or based upon (including monies due on account of) any
work or thing whatsoever done (other than by Landlord or its contractors, or
agents or employees of either) on the premises during the term of this Lease
and during the period of time, if any, prior to the Term Commencement Date that
Tenant may have been given access to the premises.
(d) Tenant's obligations under this Article 15.3 shall be insured either
under the Comprehensive General Liability Insurance required under Article
15.1, above, or by a contractual insurance rider or other coverage; and
certificates of insurance in respect thereof shall be provided by Tenant to
Landlord upon request.
15.4 PROPERTY OF TENANT. In addition to and not in limitation of the
foregoing, Tenant covenants and agrees, that all merchandise, furniture,
fixtures and property of every kind, nature and description related to or
arising out of Tenant's leasehold estate hereunder; which may be in or upon
the premises or Building, in the public corridors, or on the sidewalks,
archways and approaches adja-
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cent thereto, shall be at the sole risk and hazard of Tenant, and that if the
whole or any part thereof shall be damaged, destroyed, stolen or removed from
any cause or reason whatsoever no part of said damage or loss shall be charged
to, or borne by, Landlord.
15.5 BURSTING OF PIPES, ETC. Landlord shall not be liable for any injury
or damage to persons or property resulting from fire, explosion, falling
plaster, steam, gas, electricity, electrical or electronic emanations or
disturbance, water, rain or snow or leaks from any part of the Building or from
the pipes, appliances, equipment or plumbing works or from the roof, street or
sub-surface or from any other place or caused by dampness, vandalism, malicious
mischief or by any other cause of whatever nature, unless caused by or due to
the negligence of Landlord, its agents, servants or employees, and then only
after (i) notice to Landlord of the condition claimed to constitute negligence
and (ii) the expiration of a reasonable time after such notice has been received
by Landlord without Landlord having taken all reasonable and practicable means
to cure or correct such condition; and pending such cure or correction by
Landlord, Tenant shall take all reasonably prudent temporary measures and
safeguards to prevent any injury, loss or damage to persons or property. In no
event shall Landlord be liable for any loss, the risk of which is covered by
Tenant's insurance or is required to be so covered by this Lease; nor shall
Landlord or its agents be liable for any such damage caused by other tenants or
persons in the Project or caused by operations in construction of any private,
public, or quasi-public work; nor shall Landlord be liable for any latent defect
in the premises, the Building, the Unit, or in the Project.
15.6 REPAIRS AND ALTERATIONS - NO DIMINUTION OF RENTAL VALUE. Except as
otherwise provided in Article 18, there shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Landlord by reason
of inconvenience, annoyance or injury to Tenant arising from any repairs,
alterations, additions, replacements or improvements made by Landlord or any
related work, Tenant or others in or to any portion of the Building or
premises or any property adjoining the Building, or in or to fixtures,
appurtenances, or equipment thereof, or for failure of Landlord or others to
make any repairs, alterations, additions or improvements in or to any portion
of the Building, of the Unit, of the Project, or of the premises, or in or to
the fixtures, appurtenances or equipment thereof. Notwithstanding anything to
the contrary herein contained, Landlord shall exercise reasonable diligence
to minimize any disruption to the premises in making any repairs,
alterations, additions, replacements or improvements to the premises.
(A) Notwithstanding anything to the contrary in this Lease
contained, if due to any such repairs, alterations,
replacements or improvements made by Landlord or if due to
Landlord's failure to make any repairs, alterations, or
improvements required to be made by Landlord, any portion of
the premises becomes untenantable for a period of fourteen
(14) consecutive business days, the untenantability of which
would substantially adversely affect the continued operation
in the ordinary course of Tenant's business, then, provided
that such untenantability and Landlord's inability to cure
such condition is not caused by the fault or neglect of Tenant
or Tenant's agents, employees or contractors or causes beyond
Landlord's reasonable control, Yearly Rent and Operating
Expense Excess shall thereafter be abated in proportion to
such untenantability until the day such condition is
completely corrected,
(B) Notwithstanding anything to :he contrary in this Lease
contained, if due to any such repairs, alterations,
replacements, or improvements made by Landlord or if due to
Landlord's failure to make any repairs, alterations, or
improvements required to be made by Landlord, any portion of
the premises becomes untenantable for a period of thirty
(30) consecutive days, the untenantability of which would
substantially adversely affect the continued operation in the
ordinary course of Tenant's business, then, provided that
such untenantability and Landlord's inability to cure such
condition is not caused by the fault or neglect of Tenant or
Tenant's agents, employees or contractors, the Yearly Rent
and Operating Expense Excess shall thereafter be abated in
proportion to such untenantability until the day such
condition is completely corrected.
16. ASSIGNMENT, MORTGAGING AND SUBLETTING
Tenant covenants and agrees that neither this Lease nor the term and estate
hereby granted, nor any interest herein or therein, will be assigned,
mortgaged, pledged, encumbered or otherwise transferred, voluntarily, by
operation of law or otherwise, and that neither the premises, nor any part
thereof will be encumbered in any manner by reason of any act or omission on
the part of Tenant, or used or occupied, or permitted to be used or occupied,
or utilized for desk space or for mailing privileges, by anyone other than
Tenant, or for any use or purpose other than as stated in Exhibit 1 or be
sublet, or offered or advertised for subletting.
A. Notwithstanding anything to the contrary herein contained,
Tenant shall have the right, without obtaining Landlord's
consent, to assign its interest in this Lease and to sublease
the premises, or any portion thereof, to an Affiliated Entity,
as hereinafter defined, so long as such entity remains in such
relationship to Tenant, and provided that prior to or
simultaneously with such assignment or sublease, such Affiliated
Entity executes and delivers to Landlord an Assumption
Agreement, as hereinafter defined. For the purposes hereof, an
"Affiliated Entity" shall be defined as any entity which is
controlled by, is under common control with, or which controls
Tenant. For the purposes hereof, control shall mean the direct
or indirect ownership of more than fifty (50%) percent of the
beneficial interest of the entity in question.
B. Provided that Tenant shall first have notified Landlord in writing
of a proposed assignment of Tenant's interest in this Lease or of
the term of a proposed sublease and offered in respect of the
portion (or the entirety, as the case may be) of the premises
affected by such proposed sublease or assignment, either to
terminate the Lease in respect of such portion (or the entirety, as
the case may be) of the premises (in the case of a proposed
assignment or a subletting for the remainder of the term of the
Lease) or to suspend the Lease PRO TANTO (i.e. the term of the
Lease in respect of the sublet area shall be terminated during such
time period and Tenant's rental obligations shall be reduced in
proportion to the areas in respect of which the term of the
Lease is suspended) for the period involved in the proposed
subletting, and Landlord shall not, within sixty (60) days of
receipt of such offer have accepted the same, Landlord agrees to
not unreasonably withhold its consent to a subletting of the
premises (or such portion thereof) or to an assignment of
Tenant's interest in this Lease, as the case may be, by Tenant
to a person, firm or corporation which, in Landlord's reasonable
opinion, is (i) financially responsible and of good reputation,
and (ii) is engaged in a business, the functional aspects of
which, with respect to the premises, are substantially similar
to the use of other premises made by other office space tenants
in the Building, and (iii) is not then a tenant or subtenant in
the Unit (or a related or controlled entity of such tenant or
subtenant). Notwithstanding anything to the contrary in the
foregoing contained:
1. If Tenant is in default of its obligations under the Lease at
the time that it makes the aforesaid offer to Landlord, such
default shall be deemed to be a "reasonable" reason for
Landlord withholding its consent to any proposed subletting or
assignment; and
2. If Tenant does not enter into a sublease with a subtenant (or
an assignment to an assignee, as the case may be) approved by
Landlord, as aforesaid, on or before the date which is one
hundred (100) days after the earlier of: (x) the expiration of
said sixty (60) day period, or (y) the date that Landlord
notifies Tenant that Landlord will not accept Tenant's offer to
terminate or suspend the Lease, then Landlord shall have the
right arbitrarily to withhold its consent to any subletting or
assignment proposed to be entered into by Tenant after the
expiration of said one hundred (100) day period unless Tenant
again offers, in accordance with this Paragraph A, either to
terminate or to suspend the Lease in respect of the portion of
the premises proposed to be sublet (or in respect of the
entirety of the premises in the event of a proposed assignment,
as the case may be). If Tenant shall make any subsequent
offers to terminate or suspend the Lease pursuant to this
Paragraph A any such subsequent offers shall be treated in all
respects as if it is Tenant's first offer to suspend or
terminate the Lease pursuant to this Paragraph A provided that
the period of time Landlord shall have in which to accept or
reject such subsequent offer shall be thirty (30) days.
C. Notwithstanding anything to the contrary herein contained, Tenant
shall have no rights, under Paragraph B of this Article 16-18*
prior to the date one (1) year after the Term Commencement Date.
Without limiting the foregoing, Tenant shall have no right to
give Landlord a written notice offering to terminate or suspend
the term of the Lease pursuant to this Article 16-18* prior to
the date one (1) year after the Term Commencement Date,
Notwithstanding the provisions of Paragraphs B and C of this
Article 16-18*, Tenant shall have the right to enter into subleases
of the Permitted Sublet Area, as hereinafter defined, to Permitted
Subtenants, as hereinafter defined, without offering to terminate
or suspend the term of the Lease in respect of the Permitted Sublet
Area.
E. For the purposes hereof:
1. "Permitted Sublet Area" shall be defined as portions of the
premises containing not more than 2,400 square feet of Total
Rentable Area in total.
2. "Permitted Subtenant" shall be defined as Stuka Associates,
or any entity with a close business relationship to Tenant,
which relationship is substantially enhanced by the physical
proximity to Tenant and which satisfies the criteria set forth
in clauses (i), (ii) and (iii) of Paragraph B of this
Article 16-18*.
F. No subletting or assignment shall relieve Tenant of its primary
obligation as party-Tenant hereunder.
Notwithstanding the foregoing, it is hereby expressly understood and agreed,
however, if Tenant is a corporation, that the assignment or transfer of this
Lease, and the term and estate hereby granted, to any corporation into which
Tenant is merged or with which Tenant is consolidated which corporation shall
have a net worth at least equal to that of Tenant immediately prior to such
merger or consolidation (such corporation being hereinafter called
"Assignee"), shall not be deemed to be prohibited hereby if, and upon the
express condition that Assignee and Tenant shall promptly execute,
acknowledge and deliver to Landlord an agreement in form and substance
satisfactory to Landlord whereby Assignee shall agree to be independently
bound by and upon all the covenants, agreements, terms, provisions and
conditions set forth in this Lease on the part of Tenant to be performed, and
whereby Assignee shall expressly agree that the provisions of this Article 16
shall, notwithstanding such assignment or transfer, continue to be binding
upon it with respect to all future assignments and transfers.
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If Tenant is an individual who uses and/or occupies the premises with
partners, or if Tenant is a partnership, then:
(i) Each present and future partner shall be personally bound by and upon
all of the covenants, agreements, terms, provisions and conditions set forth in
this Lease on the part of Tenant to be performed; and
(ii) In confirmation of the foregoing, Landlord may (but without being
required to do so) request (and Tenant shall duly comply) that Tenant, at the
time that Tenant admits any new partner to its partnership, shall require each
such new partner to execute an agreement in form and substance satisfactory to
Landlord whereby such new partner shall agree to be personally bound by and
upon all of the covenants, agreements, terms, provisions and conditions of this
Lease on the part of Tenant to be performed, without regard to the time when
such new partner is admitted to partnership or when any obligations under any
such covenants, etc., accrue.
The listing of any name other than that of Tenant, whether on the doors of
the premises or on the Building directory, or otherwise, shall not operate to
vest in any such other person, firm or corporation any right or interest in
this Lease or in the premises or be deemed to effect or evidence any consent
of Landlord, it being expressly understood that any such listing is a
privilege extended by Landlord revocable at will by written notice to Tenant.
Notwithstanding the foregoing, Tenant shall have the right, during the term
of the Lease, to use up to Tenant's Proportionate Share of the Building
directory to list Tenant's name and the names of Tenant's employees. The
initial listing of Tenant's name and the names of Tenant's employees shall be
at Landlord's cost and expense. Any changes, replacements or additions by
Tenant to such directory shall be at Tenant's sole cost and expense.
If this Lease be assigned, or if the premises or any part thereof be sublet
or occupied by anybody other than Tenant, Landlord may, at any time and from
time to time, collect rent and other charges from the assignee, subtenant or
occupant, and apply the net amount collected to the rent and other charges
herein reserved, then due and hereafter becoming due, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of this covenant,
or the acceptance of the assignee, subtenant or occupant as a tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. Any consent by Landlord to a particular
assignment or subletting shall not in any way diminish the prohibition stated
in the first sentence of this Article 16 or the continuing liability of the
Tenant named on Exhibit 1 as the party Tenant under this Lease. No assignment
or subletting or use of the premises by an affiliate of Tenant shall affect the
purpose for which the premises may be used as stated in Exhibit 1.
17. MISCELLANEOUS COVENANTS
Tenant covenants and agrees as follows:
17.1 RULES AND REGULATIONS. Tenant will faithfully observe and comply
with the Rules and Regulations, if any, annexed hereto and such other and
further reasonable Rules and Regulations as Landlord hereafter at any time or
from time to time may make and may communicate in writing to Tenant, which in
the reasonable judgment of Landlord shall be necessary for the reputation,
safety, care or appearance of the Building or the Project, or the
preservation of good order therein, or the operation or maintenance of the
Building or the Project, or the equipment thereof, or the comfort of tenants
or others in the Building or the Project, provided, however, that in the case
of any conflict between the provisions of this Lease and any such
regulations, the provisions of this Lease shall control, and provided further
that nothing contained in this Lease shall be construed to impose upon
Landlord any duty or obligation to enforce the Rules and Regulations or the
terms, covenants or conditions in any other lease as against any other tenant
and Landlord shall not be liable to Tenant for violation of the same by any
other tenant, its servants, employees, agents, contractors, visitors,
invitees or licensees. Notwithstanding anything to the contrary in this Lease
contained, Landlord agrees that it will not enforce said rules and
regulations against Tenant in a discriminatory or arbitrary manner.
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17.2 ACCESS TO PREMISES - SHORING. Tenant shall: (i) permit Landlord
and any Underlying Party to erect, use and maintain pipes, ducts and conduits
in and through the premises, provided the same do not materially reduce the
Boor area or materially adversely affect the appearance thereof; (ii) upon
prior oral notice (except that no notice shall be required in emergency
situations), permit Landlord and any Underlying Party, and its
representatives, to have free and unrestricted access to and to enter upon
the premises at all reasonable hours for the purposes of inspection or of
making repairs, replacements or improvements in or to the premises or the
Project or equipment (including, without limitation, sanitary, electrical,
heating, air conditioning or other systems) or of complying with all laws,
orders and requirements of governmental or other authority or of exercising
any right reserved to Landlord by this Lease (including the right during the
progress of any such repairs, replacements or improvements or while
performing work and furnishing materials in connection with compliance with
any such laws, orders or requirements to take upon or through, or to keep and
store within, the premises all necessary materials, tools and equipment); and
(iii) permit Landlord, at reasonable times, to show the premises during
ordinary business hours to any existing or prospective Underlying Party,
space lessee, or purchaser of the Unit or any portion of the Project other
than individual dwelling units, or of the interest of Landlord therein, and
during the period of 12 months next preceding the Termination Date to any
person contemplating the leasing of the premises or any part thereof. If
during the last month of the term, Tenant shall have removed all or
substantially all of Tenant's property therefrom, Landlord may, upon prior
notice, except that no notice shall be required in an
emergency threatening life or property, immediately enter and alter, renovate
and redecorate the premises, without elimination or abatement of rent, or
incurring liability to Tenant for any compensation, and such acts shall have
no effect upon this Lease. If Tenant shall not be personally present to open
and permit an entry into the premises at any time when for any reason an
entry therein shall be necessary or permissible, Landlord, Landlord's agents,
or any Underlying Party may enter the same by a master key, or may, in any
manner permitted by law, enter the same, without rendering Landlord or such
agents liable therefor (if during such entry Landlord or Landlord's agents
shall accord reasonable care to Tenant's property), and without in any manner
affecting the obligations and covenants of this Lease. Landlord shall
exercise its rights of access to the premises permitted under any of the
terms and provisions of this Lease in such manner as to minimize to the
extent practicable interference with Tenant's use and occupation of the
premises. If an excavation shall be made upon land adjacent to the premises
or shall be authorized to be made, Tenant shall afford to the person causing
or authorized to cause such excavation, license to enter upon the premises
for the purpose of doing such work as said person shall deem necessary to
preserve the Building and the Project from injury or damage and to support
the same by proper foundations without any claims for damages or indemnity
against Landlord, or diminution or abatement of rent.
17.3 DEFECTIVE CONDITIONS.
(a) ACCIDENTS TO SANITARY AND OTHER SYSTEMS. Tenant shall give to
Landlord prompt notice of any fire or accident in the premises or in the
Building and of any damage to, or defective condition in, any part or
appurtenance of the Building including, without limitation, sanitary,
electrical, heating and air conditioning or other systems located in, or passing
through, the premises. Except as otherwise provided in Articles 18 and 20, and
subject to Tenant's obligations in Article 14, such damage or defective
condition shall be remedied by Landlord with reasonable diligence, but if such
damage or defective condition was caused by Tenant or by the employees,
licensees, contractors or invitees of Tenant, the cost to remedy the same shall
be paid by Tenant.
(b) CONSTRUCTIVE EVICTION; NOTICE TO UNDERLYING PARTIES. Tenant shall not
be entitled to claim any eviction from the premises or any damages arising from
any such damage or defect unless the same (i) shall have been occasioned by the
negligence of the Landlord, its agents, servants or employees and (ii) shall
not, after notice to Landlord of tile condition claimed to constitute negli-
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gence, have been cured or corrected within a reasonable time after such notice
has been received by Landlord; and in case of a claim of eviction unless such
damage or defective condition shall have rendered the premises untenantable and
they shall not have been made tenantable by Landlord within a reasonable time.
In the event of any failure by Landlord to perform, fulfill or observe any
agreement by Landlord herein, in no event will the Landlord be deemed to be in
default under this Lease until Tenant shall have given written notice of such
failure to any Underlying Party of which Tenant shall have been advised in
writing and until a reasonable period of time shall have elapsed following the
giving of such notice, during which such Underlying Party shall have the right,
but shall not be obligated, to remedy such failure.
17.4 SIGNS, BLINDS AND DRAPES. Tenant shall put no signs in any part of
the Building. No signs or blinds may be put on or in any window or elsewhere if
visible from the exterior of the Building, nor may the building standard drapes
or blinds be removed by Tenant. Tenant may hang its own drapes, provided that
they shall not in any way interfere with the building standard drapery or blinds
or be visible from the exterior of the Building and that such drapes are so hung
and installed that when drawn, the building standard drapery or blinds are
automatically also drawn. Any signs or lettering in the public corridors or on
the doors shall conform to Landlord's building standard design. Neither
Landlord's name, nor the name of the Building or the Project, or the name of any
other structure erected therein shall be used without Landlord's consent in any
advertising material (except on business stationery or as an address in
advertising matter), nor shall any such name, as aforesaid, be used in any
undignified, confusing, detrimental or misleading manner.
17.5 ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to time
upon not less than ten (10) days' prior notice by Landlord to Tenant, execute,
acknowledge and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), and the dates to which the Yearly Rent and other charges
have been paid in advance, if any, stating whether or not Landlord is in default
in performance of any covenant, agreement, term, provision or condition
contained in this Lease and, if so, specifying each such default and such other
fact's as Landlord may reasonably request, it being intended that any such
statement delivered pursuant hereto may be relied upon by any prospective
purchaser of the Project or of the Unit or of any interest of Landlord therein,
any mortgagee or prospective mortgagee thereof, any lessor or prospective lessor
thereof, any lessee or prospective lessee thereof, or any prospective assignee
of any mortgage thereof. Time is of the essence in respect of any such
requested certificate, Tenant hereby acknowledging the importance of such
certificates in mortgage financing arrangements, prospective sale and the like.
Tenant hereby appoints Landlord Tenant's attorney-in-fact in its name and behalf
to execute such statement as follows:
1. Landlord shall have given Tenant a written request ("First
Request ) therefor stating that if Tenant does not timely
execute and deliver such instrument, Landlord may act as
Tenant's attorney-in-fact in accordance with this Article
17.5-21*;
2. Tenant shall fail to execute and deliver such instrument
within thirty (30) days of the First Request;
3. Landlord shall, after the expiration of such thirty (30) day
period, have given Tenant another request ("Second Request")
therefor, stating that Tenant has failed timely to respond to
Landlord's First Request for such instrument and that if
Tenant does not execute and deliver such instrument within
fifteen (15) days of the Second Request, Landlord may act as
Tenant's attorney-in-fact in accordance with this Article
17.5-21*;
4. Tenant shall fail to execute and deliver such instrument
within fifteen (15) days of the Second Request.
17.6 PROHIBITED MATERIALS AND PROPERTY. Tenant shall not bring or
permit to be brought or kept in or on the premises or elsewhere in the
Building (i) any inflammable, combustible or explosive fluid, material,
chemical or substance (except for standard office supplies stored in proper
containers), or (ii) any unique, unusually valuable, rare or exotic
property, work of art or the like unless tile same is fully insured under
all-risk coverage. Nor shall Tenant cause or permit any odors of cooking or
other processes, or any unusual or other objectionable odors to emanate from
or permeate the premises.
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17.7 REQUIREMENTS OF LAW - FINES AND PENALTIES. Tenant at its sole
expense shall comply with all laws, rules, orders and regulations, including,
without limitation, all energy-related requirements, of Federal, State,
County and Municipal Authorities and with any direction of any public officer
or officers, pursuant to lab; which shall impose any duty upon Landlord or
Tenant with respect to or arising out of Tenant's particular use or occupancy
of the premises. Tenant shall reimburse and compensate Landlord for all
expenditures made by, or damages or fines sustained or incurred by, Landlord
due to nonperformance or noncompliance with or breach or failure to observe
any item, covenant, or condition of this Lease upon Tenant's part to be kept,
observed, performed or complied with. Landlord shall comply with any laws,
rules, orders, and regulations and with any directive of any public office or
offices relating to the maintenance or operation of the Building as an office
building or relating to the maintenance or operation of the premises as
office premises. In the event that Landlord is required to make any
expenditure by reason of the fact that the Unit or the premises, as initially
constructed, were not in such compliance, Landlord shall effect such
compliance at its own cost and expense and the costs so incurred by Landlord
shall not be included in Operating Costs. Otherwise, the costs so incurred by
Landlord shall be included in Operating Costs in accordance with the
provisions of Article 9. If Tenant receives notice of any violation of law,
ordinance, order or regulation applicable to the premises, it shall give
prompt notice thereof to Landlord.
17.8 TENANT'S ACTS - EFFECT ON INSURANCE. Tenant shall not knowingly do
or permit to be done any act or thing upon the premises or elsewhere in the
Building, the Unit or the Project which will invalidate or be in conflict
with any insurance policies covering the Building, the Unit or the Project
and the fixtures and property therein; and shall not do, or permit to be
done, any act or thing upon the premises which shall subject Landlord to any
liability or responsibility for injury to any person or persons or to
property by reason of any business or operation being carried on upon said
premises or for any other reason. Tenant at its own expense shall comply
with all rules, orders, regulations and requirements of the Board of Fire
Underwriters, or any other similar body having jurisdiction, and shall not
(i) do, or permit anything to be done, in or upon the premises, or bring or
keep anything therein, except as now or hereafter permitted by the Fire
Department, Board of Underwriters, Fire Insurance Rating Organization, or
other authority having jurisdiction, and then only in such quantity and
manner of storage as will not increase the rate for any insurance applicable
to the Building, the Unit, or the Project, or (ii) use the premises in a
manner which shall increase such insurance rates on the Building, the Unit,
or the Project or on property located therein, over that applicable when
Tenant first took occupancy of the premises hereunder. If by reason of the
failure of Tenant to comply with the provisions hereof the insurance rate
applicable to any policy of insurance shall at any time thereafter be higher
than it otherwise would be, the Tenant shall reimburse Landlord for that part
of any insurance premiums thereafter paid by Landlord, which shall have been
charged because of such failure by Tenant.
17.9 MISCELLANEOUS. Tenant shall not suffer or permit the premises or any
fixtures, equipment or utilities therein or serving the same, to be overloaded,
damaged or defaced, nor permit any hole to be drilled or made in any part
thereof. Tenant shall not suffer or permit any employee, contractor, business
invitee or visitor to violate any covenant, agreement or obligation of the
Tenant under this Lease.
18. DAMAGE BY FIRE, ETC.,
During the entire term of this Lease, and adjusting insurance coverages to
reflect current values from time to time: - (i) Landlord shall keep the
Building (excluding work, installations, improvements and betterments in the
premises which exceed the specifications provided in Exhibit 3,
[called "Over-Building-Standard Property"] and any other property installed
by or at the expense of Tenant) insured against loss or damage caused by any
peril covered under fire, extended coverage and all risk insurance in an
amount equal to at least eighty percent (80%) of the, full insurable value
thereof above foundation walls; and (ii) Tenant shall keep its personal
property in and about the premises and the Over-Building-Standard Property
insured against loss or damage caused by any peril covered under fire,
extended coverage and all risk insurance in an amount equal to at least
eighty percent (80%) of the full insurable value thereof. Such Tenant's
insurance shall insure the interests of Landlord, the Additional Insured
Parties (if any) listed on Exhibit 1, and Tenant as their respective
interests may ap-
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pear from time to time and shall name Landlord and the Additional Insured
Parties (if any) listed on Exhibit 1, as additional insured parties; and the
proceeds thereof shall be used only for the replacement or restoration of such
personal property and the Over-Building-Standard Property.
If any portion of the premises required to be insured by Landlord under
the preceding paragraph shall be damaged by fire or other insured casualty,
Landlord shall proceed with diligence, subject to the then applicable
statutes, building codes, zoning ordinances, and regulations of any
governmental authority, and at the expense of Landlord (but only to the
extent of insurance proceeds made available to Landlord) to repair or cause
to be repaired such damage, provided, however, in respect of any
Over-Building-Standard Property as shall have been damaged by such fire or
other casualty and which (in the judgment of Landlord) can more effectively
be repaired as an integral part of Landlord's repair work on the premises,
that such repairs to Over-Building-Standard Property shall be performed by
Landlord but at Tenant's expense; in all other respects, all repairs to and
replacements of Tenant's property and Over-Building-Standard Property shall
be made by and at the expense of Tenant. If the premises or any part thereof
shall have been rendered unfit for use and occupation hereunder by reason of
such damage the Yearly Rent or a just and proportionate part thereof,
according to the nature and extent to which the premises shall have been so
rendered unfit, shall be suspended or abated until the premises (except as to
the property which is to be repaired by or at the expense of Tenant) shall
have been restored as nearly as practicably may be to the condition in which
they were immediately prior to such fire or other casualty, provided,
however, that if Landlord or any Underlying Party, as defined in Article 23,
shall be unable to collect the insurance proceeds (including rent insurance
proceeds) applicable to such damage because of some action or inaction on the
part of Tenant, or the employees, contractors, licensees or invitees of
Tenant, the cost of repairing such damage shall be paid by Tenant and there
shall be no abatement of rent. Landlord shall not be liable for delays in
the making of any such repairs which are due to government regulation,
casualties and strikes, unavailability of labor and materials, and other
causes beyond the reasonable control of Landlord, nor shall Landlord be
liable for any inconvenience or annoyance to Tenant or injury to the business
of Tenant resulting from delays in repairing such damage. If (i) the
premises are so damaged by fire or other casualty (whether or not insured) at
any time during the last thirty months of the term hereof that the cost to
repair such damage is reasonably estimated to exceed one-third of the total
Yearly Rent payable hereunder for the period from the estimated date of
restoration until the Termination Date, or (ii) the Project (whether or not
including any portion of the premises) is so damaged by fire or other
casualty (whether or not insured) that substantial alteration or
reconstruction or demolition of the Project shall in Landlord's reasonable
judgment be required, then and in either of such events, this Lease and the
term hereof may be terminated at the election of Landlord by a notice in
writing of its election so to terminate which shall be given by Landlord to
Tenant within sixty (60) days following such fire or other casualty, the
effective termination date of which shall be not less than thirty (30) days
after the day on which such termination notice is received by Tenant. In the
event of any termination, this Lease and the term hereof shall expire as of
such effective termination date as though that were the Termination Date as
stated in Exhibit I and the Yearly Rent shall be apportioned as of such date;
and if the premises or any part thereof shall have been rendered unfit for
use and occupation by reason of such damage the Yearly Rent for the period
from the date of the fire or other casualty to the effective termination
date, or a just and proportionate part thereof, according to the nature and
extent to which the premises shall have been so rendered unfit, shall be
abated.
A. if any portion of the premises or any portion
of the Building shall be damaged or destroyed by fire or
other casualty to the extent that the operation of Tenant's
business in the premises in the normal course is materially
adversely affected, and if Landlord shall fail to
substantially complete said repairs or restoration within
one hundred fifty (150) days after the date of such fire or
other casualty for any reason other than Tenant's fault,
Tenant may terminate this Lease by giving Landlord written
notice as follows:
(1) Said notice shall be given after said one hundred fifty
(150) day period.
(2) Said notice shall set forth an effective date which is
not earlier than thirty (30) days after Landlord
receives said notice.
(3) If said repairs or restoration are substantially
complete on or before the date thirty (30) days (which
thirty(30)-day period shall be extended by the length of
any delays caused by Tenant or Tenant's contractors),
after Landlord receives such notice, said notice shall
have no further force and effect.
(4) If said repairs or restoration are not substantially
complete on or before the date thirty (30) days (which
thirty(30)-day period shall be extended by the length of
any delays caused by Tenant or Tenant's contractors)
after Landlord receives such notice, the Lease shall
terminate as of said effective date.
19. WAIVER OF SUBROGATION
In any case in which Tenant shall be obligated to pay to Landlord any
loss, cost, damage, liability, or expense suffered or incurred by Landlord,
Landlord shall allow to-Tenant as an offset against
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the amount thereof (i) the net proceeds of any insurance collected by Landlord
for or on account of such loss, cost, damage, liability or expense, prodded
that the allowance of such offset does not invalidate or prejudice the policy
or policies under which such proceeds were payable, and (ii) if such loss,
cost, damage, liability or expense shall have been caused by a peril against
which Landlord has agreed to procure insurance coverage under the terms of this
Lease, the amount of such insurance coverage, whether or not actually procured
by Landlord.
In any case in which Landlord shall be obligated to pay to Tenant any loss,
cost, damage, liability or expense suffered or incurred by Tenant, Tenant shall
allow to Landlord as an offset against the amount thereof (i) the net proceeds
of any insurance collected by Tenant for or on account of such loss, cost,
damage, liability, or expense, provided that the allowance of such offset does
not invalidate the policy or policies under which such proceeds were payable
and (ii) the amount of any loss, cost, damage, liability or expense caused by a
peril covered by fire insurance with the broadest form of property insurance
generally available on property in buildings of the type of the Project,
whether or not actually procured by Tenant.
The parties hereto shall each procure an appropriate clause in, or endorsement
on, any property insurance policy covering the premises and the Project and
personal property, fixtures and equipment located thereon and therein, pursuant
to which the insurance companies waive subrogation or consent to a waiver of
right of recovery. Having obtained such clauses and/or endorsements each party
hereby agrees that it will not make any claim against or seek to recover from
the other for any
loss or damage to its property or the property of others resulting from fire or
other perils covered by such property insurance.
21 CONDEMNATION - EMINENT DOMAIN
In the event that the premises or any part thereof, or the whole or any
part which, in Landlord's bona fide business judgment, if taken, would render
the continued operation of the Project in its condition subsequent to such
taking economically unfeasible, of the Project, shall be taken or
appropriated by eminent domain or shall be condemned for any public or
quasi-public use, or (by virtue of any such taking, appropriation or
condemnation) shall suffer Any damage (direct, indirect or consequential) for
which Landlord or Tenant shall be entitled to compensation, then (and in any
such event) this Lease and the term hereof may be terminated at the election
of Landlord by a notice in writing of its election so to terminate which
shall be given by Landlord to Tenant within sixty (60) days following the
date on which Landlord shall have received notice of such taking,
appropriation or condemnation. In the event that a substantial part of the
premises or of the means of access thereto shall be so taken, appropriated or
condemned, then (and in any such event) this Lease and the term hereof may be
terminated at the election of Tenant by a notice in writing of its election
so to terminate which shall be given by Tenant to Landlord within sixty (60)
days following the date on which Tenant shall have received notice of such
taking, appropriation ox condemnation.
Upon the giving of any such notice of termination (either by Landlord or
Tenant) this Lease and the term hereof shall terminate on or retroactively as
of the date on which Tenant shall be required to vacate any part of the
premises or shall be deprived of a substantial part of the means of access
thereto, provided, however, that Landlord may in Landlord's notice elect to
terminate this Lease and the term hereof retroactively as of the date on
which such taking, appropriation or condemnation became legally effective.
In the event of any such termination, this Lease and the term hereof shall
expire as of such effective termination date as though that were the
Termination Date as stated in Exhibit 1, and the Yearly Rent shall be
apportioned as of such date. If neither party (having the right so to do)
elects to terminate Landlord will, with reasonable diligence and at
Landlord's expense (but only to the extent of taking proceeds made available
to Landlord), restore the remainder of the premises, or the remainder of the
means of access, as nearly as practicably may be to
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the same condition as obtained prior to such taking, appropriation or
condemnation in which event (i) the Total Rentable Area shall be adjusted as
in Exhibit 5 provided, (ii) a just proportion of the Yearly Rent, according
to the nature and extent of the taking, appropriation or condemnation and the
resulting permanent injury to the premises and the means of access thereto,
shall be permanently abated, and (iii) a just proportion of the remainder of
the Yearly Rent, according to the nature and extent of the taking,
appropriation or condemnation and the resultant injury sustained by the
premises and the means of access thereto, shall be abated until what remains
of the premises and the means of access thereto shall have been restored as
fully as may be for permanent use and occupation by Tenant hereunder. Except
for any award specifically reimbursing Tenant for moving or relocation
expenses, there are expressly reserved to Landlord all rights to compensation
and damages created, accrued or accruing by reason of any such taking,
appropriation or condemnation, in implementation and in confirmation of which
Tenant does hereby acknowledge that Landlord shall be entitled to receive all
such compensation and damages, grant to Landlord all and whatever rights (if
any) Tenant may have to such compensation and damages, and agree to execute
and deliver all and whatever further instruments of assignment as Landlord
may from time to time request. In the event of any taking of the premises or
any part thereof for temporary use, (i) this Lease shall be and remain
unaffected thereby, and (ii) Tenant shall be entitled to receive for itself
any award made for such use, provided, that if any taking is for a period
extending beyond the term of this Lease, such award shall be apportioned
between Landlord and Tenant as of the Termination Date or earlier termination
of this Lease.
21. DEFAULT
21.1 CONDITIONS OF LIMITATION - RE-ENTRY - TERMINATION. This Lease and
the herein term and estate an, upon the condition that if (a) subject to the
provisions of Article 21.7, Tenant shall neglect or fail to perform or
observe any of the Tenant's covenants or- agreements herein, including
(without limitation) the covenants or agreements with regard to the payment
when due of rent, additional charges, reimbursement for increase in
Landlord's costs, or any other charge payable by Tenant to Landlord (all of
which shall be considered as part of Yearly Rent for the purposes of invoking
Landlord's statutory or other rights and remedies in respect of payment
defaults); or (c) Tenant shall be involved in financial difficulties as
evidenced by an admission in writing by Tenant of Tenant's inability to pay
its debts generally as they become due, or by the making or offering to make a
composition of its debts with its creditors; or (d) Tenant shall make an
assignment or trust mortgage, or other conveyance or transfer of like nature,
of All or a substantial part of its properly for the benefit of its creditors,
or (e) an attachment on mesne process, on execution or otherwise, or other
legal process shall issue against Tenant or its property and a sale of any of
its assets shall be held thereunder; or (f) any judgment, final beyond appeal
or any lien, attachment or the like shall be entered, recorded or filed
against Tenant in any court, registry, etc. and Tenant shall fail to pay such
judgment within thirty (30) days after the judgment shall have become final
beyond appeal or to discharge or secure by surety bond such lien, attachment,
etc. within thirty (30) days of such entry, recording or filing, as the case
may be; or (g) tile leasehold hereby created shall be taken on execution or by
other process of law and shall not be revested in Tenant within thirty (30)
days thereafter; or (h) a receiver, sequesterer, trustee or similar officer
shall be appointed by a court of competent jurisdiction to take charge of all
or any part of Tenant's property and such appointment shall not be vacated
within thirty (30) days; or (i) any proceeding shall be instituted by or
against Tenant pursuant to any of the provisions of any Act of Congress or
State law relating to bankruptcy, reorganizations, arrangements, compositions
or other relief' from creditors, and, in the case of any proceeding
instituted against it, if Tenant shall fail to have such proceeding
dismissed within thirty (30) days or if Tenant is adjudged bankrupt or
insolvent as a result of any such proceeding, or (j)
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any event shall occur or any contingency shall arise whereby this Lease, or
the term and estate thereby created, would (by operation of law or otherwise)
devolve upon or pass to any person, firm or corporation other than Tenant,
except as expressly permitted under Article 16 hereof - then, and in any such
event (except as hereinafter in Article 21.2 otherwise provided) Landlord
may, by notice to Tenant, elect to terminate this Lease; and thereupon (and
without prejudice to any remedies which might otherwise be available for
arrears of rent or other charges due hereunder or preceding breach of
covenant or agreement and without prejudice to Tenant's liability for damages
as hereinafter stated), upon the giving of such notice, this Lease shall
terminate as of the date specified therein as though that were the
Termination Date as stated in Exhibit 1. Without being taken or deemed to be
guilty of any manner of trespass or conversion, prosecution or damages
therefor, Landlord may, in any manner permitted by law, enter into and upon
the premises (or any part thereof in the name of the whole); and without
being liable to indictment, enter into and upon the repossess the same as of
its former estate; and expel Tenant and those claiming under Tenant.
Wherever "Tenant" is used in subdivisions (c), (d), (e), (f), (g), (h) and
(i) of this Article 21.1, it shall be deemed to include any one of (i) any
corporation of which Tenant is a controlled subsidiary and (ii) any guarantor
of any of Tenant's obligations under this Lease. Notwithstanding anything to
the contrary in the Lease contained, if Tenant shall abandon or vacate the
premises for a period of no less than one hundred eighty (180) days, then
Landlord shall have the right to terminate this Lease upon written notice to
Tenant (and without giving any further notices pursuant to Article 21.7)
provided, however, that if said termination occurs solely by reason of said
abandonment or vacancy then, notwithstanding said termination, Tenant shall
not be obligated to pay any damages to Landlord that otherwise would be due
under the terms and provisions of Article 21.3.
21.2 DAMAGES - ASSIGNMENT FOR BENEFIT OF CREDITORS. For the more
effectual securing to Landlord of the rent and other charges and payments
reserved hereunder, it is agreed as a further condition of this Lease that if
at any time Tenant shall make any transfer similar to or in the nature of an
assignment of its property for the benefit of its creditors, the term and
estate hereby created shall terminate ipso facto, without entry or other
action by Landlord; and notwithstanding any other provisions of this Lease,
Landlord shall forthwith upon such termination, without prejudice to any
remedies which might otherwise be available for arrears of rent or other
charges due hereunder or preceding breach of this Lease, be ipso facto
entitled to recover as liquidated damages the sum of (a) the amount described
in clause (x) of Article 213 and (b) (in view of the uncertainty of prompt
re-letting and the expense entailed in re-letting the premises) an amount
equal to the rent and other charges payable for and in respect of the
twelve-(12)-month period next preceding the date of termination, as aforesaid.
21.3 DAMAGES - TERMINATION. Upon the termination of this Lease under the
provisions of this Article 21, then except as hereinabove in Article 21.2
otherwise provided, Tenant shall pay to Landlord the rent and other charges
payable by Tenant to Landlord up to the time of such termination, shall continue
to be liable for any preceding breach of covenant, and in addition, shall pay to
Landlord as damages, at the election of Landlord
either:
(x) the amount by which, at the time of the termination of this Lease
(or at any time thereafter if Landlord shall have initially elected damages
under subparagraph (y), below), (i) the aggregate of the rent and other
charges projected over the period commencing with such termination and ending
on the Termination Date as sand in Exhibit I exceeds (ii) the aggregate
projected rental value of the premises for such period.
or:
(y) amounts equal to the rent and other charges which would have been
payable by Tenant had this Lease not been so terminated, payable upon the due
dates therefor specified herein following such termination and until the
Termination Date as specified in Exhibit 1, provided, however, if Landlord
shall re-let the premises during such period, that Landlord shall credit
Tenant with the net
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rents received by Landlord from such re-letting, such net rents to be
determined by first deducting from the gross rents as and when received by
Landlord from such re-letting the expenses incurred or paid by Landlord in
terminating this Lease, as well as the expenses of re-letting, including
altering and preparing the premises for new tenants, brokers' commissions, and
all other similar and dissimilar expenses properly chargeable against the
premises and the rental therefrom, it being understood that any such re-letting
may be for a period equal to or shorter or longer than the remaining term of
this Lease; and provided, further, that (i) in no event shall Tenant be
entitled to receive any excess of such net rents over the sums payable by
Tenant to Landlord hereunder and (ii) in no event shall Tenant be entitled in
any suit for the collection of damages pursuant to this Subparagraph (y) to a
credit in respect of any net rents from a re-letting except to the extent that
such net rents are actually received by Landlord prior to-the commencement of
such suit. If the premises or any part thereof should be re-let in combination
with other space, then proper apportionment on a square foot area basis shall
be made of the rent received from such re-letting and of the expenses of re-
letting.
In calculating the rent and other charges under Subparagraph (x), above,
there shall be included, in addition to the Yearly Rent, and Operating
Expense Excess and all other considerations agreed to be paid or performed by
Tenant, on the assumption that all such amounts and considerations would have
remained constant (except as herein otherwise provided) for the balance of
the full term hereby granted.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not
been terminated hereunder.
Nothing herein contained shall be construed as limiting or precluding the
recovery by Landlord against Tenant of any sums or damages to which, in
addition to the damages particularly provided above, Landlord may lawfully be
entitled by reason of any default hereunder on the part of Tenant.
21.4 FEES AND EXPENSES.
(a) If Tenant shall default in the performance of any covenant on
Tenant's part to be performed as in this Lease contained, Landlord may, upon
reasonable advance notice, except that no notice shall be required in an
emergency, perform the same for the account of Tenant If Landlord at any time
is compelled to pay or elects to pay any sum of money, or do any act which
will require the payment of any sum of money, by reason of the failure of
Tenant to comply with any provision hereof, or if Landlord is compelled to or
does incur any expense, including reasonable attorneys' fees, in instituting,
prosecuting, and/or defending any action or proceeding instituted by reason
of any default of Tenant hereunder, Tenant shall on demand pay to Landlord by
way of reimbursement the sum or sums so paid by Landlord with all costs and
damages, plus interest computed as provided in Article 6 hereof.
(b) Tenant shall pay Landlord's cost and expense, including reasonable
attorneys' fees, incurred (i) in enforcing any obligation of Tenant under
this Lease or (ii) as a result of Landlord, without its fault, being made
party to any litigation pending by or against Tenant or any persons claiming
through or under Tenant.
21.5 Waiver of Redemption. Tenant does hereby waive and surrender all
rights and privileges which it might have under or by reason of any present
or future law to redeem the premises or to have a continuance of this Lease
for the term hereby dismissed after being dispossessed or elected
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therefrom by process of law or under the terms of this Lease or after the
termination of this Lease as herein provided.
21.6 LANDLORD'S REMEDIES NOT EXCLUSIVE. The specified remedies to which
Landlord may resort hereunder are cumulative and are not intended to be
exclusive of any remedies or means of redress to which Landlord may at any
time be lawfully entitled, and Landlord may invoke any remedy (including the
remedy of specific performance) allowed at law or in equity as if specific
remedies were not herein provided for.
21.7 GRACE PERIOD. Notwithstanding anything to the contrary in clause (i)
of Article 21.1 contained, Landlord agrees not to take-any action to
terminate this Lease (a) for default by Tenant in the payment when due of any
sum of money, if Tenant shall cure such default within ten (10) days after
written notice thereof is given by Landlord to Tenant, provided, however,
that no such notice need be given and no such default in the payment of money
shall be curable if on two (2) prior occasions within the same
twelve-(12)-month period there had been a default in the payment of money
which had been cured after notice thereof had 'been given by Landlord to
Tenant as herein provided or (b) for default by Tenant in the performance of
any covenant other than a covenant to pay a sum of money, if Tenant shall
cure such default within a period of thirty (30) days after written notice
thereof given by Landlord to Tenant (except where the nature of the default
is such that remedial action should appropriately take place sooner, as
indicated in such written notice), or within such additional period as may
reasonably be required to cure such default if (because of governmental
restrictions or any other cause beyond the reasonable control of Tenant) the
default is of such a nature that it cannot be cured within such thirty
(30)-day period, provided, however, (1) that there shall be no extension of
time beyond such thirty (30)-day period for the curing of any such default
unless, not more than ten (10) days after the receipt of the notice of
default, Tenant in writing (i) shall specify the cause on account of which
the default cannot be cured during such period and shall advise Landlord of
its intention duly to institute all steps necessary to cure the default and
(ii) shall, as soon as reasonably practicable, duly institute and thereafter
diligently prosecute to completion all steps necessary to cure such default
and, (2) that no notice of the opportunity to cue a default need be given,
and no grace period whatsoever shall be allowed to Tenant, in the event that
the default is band upon a condition set forth in clauses (b), (c), (d), (e),
(f), (g), (h), (i), or (j) of Article 21.1 of this Lease, or if the covenant
or condition the breach of which gave rise to default had, by reason of a
breach on a prior occasion, been the subject of a notice hereunder to cure
such default.
Notwithstanding anything to the contrary in this Article 21.7 contained,
all statutory notice and grace periods (including, without limitation, the
provisions of Section 11 of Chapter 186 of the General Laws of Massachusetts)
are hereby waived by Tenant.
22. END OF TERM - ABANDONED PROPERTY
Upon the expiration or other termination of the term of this Lease, Tenant
shall peaceably quit and surrender to Landlord the premises and all
alterations and additions thereto, broom clean, in good order, repair and
condition (except as provided herein and in Articles 18, 20 and 8.7)
excepting only ordinary wear and use and damaged by fire or other casualty
for which, under other provisions of this Lease, Tenant has no responsibility
of repair or restoration. Tenant shall remove all of its property and, to
the extent specified by Landlord, ill alterations and additions made by
Tenant and all partitions wholly within the premises, and shall repair any
damages to the premises or the Building caused by their installation or by
such removal. Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of the term of this Lease.
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Tenant will remove any personal property from the Building and the premises
upon or prior to the expiration or termination of this Lease and any such
property which shall remain in the Building or the premises thereafter shall be
conclusively deemed to have been abandoned, and may either be retained by
Landlord as its property or sold or otherwise disposed of in such manner as
Landlord may see fit. If any part thereof shall be sold, that Landlord may
receive and retain the proceeds of such sale and apply the same, at its option,
against the expenses of the sale, the cost of moving and storage, any arrears of
Yearly Rent, additional or other charges payable hereunder by Tenant to Landlord
and any damages to which Landlord may be entitled under Article 21 hereof or
pursuant to law.
If Tenant or anyone claiming under Tenant shall remain in possession of the
premises or any part thereof after the expiration or prior termination of the
term of this Lease without any agreement in writing between Landlord and Tenant
with respect thereto, then, prior to the acceptance of any payments for rent or
use and occupancy by Landlord, the person remaining in possession shall be
deemed a tenant-at-sufferance. Whereas the parties hereby acknowledge that
Landlord may need the premises after the expiration or prior termination of the
term of the Lease for other tenants and that the damages which Landlord may
suffer as the result of Tenant's holding-over cannot be determined as of the
Execution Date hereof, in the event that Tenant so holds over, Tenant shall pay
to Landlord in addition to all rental and other charges due and accrued under
the Lease prior to the date of termination, charges (based upon the fair market
rental value of the premises) for use and occupation of the premises thereafter
and, in addition to such sums and any and all other rights and remedies which
Landlord may have at law or in equity, an additional use and occupancy charge in
the amount of fifty percent (50%) of EITHER the Yearly Rent and other charges
calculated (on a daily basis) at the highest rate payable under the terms of
this Lease, but measured from the day on which Tenant's hold-over commenced and
terminating on the day on which Tenant vacates the premises OR the fair market
rental value of the premises for such period, WHICHEVER IS GREATER.
Notwithstanding the foregoing, Landlord shall have the right to elect to recover
any other damages which Landlord is permitted to recover under this Lease in
lieu of said liquidated damages by giving Tenant written notice of such
election. From and after the date on which Landlord gives Tenant such notice,
said liquidated damages shall cease to accrue and Tenant shall be liable to
Landlord for any damages recoverable under this Lease which accrue thereafter.
23. SUBORDINATION
(a) Subject to the election of any mortgagee, ground lessor, trustee, or
other underlying party-in-interest (collectively "Underlying Parties"), as
hereinafter provided for, this Lease is subject and subordinate in all respects
to all matters of record (including, without limitation, deeds and land
disposition agreements), ground leases and/or underlying leases, including,
without limitation, the Ground Lease, all mortgages, and any condominium
documents (including, without limitation, any master deed, by-laws, rules and
regulations, and any amendments or revisions thereto) any of which may now or
hereafter be placed on or affect such leases and/or the Unit or Project of which
the premises are a part, or any part of such real property, and/or Landlord's
interest or estate therein, and to each advance made and/or hereafter to be made
under any such mortgages, and to all renewals, modifications, consolidations,
replacements and extensions thereof and all substitutions therefor (collectively
"Underlying Instruments"). This Article 23 shall be self-operative and no
further instrument or subordination shall be required. In confirmation of such
subordination, Tenant shall execute, acknowledge and deliver promptly any
certificate or instrument that Landlord and/or any Underlying Party and/or its
successor in interest may request. Tenant acknowledges that, where applicable,
any consent or approval hereafter given by Landlord may be subject to the
further consent or approval of Underlying Parties; and the failure or refusal of
an Underlying Party to give
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such consent or approval shall, notwithstanding anything to the contrary in
this Lease contained, constitute reasonable justification for Landlord's
withholding its consent or approval. Notwithstanding anything to the contrary
in this Article 23 contained, as to any future mortgages, ground leases,
and/or underlying leases or deeds of trust, the herein provided subordination
and attornment shall be effective only if the mortgagee, ground lessor or
trustee therein, as the case may be, agrees, by a written instrument
("Non-Disturbance Agreement") in the customary form of such mortgagor, ground
lessor or trustee, that, INTER ALIA, as long as Tenant shall not be in
terminable default of the obligations on its part to be kept and performed
under the terms of this Lease, this lease will not be affected and Tenant's
possession hereunder will not be disturbed by any default in, termination,
and/or foreclosure of, such mortgage, ground lease and/or underlying lease or
deed of trust, as the case may be.
(b) Any such Underlying Party may from time to time subordinate or
revoke any such subordination of the Underlying Instrument held by it to
this Lease. Such subordination or revocation, as the case may be, shall be
effected by written notice to Tenant and by recording an instrument of
subordination or of such revocation, as the case may be, with the appropriate
registry of deeds or land records and to be effective without any further act
or deed on the part of Tenant. In confirmation of such subordination or of
such revocation, as the case may be, Tenant shall execute, acknowledge and
promptly deliver any certificate or instrument that Landlord or any
Underlying Party may request.
(c) Without limitation of any of the provisions of this Lease, if any
Underlying Party shall succeed to the interest of Landlord by reason of the
exercise of its rights under an Underlying Instrument (or the acceptance of
voluntary conveyance in lieu thereof) or any third party (including, without
limitation, any foreclosure purchaser or mortgage receiver) shall succeed to
such interest by reason of any such exercise or the expiration or sooner
termination of such Underlying Instrument, however caused, then such successor
may, upon notice and request to Tenant (which, in the case of a ground lease,
shall be within thirty (30) days after such expiration or sooner termination),
succeed to the interest of Landlord under this Lease, provided, however, that
such successor shall not: (i) be liable for any previous act or omission of
Landlord under this Lease; (ii) be subject to any offset, defense, or
counterclaim which shall theretofore have accrued to Tenant against Landlord;
(iii) have any obligation with respect to any security deposit unless it shall
have been paid over or physically delivered to such successor; or (iv) be bound
by any previous modification of this Lease or by any previous payment of Yearly
Rent for a period greater than one (1) month, made without the consent of such
Underlying Party where such consent is required by applicable Underlying
Instrument. In the event of such succession to the interest of the Landlord-and
notwithstanding that any such Underlying Interest may antedate this Lease-the
Tenant shall attorn to such successor and shall ipso facto be and become bound
directly to such successor in interest to Landlord to perform and observe all
the Tenant's obligations under this Lease without the necessity of the execution
of any further instrument. Nevertheless, Tenant agrees at any time and from
time to time during the term hereof to execute a suitable instrument in
confirmation of Tenant's agreement to attorn, as aforesaid.
(d) Tenant hereby irrevocably constitutes and appoints Landlord or any
such Underlying Party, and their respective successors in interest, acting
singly, Tenant's attorney-in-fact to execute and deliver any such certificate or
instrument for, on behalf and in the name of Tenant, but only if Tenant fails to
execute, acknowledge and deliver any such certificate or instrument within ten
(10) days after Landlord or such Underlying Party has made written request
therefor.
(e) Notwithstanding anything to the contrary contained in this Article 23,
if all or part of Landlord's estate and interest in the Unit shall be a
leasehold estate held under a ground lease, then: (i) The foregoing
subordination provisions of this Article 23 shall not apply to any mortgages of
the fee interest in said real property to which Landlord's leasehold estate is
not otherwise subject and subordinate; and (ii) the provisions of this Article
23 shall in no way waive, abrogate or otherwise affect any agreement by any
ground lessor (x) not to terminate this Lease incident to any termination of
such ground lease prior to its term expiring or (y) not to name or join Tenant
in any action or proceeding by such ground lessor to recover possession of such
real property or for any other relief.
(f) Notwithstanding anything to the contrary contained in this Article
23, if all or part of Landlord's estate and interest in the real property of
which the premises are a part shall be a condo-
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minimum unit, then the provisions of this Article 23 shall in no way waive,
abrogate or otherwise affect any provision in the master deed to the effect that
(x) this Lease will not be terminated incident to any foreclosure by the Board
of Managers of the Condominium of the lien to secure common area expenses or (y)
Tenant shall not be named or joined in any action or proceeding by said Board of
Managers in connection with the collection of common area expenses.
24. QUIET ENJOYMENT
Landlord covenants that if, and so long as, Tenant keeps and performs each
and every covenant, agreement, term, provision and condition herein contained on
the part and on behalf of Tenant to be kept and performed, Tenant shall quietly
enjoy the premises from and against the claims of all persons claiming by,
through or under Landlord subject, nevertheless, to the covenants, agreements,
terms, provisions and conditions of this Lease and to the Underlying Instruments
to which this Lease is subject and subordinate, as hereinabove set forth.
Landlord warrants and represents to Tenant that Landlord has the right and
authority to enter into this Lease.
25. ENTIRE AGREEMENT - WAIVER - SURRENDER
25.1 ENTIRE AGREEMENT. This Lease and the Exhibits made a part hereof
contain the entire and only agreement between the parties and any and all
statements and representations, written and oral, including previous
correspondence and agreements between the parties hereto, are merged herein.
Tenant acknowledges that all representations and statements upon which it relied
in executing this Lease are contained herein and that the Tenant in no way
relied upon any other statements or representations, written or oral. Any
executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of this Lease in whole or in part unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
25.2 WAIVER BY LANDLORD. The failure of Landlord to seek redress for
violation, or to insist upon the strict performance, of any covenent or
condition of this Lease, or any of the Rules and Regulations promulgated
hereunder, shall not prevent a subsequent act, which would have originally
constituted a violation, from having all the force and effect of an original
violation. The receipt by Landlord of rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach. The failure
of Landlord to enforce any of such Rules and Regulations against Tenant and/or
any other tenant in the Building shall not be deemed a waiver of any such Rules
and Regulations. No provisions of this Lease shall be deemed to have been
waived by Landlord unless such waiver be in writing signed by Landlord. No
payment by Tenant or receipt by Landlord of a lesser amount than the monthly
rent herein stipulated shall be deemed to be other than on account of the
stipulated rent, nor shall any endorsement or statement on any check or any
letter accom-
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panying any check or payment as rent be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such rent or pursue any other remedy in this Lease
provided.
25.3 SURRENDER. No act or thing done by Landlord during the term hereby
demised shall be deemed an acceptance of a surrender of the premises, and no
agreement to accept such surrender shall be valid, unless in writing signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys of the premises prior to the termination of this Lease . The
delivery of keys to any employee of Landlord or of Landlord's agents shall not
operate as a termination of the Lease or a surrender of the premises. In the
event that Tenant at any time desires to have Landlord underlet the premises for
Tenant's account, Landlord or Landlord's agents are authorized to receive the
keys for such purposes without releasing Tenant from any of the obligations
under this Lease, and Tenant hereby relieves Landlord of any liability for loss
of or damage to any of Tenant's effects in connection with such underletting.
26. INABILITY TO PERFORM - EXCULPATORY CLAUSE
Except as provided in Article 4.1 and 4.2 hereof, this Lease and the
obligations of Tenant to pay rent hereunder and perform all the other covenants,
agreements, terms, provisions and conditions hereunder on the part of Tenant to
be performed shall in no way be affected, impaired or excused because Landlord
is unable to fulfill any of its obligations under this Lease or is unable to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make or is delayed in making any repairs, replacement,
additions, alterations, improvements or decorations or is unable to supply or is
delayed in supplying any equipment or fixtures if Landlord is prevented or
delayed from so doing by reason of strikes or labor troubles or any other
similar or dissimilar cause whatsoever beyond Landlord's reasonable control,
including but not limited to, governmental preemption in connection with a
national emergency or by reason of any rule, order or regulation of any
department or subdivision thereof of any governmental agency or by reason of the
conditions of supply and demand which have been or are affected by war,
hostilities or other similar or dissimilar emergency. In each such instance of
inability of Landlord to perform, Landlord shall exercise reasonable diligence
to eliminate the cause of such inability to perform.
Tenant shall neither assert nor seek to enforce any claim for breach of this
Lease against any of Landlord's assets other than Landlord's interest in the
Unit and in the uncollected rents, issues and profits thereof, and Tenant agrees
to look solely to such interest for the satisfaction of any liability of
Landlord under this Lease, it being specifically agreed that in no ;event shall
Landlord (or any of the officers, trustees, directors, partners, beneficiaries,
joint venturers, members, stockholders or other principals or representatives,
and the Eke, disclosed or undisclosed, thereof) ever be personally liable for
any such liability. This paragraph shall not limit any right that Tenant might
otherwise have to obtain injunctive relief against Landlord or to take any other
action which shall not involve the personal liability of Landlord to respond in
monetary damages from Landlord's assets other than the Landlord's interest in
the Unit, as aforesaid. In no event shall Landlord (or any of the officers,
trustees, directors, partners, beneficiaries, joint venturers, members,
stockholders or other principals or representatives and the like, disclosed or
undisclosed, thereof) ever be liable for consequential damages. If by reason of
Landlord's failure to complete construction of the Project or premises, Landlord
shall be held to be in breach of this Lease, Tenant's sole and exclusive remedy
shall be a right to terminate this Lease.
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27. BILLS AND NOTICES
Any notice, consent, request, bill, demand or statement hereunder by either
party to the other party shall be in writing and, if received at Landlord's
or Tenant's address, shall be deemed to have been duly given when either
received or delivery is refused or served personally or mailed by certified
mail, return receipt requested or by means of a recognized overnight courier
service, in a postpaid envelope, deposited in the United States mails
addressed to Landlord at its address as stated in Exhibit 1 and to Tenant at
the premises (or at Tenant's address as stated in Exhibit 1, if mailed prior
to Tenant's occupancy of the premises), or if any address for notices shall
have been duly changed as hereinafter provided, if mailed as aforesaid to the
party at such changed address. Either party may at any time change the
address or specify an additional address for such notices, consents,
requests, bills, demands or statements by delivering or mailing, as
aforesaid, to the other party a notice stating the change and setting forth
the changed or additional address, provided such changed or additional
address is within the United States.
All bills and statements for reimbursement or other payments or charges
due from Tenant to Landlord hereunder shall be due and payable in full thirty
(30) days, unless herein otherwise provided, after submission thereof by
Landlord to Tenant. Tenant's failure to make timely payment of any amounts
indicated by such bills and statements, whether for work done by Landlord at
Tenant's request, reimbursement provided for by this Lease or for any other
sums properly owing by Tenant to Landlord, shall be treated as a default in
the payment of rent, in which event Landlord shall have all rights and
remedies provided in this Lease for the nonpayment of rent.
28. PARTIES BOUND - SEIZIN OF TITLE
The covenants, agreements, terms, provisions and conditions of this Lease
shall bind and benefit the successors and assigns of the parties hereto with
the same effect as if mentioned in each instance where a party hereto is
named or referred to, except that no violation of the provisions of Article
16 hereof shall operate to vest any rights in any successor or assignee of
Tenant and that the provisions of this Article 28 shall not be construed as
modifying the conditions of limitation contained in Article 21 hereof.
If, in connection with or as a consequence of the sale, transfer or other
disposition of Landlord's interest in the Unit, any party who is Landlord ceases
to be We owner of We reversionary interest in the premises, Landlord shall be
entirely freed and relieved from the performance and observance thereafter of
all covenants and obligations hereunder on the part of Landlord to be performed
and observed, it being understood and agreed in such event (and it shall be
deemed and construed as a covenant running with the land) that the person
succeeding to Landlord's ownership of said reversionary interest shall thereupon
and thereafter assume, and perform and observe, any and all of such covenants
and obligations of Landlord.
29. MISCELLANEOUS
29.1 SEPARABILITY. If any provision of this Lease or portion of such
provision or the application thereof to any person or circumstance is for any
reason held invalid or unenforceable, the remainder of the Lease (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.
29.2 CAPTIONS, ETC. The captions are inserted only as a matter of
convenience and for reference, and in no way define, limit or describe the
scope of this Lease nor the intent of any provisions thereof. References to
"State" shall mean, where appropriate, the District of Columbia and other
Federal territories, possessions, as well as a state of the United States.
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29.3 BROKER. Tenant represents and warrants that it has not directly or
indirectly dealt, with respect to the leasing of office space in the Building or
any Center, Office Park or other complex of which it is a part (called
"Building, etc." in this Article 29.3) with any broker or had its attention
called to the premises or other space to let in the Building, etc. by anyone
other than the broker, person or firm, if any, designated in Exhibit 1. Tenant
agrees to defend, exonerate and save harmless and indemnify Landlord and anyone
claiming by, through or under Landlord against any claims for a commission
arising out of the execution and delivery of this Lease or out of negotiations
between Landlord and Tenant with respect to the leasing of other space in the
Building, etc., provided that Landlord shall be solely responsible for the
payment of brokerage commissions to the broker, person or firm, if any,
designated in Exhibit 1.
29.4 MODIFICATIONS. If in connection with obtaining financing for the
Project or the Unit, a bank, insurance company, pension trust or other
institutional lender shall request reasonable modifications in this Lease as a
condition to such financing. Tenant will not withhold, delay or condition its
consent thereto, provided that such modifications do not increase the
obligations of Tenant hereunder or materially adversely affect the rights of
Tenant hereunder or the leasehold interest hereby created.
29.5 ARBITRATION. Any disputes relating to provisions or obligations in
this Lease as to which a specific provision for a reference to arbitration is
made herein shall be submitted to arbitration in accordance with the provisions
of applicable state law (as identified on Exhibit 1), as from time to time
amended. Arbitration proceedings, including the selection of an arbitrator,
shall be conducted pursuant to the rules, regulations and procedures from time
to time in effect as promulgated by the American Arbitration Association. Prior
written notice of application by either party for arbitration shall be given to
the other at least ten (10) days before submission of the application to the
said Association's office in the City wherein the Project is situated (or the
nearest other city having an Association office). The arbitrator shall hear the
parties and their evidence. The decision of the arbitrator shall be binding and
conclusive, and judgment upon the award or decision of the arbitrator may be
entered in the appropriate court of law (as identified on Exhibit 1); and the
parties consent to the jurisdiction of such court and further agree that any
process or notice of motion or other application to the Court or a Judge thereof
may be served outside the State wherein the Project is situated by registered
mail or by personal service, provided a reasonable time for appearance is
allowed. The costs and expenses of each arbitration hereunder and their
apportionment between the parties shall be determined by the arbitrator in his
award or decision. No arbitrable dispute shall be deemed to have arisen under
this Lease prior to (i) the expiration of the period of twenty (20) days after
the date of the giving of written notice by the party asserting the existence of
the dispute together with a description thereof sufficient for an understanding
thereof; and (ii) where a Tenant payment (e.g., Operating Expense Excess under
Article 9 hereof) is in issue, the amount billed by Landlord having been paid by
Tenant.
29.6 GOVERNING LAW. This Lease is made pursuant to, and shall be governed
by, and construed in accordance with, the laws of the State wherein the Project
is situated and any applicable local municipal rules, regulations, by-laws,
ordinances and the like.
29.7 ASSIGNMENT OF RENTS. With reference to any assignment by Landlord of
its interest in this Lease, or the rents payable hereunder, conditional in
nature or otherwise, which assignment is made to or held by a bank, trust
company, insurance company or other institutional lender holding an Underlying
Instrument on the Unit, Tenant agrees:
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(a) that the execution thereof by Landlord and the acceptance thereof by
such Underlying Party shall never be deemed an assumption by such Underlying
Party of any of the obligations of the Landlord thereunder, unless such
Underlying Party shall, by written notice sent to the Tenant, specifically
otherwise elect; and
(b) that, except as aforesaid, such Underlying Party shall be treated as
having assumed the Landlord's obligations thereunder only upon foreclosure of
such Underlying Party's mortgage or termination of such Underlying Party's
ground lease, as the case may be, and the taking of possession of the demised
premises after having given notice of its exercise of the option stated in
Article 23 hereof to succeed to the interest of the Landlord under this Lease.
29.8 REPRESENTATION OF AUTHORITY. By his execution hereof each of the
signatories on behalf of the respective parties hereby warrants and represents
to the other that he is duly authorized to execute this Lease on behalf of such
party. If Tenant is a corporation, Tenant hereby appoints the signatory whose
name appears below on behalf of Tenant as Tenant's attorney-in-fact for the
purpose of executing this Lease for and on behalf of Tenant.
IN WITNESS WHEREOF the parties hereto have executed this Indenture of Lease
in multiple copies, each to be considered an original hereof, as a sealed
instrument on the day and year noted in Exhibit 1 as the Execution Date.
LANDLORD ROWES WHARF ASSOCIATES TENANT: HAMBRECHT & QUIST GROUP, INC.
By /s/ Ed By /s/ Gary Koening
------------------------------- ----------------------------
A General Partner of (Name) (Title)
Rowes Wharf Limited Partnership Hereunder Duly Authorized
Gary E. Koenig, Managing Director
IF TENANT IS A CORPORATION, A SECRETARY'S OR CLERK'S CERTIFICATE OF
THE AUTHORITY AND THE INCUMBENCY OF THE PERSON SIGNING ON BEHALF OF TENANT
SHOULD BE ATTACHED.
COMMONWEALTH, DISTRICT OR
STATE OF MASSACHUSETTS
COUNTY OF SUFFOLK
On the Execution Date stated in Exhibit 1, the person above signing this
Lease for and on behalf of the Tenant, to me personally known, did sign and
execute this Lease and, being by me duly sworn, did depose and say that is the
officer of the above named Tenant, as noted, and that he signed his name hereto
by order of the Board of Directors of said Tenant.
/s/ Anne-Marie Mama
---------------------------------------
Notary Public
My Commission expires: July 30, 1993
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COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK
On the Execution Date stated in Exhibit 1, the person above signing this
Lease for and on behalf of Landlord to me personally known, did sign and
execute this Lease and, being by me duly sworn, did depose and say that he is
the duly authorized representative of Landlord.
/s/ Janet Civlewicz
------------------------------
Notary Public
My commission expires 1/30/92
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EXHIBIT 3, SHEET 1
MEMORANDUM OF WORK AND INSTALLATIONS TO BE INITIALLY PERFORMED
AND FURNISHED IN THE PREMISES
A. Notwithstanding anything to the contrary in
Article 4 or in Exhibit 3 contained, Landlord shall provide
and install unlimited quantities of the Building standard
materials listed in Exhibit 3 in order to prepare the
premises for Tenant's occupancy. In addition, Landlord
shall provide ("Landlord's Construction Contribution") up to
Eighteen ($18.00) Dollars per square foot of Total Rentable Area
of the premises demised to Tenant towards the cost of other leasehold
improvements.
B. Tenant shall not be entitled to any credit for any unused
Building standard items or for any unused portion of
Landlord's Construction Contribution; provided however, that
if Tenant elects to use a non-Building standard item which is
an upgrade from a Building standard item, in substitution for
a Building standard item, Tenant will receive a credit for
the cost of the Building standard item not used based upon
the quantities of Building standard items set forth on
Exhibit 3 and the value of such items as of the Final Plans
Date.
C. Tenant shall, promptly upon request by Landlord, execute and
deliver to the City of Boston any affidavits and
documentation required to obtain the Building permit allowing
Landlord to perform Landlord's work on a timely basis.
Landlord, at its expense shall furnish and install in accordance
with Tenant's plans, the followmaterials and work (or equal at Landlord's
election)-all to be building standard unless otherwise expressly stated-in
the initial preparation of the premises for Tenant's occupancy.
A. EXTERIOR WALLS, LOBBY WALLS AND CORE WALLS
1. FINISH
The exposed surfaces are to receive a drywall finish. The toilet rooms
are to be finished with ceramic tile and drywall.
2. DOOR-FRAMES
Flush hollow metal doors 1-3/4" in thickness will be installed in pressed
metal door frames.
3. HARDWARE
Each swing door shall be provided with one and one-half pairs of butts,
a latch set, or lockset where required, and a doorstop where required. A
surface mounted door closer will be provided at such locations as may be
required by the local code. All hardware shall be Sargent, Almet,
Schlage, Yale or equal.
B. Partitions and Doors
1. PARTITIONS SEPARATING PREMISES (DEMISING)
a. PARTITIONS
Partitions separating premises shall be constructed of metal studs with
two layers of 5/8" wallboard on each side extending above the ceiling,
with one layer of wallboard on each side extended to the underside of the
floor construction above, or equal.
b. PRINCIPAL TENANT ENTRANCE DOOR
Each Tenant premises will be provided with one teak full-height, solid
core wood entrance door and glass sidelight & teak wood frame (with
provision for a building standard entrance sign), installed with two pairs
of ball bearing butts, a lockset, doorstop and concealed door closer.
c. SECONDARY EGRESS DOORS (WHERE REQUIRED)
All doors shall have pressed metal door frames. The doors shall be teak,
full-height, solid core wood doors and shall be installed with two pairs
of ball bearing butts, a lockset, a doorstop and a concealed door closer.
d. LOCKS
Each door will be provided with a building standard lockset master keyed
to the building system, and shall be Sargent, Almet, Schlage, Yale or
equal.
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EXHIBIT 3, SHEET 2
2. PARTITIONS SEPARATING OFFICES WITHIN SINGLE PREMISES
a. PARTITIONS
Partitions shall be constructed of metal studs with two layers of
5/8" wallboard, extending above the ceiling on each side, or equal.
b. DOORS
The swing doors shall have premed metal door frames. The doors shall
be teak fullheight, solid core wood and shall be installed with two
pairs of ball bearing butts, a latch set and a doorstop. The number
of doors shall not exceed one door for each 25 linear feet of allowed
partitions (per Para. B.3. below). All hardware shall be Sargent,
Almet, Yale, Schlage or equal.
3. STANDARD QUANTITY OF PARTITIONS
The total lineal footage of partitions shall not exceed one lineal foot
for each 15 square feet of (i) Net Rentable Area* for multi-tenant floors
or (ii) Gross Area*, not including building core area, for single-tenant
floors, as the case may be.
C. CEILINGS
1. Mechanically suspended, concealed spline, acoustic tile ceilings shall
be mineral fiber, Class "A" (incombustible), 12" x 12", square edged.
2. The mechanical suspension system shall be of the concealed type.
D. LIGHTING
1. Landlord shall provide recessed fluorescent lighting fixtures (2" x
4") with a large cell aluminum parabolic louver and three (3) 35-watt
rapid start tubes with supply and return air feature to the extent of one
such fixture per 85 square feet (average) of (i) Net Rentable Area for
multi-tenant floors or (ii) Gross Area, not including building core area,
for single-tenant floors, as the case may be.
2. Miscellaneous fixtures, fluorescent and/or incandescent shall be installed
in mechanical spaces, toilet areas, stairwell and utility areas to conform
to building operation requirements and existing codes.
3. Wall switches of We single pole, quiet type to the extent of one switch
for each ten lighting fixtures averaged shall be installed by Landlord.
Each private office must have at least one wall switch (which will be
counted in this allowance).
- ---------------
*The terms "Gross Area" and "Net Rentable Area" used in computing allowances
under this Exhibit 3 refer to definitions appearing in Exhibit 5 of the Lease.
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EXHIBIT 3, SHEET 3
E. ELECTRICAL AND TELEPHONE
1. Duplex wall and floor receptacles (not to exceed one per 125 square feet
of (i) Net Rentable Area for multi-tenant floors or (ii) Gross Area, not
including building core area, for singletenant floors, as the case may
be), shall be installed by Landlord. Not more than 10% of the total
number of such receptacles may be located in the floor.
2. Landlord will make the necessary provisions for wall and floor telephone
outlets (not to exceed one per 200 square feet of (i) Net Rentable Area
for multi-tenant floors or (ii) Gross Area, not including building core
area, for single-tenant floors, as the case may be). Installation of the
wiring and equipment by the telephone company or other communication
equipment supplier is the responsibility of Tenant. Not more than 10% of
the total number of such outlets may be located in the floor.
3. Power wiring circuits, including terminal device (similar to the 208-
Volt, 30 AMP, 3-Phase, grounded) shall be made available to Tenant in
connection with Tenant's equipment at the rate of one per 6,000 square
feet of (i) Net Rentable Area for multi-tenant floors or (ii) Gross Area,
not including core area, for single-tenant floors, as the case may be.
F. PLUMBING
1. Wet stacks are available on the typical office floor containing cold
water, waste, and vent piping. Tenant equipment can be connected at
these points by the Landlord at the Tenant's expense.
G. PAINTING AND WALL COVERING
1. All wall surfaces shall receive a finish coat of building standard
acrylic based spray applied, vinyl paint over one prime coat, or equal.
Door frames shall receive one coat of enamel over one prime coat. Doors
shall receive a natural finish of one coat of scaler and one coat of
varnish.
2. Paint colors shall be selected from a standard color chart with not more
than one accent color (flat paint) on one wall in each individual office
or room.
3. Where Tenant desires wall covering, Landlord shall initially prepare
walls to receive wall covering by application of sizing. Such wall
covering shall be furnished and installed at Tenant's expense. Wall
covering shall be subject to Landlord's approval prior to installation.
4. Public areas, corridors and lobbies shall be finished in accordance with
the Landlord's Architect's finish schedule.
H. SUN-CONTROL BLINDS
Landlord shall furnish and install sun-control blinds, including the tracks
therefore, in color selected by Landlord.
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EXHIBIT 3, SHEET 4
I. FLOOR FINISHES
The Tenant will provide within his premises, and at his expense (furnished
and installed), all floor coverings and vinyl, wood, carpet or any other
baseboard moldings.
J. MECHANICAL
1. Landlord will install in the interior office area, one supply troffer or
diffuser with 6 feet of flexible hose for every 200 square feet of (i) Net
Rentable Area for multi-tenant floors or (ii) Gross Area, not including
building core area, for single-tenant floors, as the case may be, in any
premises served by the building interior air distribution system.
2. Landlord will install a sprinkler system for the public areas and tenant
premises to the extent of one head per 225 square feet of (i) Net Rentable
Area for multi-tenant floors or (ii) Gross Area, not including building
core area, for single-tenant floors, as the case may be. Such head shall
be a semi-recessed chrome pendant head. Heads will be installed in
accordance with approved Tenant's final plans and all other governing
agencies and regulations.
3. Toilet exhaust ductwork is available on each office floor for Tenant-
installed executive toilets. Connections to this ductwork will be by the
Landlord at the Tenant's expense.
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EXHIBIT 4, SHEET 1
BUILDING SERVICES
A. GENERAL CLEANING (MONDAY THROUGH FRIDAY - EXCLUDING BUILDING HOLIDAYS)
1. All stone, ceramic, tile, marble, terrazzo and other unwaxed flooring to
be swept nightly, using approved dust-down preparation.
2. All wood, linoleum, vinyl-asbestos, vinyl and other similar types of
floors to be swept or dry mopped nightly, using dust-down preparation;
all carpeting and rugs in the main traffic areas (corridors, reception
areas, etc.) to be vacuumed nightly and all other carpeted areas to be
vacuumed at least once each week.
3. Wax all public areas monthly.
4. Hand dust all furniture, files and fixtures nightly.
5. Empty all waste receptacles nightly and remove waste paper and waste
materials, including folded paper boxes and cartons, to designated area.
6. Empty and clean all ash trays and screen all sand urns nightly.
7. Wash and clean all water fountains and coolers nightly. Sinks and floors
adjacent to sinks to be washed nightly.
8. Hand dust all door and other ventilating louvers within reach, as
necessary, but not less often than monthly.
9. Dust all telephones as necessary.
10. Keep lockers and janitors sink rooms in a neat, orderly condition at all
times.
11. Wipe clean all bright metal work as necessary.
12. Check all stairwells throughout entire building nightly and keep in
clean condition.
13. Metal doors and trim of all public elevator cars to be properly
maintained and kept clean.
B. COMMON AREA LAVATORIES
1. Sweep and wash all lavatory floors nightly, using proper non-scented
disinfectants.
2. Clean all mirrors, powder shelves, bright work and enameled surfaces in
all lavatories nightly. Scour, wash and disinfect all basins, bowls and
urinals using non-scented disinfectants.
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EXHIBIT 4, SHEET 2
3. Police lavatories during the day with matron or porter to pick up waste
and replenish materials.
4. Wash all toilet seats nightly.
5. Fill toilet tissue holders nightly.
6. Empty paper towel receptacles nightly.
7. Empty sanitary disposal receptacles nightly.
8. Thoroughly clean all wall tile and stall surfaces as necessary.
C. HIGH DUSTING
Do all high dusting (not reached in nightly cleaning) quarterly which includes
the following:
1. Dust all pictures, frames, charts, graphs, and similar wall hangings.
2. Dust exposed pipes, ventilation and air conditioning louvers, ducts and
high moldings.
D. WINDOW CLEANING
1. All exterior windows (except for any retail/commercial areas) from the
second floor and above will be cleaned Wide and outside bi-monthly except
when cleaning is rendered impracticable by inclement weather.
2. Entrance doors and elevator lobby glass to be cleaned daily and kept in a
clean condition at all times during the day.
3. Wipe down all window frames as necessary but not less often than
bi-monthly.
E. BUILDING LOBBIES
1. Floors to be swept and washed or vacuumed nightly, and machine scrubbed
according to Building Standard frequency.
2. Carpeting in passenger elevators to be vacuumed nightly.
3. Lobby walls to be dusted as often as necessary, but not less than weekly.
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EXHIBIT 4, SHEET 3
4. Screen and clean sand urns nightly.
5. Clean all unpainted metal work in a manner appropriate to original
finish.
F. PORTERS
Necessary number of day porters under supervision will be assigned for the
following services:
1. Service all public and operating space throughout the Building.
2. Keep elevators clean and neat during the day.
3. Maintain lobbies clean and, during wet weather, mopped dry to the extent
practicable.
4. Dust and rub down all elevator doors, frames, telephone booths and
directories daily.
5. Sweep sidewalks, ramps, etc. daily.
6. Clean roofs and setbacks as often as necessary.
7. Maintain firehose and equipment clean.
8. Lay and remove lobby runners as necessary.
9. Replenish toilet tissue, towels and other supplies in lavatories.
10. Maintain fan rooms, motor rooms and air conditioning rooms in clean
condition.
11. Check stairways and keep same neat and clean during the day.
12. Clean exterior columns, exterior signs and metal work, standpipe and
sprinkler system, walkways and stairs as necessary.
13. If directed by superintendent, fill towel and soap dispensers and perform
any emergency cleaning required.
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EXHIBIT 5, SHEET I
RENTABLE AREA AND ADJUSTMENT OF RENT
(1) MEASUREMENT STANDARDS -- SINGLE TENANCY FLOORS
Three steps, in sequence, are to be followed to determine the Total Rentable
Area: (i) Compute gross area; (ii) deduct certain areas; and (iii) add
applicable share of areas to be apportioned. (See below paragraph (c).)
(a) GROSS AREA: The gross area of a floor shall be the entire area within
the exterior walls. If the exterior or demising wall consists in whole
or part of windows, fixed clear glass or other transparent material, the
measurement along the entire such wall shall be taken to a line
established by the horizontal plane of the inside of the glass or other
transparent material. If it consists solely of non-transparent
material, the measurement shall be taken to the inside surface of the
outer building wall. If a floor has no exterior wall within the
property line, measurements shall be taken to the property line. If a
floor has no full-height enclosing wall, measurements shall be taken to
the edge of the floor slab. All shafts or penetrations, including their
enclosing walls, containing services only for non-office components
shall not be included in the gross area.
(b) DEDUCTIONS FROM GROSS AREA: The following non-rentable building areas
with one-half of their enclosing walls are to be deducted.
1. Public elevator shafts and associated elevator machine rooms.
2. Required egress stairways.
3. Areas within the gross area which are to be apportioned pursuant to
paragraph (c) below.
(c) AREAS TO BE APPORTIONED:
1. Common facilities including without limitation, all heating,
ventilating, air conditioning, mechanical, electrical, cooling tower,
telephone and other service floors, rooms or areas containing
equipment or supplies (exclusive of any tenant's special air
conditioning or mechanical area or facilities) and all public lobbies
(including monumental stair and/or escalator), loading, and other
common services areas, throughout and within the Building including
one-half of their enclosing walls, are to be apportioned.
2. Whenever the height of any room or space used for a heating,
ventilating, air conditioning, mechanical, or electrical facility
above the ground floor shall exceed the average story height in the
Building by more than 25%, then the floor area of such room or space
shall be determined by multiplying the actual floor area by the
percentage that the height of the room or space exceeds the average
story height, and adding the area so determined to the actual floor
area of such room or space; however, if any such rooms or spaces
penetrate the next higher floor, then the entire area of such room or
space on both floors shall be apportioned under this paragraph (c).
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EXHIBIT 5, SHEET 2
(2) MEASUREMENT STANDARDS -- MULTIPLE OCCUPANCY FLOORS
The sum of the Total Rentable Area for two or more tenants on a floor shall be
the Total Rentable Area for that floor as computed in the manner for single
tenancy floors.
Three steps are to be followed to determine the Total Rentable Area for each
tenant on a multiple occupancy floor: (i) compute the Net Rentable Area for
such floor pursuant to (a) below; (ii) compute the Net Rentable Area for
each tenant pursuant to (b) below; and (iii) multiply the Total Rentable Area
of such floor by a fraction whose numerator is the Net Rentable Area for such
tenant and whose denominator is the Net Rentable Area for such floor.
(a) NET RENTABLE AREA FOR ANY FLOOR: The Net Rentable Area shall be the
gross area as described for single tenancy floors less the entire core
area (measured to the finished enclosing walls thereof, but excluding
any part of the core rented to a tenant) and public corridors measured
to the corridor side of the enclosing walls thereof.
(b) NET RENTABLE AREA FOR EACH TENANT: Exterior walls are to be measured
as described in the procedure for gross area. Demising walls between
tenants are to be equally divided. Corridor walls to the finished
corridor side are to be included in the Net Rentable Area of each
tenant.
(c) RETAIL AREA: The Total Rentable Area of a store or other retail
facility in the Building shall be computed in accordance with the
foregoing measurement standards for multiple occupancy floors.
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EXHIBIT 5, SHEET 3
(3) ADJUSTMENT OF TOTAL RENTABLE AREA AND RENT
(a) Either party, not later than the last day of the third calendar month
next beginning after the Term Commencement Date, may request that a
recomputation of the Total Rentable Area be made by actual measurement
of the premises in accordance with the standards stated in Exhibit 5 and
at that party's own cost and expense. If the Total Rentable Area as so
recomputed is more than or less than the Total Rentable Area as
originally stated in Exhibit 1 and the Lease Plan, the Yearly Rent
originally reserved hereunder shall be recomputed by multiplying such
Yearly Rent by a fraction which shall have as the numerator the
recomputed Total Rentable Area and as the denominator the Total Rentable
Area as originally stated in Exhibit 1. The product of this
multiplication shall be substituted in Exhibit 1 for the Yearly Rent,
retroactive to the date such rent commenced. In addition, the Net
Rentable Area and Total Rentable Area figures stand in Exhibit 1 shall
be appropriately changed. Any payment due from either party to the
other as a result of any adjustments made hereunder shall be paid
promptly upon rendition of a statement by the party entitled to the
additional rent, or rent refund, as the case may be.
(b) If neither Landlord nor Tenant requests any adjustment as herein
provided within the time limits prescribed, then the Landlord and Tenant
shall be deemed to have consented to such Total Rentable Areas as
originally stated in Exhibit 1, and shall be deemed to have waived any
and all right to any adjustment or adjustments pursuant to the
provisions of this Exhibit 5.
(c) In the event of any adjustment pursuant to this Exhibit 5, Landlord and
Tenant shall promptly execute a lease amendment in recordable form
setting forth the recomputed figures resulting from such adjustment.
(4) The measurement standards set forth on this Exhibit 5 are used for the
purpose of defining the area of the premises and do not uniformly coincide
with the boundaries of the Unit as set forth in the Master Deed of the
Condominium.
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EXHIBIT 6, SHEET 1
Section 33.2 of the Ground Lease provides as follows (Rowes Wharf Associates is
the "Tenant" referred to in said Section 33.2 and the Boston Redevelopment
Authority is the "Landlord" referred to in said Section 33.2):
"33.2 Tenant has submitted and Landlord has approved a plan to ensure that
workers are employed in the construction of the Improvements so that the worker
hours on a craft-by-craft basis shall be performed as follows:
(a) at least 50% of the total employee work hours in each trade by bona fide
City of Boston residents:
(b) at least 25% of the total employee work hours in each trade by
minorities;
(c) at least 10% of the total employee work hours in each trade by women.
For the purpose of this Section 33.2, worker hours shall include work performed
by persons filling apprenticeship and on-the-job training positions. Such plan
is as follows:
(a) Tenant shall incorporate in every general construction contract or
construction management agreement an enumeration of the foregoing worker
hour goals and shall impose a responsibility upon any such general
contractor or construction manager:
(i) to pursue the efforts enumerated in this Section 33.2 and
(ii) to incorporate such worker hour goals in all subcontracts and impose
upon all subcontractors the obligation to pursue such efforts.
(b) Each Tenant, its contractor, and each subcontractor shall designate an
individual to serve as affirmative action officer for the purpose of
carrying out the efforts to achieve worker hour goals set forth herein.
(c) Contemporaneously with the start of construction, the affirmative action
officers and other interested representatives of Tenant, its Contractor
and each subcontractor then selected shall hold a pre-job conference with
appropriate union representatives of the construction trade unions for
the purpose of reviewing the above worker hour goals and the manning
requirements for construction activity over the life of the construction
period.
(d) Each request for qualified construction workers made by any person
involved in the construction of the Improvements to a union hiring hall
or business agent shall contain a recitation of such worker hour goals
and a request that qualified referees for construction positions be
selected in the same proportion as such goals; provided, however, that if
at the time of any such manning request the requesting party's workforce
composition falls short of any one or more of such goals, such manning
request shall seek qualified referees in such proportion among such
categories as would be necessary to more fully achieve such goals. In
the event that the union hiring hall or business agent to which or whom
such a manning request has been submitted fails to comply with such
request, the affirmative action officer of such requesting party shall
seek to verify that insufficient workers in the categories specified in
such request are then shown on the unemployed list maintained by such
union hiring hall or business agent by seeking to obtain an affidavit
from the union hiring hall representative or business agent to such
effect. Copies of any affidavit so obtained shall be forwarded to
Landlord's affirmative action officer.
49
<PAGE>
EXHIBIT 6, SHEET 2
(e) All persons applying directly to the Contractor or any subcontractor for
employment in construction on the project who are not employed by the
party to whom application is made will be referred to Landlord's
affirmative action officer and a written record of such referral shall be
made, a copy of which shall be sent to such officer.
Tenant, its contractors, and each subcontractor shall maintain records
reasonably necessary to ascertain compliance with the requirements of this
Section 33.2 for at least one year after the issuance of a Certificate of
Occupancy for the first premises to be occupied by a tenant under an occupancy
lease."
50
<PAGE>
EXHIBIT 7
Holidays
New Years Day
Washington's Birthday
Memorial Day
Fourth of July
Labor Day
Thanksgiving
Christmas
51
<PAGE>
RIDER TO LEASE
LANDLORD: Rowes Wharf Associates
TENANT: Hambrecht & Quist, Inc.
1. PARKING
During the term of the Lease, the Landlord will make available, at
Tenant's written request, which request must be made within sixty (60) days
of the Term Commencement Date, twelve (12) monthly parking passes for use in
the garage ("Garage") in the Project. Tenant shall have no right to sublet,
assign, or otherwise transfer said parking passes, provided however, that
Tenant shall have the right to sublet or assign said parking passes to a
subtenant, assignee, Affiliated Entity or Permitted Subtenant who is
permitted to occupy the premises pursuant to Article 16-18* of the Lease. If
Tenant fails timely to make such request for any such parking passes, Tenant
shall have no right to obtain such parking passes under this Paragraph 1.
Said parking passes shall be paid for by Tenant at the then current
prevailing rate in the Garage, as such rate may vary from time to time. If,
for any reason, Tenant shall fail timely to pay the charge for said parking
passes after ten (10) days written notice to Tenant of such failure timely to
pay, or if, for any reason, Tenant shall cease to use any of such parking
passes, Tenant shall have no further right to such parking pass under this
Paragraph 1. Said parking passes will be on an unassigned, non-reserved
basis, and shall be subject to the rules and regulations from time to time in
force.
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<PAGE>
2. TENANT'S EXPANSION OPTION
On the conditions (which conditions Landlord may waive, at
its election, by written notice to Tenant at any time) that Tenant is not in
default of its covenants and obligations under the Lease and that only
Hambrecht & Quist, Inc., an Affiliated Entity or Permitted Subtenant are
occupying the premises then demised to Tenant, as of the Term Commencement Date
in respect of the Expansion Area, as hereinafter defined, Tenant shall have the
option to lease a portion ("Expansion Area") of the fourth (4th) floor of the
Building. The Expansion Area shall be contiguous to the premises demised to
Tenant under the Lease and shall contain between 3,000 and 5,000 square feet of
Total Rentable Area, to be designated by Landlord.
A. EXERCISE OF RIGHTS TO EXPANSION AREA
Tenant may exercise its option to lease the Expansion Area by giving
written notice to Landlord on or before the Notice Date, defined in
Subparagraph C of this Paragraph 2, in respect of the Expansion Area. If
Tenant fails timely to give such notice, Tenant shall have no further right
to lease the Expansion Area, time being of the essence of this Paragraph 2.
Upon the timely giving of such notice, Landlord shall lease and demise to
Tenant, and Tenant shall hire and take from Landlord, the Expansion Area,
without the need for further act or deed by either party, for the term and
upon all of the same terms and conditions of this Lease, except as
hereinafter set forth.
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<PAGE>
B. EXPIRATION DATES OF OTHER LEASES IN EXPANSION AREA
Landlord hereby agrees that if the Expansion Area is occupied by
other tenant(s) during the Expiration Period, as hereinafter defined, the
expiration date(s) of the lease(s) of such tenant(s) shall occur during the
period ("Expiration Period") commencing as of the fifth (5th) anniversary of
the initial Term Commencement Date and terminating as of the date immediately
preceding the sixth (6th) anniversary of the initial Term Commencement Date.
Landlord shall advise Tenant, upon written request made from time to time
during the initial term of the Lease, of the expiration dates of the leases
of other tenants of the Expansion Area. If such tenant(s) of the Expansion
Area holds over in the Expansion Area after the expiration of the term of its
lease, then Landlord shall use reasonable efforts (including commencing and
diligently prosecuting summary process proceedings) to recover possession of
the Expansion Area.
C. NOTICE DATE
The Notice Date in respect of the Expansion Area shall be defined as
follows:
(a) If, as of the date twelve (12) months prior to the
first day of the Expiration Period, any portion of the
Expansion Area is vacant, the Notice Date in respect of the
Expansion Area shall be the date twelve (12) months prior to
the first day of the Expiration Period.
(b) If, as of the date twelve (12) months prior to the
first day of the Expiration Period, the entirety of the
Expansion Area is occupied by a tenant(s), then the Notice
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<PAGE>
Date in respect of the Expansion Area shall be twelve (12) months prior to
the earliest expiration date of the lease of the tenant(s) of the Expansion
Area.
D. LEASE PROVISIONS APPLYING TO EXPANSION AREA
The leasing to Tenant of the Expansion Area shall be upon all the same
terms and conditions of the Lease except as follows:
(1) TERM COMMENCEMENT DATE
If no tenant is occupying the Expansion Area (or any portion thereof)
during the Expiration Period, then the Term Commencement Date in respect of
the Expansion Area (or such portion thereof) shall be the first day of the
Expiration Period. Otherwise, the Term Commencement Date in respect of the
Expansion Area (or any portion thereof), shall be the later of: (i) the
expiration date of the lease of the tenant occupying the Expansion Area, or
such portion thereof, and (ii) the date that such tenant vacates the
Expansion Area.
(2) YEARLY RENT
The Yearly Rent payable in respect of the Expansion Area, or any
portion thereof, shall be based upon (i.e. taking into account the
amount of Operating Costs in the Base Year as set forth in Subparagraph
B of Paragraph 3 of this Rider) the Fair Market Rental Value, as defined
in Paragraph 3 of this Rider, of the Expansion Area, or such portion
thereof, as of the Term Commencement Date in respect of the Expansion
Area, or such portion thereof.
-4-
<PAGE>
(3) CONDITIONS OF EXPANSION AREA
The Expansion Area shall be delivered by Landlord and
accepted by Tenant "as is", in its then (i.e. as of the Term
Commencement Date in respect of the Expansion Area, or portion thereof)
state of construction, finish and decoration, without any obligation for
preparation or construction of such premises by Landlord for Tenant's
occupancy. In implementation of the foregoing Article 4, Ex. 3-37* and
Exhibit 3 of the Lease shall have no force and effect in respect of the
initial preparation of the Expansion Area.
E. EXECUTION OF LEASE AMENDMENTS
Notwithstanding the fact that Tenant's exercise of the
above-described expansion option shall be self-executing, as aforesaid, the
parties hereby agree promptly to execute a lease amendment reflecting the
addition of the Expansion Area except that the Yearly Rent payable in respect of
the Expansion Area and the Operating Costs in the Base Year in respect of the
Expansion Area shall not be as set forth in such Amendment. Subsequently, after
such Yearly Rent and Operating Costs in the Base Year are determined, the
parties shall execute a written agreement confirming the same. The execution of
such lease amendment shall not be deemed to waive any of the conditions to
Tenant's exercise of the herein expansion option, unless otherwise specifically
provided in such lease amendment.
3. DEFINITION OF FAIR MARKET RENTAL VALUE
For the purposes of this Rider:
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<PAGE>
A. "Fair Market Rental Value" shall be computed as of the date in
question at the then current annual rental charge (i.e., the sum of Yearly
Rent plus escalation and other charges), including provisions for subsequent
increases and other adjustments for new leases then currently being
negotiated or executed in comparable space located in the Project, or if no
new leases are then currently being negotiated or executed in the Project,
the Fair Market Rental Value shall be determined by reference to new leases
then currently being negotiated or executed for comparable space located
elsewhere in first-class office buildings located in downtown Boston. In
determining Fair Market Rental Value, the following factors, among others,
shall be taken into account and given effect: size, location of premises,
lease term, condition of building, and services provided by the landlord.
For the purposes of this Subparagraph A, if a lease of comparable space is
being "negotiated" (i.e. As opposed to "executed"), such lease shall
constitute probative evidence in the determination of the Fair Market Rental
Value in question, but all of the circumstances surrounding the negotiations
between the parties shall be examined in determining the weight to be given
such evidence.
B. Notwithstanding anything to the contrary herein contained, the parties
hereby agree that upon the determination of any Fair Market Rental Value,
Landlord shall have the right, exercisable by written notice to Tenant on or
before the time that Landlord gives Tenant its initial designation of Fair
Market Rental Value: to change Operating Costs in the Base Year as
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<PAGE>
stated on Exhibit 1 from the amount stated on Exhibit 1 to an amount equal to
the actual amount of Operating Costs for the immediately preceding Operating
Year. If Landlord shall exercise such right, the amount of Yearly Rent payable
hereunder shall be commensurately adjusted to reflect such change in Operating
Costs in the Base Year.
C. DISPUTE AS TO FAIR MARKET RENTAL VALUE
Landlord shall initially designate Fair Market Rental Value and
Landlord shall furnish data in support of such designation. If Tenant
disagrees with Landlord's designation of a Fair Market Rental Value, Tenant
shall have the right, by written notice given within thirty (30) days after
Tenant has been notified of Landlord's designation, to submit such Fair
Market Rental Value to arbitration. Fair Market Rental Value shall be
submitted to arbitration as follows: Fair Market Rental Value shall be
determined by impartial arbitrators, one to be chosen by the Landlord, one to
be chosen by Tenant, and a third to be selected, if necessary, as below
provided. The unanimous written decision of the two first chosen, without
selection and participation of a third arbitrator, or otherwise, the written
decision of a majority of three arbitrators chosen and selected as aforesaid,
shall be conclusive and binding upon Landlord and Tenant. Landlord and
Tenant shall each notify the other of its chosen arbitrator within ten (10)
days following the call for arbitration and, unless such two arbitrators
shall have reached a unanimous decision within thirty (30) days after their
designation, they shall so notify the President of the Boston Bar
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<PAGE>
Association (or such organization as may succeed to said Boston Bar Association)
and request him to select an impartial third arbitrator, who shall be an office
building owner, a real estate counsellor or a broker dealing with like types of
properties, to determine Fair Market Rental Value as herein defined. Such third
arbitrator and the first two chosen shall, subject to commercial arbitration
rules of the American Arbitration Association, hear the parties and their
evidence and render their decision within thirty (30) days following the
conclusion of such hearing and notify Landlord and Tenant thereof. Landlord and
Tenant shall bear the expense of the third arbitrator (if any) equally. The
fifth (5th) sentence of Article 29.5 of the Lease is hereby incorporated by
reference in this Subparagraph C. If the dispute between the parties as to a
Fair Market Rental Value has not been resolved before the commencement of
Tenant's obligation to pay rent based upon such Fair Market Rental Value, then
Tenant shall pay Yearly Rent and other charges under the Lease in respect of the
premises in question based upon the Fair Market Rental Value designated by
Landlord until either the agreement of the parties as to the Fair Market Rental
Value, or the decision of the arbitrators, as the case may be, at which time
Tenant shall pay any underpayment of rent and other charges to Landlord, or
Landlord shall refund any overpayment of rent and other charges to Tenant.
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<PAGE>
SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE AGREEMENT
This Agreement is dated as of the lst day of August, 1987, by and among BANK
OF NEW ENGLAND, a national banking association, having a principal place of
business at 28 State Street, Boston, Massachusetts 02109 ("Mortgagee"),
HAMBRECHT & QUIST, INC., a California corporation, having its principal place of
business at 235 Montgomery Street, San Francisco, California 94104 ("Tenant"),
and ROWES WHARF ASSOCIATES, a Massachusetts joint venture having its principal
office at One Post Office Square, Suite 3400, Boston, Massachusetts 02109
("Landlord").
The following sets forth the background to this Agreement:
A. By lease dated August 25, 1987 (hereinafter referred to as the
"Lease"), Landlord leased to Tenant certain space and improvements (the "Leased
Space") located in the 15-story mixed use project (the "Project") now under
construction on the real estate commonly known as Rowes Wharf, Boston,
Massachusetts, and more particularly described in Exhibit A attached hereto and
incorporated herein by reference.
B. Prior hereto, Landlord has granted to Mortgagee
a mortgage (the "Mortgage") on the Project in connection with
Mortgagee's financing of the construction of the Project.
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<PAGE>
C. Tenant has been requested by Mortgagee and Landlord to enter into a
subordination agreement with Mortgagee and Landlord.
D. Mortgagee has been requested by Tenant and by Landlord to enter into
a non-disturbance agreement with Tenant.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Tenant, Landlord and Mortgagee
hereby agree as follows:
1. Subject to the terms of this Agreement, the Lease, and all of the
rights of Tenant thereunder, are, and shall remain, fully subordinated to the
Mortgage and the lien thereof, to any renewal, substitution, extension or
replacement of the Mortgage and to all subsequent advances and disbursements
under the Mortgage. However, without limiting the generality of the foregoing:
(i) Mortgagee shall have the right to dispose of any proceeds payable
under all policies of fire and rent insurance in the manner set forth
in the Mortgage notwithstanding anything to the contrary set forth in
the Lease; and
(ii) Mortgagee shall have the right to dispose of any award other
compensation made for any taking by eminent domain or act of or
pursuant to governmental authority of any part of the Project,
including the Leased Space, or the Term, as defined in the Lease, in
the manner set forth in the Mortgage notwithstanding anything to the
contrary contained in the Lease.
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<PAGE>
2. From time to time, within ten (10) days following its written request
by Mortgagee, Tenant shall provide Mortgagee with a so-called Estoppel
Certificate certifying to such facts as Mortgagee may reasonably request,
including, without limitation, that no defaults (to the best of Tenant's
knowledge), claims, offsets or events or situations which, with notice and/or
the passage of time, could become a default or the basis for a claim or offset
against or by Tenant or Landlord, exist under the Lease or, if any of the same
exist, certifying and describing such items as are in existence.
3. Tenant shall not, without the prior written consent in each instance
of Mortgagee, (i) pay rent or other sums due under the Lease more than thirty
(30) days in advance of the due date therefor established by the Lease, nor (ii)
make or execute any modification, alteration, amendment or change in the
provisions of the Lease, nor (iii) terminate the Lease except as provided
therein. With respect to clauses (ii) and (iii) of this paragraph, Mortgagee
agrees not to unreasonably withhold or delay its consent.
4. Mortgagee shall have no responsibility, liability or obligation to
cure any defaults by Landlord under the Lease, nor shall Mortgagee be subject to
claims, defenses, or offsets under the Lease or against Landlord possessed by
Tenant and which arise or existed prior to the foreclosure of the Mortgage or
Mortgagee's acceptance of a deed in lieu thereof. If Mortgagee shall
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<PAGE>
foreclose the Mortgage or accept a deed in lieu thereof, it shall do so free and
clear of all prior defaults, claims, defenses or offsets which Tenant may have
under the Lease and shall not be liable or responsible to Tenant for any act or
omission by any prior holder of the Landlord's interest in and to the Lease
(including, without limitation, Landlord). Nothing herein shall relieve the
Mortgagee of any obligation which accrues from and after the earlier to occur of
the date on which the Mortgagee takes possession of the premises or takes title
thereto.
5. In the event of foreclosure of the Mortgage, or in the event that
Landlord shall give Mortgagee a deed in lieu thereof, Tenant agrees to attorn to
and accept the Mortgagee as landlord under the Lease for the balance then
remaining of the term of the Lease subject to all of the terms and conditions of
the Lease, except that Tenant agrees that Mortgagee shall not be (a) liable for
any action or omission of any prior landlord under the Lease, or (b) subject to
any offsets or defenses which Tenant might have against any prior landlord, or
(c) bound by any rent or additional rent which Tenant might have paid for more
than the current month to any prior landlord, or (d) bound by any security
deposit which Tenant may have paid to any landlord, unless such deposit is in an
escrow fund available to Mortgagee or Mortgagee is otherwise holding the same,
or (e) bound by any amendment or modification of the Lease made without
Mortgagee's consent (which consent shall not be unreasonably withheld or
delayed). Such attornment shall be effective and self-operative without the
execution of any
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<PAGE>
further instruments on the part of the parties hereto immediately upon the
Mortgagee succeeding to the interest of the Landlord in the Leased Space.
Tenant agrees, however, upon the election of and written demand by Mortgagee
within twenty (20) days after Mortgagee succeeds to the interest of the Landlord
in the Leased Space to execute an instrument in confirmation of the foregoing
provisions, satisfactory to Mortgagee, in which Tenant shall acknowledge such
attornment and shall set forth the terms and conditions of its tenancy.
6. In consideration of the foregoing agreements of Tenant, Mortgagee
agrees that so long as the Tenant is not in default under the Lease, taking into
account notice and grace provisions of the Lease, (a) it will not disturb
possession of Tenant under the Lease upon any foreclosure of the Mortgage, or
upon the acceptance of a deed in lieu thereof, (b) the Lease and the rights of
Tenant thereunder shall survive any exercise of remedies under the Mortgage by
Mortgagee which might otherwise terminate cut-off, or modify the Lease,
including, without limitation, any foreclosure and/or sale of the Project which
are the subject of the Mortgage for the term and any extension thereof set forth
in the Lease, with the same force and effect as if Mortgagee and Tenant entered
into the Lease as landlord and tenant, respectively, with liability thereunder
to each other as set forth in the Lease, subject, however, to the provisions of
Section 3, 4 and 5 above.
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<PAGE>
7. Whenever Tenant shall send Landlord any notices alleging deficiency in
Landlord's performance under the Lease (whether required by the terms of the
Lease or otherwise), Tenant shall send a copy of such notice to Mortgagee.
8. Landlord and Tenant hereby agree that upon the satisfaction in full of
the indebtedness secured by the Mortgage this Subordination, Attornment and
Nondisturbance Agreement shall become null and void, except as the terms hereof
may survive in the case of a "foreclosure" or "foreclosure sale" under the
provisions of Paragraph 9 hereof.
9. This Agreement shall bind and inure to the benefit of the parties
hereto, their successors and assigns. As used herein, the term "Tenant" shall
include the Tenant, its successors and assigns; the words "foreclosure" and
"foreclosure sale" as used herein shall be deemed to include the acquisition of
Landlord's estate in the Project, including the Leased Space, by voluntary deed
(or assignment) in lieu of foreclosure, and the word "Mortgagee" shall include
the Mortgagee herein specifically named or any of its successors and assigns,
including anyone who shall have succeeded to Landlord's interest in the Leased
Space by, through or under foreclosure of the Mortgage, including, without
limitation, any purchaser at a foreclosure sale.
10. Whenever notice, demand or a request may properly be
given hereunder, the same shall always be sufficiently given only
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<PAGE>
if in writing and sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
(a) to the Landlord at One Post Office Square, Suite 3400,
Boston, Massachusetts 02109, Attention: Edwin N. Sidman, with copies
given simultaneously to McCormack & Putziger, 265 Franklin Street,
Boston, Massachusetts 02110, Attention: Myrna Putziger, Esq., and to
Rubin and Rudman, Three Center Plaza, Boston, Massachusetts 02108,
Attention: Raymond M. Kwasnick, Esq., or at such other address or
addresses as may be designated by notice given as provided in this
Section 10;
(b) to Tenant at 235 Montgomery Street, San Francisco, California
94104, or at such other address or addresses as may be designated
by notice given as provided in this Section 10;
(c) to the Mortgagee at 28 State Street, Boston, Massachusetts 02109,
Attention: Mark C. Hargrave, III, with a copy given
simultaneously to Goulston & Storrs, 400 Atlantic Avenue, Boston,
Massachusetts 02210, Attention: Phillip J. Nexon, Esq., or at such
other address or addresses as may be designated by the Mortgagee by
notice given as provided in this Section 10;
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<PAGE>
and only upon receipt, or tender for delivery, at such address, to a
person apparently authorized to receive official communications at
such address, during regular business hours of the addressee.
Transmittal by a recognized private express carrier or by hand shall
have the same effect as a notice mailed as aforesaid.
11. This agreement shall be governed by, and construed under the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused the execution hereof as
of the day and year first above written.
HAMBRECHT & QUIST, INC.
By: /s/ Gary E. Koenig
----------------------------------------
Its Gary E. Koenig, Managing Director
Hereunto duly authorized
(Tenant)
BANK OF NEW ENGLAND, N.A.
By:
----------------------------------------
Its
Hereunto duly authorized
(Mortgagee)
ROWES WHARF ASSOCIATES
By: Rowes Wharf Limited
Partnership, a general
partner
BY:
-----------------------------------
A general partner
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<PAGE>
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK, SS.
31 AUG., 1987
Then personally appeared the above-named Gary E. Koenig of HAMBRECHT &
QUIST, INC., and acknowledged the foregoing to be his free act and deed and the
free act and deed of HAMBRECHT & QUIST, INC., before me.
[SIGNATURE UNREADABLE]
----------------------------------------
Notary Public
My Commission expires: [Stamp unreadable]
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK, SS.
Oct. 13, 1987
Then personally appeared the above-named Mark C. Hargrove III
of BANK OF NEW ENGLAND and acknowledged the foregoing to be his free act and
deed and the free act and deed of THE BANK OF NEW ENGLAND, before me.
/s/ Tamra A. Greene
----------------------------------------
Notary Public
My Commission expires: Dec. 4, 1992
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK, SS. Sept. 17, 1987
Then personally appeared the above-named [Name unreadable] a general partner
of Rowes Wharf Limited Partnership, a general partner of Rowes Wharf Associates,
and acknowledged the foregoing to be his free act and deed, the free act and
deed of Rowes Wharf Limited Partnership, and the free act and deed of Rowes
Wharf Associates, before me.
[SIGNATURE UNREADABLE]
----------------------------------------
Notary Public
My Commission expires: 1/30/92
-9-
<PAGE>
EXHIBIT A
PARCEL A
A parcel of land and water known as Rowes and Fosters Wharves, on Atlantic
Avenue in Boston, Suffolk County, Massachusetts, bounded and described as
follows:
Beginning at a point on the easterly sideline of Atlantic Avenue, said point
being the northwest corner of the property to be described, said property being
now or formerly of the Boston Redevelopment Authority, said point of beginning
having a Massachusetts Coordinate System value of X=721,346.69 and
Y=494,815.18;
Thence running N 71 degrees 12' 21" E along land or formerly of First City
Developments Corp. of Boston - Harbor Towers II, a distance of six hundred
forty-six and 50/100 (646.50) feet to a point on the State Harbor Line and
former United States Pierhead & Bulkhead Line established by the War Department
on April 24, 1940;
Thence turning and running S 28 degrees 55' 55" W along said State Harbor
Line and former United States Pierhead & Bulkhead Line a distance of eight
hundred fifty and 01/100 (850.01) feet to a point;
Thence turning and running N 69 degrees 05' 34" W along a line perpendicular
to the Harbor Line in Boston Harbor established by Chapter 170 of the Acts of
1880 a distance of thirty-three and 12/100 (33.12) feet to a point;
Thence turning and running N 78 degrees 09' 39" W along land now or formerly
of Atlantic Avenue Limited Partnership, a distance of two hundred one and
29/100 (201.29) feet to a point;
Thence turning and running N 9 degrees 10' 35" E, along the easterly
sideline of said Atlantic Avenue, a distance of two hundred thirty-one and
00/100 (231.00) feet to a point;
Thence turning and running N 2 degrees 11' ll" W along the easterly sideline of
said Atlantic Avenue, a distance of two hundred fifty-four and 67/100 (254.67)
feet to the point of beginning, said parcel containing 234,224 square feet,
more or less and being shown on a plan entitled "Property Line Plan for The
Beacon Companies, Atlantic Avenue, Boston, Massachusetts" dated April 16, 1984,
Scale 1 inch = 40 feet, prepared by Cullinan Engineering Co., Inc., recorded
with Suffolk Registry of Deeds at Book 11419, Page 10.
<PAGE>
PARCEL B
That certain parcel of land beneath the surface of Atlantic Avenue in
Boston, Suffolk County, Massachusetts shown on a plan entitled "Taking Plan,
Rowes Wharf/Fosters Wharf Redevelopment Project, Boston Redevelopment
Authority, Boston (Suffolk County) Massachusetts" prepared by Cullinan
Engineering Co., Inc., Civil Engineers & Land Surveyors, Scale 1" = 20', dated
November 27, 1984 recorded with Suffolk Registry of Deeds at Book 11351, Page
193, bounded and described as follows:
Beginning at a point on the easterly sideline of Atlantic Avenue, said point
being the northeast corner of the property to be described, said property being
now or formerly of the Boston Redevelopment Authority, said point of beginning
having a Massachusetts Coordinate System value of X=721,346.69 and
Y=494,815.18;
Thence turning and running S 2 degrees 11' 11" E along the easterly sideline
of said Atlantic Avenue, a distance of two hundred fifty-four and 67/100
(254.67) feet to a point;
Thence turning and running S 9 degrees 10' 35" W, along the easterly
sideline of said Atlantic Avenue, a distance of two hundred eight and 81/100
(208.81) feet to a point;
Thence turning and running N 78 degrees 09' 39" W along land now or formerly
of the City of Boston, a distance of eleven and 09/100 (11.09) feet to a point;
Thence turning and running in an arc curving to the left having a radius of
one thousand two hundred thirty-four and 88/100 (l,234.88) feet for a distance
of four hundred fifty-seven and 70/100 (457.70) feet to a point;
Thence running N 71 degrees 12' 21" E along land of the City of Boston, a
distance of eleven and 95/100 (11.95) feet to the point of beginning,
said parcel being located vertically beneath the sidewalk between elevation
19.00 and 18.60 and continuing below.
<PAGE>
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
("the Building")
FIRST AMENDMENT
September 4, 1987
----------
| LANDLORD: Rowes Wharf Associates
|
| TENANT: Hambrecht & Quist, Inc.
|
| ORIGINAL
| PREMISES: An area on the fourth (4th) floor of the Building,
| substantially as shown on Lease Plan, Exhibit 2 dated
| June 22, 1987.
|
|
ORIGINAL LEASE
LEASE EXECUTION
DATA: DATE June 22, 1987
|
| TERMINATION
| DATE: Ten (10) years after the Term Commencement Date in
| respect of the Original Premises.
|
| PREVIOUS
| LEASE
| AMENDMENTS: None
----------
FIRST
AMENDMENT
ADDITIONAL
PREMISES: An area consisting of approximately 3,065 square feet
of Total Rentable Area on the fourth (4th) floor of the
Building, contiguous to the Original Premises,
substantially as shown on Lease Plan, Exhibit 2, First
Amendment dated September 4,1987, a copy of which is
attached hereto and incorporated by reference herein.
WHEREAS, Tenant desires to lease additional premises in the Building, to
wit, the First Amendment Additional Premises; and
WHEREAS, Landlord is willing to lease the First Amendment Additional
Premises to Tenant on the terms and conditions hereinafter set forth;
NOW THEREFORE, the above-described lease, ("the Lease"), is hereby amended
as follows:
<PAGE>
EXHIBIT 1, SHEET 3
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts
(the "Building")
Tenant: Hambrecht & Quist, Inc.
-----------------------
Execution Date: June 22, 1987
-------------
In no event shall the Yearly Rent during this
time period exceed Forty-Six ($46.00) Dollars
per square foot or Total Rentable Area of the
premises per annum, with no change in the
definition of what constitutes Operating
Costs in the Base Year as set forth below.
Art. 7 Total Rentable Area: 14,323 square feet
------
Art. 8. Electric current will not be furnished by Landlord to Tenant.
Art. 9 Operating Expense Escalation:
Operating Costs in the Base Year: The product of (x) $10.00
multiplied by (y) the sum total (aggregate) of the Total Rentable
Areas of the Unit which, for the purposes hereof, shall not
include any areas designated by Landlord for retail use, so long
as the cost of operating services for such retail tenants are not
included in Operating Costs.
Tenant's Proportionate Share: A fraction, the numerator of
which is the Total Rentable Area of the premises and the
denominator of which is the sum total (aggregate) of the Total
Rentable Areas of the Unit, limited as aforesaid.
Art. 12; Additional Insured Parties: Boston Redevelopment Authority; The
13(d); Board of Managers of The Condominium at Rowes Wharf
15.2;
18
Art. 29.3 Broker: The Robbins Group
-----------------
Art. 29.5 Arbitration: Massachusetts; Superior Court
-----------------------------
Exhibit Dates: Lease Plan, Exhibit 2 dated June 22, 1987
-----------------------------------------
<PAGE>
1. DEMISE OF THE FIRST AMENDMENT ADDITIONAL PREMISES.
Landlord hereby demises and leases to Tenant, and Tenant hereby hires and
takes from Landlord, the First Amendment Additional Premises for a term
commencing as of the Term Commencement Date in respect of the First Amendment
Additional Premises. Said demise of the First Amendment Additional Premises
shall be upon all of the same terms and conditions of the Lease (including,
without limitation, Yearly Rent, rental rate and Operating Costs in the Base
Year) except:
A. The Term Commencement Date in respect of the First Amendment
Additional Premises shall be the date the First Amendment Additional Premises
are deemed ready for Tenant's occupancy under the provisions of Article 4.2,
subject to the provisions of the last sentence of Article 3.1.(b).
B. The Specified Commencement Date in respect of the First Amendment
Additional Premises is March 9, 1988.
C. The Termination Date in respect of the First Amendment Additional
Premises shall be the date ten (10) years after the Term Commencement Date in
respect of the Original Premises.
D. The Rent Commencement Date in respect of the First Amendment
Additional Premises (i.e. the date on which Tenant's obligation to pay Yearly
Rent in respect of the First Amendment Additional Premises commences to accrue)
shall be the date eight (8) months after the Term Commencement Date in respect
of the Original Premises.
E. The Final Plans Date in respect of the First Amendment Additional
Premises is November 9, 1987.
F. Paragraph 2 of the Rider to the Lease is hereby deleted in its
entirety and of no further force or effect.
G. Notwithstanding anything to the contrary in Subparagraph E(1) of
Article 16-18* of the Lease contained, the definition of the "Permitted Sublet
Area" is hereby deleted and the following is substituted in its place:
"Permitted Sublet Area" shall be defined as any portion of the
premises (including the First Amendment Additional Premises)
containing no more than 3,000 square feet of Total Rentable Area in
total.
H. Any other provisions of the Lease inconsistent with this
Amendment or the state of facts contemplated hereby.
<PAGE>
2. EXHIBIT 1.
Exhibit 1, Sheets 1, 2, 3 and 4 dated June 22, 1987 is hereby deleted in
its entirety and Revised Exhibit 1, First Amendment, Sheets 1, 2, 3, 4 and 5
dated September 4, 1987, attached hereto and incorporated herein by reference,
is substituted in its place.
3. PARKING.
During the term of the Lease in respect of the First Amendment Additional
Premises, the Landlord will make available to Tenant three (3) additional
parking spaces for use in the Garage. Tenant's use of said additional parking
spaces shall be on all of the same terms and conditions applicable to the
parking spaces made available to Tenant pursuant to Paragraph 1 of the Rider to
the Lease.
4. Titles and paragraph headings are for reference purposes and the
convenience of the parties only and shall have no bearing upon nor force or
effect in respect of the interpretation and application of the substantive
provisions in this Amendment contained.
As herein amended, the Lease is ratified, approved, and confirmed in all
respects.
WHEREFORE, the parties have hereunto set their hands and seals as of the
date first written above.
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES HAMBRECHT & QUIST, INC.
By: By: /s/ (illegible signature)
---------------------------- ---------------------------------
A General Partner of Rowes (Name) (Title)
Wharf Limited Partnership Hereunto Duly Authorized
Date Signed: Date Signed: 10/12/87
------------------- ----------
<PAGE>
REVISED EXHIBIT 1, FIRST AMENDMENT, SHEET 1
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
REFERENCE DATA
Execution Date: SEPTEMBER 4, 1987
-----------------
Tenant: HAMBRECHT & QUIST, INC.
---------------------------------------------------------------
(name)
A CALIFORNIA CORPORATION
---------------------------------------------------------------
(description of business organization)
235 MONTGOMERY STREET, SAN FRANCISCO, CALIFORNIA 94104
---------------------------------------------------------------
(principal place of business-mailing address)
LANDLORD: ROWES WHARF ASSOCIATES, a joint venture by and between THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES (a
New York corporation) and ROWES WHARF LIMITED PARTNERSHIP
(a Massachusetts limited partnership). Landlord is the
Tenant under a Ground Lease of the Project Site, as
hereinafter defined, dated July 25, 1985 by and between the
Boston Redevelopment Authority, as Landlord, and Rowes Wharf
Associates, as Tenant, notice of which is recorded at Book
11846, Page 173 in the Suffolk Registry of Deeds; and
Landlord is the Tenant under an Office/Retail Unit Lease of
the Unit, as hereinafter defined, dated as of July 25, 1985
by and between the Boston Redevelopment Authority, as
Landlord, and Rowes Wharf Associates, as Tenant, notice of
which is recorded at Book 11846, Page 180 in said Deeds.
Whenever the term "Ground Lease" is used in this Lease,
such term shall mean the above-referenced Ground Lease,
during the term of said Ground Lease, and shall thereafter
mean the above-referenced Office/Retail Unit Lease during
the term of said Office/Retail Unit Lease.
PROJECT SITE: Premises situated on Atlantic Avenue, Boston, Massachusetts,
constituting both land and water area, as more particularly
described in the Master Deed hereinafter referenced.
PROJECT: The multi-use project (to be) constructed on the Project Site.
UNIT: The Office/Retail Unit in that certain condominium
("Condominium") known as The Condominium at Rowes Wharf (to be)
created by the Master Deed referred to in the Ground Lease, as
more particularly described in the Office/Retail Unit Lease.
The Unit is located on the Project Site. The
Please Initial
x (illegible)
--------------
<PAGE>
REVISED EXHIBIT 1, FIRST AMENDMENT, SHEET 2
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
Tenant: Hambrecht & Quist, Inc.
Execution Date: September 4, 1987
portion of the Building in which the Premises are
located is contained within the Unit.
Art. 2 Original Premises: An area on the fourth (4th) floor of the
Building, substantially as shown on Lease
Plan, Exhibit 2.
First Amendment
Additional Premises: An area on the fourth (4th) floor of the
Building, contiguous to the Original
Premises, substantially as shown on
Lease Plan, Exhibit 2, First Amendment.
Art. 3.1 Specified Commencement Date in
respect of the Original Premises: March 9, 1988
-------------
Specified Commencement Date in
respect First Amendment Additional
Premises: March 9, 1988
-------------
Art. 3.2 Termination Date: Ten (10) years after the Term Commencement
Date in respect of the Original Premises.
-----------------------------------------
Art. 4.3 Final Plans Date in respect of Original Premises and First
Amendment additional Premises: November 9, 1987
----------------
Art. 5 Use of Premises: General business offices
------------------------
Please Initial
x (illegible)
--------------
<PAGE>
REVISED EXHIBIT 1, FIRST AMENDMENT, SHEET 3
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
Tenant: Hambrecht & Quist, Inc.
Execution Date: September 4, 1987
Art. 6 Yearly Rent:
LEASE YEAR* YEARLY RENT
1** Thirty ($30.00) Dollars per
square foot of the Total
Rentable Area of the Original
Premises and the First
Amendment Additional Premises.
2 Thirty-One ($31.00) Dollars per
square foot of the Total
Rentable Area of the Original
Premises and the First
Amendment Additional Premises.
3-5 Thirty-Eight ($38.00) Dollars
per square foot of the Total
Rentable Area of the Original
Premises and the First
Amendment Additional Premises.
6-10 The Yearly Rent during this
time period shall be based
upon the Fair Market Rental
Value, as defined in Paragraph
3 of the Rider to the Lease,
of the premises then demised
to Tenant as of the
commencement of Lease Year 6
(provided, however, that there
shall be no change in
Operating Costs in the Base
Year). In no event shall the
Yearly Rent during this time
period exceed Forty-Six
($46.00) Dollars per quare
foot of Total Rentable Area of
the
____________________________
* For the purposes hereof, "Lease Year" shall be defined as any twelve-(12)-
month period commencing as of the Term Commencement Date in respect of the
Original Premises or as of any anniversary of the Term Commencement Date in
respect of the Original Premises.
** Subject to Art. 6-6* of the Lease and to Paragraph 1 (D) of the First
Amendment.
Please Initial
x (illegible)
--------------
<PAGE>
REVISED EXHIBIT 1, FIRST AMENDMENT, SHEET 4
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
Tenant: Hambrecht & Quist, Inc.
Execution Date: September 4, 1987
premises per annum, with no change
in the definition of what
constitutes Operating Costs in the
Base Year as set forth below.
Art. 7 Total Rentable Area: Original Premises 14,323 square feet
First Amendment
Additional Premises 3,065 square feet
------------------
Total 17,388 square feet
Art. 8 Electric current will not be furnished by Landlord to Tenant.
Art. 9 Operating Expense Escalation
in respect of Original Premises*
and First Amendment Additional Premises*
Operating Costs in the Base Year: The product of (x) $10.00
multiplied by (y) the sum total (aggregate) of the Total Rentable
Areas of the Unit which, for the purposes hereof, shall not
include any areas designated by Landlord for retail use, so long
as the cost of operating services for such retail tenants are not
included in Operating Costs.
Tenant's Proportionate Share: A fraction, the numerator of
which is the Total Rentable Area of the Original Premises and the
First Amendment Additional Premises and the denominator of which
is the sum total (aggregate) of the Total Rentable Areas of the
Unit, limited as aforesaid.
Art. 12; Additional Insured Parties: Boston Redevelopment Authority; The
13(d); Board of Managers of the Condominium at Rowes Wharf
15.2;
18
Art. 29.3 Broker: The Beacon Companies
--------------------
__________________________
*Tenant's obligation to pay Operating Expenses Excess in respect of the Original
Premises and the First Amendment Additional Premises shall not commence to
accrue until the Rent Commencement Date in respect of the Original Premises.
Please Initial
x (illegible)
--------------
<PAGE>
REVISED EXHIBIT 1, FIRST AMENDMENT, SHEET 5
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
Tenant: Hambrecht & Quist, Inc.
Execution Date: September 4, 1987
Art. 29.5 Arbitration: Massachusetts; Superior Court
-----------------------------
Exhibit Dates: Lease Plan, Exhibit 2 dated June 22, 1987
Lease Plan, Exhibit 2, First Amendment dated
September 4, 1987
--------------------------------------------
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES HAMBRECHT & QUIST, INC.
c/o Rowes Wharf Limited Partnership 235 Montgomery Street
One Post Office Square San Francisco, California 94104
Boston, Massachusetts 02109
By By: x /s/ (illegible)
-------------------------------- ----------------------------------
General Partner (Name) (Title)
Rowes Wharf Limited Partnership Hereunto Duly Authorized
Date Signed: Date Signed: 10/12/87
----------------- -----------------------
Please Initial
x (illegible)
--------------
<PAGE>
Exhibit 2
[Lease Plan]
<PAGE>
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
("the Building")
SECOND AMENDMENT
----------------
May 26, 1988
--------------------
| LANDLORD: Rowes Wharf Associates
|
| TENANT: Hambrecht & Quist, Inc.
|
| EXISTING
| PREMISES: Areas on the fourth (4th) floor of the
| Building, substantially as shown on Lease
| Plan, Exhibit 2, dated June 22, 1987, and on
| Lease Plan, Exhibit 2, First Amendment dated
| September 4, 1987.
ORIGINAL
LEASE LEASE
DATA EXECUTION
| DATE: June 22, 1987
|
| TERMINATION
| DATE: March 31, 1998
|
| PREVIOUS
| LEASE
| AMENDMENTS: First Amendment dated September 4, 1987
|
--------------------
STORAGE
PREMISES: An area consisting of approximately 245
square feet Net Rentable Area on Lower Level
One of the Building, substantially as shown
on Lease Plan, Exhibit 2, Second Amendment
dated May 26, 1988, a copy of which is
attached hereto and incorporated by reference
herein.
WHEREAS, Tenant desires to lease the Storage Premises; and
WHEREAS, Landlord is willing to lease the Storage Premises to Tenant on the
terms and conditions hereinafter set forth;
NOW THEREFORE, the above-described lease, as previously amended ("the
Lease"), is hereby further amended as follows:
1. DEMISE OF THE STORAGE PREMISES.
Landlord hereby demises and leases to Tenant, and Tenant hereby hires and
takes from Landlord, the Storage Premises for a term commencing as of the Term
Commencement Date in respect of the Storage Premises, as hereinafter defined,
and terminating as of
-1-
<PAGE>
March 31, 1998. Said demise of the Storage Premises shall be upon all of the
same terms and conditions of the Lease except:
A. The Specified Commencement Date in respect of the Storage
Premises is June 15, 1988.
B. The Term Commencement Date in respect of the Storage Premises
shall be the earlier of (x) June 15, 1988 or (y) the date the Tenant first
commences to use of the Storage Premises in accordance with Subparagraph G of
this Paragraph 1.
C. The Yearly Rent payable in respect of the Storage Premises shall
be as follows:
<TABLE>
<CAPTION>
Lease Year* Yearly Rent Monthly Rent
----------- ----------- ------------
<S> <C> <C>
1 $4,899.96 $408.33
2 $5,046.96 $420.58
3 $5,198.40 $433.20
4 $5,354.40 $446.20
5 $5,515.08 $459.59
6 $5,680.56 $473.38
7 $5,850.96 $487.58
8 $6,026.52 $502.21
9 $6,207.36 $517.28
10 $6,393.60 $532.80
</TABLE>
D. The Term Commencement Date and the Rent Commencement Date in
respect of the Storage Premises shall be the Term Commencement Date in respect
of the Storage Premises.
E. Tenant shall have no obligation to pay Operating Expense Excess
in respect of the Storage Premises.
F. Landlord shall have no obligation to provide any services to the
Storage Premises other than electricity for the electric lighting fixture in the
Storage Premises.
G. Tenant shall use the Storage Premises for storage purposes in
connection with its use of the Existing Premises and for no other purposes
whatsoever.
H. Articles 6-6*, 9, 16-18* of the Lease, Paragraph 1 of the Rider
to the Lease, and Paragraphs 1(G) and 3 of the First Amendment shall have no
applicability to nor any force or effect in respect of the Storage Premises.
- -------------------------
* For the purposes of this Second Amendment, "Lease Year" shall be defined as
any twelve-(12)-month period commencing as of the Term Commencement Date in
respect of the Storage Premises or as of any anniversary of the Term
Commencement Date in respect of the Storage Premises.
-2-
<PAGE>
I. In the event that any of the provisions of the Lease are
inconsistent with this Amendment or the state of facts contemplated hereby, the
provisions of this Amendment shall control.
2. CONDITION OF STORAGE PREMISES.
A. Whereas the Storage Premises are already finished space, Article
4, Ex. 3-37* and Exhibit 3 of the Lease shall have no force and effect upon nor
applicability to the Storage Premises and Tenant hereby accepts the Storage
Premises "as-is" (i.e. in the condition which they are in as of the Term
Commencement Date in respect of the Storage Premises) without any obligation on
the part of Landlord to prepare or construct the Storage Premises for Tenant's
occupancy.
3. Titles and paragraph headings are for reference purposes and the
convenience of the parties only and shall have no bearing upon nor force or
effect in respect of the interpretation and application of the substantive
provisions in this Amendment contained.
As herein amended, the Lease is ratified, approved, and confirmed in all
respects.
WHEREFORE, the parties have hereunto set their hands and seals as of the
date first written above.
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES HAMBRECHT & QUIST, INC.
By:/s/illegible By:/s/illegible
------------------------------ -------------------------
A General Partner of (name)
Rowes Wharf Limited Partnership Hereunto Duly Authorized
Date Signed: Aug 22 1988 Date Signed: 6-14-88
-------------------- ----------------
-3-
<PAGE>
Exhibit 2
[Lease Plan]
<PAGE>
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
("the Building")
THIRD AMENDMENT
March 25, 1993
-------------------
| LANDLORD: Rowes Wharf Associates
|
| TENANT: Hambrecht & Quist, Inc.
|
| EXISTING
| PREMISES: An area on the fourth (4th) floor of the
| Building, substantially as shown on
| Lease Plan, Exhibit 2 dated June 22,
| 1987 and on Lease Plan, Exhibit 2, First
| Amendment dated September 4, 1987.
|
| STORAGE
| PREMISES: An area on Lower Level One of the
| Building, substantially as shown on
| Lease Plan, Exhibit 2, Second Amendment
| dated May 26, 1988.
ORIGINAL
LEASE
DATA LEASE
| EXECUTION
| DATE: June 22, 1987
|
| TERMINATION
| DATE: March 31, 1998
|
| PREVIOUS
| LEASE
| AMENDMENTS: First Amendment dated September 4, 1987
------------------- Second Amendment dated May 26, 1988
WHEREAS, the parties desire to confirm their agreement as to the Fair
Market Rental Value of the Existing Premises for the purposes of determining the
Yearly Rent payable in respect of the Existing Premises for the period
commencing as of March 9, 1993 through March 31, 1998.
NOW THEREFORE, the parties hereto hereby agree that the above-described
lease, as previously amended ("the Lease"), is hereby further amended as
follows:
1. CONFIRMATION OF FAIR MARKET RENTAL VALUES
<PAGE>
For the period commencing as of March 9, 1993 through March 31, 1998,
the Yearly Rent shall be $452,088.00 (i.e., Twenty-Six ($26.00) Dollars per
square foot of Tenant Rentable Area in respect of the Existing Premises) and
Operating Costs in the Base Year in respect of the period as of March 9, 1993
through March 31, 1998 shall be equal to the actual amount of Operating Costs
for calendar year 1992.
As herein amended, the Lease is ratified, approved and confirmed in all
respects.
WHEREFORE, the parties have hereunto set their hands and seals as of the
date first written above.
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES HAMBRECHT & QUIST, INC.
50 Rowes Wharf 50 Rowes Wharf
Boston, Massachusetts 02110 Boston, Massachusetts 02110
By: Rowes Wharf Limited Partnership
By: RWLP Corp., By: /s/ illegible
General Partner ----------------------
By: /s/ Edwin N. Sidman (Name) (Title)
---------------------- Hereunto Duly
Edwin N. Sidman, Authorized
Executive Vice
President
Date Signed: APR 15 1993 Date Signed: 3/30/93
----------------------- -------------
-2-
<PAGE>
Atlantic Avenue Building South
50 Rowes Wharf
Boston, Massachusetts 02110
(the "Building")
FOURTH AMENDMENT
September 3, 1993
-------------------
| LANDLORD: Rowes Wharf Associates
|
| TENANT: Hambrecht & Quist, Inc.
|
| EXISTING
| PREMISES: An area on the fourth (4th) floor of the
ORIGINAL Building, substantially as shown on
LEASE Lease Plan, Exhibit 2 dated June 22,
DATA: 1987 and on Lease Plan, Exhibit 2, First
| Amendment dated September 4, 1987
|
| EXISTING
| STORAGE
| PREMISES: An area on Lower Level One of the
| Building, substantially as shown on
| Lease Plan, Exhibit 2, Second Amendment
| dated May 26, 1988
|
|
| LEASE
| EXECUTION
| DATE: June 22, 1987
|
| TERMINATION
| DATE: March 31, 1998
|
| PREVIOUS
| LEASE
| AMENDMENTS: First Amendment dated September 4, 1987
------------------- Second Amendment dated May 26, 1988
Third Amendment dated March 25, 1993
ADDITIONAL
STORAGE
PREMISES: An area on the fourth (4th) floor of the
Building containing 200 square feet of
Total Rentable Area, substantially as
shown on Lease Plan, Exhibit 2, Fourth
Amendment dated September 3, 1993, a
copy of which is attached hereto and
incorporated by reference herein.
<PAGE>
WHEREAS, Tenant desires to lease the Additional Storage Premises from
Landlord;
WHEREAS, Landlord is willing to lease the Additional Storage Premises to
Tenant on the terms and conditions hereinafter set forth;
NOW THEREFORE, the above-described lease, as previously amended (the
"Lease"), is hereby further amended as follows:
1. DEMISE OF THE ADDITIONAL STORAGE PREMISES
Landlord hereby demises and leases to Tenant, and Tenant hereby hires
and takes from Landlord, the Additional Storage Premise for a term commencing as
of August 27, 1993 and terminating as of March 31, 1998. Said demise of the
Additional Storage Premises shall be upon all of the same terms and conditions
as Tenant's demise of the Existing Storage Premises, except as follows:
A. The Yearly Rent in respect of the Additional Storage Premises
shall be $2,000.04 (i.e., a monthly payment of $166.67).
B. In the event that any of the provisions of the Lease are
inconsistent with this Amendment or the state of facts contemplated hereby,
the provisions of this Amendment shall control.
2. CONDITION OF ADDITIONAL STORAGE PREMISES
Tenant hereby accepts the Additional Storage Premises in their "as-is"
condition (i.e., in the condition which they are in as of August 27, 1993),
without any obligation on the part of Landlord to prepare or construct the
Additional Storage Premises for Tenant's occupancy.
<PAGE>
As hereby amended, the Lease is ratified, approved and confirmed in all
respects.
WHEREFORE, the parties have hereunto set their hands and seals as of the
date first above-written.
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES HAMBRECHT & QUIST, INC.
50 Rowes Wharf 50 Rowes Wharf
Boston, Massachusetts 02110 Boston, Massachusetts 02110
By: Rowes Wharf Limited Partnership
By: RWLP Corp., By: /s/ (illegible)
General Partner ----------------------
By: /s/ Edwin N. Sidman (Name) (Title)
---------------------- Hereunto Duly Authorized
Edwin N. Sidman,
Executive Vice
President
Date Signed: JAN 12 1994 Date Signed: 9/9/93
----------------------- -------------
<PAGE>
Exhibit 2
[Lease Plan]
<PAGE>
Atlantic Avenue. Building South
50 Rowes Wharf
Boston, Massachusetts 02110
("the Building")
FIFTH AMENDMENT
As of February 6, 1996
LANDLORD: Rowes Wharf Associates
ORIGINAL
TENANT: Hambrecht & Quist, Inc.
TENANT: Hambrecht & Quist L.L.C., a Delaware limited liability
company, successor by merger to Original Tenant
EXISTING
PREMISES: An area on the fourth (4th) floor of the Building,
substantially as shown on Lease Plan, Exhibit 2, dated June
22, 1987 and on Lease Plan, Exhibit 2, First Amendment dated
September 4, 1987
EXISTING
STORAGE
PREMISES: An area on Lower Level One of the Building, substantially as
shown on Lease Plan, Exhibit 2, Second Amendment dated May
26, 1988; and an area on the fourth (4th) floor of the
Building containing 200 square feet of Total Rentable Area,
substantially as shown on Lease Plan, Exhibit 2, Fourth
Amendment dated September 3, 1993
LEASE
EXECUTION
DATE: June 22, 1987
TERMINATION
DATE: March 31, 1998
PREVIOUS
LEASE
AMENDMENTS: First Amendment dated September 4, 1987 Second Amendment
dated May 26, 1988 Third Amendment dated March 25, 1993
Fourth Amendment dated September 3, 1993
<PAGE>
FIFTH AMENDMENT
ADDITIONAL
PREMISES: An area consisting of 6,445 square feet of Total Rentable
Area on the fourth (4th) floor of the Building,
substantially as shown on Lease Plan, Exhibit 2, Fifth
Amendment dated as of February 6, 1996, a copy of which is
attached hereto and incorporated by reference herein
WHEREAS, Tenant desires (i) to lease additional premises located in the
Building, to wit, the Fifth Amendment Additional Premises; (ii) to acquire an
option to extend the term of the Lease; and (iii) to request RFO Premises; and
WHEREAS, Landlord is willing (i) to lease the Fifth Amendment Additional
Premises to Tenant; (ii) to grant Tenant an option to extend the term of the
Lease, and (iii) to permit Tenant to request RFO Premises, all subject to and
in accordance with the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of ten dollars ($10.00) and other good and
valuable consideration, the receipt, sufficiency and delivery of which are
hereby acknowledged, the above-described lease, as previously amended ("the
Lease"), is hereby further amended as follows:
1. DEMISE OF THE FIFTH AMENDMENT ADDITIONAL PREMISES
Landlord hereby demises and leases to Tenant, and Tenant hereby hires and
takes from Landlord, the Fifth Amendment Additional Premises, for a term
commencing as of February 6, 1996 and terminating as of March 31, 1998. Said
demise of the Fifth Amendment Additional Premises shall be upon the terms set
forth on Exhibit 1, Fifth Amendment Additional Premises Version, Sheets 1 and 2,
dated as of February 6, 1996, a copy of which is attached hereto and
incorporated herein by reference, and upon all of the other terms and conditions
of the Lease, except as follows:
A. The Term Commencement Date in respect of the Fifth Amendment
Additional Premises is February 6, 1996. The Rent Commencement Date in respect
of the Fifth Amendment Additional Premises is February 6, 1996. Without
limiting the foregoing, Article 6-6* of the Lease and Subparagraph D of
Paragraph 1 of the First Amendment shall have no applicability nor be of any
force or effect with respect to the Fifth Amendment Additional Premises.
B. Commencing of February 6, 1996, Tenant shall pay Operating Expense
Excess in respect of the Fifth Amendment Additional Premises on a monthly
estimated basis based upon the most recent Operating Cost data available to
Landlord.
-2-
<PAGE>
C. Notwithstanding anything to the contrary in Paragraph E of Article 16-
18* of the Lease contained, the definitions of the "Permitted Sublet Area" and
the "Permitted Subtenant" are hereby deleted and the following are substituted
in their place:
"1. "Permitted Sublet Area" shall be defined as any portion of the
premises (including the First Amendment Additional Premises, the Fifth
Amendment Additional Premises, and the RFO Premises, if any)
containing no more than 4,000 square feet of Total Rentable Area in
total.
2. "Permitted Subtenant" shall be defined as Stuka Associates, or any of
the Rubin Subtenants (as hereinafter defined), or any entity with a
close business relationship to Tenant, which relationship is
substantially enhanced by the physical proximity to Tenant and which
satisfies the criteria set forth in clauses (i), (ii) and (iii) of
Paragraph B of Article 16-18* of the Lease."
D. In the event that any of the provisions of the Lease are inconsistent
with this Amendment or the state of facts contemplated hereby, the provisions of
this Amendment shall control.
2. EXHIBIT 1. FIFTH AMENDMENT ADDITIONAL PREMISES VERSION
In lieu of Revised Exhibit 1, First Amendment, dated as of September 4,
1987, Exhibit 1, Fifth Amendment Additional Premises, Sheets 1, 2 and 3 dated as
of February 6, 1996, shall apply to the Fifth Amendment Additional Premises.
3. CONDITION OF FIFTH AMENDMENT ADDITIONAL PREMISES
A. Notwithstanding anything to the contrary in the Lease contained,
Tenant shall lease the Fifth Amendment Additional Premises "as-is", in the
condition in which the Fifth Amendment Additional Premises are in as of February
6, 1996, without any obligation on the part of Landlord to prepare or construct
the Fifth Amendment Additional Premises for Tenant's occupancy and without any
representation on the part of Landlord as to the condition of the Fifth
Amendment Premises or the Building.
B. Articles 4, Exhibit 3, and Ex. 3-37* to the Lease shall have no
applicability to nor be of any force or effect in respect of the Fifth Amendment
Additional Premises.
4. SUBTENANTS
Reference is made to the fact the Fifth Amendment Additional Premises are
currently occupied by subtenants (the "Rubin Subtenants") of another tenant in
the Building, Rubin and Rudman ("Rubin"). Notwithstanding anything to the
contrary
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<PAGE>
herein or in the Lease contained, Tenant shall accept the Fifth Amendment
Additional Premises subject to the rights and interests of all Rubin
Subtenants. Landlord makes no representations or warranties of any kind with
respect to said sublease arrangements, or the status of the performance of the
liabilities and/or obligations of the parties thereunder.
5. TENANT'S OPTION TO EXTEND TERM OF LEASE
A. On the conditions, which conditions Landlord may waive, at its
election, by written notice to Tenant at any time, that (a) both as of the time
of option exercise and as of the commencement of the hereinafter described
additional term, Tenant is not in default (beyond applicable periods of grace,
if any) of its covenants and obligations under the Lease, and (b) as of the
commencement of the hereinafter described additional term, Hambrecht & Quist
L.L.C., itself, is then occupying not less than seventy-five percent (75%) of
the premises then demised to Tenant, Tenant shall have the option to extend the
term of this Lease for one (1) additional five (5) year term, such additional
term commending as of April 1, 1998 and expiring as of March 31, 2003. Tenant
may exercise such option to extend by giving Landlord written notice on or
before December 31, 1996. Upon the timely giving of such notice, the term of
this Lease shall be deemed extended upon all of the terms and conditions of this
Lease, except that Landlord shall have no obligation to construct or renovate
the premises and that the Yearly Rent and Operating Costs in the Base Year
during such additional term shall be as hereinafter set forth. If Tenant fails
to give timely notice, as aforesaid, Tenant shall have no further right to
extend the term of this Lease, time being of the essence of this Paragraph 5.
B. The Yearly Rent during the additional term shall be based upon (i.e.,
taking into account the amount of Operating Costs in the Base Year as set forth
in Subparagraph B of Paragraph 3 of the Rider to the Lease) the Fair Market
Rental Value, as defined in Paragraph 3 of the Rider to the Lease, as of the
commencement of the additional term, of the premises then demised to Tenant.
C. Tenant shall have no further option to extend the term of the Lease
other than the one (1) additional five (5) year term herein provided.
D. Notwithstanding the fact that upon Tenant's exercise of the herein
option to extend the term of the Lease such extension shall be self-executing,
as aforesaid, the parties shall promptly execute a lease amendment reflecting
such additional term after Tenant exercises the herein option, except that the
Yearly Rent payable in respect of such additional term and the Operating Costs
in the Base Year during such additional term, may not be set forth in said
amendment. Subsequently, after such Yearly Rent and Operating Costs in the Base
Year are determined, the parties shall execute a written agreement confirming
the same. The execution of such lease amendment shall not be deemed to waive
any of the conditions to Tenant's exercise of its rights under this Paragraph 5,
unless otherwise specifically provided in such lease amendment.
-4-
<PAGE>
6. TENANT'S RIGHT OF FIRST OFFER
On the conditions (which conditions Landlord may waive, at its election, by
written notice to Tenant at any time) that Tenant is not in default of its
covenants and obligations under the Lease and that Hambrecht & Quist L.L.C.,
itself is then occupying not less than ninety-five percent (95%) of the premises
then demised to Tenant, both at the time that Landlord is required to give
"Landlord's Notice" (as hereinafter defined), and as of the "Term Commencement
Date" in respect of the "RFO Premises" (as hereinafter defined), Tenant shall
have the following right to lease the RFO Premises when such RFO Premises become
"available for lease to Tenant" (as hereinafter defined).
A. DEFINITION OF RFO PREMISES
"RFO Premises" shall be defined as the following areas, when and if each
such area becomes available for lease to Tenant prior to March 31, 1997:
(i) a portion of the fourth (4th) floor of the Building, containing 2,916 square
feet of Total Rentable Area, substantially as shown on Lease Plan, Exhibit 2,
Fifth Amendment, a copy of which is attached hereto and incorporated herein by
this reference (the "First RFO Premises"); and (ii) a portion of the fourth
(4th) floor of the Building, containing 2,088 square feet of Total Rentable
Area, substantially as shown on Lease Plan, Exhibit 2, Fifth Amendment, (the
"Second RFO Premises"). For the purposes of this Paragraph 6, an RFO Premises
shall be deemed to be "available for lease to Tenant" if Landlord, in its sole
judgment, determines that (a) the then current tenant or occupant of such RFO
Premises will vacate such RFO Premises, and (b) Landlord intends to offer such
area for lease. In no event shall Tenant have any rights under this Paragraph 6
on or after March 31, 1997 (i.e. Landlord shall have no obligation to give
Landlord's Notice, as hereinafter defined, to Tenant on or after March 31,
1997).
B. EXERCISE OF RIGHT TO LEASE RFO PREMISES
Landlord shall give Tenant written notice ("Landlord's Notice") at the time
that Landlord determines in its sole judgment, as aforesaid, that an RFO
Premises will become available for lease to Tenant. Landlord's Notice shall set
forth the exact location of the RFO Premises, Landlord's designation of the Fair
Market Rental Value (as defined in Paragraph 3 of the Rider to the Lease)
applicable to the RFO Premises and the Specified Commencement Date in respect of
the RFO Premises. Tenant shall have the right, exercisable upon written notice
("Tenant's Exercise Notice") given to Landlord within fifteen (15) days after
the receipt of Landlord's Notice, to lease the RFO Premises, time being of the
essence thereof. If Tenant fails timely to give Tenant's Exercise Notice, Tenant
shall have no further right to lease such RFO Premises pursuant to this
Paragraph 6, provided however, that Tenant shall have the right from time to
time thereafter throughout the term of the Lease until Tenant's right to lease
the RFO Premises has lapsed to lease any other subsequently available RFO
Premises in accordance with the terms hereof. Upon the timely giving of such
notice, Landlord shall lease and demise
-5-
<PAGE>
to Tenant and Tenant shall hire and take from Landlord, such RFO Premises, upon
all of the same terms and conditions of the Lease except as hereinafter set
forth.
C. LEASE PROVISIONS APPLYING TO RFO PREMISES
The leasing to Tenant of such RF0 Premises shall be upon all of the same
terms and conditions of the Lease, except as follows:
(1) TERM COMMENCEMENT DATE
The Term Commencement Date in respect of such RFO Premises shall be the
later of: (x) the Specified Commencement Date in respect of such RF0 Premises as
set forth in Landlord's Notice, or (y) the date that Landlord delivers such RF0
Premises to Tenant.
(2) RENT COMMENCEMENT DATE
The Rent Commencement Date in respect of any RFO Premises shall be the Term
Commencement Date in respect of such RF0 Premises. Without limiting the
foregoing, Article 6-6* of the Lease shall have no applicability to any RFO
Premises.
(3) YEARLY RENT
The Yearly Rent rental rate in respect of such RFO Premises shall be based
upon (i.e., taking into account the amount of Operating Costs in the Base Year
as set forth in Subparagraph B of Paragraph 3 of the Rider to the Lease) the
Fair Market Rental Value, as defined in Paragraph 3 of the Rider to Lease, of
such RFO Premises as of the Term Commencement Date in respect of such RFO
Premises.
(4) PARKING
Tenant shall not have the right to any additional parking passes by reason
of its demise of any RF0 Premises. Without limiting the foregoing, Paragraph 1
of the Rider to the Lease and Paragraph 3 of the First Amendment shall have no
applicability to any RFO Premises.
(5) CONDITION OF RFO PREMISES
Tenant shall take such RF0 Premises "broom-clean", and in all other
respects, "as-is" in its then (i.e. as of the date of premises delivery) state
of construction, finish, and decoration, without any obligation on the part of
Landlord to construct or prepare any RF0 Premises for Tenant's occupancy.
Without limiting the foregoing, Article 4, Ex. 3-37*, and Exhibit 3 of the
Lease shall have no applicability to any RFO Premises.
-6-
<PAGE>
D. EXECUTION OF LEASE AGREEMENTS
Notwithstanding the fact that Tenant's exercise of the above-described
option to lease RFO Premises shall be self-executing, as aforesaid, the parties
hereby agree promptly to execute a Lease amendment (or amendments) reflecting
the addition of each respective RFO Premises, except that the Yearly Rent
payable in respect of such RFO Premises and Operating Costs in the Base Year in
respect of such RFO Premises may not be as set forth in such amendment(s). At
the time that such Yearly Rent and Operating Costs in the Base Year are
determined, the parties shall execute a written agreement confirming the same.
The execution of such Lease amendment(s) shall not be deemed to waive any of the
conditions to Tenant's exercise of the herein option to lease the RFO Premises,
unless otherwise specifically provided in such Lease amendment(s).
7. MERGER AND ASSUMPTION OF TENANT'S INTEREST IN THE LEASE
Effective as of May 1, 1995, Original Tenant merged with and into Tenant
and, for the express benefit of Landlord, Tenant hereby assumes all of Original
Tenant's obligations under the Lease. Landlord hereby consents to such merger
and assumption, provided that: (i) any future assignment by Tenant and any
future sublease by Tenant shall be made strictly in accordance with Article 16
of the Lease, as amended; (ii) Landlord hereby reserves the right to withhold
its consent to any future assignments, whenever the Lease permits Landlord to
withhold consent; and (iii) nothing herein shall be deemed to release Tenant
from its obligations as a party under the Lease.
8. CONDITION PRECEDENT TO LANDLORD'S OBLIGATIONS HEREUNDER
The parties hereby acknowledge that Landlord is willing to execute this
Fifth Amendment in reliance on the understanding that another tenant in the
Building, Rubin and Rudman ("Rubin") has agreed to terminate their existing
lease with respect to the Fifth Amendment Additional Premises, and the entering
into of a satisfactory agreement by Rubin with respect to the Fifth Amendment
Additional Premises is a condition precedent to the obligations and covenants
of Landlord hereunder. Therefore, notwithstanding the execution and delivery of
this Fifth Amendment by the parties hereto, Landlord shall have the right,
exercisable upon written notice to Tenant, to render this Fifth Amendment null
and void and of no further effect, which right may be exercised at any time
prior to the date on which Rubin executes and delivers to Landlord an agreement,
in form and substance satisfactory to Landlord in its sole discretion, whereby
Rubin terminates their existing lease with respect to the Fifth Amendment
Additional Premises. In the event that Landlord so elects to declare this Fifth
Amendment null and void, then the Lease shall remain in full force without
giving any effect to the provisions of this Fifth Amendment.
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<PAGE>
9. As herein amended, the Lease is ratified, confirmed and approved in
all respects.
WHEREFORE, the parties have hereunto set their hands and seals as of the
date first written above.
LANDLORD: TENANT:
ROWES WHARF ASSOCIATES HAMBRECHT & QUIST L.L.C., a
Delaware limited liability company,
successor by merger to Hambrecht &
Quist, Inc., a California corporation
By: Rowes Wharf Limited Partnership,
General Partner
By: RWLP Corp., General Partner
By: By: /s/
------------------------------- ------------------------
Lionel P. Fortin, (Name) (Title)
Senior Vice President Hereunto Duly Authorized
Date Signed: --------------------- Date Signed: ----------------
-8-
<PAGE>
EXHIBIT 1, FIFTH AMENDMENT ADDITIONAL PREMISES VERSION, SHEET 1
50 Rowes Wharf
Boston, Massachusetts
(the "Building")
REFERENCE DATA
Execution Date: As of February 6, 1996
----------------------
Tenant: Hambrecht & Quist L.L.C.
-------------------------
(name)
a Delaware limited liability company
------------------------------------
(description of business organization)
50 Rowes Wharf, Boston, Massachusetts 02110
-------------------------------------------
(principal place of business - mailing address)
LANDLORD: ROWES WHARF ASSOCIATES, a joint venture, by and between THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES (a New
York corporation) and ROWES WHARF LIMITED PARTNERSHIP (a
Massachusetts limited partnerships). Landlord is the Tenant
under a Ground Lease of the Project Site, as hereinafter defined,
dated July 25, 1985 by and between the Boston Redevelopment
Authority, as Landlord, and Rowes Wharf Associates, as Tenant,
notice of which is recorded at Book 11846, Page 173 in the
Suffolk Registry of Deeds; and Landlord is the Tenant under an
Office/Retail Unit Lease of the Unit, as hereinafter defined,
dated as of July 25, 1985 by and between the Boston
Redevelopment Authority, as Landlord, and Rowes Wharf Associates,
as Tenant, notice of which is recorded at Book 11846, Page 180 in
said Deeds. Whenever the term "Ground Lease" is used in this
Lease, such term shall mean the above-referenced Ground Lease,
during the term of said Ground Lease, and shall thereafter mean
the above-referenced Office/Retail Unit Lease during the term
of said Office/Retail Unit Lease.
PROJECT SITE: Premises situated an Atlantic Avenue, Boston, Massachusetts,
constituting both land and water area, as more particularly
described in the Master Deed hereinafter referenced.
PROJECT: The multi-use project constructed on the Project Site.
UNIT: The Office/Retail Unit in that certain condominium
("Condominium") known as The Condominium at Rowes Wharf created
by the Master Deed referred to in the Ground Lease, as more
particularly described in the Office/Retail Unit Lease. The Unit
is located on the Project Site. The portion of the Building in
which the Premises are located is contained within the Unit.
Art. 2 Fifth Amendment
Additional Premises: An area on the fourth (4th) floor of the
Building, substantially as shown on Lease
Plan, Exhibit 2, dated as of February 6,
1996
<PAGE>
REVISED EXHIBIT 1, FIFTH AMENDMENT, SHEET 2
50 Rowes Wharf
Boston, Massachusetts
(the "Building")
Tenant: Hambrecht & Quist
-----------------
Execution Date: As of February 6, 1996
----------------------
Art. 3.1 Term Commencement Date
in respect of Fifth Amendment
Additional Premises: As of February 6, 1996
----------------------
Art. 3.2 Termination Date: March 31, 1998
--------------
Art. 4.3 Final Plans Date: Not applicable
--------------
Art. 5 Use of Premises: General business offices
------------------------
Art. 6 Yearly Rent in respect of
Fifth Amendment Additional
Premises:
Yearly Rent Monthly Payment
----------- ---------------
$180,459.96 $15,038.33
Art. 7 Total Rentable Area
in respect of Fifth Amendment
Additional Premises: 6,445 square feet
Art. 8 Electric current will not be furnished by Landlord to Tenant.
Art. 9 Operating Expense Escalation in respect of Fifth Amendment
Additional Premises:
Operating Costs in the Base Year: The actual amount of
Operating Costs
-------------------------
for calendar year 1995
-------------------------
Tenant's Proportionate Share in respect of Fifth Amendment
Additional Premises: 2.01%
-----
Art. 12; Additional Insured Parties; Boston Redevelopment Authority;
13(d); The Board of Managers of The Condominium at Rowes Wharf
15.2;
18
Art. 29.3 Broker: None
-----
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<PAGE>
REVISED EXHIBIT 1, FIFTH AMENDMENT, SHEET 3
50 Rowes Wharf
Boston, Massachusetts
(the "Building")
Tenant: Hambrecht & Quist
-------------------
Execution Date: As of February 6, 1996
-----------------------
Art. 29.5 Arbitration: Massachusetts; Superior Court
-----------------------------
Exhibit Dates: Lease Plan, Exhibit 2, dated as of February
6, 1996
------------------------------------------
LANDLORD: ASSIGNEE:
ROWES WHARF ASSOCIATES HAMBRECHT & QUIST L.L.C.
By: Rowes Wharf Limited Partnership,
General Partner
By: RWLP Corp.,
General Partner
By: By: /s/
------------------------- -------------------------
Lionel P. Fortin, (Name) (Title)
Senior Vice President Hereunto duly authorized
Date Signed: ___________________ Date Signed: ___________________
TENANT
HAMBRECHT & QUIST, INC.
a California corporation
By: /s/
___________________________
(Name) (Title)
Hereunto duly authorized
Date Signed: ___________________
-3-
<PAGE>
HAMBRECHT & QUIST
LEASE PLAN, EXHIBIT 2
FIFTH AMENDMENT
FIRST RFO PREMISES
<PAGE>
HAMBRECHT & QUIST
LEASE PLAN, EXHIBIT 2
FIFTH AMENDMENT
SECOND RFO PREMISES
<PAGE>
LEASE made as of the 1st day of December, 1995, between
230 PARK AVENUE ASSOCIATES, having an office at 60 East 42nd Street,
New York, New York 10165
hereinafter referred to as "Landlord" or "Lessor" and HAMBRECHT & QUIST, L.L.C.,
having an office located at 230 Park Avenue, New York, New York 10169
hereinafter referred to as "Tenant" or "Lessee".
WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the entire rentable portions of the 20th and 21st floors
approximately as indicated on the plans collectively annexed hereto and made
a part hereof as Exhibit A and as more particularly described in Article 56
hereof (said space is hereinafter called the "premises") in the building
known as 230 Park Avenue ("the building") in the County of New York, City of
New York, for a term of eleven (11) years to commence on the 1st day of March
1996, and to expire on the 28th day of February, 2007 , or until such term
shall sooner end as in Article l2 and elsewhere herein provided, both dates
inclusive, at a fixed annual rental (subject to Articles 23 and 41) at the
annual rate of
$1,020,136.00 per annum from March 1, 1996 through February 29, 2000
$1,041,452.00 per annum from March 1, 2000 through February 28, 2007
[Insert A]
Lessor and Lessee covenant and agree:
PURPOSE.
1. Lessee shall use and occupy the premises only for [Insert 1A]
RENT AND ADDITIONAL RENT.
2. Lessee agrees to pay rent as herein provided at the office of Lessor
or such other place as Lessor may designate, payable in United States legal
tender, by cash, or by good and sufficient check drawn on a New York City
Clearing House Bank, and without any set off or deduction whatsoever [Insert
2B]. Any sum other than fixed rent payable hereunder shall be deemed additional
rent and due [Insert 2A].
ASSIGNMENT.
3. [Insert 3A] Lessee nor Lessee's legal representatives or successors
in interest by operation of law or otherwise, shall assign, mortgage or
otherwise encumber this lease, or sublet or permit all or part of the
premises to be used by others, without the prior written consent of Lessor in
each instance. The transfer of a majority of the issued and outstanding
capital stock of any corporate lessee or sublessee of this lease or a
majority of the total interest in any partnership lessee or sublessee,
however accomplished, and whether in a single transaction or in a series of
related or unrelated transactions, shall be deemed an assignment of this
lease or of such sublease [Insert 3B]. If without Lessor's written consent
this lease is assigned, or the premises are sublet or occupied by anyone
other than Lessee, Lessor may accept the rent from such assignee, subtenant
or occupant, and apply the net amount thereof to the rent herein reserved,
but no such assignment, subletting, occupancy or acceptance of rent shall be
deemed a waiver of this covenant. Consent by Lessor to an assignment or
subletting shall not relieve Lessee from the obligation to obtain Lessor's
written consent to any further assignment or subletting. In no event shall
any permitted sublessee assign or encumber its sublease or further sublet all
or any portion of its sublet space, or otherwise suffer or permit the sublet
space or any part thereof to be used or occupied by others, without Lessor's
prior written consent in each instance. A modification, amendment or
extension of a sublease shall be deemed a sublease.
DEFAULT.
4. Lessor may terminate this lease on [Insert 4A] days' notice: (a) if
rent or additional rent is not paid within [Insert 4B] days after written
notice from Lessor, or (b) if Lessee shall have failed to cure a default in
the performance of any covenant of this least (except the payment of rent),
or any rule or regulation hereinafter set forth, within [Insert 4C] days
after written notice thereof from Lessor, or if default cannot be completely
cured in such time, if Lessee shall not promptly proceed to cure such default
within said [Insert 4C] days, or shall not complete the curing of such
default with due diligence; or (c) when and to the extent permitted by law,
if a petition in bankruptcy shall be filed [Insert 4D] Lessee or if Lessee
shall make a general assignment for the benefit of creditors, or receive the
benefit of any insolvency or reorganization act; or (d) if a receiver or
trustee is appointed for any portion of Lessee's property and such
appointment is not vacated within twenty (20) days; or (e) if an execution or
attachment shall be issued under which the premises shall be taken or
occupied or attempted to be taken or occupied by anyone other than Lessee; or
(f) [Insert 4E] or (g) if Lessee shall default beyond any grace period under
any other lease between Lessee and Lessor.
At the expiration of the [Insert 4F] day notice period, this lease and
any rights of renewal or extension shall terminate as completely as if that
were the date originally fixed for expiration of the term of this lease, but
Lessee shall remain liable as hereinafter provided.
RELETTING, ETC.
5. If Lessor shall re-enter the premises on the default of Lessee
[Insert 5A], by summary proceedings or otherwise: (a) Lessor may re-let the
premises or any part thereof as Lessee's agent, in the name of Lessor, or
otherwise, for a term shorter or longer than the balance of the team of this
lease, and may grant concessions or free rent. (b) Lessee shall pay Lessor
any deficiency between the rent hereby reserved and the net amount of any
rents collected by Lessor for the remaining term of this lease, through such
re-letting. Such deficiency shall become due and payable monthly, as it is
determined. Lessor shall have no obligation to re-let the premises, and its
failure or refusal to do so, or failure to collect rent on re-letting, shall
not affect Lessee's liability hereunder. In computing the net amount of
rents collected through such re-letting, Lessor may deduct all [Insert 5B]
expenses incurred in obtaining possession or re-letting the premises,
including [Insert 5B] attorneys' fees, [Insert 5B] brokerage fees, the cost
of restoring the premises to good order, and the cost of all alterations and
decorations deemed necessary by Lessor to effect re-letting. In no event
shall Lessee be entitled to a credit or repayment for rerental income which
exceeds the sums payable by Lessee hereunder or which covers a period after
the original term of this lease. (c) Lessee hereby expressly waives any right
of redemption granted by any present or future law. "Re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. In the event of a breach or threatened breach of any of the
covenants or provisions hereof, Lessor shall have the right of injunction.
Mention herein of any particular remedy shall not preclude Lessor from any
other available remedy. (d) Lessor shall recover as liquidated damages, in
addition to accrued rent and other charges, if Lessor's re-entry is the
result of Lessee's bankruptcy, insolvency, or reorganization, the full rental
for the maximum period allowed by any act relating to bankruptcy, insolvency
or reorganization.
If Lessor re-enters the premises for any cause [Insert 5C], or if Lessee
abandons or vacates the premises [Insert 5D], and after the expiration of the
term of this lease, any property left in the premises by Lessee shall be
deemed to have been abandoned by Lessee, and Lessor shall have the right to
retain or dispose of such property in any manner without any obligation to
account therefor to Lessee. If Lessee shall at any time default hereunder
[Insert 5E], and if Lessor shall institute an action or summary proceedings
against Lessee based upon such default, then Lessee will reimburse Lessor for
the expense of reasonable attorneys' fees and disbursements thereby incurred
by Lessor.
LESSOR MAY CURE DEFAULTS.
6. If Lessee shall default in performing any covenant or condition of
this lease [Insert 6A], Lessor may perform the same for the account of Lessee,
and Lessee shall reimburse Lessor for any [Insert 6B] expense incurred therefor,
which obligation shall survive the expiration or sooner termination of the term
of this lease.
ALTERATIONS.
7. Lessee shall make no alteration, addition or improvement in the
premises, without the prior written consent of Lessor [Insert 7A], only by
contractors or mechanics and in such manner and with such materials as shall
be approved by Lessor [Insert 7B]. All alterations, additions or improvements
to the premises, including window and central air-conditioning equipment and
duct work, except movable office furniture and
<PAGE>
equipment installed at the expense of Lessee, shall, unless Lessor elects
otherwise in writing [Insert 7C], become the property of Lessor [Insert 7D]and
shall be surrendered with the premises at the expiration of this lease. Any
such alterations, additions and improvements which Lessor shall designate, shall
be removed by Lessee and any damage repaired, at Lessee's expense, prior to the
expiration of this lease.
LIENS.
8. With respect to contractors, subcontractors, materialmen and
laborers, and architects, engineers and designers, for all work or materials
to be furnished to Lessee at the premises, Lessee agrees to obtain and
deliver to Lessor written and unconditional waiver of mechanics liens upon
the premises or the building, after payments to the contractors, etc.,
subject to any then applicable provisions of the Lien Law. Notwithstanding
the foregoing, Lessee at its expense shall cause any lien filed against the
premises or the building, for work or materials claimed to have been
furnished to Lessee, to be discharged of record within [Insert 8A] days after
notice thereof.
REPAIRS.
9. Lessee shall take good care of the premises and the fixtures and
appurtenances therein, and shall make all repairs necessary to keep them in
good working order and condition, including structural repairs when those are
necessitated by the act, omission or negligence of Lessee or its agents,
employees or invitees. During the term of this Lease, Lessee may have the
use of any [Insert 9A], air-conditioning equipment located in the premises,
and Lessee, at its own cost and expense, shall maintain and repair such
[Insert 9A] equipment and shall reimburse Lessor, in accordance with Article
41 of this lease, for electricity consumed by the equipment. The exterior
walls of the building, the windows and the portions of all window sills
outside same are not part of the premises demised by this lease, and Lessor
hereby reserves all rights to such parts of the building [Insert 9B].
DESTRUCTION.
10. If the premises shall be partially damaged by fire or other casualty,
the damage shall be repaired at the expense of Lessor [Insert 10A], but without
prejudice to the rights of subrogation, if any, of Lessor's insurer. Lessor
shall not be required to repair or restore any of Lessee's property or any
alteration or leasehold improvement made by or for Lessee at Lessee's expense.
The rent [Insert 10B] shall abate in proportion to the portion of the premises
not usable by Lessee. Lessor shall not be liable to Lessee for any delay in
restoring the premises, Lessee's sole remedy being the right to an abatement of
rent, as above provided. If the premises are rendered [Insert 10C] untenantable
by fire or other casualty and it Lessor shall decide not to restore the
premises, or if the building shall be so damaged that Lessor shall decide to
demolish it or to rebuild it (whether or not the premises have been damaged),
Lessor may within ninety (90) days after such fire or other cause give written
notice to Lessee of its election that the term of this lease shall automatically
expire no less than ten (10) [Insert 10D], days after such notice is given
[Insert 10E]. Notwithstanding the foregoing, each party shall look first to any
insurance in its favor before making any claim against the other party for
recovery for loss or damage resulting from fire or other casualty, and to the
extent that such insurance is in force and collectible and to the extent
permitted by law, Lessor and Lessee each hereby releases and waives all right of
recovery against the other or any one claiming through or under each of them by
way of subrogation or otherwise. The foregoing release and waiver shall be in
force only if both releasors' insurance policies contain a clause providing that
such a release or waiver shall not invalidate the insurance and also, provided
that such a policy can be obtained without additional premiums. Lessee hereby
expressly waives the provisions of Section 227 of the Real Property Law and
agrees that the foregoing provisions of this Article shall govern and control in
lieu thereof.
END OF TERM.
11. Lessee shall surrender the premises to Lessor at the expiration or
sooner termination of this lease in good order and condition, except for
reasonable wear and tear and damage by fire or other casualty, and Lessee
shall remove all of its property. Lessee agrees it shall indemnify and save
Lessor harmless against all costs, claims, loss or liability resulting from
delay by Lessee in so surrendering the premises, including, without
limitation, any claims made by any succeeding tenant [Insert 11A] founded on
such delay. Additionally, the parties recognize and agree that other damage
to Lessor resulting from any failure by Lessee timely to surrender the
premises will be substantial, will exceed the amount of monthly rent
theretofore payable hereunder, and will be impossible of accurate
measurement. Lessee therefore agrees that if possession of the premises is
not surrendered to Lessor within [Insert 11B] day after the date of the
expiration or sooner termination of the term of this lease, then Lessee will
pay Lessor as liquidated damages for each month and for each portion of any
month during which Lessee holds over in the premises after expiration or
termination of the term of this lease, a sum equal to [Insert 11C] times the
average rent and additional rent which was payable per month under this lease
during the last six months of the term thereof. The aforesaid obligations
shall survive the expiration or sooner termination of the term of this lease.
At any time during the term of this lease [Insert 11D], Lessor may exhibit
the premises to prospective purchasers or mortgagees of Lessor's interest
therein. During the last year of the term of this lease [Insert 11D], Lessor
may exhibit the premises to prospective tenants.
SUBORDINATION AND ESTOPPEL.
12. This lease is and shall be subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which the premises form a part, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
This Article shall be self-operative and no further instrument of
subordination shall be necessary. In confirmation of such subordination,
Lessee shall execute promptly any certificate that Lessor may [Insert 12A]
request. Lessee hereby appoints Lessor as Lessee's irrevocable
attorney-in-fact to execute any document of subordination on behalf of Lessee
[Insert 12B]. In the event that any ground or underlying lease is terminated,
or any mortgage foreclosed, this lease shall not terminate or be terminable
by Lessee unless Lessee was specifically named in any termination or
foreclosure judgment or final order. In the event that any ground or
underlying lease is terminated as aforesaid, or if the interests of Lessor
under this lease are transferred by reason of or assigned in lieu of
foreclosure of other proceedings for enforcement of any mortgage, or if the
holder of any mortgage Acquires a lease in substitution therefor, then Lessee
will, at the option to be exercised in writing by the lessor under the Lease
or such purchaser, assignee or lessee, as the case may be, (i) attorn to it
and will perform for its benefit all the terms, covenants and conditions of
this lease on the Lessee's part to be performed with the same force and
effect as if said lessor or such purchaser, assignee or lessee, were the
landlord originally named in this lease, or (ii) enter into a new lease with
said lessor or such purchaser, assignee or lessee, as landlord, for the
remaining term of this lease and otherwise on the same terms, conditions and
rentals as herein provided. From time to time, Lessee, on at least ten (10)
days' prior written request by Lessor will deliver to Lessor a statement in
writing certifying that this lease is unmodified and in full force and effect
(or if there shall have been modifications, that the same is in full force
and effect as modified and stating the modifications) and the dates to which
the rent and other charges have been paid and stating whether or not the
Lessor is in default in performance of any covenant, agreement, or condition
contained in this lease and, if so, specifying each such default of which
Lessee may have knowledge [Insert 12C].
CONDEMNATION.
13. If the whole or any substantial part of the premises shall be
condemned by eminent domain or acquired by private purchase in lieu thereof,
for any public or quasi-public purpose, this lease shall terminate on the
date of the vesting of title through such proceeding or purchase, and Lessee
shall have no claim against Lessor for the value of any unexpired portion of
the term of this lease, nor shall Lessee be entitled to any part of the
condemnation award or private purchase price. If less than a substantial part
of the premises is condemned, this lease shall not terminate, but rent
[Insert 13A] shall abate in proportion to the portion of the premises
condemned [Insert 13B].
REQUIREMENTS OF LAW.
14. (a) Lessee at its expense shall comply with all laws, orders and
regulations of any governmental authority having or asserting jurisdiction over
the premises, which shall impose any violation, order or duty upon Lessor or
Lessee with respect to the premises or the use or occupancy thereof, including,
without limitation, compliance in the premises with New York City Local Law No.
5 or any similar or successor law. The foregoing shall not require Lessee to do
structural work [Insert 14A].
(b) Lessee shall require every person engaged by him to clean any
window in the premises from the outside, to use the equipment and safety devices
required by Section 202 of the Labor Law and the rules of any governmental
authority having or asserting jurisdiction.
(c) Lessee at its expense shall comply with all requirements of the
New York Board of Fire Underwriters, or any other similar body affecting the
premises and shall not use the premises in a manner which shall increase the
rate of fire insurance of Lessor or of any other tenant, over that in effect
prior to this lease. If Lessee's use of the premises increases the fire
insurance rate, Lessee shall reimburse Lessor for all such increased costs.
That the premises are being used for the purpose set forth in Article I hereof
shall not relieve Lessee from the foregoing duties, obligations and expenses
[Insert 14B].
CERTIFICATE OF OCCUPANCY.
15. [Insert 15A] Lessee will at no time use or occupy the premises in
violation of the certificate of occupancy issued for the building. The
statement in this lease of the nature of the business to be conducted by Lessee
shall not be deemed to constitute a representation or guaranty by Lessor that
such use is lawful or permissible in the premises under the certificate of
occupancy for the building.
POSSESSION.
16. If Lessor shall be unable to give possession of the premises on the
commencement date of the term because of the retention of possession of any
occupant thereof, alteration or construction work, or for any other reason
except as hereinafter provided, Lessor shall not be subject to any liability for
such failure. In such event, this lease shall stay in full force and effect,
without extension of its term. However, the rent hereunder shall not
<PAGE>
commence until the premises are available for occupancy by Lessee. If delay
in possession is due to work, changes or decorations being made by or for
Lessee, or is otherwise caused by Lessee, there shall be no rent abatement
and the rent shall commence on the date specified in this lease. If
permission is given to Lessee to occupy the demised premises or other
premises prior to the date specified as the commencement of the term, such
occupancy shall be deemed to be pursuant to the terms of this lease, except
that the parties shall separately agree as to the obligation of Lessee to pay
rent for such occupancy. The provisions of this Article are intended to
constitute an "express provision to the contrary" within the meaning of
Section 223(a), New York Real Property Law [Insert 16A].
QUIET ENJOYMENT.
17. Lessor covenants that if Lessee pays the rent and performs all of
Lessee's other obligations under this lease, Lessee may peaceably and quietly
enjoy the demised premises, subject to the terms, covenants and conditions of
this lease and to the ground leases, underlying leases and mortgages
hereinbefore mentioned.
RIGHT OF ENTRY,
18. Lessee shall permit Lessor to erect and maintain pipes and conduits
in and through the premises. [Insert 18A] Lessor or its agents shall have the
right to enter or pass through the premises at all times [Insert 18B], by
master key, [Insert 18C], by reasonable force or otherwise, to examine the
same, and to make such repairs, alterations or additions as it may deem
[Insert 18D] necessary or desirable to the premises or the building, and to
take all material into and upon the premises that may be required therefor
[Insert 18E]. Such entry and work shall not constitute an eviction of Lessee
in whole or in part, shall not be ground for any abatement of rent, and shall
impose no liability on Lessor by reason of inconvenience or injury to
Lessee's business. Lessor shall have the right at any time, without the same
constituting an actual or constructive eviction, and without incurring any
liability to Lessee, to change the arrangement and/or location of entrances
or passageways, windows, corridors, elevators, stairs, toilets, or other
public parts of the building, and to change the name or number by which the
building is known [Insert 18F]
VAULT SPACE.
19. Anything contained in any plan or blueprint to the contrary
notwithstanding, no vault or other space not within the building property
line is demised hereunder. Any use of such space by Lessee shall be deemed
to be pursuant to a licenser revocable at will by Lessor, without diminution
of the rent payable hereunder. If Lessee shall use such vault space, any
fees, taxes or charges made by any governmental authority for such space
shall be paid by Lessee.
INDEMNITY.
20. Lessee shall indemnify, defend and save Lessor harmless from and
against any liability or expense arising from the use or occupation of the
Lessee, or anyone on the premises with Lessee's permission, or from any breach
of this lease [Insert 20A].
LESSOR'S LIABILITY.
21. This lease and the obligations of Lessee hereunder shall in no way
be affected because Lessor is unable to fulfill any of its obligations or to
supply any service, by reason of strike or other cause not within Lessor's
[Insert 21A]control. Lessor shall have the right, without incurring any
liability to Lessee, to stop any service because of accident or emergency, or
for repairs, alterations or improvements, necessary or desirable in the
[Insert 21A] judgment of Lessor, until such repairs, alterations or
improvements shall have been completed. [Insert 21B] Lessor shall not be
liable to Lessee or [Insert 21C] for any loss or damage to person, property
or business, unless due to the negligence of Lessor, nor shall Lessor be
liable for any latent defect in the premises or the building [Insert 21D].
Lessee agrees to look solely to Lessor's estate and interest in the land and
building, or the lease of the building or of the land and building, and the
demised premises, for the satisfaction of any right or remedy of Lessee for
the collection of a judgment (or other judicial process) requiring the
payment of money by Lessor, in the event of any liability by Lessor, and no
other property or assets of Lessor shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Lessee's remedies under
or with respect to this lease, the relationship of landlord and tenant
hereunder, or Lessee's use and occupancy of the demised premises or any other
liability of Lessor to Lessee (except for negligence).
CONDITION OF PREMISES.
22. Lessee acknowledges that Lessor has made no representation or promise,
except as herein expressly set forth. Lessee agrees to accept the premises "as
is" [Insert 22A], except for any work which Lessor has expressly agreed in
writing to perform.
[Section 23 deleted on original]
TAX ESCALATION.
24. Lessee shall pay to Lessor, as additional rent, tax escalation in
accordance with this Article:
(a) For purposes of this lease the rentable square foot area of the
presently demised premises shall be deemed to be 32,561 square feet.
(b) Definitions: For the purpose of this Article, the following
definitions shall apply:
(i) The term "base tax year" as hereinafter set forth for the
determination of real estate tax escalation is defined in Article 56 hereof.
(ii) The term "The Percentage", for purposes of computing tax
escalation is defined in Article 56 hereof. The Percentage has been computed
on the basis of a fraction, the numerator of which is the rentable square
foot area of the demised premises and the denominator of which is the total
rentable square foot area of the office and commercial space in the building
project. The parties acknowledge and agree that the total rentable square
foot area of the office and commercial space in the building project shall be
deemed to be 1,000,000 sq. ft.
(iii) The term "the building project" shall mean the aggregate
combined parcel of land on a portion of which are the improvements of which the
demised premises form a part, with all the improvements thereon, said
improvements being a part of the block and left for tax purposes which are
applicable to the aforesaid land.
<PAGE>
(iv) The term "comparative year" shall mean the twelve (12)
months following the base tax year, and each subsequent period of twelve (12)
months (or such other period of twelve (12) months occurring during the term
of this lease as hereafter may be duly adopted as the fiscal year for real
estate tax purposes by the City of New York).
(v) The term "real estate taxes" shall mean the total of all
taxes and special or other assessments levied, assessed or imposed at any
time by any governmental authority upon or against the building project, and
also any tax or assessment levied, assessed or imposed at any time by any
governmental authority in connection with the receipt of rents from said
building project [Insert 24A-1], to the extent that same shall be in lieu of
all or a portion of any of the aforesaid taxes or assessments, or additions
or increases thereof, upon or against said building project [Insert 24A].
If, due to a future change in the method of taxation or in the taxing
authority, or for any other reason, a franchise, income, transit, profit or
other tax or governmental imposition, however designated, shall be levied
against Lessor in substitution in whole or in part for the real estate taxes,
or in lieu of additions to or increases of said real estate taxes, then such
franchise, income, transit, profit or other tax or governmental imposition
shall be deemed to be included within the definition of "real estate taxes"
for the purposes hereof [Insert 24B]. As to special assessments which are
payable over a period of time extending beyond the term of this lease, only a
pro rata portion thereof, covering the portion of the term of this lease
unexpired at the time of the imposition of such assessment, shall be included
in "real estate taxes". If, by law, any assessment may be paid in
installments, then, for the purposes hereof (a) such assessment shall be
deemed to have been payable in the maximum number of installments permitted
by law and (b) there shall be included in real estate taxes, for each
comparative year in which such installments may be paid, the installments of
such assessment so becoming payable during such comparative year, together
with interest payable during such comparative year.
(vi) Where a "transition assessment" is imposed by the City of
New York for any tax (fiscal) year, then the phrases "assessed value" and
"assessments" shall mean the transition assessment for that tax (fiscal) year.
(c) 1. In the event that the real estate taxes payable for any
comparative year shall exceed the amount of the real estate taxes payable
during the base tax year, Lessee shall pay to Lessor, as additional rent for
such comparative year, an amount equal to The Percentage of the excess.
Before or after the start of each comparative year, Lessor shall furnish to
Lessee a statement of the real estate taxes payable for such comparative
year, and a statement of the real estate taxes payable during the base tax
year. If the real estate taxes payable for such comparative year exceed the
real estate taxes payable during the base tax year, additional rent for such
comparative year, in an amount equal to The Percentage of the excess, shall
be payable [Insert 24C] statement. The benefit of any discount for any
earlier payment or prepayment of real estate taxes shall accrue solely to the
benefit of Lessor, and such discount shall not be subtracted from the real
estate taxes payable for [Insert 24D] any comparative year.
2. Should the real estate taxes payable during the base tax year be
reduced by final determination of legal proceedings, settlement or otherwise,
then, the real estate taxes payable during the base tax year shall be
correspondingly revised, the additional rent theretofore paid or payable
hereunder for all comparative years shall be recomputed on the basis of such
reduction, and Lessee shall Pay to Lessor as additional rent, within
[Insert 24E] days after being billed therefor, any deficiency between the
amount of such additional rent as theretofore computed and the amount thereof
due as the result of such recomputations. Should the real estate taxes
payable during the base tax year be increased by such final determination of
legal proceedings, settlement or otherwise, then appropriate recomputation
and adjustment shall be made. [Insert 24F]
3. If, after Lessee shall have made a payment of additional rent under
this subdivision (c), Lessor shall receive a refund of any portion of the
real estate taxes payable for any comparative year after the base tax year on
which such payment of additional rent shall have been based, as a result of a
reduction of such real estate taxes by final determination of legal
proceedings, settlement or otherwise, Lessor shall within ten (10) days after
receiving the refund pay to Lessee The Percentage of the refund less The
Percentage of expenses (including attorneys' and appraisers' fees) incurred
by Lessor in connection with any such application or proceeding. If, prior
to the payment of taxes for any comparative year, Lessor shall have obtained
a reduction of that comparative year's assessed valuation of the building
project, and therefore of said taxes, then the term "real estate taxes" for
that comparative year shall be deemed to include the amount of Lessor's
expenses in obtaining such reduction in assessed valuation, including
attorneys' and appraisers' fees.
4. The statements of the real estate taxes to be furnished by Lessor
as provided above shall be certified by Lessor and shall constitute a final
determination as between Lessor and Lessee of the real estate taxes for the
Periods represented thereby, unless Lessee within thirty (30) days after they
are furnished shall give a written notice to Lessor that it disputes their
accuracy or their appropriateness, which notice shall specify the particular
respects in which the statement is inaccurate or inappropriate. If Lessee
shall so dispute said statement then, pending the resolution of such dispute,
Lessee shall pay the additional rent to Lessor in accordance with the
statement furnished by Lessor.
5. In no event shall the fixed annual rent under this lease (exclusive of
the additional rents under this Article) be reduced by virtue of this Article.
6. Upon the date of any expiration or termination of this lease
(except termination because of Lessee's default) whether the same be the date
hereinabove set forth for the expiration of the term or any prior or
subsequent date, a proportionate share of said additional rent for the
comparative year during which such expiration or termination occurs shall
immediately become due and payable by Lessee to Lessor, if it was not
theretofore already billed and paid. The said proportionate share shall be
based upon the length of time that this lease shall have been in existence
during such comparative year. Lessor shall promptly cause statements of said
additional rent for that comparative year to be prepared and furnished to
Lessee. Lessor and Lessee shall thereupon make appropriate adjustments of
amounts then owing.
7. Lessor's and Lessee's obligations to make the adjustments referred
to in subdivision (6) above shall survive any expiration or termination of
this lease.
8. Any delay or failure of Lessor in billing any tax escalation
hereinabove provided shall not constitute a waiver of or in any way impair the
continuing obligation of Lessee to pay such tax escalation Hereunder.
SERVICES.
25. Lessee has been advised that Lessor employs Owners Maintenance
Corporation of 420 Lexington Avenue, New York City, to provide cleaning
services in the building of which the demised premises form a part. Lessee
agrees to employ said contractor, or such other contractor as Lessor may from
time to time designate, for any waxing, polishing and other maintenance work
of the demised premises and of the Lessee's furniture, fixtures and
equipment, provided that the prices charged by said contractor are comparable
to the prices charged by other contractors for the same work. Lessee agrees
that it shall not employ any other cleaning and maintenance contractor, nor
any individual, firm or organization for such purpose without Lessor's prior
written consent. If Lessor and Lessee cannot agree on whether the prices
being charged by the contractor designated by the Lessor are comparable to
those charged by other contractors, Lessor and Lessee shall each obtain two
bona fide bids for such work from reputable contractors, and the average of
the four bids thus obtained shall be the standard of comparison.
JURY WAIVER.
26. Lessor and Lessee hereby waive trial by jury in any action, proceeding
or counterclaim involving any matter whatsoever arising out of or in any way
connected with this lease, the relationship of landlord and tenant, Lessee's use
or occupancy of the premises (except for personal injury or property damage) or
involving the right to any statutory relief or remedy. Lessee will not
interpose any counterclaim of any nature in any summary proceeding. [Insert 26A]
NO WAIVER.
27. No act or omission of Lessor or its agents shall constitute an
actual or constructive eviction, unless Lessor shall have first received
written notice of Lessee's claim and shall have had a reasonable opportunity
to meet such claim. In the event that any payment herein provided for by
Lessee to Lessor shall become overdue for a period in excess of ten (10)
days, then at Lessor's option a "late charge" for such period and for each
additional period of twenty (20) days or any part thereof shall become
immediately due and owing to Lessor, as additional rent by reason of the
failure of Lessee to make prompt payment, at [Insert 27A] No act or omission
of Lessor or its agents shall constitute an acceptance of surrender of the
premises, except a writing signed by Lessor. The delivery of keys to Lessor
or its agents not shall constitute a termination of this lease or a surrender
of the premises. Acceptance by Lessor of less than the rent here provided
shall at Lessor's option be deemed on account of earliest rent remaining
unpaid. No endorsement on any check, or letter accompanying rent, shall be
deemed an accord and satisfaction, and such check may be cashed without
prejudice to Lessor. No waiver of any provision of this lease shall be
effective, unless such waiver be in writing signed by Lessor. This lease
contains the entire agreement between the parties, and no modification
thereof shall be binding unless in writing and signed by the party concerned.
Lessee shall comply with the rules and regulations printed in this lease,
and any reasonable modifications thereof or additions thereto. Lessor shall
not be liable to Lessee for the violation of such rules and regulations by
any other tenant. Failure of Lessor to enforce any provision of this lease,
or any rule or regulation, shall not he construed as the waiver of any
subsequent violation of a provision of this lease, or any rule or regulation.
[Insert 27B] This lease shall not be affected by nor shall Lessor in any way
be liable for the closing, darkening or bricking up of windows in the
premises, for any reason, including as the result of construction on any
property of which the premises are not a part or by Lessor's own acts.
<PAGE>
LEASE SUBMISSION.
40. Lessor and Lessee agree that this lease is submitted to Lessee on the
understanding that it shall not be considered an offer and shall not bind Lessor
in any way unless and until (i) Lessee has duly executed and delivered duplicate
originals thereof to Lessor and (ii) Lessor has executed and delivered one of
said originals to Lessee.
SEE RIDER(S) ANNEXED HERETO AND MADE A PART HEREOF
IN WITNESS THEREOF, Lessor and Lessee have executed this lease as of the
day and year first above written.
230 PARK AVENUE ASSOCIATES
BY: Helmsley-Spear, Inc., Agent
- ----------------------------------- -----------------------------(L.S.)
Witness for Lessor
[signature unreadable] BY: /s/ Steven M. Durels
- ---------------------------------- -----------------------------(L.S.)
Witness for Lessor Steven M. Durels, Vice President
Witness for Lessee
HAMBRECHT & QUIST, L.L.C.
-----------------------------(L.S.)
BY: /s/ [signature unreadable]
-------------------------------
ACKNOWLEDGEMENTS.
State of New York )
) ss.:
County of New York )
On the day of , 19 , before me
personally came ,
to me known and known to me to be the individual described in, and who
executed, the foregoing instrument, and acknowledged to me that he executed
the same.
------------------------------
Notary Public
State of New York )
) ss.:
County of New York )
On the day of , 19 , before me
personally came ,
to me known, who, being by me duly sworn, did depose and say that he resides
at No.
that he is the of
the corporation mentioned in, and which executed, the foregoing instrument;
and that he signed his name thereto by order of the Board of Directors of
said corporation.
------------------------------
Notary Public
GUARANTY.
State of New York )
) ss.:
County of New York )
On the day of , 19 , before me
personally came ,
to me known and known to me to be the individual described in, and who executed
the foregoing instrument, and acknowledged to me that he executed the same.
------------------------------
Notary Public
<PAGE>
- --------------------------------------------------------------------------------
RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN
230 PARK AVENUE ASSOCIATES LANDLORD
------------------------------------------
AND HAMBRECHT & QUIST, L.L.P. TENANT
-----------------------------------------
- --------------------------------------------------------------------------------
RULES AND REGULATIONS REFERRED
TO IN THIS LEASE
1. No animals, birds, bicycles or vehicles shall be brought into or kept
in the premises. The premises shall not be used for manufacturing or commercial
repairing or for sale or display of merchandise or as a lodging place, or for
any immoral or illegal purpose, nor shall the premises be used for a public
stenographer or typist; barber or beauty shop; telephone, secretarial or
messenger service; employment, travel or tourist agency; school or classroom;
commercial document reproduction; or for any business other than specifically
provided for in the tenant's lease. Tenant shall not cause or permit in the
premises any disturbing noises which may interfere with occupants of this or
neighboring buildings, any cooking or objectionable odors, or any nuisance of
any kind, or any inflammable or explosive fluid, chemical or substance.
Canvassing, soliciting and peddling in the building are prohibited, and each
tenant shall cooperate so as to prevent the same.
2. The toilet rooms and other water apparatus shall not be used for any
purposes other than those for which they were constructed, and no sweepings,
rags, ink, chemicals or other unsuitable substances shall be thrown therein.
Tenant shall not throw anything out of doors, windows or skylights, or into
hallways, stairways or elevators, nor place food or objects on the window sills.
Tenant shall not obstruct or cover the halls, stairways and elevators, or use
them for any purpose other than ingress and egress to or from tenant's premises,
nor shall skylights, windows, doors and transoms that reflect or admit light
into the building be covered or obstructed in any way.
3. Tenant shall not place a load upon any floor of the premises in excess
of the load per square foot which such floor, as designed to carry and which is
allowed by law. Landlord reserves the right to prescribe the weight and
position of all safes in the premises. Business machines and mechanical
equipment shall be placed in settings approved by Landlord [Insert R2] to
control weight, vibration, noise and [Insert R1] annoyance. Smoking or carrying
lighted cigars, pipes or cigarettes in the elevators of the building is
prohibited. If the premises are on the ground floor of the building the tenant
thereof at its expense shall keep the sidewalks and curb in front of the
premises clean and free from ice, snow, dirt and rubbish.
4. Tenant shall not move any heavy or bulky materials into or out of the
building without Landlord's prior written consent [Insert R3] and then only
during such hours and such manner as Landlord shall [Insert R4] approve. If
any such material or equipment requires special handling, tenant shall employ
only persons holding a Master Rigger's License to do such work, and all such
work shall comply with all legal requirements. Landlord reserves the right to
inspect all freight to be brought into the building, and to preclude any freight
which violates any rule, regulation or other provision of this lease.
5. No sign, advertisement, notice or thing shall be inscribed, painted or
affixed on any part of the building without the prior written consent of
Landlord. Landlord may remove anything installed in violation of this
provision, and Tenant shall pay the cost of such removal. Interior signs on
doors and directories shall be inscribed or affixed by Landlord at Tenant's
expense. Landlord shall control the color, size, style and location of all
signs, advertisements and notices. No advertising of kind by Tenant shall refer
to the building, unless first approved in writing by Landlord.
6. [Section deleted on original]
7. No existing locks shall be changed, nor shall any additional locks or
bolts of any kind be placed upon any door or window by Tenant, without the prior
written consent of Landlord. At the termination of this lease, Tenant shall
deliver to Landlord all keys for its portion of the premises or building.
Before leaving the premises at a time, Tenant shall close all windows and close
and lock all doors.
8. No Tenant shall purchase or obtain for use in the premises any spring
water, ice, towels, food, bootblacking, bartering or other such service
furnished by any company or person not approved by Landlord. Any necessary
exterminating work in the premises shall be done at Tenant's expense, at such
times, in such manner and by such companies as Landlord shall require. Landlord
reserves the right to exclude from the building, from 6:00 p.m. to 8:00 am., and
at all hours on Sunday and legal holidays, all persons who do not present a pass
to the building signed by Landlord. Landlord will furnish passes to all persons
reasonably designated by Tenant. Tenant shall be responsible for the acts of
persons to whom passes are issued at Tenant's request.
9. Whenever Tenant shall submit to Landlord any plan, agreement or other
document for Landlord's consent or approval, Tenant agrees to pay Landlord as
additional rent, on demand, an administrative fee equal to the sum of the
reasonable fees of any architect, engineer or attorney employed by Landlord to
review said plan, agreement or document, and Landlord's administrative costs for
same.
10. The use in the demised premises of auxiliary heating device such as
portable electric heaters, heat lamps or other devices whose principal function
at the time of operation is to produce space heating is prohibited.
In case of any conflict or inconsistency between any provisions of this
lease and any of the rules and regulations as originally or as hereafter
adopted, the provisions of this lease shall control.
<PAGE>
Rules and Regulations (continued)
- ---------------------
11. Lessee shall keep all doors from the hallway to the Premises closed at
all times except for use during ingress to and egress from the Premises. Lessee
acknowledges that a violation of the terms of this paragraph may also constitute
a violation of codes, rules or regulations of governmental authorities having or
asserting jurisdiction over the Premises, and Lessee agrees to indemnify Lessor
from any fines, penalties, claims, action or increase in fire insurance rates
which might result from Lessee's violation of the terms of this paragraph.
12. Lessee shall be permitted to maintain an "in-house" messenger or
delivery service within the Premises, provided that Lessee shall require that
any messengers in its employ affix identification to the breast pocket of their
outer garment, which shall bear the following information: name of Lessee, name
of employee and photograph of the employee. Messengers in Lessee's employ shall
display such identification at all time. In the event that Lessee or any agent,
servant or employee of Lessee, violates the terms of this paragraph, Lessor
shall be entitled to terminate Lessee's permission to maintain within the
Premises in-house messenger or delivery service upon written notice to Lessee.
13. Lessee will be entitled to [Insert R6] listinqs on the building lobby
directory board, without charge. Any additional directory listing (if space is
available), or any change in a prior listing, with the exception of a deletion,
will be subject to a fourteen ($14.00) dollar service charge, payable as
additional rent.
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RIDER ANNEXED TO AND MADE
PART OF A LEASE BETWEEN
230 PARK AVENUE ASSOCIATES, LANDLORD
AND HAMBRECHT & QUIST, L.L.C., TENANT
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ELECTRICITY
41. Tenant agrees that Landlord may furnish electricity to Tenant on a
"submetering" basis or on a "rent inclusion basis". [Insert 41A]
(A). SUBMETERING: If and so long as Landlord provides electricity to the
demised premises on a submetering [Insert 41C] basis, Tenant covenants and
agrees to purchase the same from Landlord or Landlord's designated agent at
charges, terms and rates set, from time to time, during the term of this lease
by Landlord but not more than those specified in the service classification in
effect on January 1, 1970 pursuant to which Landlord then purchased electric
current from the public utility corporation serving the part of the city where
the building is located; provided however, said charges shall be increased in
the same percentage as any percentage increase in the billing to Landlord for
electricity for the entire building, by reason of increase in Landlord's
electric rates or service classifications, subsequent to January 1, 1970, and so
as to reflect any increase in Landlord's electric charges, fuel adjustments, or
by taxes or charges of any kind imposed on Landlord's electricity purchases, or
for any other such reason, subsequent to said date. Any such percentage
increase in Landlord's billing for electricity due to changes in rates or
service classifications shall be computed by the application of the average
consumption (energy and demand) of electricity for the entire building for the
twelve (12) full months immediately prior to the rate and/or service
classification change, or any changed methods of or rules on billing for same,
on a consistent basis to the new rate and/or service classification and to the
service classification in effect on January 1, 1970. If the average consumption
of electricity for the entire building for said prior twelve (12) months cannot
reasonably be applied and used with respect to changed methods of or rules on
billing, then the percentage shall be computed by the use of the average
consumption (energy and demand) for the entire building for the first three (3)
months after such change, projected to a full twelve (12) months; and that same
consumption, so projected, shall be applied to the service classification in
effect on January 1, 1970. Where more than one meter measures the service of
Tenant in the building, the service rendered through each meter may be computed
and billed separately in accordance with the rates herein. Bills therefore
shall be rendered at such times as Landlord may elect and the amount, as
computed from a meter, shall be deemed to be, and be paid as, additional rent.
In the event that such bills are not paid within [Insert 41B] days after the
same are rendered, Landlord may, without further notice, discontinue the service
of electric current to the demised premises without releasing Tenant from any
liability under this lease and without Landlord or Landlord's agent incurring
any liability for any damage or loss sustained by lessee by such discontinuance
of services if any tax is imposed upon Landlord's receipt from the sale or
resale of electrical energy or gas or telephone service to Tenant by any
Federal, State, or Municipal authority, Tenant covenants and agrees that where
permitted by law, Tenant's pro-rata share of such taxes shall be passed on to
and included in the bill of, and paid by, Tenant to Landlord.
(B). RENT INCLUSION: If and so long as Landlord provides electricity to
the demised premises on a rent inclusion basis, Tenant agrees that the fixed
annual rent shall be increased by the amount of the Electricity Rent Inclusion
Factor ("ERIF"), as hereinafter defined. Tenant acknowledges and agrees (i)
that the the fixed annual rent hereinabove set forth in this lease does not yet,
but is to include an ERIF per rentable square foot to
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compensate Landlord for electrical wiring and other installations necessary for,
and for its obtaining and making available to Tenant the redistribution of
electric current as an additional service: [Insert 41D]. For purposes of this
lease the rentable square foot area of the presently demised premises shall be
deemed to be 32,561 square feet.
The parties agree that a reputable, independent electrical consultant firm,
selected by Landlord, ("Landlord's electrical consultant"), shall make surveys
in the demised premises of the electrical equipment and fixtures and use of
current. The fixed annual rent shall then be appropriately adjusted, as
disclosed by said survey.
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(C). GENERAL CONDITIONS: The determinations by Landlord's electrical
consultant shall be binding and conclusive on Landlord and Tenant from and after
the delivery of copies of such determinations to Landlord and Tenant, unless
within [Insert 41H] days after delivery thereof. Tenant disputes such
determination. If Tenant so disputes the determination, it shall, at its own
expense, obtain from a reputable, independent electrical consultant its own
determinations in accordance with the provisions of this Article. Tenant's
consultant and Landlord's consultant then shall seek to agree. If they cannot
agree within thirty (30) days they shall choose a third reputable electrical
consultant, whose cost shall be shared equally by the parties, to make similar
determinations which shall be controlling. (If they cannot agree on such third
consultant within ten (10) days, then either party may apply to the Supreme
Court in the County of New York for such appointment.) However, pending such
controlling determinations, Tenant shall pay to Landlord the amount of
additional rent or ERIF in accordance with the determinations of Landlord's
electrical consultant. If the controlling determinations differ from Landlord's
electrical consultant, then the parties shall promptly make adjustment for any
deficiency owed by Tenant or overage paid by Tenant
Landlord shall not be liable to Tenant for any loss or damage or expense
which Tenant may sustain or incur if either the quantity or character of
electric service is changed or is no longer available or suitable for Tenant's
requirements. Tenant covenants and agrees that at all times its use of electric
current shall never exceed the capacity of existing feeders to the building or
wiring installation Tenant agrees not to connect any additional electrical
equipment to the building electric distribution system, other than lamps,
typewriters, [Insert 41E] and other small office machines which consume
comparable amounts of electricity, without Landlord's prior written consent,
which consent shall not be unreasonably withheld. [Insert 41F] riser or risers
to supply Tenant's electrical requirements, upon written request of Tenant, will
be installed by Landlord, at the sole cost and expense of Tenant, if, in
Landlord's sole judgment, the same are necessary and will not cause permanent
damage or injury to the building or demised premises or cause or create a
dangerous or hazardous condition or entail excessive or unreasonable
alterations, repairs or expense or interfere with or disturb other tenants or
occupants. In addition to the installation of such riser or risers, Landlord
will also at the sole cost and expense of Tenant, install all other equipment
proper and necessary in connection therewith subject to the aforesaid terms and
conditions. The parties acknowledge that they understand that it is anticipated
that electric rates, charges, etc., may be changed by virtue of time-of-day
rates or other methods of billing, and that the references in the foregoing two
paragraphs to changes in methods of or rules on billing are intended to include
any such changes. Supplementing Article 35 hereof, if all or part of the
submetering additional rent or the ERIF payable in acccordance with Subdivision
(A) or (B) of this Article becomes uncollectible or reduced or refunded by
virtue of any law, order or regulation, the parties agree that, at Landlord's
option, in lieu of submetering additional rent or ERIF, and in consideration of
Tenant's use of the building's electrical distribution system and receipt of
redistributed electricity and payment by Landlord of consultant's fees and other
redistribution costs, the fixed annual rental rate(s) to be paid under this
lease shall be increased by an "alternative charge" which shall be a sum equal
to $2.95 per year per rentable square foot of the demised premises, changed in
the same percentage as any increases in the cost to Landlord for electricity for
the entire building subsequent to May 1, 1995, because of electric rate or
service classification changes, such percentage change to be computed as in
Subdivision (B) provided. The Landlord reserves the right to terminate the
furnishing of electricity on a rent inclusion submetering, or any other basis at
any time, upon thirty (30) days' written notice to the Tenant, in which event
the Tenant may make application directly to the public utility for the Tenant's
entire separate supply of electric current and Landlord shall permit its wires
and conduits, to the extent available and safely capable, to be used for such
purpose, but only to the extent of Tenant's then authorized load. Any meters,
risers, or other equipment or connections necessary to furnish electricity on a
submetering basis or to enable Tenant to obtain electric current directly from
such utility shall be installed at Tenant's sole cost and expense. Only rigid
conduit or electricity metal tubing (EMT) will be allowed. The Landlord, upon
the expiration of the aforesaid thirty (30) days' written notice to the Tenant
may discontinue furnishing the electric current but this lease shall otherwise
remain in full force and effect. If Tenant was provided electricity on a rent
inclusion basis when it was so discontinued, then commencing when Tenant
receives such direct service and as long as Tenant shall continue to receive
such service, the fixed annual rent payable under this lease shall be reduced by
the amount of the ERIF which was payable immediately prior to such
discontinuance of electricity on a rent inclusion basis. [Insert 41G]
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DEFAULT
Supplementing Article 4 hereof:
42. A. In the event that Tenant is in arrears for rent or any item of
additional rent, Tenant waives its right, if any, to designate the items against
which payments made by Tenant are to be credited and Landlord may apply any
payments made by Tenant to any [Insert 42B] Landlord in its sole discretion may
elect irrespective of any designation by Tenant as to the items against which
any such payment should be credited.
B. If Landlord, as a result of any default by Tenant in its
performance of any of the terms, covenants conditions and provisions of this
Lease [Insert 42C] makes any expenditures or incurs any obligations for the
payment of money including, without limitation, [Insert 42D] attorney's fees
[Insert 42E], then any such cost, expense or disbursement shall be deemed to be
additional rent hereunder and paid by Tenant to Landlord, [Insert 42F] and, if
Tenant's lease term shall have expired after such expenditures or obligations
have been incurred, such sums shall be recoverable from Tenant as damages.
C. Lessee shall not seek to remove and/or consolidate any summary
proceeding brought by Landlord with any action commenced by Tenant in
connection with this Lease or Tenant's use and/or occupancy of the Premises.
D. In the event of a default by Landlord hereunder, no property or
assets of Landlord [Insert 42A], or any principals, shareholders officers, or
directors of Landlords whether disclosed or undisclosed, shall be subject to
levy, execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this Lease, the relationship of Landlord and
Tenant hereunder or Tenant's use and occupancy of the Premises.
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DESTRUCTION
43. Supplementing Article 10 hereof:
In the event that the Premises or portion thereof are damaged by fire
or other casualty and, [Insert 43A] Landlord [Insert 43B] has elected to
terminate this Lease, Tenant shall cooperate with Landlord in the restoration of
the Premises [Insert 43C] from the Premises as promptly as reasonably possible
all of Tenant's salvageable inventory, movable equipment, furniture and other
property. Tenant's liability for rent shall resume [Insert 43D] days after
Landlord's restoration work shall have been substantially completed [Insert
43E].
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INSURANCE
44. A. Lessee [Insert 44A] shall not violate any condition imposed by
the standard fire insurance policy then issued for office buildings in the
Borough of Manhattan, City of New York, and shall not do, or permit anything to
be done, or keep or permit anything to be kept in the premises which would
subject Lessor to any liability of responsibility for personal injury or death
or property damage, or which would increase the fire or other casualty insurance
rate on the building or the property therein over the rate which would otherwise
then be in effect (unless Lessee pays the resulting premium as provided in
Section C hereof) or which would result in insurance companies of good standing
refusing to insure the building or any of such property in amounts reasonably
satisfactory to Lessor. [Insert 44B]
B. Lessee covenants to provide on or before the earlier to occur of
(i) the Commencement Date and (ii) ten (10) days from the date of this lease and
to keep in force during the term hereof the following insurance coverage which
coverage shall be effective on the Commencement Date:
(a) A comprehensive Policy of liability insurance naming
Lessor as an additional insured protecting Lessor and Lessee against any
liability whatsoever occasioned by accident on or about the premises or any
appurtenances thereto. Such policy shall have limits of liability of not less
than Five Million ($5,000,000.00) Dollars combined single limit coverage on a
per occurrence basis, including property damage. Such insurance may be carried
under a blanket policy covering the premises and other locations of Lessee, if
any, provided such policy contains an endorsement (i) naming Lessor as an
additional insured, (ii) specifically referencing premises; and (iii)
guaranteeing a minimum limit available for the premises equal to the limits of
liability required under this lease;
(b) Fire and Extended coverage in an amount adequate to
cover the cost of replacement of all personal property, fixtures, furnishing and
equipment, including Lessee's Alteration Work located in the premises.
All such policies Shall be issued by companies of recognized responsibility
licensed to do business in New York State and rated by Best's Insurance Reports
or any successor publication of comparable standing and carrying a rating of
[Insert 44C] VIII or better or the then equivalent of such rating, and all such
policies shall contain a provision whereby the same cannot be cancelled or
modified unless Lessor and any additional insureds are given at least thirty
(30) days prior written notice of such cancellation or modification.
Prior to the time such insurance is first required to be carried
by Lessee and thereafter, at least fifteen (15) days prior to the expiration of
any such policies, Lessee shall deliver to Lessor either duplicate originals of
the aforesaid policies or certificates evidencing such insurance, together with
evidence of payment for the policy. If Lessee delivers certificates as
aforesaid, Lessee upon reasonable prior notice from Lessor, shall make available
to Lessor, at the premises, duplicate originals of such policies from which
Lessor may make copies thereof, at Lessor's cost. Lessee's failure to provide
and keep in force the aforementioned insurance shall be regarded as a material
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default hereunder, [Insert 44D] entitling Lessor to exercise any or all of the
remedies as provided in this lease in the event of Lessees default. In addition
in the event Lessee fails to provide and keep in force the insurance required by
this lease, at the times and for the durations specified in this lease, Lessor
shall have the right but not the obligation, at any time and from time to time,
[Insert 44D] to procure such insurance and or pay the premiums for such
insurance in which event Lessee shall repay Lessor within [Insert 44E] days
after demand by Lessor, as additional rent, all sums so paid by Lessor and any
costs or expenses incurred by Lessor in connection therewith without prejudice
to any other rights and remedies of Lessor under this lease.
C. Lessor and Lessee shall each endeavor to secure an appropriate
clause in, or an endorsement upon, each fire or extended coverage policy
obtained by it and covering the building, the premises or the personal property,
fixtures and equipment located therein or thereon, pursuant to which the
respective insurance companies waive subrogation or permit the insured, prior to
any loss, to agree with a third party to waive any claim it might have against
said third party. The waiver of subrogation or permission for waiver of any
claim hereinbefore referred to shall extend to the agents of each party and its
employees and, in the case of Lessee shall also extend to all other persons and
entities occupying or using the premises in accordance with the term of this
lease. If and to the extent that such waiver or permission can be obtained only
upon payment of an additional charge them, except as provided in the following
two paragraphs, the party benefiting from the waiver or permission shall pay
such charge upon demand, or shall he deemed to have agreed that the party
obtaining the Insurance coverage in question shall be free of any further
obligations under the provisions hereof relating to such waiver or permission.
In the event that Lessor shall be unable at any time to obtain
one of the provisions referred to above in any of its insurance policies, at
Lessee's option Lessor shall cause Lessee to be named in such policy or policies
as one of the assureds, but if any additional premium shall be imposed for the
inclusion of Lessee as such as assured, Lessee shall pay such additional premium
upon demand [Insert 44F]. In the event that Lessee shall have been named as one
of the assureds in any of Lessor's policies in accordance with the foregoing,
Lessee shall endorse promptly to the order of Lessor, without recourse, any
check draft or order for the payment of money representing the proceeds of any
such policy or any other payment growing out of or connected with said policy
and Lessee hereby irrevocably waives any and all rights in and to such proceeds
and payment.
In the event that Lessee shall be unable at any time to obtain
one of the provisions referred to above in any of its insurance policies, Lessee
shall cause Lessor to be named in such policy or policies as one of the
assureds, but if any additional premiums shall be imposed for the inclusion of
Lessor as such an assured, Lessor shall pay such additional premium upon demand
or Lessee shall be excused from its obligations under this paragraph with
respect to the insurance policy or policies for which such additional premiums
would be imposed. In the event that Lessor shall have been named as one of the
assureds in any of Lessee's, policies in accordance with the foregoing, Lessor
shall endorse promptly to the order of Lessee, without recourse, any checks
draft or order for the payment of money representing the proceeds of any such
policy or any other payment growing out of or connected with said policy and
Lessor hereby irrevocably, waives any and all rights in and to such proceeds and
payments.
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Subject to the foregoing provisions of this Section C, and
insofar as may be permitted by the terms of the insurance policies carried by
its each party hereby releases the other with respect to any claim (including a
claim for negligence) which it might otherwise have against the other party for
loss, damages or destruction with respect to its property by fire or other
casualty (including rental value or business interruption, as the case may be)
occurring during the term of this lease.
D. If, by reason of a failure of Lessee to comply with the
provisions of Article 14 or Section A above, the rate of fire insurance with
extended coverage on the building or equipment or other property of Lessor shall
be higher than it otherwise would be, Lessee shall reimburse Lessor, on demand,
for that part of the premiums for fire Insurance and extended coverage paid by
Lessor because of such failure an the part of Lessee.
E. Lessor may, from time to time, require that the amount of the
insurance to be provided and maintained by Lessee under Section B hereof be
increased so that the amount thereof adequately protects Lessor's interest but
in no event in excess of the amount that would be required by other tenants in
other similar office buildings in the borough of Manhattan.
F. A schedule or make up of rates for the building or the premises,
as the case may be, issued by the New York Fire Insurance Rating Organization or
other similar body making rates for fire Insurance and extended coverage for the
promises concerned, shall be conclusive evidence of the facts therein stated and
of the several items and charges in the fire insurance rate with extended
coverage then applicable to such premises.
G. Each policy evidencing the insurance to be carried by Lessee
under this lease shall contain a clause that such policy and the coverage
evidenced thereby shall be primary with respect to any policies carried by
Lessor, and that any coverage carried by Lessor shall be excess insurance.
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HEAT AND AIR CONDITIONING
Supplementing Article 32 hereof:
45. A. Lessor shall provide heating service to the Premises on Mondays
through Fridays from 8:00 a.m. to 6:00 p.m. and on Saturdays from 8:00 a.m. to
4:00 p.m., except on State holidays, Federal holidays or Building Care Service
Employees Union Contract holidays from October 16 through May 14 (the "Heating
Season") of each year. In the event Lessee shall require heat to the Premises
other than on the above referenced days and hours, but during the Heating
Season, Lessor shall furnish such heat provided that written notice is given to
Lessor not less than twenty-four (24) hours prior to the date for which such
service is requested. Notwithstanding anything to the contrary contained
herein, in the event that Lessee does not give to Landlord the minimum amount of
notice required under this Article, Lessor shall, nonetheless, use reasonable
efforts to supply such requested heating service. Lessee shall reimburse
Lessor, as additional rent, within thirty (30) days of Lessor's demand, for
the then standard charges assessed by Lessor for such after hours heat
service.
B. Lessor shall provide air conditioning service to the Premises
through the existing central Building air conditioning facilities on Mondays
through Fridays from 8:00 AM to 6:00 PM and on Saturdays from 8:00 AM to 1:00
PM, except on State holidays, Federal holidays or Building Service Employees
Union Contract holidays from May 15 through October 15 (the "Air Conditioning
Season") of each year. In the event that Lessee shall require air conditioning
service other than on the above referenced days and hours, but during the Air
Conditioning Season, Lessor shall furnish such after hours air conditioning
service provided that written notice is given to Lessor not less than twenty-
four (24) hours prior to the date for which such service is requested.
Notwithstanding anything to the contrary contained herein, in the event that
Lessee does not give to Landlord the minimum amount of notice required under
this Article, Lessor shall, nonetheless, use reasonable efforts to supply such
requested air conditioning service. Lessee shall reimburse Lessor, as
additional rent, within thirty (30) days of Lessor's demand, for the then
standard charge assessed by Lessor for such after hours air conditioning
service.
C. Lessee acknowledges and agrees that any after hours heat or air
conditioning service requested by Lessee shall be furnished for a minimum of
four (4) hours per request on weekends and holidays, and a minimum of one (1)
hour per request on weekdays.
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FREIGHT ELEVATOR
46. Supplementing Article 4 of the Rules and Regulations:
No heavy or bulky materials including, but not limited to furniture,
office equipment, packages, or merchandise ("Freight Items") shall be received
in the Premises or Building by Lessee or removed from the Premises or Building
by Lessee except by means of the freight elevator service. Freight elevator
service shall be furnished on Mondays through Fridays between the hours of 7:30
a.m. and 5:00 p.m. ("Freight Hours"). If Lessee requests freight service at
hours other than those set forth above, Lessee shall provide Lessor with at
least twenty-four (24) hours prior notice. In such event, Lessee agrees that it
shall pay to Lessor the [Insert 46A] charge prescribed for such additional
freight service. In the event that additional freight service is requested for
a weekend, the minimum charge prescribed by Lessor shall be for four (4) hours.
In the event that additional freight service is requested on weekdays, the
minimum charge prescribed by Lessor shall be for one (1) hour provided that such
service is requested to begin at 5:00 p.m. The minimum charge prescribed by
Lessor shall be for four (4) hours for additional freight service furnished on
weekdays to begin after 5:00 p.m. Any damage done to the Building or Premises
by Lessee, its employees, agents, servants, representatives and/or contractors
in the course of moving any Freight Items shall be paid by Lessee upon demand by
Lessor. Notwithstanding anything to the contrary contained in this Lease and
the Rules and Regulations, at the time Tenant commences or vacates occupancy of
the Premises all Freight Items and other personal property of Lessee shall be
delivered to or removed from the Building or Premises upon not less than 24
hours prior notice to Landlord and at times [Insert 46B] prescribed by Landlord.
Notwithstanding anything to the contrary contained herein, in the event that
Tenant does not give Landlord a minimum amount of notice required under this
Article, Landlord shall, nonetheless, use reasonable efforts to supply such
requested freight service to Tenant.
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CONDITION OF PREMISES
Supplementing Article 22 hereof:
47. (a) Tenant expressly acknowledges that it has inspected the demised
premises and is fully familiar with the physical condition thereof. Tenant
agrees to accept the demised premises at the commencement date of the term of
this Lease in its then "as is" condition. Supplementing Article 14, Tenant, at
its own cost and expense, shall comply in the demised premises with present or
future requirements under New York City Local Law No. 5 or any similar law.
Notwithstanding the foregoing, Lessee shall not be required to perform any
alteration and/or improvements to the premises in order to comply with laws,
order and/or regulations unless such alterations and/or improvements are
required by reason of Lessee's particular manner of use of the premises or
particular method of operation. Tenant acknowledges that Landlord shall have no
obligation to do any work in and to the demised premises in order to make them
suitable and ready for occupancy and use by Tenant except as may be specifically
provided for herein.
With respect to Tenant's initial alteration work in the Demised Premises
("Tenant's Alterations"), Tenant shall submit construction plans and
specifications therefor to Landlord, for Landlord's approval, which approval
shall be granted or withheld in accordance with the applicable provisions of
this Lease. All such construction plans and specifications and all such work
shall be effected in accordance with Article 7, as supplemented, and the other
provisions of this Lease. If and so long as Tenant is not in material default
under this Lease after notice and beyond the expiration of any applicable grace
period provided for in this Lease, Landlord shall credit against fixed annual
rent and additional rent accruing under this Lease a sum up to but not exceeding
$431,730.00 towards the cost of labor and materials for the portion of Tenant's
Alterations which constitute permanent improvements to be made in the Demised
Premises ("Landlord's Contribution"). Landlord's Contribution shall not be
applied to the cost of professional fees, trade fixtures, equipment, wiring,
filing fees or interest relating to or in connection with Tenant's Improvements.
If the costs for such labor and materials are lower than $431,730.00, Landlord's
aforedescribed contribution obligation shall be satisfied by paying such lower
amount provided, however, that in such event, Tenant may apply such difference
up to the sum of $86,346.00 towards the cost of professional fees, wiring costs
and filing fees.
(b) Landlord shall credit portions of Landlord's Contribution from
time to time, within thirty (30) days after receipt of the items set forth in
subsection (c) below by crediting such portion against the next installments of
fixed annual rent and additional rent then accruing under this Lease,
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provided that on the date of such credit Tenant is not in material default in
the performance of any of its obligations under this Lease after notice and
beyond the expiration of any applicable grace period provided for in this Lease.
Credits from Landlord's Contribution shall not be made more frequently than
monthly and shall not exceed the amounts then paid (but not previously credited
by Landlord) as certified by Tenant's independent, licensed architect, if
appropriate, to contractors, subcontractors and materialmen with respect to the
portion of the Tenant's Improvements theretofore completed and for which the
disbursement was requested.
(c) Landlord's obligation to credit Landlord's Contribution in each
instance shall be subject to Landlord's receipt of: (i) a request for such
credit from Tenant signed by an officer of Tenant, (ii) copies of all paid
receipts, invoices and bills for the work completed and materials furnished in
connection with the Tenant's Improvements and incorporated in the Demised
Premises, (iii) copies of all contracts, work orders, change orders and other
material relating to the work or materials which are the subject of the
requested credit, (iv) if appropriate, a certificate of Tenant's independent,
licensed architect stating, in his opinion, that the portion of the Tenant's
Alterations theretofore completed and for which the credit is requested was
performed in good and workmanlike manner and substantially in accordance with
the final plans and specifications for such Tenant's Alterations, as approved by
Landlord, and (v) lien waivers and releases, as appropriate, from all
contractors, subcontractors, mechanics and materialmen performing work on or
supplying materials in connection with Tenant's Alterations in the Demised
Premises on account of the work for which the credit is being requested.
(d) It is expressly understood and agreed that if Landlord's
Contribution shall be insufficient to pay the cost of Tenant's Improvements,
Tenant shall complete Tenant's Improvements and remain responsible for the cost
thereof and Landlord shall have no obligation therefor.
(e) Landlord hereby consents to the use by Tenant of Structure Tone, Inc.
as the general contractor for the performance of Tenant's Alterations.
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CHANGES AND ALTERATIONS
48. [Insert 48A] Landlord will not unreasonably withhold or delay
approval of written requests of Tenant to make nonstructural interior
alterations, decorations, additions and improvements (herein referred to as
"alterations") in the demised premises, provided that such alterations do not
affect utility services or plumbing and electrical lines or other systems of the
building. All alterations shall be performed in accordance with the following
conditions:
(a) All alterations costing more than [Insert 48E] shall be performed
in accordance with plans and specifications first submitted to Landlord for its
prior written approval, Landlord shall be given, in writing, a good description
of all other alterations.
(b) All alterations shall be done in a good and workmanlike manner.
Tenant shall, prior to the commencement of any such alterations, at its sole
cost and expense, obtain and exhibit to Landlord any governmental permit
required in connection with such alterations.
(c) All alterations shall be done in compliance with all other
applicable provisions of this Lease and with all applicable laws, ordinances,
directions, rules and regulations of governmental authorities having
jurisdiction, including, without limitation, the Americans with Disabilities Act
of 1990 and New York City Local Law No. 58/87 and similar present or future
laws, and regulations issued pursuant thereto, and also New York City Local Law
No, 76 and similar present or future laws, and regulations issued pursuant
thereto, an abatement, storage, transportation and disposal of asbestos, which
work, if required, shall be effected at Tenant's sole cost and expense, by
contractors and consultants approved by Landlord [Insert 48B] and in compliance
with the aforesaid rules and regulations and with Landlord's rules and
regulations thereon.
(d) All work shall be performed with union labor having the proper
jurisdictional qualifications.
(e) Tenant shall keep the building and the demised premises free and
clear of all liens for any work or material claimed to have been furnished to
Tenant or to the demised premises.
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(f) Prior to the commencement of any work by or for Tenant, Tenant
shall furnish to Landlord certificates evidencing the existence of the following
insurance:
(i) Workmen's compensation insurance covering all persons
employed for such work and with respect to whom death or bodily injury
claims could be asserted against Landlord, Tenant or the demised
premises.
(ii) Broad form general liability insurance written on an
occurrence basis naming Tenant as an insured and naming Landlord and
its designees as additional insureds, with limits of not less than
$3,000,000 combined single limit for personal injury in any one
occurrence, and with limits of not less than $500,000 for property
damage (the foregoing limits may be revised from time to time by
Landlord to such higher limits as Landlord from time to time
reasonably requires [Insert 48C]). Tenant, at its sole cost and
expense, shall cost all such insurance to be maintained at all times
when the work to be performed for or by Tenant is in progress. All
such insurance shall be obtained from a company authorized to do
business in New York and shall provide that it cannot be cancelled
without thirty (30) days prior written notice to Landlord. All
policies, or certificates therefor, issued by the insurer and bearing
notations evidencing the payment of premiums, shall be delivered to
Landlord. Blanket coverage shall be acceptable, provided that
coverage meeting the requirements of this paragraph is assigned to
Tenant's location at the demised premises.
(g) All work to be performed by Tenant shall be done in a manner
which will not unreasonably interfere with or disturb other tenants and
occupants of the building.
(h) Any alterations or other work and installations in for the
demised premises, which shall be consented to by Landlord as provided shall be
effected on Tenant's behalf by Landlord, its agents or contractors, and shall be
paid for by Tenant promptly when billed, at cost plus ten (10%) percent thereof
for supervision and overhead, plus ten (10%) percent for general conditions, as
additional rent hereunder [Insert 48F].
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SIGNS
49. Supplementing Article 5 of the Rules and Regulations:
Tenant shall be permitted to affix a suitable sign, plaque or applied
lettering made of brass or bronze on the entrance door too the demised premises,
subject to the prior written approval of Landlord with respect to location,
number, type, size, shape and design thereof [Insert 49A], and subject, also, to
compliance by Tenant, at its expense, with all applicable legal requirements or
regulations.
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BROKERAGE
50. Tenant and Landlord represent and warrant to each other that neither
party consulted or negotiated with any broker, finder, or consultant with regard
to the premises other than Helmsley-Spear, Inc. (on behalf of Landlord) and
Colliers ABR, Inc. (on behalf of Tenant) (collectively, the "Brokers"), and that
no other broker, finder or consultant participated in procuring this Lease.
Tenant hereby indemnifies and agrees to defend and hold Landlord, its agents,
servants and employees harmless from any suit, action, proceeding, controversy,
claim or demand whatsoever at law or in equity that may be instituted against
Landlord by anyone for recovery of compensation or damages for procuring this
Lease (other than the Brokers) who claimed to have dealt with Tenant in
connection with this Lease or by reason of a breach or purported breach of the
representations and warranties contained herein. Landlord hereby indemnifies
and agrees to defend and hold Tenant, its agents, servants and employees
harmless from any suit, action, proceeding, controversy, claim or demand
whatsoever at law or in equity that may, be instituted against Tenant by anyone
for recovery of compensation or damages for procuring this Lease ([Insert 50A]
the Brokers) who claimed to have dealt with Landlord in connection with this
Lease or by reason of a breach or purported breach of representations and
warranties contained herein. [Insert 50B]
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FAILURE TO PROVIDE CONSENT
51. In no event shall Tenant be entitled to make, nor shall Tenant make
any claim, and Tenant hereby waives any claim for money damages (nor shall
Tenant claim any money damages by way of setoff, counterclaim or defense) based
upon any claim or assertion by Tenant that Landlord had unreasonably withheld,
delayed or conditioned its consent or approval to any request by Tenant made
under a provision of this Lease. Tenant's sole remedy shall be an action or
proceeding to enforce any such provision or for specific performance or
declaratory judgment [Insert 51A].
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OPERATING EXPENSE ESCALATION
52. Tenant shall pay to Landlord, as additional rent, operating expense
escalation in accordance with this Article:
(a) Definitions: For the purpose of this Article, the
following definitions shall apply:
(i) The term "base year" as herein after set forth
for the determination of operating expense escalation is defined in Article 56
hereof.
(ii) The term "The Percentage", for purposes of
computing operating expense escalation is defined in Article 56 hereof. The
Percentage has been computed on the basis or a fraction, the numerator of which
is the rentable square foot area of the presently demised premises and the
denominator of which is the total rentable square foot area of the office space
in the Building. The parties acknowledge and agree that the total rentable
square foot area the presently demised premises shall be deemed to be 32,561 sq.
ft., and that the rentable square foot area of the office space in the Building
shall be deemed to be 1,000,000 sq. ft.
(iii) The term "the building project" shall mean the
aggregate combined parcel of land on a portion of which are the improvements
("the Building") of which the demised premises form a part, with all the
improvements thereon, said improvements being a part of the block and lot for
tax purposes which are applicable to the aforesaid land.
(iv) The term "comparative year" shall mean the twelve
(12) months following the base year, and each subsequent period of twelve (12)
months.
(v) The term "Expenses" shall mean total of all the
costs and expenses incurred [Insert 52A] by Landlord with respect to the
operation and maintenance of the building project and the services provided
tenants therein, including, but not limited to, the costs and expenses incurred
for and with respect to: steam and an other fuel; water rates and sewer rents;
[Insert 52A-1] air-conditioning; mechanical ventilation; heating; cleaning, by
contract or otherwise; window washing (interior and exterior); elevators,
escalators; porters and matron service; Building
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[ first line not readable on original ]
decoration; repairs, replacements and improvements which are appropriate for the
continued operation of the Building as a first-class building; maintenance;
painting of non-tenant areas; fire, extended coverage, boiler and machinery,
sprinkler, apparatus, public liability and property damage, rental and plate
glass insurance and any insurance required by a mortgagee; management fees;
supplies; wages, salaries, disability benefits, pensions hospitalization,
retirement plans and group insurance respecting employees of the Building up to
and including the building manager; uniforms and working clothes for such
employees and the cleaning thereof and expenses imposed pursuant to law or to
any collective bargaining agreement with respect to such employees; workmen's
compensation insurance, payroll, social security, unemployment and other similar
taxes with respect to such employees; and association fees or dues.
Provided, however, that the foregoing costs and expenses shall exclude or
have deducted from them, as the case may be and as shall be appropriate:
(a) leasing commissions;
(b) managing agents' fees or commissions in excess of
the rates then customarily charged for building management for buildings of like
class and character;
(c) executives' salaries above the grade of building
manager;
(d) expenditures for capital improvements except those
which under generally applied real estate practice are expensed or regarded as
deferred expenses and except for capital expenditures required by law, in either
of which cases the cost thereof shall be included in Expenses for the
comparative year in which the costs are incurred and subsequent comparative
years, amortized [52A-2] on a straight line basis over [52A-3] with an interest
factor
- -------------------
* i. e. Building electric current shall be deemed to mean all electricity
purchased for the Building except that which is redistributed to tenants in the
Building; the parties acknowledge and agree that forty-five percent (45%) of the
Building's payment to the public utility for the purchase of electricity shall
be deemed to be payment for Building electric current.
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equal to the prime rate of the Chemical Bank of New York at the time of
Landlord's having incurred said expenditure.
(e) amounts received by Landlord through proceeds of
insurance to the extent the proceeds are compensation for expenses which were
previously included in Expenses hereunder;
(f) cost of repairs or replacements incurred by reason
of fire or other casualty to the extent to which Landlord is compensated
therefor through proceeds of insurance, or caused by the exercise of the right
of eminent domain;
(g) advertising and promotional expenditures;
(h) legal fees for disputes with tenant and legal and
auditing fees, other than legal and auditing fees reasonably incurred in
connection with the maintenance and operation of the building project or in
connection with the preparation of statements required pursuant to additional
rent or lease escalation provisions; and
(i) the incremental cost of furnishing services such as
overtime HVAC to any tenant at such tenant's expense; costs incurred in
performing work or furnishing services for individual tenants (including this
Tenant) at such tenant's expense; and costs of performing work or furnishing
services for tenants other than this Tenant at Landlord's expense to the extent
that such work or service is in excess of any work or service Landlord is
obligated to furnish to this Tenant at Landlord's expense.
[Insert 52B]
If Landlord shall purchase any item of capital equipment or make any
capital expenditure designed to result in savings or reductions in Expenses,
then the costs for same shall be included in Expense [Insert 52C]. The costs of
capital equipment or capital expenditures are so to be included in Expenses for
the comparative year in which the costs are incurred and subsequent comparative
years, on a straight line basis, to the extent that such items are amortized
over such period of time as reasonably can be estimated as the time in which
such savings or reductions in Expenses are expected to equal Landlord's costs
for such capital equipment or capital expenditure, with an interest factor equal
to the prime rate of the Chemical Bank of New York at the time of Landlord's
having incurred said costs. If Landlord shall lease any such item of capital
equipment
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[ first line not readable on original ]
leasing shall be included in Expenses for the comparative year in which they
were incurred.
If during all or part of [Insert 52D] any comparative year, Landlord
shall not furnish any particular item(s) of work or service (which would
constitute an Expense hereunder) to portions of the building project due to the
fact that such portions are not occupied or leased, or because such item of work
or service is not required or desired by the tenant of such portion, or such
tenant is itself obtaining and providing such item of work or service, or for
other reasons, then, for the purposes of computing the additional rent payable
hereunder, the amount of the expenses for such item for such period shall be
increased by an amount equal to the additional operating and maintenance
expenses which would reasonably have been incurred during, such period by
Landlord if it had at its own expense furnished such item of work or services to
such portion of the building project.
(b) 1. If the Expenses for any comparative year shall be greater
than the Expenses for the base year, Tenant shall pay to Landlord, as additional
rent for such comparative year, in the manner hereinafter provided, an amount
equal to The Percentage of the excess of the Expenses for such comparative year
over the Expenses for the base year (such amount being hereinafter called the
"Expense Payment").
Following the expiration of each comparative year and after receipt of
necessary information and computations from Landlord's certified public
accountant, Landlord shall submit to tenant a statement, as hereinafter
described, setting forth the Expenses for the preceding comparative year, the
Expenses for the base year, and the Expense Payment, if any, due to Landlord
from Tenant for such comparative year. The rendition of such statement to
Tenant shall constitute prima facie proof of the accuracy thereof and, if such
statement shows an Expense Payment due from Tenant to Landlord with respect to
the preceding comparative year then (i) Tenant shall make payment of any unpaid
portion thereof within [Insert 52E] days after receipt of such statement; and
(ii) Tenant shall also pay to Landlord, as additional rent, within [Insert 52E]
days after receipt of such statement, an amount equal to the product obtained by
multiplying the total Expense Payment for the preceding comparative year by a
fraction, the denominator of which shall be 12 and the numerator of which shall
be the number of months of the current comparative year which shall have elapsed
prior to the first day of the month immediately following the rendition of such
statement; and (iii) Tenant
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[ first line not readable on original ]
as of the first day of the month immediately following the rendition of such
statement and on the first day of each month thereafter until a new statement is
rendered, 1/12th of the total Expense Payment for the preceding comparative
year. The aforesaid monthly payments based on the total Expense Payment for the
preceding comparative year shall from time to time be adjusted to reflect, if
Landlord can reasonably so estimate known increases in rates or costs, for the
current comparative year, applicable to the categories involved in computing
Expenses, whenever such increases become known prior to or during such current
comparative year, The payments required to be made under (ii) and (iii) above
shall be credited toward the Expense Payment due from Tenant for the then
current comparative year, subject to adjustment as and when the statement for
such current comparative year is rendered by Landlord [Insert 52E].
2. The statements of the Expenses to be furnished by Landlord
as provided above shall be certified by Landlord, and shall be prepared in
reasonable detail and based on information and computations made for the
Landlord by a Certified Public Accountant (who may be the CPA now or then
employed by Landlord for the audit of its accounts); said Certified Public
Accountant may rely on Landlord's allocations and estimates wherever operating
costs allocations or estimates are needed for this Article. The statements thus
furnished to Tenant shall constitute a final determination as between Landlord
and Tenant of the Expenses for the periods represented thereby, unless Tenant
within thirty (30) days after they are furnished shall give a notice to Landlord
that it disputes their accuracy or their appropriateness, which notice shall
specify the particular respects in which the statement is inaccurate or
inappropriate. Pending the resolution of any such dispute, Tenant shall pay the
additional rent to Landlord in accordance with the statements furnished by
Landlord.
[Insert 52F]
3. In no event shall the fixed annual rent under this Lease be
reduced by virtue of this Article.
4. If the commencement date of the term of this Lease is not
the first day of the first comparative year, then the additional rent due
hereunder for such first comparative year shall be a proportionate share of said
additional rent for the entire comparative year, said proportionate share to be
based upon the length of time that the Lease term will be in existence during
such first comparative year. Upon the date of any expiration or termination of
this Lease (except termination because of Tenant's default) whether the same be
the date hereinabove set forth for the expiration of the term or any prior or
subsequent
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comparative year during which such expiration or termination occurs shall
immediately become due and payable by Tenant to Landlord, if it was not
theretofore already billed and paid. The said proportionate share shall be based
upon the length Of time that this Lease shall have been in existence during such
comparative year. Landlord shall, as soon as reasonably practicable, compute
the additional rent due from Tenant, as aforesaid, which computations shall
either be based on that comparative year's actual figures or be an estimate
based upon the most recent statements theretofore prepared by Landlord and
furnished to Tenant under subdivisions (1) and (2) above. If an estimate is
used, then Landlord shall cause statements to be prepared on the basis of the
comparative year's actual figures promptly after they are available, and
thereupon, Landlord and Tenant shall make appropriate adjustments of any
estimated payments theretofore made.
5. Landlord's and Tenants obligation to make the adjustments
referred to in subdivision (4) above shall survive any expiration or termination
of this Lease.
6. Any delay or failure of Landlord in billing any operating
expense escalation hereinabove provided shall not constitute a waiver of or in
any way impair the continuing obligation of Tenant to pay such operating expense
escalation hereunder.
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Supplementing Articles 8 and 28 hereof:
ASSIGNMENT AND SUBLETTING
53. A. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this Lease, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used or occupied by others, without the prior written consent of Landlord in
each instance. The merger or consolidation of a corporate lessee or sublessee
where the net worth of the resulting or surviving corporation is less than
[Insert 53A] the net worth of the lessee or sublessee [Insert 53A-3] shall be
deemed an assignment of this lease or of such sublease. If this Lease be
assigned, or if the demised premises or any part thereof be underlet or occupied
by anybody other than Tenant, Landlord may, after default by Tenant, collect
rent from the assignee undertenant or occupant, and apply the net amount
collected to the rent herein reserved, but no assignment, underletting,
occupancy or collection shall be deemed a waiver of the provisions hereof, the
acceptance of the assignee, undertenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of covenants on the part of Tenant
herein contained. The consent by Landlord to an assignment or underletting
shall not in any way be construed to relieve Tenant from obtaining the express
consent in writing of Landlord to any further assignment or underletting. In no
event shall any permitted sublessee assign or encumber its sublease or further
sublet all or any portion of its sublet space, or otherwise suffer or permit the
sublet space or any part thereof to be used or occupied by others, without
Landlord's prior written consent in each instance. A [Insert 53A-1]
modification, amendment or extension of a sublease shall be deemed a sublease.
If any lien is filed against the demised premises or the building of which the
same form a part for brokerage services claimed to have been performed for
Tenant, whether or not actually performed the same shall be discharged by Tenant
within [Insert 53A-2] at Tenant's expense, by filing the bond required by Law,
or otherwise, and paying any other necessary sums, and Tenant agrees to
indemnify Landlord and its agents and hold them harmless from and against any
and all claims, losses or liability resulting from such lien for brokerage
services rendered.
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[Insert 53B]
If a sublease is so made [Insert 53B-1] it shall expressly:
(a) permit Landlord to make further subleases (of all or any
part of the Leaseback Area and (at no cost or expense to Tenant) to
make and authorize any and all changes, alterations, installations and
improvements in such space as necessary [Insert 53B-2];
(b) provide that Tenant will at all times permit reasonably
appropriate means of ingress to and egress from the Leaseback Area;
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(c) negate any intention that the estate created under such
sublease be merged with any other estate held by either of the
parties;
(d) provide that Landlord shall accept. the Leaseback Area "as
is" except that Landlord, at Tenant's expense [Insert 53B], shall
perform all such work and make all such alterations as may be required
physically to separate the Leaseback Area from the remainder of the
demised premises and to permit lawful occupancy, it being intended
that Tenant shall have no other cost or expense in connection with the
subletting of the Leaseback Area;
(e) provide that at the expiration of the term of such.
sublease Tenant will accept the Leaseback Area in [Insert 53C],
subject to the obligations of Landlord to make such repairs thereto as
may be necessary to preserve the Leaseback Area in good order and
condition, ordinary wear and tear excepted.
Landlord shall indemnify and save Tenant harmless from all obligations
under this Lease as to the Leaseback Area during the period of time it is so
sublet, except for fixed annual rent and additional rent, if any, due under the
within Lease, which are in excess of the rents and additional sums due under
such sublease.
Subject to the foregoing, performance by Landlord, or its designee,
under a sublease of the Leaseback Area shall be deemed performance by Tenant of
any similar obligation under this Lease and any default under any such sublease
shall not give rise to a default under a similar obligation contained in this
Lease, nor shall Tenant be liable for any default under this Lease or deemed to
be in default hereunder if such default is occasioned by or arises from any act
or omission of the tenant under such sublease or is occasioned by or arises from
any act or omission of any occupant holding under or pursuant to any such
sublease.
C. If Tenant requests Landlord's consent to a specific assignment or
subletting, it shall submit in writing to Landlord (i) the name and address of
the proposed assignee or sublessee, (ii) a duly executed counterpart of the
proposed agreement of assignment or sublease, (iii) reasonably satisfactory
information as to the nature and character of the business of the proposed
assignee or sublessee, and as to the nature of its proposed use of the space,
and
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(iv) banking, financial or other credit information relating to the proposed
assignee or sublessee reasonably sufficient to enable Landlord to determine the
financial responsibility and character of the proposed assignee or sublessee.
D. If Landlord shall not have accepted Tenant's offer, as provided
in Section B then Landlord will not unreasonably withhold or delay its consent
to Tenant's request for consent to such specific assignment or subletting. Any
consent of Landlord under this Article shall be subject to the terms of this
Article and conditioned upon there being no default by Tenant, beyond any grace
period, under any of the terms, covenants and conditions of this Lease at the
time that Landlord's consent to any such subletting or assignment is requested
and on the date of the commencement of the term of any proposed sublease or the
effective date of any proposed assignment.
E. Tenant understands and agrees that no assignment or subletting
shall he effective unless and until Tenant, upon receiving any necessary
Landlord's written consent (and unless it was theretofore delivered to Landlord)
causes a duly executed copy of the sublease or assignment to be delivered to
Landlord within ten (10) days after execution thereof. Any such sublease shall
provide that the sublessee shall comply with all applicable terms and conditions
of this lease to be performed by the Tenant hereunder. Any such assignment of
lease shall contain an assumption by the assignee of all of the terms, covenants
and conditions of this Lease to be performed by the Tenant.
F. Anything herein contained to the contrary not withstanding:
1. Tenant shall not advertise (but may list with brokers) its
space for assignment or subletting at a rental rate lower than the then building
rental rate for such space.
2. The transfer of a majority of the issued and outstanding
capital stock of, or a controlling interest in, any corporate tenant or
subtenant of this Lease or a majority of the total interest in any partnership
tenant or subtenant, however accomplished, and whether in a single transaction
or in a series of related or unrelated transactions, shall be deemed an
assignment of this Lease or of such sublease. The transfer of outstanding
capital stock of any corporate tenant, for purposes of this Article, shall not
include sale of such stock by persons other than those deemed
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"insiders" within the meaning of the Securities Exchange Act of 1934 as amended,
and which sale is effected through "over-the-counter market" or through any
recognized stock exchange.
3. No assignment or subletting shall be made:
(a) To any person or entity which shall at that time be a
tenant, subtenant or other occupant of any part of the building of
which the demised premises form a part, or who dealt with Landlord or
Landlord's agent (directly or through a broker) with respect to space
in the building during the six (6) months immediately preceding
Tenant's request for Landlord's consent;
(b) By the legal representatives of the Tenant or by any
person to whom Tenant's interest under this Lease passes by operation
of law, except in compliance with the provisions of this Article;
(c) To any person or entity for the conduct of a business
which is not in keeping with the standards and the general character
of the building of which the demised premises form a part.
G. Anything hereinabove contained to the contrary notwithstanding,
the offer back to Landlord provisions of Section B hereof shall not apply to,
and Landlord will not unreasonably withhold or delay its consent to an
assignment of this Lease, or sublease of all or part of the demised premises, to
the parent of Tenant or to a wholly-owned subsidiary of Tenant or of said parent
of Tenant, provided the net worth of the transferor or sublessor, after such
transaction, is equal to or greater than its net worth immediately prior to such
transaction and provided also that any such transaction complies with the other
provisions of this Article.
H. Anything hereinabove contained to the contrary notwithstanding,
the offer back to Landlord provisions of Section B hereof shall not apply to,
and Landlord will not unreasonably withhold or delay its consent to an
assignment of this Lease, or sublease of all or part of the demised premises, to
any corporation (i) to which substantially all the assets of Tenant are
transferred or (ii) into which Tenant may be merged or consolidated, provided
that the net worth, experience and reputation of such transferee or of the
resulting or surviving corporation, as the case may be, is [Insert 53D]
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also, that any such transaction complies with the other provisions of this
Article.
No consent from Landlord shall be necessary under Subdivisions G and H
hereof where (i) proof is delivered to Landlord that the net worth or other
provisions of G or H, as the case may be, and the other provisions of this
Article, have been satisfied and (ii) Tenant, in a writing reasonably
satisfactory to Landlord's attorneys, agrees to remain primarily liable jointly
and severally with any transferee or assignee, for the obligations of Tenant
under this Lease.
I. If Landlord shall not have accepted any required Tenant's offer
and/or Tenant effects any assignment or subletting, then Tenant thereafter shall
pay to Landlord a sum equal to [Insert 53E] (a) any rent or other consideration
paid to Tenant by any subtenant which (after deducting the costs of Tenant, if
any, in effecting the subletting, including reasonable alterations costs,
commissions [Insert 53F-1] and legal fees) is in excess of the rent allocable to
the subleased space which is then being paid by Tenant to Landlord pursuant to
the terms hereof, and (b) any other profit or gain (after deducting any
necessary expenses incurred) realized by Tenant from any such subletting or
assignment. All sums payable hereunder by Tenant shall be payable to Landlord
as additional rent upon receipt thereof by Tenant.
J. In no event shall Tenant be entitled to make, nor shall Tenant
make, any claim, and Tenant hereby waives any claim, for money damages (nor
shall Tenant claim any money damages by way of set-off, counterclaim or defense)
based upon any claim or assertion by Tenant that Landlord has unreasonably
withheld or unreasonably delayed its consent or approval to a proposed
assignment or subletting as provided for in this Article. Tenant's sole remedy
shall be an action or proceeding to enforce any such provision, or for specific
performance, injunction or declaratory judgment [Insert 53F].
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MISCELLANEOUS
54. A. This Lease constitutes the entire agreement between the parties
hereto and no earlier statements or prior written matter shall have any force or
effect. Lessee agrees that it is not relying on any representations or
agreements other than those contained in this Lease. This agreement shall not
be modified or canceled except by written instrument subscribed by both parties.
The covenants, conditions and agreements contained in this Lease shall bind and
inure to the benefit of Lessor and Losses and their respective heirs,
distributees, executors, administrators, successors and their permitted assigns.
B. This Rider modifies and supersedes certain provisions of the
printed portion of this Lease. In the event any term, covenant, condition or
agreement contained in this Rider to the Lease shall conflict or be inconsistent
with any term, covenant, condition or agreement contained in the printed portion
of this Lease, then the parties agree that the Rider provision shall prevail.
C. This Lease shall be construed without regard to any presumption
or other rule requiring construction against the party causing this Lease to be
drafted.
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RENT CREDIT
55. A. If and so long as Tenant is not in [Insert 55A-1] default under
this Lease [Insert 55A], Tenant shall be entitled to a rent credit in the amount
of $70,746.00 to be by Landlord applied against the first (1st), second (2nd),
third (3rd) , fourth (4th) and fifth (5th) monthly installments of fixed annual
rent (without electricity), accruing under this Lease, so that Tenant shall
occupy the demised premises free of such fixed annual rent for that period;
except that Tenant shall nevertheless be obligated, from and after the
commencement date of the term, to pay additional rents hereunder.
B. If and so long as Tenant is not in [Insert 55A-1] default under
this Lease [Insert 55A], Tenant shall be entitled to an additional rent credit
in the amount of $363,400.00, to be by Landlord applied against the first (1st),
second (2nd), third (3rd), fourth (4th) and fifth (5th) monthly installments of
fixed annual rent (without electricity), accruing under this Lease beginning on
December 1, 1999, so that Tenant shall occupy the demised premises free of such
fixed annual rent for that period; except that Tenant shall nevertheless be
obligated, from and after the commencement date of the term, to pay additional
rents hereunder.
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SPACE DEMISED
56. A. Landlord and Tenant acknowledge and agree that the premises
consists of: (a) the entire rentable portion of the 21st floor and a portion of
the 20th floor of the building approximately as depicted in yellow on the floor
plan annexed hereto and made a part hereof as Exhibit A, the rentable square
foot area of which the parties hereto acknowledge and agree equals 21,880 square
feet ("Space A"); (b) an additional portion of the 20th floor of the building
approximately as depicted in pink on the floor plan annexed hereto and made a
part hereof as Exhibit A, the rentable square foot area of which the parties
hereto acknowledge and agree equals 5,375 square feet ("Space B"); and (c) the
remaining rentable portion of the 20th floor of the Building approximately as
depicted in blue on the floor plan annexed hereto and made a part hereof as
Exhibit A, the rentable square foot area of which the parties hereto acknowledge
and agree equals 5,306 square feet ("Space C").
B. For purposes of Article 24 of this Lease, the term "base tax
year" shall mean: (a) with respect to Space A, (x) from the commencement date of
the term hereof (the "Commencement Date") through November 30, 1999, the New
York City real estate tax year commencing July 1, 1990 and ending June 30, 1991
and (y) from December 1, 1999 through the expiration date of the term hereof
(the "Expiration Date"), the New York City real estate tax year commencing July
1, 1995 and ending June 30, 1996; (b) with respect to Space 2, (x) from the
Commencement Date through November 30, 1999, the New York City real estate tax
year commencing July 1, 1994 and ending June 30, 1995 and (y) from December 1,
1999 through the Expiration Date, the New York City real estate tax year
commencing July 1, 1995 and ending June 30, 1996; and (c) with respect to Space
C, the New York City real estate tax year commencing July 1, 1993 and ending
June 30, 1996;
C. For purposes of Article 52 of this Lease, the term "base year"
shall mean: (a) with respect to Space A, (x) from the Commencement Date
through November 30, 1999, the calendar year 1990 and (y) from December 1,
1999 through the Expiration Date, the calendar year 1995; (b) with respect to
Space B, (x) from the Commencement Date through November 30, 1999, the
calendar year 1994 and (y) from December 1, 1999 through the Expiration Date,
the calendar year 1995; and (c) with respect to Space C, the calendar year
1995.
D. For purposes of Articles 24 and 52 of this Lease, the term "The
Percentage" shall mean: (a) with respect to Space A, 2.188%; (b) with respect to
Space B, .5375%, and with respect to Space C, .5306%.
E. Notwithstanding anything to the contrary contained herein, Tenant
shall not be obligated to pay any additional rent
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ARBITRATION
57. Any dispute between Landlord and Tenant with respect to any issue arising
out of this Lease specifically made subject to resolution by arbitration shall
be determined by arbitration in New York County, New York in accordance with the
rules of the American Arbitration Association. In the event that Tenant demands
arbitration under this Article, Landlord and Tenant shall jointly select an
independent arbitrator (the "Arbitrator") In the event that Landlord and Tenant
shall be unable to jointly agree on the designation of the Arbitrator within
five (5) days after they are requested to do so by either party, then the
parties agree to allow the American Arbitration Association, or any successor
organization to designate the Arbitrator in accordance with the rules,
regulations and/or procedures for expedited proceedings then obtaining of the
American Arbitration Association of any successor organization. The Arbitrator
shall conduct such hearings and investigations as he may deem appropriate and
shall, within ten (10) days after the date of designation of the Arbitrator
issue a determination as to whether Landlord's refusal to consent was
unreasonable. The determination of the Arbitrator shall be conclusive and
binding upon Landlord and Tenant and shall be set forth, along and with the
Arbitrator's rationale for such choice, in a written report delivered to
Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if
any, in connection with any arbitration under this Article. The Arbitrator
appointed pursuant to this Article shall be an independent real estate
professional with at least ten (10) years, experience in leasing of properties
which are similar in character to the Building. The Arbitrator shall not have
the power to add to, modify or change any of the provisions of this Lease but
shall have the power to direct Landlord to consent to such request.
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EXISTING LEASE
58. A. The parties acknowledge and agree that the within Lease is
intended to be in substitution for that certain lease agreement between Landlord
and Tenant, dated as of October 1989, as modified by that certain modification
agreement, dated as of August 23, 1993 (the "Existing Lease").
B. The parties hereto covenant and agree that the Existing Lease
shall be deemed cancelled effective as of 11:59 p.m. on January 31, 1996 ("the
Cancellation Date"), provided, however, that (i) any obligations of Tenant or
Landlord under the Existing Lease accruing through and including the
Cancellation Date and claims against Tenant or Landlord relating to personal
injury or property damage shall survive any such cancellation and shall be and
remain obligations of Tenant under the within Lease and (ii) within thirty (30)
days of the Cancellation Date, Landlord shall return to Tenant all unapplied
security deposited by Tenant pursuant to the Existing Lease.
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ADDITIONAL PROVISIONS REGARDING
ELECTRICITY SERVICE, LANDLORD'S WORK, AIR CONDITIONING
59. A. Supplementing Article 41 hereof, Landlord and Tenant acknowledge
and agree that electrical feeders in the building known by Landlord and Tenant
as electrical feeders "A", "E" and "Y" presently service the premises. Landlord
agrees that: (i) Tenant shall have the exclusive use and the available capacity
of feeders "A" and "E" as determined by the permissible fuse capacity of the
fuse devises servicing the respective feeders as of the date hereof; (ii) Tenant
shall be permitted to use feeder "Y" up to a maximum of 180 amperes of riser
capacity, exclusive of Landlord's air-conditioning equipment servicing the
premises, and (iii) Landlord shall use reasonable efforts to provide Tenant with
reasonable prior notification (which may be given orally) of any planned
interruption in electrical service to the premises.
B. (1) Supplementing Articles 32 and 45 hereof, the air-conditioning
and heating service to be furnished by Landlord shall supply to the premises for
distribution, by Tenant adequate capacity to meet the following criteria
assuming (except with respect to areas, such as an MIS room and telephone rooms,
for which supplemental cooling is required): (i) Tenant's electrical consumption
does not exceed five (5) watts demand load per rentable square toot of the
premises; (ii) Tenant's occupancy does not exceed one (1) person per one hundred
fifty (150) rentable square feet of the premises; (iii) the entire premises
contains an average finished ceiling height not to exceed eight (8) feet, six
(6) inches in height, and (iv) Tenant properly uses blinds or shades:
(a) Summer: when the outside temperature is 89 degrees F dry bulb and
75 degrees F wet bulb, inside space temperature to be maximum 76
degrees F and 50% relative humidity;
(b) Winter: when the outside temperature is 5 degrees dry bulb,
inside space temperature to be 72 degrees F and 10-20% relative
humidity;
(c) Outside Air: 20 CFM per person
(2) Landlord, at its cost and expense, may elect to install any
additional package air-conditioning systems (i.e., exclusive of duct work)
required in order to meet the aforesaid air-conditioning criteria. Subject to
the last sentence of this Subsection B(2), Landlord shall maintain and repair
any such air-conditioning systems and operate same at its cost and expense.
Such systems may be installed at Landlord's election in mechanical rooms to be
constructed by Landlord, at Landlord's cost and expense, in the premises at
locations reasonably designated by Landlord and reasonably approved by Tenant.
Tenant shall be
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permitted, at its cost and expense, to connect an appropriate control to any
air-cooled, air-conditioning package systems either existing or installed by
Landlord in the premises in order to meet the aforesaid air-conditioning
criteria (i.e., exclusive of air-conditioning equipment required for
supplemental cooling) to enable Tenant to operate such systems on days and hours
in addition to those set forth in Article 45 (B) of this Lease. In such event,
any air-conditioning systems which may be operated by such controls shall be
connected by Landlord at Tenant's cost and expense to separate electrical
meters, which shall be installed by Tenant at Tenant's cost and expense, to
enable Landlord to measure separately the electrical consumption of each such
system. The type of equipment, method of installation and contractors
performing any such work referred to in this Subsection B(2) shall be subject to
Landlord's prior written approval. Notwithstanding anything contained herein to
the contrary, (x) if any such air-conditioning systems are operated during any
Air Conditioning Season, as measured by such meter or meters, (i) in excess of
1,320 hours, Tenant shall pay for electricity consumed by such systems during
each such Air Conditioning Season in excess of 1,320 hours in accordance with
the provisions of Article 41 of this Lease, and (ii) in excess of 1,518 hours,
Tenant shall, at its sole cost and expense, thereafter maintain and repair such
air-conditioning system and (y) if any such air-conditioning systems are
operated during any Heating Season, as measured by such meter or meters, (i) in
excess of 2,060 hours, Tenant shall pay for electricity consumed by such systems
during each such Heating Season in excess of 2,060 hours in accordance with the
provisions of Article 41 of this Lease and (ii) in excess of 2,382 hours, Tenant
shall, at its sole cost and expense, thereafter maintain and repair such air-
conditioning system.
C. Landlord shall, at its expense and with reasonable dispatch,
subject to delay by causes beyond its reasonable control or by the action or
inaction of Tenant, perform the following work:
(a) perform all work listed in the infrared thermoscan report annexed
hereto and made a part hereof as Exhibit C;
(b) furnish and install a fire alarm interface panel (to which Tenant
may connect ADA horn and strobe lights) on each floor of the premises in
locations reasonably designated by Landlord;
(c) disconnect from feeder "A" and reconnect to feeder "Y" the
existing ten (10) ton package air-conditioning unit on the 20th floor of the
premises known to Landlord and Tenant as unit "20-1".
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OPTION SPACE
60. A. Annexed hereto as Exhibit D is a schedule which describes each
separately demised rentable space on the 22nd floor of the Building including
the deemed rentable square footage of each such space, the expiration date of
the term of each lease therefor, and the percentage applicable thereto for
purposes of calculating certain additional rent pursuant to Articles 24 and 52
of this Lease (such space hereinafter referred to collectively as the "Option
Space").
B. Provided that Tenant is not in material default of any of the
terms, covenants and conditions of this Lease after notice beyond any applicable
grace period provided for in this Lease, Tenant may elect to add to the Demised
Premises any separately demised space contained within the Option Space on the
terms and in strict compliance with the conditions hereinafter set forth.
C. Subject to the other provisions of this Article, Option Space may
be added to the Demised Premises as follows: Tenant shall give Landlord notice
of its election to add to the Demised Premises a particular portion of the
Option Space not later than eight (8) months prior to the expiration date of the
term of the lease therefor as set forth in Exhibit D hereto. Time shall be of
the essence in connection with the exercise by Tenant of any option hereunder.
D. In the event that Tenant properly and timely exercises its option
under this Article, the applicable portion of the Option Space shall be added to
the Demised Premises on the date upon which possession of such space is
delivered to Tenant (the "Delivery Date"), under the same terms, covenants and
conditions of this Lease, except:
(i) fixed annual rent per annum for the applicable portion of the
Option Space shall be at the same rate per annum per deemed rentable square foot
as is then payable for the Demised Premises and shall be due and payable as of
the Delivery Date;
(ii) the Percentage as defined in Articles 24 and 52 hereof shall be
amended and increased to reflect the percentage and rentable square footage of
the applicable portion of the Option Space added to the Demised Premises as set
forth in Exhibit F provided, however, the "base tax year" as defined in Article
24 of this Lease and the "base year" as defined in Article 52 of this Lease for
the Option Space shall be the same as for Space C demised hereunder.
(iii) the applicable portion of the Option Space shall be delivered
and accepted by Tenant in its then "as-is" condition
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provided, however, that if and so long as Tenant is not in material default
under this Lease after notice and beyond the expiration of any applicable grace
period provided for in this Lease, Landlord shall credit against fixed annual
rent and additional rent accruing under this Lease with respect to such Option
Space a sum up to the product obtained by multiplying (x) $30, by (y) the deemed
rentable square foot area of such option Space, by (z) a fraction, the numerator
of which is the number of full months remaining in the unexpired portion of the
term of this Lease after the Delivery Date (the "Unexpired Term") and the
denominator of which is 132. Said amount shall only be credited towards the
cost of labor and materials for the portion of alterations to such Option Space
which constitutes permanent improvements to made therein prior to Tenant's
initial occupancy thereof and shall be credited by Landlord subject to and in
accordance with the provisions of Article 47(b) through (d), inclusive, of this
Lease governing the crediting of Landlord's Contribution.
(iv) If and so long as Tenant is not in material default under this
Lease after notice and beyond the expiration of any grace period provided for in
this Lease, Tenant shall receive a credit against the fixed annual rent accruing
for the Option Space after the Delivery Date in an amount equal to the product
obtained by multiplying (x) 5/12, by (y) the fixed annual rent payable per annum
for such Option Space by (z) a fraction, the numerator of which is the number of
full months remaining in the Unexpired Term and the denominator of which is 132.
E. In the event Tenant duly and properly exercises such option under
this Article, the parties shall immediately be bound thereby without the
execution of an amendment to this Lease; however, at the request of either
party, the parties shall promptly execute and deliver a written amendment to
this Lease reflecting the addition of such option Space to the Demised Premises
for the remainder of the term of this Lease, the increase of the fixed annual
rent, the increase of the Percentage and the other modifications as provided
above, applicable to such Option Space. Except for such changes, the provisions
of this Lease shall apply with respect to such Option Space.
F. In the event Tenant shall fail to notify Landlord of its election
within the applicable time period as provided herein, Tenant shall be
conclusively deemed to have failed to have exercised said option with respect to
such Option Space, and Tenant agrees upon request of Landlord to confirm such
non-exercise in writing, but failure to do so by Tenant shall not operate to
revive any rights of Tenant under this Article. Notwithstanding anything to the
contrary contained in this Article, neither Tenant's exercise of its rights
hereunder nor Tenant's failure to exercise its right hereunder with respect to
any separately demised space contained within the Option Space
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shall otherwise affect Tenant's right to add to the Demised Premises any other
separately demised space contained within the Option Space as provided for
herein.
40A
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ADDENDA TO LEASE BETWEEN
230 PARK AVENUE ASSOCIATES
AND HAMBRECHT & QUIST
A. payable in equal monthly installments in advance on the first day of each
month subject, however, to the provisions of Article 55 of this Lease
1A. executive, administrative, sales, trading and general offices for the
transaction of business and for purposes reasonably related thereto, and
for no other purpose.
2A. within twenty (20) days after demand is given to Lessee therefor.
2B. (except as expressly provided for in this Lease)
3A. Subject to the provisions of Article 53 hereof, neither
3B. Subject to the provisions of Article 53 hereof, if
4A. five (5)
4B. ten (10)
4C. twenty (20)
4D. or if any such petition is filed against Lessee and such petition shall
remain undischarged for a period of sixty (60) days
4E. and such execution or attachment shall remain undischarged for a period of
twenty (20) days after notice thereof is given to Lessee
4F. five (5)
5A. after notice and beyond the expiration of any grace period provided for in
Article 4 hereof,
5B. reasonable
5C. based on a default by Lessee beyond any applicable grace period provided
for in this Lease,
SD. and fails to continue to pay all rent and additional rent payable hereunder
5E. beyond any applicable grace period provided for in this Lease,
6A. beyond any applicable grace period provided for in this Lease,
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6B. reasonable
7A. , which consent shall not be unreasonably withheld or delayed by Lessor if
such alteration, addition or improvement does not affect any plumbing,
electrical, mechanical, HVAC or other building system, piping or ducting,
PROVIDED that the foregoing provisions shall not apply to any alteration,
addition or improvement which is purely decorative in nature or which is
non-structural in nature and the cost of which is less than $30,000.00 and
which does not affect any plumbing, electrical, mechanical, HVAC or other
building system, piping or ducting. All alterations, additions and
improvements shall be performed
7B. , which approval will not be unreasonably withheld or delayed by Lessor,
provided, however, that Lessor's previous experience with a contractor or
mechanic may form a basis upon which Lessor may withhold its consent, and
subject to the provisions of Article 48(d) of this Lease.
7C. at the time consent to such installation or alteration is given, provided
that Tenant requests such designation at the time such consent is
requested,
7D. expiration or sooner termination of this lease
8A. thirty (30)
9A. supplemental
9B. Except as expressly set forth herein, Lessor shall, throughout the term of
this Lease, keep and maintain in good order and condition the roof, the
exterior walls, the structural elements of the building, the common
facilities of the building, including, without limitation, the heating,
ventilation and air conditioning system (other than supplemental systems
installed by Lessee), the plumbing and other building systems and equipment
servicing the premises (other than supplemental systems installed by
Lessee) and the lobby. Notwithstanding anything to the contrary contained
herein, Lessor's aforesaid obligation shall be inapplicable to the extent
that the need for same arises out of the negligence or willful misconduct
of Tenant, its employees, agents or invitees, (or Tenant's breach of the
terms, covenants or conditions of this Lease.
10A. with all reasonable diligence to its condition as nearly as possible prior
to such fire or other casualty,
10B. and additional rent
10C. substantially
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10D. nor more than sixty (60)
10E. Lessor shall notify Lessee within ninety (90) days of any damage by fire or
other casualty to the building or the premises of Lessor's good faith
estimate of the period necessary for Lessor to perform the restoration of
the building or premises. If (i) the premises have been damaged or
destroyed or the building has been damaged or destroyed such that Lessee's
access to the premises is substantially impaired and (ii) the estimated
time by Lessor to perform the restoration of the premises or the building
is more than nine (9) months after the occurrence of such damage or
destruction, Lessee shall have the option, within sixty (60) days of the
date such notice is given to Lessee, to elect to terminate this Lease on a
date not less than ten (10) nor more than sixty (60) days after the date
Lessee's notice is given.
11A. of which notice thereof has been given to Lessee
11B. seven (7) days
11C. two (2)
11D. during normal business hours and on reasonable oral notice to Lessee,
12A. reasonably
12B. if Lessee shall not execute such document within twenty (20) days of a
request therefor by Lessor.
12C. Notwithstanding anything to the contrary contained herein, Lessor shall use
its reasonable efforts to obtain an agreement in favor of Lessee from the
holder of any existing or future mortgage and from the landlord under any
future ground or underlying lease which provides in substance that so long
as this lease shall be in full force and effect (i) Lessee shall not be
named or joined in any action or proceeding to terminate such lease by
reason of lessor's default, as tenant thereunder, or any action for
foreclosure of such mortgage, (ii) no such termination or foreclosure, or
any action or proceeding brought in pursuance thereof, shall cause a
cancellation or termination of this lease and (iii) if such overlandlord or
mortgagee shall become the owner in fee of the land and building or, in the
case of the mortgagee, the assignee of such lease or the lessee of any
other lease given in substitution therefor, or if the land, building and/or
such lease shall be sold as a result of any action or proceeding to
foreclose such mortgage, then provided that lessee shall recognize and
attorn to the mortgagee or overlandlord or any of their successors or
assigns, this lease shall continue n full force and effect as a direct
lease between lessee and the
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then owner of the land and building or the then lessee of such lease, or
the lessee of any other lease given in substitution thereof, or such
purchaser of the land, building and/or lease, as the case may be, upon all
of the terms, provisions, conditions and obligations of this lease. Lessor
represents that there is no existing ground or underlying lease affecting
the premises.
13A. and additional rent
13B. and Lessee's liability under Articles 24 and 52 shall be adjusted
accordingly, PROVIDED that Lessee may elect to terminate this Lease in the
event of a taking of more than 30% of the rentable area of the premises or
a taking that substantially impairs Lessee's access to the premises by
giving notice of such election not later than sixty (60) days after the
date of such taking. Nothing contained in this Section 13 shall be deemed
to preclude Lessee from recovering its moving expenses and the value of
Lessee's trade fixtures, personal property and any improvements which
Lessee is entitled to remove from the premises in accordance with the
provisions of this Lease.
14A. Notwithstanding the foregoing, Lessee shall not be required to perform any
alteration and/or improvements to the premises in order to comply with
laws, order and/or regulations unless such alterations and/or improvements
are required by reason of Lessee's particular manner of use of the premises
or particular method of operation.
14B. Tenant may, after securing Landlord to Landlord's satisfaction against all
damages, interest, penalties and expenses including, without limitation,
reasonable attorneys' fees by cash deposit or by surety bond in an amount
and in a company satisfactory to Landlord, contest and appeal any such
laws, ordinances, order, rules, regulations or requirements provided same
is done with all reasonable promptness and provided such appeal shall not
subject Landlord to prosecution for an offense or constitute a default
under any lease or mortgage under which Landlord may be obligated or cause
the Building or any part thereof to be condemned or vacated.
15A. Lessor covenants and agrees that throughout the term of this Lease, Lessor
shall use its best efforts to maintain a certificate of occupancy for the
building.
16A. Lessor represents and warrants to Lessee that, except for the portion of
the demised premises currently occupied by Lessee, the demised premises are
vacant and are not subject to any rights of other tenants or occupants.
18A. , such pipes and conduits shall, if reasonably possible, be
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located in the central core areas of the building, above ceiling surfaces,
below floor surfaces or within perimeter walls of the premises.
18B. during normal business hours on reasonable oral notice to Lessee (except
that in the case of emergency, no notice shall be required)
18C. during an emergency.
18D. reasonably
18E. Lessor shall use its reasonable efforts to cause all work hereunder to be
performed at such times an in such manner as to reduce to a minimum
interfere with Lessee's use of the premises provided, however, that Lessee
acknowledges and agrees that all such work shall be performed during normal
business hours on normal business days. If any such work shall reduce the
square footage comprising the floor area of the premises on the date hereof
in excess of 5% in the aggregate, Lessee shall be entitled to a
proportional abatement of rent and additional rent.
18F. , PROVIDED that such changes do not substantially impair Lessee's access to
the premises
20A. , PROVIDED that (i) the foregoing indemnity shall not be applicable to any
claim resulting from the negligence or wilful misconduct of Lessor or its
agents, employees, contractors or invitees, (ii) Lessor shall give Lessee
prompt notice of any such claim, (iii) Lessee shall have the right to
assume the defense thereof with attorneys selected by Lessee and (iv)
Lessor shall not settle any such claim without giving Lessee at least ten
(10) days prior within notice.
21A. reasonable
21B. Lessor shall use its reasonable efforts to cause such repairs, alterations
or additions to be completed as quickly as possible and in a manner such as
to reduce to a minimum interference with Lessee's use of the premises.
21C. or any subtenant or occupant of the premises
21D. of which Lessor did not have actual knowledge
22A. on the Commencement Date (hereinafter defined)
24A-1. only
24A. excluding, however, inheritance, income, franchise, profit, estate,
successor, gains, transfer or other taxes, interest
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and late payment penalties.
24B. provided, however, that except as specifically provided for herein, such
taxes and impositions shall be excluded from the definition of "real estate
taxes."
24C. by Lessee as follows:
After Landlord has furnished Tenant with the aforesaid statement, Tenant
shall pay Landlord with the monthly installments of rent due on June 1 and
December 1 of each such comparative year an amount equal to one-half (1/2)
of the total sum of additional rent due from Tenant to Landlord pursuant to
such statement for such comparative year. If, during the term of this
Lease, any such taxes are required to be paid to the taxing authority, in
full or in quarterly or other installments, (on any other date or dates
than as presently required, then Tenant's tax escalation payment(s) shall
be correspondingly accelerated so that said payments are due thirty (30)
days prior to the date proportionate payments are due to the taxing
authority. If a statement is furnished to Tenant after the commencement of
the comparative year in respect of which such statement is rendered, Tenant
shall, within fifteen (15) days thereafter pay to Landlord an amount equal
to those installments of the total tax escalation payable as provided in
the preceding sentence during the period prior to the first date of the
month next succeeding the month in which the applicable statement has been
furnished.
24D. the base tax year and
24E. thirty (30)
24F. and Landlord shall apply any amount due Tenant as a credit against the next
installments of rent and additional rent accruing under this Lease during
the term of this Lease or, after the expiration thereof, promptly refund
such amount to Tenant.
26A. other than mandatory or compulsory counterclaims
27A. a rate equal to 2% in excess of the rate announced from time to time by
Citibank, N.A. in its New York offices as its Base Rate.
27B. Notwithstanding the foregoing, Lessor agrees not to enforce any rule or
regulation in a discriminatory manner.
28A. abandons
28B. and shall default in the payment of fixed annual rent or
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additional rent hereunder, then the sum set forth in subsection C of this
Article shall immediately become due and payable to Lessor.
28C. the amount by which the fixed annual rent and additional rent payable
hereunder for the period to the expiration date of this Lease from the date
of such breach together with all reasonable out-of-pocket expenses of
Lessor in obtaining possession of, and in effecting the reletting of the
premises including, without limitation, alteration costs, commissions,
concessions and legal fees, exceeds the then fair and reasonable rental
value of the Premises for the same period, both discounted at the prime
rate of interest charged by Chemical Bank, New York, on the date of such
breach to present worth.
29A. shall
29B. and
29C. to the last address designated in writing by Lessee. Bills shall be
delivered personally at the premises.
29D. personal
30A. 50% of
30B. for other than ordinary lavatory use
31A. negligence or wilful misconduct
32A. i.e., New Year's Day, President's Day, Memorial Day, Fourth of July, Labor
Day, Thanksgiving and Christmas) and a minimum of one (1) passenger
elevator from the lobby to the premises 24 hours per day, seven days per
week.
32B. the specifications annexed hereto and made a part hereof as Exhibit B,
35A. to the extent permitted by law and if Lessee shall take such other action
as Lessor shall reasonably request so as to permit Lessor, to the maximum
extent legally permissible, to collect the rent which would be payable
pursuant to this Lease but for such lease rent restriction.
41A. Notwithstanding anything to the contrary contained herein, Lessor shall
provide electricity to Lessee on a submetering basis and shall not change
such basis to a rent inclusion basis or to an alternative charge basis
unless required by law (a "Required Change")
41B. twenty (20)
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41C. or "rent inclusion" (if permitted hereunder)
41D. The ERIF shall be the amount determined by applying the estimated
electrical load of Tenant, which shall be deemed to be the demand (KW) (and
which shall reflect a proper diversity factor), and hours of use thereof,
which shall be deemed to be the energy (KWH), as determined by the
electrical consultant as hereinafter provided, to the rate charged for such
load and energy usage in the service classification set forth in subsection
(A) hereof and calculated in the manner provided for therein. Pending
completion of the initial survey to be conducted by Landlord's electrical
consultant hereunder, the ERIF shall be equal to the amount billable to
Tenant for Tenant's consumption of electricity (energy and demand) as
computed from a meter (or meters in accordance with the provisions of
Subsection (A) of this Article during the twelve (12) month period
immediately prior to the Required Change divided by the average deemed
rentable square foot area of the premises during said twelve month period.
41E. computer equipment, trading desk,
41F. Subject to the provisions of Article 59 of this Lease, any additional
41G. Notwithstanding anything herein to the contrary, Lessor shall not
voluntarily discontinue to furnish electrical service to the premises until
Lessee shall have made arrangements to obtain electricity from the public
utility serving the building unless Lessee shall not use its good faith and
reasonable efforts in obtaining such electricity from the public utility.
41H. thirty (30)
42A. other than Landlord's interest in the Building.
42B. amount due from Tenant as
42C. after notice and beyond any applicable grace period provided for in this
Lease
42D. reasonable
42E. in instituting, prosecuting or defending any proceeding
42F. within twenty (20) days after demand
43A. neither
43B. nor Tenant
8
<PAGE>
43C. by removing
43D. ten (10)
43E. and Lessor shall have given not less than ten (10) days notice of the date
upon which such restoration work shall be substantially completed to
Tenant.
44A. , its agents, servants, employees, contractors and any permitted assigns,
subtenants and occupants of the premises,
44B. The use of the premises for the purposes set forth in Article 1 of this
Lease (as opposed to the manner of use or method of operation therein)
shall be deemed not to violate the foregoing provisions.
44C. B plus
44D. after notice and beyond the expiration of any applicable grace period
provided for in this Lease
44E. twenty (20)
44F. or Lessor shall be excused from its obligations under this paragraph with
respect to the insurance policy or policies for which such additional
premiums would be imposed.
46A. standard
46B. reasonably
48A. Subject to the provisions of Article 7 of this Lease,
48B. , such approval not to be unreasonably withheld or delayed,
48C. provided that such limits do not exceed the limits then required by owners
of comparable class A buildings in midtown Manhattan in connection with the
performance of such work.
48D. and which shall be performed by Landlord, its agents, or contractors, at
the request of Tenant
48E. $30,000.00
48F. provided, however, that nothing contained herein shall require Tenant to
use Landlord, its agents or contractors, to perform alterations or other
work in the demised premises.
49A. not to be unreasonably withheld or delayed
50A. including
50B. Landlord shall pay any commission due and owing the Brokers
9
<PAGE>
pursuant to the terms of separate agreements.
51A. which may be sought by arbitration in accordance with the provisions of
Article 57 of this Lease.
52A. or paid
52A-1. (except to the extent included in real property taxes)
52A-2. in accordance with GAAP, consistently applied,
52A-3. over the useful life thereof
52B. The following costs and expenses shall also be excluded from operating
expenses: (1) real estate taxes, (2) franchise and income taxes imposed
upon Lessor, (3) debt service under any mortgage on the property and any
refinancing thereof and any costs incurred in connection with such mortgage
or refinancing, (4) leasing commissions, (5) capital improvements to the
building or land except for the cost of capital improvements made by Lessor
either (x) to reduce operating expenses, or (y) pursuant to a requirement
of law, ordinance, order, rule or regulation of any public authority having
jurisdiction, in either case calculated as follows: the cost of any, such
capital improvement shall be amortized on a straight-line basis over the
useful life thereof under generally accepted accounting principles, and the
annual amortization Of such capital improvements shall be included in
operating expenses, (6) the cost of electrical energy furnished to tenants
of the property to the extent reimbursed, (7) the cost of tenant
installations and decorations incurred in connection with preparing space
for any tenant, (8) salaries or fringe benefits of personnel above the
grade of building manager, (9) rent payable under the Master Lease or any
subsequent master lease, (10) the cost of any items to the extent to which
such cost is reimbursable to Lessor by tenants of the property (other than
pursuant to this section 52), insurance or condemnation proceeds or third
parties, (11) depreciation of the building and amortization charges, and
(12) fees payable to any entity which is related to Lessor or which is
owned or controlled by Lessor or Lessor's principals to the extent such
fees are in excess of the market rate for such services. Operating
expenses shall be net of rebates, credits and similar items of which
Landlord receives the benefit.
52C. provided, however, that costs for same included in any comparative year
shall not exceed the reasonably estimated savings or reduction in expenses
realized for such comparative year.
52D. the base year or
10
<PAGE>
52E. thirty (30)
52E-1. provided, however, that if the term hereof has expired, any such
overpayment shall be promptly refunded to Tenant.
52F. Provided that (i) notice is given by Tenant in a timely fashion under
subsection (b)(2) of this Article and (ii) all additional rent is paid to
Landlord in accordance with the statement furnished to Tenant by Landlord
under this Article; Landlord shall grant Tenant or Tenant's certified
public accountants reasonable, uninterrupted access to so much of
Landlord's books and records as may be required for the purposes of
verifying the Expenses incurred for the comparative year then just ended
(hereinafter, an "Audit") during normal business hours at the place where
they are regularly maintained in New York, New York, for a period of forty-
five (45) days from the date notice is given by Tenant under Subsection (b)
(2) of this Article. Tenant and its accountants shall execute a reasonably
appropriate confidentiality agreement prior to the time access to
Landlord's books and records is given. Notwithstanding anything to the
contrary contained in this Article, any Audit which may be performed under
this Article by Tenant's certified public accountants shall be performed
only on an hourly fee basis. Tenant shall provide Landlord with proof
reasonably satisfactory to Landlord of the fee basis upon which Tenant's
certified public accountants are performing such Audit prior thereto. Any
overpayment in Expenses determined by the parties to have been made by
Tenant shall be credited by Landlord against future installments of fixed
annual rent due hereunder, or in the event that the term of this lease has
expired, refunded to Tenant.
53A. sixty-six percent (66%) of the
53A-1. material
53A-2. thirty (30) days after notice is given to tenant thereof, or Tenant
learns of such lien, whichever date is earlier.
53A-3. as of the date hereof
53B. If Lessee desires to assign this Lease or to sublet all or any portion of
the demised premises, it shall first submit in writing to Lessor a notice
(the "Offer") which states with respect to a prosecutive assignment or
subletting, all of the specific economic and all other terms and conditions
upon which Lessee is willing to assign this lease or sublet the premises,
or any portion thereof, whichever may be applicable. Lessor shall have a
period of thirty (30) days from the receipt of such offer to either accept
or reject the same. If Lessor shall accept the Offer, Lessee and
11
<PAGE>
Lessor (or its designee) shall then execute and deliver an assignment or
sublease of the space, as the case may be, which in either case shall
contain the terms contained in the offer and shall be in a form delivered
pursuant to this Article. If Lessor shall not accept the Offer, then
Lessor shall not unreasonably withhold or delay its consent to an
assignment of this Lease or a sublease of the demised premises, as the case
may be, provided, however, that any such assignment or subletting (a) shall
be on economic terms equal to at least ninety-five (95%) percent of the
economic terms contained in the offer, (b) shall be for a term expiring not
more than three (3) months before or beyond the term designated in the
offer and upon all other material terms and conditions contained therein
and (c) shall comply with all other applicable provisions of this Article.
53B-1. between Landlord and Tenant
53B-2. provided Tenant will not be required to remove any such changes,
installations and improvements or restore that portion of the premises so
subleased to the condition existing prior to the effective date of such
subleasing.
53B-3. unless otherwise provided in the offer
53C. the condition required under the terms of the Offer
53C-1. from and after the effective date of such assignment
53D. not less than sixty-six (66%) of the net worth of the Tenant as of the date
hereof
53E. fifty (50%) percent of
53F. which may be sought by arbitration pursuant to Article 57 of this Lease.
K. Notwithstanding anything in this lease to the contrary, Lessee may
assign this lease or sublet all or any portion of the premises without the
consent of Lessor and without complying with Articles 3 or 53 of this Lease
to any entity which, directly or indirectly, controls or its controlled by
or is under common controls or is controlled by or is under common control
with Lessee. In addition, notwithstanding anything in this Lease to the
contrary, transactions with an entity with which Lessee is merged or
consolidated or which shall or substantially all of Lessee's assets are
transferred or to which a controlling interest in Lessee's stock or
partnership interest is transferred shall not be deemed. an assignment or
subletting within the meaning of Articles 3 or 53 of this Lease and the
provisions thereof shall not be applicable to any such transactions,
PROVIDED that the
12
<PAGE>
successor to Lessee has a net worth at least equal to 66% of the Lessee's
net worth immediately prior to such transaction.
L. In addition to its rights provided for elsewhere in this Article, Lessee
shall have the right to enter into an occupancy agreement, whether or not
denominated a sublease agreement, with other persons or entities which
entitle such persons or entities to occupy space in the premises, but only
if (a) no partition walls are installed for such occupant other than an
ordinary office to enclose such occupant's space, (b) no separate entrance
to the elevator lobby or common area on a floor is installed for such
occupancy, (c) the total amount of all space in the premises occupied by
all such occupants shall not exceed, in the aggregate, 20% of the premises
and (d) such persons or entities shall not at that time be a tenant,
subtenant or other occupant of any part of the building of which the
demised premises form a part, or has dealt with Landlord or Landlord's
agent (directly or through a broker) with respect to space in the building
during the six (6) months immediately preceding the effective date of such
occupancy agreement. The consent of Lessor shall not be required for any
occupancy agreement which satisfies the requirements of this Section 53L,
but Lessee shall, within thirty (30) days after completing any such
occupancy agreement, give written notice to Lessor identifying the occupant
by name and address and specifying the space to be occupied by such
occupant. Lessee shall give Lessor such additional information concerning
any such occupant or the terms of any occupancy agreement as Lessor
reasonably requests, Sections 3 and 53I of this Lease shall not apply to
any occupancy agreement permitted by this section 53L. No occupancy
agreement permitted by this section 53L shall constitute a "sublease" for
other purposes of this Lease.
53F-1. advertising costs,
55A. after notice and beyond the expiration of any applicable grace period
provided for in this Lease
55A-1. material
R1. unreasonable
R2. which approval shall not be unreasonably withheld or delayed
R3. which consent shall not be unreasonably withheld or delayed
R4. reasonably
R5. visible from outside of the premises
R6. thirty (30)
13
<PAGE>
EXHIBIT A
[Graphic Floor Plan of 21st & 22nd Floors]
<PAGE>
EXHIBIT A
[Graphic Floor Plan of 19th & 20th Floors]
<PAGE>
EXHIBIT B
CLEANING SPECIFICATIONS
A) GENERAL CLEANING - NIGHTLY
- - Dust sweep all stone, ceramic tile, marble terrazzo, asphalt tile,
linoleum, rubber, vinyl and other types of flooring
- - Carpet sweep all carpets and rugs four (4) times per week
- - Vacuum clean all carpets and rugs, once (1) per week
- - Police all private stairways and keep in clean condition
- - Empty and clean all wastepaper baskets, ash trays and receptacles; damp
dust as necessary
- - Clean all cigarette urns and replace sand or water as necessary
- - Remove all normal wastepaper and tenant rubbish to a designated area in the
premises (Excluding cafeteria waste, bulk materials, and all special
materials such as old desks, furniture etc.)
- - Dust all furniture, and window sills as necessary
- - Dust clean all glass furniture tops
- - Dust all chair rails, trim and similar objects as necessary
- - Dust all baseboards as necessary
- - Wash clean all water fountains
- - Keep locker and service closets in clean and orderly condition
B) LAVATORIES - NIGHTLY (EXCLUDES PRIVATE & EXECUTIVE LAVATORIES)
- - Sweep and mop all flooring
- - Wipe clean all mirrors, powder shelves and brightwork, including
flushometers, piping toilet seat hinges
- - Wash and disinfect all basins, bowls and urinals
- - Wash both sides of all toilet seats
- - Dust all partitions, tile walls, dispensers and receptacles
<PAGE>
- - Empty and clean paper towel and sanitary disposal receptacles
- - Fill toilet tissue holders, soap dispensers and towel dispensers; materials
to be furnished by Landlord
- - Remove all wastepaper and refuse to designated area in the premises
C) LAVATORIES - PERIODIC CLEANING (EXCLUDES PRIVATE & EXECUTIVE LAVATORIES
- - Machine scrub flooring as necessary
- - Wash all partitions, tile walls, and enamel surfaces periodically, using.
proper disinfectant when necessary
D) DAY SERVICES - DUTIES OF THE DAY PORTERS
- - Police ladies, restrooms and lavatories, keeping them in clean condition
- - Fill toilet dispensers; materials to be furnished by Landlord
- - Fill sanitary napkin dispensers; materials to be furnished by Landlord
E) SCHEDULE OF CLEANING
- - Upon completion of the nightly chores, all lights shall be turned off,
windows closed, doors locked and offices left in a neat and orderly
condition
- - All day, nightly and periodic cleaning services as listed herein, to be
done five nights each week, Monday through Friday, except Union and Legal
Holidays
- - All windows from the 2nd floor to the roof will be cleaned inside out
quarterly, weather permitting
<PAGE>
[Exhibit C - Electrical Test Report - is omitted as immaterial]
[Attachment I - Infrared and Thermographic Results - is omitted as immaterial]
[Attachment II - Areas Subject to Testing - is omitted as immaterial]
[Attachment III - Dranetz 808 Metering Results - is omitted as immaterial]
<PAGE>
HAMBRECHT & QUIST GROUP, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of this 6th
day of June, 1996, by and between Hambrecht & Quist Group, Inc., a Delaware
corporation and its subsidiaries (collectively, the "Company"), and
("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for its directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such
insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been
severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and the Indemnitee and other
directors, officers, employees, agents and fiduciaries of the Company may not
be willing to continue to serve in such capacities without additional
protection;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and,
in part, in order to induce Indemnitee to continue to provide services to the
Company, wishes to provide for the indemnification and advancing of expenses
to Indemnitee to the maximum extent permitted by law; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth
herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending
or completed action, suit, proceeding or alternative dispute resolution
mechanism, or any hearing, inquiry or investigation that Indemnitee in good
faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil,
criminal, administrative, investigative or other (hereinafter a "Claim") by
reason of (or arising in part out of) any event or occurrence (arising before
or after the execution of this Agreement) related to the fact
1.
<PAGE>
that Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company or of Hambrecht & Quist Group, a California corporation
("Group California"), or any of their respective subsidiaries, or is or was
serving at the request of the Company, Group California or their respective
subsidiaries as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by
reason of any action or inaction on the part of Indemnitee while serving in
such capacity (hereinafter an "Indemnifiable Event") against any and all
expenses (including attorneys' fees and all other costs, expenses and
obligations incurred in connection with investigating, defending, being a
witness in or participating in (including on appeal), or preparing to defend,
be a witness in or participate in, any such action, suit, proceeding,
alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if such
settlement is approved in advance by the Company, which approval shall not be
unreasonably withheld) of such Claim and any federal, state, local or foreign
taxes imposed on the Indemnitee as a result of the actual or deemed receipt
of any payments under this Agreement (collectively, hereinafter "Expenses"),
including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses. Such payment of Expenses
shall be made by the Company as soon as practicable but in any event no later
than five (5) days after written demand by Indemnitee therefor is presented
to the Company. Notwithstanding the foregoing, neither the Company nor its
subsidiaries will indemnify Indemnitee for any Expenses in connection with
the service by Indemnitee on the board of directors of a Publicly Traded
Company after the first meeting of the shareholders of such a Publicly Traded
Company following the Publicly Traded Company's initial public offering of
its securities.
(b) REVIEWING PARTY. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the
condition that the Reviewing Party (as described in Section 10(f) hereof)
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in Section 1(c) hereof is involved)
that Indemnitee would not be permitted to be indemnified under applicable
law, and (ii) the obligation of the Company to make an advance payment of
Expenses to Indemnitee pursuant to Section 2(a) (an "Expense Advance") shall
be subject to the condition that, if, when and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for
any Expense Advance shall be unsecured and no interest shall be charged
thereon. If there has not been a Change in Control (as defined in Section
10(c) hereof), the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved or ratified by a majority of the
Company's Board of Directors who were directors immediately prior to such
Change in Control), the Reviewing Party shall be the Independent Legal
Counsel referred to in Section 1(c) hereof. If there has been no
determination by the
2.
<PAGE>
Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part
under applicable law, Indemnitee shall have the right to commence litigation
seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the
legal or factual bases therefor, and the Company hereby consents to service
of process and to appear in any such proceeding. Any determination by the
Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
(c) CHANGE IN CONTROL. The Company agrees that if there is a
Change in Control of the Company, other than a Change in Control which has
been approved or ratified by a majority of the Company's Board of Directors
who were directors immediately prior to such Change in Control, then with
respect to all matters thereafter arising concerning the rights of Indemnitee
to payments of Expenses and Expense Advances under this Agreement or any
other agreement or under the Company's Certificate of Incorporation or Bylaws
as now or hereafter in effect, Independent Legal Counsel (as defined in
Section 10(d) hereof) shall be selected by Indemnitee and approved by the
Company (which approval shall not be unreasonably withheld). Such counsel,
among other things, shall render its written opinion to the Company and
Indemnitee as to whether and to what extent Indemnitee would be permitted to
be indemnified under applicable law and the Company agrees to abide by such
opinion. The Company agrees to pay the reasonable fees of the Independent
Legal Counsel referred to above and to fully indemnify such counsel against
any and all expenses (including attorneys' fees), claims, liabilities and
damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
(d) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 8 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section
(1)(a) hereof or in the defense of any claim, issue or matter therein,
Indemnitee shall be indemnified against all Expenses incurred by Indemnitee
in connection therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be
paid by the Company to Indemnitee as soon as practicable but in any event no
later than five (5) days after written demand by Indemnitee therefor to the
Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practi-cable of any
Claim made against Indemnitee for which indemnification will or could be
sought under this Agreement. Notice to the Company shall be directed to the
Chief Executive Officer of the Company at the address shown on the signature
page of this Agreement (or such other address as the Company shall designate
in writing to Indemnitee). In addition, Indemnitee shall give the
3.
<PAGE>
Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of
NOLO CONTENDERE, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law. In addition, neither the failure of the
Reviewing Party to have made a determination as to whether Indemnitee has met
any particular standard of conduct or had any particular belief, nor an
actual determination by the Reviewing Party that Indemnitee has not met such
standard of conduct or did not have such belief, prior to the commencement of
legal proceedings by Indemnitee to secure a judicial determination that
Indemnitee should be indemnified under applicable law, shall be a defense to
Indemnitee's claim or create a presumption that Indemnitee has not met any
particular standard of conduct or did not have any particular belief. In
connection with any determination by the Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company
shall give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result
of such action, suit, proceeding, inquiry or investigation in accordance with
the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim the Company, if
appropriate, shall be entitled to assume the defense of such Claim with
counsel approved by Indemnitee, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of
such counsel by Indemnitee and the retention of such counsel by the Company,
the Company will not be liable to Indemnitee under this Agreement for any
fees of counsel subsequently incurred by Indemnitee with respect to the same
Claim; provided that, (i) Indemnitee shall have the right to employ
Indemnitee's separate counsel in any such Claim at Indemnitee's expense and
(ii) if (A) the employment of separate counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such separate counsel to defend such Claim, then the fees
and expenses of Indemnitee's counsel shall be at the expense of the Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by
4.
<PAGE>
the other provisions of this Agreement, the Company's Certificate of
Incorporation, the Company's Bylaws or by statute. In the event of any
change after the date of this Agreement in any applicable law, statute or
rule which expands the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, employee, agent or fiduciary, it is
the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not
otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 8(a) hereof.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
other agreement, any vote of stockholders or disinterested directors, the
General Corporation Law of the State of Delaware, or otherwise. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity
even though Indemnitee may have ceased to serve in such capacity.
4. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however,
for all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may
prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may be
required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy
to indemnify Indemnitee.
7. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are accorded to the
most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, agents or
fiduciaries, if Indemnitee is not an officer or director but is a key
employee, agent or fiduciary.
5.
<PAGE>
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for
acts, omissions or transactions from which Indemnitee may not be relieved of
liability under applicable law.
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i) with respect
to actions or proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Indemnifiable Events, (ii) in
specific cases if the Board of Directors has approved the initiation or
bringing of such Claim, or (iii) as otherwise required under Section 145 of
the Delaware General Corporation Law, regardless of whether Indemnitee
ultimately is determined to be entitled to such indemnification, advance
expense payment or insurance recovery, as the case may be.
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such two-year period; PROVIDED,
HOWEVER, that if any shorter period of limitations is otherwise applicable to
any such cause of action, such shorter period shall govern.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee, agent or fiduciary of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this
6.
<PAGE>
Agreement with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on Indemnitee with respect to an
employee benefit plan; and references to "serving at the request of the
Company" shall include any service as a director, officer, employee, agent or
fiduciary of the Company which imposes duties on, or involves services by,
such director, officer, employee, agent or fiduciary with respect to an
employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan, Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this
Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other
than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned directly or indirectly by
the stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company acting in such capacity, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing more than
20% of the total voting power represented by the Company's then outstanding
Voting Securities, (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof, or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of (in one transaction or a series of related transactions) all or
substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other
than with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
7.
<PAGE>
(e) For purposes of this Agreement, "Publicly Traded Company"
shall mean a company which has sold securities pursuant to an effective
registration statement under the Securities Act of 1933, as amended.
(f) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the
Board of Directors who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(g) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of
directors.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause
any successor (whether direct or indirect by purchase, merger, consolidation
or otherwise) to all, substantially all, or a substantial part, of the
business or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve
as a director, officer, employee, agent or fiduciary (as applicable) of the
Company or of any other enterprise at the Company's request.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless as a part of such
action a court of competent jurisdiction over such action determines that
each of the material assertions made by Indemnitee as a basis for such action
were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled
to be paid all Expenses incurred by Indemnitee in defense of such action
(including costs and expenses incurred with respect to Indemnitee's
counterclaims and cross-claims made in such action), and shall be entitled to
the advancement of Expenses with respect to such action, unless as a part of
such action a court having jurisdiction over such action determines that each
of Indemnitee's material defenses to such action were made in bad faith or
were frivolous.
8.
<PAGE>
14. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i)
if delivered by hand and signed for by the party addressed, on the date of
such delivery, or (ii) if mailed by domestic certified or registered mail
with postage prepaid, on the third business day after the date postmarked.
Addresses for notice to either party are as shown on the signature page of
this Agreement, or as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action
instituted under this Agreement shall be commenced, prosecuted and continued
only in the Court of Chancery of the State of Delaware in and for New Castle
County, which shall be the exclusive and only proper forum for adjudicating
such a claim.
16. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision
within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the
provisions of this Agreement (including, without limitations, each portion of
this Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
17. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into
and to be performed entirely within the State of Delaware, without regard to
the conflict of laws principles thereof.
18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary to secure such rights and to
enable the Company effectively to bring suit to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
9.
<PAGE>
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
-----------------------------------
(Signature)
By: -------------------------------
Title: ---------------------------
Address: One Bush Street
San Francisco, CA 94104
AGREED TO AND ACCEPTED
INDEMNITEE:
- -----------------------------------
(signature)
- -----------------------------------
(name of Indemnitee)
- -----------------------------------
- -----------------------------------
(address)
10.
<PAGE>
OFFICE LEASE
One Bush Street
San Francisco, California
BASIC LEASE INFORMATION
Date: November 9, 1988
Landlord: The Equitable Life Assurance Society of the United Sates, a New York
corporation
Tenant: Hambrecht & Quist Incorporated, a California corporation
Premises (section 1.1): A portion of floor 11
Term (section 2.1): Five (5) years, subject to extension in accordance with
section 2.6 of this Lease
Commencement Date (section 2.1): January 1, 1989
Expiration Date (section 2.1): The earlier of December 31, 1993, or the
expiration of the Office Lease (the "Other Lease") dated January 27, 1988,
between Landlord and Tenant
Interim Rent (section 2.2): Thirty-one thousand four hundred forty-one and
sixty-seven hundredths dollars ($31,441.67)
Base Rent (section 3.1(a)): The amounts set forth in section 3.1(a) of this
Lease
Base Expense Year (section 3.1(b)): 1989
Base Tax Year (section 3.1(c): 1989
Rent Credit (section 3.1(e)): Two hundred eighty-two thousand nine hundred
seventy five dollars ($282,975)
Tenant's Percentage Share (section 4.1): Four and eighty-five hundredths
percent (4.85%)
Liability Insurance Amount (section 11.3): Five million dollars ($5,000,000)
-i-
<PAGE>
Tenant's Address (section 23.1): Hambrecht & Quist Incorporated, 235 Montgomery
Street, San Francisco, California 94104, attention: Timothy M. Spicer, Senior
Vice President
Landlord's Address (section 23.1): The Equitable Life Assurance Society of the
United States, c/o Equitable Real Estate Investment Management, Inc., One
Bush Street, San Francisco, California 94104, attention: Property Manager;
with a copy to The Equitable Life Assurance Society of the United States,
c/o Equitable Real Estate Investment Management, Inc., 1900 Steuart Tower,
One Market Plaza, San Francisco, California 94105, attention: Property
Management
Real Estate Brokers (section 24.5): Equitable Real Estate Investment
Management, Inc. and Damon Raike & Company
Exhibit A - Plan Outlining the Premises
Exhibit B - Improvement of the Premises
Tenant's Plans Date (paragraph 2(a)): November 9, 1988
Landlord's Contribution (paragraph 2(a)): Four hundred four thousand two
hundred fifty dollars ($404,250)
Exhibit C - Rules and Regulations
The foregoing Basic Lease Information is incorporated in and made a part of
the Lease to which this Basic Lease Information is attached. If there is any
conflict between this Basic Lease Information and the Lease, the latter shall
control.
HAMBRECHT & QUIST THE EQUITABLE LIFE ASSURANCE
INCORPORATED, a California SOCIETY OF THE UNITED STATES,
corporation a New York corporation
By /s/ T. M. Spier By /s/ James Prane
------------------------- ---------------------------
Title S V P Finance Title Attorney in Law
------------------- ----------------------
By
-------------------------
Title
-------------------
-ii-
<PAGE>
TABLE OF CONTENTS
Article Page
- ------- ----
1. Premises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. Operating Expenses and Property Taxes . . . . . . . . . . . . . . . . .13
5. Other Taxes Payable by Tenant . . . . . . . . . . . . . . . . . . . . .16
6. Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
7. Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
8. Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
9. Maintenance and Repairs . . . . . . . . . . . . . . . . . . . . . . . .24
10. Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . . .25
11. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
12. Compliance With Legal Requirements. . . . . . . . . . . . . . . . . . .28
13. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . .29
14. Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . . . .33
15. Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . .33
16. Events of default and Remedies. . . . . . . . . . . . . . . . . . . . .34
17. Eminent Domain. . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
18. Subordination, Merger and Sale. . . . . . . . . . . . . . . . . . . . .39
19. Estoppel Certificate. . . . . . . . . . . . . . . . . . . . . . . . . .41
20. Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
21. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
22. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
23. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Exhibit A - Plan Outlining the Premises
Exhibit B - Improvement of the Premises
Exhibit C - Rules and Regulations
-iii-
<PAGE>
OFFICE LEASE
THIS LEASE, made as of the date specified in the BASIC LEASE INFORMATION,
by and between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New
York corporation ("Landlord"), and HAMBRECHT & QUIST INCORPORATED, a California
corporation ("Tenant").
W I T N E S S E T H:
ARTICLE 1
PREMISES
1.1 Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, for the term and subject to the covenants hereinafter set forth, to
all of which Landlord and Tenant hereby agree, the space on the floor
specified in the BASIC LEASE INFORMATION (the "Premises"), as outlined on the
floor plan attached hereto as Exhibit A, in the building (the "Building")
known as One Bush Street, San Francisco, California, which includes the land
(Assessor's Lot 11, Block 290) on which the Building is located. Tenant
shall have the right to use, in common with others, the entrances, lobbies,
stairs and elevators of the Building for access to the Premises and the
plazas, walkways and grounds surrounding the Building. All of the windows
and outside decks, balconies and walls of the Building 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, subject to the provisions of this Lease.
1.2 No easement for light, air or view is included with or
appurtenant to the Premises. Any diminution or shutting off of light, air or
view by any structure which may hereafter be erected (whether or not constructed
by Landlord) shall in no way affect this Lease or impose any liability on
Landlord.
1.3 Landlord and Tenant confirm that, for purposes of this Lease,
the Premises contains thirteen thousand four hundred seventy-five (13,475)
square feet of rentable area; the Building contains two hundred seventy-eight
thousand sixty-nine (278,069) square feet of rentable area; and the Premises
contains eleven thousand two hundred twenty-nine (11,229) square feet of
usable area. Landlord and Tenant agree that the foregoing data are the result
of negotiation and compromise between Landlord
and Tenant solely for purposes of this Lease rather than any particular
formula, methodology or measurement, that the foregoing data shall not be
subject to redetermination, and that the foregoing data shall bind Landlord
and Tenant for purposes of this Lease, but no other purpose.
-1-
<PAGE>
ARTICLE 2
TERM
2.1 The term of this Lease shall be the term specified in the BASIC
LEASE INFORMATION, which shall commence on the commencement date specified in
the BASIC LEASE INFORMATION (the "Commencement Date") and, unless sooner
terminated or extended as hereinafter provided, shall end on the expiration date
specified in the BASIC LEASE INFORMATION (the "Expiration Date").
Notwithstanding the preceding sentence, the term of this Lease shall not
commence until Landlord has substantially completed the improvements in the
Initial Premises and delivered possession of the Premises to Tenant in
accordance with section 2.2 hereof. If Landlord, for any reason whatsoever,
does not substantially complete the improvements in the Premises and
deliver possession of the Premises to Tenant on the Commencement Date in
accordance with section 2.2 hereof, this Lease shall not be void or voidable
(except as hereinafter provided) and Landlord shall not be liable to Tenant for
any loss or damage resulting therefrom (except as hereinafter provided) but, in
such event, the Commencement Date shall be postponed until the date on which
Landlord substantially completes the improvements in the Initial Premises and
delivers possession of the Initial Premises to Tenant in accordance with section
2.2 hereof and the Expiration Date shall be extended for an equal period
(subject to adjustment in accordance with section 2.4 hereof), provided that
the Expiration Date shall not be later than the expiration or earlier
termination of the Other Lease.
2.2 Landlord shall construct or install in the Premises the
improvements to be constructed or installed by Landlord pursuant to Exhibit B
("Landlord's Work") in a good and workmanlike manner and in compliance with all
legal requirements. Landlord shall give written notice to Tenant at least
thirty (30) days before the approximate date on which Landlord's Work will be
substantially complete in accordance with this section 2.2, but the failure to
give such notice shall not be a default by Landlord under this Lease, and
Landlord shall give written notice to Tenant when Landlord's Work is
substantially complete and possession of the Initial Premises is to be delivered
by Landlord to Tenant. For the purposes of this section 2.2, "substantial
completion" shall mean (a) the asbestos abatement work for the Premises
has been completed in accordance with specifications prepared by Versar, Inc.,
(b) Landlord has executed and delivered to Tenant a certificate in which
Landlord certifies to Tenant that the asbestos abatement work for the Initial
Premises has been completed in accordance with specifications prepared by
Versar, Inc. and that the Initial Premises is free from friable asbestos, (c)
Landlord's Work is sufficiently
-2-
<PAGE>
complete so Tenant can occupy the Premises, except for normal punch list
items not materially affecting Tenant's use of the Premises, (d) Tenant
has direct access from the street to the elevator lobby on each floor where the
Premises are located, (e) all services and utilities to be furnished by
Landlord to the Initial Premises under this Lease are available, (f) a final
inspection and approval required for a temporary certificate of occupancy or
other necessary government approval for the Premises has been obtained
by Landlord, and (g) all conditions to the "substantial completion" of the
"Initial Premises" set forth in section 2.2 of the Other Lease have been
satisfied. Landlord shall deliver possession of the Premises to Tenant
on the Commencement Date or the date of substantial completion of Landlord's
Work, whichever is later. Tenant shall accept the Premises on the
Commencement Date or the date of substantial completion of Landlord's Work,
whichever is later, which acceptance shall constitute agreement by Tenant that
the Initial Premises are in the condition required by this Lease, except for
defects in Landlord's Work and subject to normal punch list items specified by
Tenant to Landlord in writing within thirty (30) days after substantial
completion of Landlord's Work. Landlord warrants to Tenant that materials and
equipment furnished by Landlord as Landlord's Work will be of good quality and
new unless otherwise required or permitted by the final plans and specifications
(subject to any changes approved by Landlord and Tenant) approved by Landlord
and Tenant pursuant to Exhibit B, that Landlord's Work will be free from defects
not inherent in the quality required or permitted by the final plans and
specifications (subject to any changes approved by Landlord and Tenant) approved
by Landlord and Tenant pursuant to Exhibit B, and that Landlord's Work will
conform with the requirements of the final plans and specifications (subject to
any changes approved by Landlord and Tenant) approved by Landlord and Tenant
pursuant to Exhibit B. Any of Landlord's Work not conforming to these
requirements, including substitutions not properly approved and authorized by
Landlord and Tenant, may be considered defective. Landlord's warranty excludes
remedy for damage or defect caused by abuse, modifications not executed by
Landlord's contractor, improper or insufficient maintenance, improper operation,
or normal wear and tear under normal usage. If required by Tenant, Landlord
shall furnish satisfactory evidence as to the kind and quality of materials and
equipment included in Landlord's Work. If, within one (1) year after the date
of substantial completion of Landlord's Work, any of Landlord's Work is found to
be defective or not substantially in accordance with the requirements of the
final plans and specifications (subject to any changes) approved by Landlord and
Tenant pursuant to Exhibit B, Landlord shall correct it promptly after receipt
of written notice from Tenant to do so unless Tenant has previously given
Landlord a written acceptance of such condition.
-3-
<PAGE>
Tenant shall give such notice promptly after discovery of the condition. If
Landlord is delayed in substantially completing Landlord's Work as a result of
Tenant's failure to prepare, submit or approve plans and specifications and cost
estimates in accordance with Exhibit B, or Tenant's changes in plans and
specifications, or Tenant's requirement of any improvements, fixtures, equipment
or other items that cannot reasonably be fabricated, procured, constructed or
installed within the time between Tenant's Plans Date (as defined in Exhibit B)
and the Commencement Date (in which case Landlord shall notify Tenant no later
than when Landlord approves Tenant's Plans (as defined in Exhibit B) of any of
the foregoing which cannot be accomplished within such time), or interruption,
interference or delay caused by any of Tenant's architects, engineers,
contractors, subcontractors, laborers or suppliers, or Tenant's failure to take
any action required by this Lease to be taken by Tenant, or the occurrence of
any other delay caused by Tenant as described in Exhibit B, then, on the
Commencement Date, Tenant shall pay to Landlord, as additional rent, the monthly
interim rent specified in the BASIC LEASE INFORMATION (the "Interim
Rent"), calculated on a per diem basis, multiplied by the number of days of such
delay. Landlord shall, as soon as reasonably practicable before or after the
Commencement Date, subject to scheduling requirements and vacation of occupied
space, complete all asbestos abatement work for the entire Building in
accordance with specifications prepared by Versar, Inc. Any asbestos abatement
work that has not been completed on the Commencement Date shall be prosecuted
with reasonable diligence thereafter, subject to scheduling requirements and
vacation of occupied space, and performed in such a manner as to cause no
unreasonable interference to Tenant. On the Commencement Date, Landlord shall
give a written notice to Tenant in which Landlord reports the status of
completion of all asbestos abatement work for the entire Building and, if any
such work has not been completed, sets forth a schedule for completion of such
work.
2.3 If any part of the Premises is substantially complete and
ready for occupancy by Tenant prior to the Commencement Date, Tenant may, at
Tenant's election, with the prior written approval of Landlord, take early
occupancy of such part of the Premises prior to the Commencement Date
but the term of this Lease shall not commence until the Commencement Date. If
Tenant takes early occupancy of part of the Premises under this section
2.3, such early occupancy shall be on and subject to all of the covenants in
this Lease, all of which shall be binding on and apply to Tenant during such
early occupancy, except Tenant shall pay to Landlord, as additional rent, the
Interim Rent, calculated on a per diem basis, pro rata in the proportion that
the area in the Premises occupied
-4-
<PAGE>
by Tenant bears to the total area in the Initial Premises, for the period from
such early occupancy to the Commencement Date. Tenant shall give Landlord
written notice of Tenant's request to take early occupancy of any part of the
Premises at least ten (10) days prior to the requested date of such
early occupancy, which notice shall specify the requested date of early
occupancy and the part of the Initial Premises to be occupied. Tenant shall pay
the Interim Rent in respect of early occupancy under this section 2.3 to
Landlord on the Commencement Date. If the entire Premises is
substantially complete and ready for occupancy by Tenant prior to the
Commencement Date, Tenant shall have the right, but no obligation, to take early
occupancy of the entire Initial Premises prior to the Commencement Date and the
term of this Lease shall commence on such date of early occupancy by Tenant, in
which event the Commencement Date shall be accelerated to such date of early
occupancy and the Expiration Date shall be advanced by an equal period (subject
to adjustment in accordance with section 2.4 hereof). Tenant shall give
Landlord written notice of Tenant's determination to take early occupancy of the
entire Initial Premises at least ten (10) days prior to such early occupancy,
which notice shall specify the date of early occupancy.
2.4 If the Commencement Date as determined in accordance with section
2.1 or 2.3 hereof would not be the first day of the month and the Expiration
Date would not be the last day of the month, then the Commencement Date shall be
the first day of the next calendar month following the date so determined
pursuant to section 2.1 or 2.3 hereof and the Expiration Date shall be the last
day of the appropriate calendar month so the term of this Lease shall be the
full term set forth in section 2.1 hereof. The period of the fractional month
between the date so determined pursuant to section 2.1 or 2.3 hereof and the
Commencement Date shall be on and subject to all of the covenants in this Lease,
all of which shall be binding on and apply to Tenant during such period, except
the term of this Lease shall not commence until the Commencement Date and Tenant
shall pay to Landlord, as additional rent, the Interim Rent, calculated on a per
diem basis, for such period. Tenant shall pay the Interim Rent in respect of
such period to Landlord on the Commencement Date, Landlord and Tenant each
shall, promptly after the Commencement Date and the Expiration Date have been
determined, execute and deliver to the other an amendment to this Lease which
sets forth the Commencement Date and the Expiration Date for this Lease, 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.
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2.5 If Landlord does not substantially complete Landlord's Work and
deliver possession of the Premises to Tenant in accordance with section
2.2 hereof on or before July 31, 1989, subject to extension as hereinafter
provided, then Tenant shall have the right, exercisable only by giving
written notice of termination to Landlord on or after August 1, 1989, subject
to extension as hereinafter provided, but before substantial completion of
Landlord's Work and delivery of possession of the Premises to Tenant in
accordance with section 2.2 hereof, to terminate this Lease, in which event
this Lease shall terminate on the date such written notice is given. Such
dates of July 31, 1989, and August 1, 1989, shall be extended for the period
of all delay in Landlord's substantially completing Landlord's Work and
delivering possession of the Premises to Tenant in accordance with section
2.2 hereof resulting from any delay described in section 2.2 hereof for which
Tenant is responsible.
2.6 Subject to the provisions of this section 2.6, Tenant shall have
the right to extend the term of this Lease for an additional term (the "First
Extended Term") of five (5) years. The First Extended Term shall commence on
the first day of the eleventh Lease Year and, unless sooner terminated as
hereinafter provided, shall end five (5) years thereafter on the last day of the
fifteenth Lease Year, Tenant may exercise such right only by giving Landlord
written notice of exercise of such right on or before the last day of the ninth
Lease Year and only if no Event of Default exists under this Lease when Tenant
exercises such right. If Tenant fails to exercise such right in accordance with
this section 2.6, such right shall terminate. If
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Tenant exercises such right in accordance with this section 2.6, the term of
this Lease shall be extended for the First Extended Term. Landlord and Tenant
each shall, promptly after the first day of the First Extended Term, execute and
deliver to the other an amendment to this Lease which sets forth the extension
of the term of this Lease for the First Extended Term, but the term of this
Lease shall be extended for the First Extended Term in accordance with this
section 2.6 whether or not such amendment is executed.
2.7 As used in this Lease, "Lease Year" shall mean each period of
twelve (12) calendar months, beginning on the Commencement Date (as adjusted
pursuant to section 2.4 hereof), during the term of this Lease.
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ARTICLE 3
RENT
3.1 Tenant shall pay to Landlord the following amounts as rent for
the Premises:
(a) During the term of this Lease, Tenant shall pay to Landlord, as
base monthly rent, the amounts of monthly rent specified in this section 3.1(a)
(the "Base Rent"):
(i) During the period from the first month through the sixtieth
month, inclusive, of the term of this Lease, the Base Rent shall be
thirty-one thousand four hundred forty-one and sixty-seven hundredths
dollars ($31,441.67) per month; and
(ii) During the Extended Term, the Base Rent shall be equal to
ninety-five percent (95%) of the prevailing fair market rental value of
the Premises on the first day of the Extended Term, on and subject to the
covenants (except the amount of Base Rent) in this Lease, based on then
current rent being offered and accepted for comparable space in
comparable buildings (including, without limitation, other space in the
Building) in the central financial district of San Francisco leased on
terms comparable to this Lease as of the first day of the Extended Term.
Such fair market rental value shall be determined by written agreement
between Landlord and Tenant. If Landlord and Tenant do not agree in
writing on such fair market rental value by the date three (3) months
prior to the first day of the Extended Term, such fair market rental
value shall be determined by appraisal in accordance with section 3.1(f)
hereof.
(b) During each calendar year or part thereof during the term of this
Lease subsequent to the base expense calendar year specified in the BASIC LEASE
INFORMATION (the "Base Expense Year"), Tenant shall pay to Landlord, as
additional monthly rent, Tenant's Percentage Share of the total dollar increase,
if any, in all Operating Expenses (as hereinafter defined) paid or incurred by
Landlord in such calendar year or part thereof over the Operating Expenses paid
or incurred by Landlord in the Base Expense Year.
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(c) During each calendar year or part thereof during the term of
this Lease subsequent to the base tax calendar year specified in the BASIC
LEASE INFORMATION (the "Base Tax Year"), Tenant shall pay to Landlord, as
additional monthly rent, Tenant's Percentage Share of the total dollar
increase, if any, in all Property Taxes (as hereinafter defined) paid or
incurred by Landlord in such calendar year or part thereof over the Property
Taxes paid or incurred by Landlord in the Base Tax Year. Notwithstanding the
foregoing, Tenant shall not be obligated to pay Tenant's Percentage Share of
the portion of any increase in Property Taxes resulting solely from a
reassessment of the Building caused by a sale or any other transfer of the
Building completed during the period from the first day of the first Lease
Year through the last day of the fifth Lease Year, inclusive. With respect
to any sale or other transfer of the Building, and any resulting reassessment
of the Building and increase in Property Taxes, completed on the first day of
the sixth Lease Year or thereafter, Tenant shall pay Tenant's Percentage
Share of the total dollar increase in all Property Taxes over the Base Tax
Year in accordance with this section 3.1(c) without regard to the preceding
sentence. If Tenant assigns this Lease, the preceding two (2) sentences
shall automatically cease to be effective and, upon the effective date of
such assignment, Tenant shall pay Tenant's Percentage Share of the total
dollar increase in all Property Taxes over the Base Tax Year in accordance
with this section 3.1(c) without regard to the preceding two (2) sentences.
(d) Throughout the term of this Lease, Tenant shall pay, as
additional rent, all other amounts of money and charges required to be paid by
Tenant under this Lease, whether or not such amounts of money and charges are
designated "additional rent." As used in this Lease, "rent" shall mean and
include all Interim Rent, Base Rent, additional monthly rent and additional rent
payable by Tenant in accordance with this Lease.
(e) Landlord shall give Tenant a rent credit in the amount
specified in the BASIC LEASE INFORMATION (the "Rent Credit"), subject to
decrease in accordance with paragraph 4 of Exhibit B, against the Interim
Rent and the Base Rent for the Premises. The Rent Credit shall be applied
against the Interim Rent and the Base Rent for the Premises that
first becomes due and payable during the term of this Lease and shall satisfy
the obligation of Tenant to pay such Interim Rent and Base Rent until the
Rent Credit is exhausted.
(f) For the purposes of sections 3.1(a)(ii) hereof, if
Landlord and Tenant do not agree on the fair
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market rental value of the Premises by the date three (3) months prior to the
first day of the Extended Term, such fair market rental value shall be
determined as follows: Landlord and Tenant each shall appoint one (1)
appraiser within fifteen (15) days after a written request for appointment of
appraisers has been given by either Landlord or Tenant to the other. If
either Landlord or Tenant fails to appoint its appraiser within such period
of fifteen (15) days, such appraiser shall be appointed by the Superior Court
of the State of California in and for the City and County of San Francisco
upon application of the other. Each such appraiser shall appraise the
Premises and submit his written report setting forth the appraised fair
market rental value to Landlord and Tenant within thirty (30) days after the
appointment of both such appraisers (or as soon thereafter as practicable).
If the higher appraised value in such two (2) appraisals is not more than one
hundred five percent (105%) of the lower appraised value, the fair market
rental value of the Premises shall be the average of the two (2) appraised
values. If the higher appraised value is more than one hundred five percent
(105%) of the lower appraised value, Landlord and Tenant shall agree upon and
appoint a neutral third appraiser within fifteen (15) days after both of the
first two (2) appraisals have been submitted to Landlord and Tenant. If
Landlord and Tenant do not agree and fail to appoint such neutral third
appraiser within such period of fifteen (15) days, such neutral third
appraiser shall be appointed by the Superior Court of the State of California
in and for the City and County of San Francisco upon application of either
Landlord or Tenant. The neutral third appraiser shall appraise the Premises
and submit his written report setting forth the appraised fair market rental
value to Landlord and Tenant within thirty (30) days after his appointment
(or as soon thereafter as practicable). The fair market rental value of the
Premises shall be the average of the two (2) appraised values in such three
(3) appraisals that are closest to each other (unless the differences are
equal, in which case the three (3) appraised values shall be averaged). The
fair market rental value of the Premises, determined in accordance with this
section 3.1(f), shall be conclusive and binding upon Landlord and Tenant.
Any proceedings in connection with the determination of such fair market
rental value shall be conducted in the City and County of San Francisco in
accordance with California Code of Civil Procedure sections 1280 to 1294.2
(including section 1283.05) or successor California laws then in effect
relating to arbitration. All appraisers appointed by Landlord or Tenant, or
both of them, shall be members of the American Institute of Real Estate
Appraisers of the National Association of Realtors (or its successor), or
real estate professionals qualified by appropriate training or experience,
and have at least five
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(5) years of experience dealing with commercial real estate in San Francisco.
The appraisers shall have no power or authority to amend or modify this Lease
in any respect and their jurisdiction is limited accordingly. Landlord and
Tenant each shall pay the fee and expenses charged by its appraiser plus
one-half of the fee and expenses charged by the neutral third appraiser. If
the fair market rental value of the Premises has not been determined in
accordance with this section 3.1(f) by the first day of the Extended Term,
Tenant shall continue to pay the Base Rent in effect immediately preceding
such date until such fair market rental value has been determined, and Tenant
shall pay Landlord any deficiency in the payment of the new Base Rent
resulting therefrom within thirty (30) days after such determination.
Landlord and Tenant each shall, promptly after the new Base Rent has been
determined in accordance with section 3.1(a)(ii) hereof or this section
3.1(f), execute and deliver to the other an amendment to this Lease which
sets forth the new Base Rent, but the new Base Rent shall become effective
whether or not such amendment is executed.
3.2 The additional monthly rent payable pursuant to sections 3.1(b)
and 3.1(c) hereof shall be calculated and paid in accordance with the following
procedures:
(a) On or before the first day of each calendar year during the term
of this Lease, or as soon thereafter as practicable, Landlord shall give Tenant
written notice of Landlord's estimate of the amounts payable under sections
3.1(b) and 3.1(c) hereof for the ensuing calendar year. On or before the first
day of each month during such ensuing calendar year, Tenant shall pay to
Landlord one-twelfth of such estimated amounts. If such notice is not given for
any calendar year, Tenant shall continue to pay on the basis of the prior year's
estimate until the month after such notice is given, and subsequent payments by
Tenant shall be based on Landlord's current estimate. If at any time it appears
to Landlord that the amounts payable under sections 3.1(b) and 3.1(c) hereof for
the current calendar year will vary from Landlord's estimate by more than five
percent (5%), 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.
(b) Within a reasonable time after the end of each calendar year,
Landlord shall give Tenant a written statement of the amounts payable under
sections 3.1(b) and 3.1(c) hereof for such calendar year certified by Landlord.
If such statement shows an amount owing by Tenant that is less than the
estimated payments for such calendar year
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previously made by Tenant, Landlord shall credit the excess to the next
succeeding monthly installments payable under sections 3.1(b) and 3.1(c)
hereof or, if this Lease has terminated for any reason, Landlord shall pay
the excess to Tenant within twenty (20) days after Landlord gives such
statement to Tenant. If such statement shows an amount owing by Tenant that
is more than the estimated payments for such calendar year previously made by
Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days
after such statement has been given. Landlord shall keep at the Building,
for a period of at least twelve (12) months after the expiration of each
calendar year, complete and accurate books, records and supporting documents
in connection with Landlord's statement of Tenant's Percentage Share of
increases in Operating Expenses and Property Taxes. Tenant or Tenant's
authorized agent or representative shall have the right to inspect the books
of Landlord relating to Operating Expenses and Property Taxes, after giving
reasonable prior written notice to Landlord and during the business hours of
Landlord at Landlord's office in the Building or at such other location as
Landlord may designate, for the purpose of verifying or contesting the
information in such statement. Failure by Landlord to give any notice or
statement to Tenant under this section 3.2 shall not waive Landlord's right
to receive, or Tenant's obligation to pay, the amounts payable by Tenant
under sections 3.1(b) and 3.1(c) hereof.
(c) If the term of this Lease ends on a day other than the last day
of a calendar year, the amounts payable by Tenant under sections 3.1(b) and
3.1(c) hereof applicable to the calendar year in which the end of the term
occurs shall be prorated according to the ratio which the number of days in such
calendar year to and including the end of the term bears to three hundred sixty-
five (365). Termination of this Lease shall not affect the obligations of
Landlord and Tenant pursuant to section 3.2(b) hereof to be performed after such
termination.
3.3 Tenant shall pay all Base Rent and additional monthly rent under
section 3.1 hereof to Landlord, in advance, on or before the first day of each
and every calendar month during the term of this Lease. Tenant shall pay all
rent to Landlord without notice, demand, deduction or offset, except as
expressly permitted by this Lease, in lawful money of the United States of
America, at the address of Landlord specified in the BASIC LEASE INFORMATION, or
to such other person or at such other place as Landlord may from time to time
designate in writing.
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ARTICLE 4
OPERATING EXPENSES AND PROPERTY TAXES
4.1 As used in this Lease, "Tenant's Percentage Share" shall mean the
percentage specified in the BASIC LEASE INFORMATION.
4.2 As used in this Lease, "Operating Expenses" shall mean all costs
and expenses paid or incurred by Landlord in connection with the ownership,
management, operation, maintenance or repair of the Building or providing
services in accordance with this Lease, including, without limitation, the
following: salaries, wages, other compensation, taxes and benefits (including,
without limitation, payroll, social security, workers' compensation,
unemployment, disability and similar taxes and payments) for personnel engaged
in the management, operation, maintenance or repair of the Building (with an
equitable allocation to the Building in the case of any such personnel who also
perform services for or devote time to any property other than the Building);
uniforms provided to such personnel; premiums and other charges for all
property, rental value, liability and other insurance carried by Landlord
relating to the Building or the use or occupancy of the Building; water and
sewer charges or fees; license, permit and inspection fees; electricity, chilled
water, air conditioning, gas, fuel, steam, heat, light, power and other
utilities; sales, use and excise taxes on goods and services purchased by
Landlord and includable in Operating Expenses; telephone, delivery, postage,
stationery supplies and other expenses; reasonable management fees and expenses;
equipment lease payments; repairs to and maintenance of the Building, including,
without limitation, Building systems and accessories thereto and repair and
replacement of worn-out or broken equipment, facilities, parts and
installations, but excluding the replacement of major Building systems and
repairs and replacements for which Landlord is entitled to be reimbursed from
proceeds of any insurance or warranty or by Tenant or any other tenant of the
Building; janitorial, window cleaning, security, guard, extermination, water
treatment, garbage and waste disposal, rubbish removal, plumbing and other
services; inspection or service contracts for elevator, electrical, mechanical
and other Building equipment and systems; supplies, tools, materials and
equipment; accounting, legal and other professional fees and expenses (excluding
legal fees incurred by Landlord relating to disputes with specific tenants or
the negotiation, interpretation or enforcement of specific leases); 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 Building;
the cost of furniture,
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draperies, carpeting and other customary and ordinary items of personal property
(excluding paintings, sculptures or other works of fine art) provided by
Landlord for use in common areas of the Building or in the Building office, such
costs to be reasonably amortized as determined by Landlord; all costs and
expenses resulting from work, labor, supplies, materials or services resulting
from compliance with any laws, ordinances, rules, regulations or orders
applicable to the Building; fair market rental value for office space (not
exceeding three thousand (3,000) square feet) reasonably necessary for the
proper management and operation of the Building; all costs and expenses of
contesting by appropriate legal proceedings any matter concerning managing,
operating, maintaining or repairing the Building, or the validity or
applicability of any law, ordinance, rule, regulation or order relating to the
Building, or the amount or validity of any Property Taxes; reasonable
depreciation as determined by Landlord on all personal property, fixtures and
equipment (including window washing machinery) used in the management,
operation, maintenance or repair of the Building and on exterior window
coverings provided by Landlord and carpeting in public corridors and common
areas; and the cost, reasonably amortized over the reasonable useful life of the
improvement as determined by Landlord, together with interest at the rate of ten
percent (10%) per annum, or such higher annual rate as Landlord may actually
have to pay, on the unamortized balance, of all capital improvements made to the
Building or capital assets acquired by Landlord after completion of renovation
of the Building as a labor-saving or energy-saving device or to effect other
economies in the management, operation, maintenance or repair of the Building,
provided the reduction in Operating Expenses resulting therefrom reasonably
justifies the expenditure, or made to the Building after the date of this Lease
that are required to comply with any law, ordinance, rule, regulation or order
that was not applicable to the Building at the time that permits for the
renovation of the Building were obtained. Actual Operating Expenses for the
Base Expense Year and each subsequent calendar year shall be adjusted to equal
Landlord's reasonable estimate of operating Expenses for a full calendar year
with the total area of the Building occupied during such full calendar year.
The determination of Operating Expenses shall be in accordance with generally
accepted accounting principles applied on a consistent basis. Notwithstanding
anything to the contrary contained in this section 4.2, Operating Expenses shall
not include the following: Legal fees, brokerage commissions, advertising costs
or other related expenses incurred in connection with leasing or attempting to
lease or selling or attempting to sell the Building; repairs, alterations,
additions, improvements or replacements made to rectify or correct any defect in
the design, materials or
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workmanship of the Building or common areas; any improvements, alterations or
expenditures of a capital nature, except as expressly provided in this section
4.2; damage and repairs for which Landlord is entitled to be reimbursed from
proceeds under any insurance policy carried by Landlord in connection with the
Building; damage and repairs necessitated by the gross negligence or willful
misconduct of Landlord or Landlord's officers, employees, contractors or agents;
salaries of executive and administrative personnel to the extent such personnel
do not devote time to or perform services for the management, operation,
maintenance or repair of the Building or common areas; Landlord's general
overhead expense other than Building office overhead; bad debt expense and
payments of principal or interest on any mortgage or other encumbrance; legal
fees, accountants' fees and other expenses incurred in connection with disputes
with tenants or other occupants of the Building or associated with the
enforcement of any leases or defense of Landlord's title to or interest in the
Building or any part thereof; costs (including permit, license and inspection
fees) incurred in renovating or otherwise improving, decorating, painting or
altering space for tenants or other occupants of the Building; services
furnished to any other tenant of the Building which are not furnished to Tenant
or quantities of such services furnished to any other tenant of the Building
which materially exceed the quantity of such services furnished to Tenant in
relation to the portions of the space in the Building leased by such other
tenant and Tenant, respectively; services furnished to Tenant or any other
tenant of the Building for which Landlord is separately and directly entitled to
be reimbursed by Tenant or any other tenant of the Building; advertising or
promotional expenses; and costs of installing, operating and maintaining any
specialty service operated by Landlord, such as a broadcast facility, dining
facility or athletic club. Landlord shall not collect in excess of one hundred
percent (100%) of all Operating Expenses, subject to the right of Landlord to
estimate and collect such excess until such excess is appropriately credited or
refunded to the tenants of the Building, nor shall Landlord recover, through
Operating Expenses, any item of cost more than once. Tenant shall only be liable
for Operating Expenses paid or incurred by Landlord which are allocable to the
term of this Lease.
4.3 As used in this Lease, "Property Taxes" shall mean all taxes,
assessments, excises, levies, fees and charges (and any tax, assessment, excise,
levy, fee or charge levied wholly or partly in lieu thereof or as a substitute
therefor or as an addition thereto) of every kind and description, general or
special, ordinary or extraordinary, foreseen or unforeseen, secured or
unsecured, whether or not now customary or within the contemplation of
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Landlord and Tenant, that are levied, assessed, charged, confirmed or imposed by
any public or government authority on or against, or otherwise with respect to,
the Building or any part thereof or any personal property used in connection
with the Building. If the Building is not assessed on a fully completed basis
for all or any part of the Base Tax Year, until it is so assessed, Property
Taxes for the Base Tax Year shall be established by multiplying Landlord's
reasonable estimate of such assessed valuation by the applicable tax rates for
the Base Tax Year. As soon as the Building is assessed on a fully completed
basis and the Property Taxes for the Base Year can be determined, any necessary
adjustment resulting from such estimate shall be made, including any necessary
adjustment in the amount of Tenant's Percentage Share of increases in Property
Taxes over the Base Tax Year paid or payable by Tenant pursuant to section
3.1(c) hereof. Property Taxes shall not include net income (measured by the
income of Landlord from all sources or from sources other than solely rent),
franchise, documentary transfer, inheritance or capital stock taxes of Landlord,
unless levied or assessed against Landlord in whole or in part in lieu of or as
a substitute for any Property Taxes. Property Taxes shall not include any tax,
assessment, excise, levy, fee or charge paid by Tenant pursuant to section 5.1
hereof. Property Taxes shall not include interest on taxes or penalties
resulting from Landlord's failure to pay taxes, increases in taxes specifically
attributable to additional improvements to the premises of the other tenants of
the Building to the extent such tax increases are separately itemized or
identified by the taxing authority in such a way as to allow specific allocation
by Landlord to such other tenant, or taxes which constitute payments to a
governmental agency for the right to make improvements to the Building, unless
such improvements would be includable in Operating Expenses pursuant to section
4.2 hereof.
ARTICLE 5
OTHER TAXES PAYABLE BY TENANT
5.1 In addition to all monthly rent and other charges to be paid by
Tenant under this Lease, Tenant shall reimburse Landlord upon demand for all
taxes, assessments, excises, levies, fees and charges, including, without
limitation, all other payments related to the cost of providing facilities or
services, whether or not now customary or within the contemplation of Landlord
and Tenant, that are payable by Landlord and levied, assessed, charged,
confirmed or imposed by any public or government authority upon, or measured by,
or reasonably attributable to (a) the
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Premises, (b) the cost or value of Tenant's equipment, furniture, fixtures and
other personal property located in the Premises or the cost or value of any
leasehold improvements made in or to the Premises by or for Tenant, regardless
of whether title to such improvements is vested in Tenant or Landlord, but only
to the extent such taxes, assessments, excises, levies, fees or charges are
separately itemized or identified by the taxing authority in such a way as to
allow specific allocation by Landlord to Tenant, (c) any rent payable under this
Lease, including, without limitation, any gross income tax or excise tax levied
by any public or government authority with respect to the receipt of any such
rent, (d) the possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises, or (e) this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises. Such taxes, assessments, excises,
levies, fees and charges shall not include net income (measured by the income of
Landlord from all sources or from sources other than solely rent), franchise,
documentary transfer, inheritance or capital stock taxes of Landlord, unless
levied or assessed against Landlord in whole or in part in lieu of, as a
substitute for, or as an addition to any such taxes, assessments, excises,
levies, fees and charges. All taxes, assessments, excises, levies, fees and
charges payable by Tenant under this section 5.1 shall be deemed to be, and
shall be paid as, additional rent.
ARTICLE 6
USE
6.1 The Premises shall be used for general office purposes and, to
the extent related to Tenant's business, for the operation of a securities
trading floor, video conferencing facilities, computer, data processing and
copying facilities, kitchen and dining room facilities for the officers,
employees and customers of Tenant, but not for the use of the general public,
and other incidental uses, and no other purpose. Tenant shall not do or permit
to be done in, on or about the Premises, nor bring or keep or permit to be
brought or kept therein, anything which is prohibited by or will in any way
conflict with any law, ordinance, rule, regulation or order now in force or
which may hereafter be enacted, or which is not among the permitted purposes
described in the first sentence of this section 6.1 or incidental thereto and
which is prohibited by any property insurance policy carried by Landlord for the
Building, or will in any way increase the existing rate of, or cause a
cancellation of, or affect any property or other insurance
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for the Building or any part thereof or any of its contents Tenant shall not
bring or keep, or permit to be brought or kept, in the Premises or the Building
any toxic or hazardous substance, material or waste or any other contaminant or
pollutant, except any of the foregoing which is commonly used in business
offices but only in quantities necessary for normal use. Tenant shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of Landlord or other tenants of the
Building, or injure or annoy them. Tenant shall not use or allow the Premises to
be used for any improper, immoral, unlawful or objectionable purpose, nor shall
Tenant cause, maintain or permit any nuisance in, on or about the Premises or
commit or suffer to be committed any waste in, on or about the Premises. Tenant
shall not bring or keep in the Premises any furniture, equipment, materials or
other objects which overload the Premises or any portion thereof in excess of
fifty (50) pounds per square foot live or dead load, which is the normal load-
bearing capacity of the floors of the building.
ARTICLE 7
SERVICES
7.1 Landlord shall supply to the Premises during reasonable and usual
business hours, as determined by Landlord, but which shall be at least 8 A.M. to
6 P.M., Monday through Friday, except for New Year's Day, President's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving, Christmas, labor
holidays and such other holidays as are generally recognized in San Francisco,
California, and subject to the Rules and Regulations (as hereinafter defined)
established by Landlord, normal heating, ventilating and air conditioning
reasonably required for the comfortable occupation of the Premises. Landlord
shall also supply to the Premises at all times normal elevator service, normal
electricity for lighting and the operation of desktop office machines, and
water. Landlord shall also supply to the Premises lighting replacement for
Building standard lights, restroom supplies and window washing when needed, as
determined by Landlord and subject to the Rules and Regulations, but window
washing shall be performed not less than three (3) times a year. Landlord shall,
upon reasonable prior request by Tenant, supply to the Premises additional
heating, ventilating or air conditioning (as requested by Tenant) during times
other than the reasonable and usual business hours described in the first
sentence of this section 7.1. Tenant shall pay to Landlord, upon billing by
Landlord, as additional rent, the actual cost incurred by Landlord, as
reasonably determined by Landlord, for such additional
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heating, ventilating and air conditioning. Landlord shall also furnish security
service for the Building (not Tenant or the Premises) and janitor service to the
Premises during the times and in the manner that such services are customarily
furnished in comparable first-class office buildings in the central financial
district of San Francisco. Landlord shall not be liable for any criminal acts
of others or for any direct, consequential or other loss or damage related to
any malfunction, circumvention or other failure of such security service.
Landlord shall not be in default under this Lease or be liable for any damage or
loss directly or indirectly resulting from, nor shall the rent be abated (except
as hereinafter provided) or a constructive or other eviction be deemed to have
occurred by reason of, any installation, use or interruption of use of any
equipment in connection with the furnishing of any of the foregoing services,
any failure to furnish or delay in furnishing any such services when such
failure or delay is caused by accident or breakdown or any condition beyond the
reasonable control of Landlord or by the making of repairs or improvements to
the Premises or to the Building, or any limitation, curtailment, rationing or
restriction on use of water, electricity, gas or any form of energy serving the
Premises or the Building, whether such results from mandatory restrictions or
voluntary compliance with guidelines. Landlord shall use diligent efforts to
correct any interruption in the furnishing of such services.
7.2 If Landlord is not able, for a reason within the reasonable
control of Landlord, to supply any service described in section 7.1 hereof to
the Premises which is essential for Tenant's use of the Premises for the
permitted purposes described in section 6.1 hereof and the failure to supply any
such essential service materially impairs Tenant's ability to carry on its
business in the Premises for a period of ten (10) consecutive business days, the
Base Rent and additional rent payable by Tenant under this Lease shall be
abated, based on the extent to which such failure to supply any such essential
service materially impairs Tenant's ability to carry on its business in the
Premises, commencing on the eleventh business day of such material impairment of
Tenant's business and continuing until such essential service has been restored
or the failure to supply such essential service no longer materially impairs
Tenant's ability to carry on its business in the Premises. Landlord shall use
diligent efforts to restore such essential service. Tenant shall have no right
to any abatement of the Base Rent and additional rent payable by Tenant under
this Lease if, and to the extent that, Landlord's inability to supply any such
essential service to the Premises is caused by Tenant, or Tenant's officers,
employees, contractors, agents, licensees or invitees, or by any force or event
that
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cannot be reasonably anticipated or controlled by Landlord. Notwithstanding
anything to the contrary contained in this section 7.2, no inability or delay by
Landlord in providing any such essential service shall constitute an actual or
constructive eviction, in whole or in part, or release Tenant from any
obligation of Tenant under this Lease (except an abatement of the Base Rent and
additional rent in accordance with this section 7.2).
7.3 If Tenant uses heat generating machines, equipment or computers
or lighting other than Building standard lights in the Premises which affect the
temperature otherwise maintained by the air conditioning system, Landlord shall
have the right to install supplementary air conditioning units in the Premises
and Tenant shall pay to Landlord the cost thereof, including the costs of
installation, operation, maintenance and repair thereof, as reasonably
determined by Landlord, upon billing by Landlord. If Tenant uses electricity in
excess of three and fifty-one hundredths (3.51) watts per usable square foot of
the Premises and the Equipment Space per hour, in the aggregate, determined on a
monthly basis, Tenant shall pay to Landlord, upon billing by Landlord, the cost
of such excess, as reasonably determined by Landlord. Tenant shall pay to
Landlord, upon billing by Landlord, the cost of all additional services consumed
by Tenant, in excess of the amount that would reasonably be incurred for a
normal business office operating during the reasonable and usual business hours
described in the first sentence of section 7.1 hereof, as a result of the
operation of Tenant's computers or equipment, the number of hours Tenant
operates, or any other feature of the conduct of Tenant's business in the
Premises, all as reasonably determined by Landlord based on the actual
additional cost incurred by Landlord. All costs payable by Tenant under this
section 7.3 shall be deemed to be, and shall be paid as, additional rent.
ARTICLE 8
ALTERATIONS
8.1 Tenant shall not make any alterations, additions or improvements
in or to the Premises or any part thereof, or attach any fixtures or equipment
thereto, without Landlord's prior written consent. Notwithstanding the
preceding sentence, Tenant may make such alterations, additions or improvements
without Landlord's consent only if the total cost of such alterations, additions
or improvements is ten thousand dollars ($10,000) or less and such alterations,
additions or improvements will not affect in any way the structural, exterior or
roof elements of the
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Building or the elevator, mechanical, electrical, plumbing or life safety
systems of the Building, but Tenant shall give prior written notice of any such
alterations, additions or improvements to Landlord. Whenever the consent or
approval of Landlord is required under this section 8.1, such consent or
approval shall not be unreasonably withheld or delayed. All alterations,
additions and improvements (except the initial improvements to be constructed or
installed by Landlord at Landlord's expense and Tenant's expense, respectively,
as specified in Exhibit B) in or to the Premises to which Landlord consents
shall be made by Tenant at Tenant's sole cost and expense as follows:
(a) Tenant shall submit to Landlord, for Landlord's written approval,
complete plans and specifications for all work to be done by Tenant. Such plans
and specifications shall be prepared by responsible licensed architect(s) and
engineers approved in writing by Landlord, shall comply with all applicable
codes, laws, ordinances, rules and regulations, shall not adversely affect the
Building shell or core or any systems, components or elements of the Building,
shall be in a form sufficient to secure the approval of all government
authorities with jurisdiction over the approval thereof, and shall be otherwise
satisfactory to Landlord in Landlord's reasonable discretion. Tenant shall
notify Landlord in writing of the licensed architects and engineers whom Tenant
proposes to engage to prepare such plans and specifications. Landlord shall
notify Tenant promptly in writing whether Landlord approves or disapproves such
architects and engineers.
(b) Landlord shall notify Tenant promptly in writing whether Landlord
approves or disapproves such plans and specifications and, if Landlord
disapproves such plans and specifications, Landlord shall describe in writing
the revisions which Landlord requires in order to obtain Landlord's approval.
Thereafter, Tenant may submit to Landlord revised plans and specifications
addressing the revisions required by Landlord. Such revisions shall be subject
to Landlord's prior written approval. Tenant shall pay all costs, including the
fees and expenses of the licensed architects and engineers, in preparing such
plans and specifications.
(c) All changes in the plans and specifications approved by Landlord
shall be subject to Landlord's prior written approval. If Tenant wishes to make
any such change in such approved plans and specifications, Tenant shall have
Tenant's architects and engineers prepare plans and specifications for such
change and submit them to Landlord for Landlord's written approval. Landlord
shall notify Tenant in writing promptly whether Landlord approves or
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disapproves such change and, if Landlord disapproves such change, Landlord shall
describe in writing the reasons for disapproval. Such change in the plans and
specifications may be revised by Tenant and resubmitted to Landlord for
Landlord's written approval. After Landlord's written approval of such change,
such change shall become part of the plans and specifications approved by
Landlord.
(d) Tenant shall pay for all work (including, without limitation, the
cost of all utilities, permits, fees, taxes, and property and liability
insurance premiums in connection therewith) required to make the alterations,
additions and improvements. Tenant shall engage responsible licensed
contractors) approved in writing by Landlord to perform all work. Tenant shall
notify Landlord in writing of the licensed contractors) whom Tenant proposes to
engage for the work. Landlord shall notify Tenant promptly in writing whether
Landlord approves or disapproves such contractor(s). All contractors and other
persons shall at all times be subject to Landlord's reasonable control while in
the Building. Tenant shall pay to Landlord any additional direct costs (beyond
the normal services provided to tenants in the Building) and shall reimburse
Landlord for all reasonable expenses incurred by Landlord in connection with the
review, approval and supervision of any alterations, additions or improvements
made by Tenant. Under no circumstances shall Landlord be liable to Tenant for
any liability, 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.
(e) Tenant shall give written notice to Landlord of the date on which
construction of any work will be commenced at least five (5) days prior to such
date. Tenant shall cause all work to be performed by the licensed contractor(s)
approved in writing by Landlord in accordance with the plans and specifications
approved in writing by Landlord and in full compliance with all applicable
codes, laws, ordinances, rules and regulations. Tenant shall keep the Premises
and the Building free from mechanics', materialmen's and all other liens arising
out of any work performed, labor supplied, materials furnished or other
obligations incurred by Tenant. Tenant shall promptly and fully pay and
discharge all claims on which any such lien could be based. Tenant shall have
the right to contest the amount or validity of any such lien, provided Tenant
gives prior written notice of such contest to Landlord, prosecutes such contest
by appropriate proceedings in good faith and with diligence, and, upon request
by Landlord, furnishes such bond as may be required by law to protect the
Building and the Premises from such lien. Landlord shall have the
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right to post and keep posted on the Premises any notices that may be provided
by law or which Landlord may deem to be proper for the protection of Landlord,
the Premises and the Building from such liens. Landlord shall have the right to
take any other action Landlord deems necessary to remove or discharge liens or
encumbrances not being contested by Tenant in accordance with this section 8.1,
at the expense of Tenant, if Tenant fails to remove or discharge any such lien
or encumbrance within ten (10) days after written notice from Landlord.
8.2 Subject to the rights and obligations of Tenant under this
section 8.2, all alterations, additions, fixtures and improvements, including,
without limitation, carpeting and all other improvements made pursuant to
Exhibit B, whether temporary or permanent in character, made in or to the
Premises by Landlord or Tenant, shall become part of the Building and Landlord's
property. Upon termination of this Lease, Tenant shall have the right, at
Tenant's expense, to remove all or any part of such alterations, additions,
fixtures and improvements from the Building, but Tenant shall, at Tenant's
expense, repair all damage caused by any such removal. All movable furniture,
equipment, trade fixtures, computers, office machines and other personal
property shall remain the property of Tenant. Upon termination of this Lease,
Tenant shall, at Tenant's expense, remove all movable furniture, equipment,
trade fixtures, computers, office machines and other personal property from the
Building and repair all damage caused by any such removal. In the process of
approving any alterations, additions or improvements in or to the Premises or
any part thereof pursuant to section 8.1 hereof, Landlord shall have the right,
by giving written notice to Tenant when Landlord approves any such alterations,
additions or improvements, to require Tenant to remove any such alterations,
additions or improvements designated by Landlord, in which event, upon
termination of this Lease, Tenant shall, at Tenant's expense, remove all such
alterations, additions and improvements designated by Landlord from the Building
and repair all damage caused by any such removal. Tenant shall complete all
such removal and repair work under this section 8.2 within thirty (30) days
after termination of this Lease. Upon termination of this Lease, Landlord shall
have the right to restore the openings for the internal stairwells between the
floors of the Premises to the condition in which the Premises existed before
such openings were made. If Landlord performs such restoration work before
another tenant occupies the floor in question, Tenant shall, upon billing by
Landlord, pay to Landlord the actual cost of such restoration work incurred by
Landlord, but not more than twenty thousand dollars ($20,000) for each such
opening. Termination of this Lease shall not affect the obligations
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of Tenant pursuant to this section 8.2 to be performed after such termination.
ARTICLE 9
MAINTENANCE AND REPAIRS
9.1 Landlord shall maintain and repair the public and common areas of
the Building, such as plazas, lobbies, stairs, corridors and restrooms, the
structural, roof and exterior elements of the Building, and the elevator,
mechanical (heating, ventilating and air conditioning) and electrical systems of
the Building and keep such areas, elements and systems in reasonably good order
and condition. Any damage in or to any such areas, elements or systems caused
by Tenant or any agent, employee, contractor, licensee or invitee of Tenant
shall be repaired by Landlord at Tenant's expense and Tenant shall pay to
Landlord, upon billing by Landlord, as additional rent, the cost of such repairs
incurred by Landlord.
9.2 Tenant shall, at all times during the term of this Lease and at
Tenant's sole cost and expense, maintain and repair the Premises and every part
thereof and all equipment, fixtures and improvements therein and keep all of the
foregoing clean and in reasonably good order and operating condition, ordinary
wear and tear and damage thereto by fire or other casualty excepted, and
excluding maintenance and repair of the areas, elements and systems of the
Building to be maintained and repaired by Landlord pursuant to section 9.1
hereof, Tenant hereby waives all rights under California Civil Code section 1941
and all rights to make repairs at the expense of Landlord or in lieu thereof to
vacate the Premises as provided by California Civil Code section 1942 or any
other law, statute or ordinance now or hereafter in effect. Subject to section
8.2 hereof, Tenant shall, at the end of the term of this Lease, surrender to
Landlord the Premises and all alterations, additions, fixtures and improvements
therein or thereto in the same condition as when received, ordinary wear and
tear and damage thereto by fire or other casualty excepted, and excluding areas,
elements and systems of the Building to be maintained and repaired by Landlord
pursuant to section 9.1 hereof.
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ARTICLE 10
DAMAGE OR DESTRUCTION
10.1 If the Building or the Premises, or any part thereof, is damaged
by fire or other casualty before the Commencement Date or during the term of
this Lease, and this Lease is not terminated pursuant to section 10.2 hereof,
Landlord shall repair such damage and restore the Building and the Premises to
substantially the same condition in which the Building and the Premises existed
before the occurrence of such fire or other casualty and this Lease shall,
subject to this section 10.1, remain in full force and effect. If such fire or
other casualty damages the Premises or common areas of the Building necessary
for Tenant's use and occupancy of the Premises, then, during the period the
Premises are rendered unusable by such damage, Tenant shall be entitled to a
reduction in Base Rent in the proportion that the area of the Premises rendered
unusable by such damage bears to the total area of the Premises. Landlord shall
not be obligated to repair any damage to, or to make any replacement of, any
movable furniture, equipment, trade fixtures or personal property in the
Premises. Tenant shall, at Tenant's sole cost and expense, repair and replace
all such movable furniture, equipment, trade fixtures and personal property.
Such repair and replacement by Tenant shall be done in accordance with Article 8
hereof. Tenant hereby waives California Civil Code sections 1932(2) and 1933(4)
providing for termination of hiring upon destruction of the thing hired.
10.2 If the Building or the Premises, or any part thereof, is damaged
by fire or other casualty before the Commencement Date or during the term of
this Lease and (a) such fire or other casualty occurs during the last twelve
(12) months of the term of this Lease and the repair and restoration work to be
performed by Landlord in accordance with section 10.1 hereof cannot, as
reasonably estimated by Landlord, be completed within two (2) months after the
occurrence of such fire or other casualty or (b) the repair and restoration work
to be performed by Landlord in accordance with section 10.1 hereof cannot, as
reasonably estimated by Landlord, be completed within nine (9) months after the
occurrence of such fire or other casualty, then, in any such event, Landlord
shall have the right, by giving written notice to Tenant within sixty (60) days
after the occurrence of such fire or other casualty, to terminate this Lease as
of the date of such notice. If any such fire or other casualty does not
materially damage the Premises, Landlord shall have no right to terminate this
Lease unless Landlord also terminates the leases of all other tenants of the
Building. If such fire or other casualty materially
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damages the Premises or materially interferes with Tenant's access to or use of
the Premises, the reasonable estimates required pursuant to clauses (a) and (b)
of this section 10.2 shall be made jointly by mutual agreement of Landlord and
Tenant, and Tenant shall have the same right as Landlord, subject to the
conditions in this section 10.2, to terminate this Lease. If neither Landlord
nor Tenant exercises the right to terminate this Lease in accordance with this
section 10.2, Landlord shall promptly commence and diligently prosecute the
repair of such damage and the restoration of the Building and the Premises in
accordance with section 10.1 hereof and this Lease shall, subject to section
10.1 hereof, remain in full force and effect. A total destruction of the
Building shall automatically terminate this Lease effective as of the date of
such total destruction.
ARTICLE 11
INSURANCE
11.1 Tenant hereby waives all claims against Landlord for damage to
or loss or theft of any property or for any bodily or personal injury, illness
or death of any person in, on or about the Premises or the Building arising at
any time and from any cause whatsoever, other than by reason of the negligence
or willful misconduct of Landlord or Landlord's officers, employees, agents or
contractors. Tenant shall indemnify and defend Landlord against and hold
Landlord harmless from all claims, demands, liabilities, damages, losses, costs
and expenses, including, without limitation, reasonable attorneys' fees, for any
damage to any property (including property of employees and invitees of Tenant)
or for any bodily or personal injury, illness or death of any person (including
employees and invitees of Tenant) occurring in, on or about the Premises or any
part thereof arising at any time during the term of this Lease and from any
cause whatsoever, other than by reason of the negligence or willful misconduct
of Landlord or Landlord's officers, employees, agents or contractors, or
occurring in, on or about any part of the Building other than the Premises when
such damage, bodily or personal injury, illness or death is caused by any act or
omission of Tenant or its officers, employees, agents, contractors, invitees or
licensees. Landlord shall indemnify and defend Tenant against and hold Tenant
harmless from all claims, demands, liabilities, damages, losses, costs and
expenses, including, without limitation, reasonable attorneys' fees, for any
damage to any property (including property of employees and invitees of Tenant)
or for any bodily and personal injury, illness or death of any person (including
employees and invitees of Tenant) occurring in, on or about the Premises
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or the Building or any part thereof arising at any time during the term of this
Lease caused by the negligence or willful misconduct of Landlord or Landlord's
officers, employees, agents or contractors. This section 11.1 shall survive the
termination of this Lease with respect to any damage, bodily or personal injury,
illness or death occurring prior to such termination.
11.2 Tenant shall, at Tenant's sole cost and expense, obtain and keep
in force during the term of this Lease comprehensive general liability
insurance, including contractual liability (specifically covering this Lease),
fire legal liability, and premises operations, with a minimum combined single
limit in the amount specified in the BASIC LEASE INFORMATION per occurrence for
bodily or personal injury to, illness of, or death of persons and damage to
property occurring in, on or about the Premises or the Building.
11.3 Landlord shall obtain and keep in force during the term of this
Lease reasonable property and liability insurance for the Building with
coverages and in amounts comparable to those maintained for other first-class
office buildings in the San Francisco financial district.
11.4 All insurance required under this Article 11 and all renewals
thereof shall be issued by good and responsible companies qualified to do and
doing business in the State of California. All liability insurance under
section 11.2 hereof shall expressly provide that the policy shall not be
cancelled or altered without thirty (30) days' prior written notice to Landlord
and shall remain in effect notwithstanding any such cancellation or alteration
until such notice shall have been given to Landlord and such period of thirty
(30) days shall have expired. All liability insurance under section 11.2 hereof
shall name Landlord and any holder of a mortgage or deed of trust encumbering
the Building designated by Landlord as an additional insured, shall be primary
and noncontributing with any insurance which may be carried by Landlord, and
shall expressly provide that Landlord, although named as an insured, shall
nevertheless be entitled to recover under the policy for any loss, injury or
damage to Landlord. Upon the issuance thereof, Tenant shall deliver each such
policy or a certified copy and a certificate thereof to Landlord for retention
by Landlord. If Tenant fails to insure or fails to furnish to Landlord upon
notice to do so any such policy or certified copy and certificate thereof as
required, Landlord shall have the right from time to time to effect such
insurance for the benefit of Tenant or Landlord or both of them and all premiums
paid by Landlord shall be payable by Tenant as additional rent on demand.
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11.5 Tenant waives on behalf of its insurers under all policies of
property, liability and other insurance (excluding workers' compensation) now or
hereafter existing during the term hereof and purchased by Tenant insuring or
covering the Premises, or any portion or any contents thereof, or any operations
therein, all rights of subrogation which any insurer might otherwise, if at all,
have to any claims of Tenant against Landlord. Landlord waives on behalf of its
insurers under all policies of property, liability and other insurance
(excluding workers' compensation) now or hereafter existing during the term
hereof and purchased by Landlord insuring or covering the Building or any
portion or any contents thereof, or any operations therein, all rights of
subrogation which any insurer might otherwise, if at all, have to any claims of
Landlord against Tenant. Landlord and Tenant each shall, prior to or immediately
after the date of this Lease, procure from each of the insurers under all
policies of property, liability and other insurance (excluding workers'
compensation) now or hereafter existing during the term hereof and purchased by
it insuring or covering the Building or the Premises, or any portion or any
contents thereof, or any operations therein, a waiver of all rights of
subrogation which the insurer might otherwise, if at all, have to any claims of
Landlord or Tenant against the other as required by this section 11.5.
ARTICLE 12
COMPLIANCE WITH LEGAL REQUIREMENTS
12.1 Tenant shall, at its sole cost and expense, promptly comply with
all laws, ordinances, rules, regulations, orders and other requirements of any
government or public authority now in force or which may hereafter be in force,
with the requirements of any board of fire underwriters or other similar body
now or hereafter constituted, and with any direction or certificate of occupancy
issued pursuant to any law by any governmental agency or officer, insofar as any
thereof relate to or affect the condition, use or occupancy of the Premises or
the operation, use or maintenance of any equipment, fixtures or improvements in
the Premises, excluding requirements not reasonably necessitated by Tenant's
acts or particular use of the Premises or by improvements or alterations made by
or for Tenant.
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ARTICLE 13
ASSIGNMENT AND SUBLETTING
13.1 Except for permitted assignments and subleases pursuant to section
13.2 hereof and permitted occupancy agreements pursuant to section 13.6
hereof, Tenant shall not, directly or indirectly, without the prior written
consent of Landlord (which consent shall not be unreasonably withheld or
delayed), assign this Lease or any interest herein or sublease the Premises
or any part thereof, or permit the use or occupancy of the Premises by any
person or entity other than Tenant. Tenant shall not, directly or
indirectly, without the prior written consent of Landlord, pledge, mortgage
or hypothecate this Lease or any interest herein. This Lease shall not, nor
shall any interest herein, be assignable as to the interest of Tenant
involuntarily or by operation of law without the prior written consent of
Landlord. Any of the foregoing acts without such prior written consent of
Landlord shall be void and shall, at the option of Landlord, constitute a
default that entitles Landlord to terminate this Lease. Without limiting or
excluding other reasons for withholding Landlord's consent, Landlord shall
have the right to withhold consent if the proposed assignee or subtenant or
the use of the Premises to be made by the proposed assignee or subtenant is
not consistent with the character and nature of other tenants and uses in the
Building or is prohibited by this Lease or if it is not demonstrated to the
satisfaction of Landlord that the proposed assignee or subtenant has good
business and moral character and reputation and is financially able to
perform all of the obligations of Tenant under this Lease. Tenant agrees
that the instrument by which any assignment or sublease to which Landlord
consents is accomplished shall expressly provide that the assignee or
subtenant will perform all of the covenants to be performed by Tenant under
this Lease (in the case of a sublease, only insofar as such covenants relate
to the portion of the Premises subject to such sublease) as and when
performance is due after the effective date of the assignment or sublease and
that Landlord will have the right to enforce such covenants directly against
such assignee or subtenant, Any purported assignment or sublease without an
instrument containing the foregoing provisions shall be void. Tenant shall
in all cases remain liable and responsible for the performance by any
assignee or subtenant of all such covenants.
13.2 Tenant shall have the right to assign this Lease or sublease all or
any portion of the Premises to any entity that, directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under
common control with Tenant, or any entity that results from
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a merger with or consolidation of Tenant, or any entity that purchases
substantially all of the assets of Tenant and carries on the business of
Tenant in the Premises. The consent of Landlord shall not be required for
any assignment or sublease permitted by this section 13.2, but Tenant shall,
at least thirty (30) days before completing any such assignment or sublease,
give written notice to Landlord identifying the assignee or subtenant by name
and address and describing the basis on which such assignment or sublease
qualifies as a permitted assignment or sublease under this section 13.2.
Tenant shall give Landlord such additional information concerning the
assignee or subtenant or the terms of the assignment or sublease as Landlord
reasonably requests. Sections 13.3 and 13.4 hereof shall not apply to any
assignment or sublease permitted by this section 13.2.
13.3 Except for permitted assignments and subleases pursuant to section
13.2 hereof and permitted occupancy agreements pursuant to section 13.6
hereof, if Tenant wishes to assign this Lease or sublease all or any part of
the Premises, Tenant shall give written notice to Landlord identifying the
intended assignee or subtenant by name and address and specifying all of the
terms of the intended assignment or sublease. Tenant shall give Landlord
such additional information concerning the intended assignee or subtenant or
the intended assignment or sublease as Landlord reasonably requests. For a
period of thirty (30) days after such notice is given by Tenant, Landlord
shall have the right, by giving written notice to Tenant, (a) to consent in
writing to the intended assignment or sublease, or (b) to enter into an
assignment of this Lease or a sublease of the Premises, as the case may be,
with Tenant upon the terms set forth in such notice, or (c) in the case of an
assignment of this Lease or a sublease of the entire Premises for the balance
of the term of this Lease, to terminate this Lease, 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 its termination
right. If Landlord does not exercise a right set forth in clause (a), (b) or
(c) of the preceding sentence by giving written notice to Tenant within such
period of thirty (30) days, Landlord shall be deemed to consent in writing to
the intended assignment or sublease pursuant to clause (a) of the preceding
sentence. If Landlord elects to enter into an assignment of this Lease or a
sublease of the Premises or to terminate this Lease, Landlord may enter into
a new lease or agreement covering the Premises or any portion thereof with
the intended assignee or subtenant on such terms as Landlord and such
assignee or subtenant may agree or enter into a new lease or agreement
covering the Premises or any portion thereof with any other person. In such
event, Tenant shall not be entitled to any portion of the profit, if any,
which
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Landlord may realize on account of such new lease or agreement. If Landlord
elects to terminate this Lease, 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 except for matters
occurring or obligations arising hereunder prior to the date of such
termination.
13.4 Except for permitted assignments and subleases pursuant to
section 13.2 hereof and permitted occupancy agreements pursuant to section 13.6
hereof, if Landlord consents in writing (or Landlord is deemed to consent in
writing in accordance with section 13.3 hereof), Tenant may complete the
intended assignment or sublease subject to the following covenants: (a) the
assignment or sublease shall be on the same terms as set forth in the written
notice given by Tenant to Landlord, (b) no assignment or sublease shall be
valid and no assignee or subtenant shall take possession of the Premises or any
part thereof until an executed duplicate original of such assignment or
sublease, in compliance with section 13.1 hereof, has been delivered to
Landlord, (c) no assignee or subtenant shall have a right further to assign or
sublease, and (d) all "excess rent" (as hereinafter defined) derived from such
assignment or sublease shall be divided and paid twenty-five percent (25%) to
Landlord and seventy-five percent (75%) to Tenant, Landlord's share of such
excess rent shall be deemed to be, and shall be paid by Tenant to Landlord as,
additional rent. Tenant shall pay Landlord's share of such excess rent to
Landlord within five (5) days after such excess rent is paid to Tenant. As
used in this section 13.4, "excess rent" shall mean the amount by which the
total money and other economic consideration to be paid by the assignee or
subtenant as a result of an assignment or sublease, whether denominated rent or
otherwise, exceeds, in the aggregate, the total amount of rent which Tenant is
obligated to pay to Landlord under this Lease (prorated to reflect the rent
allocable to the portion of the Premises subject to such assignment or
sublease), less the reasonable costs paid by Tenant for additional improvements
installed in the portion of the Premises subject to such assignment or sublease
by Tenant at Tenant's sole cost and expense for the specific assignee or
subtenant in question and reasonable leasing commissions (and excluding
carrying costs due to vacancy or any other cause) paid by Tenant in connection
with such assignment or sublease, which costs of additional improvements and
leasing costs shall be amortized without interest over the term of such
assignment or sublease.
13.5 No assignment or sublease whatsoever shall release Tenant from
Tenant's obligations and liabilities under this Lease or alter the primary
liability of Tenant to
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pay the rent and to perform all other obligations to be performed by Tenant
hereunder. The acceptance of rent by Landlord from any other person shall not
be deemed to be a waiver by Landlord of any provision of this Lease. Consent to
one assignment or sublease shall not be deemed consent to any subsequent
assignment or sublease. If any assignee, subtenant or successor of Tenant
defaults in the performance of any obligation to be performed by Tenant under
this Lease, Landlord may proceed directly against Tenant without the necessity
of exhausting remedies against such assignee, subtenant or successor. Landlord
may consent to subsequent assignments or subleases or amendments or
modifications to this Lease, which do not increase Tenant's obligations under
this Lease, with assignees, subtenants or successors of Tenant, upon giving
notice to Tenant or any successor of Tenant but without obtaining any consent
thereto from Tenant or any successor of Tenant, and such action shall not
release Tenant from liability under this Lease.
13.6 Tenant shall have the right to enter into occupancy agreements,
whether or not denominated a sublease agreement, with other persons or entities
which entitle such persons or entities to occupy space in the Premises, but only
if (a) no partition walls are installed for such occupant other than an ordinary
office to enclose such occupant's space, (b) no separate entrance to the
elevator lobby or common area on a floor is installed for such occupant, and (c)
the total amount of all space in the Premises occupied by all such occupants
shall not exceed, in the aggregate, one-half floor, The consent of Landlord
shall not be required for any occupancy agreement which satisfies the
requirements of this section 13.6, but Tenant shall, within thirty (30) days
after completing any such occupancy agreement, give written notice to Landlord
identifying the occupant by name and address, specifying the space to be
occupied by such occupant, and describing the basis on which such occupant
qualifies as a permitted occupancy agreement under this section 13.6. Tenant
shall give Landlord such additional information concerning any such occupant or
the terms of any occupancy agreement as Landlord reasonably requests. Sections
13.3 and 13.4 hereof shall not apply to any occupancy agreement permitted by
this section 13.6. No occupancy agreement permitted by this section 13.6 shall
constitute a "sublease" for other purposes of this Lease.
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ARTICLE 14
RULES AND REGULATIONS
14.1 Tenant shall faithfully observe and comply with the rules and
regulations (the "Rules and Regulations") set forth in Exhibit C attached hereto
and, after notice thereof, all modifications thereof and additions thereto from
time to time made in writing by Landlord. Landlord shall enforce the Rules and
Regulations and any modifications thereof or additions thereto in a
nondiscriminatory manner. If there is any conflict, this Lease shall prevail
over the Rules and Regulations and any modifications thereof or additions
thereto, No Rules and Regulations established by Landlord shall unreasonably
interfere with Tenant's use and enjoyment of the Premises in accordance-with
this Lease. Landlord shall not be responsible to Tenant for the noncompliance
by any other tenant or occupant of the Building with any Rules and Regulations.
ARTICLE 15
ENTRY BY LANDLORD
15.1 Landlord may enter the Premises at any time to (a) inspect the
Premises, (b) exhibit the Premises to prospective purchasers, lenders or, during
the last year of the term of this Lease, tenants, (c) determine whether Tenant
is performing all of its obligations hereunder, (d) supply any service to be
provided by Landlord, (e) post notices of nonresponsibility, and (f) make any
repairs to the Premises, or make any repairs to any adjoining space or utility
services, or make any repairs, alterations or improvements to any other portion
of the Building, provided Tenant's access to the Premises shall not be blocked
and all such work shall be done as promptly as reasonably practicable and so as
to cause as little interference to Tenant as reasonably practicable. If
Landlord is required to perform work in the Premises for a reason within the
reasonable control of Landlord and such work in the Premises materially impairs
Tenant's ability to carry on its business in the Premises for a period of ten
(10) consecutive business days, the Base Rent and additional rent payable by
Tenant under this Lease shall be abated, based on the extent to which such work
in the Premises materially impairs Tenant's ability to carry on its business in
the Premises, commencing on the eleventh business day of such material
impairment of Tenant's business and continuing until such work in the Premises
no longer materially impairs Tenant's ability to carry on its business in the
Premises. Tenant shall have no right to any abatement of the Base Rent and
additional rent
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payable by Tenant under this Lease if, and to the extent that, the reason for
such work in the Premises is caused by Tenant, or Tenant's officers, employees
contractors, agents, licensees or invitees, or by any force or event that cannot
be reasonably anticipated or controlled by Landlord. In the case of entry for
the purpose of inspecting the Premises or exhibiting the Premises, Landlord
shall give reasonable prior notice, but at least twenty-four (24) hours in
advance, to Tenant and shall use reasonable efforts to schedule such entry at a
mutually convenient time so that Landlord may be accompanied by a representative
of Tenant during such entry. Tenant waives all claims for damages for any injury
or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises or any other loss occasioned by
such entry in accordance with this section 15.1, unless caused by the negligence
or willful misconduct of Landlord or Landlord's officers, employees, agents or
contractors. Landlord shall at all times have and retain a key with which to
unlock all of the doors in, on or about the Premises (excluding Tenant's vaults,
safes, securities cage and similar areas designated in writing by Tenant in
advance), and Landlord shall have the right to use any and all means which
Landlord may deem necessary to open such doors in an emergency to obtain entry
to the Premises. Any entry to the Premises obtained by Landlord by any of such
means shall not under any circumstances be construed or deemed to be a forcible
or unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof. For the
purposes of this section 15.1, an "emergency" shall mean any condition,
circumstance, force or event which, in the reasonable opinion of Landlord or any
of Landlord's officers, employees, agents or contractors, creates a risk of
injury to or death of any person or damage to any property and which requires
immediate action to reduce or eliminate such risk.
ARTICLE 16
EVENTS OF DEFAULT AND REMEDIES
16.1 The occurrence of any one or more of the following events ("Event
of Default") shall constitute a breach of this Lease by Tenant:
(a) Tenant fails to pay any Interim Rent or any Base Rent or
additional monthly rent under section 3.1 hereof as and when such rent becomes
due and payable and such failure continues for more than five (5) days after
Landlord gives written notice thereof to Tenant; or
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(b) 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
fifteen (15) 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, shall be required to establish an
Event of Default in the same calendar year; or
(c) Tenant fails to perform or observe any other agreement, covenant
or condition of this Lease to be performed or observed by Tenant as and when
performance or observance is due and such failure continues for more than
fifteen (15) days after Landlord gives written notice thereof to Tenant;
provided, however, that if, by the nature of such agreement, covenant or
condition, such failure cannot reasonably be cured within such period of fifteen
(15) days, an Event of Default shall not exist as long as Tenant commences with
due diligence and dispatch the curing of such failure within such period of
fifteen (15) days and, having so commenced, thereafter prosecutes with diligence
and dispatch and completes the curing of such failure; or
(d) Tenant (i) 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, (ii)
makes an assignment for the benefit of its creditors, (iii) 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 (iv) takes
action for the purpose of any of the foregoing; or
(e) Without consent by Tenant, a court or government authority enters
an order, and such order is not vacated within sixty (60) days, (i) 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 (ii)
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 (iii) ordering the dissolution, winding-up or
liquidation of Tenant; or
(f) This Lease or any estate of Tenant hereunder is levied upon
under any attachment or execution and such
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attachment or execution is not vacated within sixty (60) days; or
(g) Tenant abandons the Premises and another Event of Default occurs.
16.2 If an Event of Default occurs, Landlord at any time shall have
the right 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:
(a) The worth at the time of award of all unpaid rent which had been
earned at the time of termination;
(b) 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;
(c) 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
(d) All other amounts necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its 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 (a) and (b) 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 (c) 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 (a), (b) and (c) above, the rent reserved in this Lease shall be
deemed to be the total rent payable by Tenant under Articles 3 and 5 hereof.
16.3 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 the right to enforce all its rights and
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remedies under this Lease, including the right 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 Tenant's right to possession unless written notice of termination is given by
Landlord to Tenant.
16.4 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.
16.5 All agreements, covenants and conditions to be performed or observed
by Tenant under this Lease shall be at Tenant's sole cost and expense and
without any abatement of rent (except as otherwise expressly permitted by this
Lease). If Tenant fails to pay any sum of money required to be paid by Tenant
hereunder or fails to perform any other act on Tenant's part to be performed
hereunder, Landlord shall have the right, but shall not be obligated, and
without waiving or releasing Tenant from any obligations of Tenant, to make any
such payment or to perform any such other act on Tenant's part to be made or
performed in accordance with this Lease. All sums so paid by Landlord and all
necessary incidental costs shall be deemed additional rent hereunder and shall
be payable by Tenant to Landlord on demand, together with interest on all such
sums from the date of expenditure by Landlord to the date of repayment by Tenant
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 date of expenditure or, if there is no such maximum annual interest
rate, at the rate of eighteen percent (18%) per annum. Landlord shall have, in
addition to all other rights and remedies of Landlord, the same rights and
remedies in the event of the nonpayment of such sums plus interest by Tenant as
in the case of default by Tenant in the payment of rent.
16.6 If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any movable furniture, equipment, trade fixtures or
personal property belonging to Tenant and left in the Premises shall be deemed
to be abandoned, at the option of Landlord, and Landlord shall have the right to
sell or otherwise dispose of such personal property in any commercially
reasonable manner.
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ARTICLE 17
EMINENT DOMAIN
17.1 If twenty-five percent (25%) or less of the area of the Premises
is taken by exercise of the power of eminent domain before the Commencement Date
or during the tern of this Lease, this Lease shall terminate as to the portion
of the Premises so taken as of the date of such taking and shall remain in full
force and effect as to the portion of the Premises not so taken, and the Base
Rent shall be reduced as of the date of such taking in the proportion that the
area of the Premises so taken bears to the total area of the Premises, unless
the taking of the portion of the Premises so taken materially interferes with
Tenant's use of the portion of the Premises not so taken, in which event Tenant
shall have the right, by giving written notice to Landlord within thirty (30)
days after the date of such taking, to terminate this Lease. If more than
twenty-five percent (25%), but less than all, of the area of the Premises is
taken by exercise of the power of eminent domain before the Commencement Date or
during the term of this Lease, Landlord and Tenant each shall have the right, by
giving written notice to the other within thirty (30) days after the date of
such taking, to terminate this Lease. If either Landlord or Tenant exercises any
such right to terminate this Lease in accordance with this section 17.1, this
Lease shall terminate as of the date of such taking. If neither Landlord nor
Tenant exercises such right to terminate this Lease in accordance with this
section 17.1, this Lease shall terminate as to the portion of the Premises so
taken as of the date of such taking and shall remain in full force and effect as
to the portion of the Premises not so taken, and the Base Rent shall be reduced
as of the date of such taking in the proportion that the area of the Premises so
taken bears to the total area of the Premises. If all of the Premises is taken
by exercise of the power of eminent domain before the Commencement Date or
during the term of this Lease, this Lease shall terminate as of the date of such
taking.
17.2 If all or any part of the Premises is taken by exercise of the
power of eminent domain, all awards, compensation, damages, income, rent and
interest payable in connection with such taking shall, except as expressly set
forth in this section 17.2, be paid to and become the property of Landlord, and
Tenant hereby assigns to Landlord all of the foregoing, but if this Lease is not
terminated pursuant to section 17.1 hereof, Landlord shall use such condemnation
proceeds to restore the portion of the Premises not so taken to the condition in
which such portion existed before the taking, to the extent reasonably
practicable
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under the circumstances. Without limiting the generality of the foregoing,
Tenant shall have no claim against Landlord or the entity exercising the power
of eminent domain for the value of the leasehold estate created by this Lease or
any unexpired term of this Lease. Tenant shall have the right to claim and
receive directly from the entity exercising the power of eminent domain only the
share of any award determined to be owing to Tenant for the taking of
improvements installed in the portion of the Premises so taken by Tenant at
Tenant's sole cost and expense based on the unamortized cost actually paid by
Tenant for such improvements, for the taking of Tenant's movable furniture,
equipment, trade fixtures and personal property, for loss of goodwill, for
interference with or interruption of Tenant's business, and for removal and
relocation expenses.
17.3 Notwithstanding sections 17.1 and 17.2 hereof to the contrary, if the
use of all or any part of the Premises is taken by exercise of the power of
eminent domain during the term of this Lease on a temporary basis for a period
less than the term of this Lease remaining after such taking, this Lease shall
continue in full force and effect, Tenant shall continue to pay all of the rent
and to perform all of the covenants of Tenant in accordance with this Lease, to
the extent reasonably practicable under the circumstances, and the condemnation
proceeds in respect of such temporary taking shall be paid to Tenant.
17.4 As used in this Article 17, a "taking" means the acquisition of all or
part of the Premises for a public use by exercise of the power of eminent domain
and the taking shall be considered to occur as of the earlier of the date on
which possession of the Premises (or part so taken) by the entity exercising the
power of eminent domain is authorized as stated in an order for possession or
the date on which title to the Premises (or part so taken) vests in the entity
exercising the power of eminent domain.
ARTICLE 18
SUBORDINATION, MERGER AND SALE
18.1 Subject to the requirements in this section 18.1, this Lease shall be
subject and subordinate at all times to the lien of all mortgages and deeds of
trust securing any amount or amounts whatsoever which may now exist or hereafter
be placed on or against the Building or on or against Landlord's interest or
estate therein, all without the necessity of having further instruments executed
by Tenant to effect such subordination. Notwithstanding the foregoing, the
subordination of this Lease to any such
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mortgage or deed of trust is expressly conditional upon the holder thereof
agreeing, in such deed of trust or mortgage or in a separate agreement, that, in
the event of a foreclosure of any such mortgage or deed of trust or of any other
action or proceeding for the enforcement thereof, or of any sale thereunder,
Tenant shall not be named or joined in any action or proceeding to enforce such
mortgage or deed of trust unless required by law to perfect the proceeding and
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. Tenant shall attorn to the person who acquires Landlord's
interest hereunder through any such mortgage or deed of trust and such person
shall be bound to Tenant in accordance with section 18.3 hereof. Tenant agrees
to execute, acknowledge and deliver upon demand such further instruments
evidencing such subordination of this Lease to the lien of all such mortgages
and deeds of trust as may reasonably be required by Landlord, but Tenant's
covenant to subordinate this Lease to mortgages or deeds of trust hereafter
executed is conditioned upon each such senior mortgage or deed of trust, or a
separate subordination agreement, containing the commitments specified in the
preceding sentence. Landlord shall, within ninety (90) days after the date of
this Lease, obtain and deliver to Tenant a nondisturbance agreement containing
the commitments set forth in this section 18.1 executed by the holder of any
existing mortgage or deed of trust encumbering the Building or any part thereof.
18.2 The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not work a merger and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies or operate as
an assignment to Landlord of any or all such subleases or subtenancies.
18.3 If the original Landlord hereunder, or any successor owner of the
Building, sells or conveys the Building, all liabilities and obligations on the
part of the original Landlord, or such successor owner, under this Lease
accruing after such sale or conveyance shall terminate and the original
Landlord, or such successor owner, shall automatically be released therefrom,
and thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner.
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ARTICLE 19
ESTOPPEL CERTIFICATE
19.1 At any time and from time to time but in any event within ten
(10) business days after written request by Landlord or Tenant to the other
party, such other party shall execute, acknowledge and deliver to the requesting
party a certificate certifying: (a) that this Lease is unmodified and in full
force and effect (or, if there have been modifications, that this Lease is in
full force and effect as modified, and stating the date and nature of each
modification); (b) the Commencement Date and the Expiration Date determined in
accordance with Article 2 hereof and the date, if any, to which all rent and
other sums payable hereunder have been paid; (c) that no notice has been
received by such other party of any default by such other party hereunder which
has not been cured, except as to defaults specified in such certificate; (d)
that the requesting party is not in default hereunder, except as to defaults
specified in such certificate; and (e) such other matters as may be reasonably
requested by the requesting party or any actual or prospective purchaser,
mortgage lender, assignee or subtenant. Any such certificate may be relied upon
by the requesting party and any actual or prospective purchaser or mortgage
lender of the Building or any part thereof and any actual or prospective
assignee or subtenant of this Lease or the Premises or any part thereof. At any
time and from time to time, but in any event within ten (10) days after written
request by Landlord, Tenant shall deliver to Landlord copies of all current
annual reports of Tenant.
ARTICLE 20
HOLDING OVER
20.1 If, without objection by Landlord, Tenant holds possession of the
Premises after expiration of the term of this Lease, Tenant shall become a
tenant from month to month upon the terms herein specified but at a Base Rent
equal to one hundred fifty percent (150%) of the Base Rent being paid by Tenant
at the expiration of the term of this Lease pursuant to Article 3 hereof,
payable in advance on or before the first day of each month. Such month to
month tenancy may be terminated by either Landlord or Tenant by giving thirty
(30) days' written notice of termination to the other at any time.
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ARTICLE 21
WAIVER
21.1 The waiver by Landlord or Tenant of any breach of any covenant in
this Lease shall not be deemed to be a waiver of any subsequent breach of the
same or any other covenant in this Lease, nor shall any custom or practice which
may grow up between Landlord and Tenant in the administration of this Lease be
construed to waive or to lessen the right of Landlord or Tenant to insist upon
the performance by Landlord or Tenant in strict accordance with this Lease. The
subsequent acceptance of rent hereunder by Landlord or the payment of rent by
Tenant shall not waive any preceding breach by Tenant of any covenant in this
Lease, nor cure any Event of Default, nor waive any forfeiture of this Lease or
unlawful detainer action, other than the failure of Tenant to pay the particular
rent so accepted, regardless of Landlord's or Tenant's knowledge of such
preceding breach at the time of acceptance or payment of such rent.
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ARTICLE 22
NOTICES
22.1 All notices and other communications which may or are required to
be given by either Landlord or Tenant to the other under this Lease shall be
deemed to have been properly given only when made in writing and hand delivered
or deposited in the United States mail, postage prepaid, certified with return
receipt requested, and addressed as follows: to Tenant, before the Commencement
Date, at the address of Tenant specified in the BASIC LEASE INFORMATION, but
after the Commencement Date, at the Premises, or at such other place as Tenant
may from time to time designate in a notice to Landlord; and to Landlord at the
address of Landlord specified in the BASIC LEASE INFORMATION, or at such other
place as Landlord may from time to time designate in a notice to Tenant. Such
notices and other communications shall be effective upon hand delivery, if hand
delivered, or receipt (evidenced by the certified mail receipt), if mailed.
ARTICLE 23
MISCELLANEOUS
23.1 The words "Landlord" and "Tenant" as used herein shall include
the plural as well as the singular. If there is more than one Tenant, the
obligations hereunder imposed upon Tenant shall be joint and several. If
Landlord consists of more than one party, the obligations hereunder imposed upon
Landlord shall be joint and several. Time is of the essence of this Lease and
each and all of its provisions. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option for lease,
and it is not effective as a lease or otherwise until execution and delivery by
both Landlord and Tenant. Subject to Article 13 hereof, this Lease shall benefit
and bind Landlord and Tenant and the personal representatives, heirs, successors
and assigns of Landlord and Tenant. If any provision of this Lease is determined
to be illegal or unenforceable, such determination shall not affect any other
provision of this Lease and all such other provisions shall remain in full force
and effect. If Tenant requests the consent or approval of Landlord to any
assignment, sublease or other action by Tenant, Tenant shall pay on demand to
Landlord all costs and expenses, including, without limitation, reasonable
attorneys' fees, incurred by Landlord in connection therewith. This Lease shall
be governed by and construed in accordance with the laws of the State of
California.
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23.2 Tenant acknowledges that the late payment by Tenant of any monthly
installment of Base Rent or additional monthly rent will cause Landlord to
incur costs and expenses, the exact amount of which is extremely difficult
and impractical to fix. Such costs and expenses will include, without
limitation, administration and collection costs and processing and accounting
expenses. Therefore, if any monthly installment of Base Rent or additional
monthly rent is not received by Landlord from Tenant within five (5) business
days after such installment is due, Tenant shall immediately pay to Landlord
a late charge equal to four percent (4%) of such delinquent installment.
Landlord and Tenant agree that such late charge represents a reasonable
estimate of such costs and expenses and is fair compensation to Landlord for
its loss suffered by Tenant's failure to make timely payment. In no event
shall such late charge be deemed to grant to Tenant a grace period or
extension of time within which to pay any monthly rent or prevent Landlord
from exercising any right or remedy available to Landlord upon Tenant's
failure to pay each installment of monthly rent due under this Lease in a
timely fashion, including the right to terminate this Lease. All amounts of
money payable by Tenant to Landlord hereunder, if not paid when due, shall
bear interest from the due date until paid 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 such due date or, if
there is no such maximum annual interest rate, at the rate of eighteen
percent (18%) per annum.
23.3 If there is any legal action or proceeding between Landlord and
Tenant to enforce any provision of this Lease or to protect or establish any
right or remedy of either Landlord or Tenant hereunder, the unsuccessful party
to such action or proceeding shall pay to the prevailing party all costs and
expenses, including reasonable attorneys' fees, incurred by such prevailing
party in such action or proceeding and in any appeal in connection therewith.
If such prevailing party recovers a judgment in any such action, proceeding or
appeal, such costs, expenses and attorneys' fees shall be included in and as a
part of such judgment.
23.4 Exhibit A (Plans Outlining the Premises), Exhibit
B (Improvement of the Initial Premises) and Exhibit C (Rules and Regulations)
are attached to and made a part of this Lease.
23.5 Landlord and Tenant each warrants and represents to the other that
it has negotiated this Lease directly with the real estate brokers specified
in the BASIC
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LEASE INFORMATION and has not authorized or employed, or acted by implication to
authorize or to employ, any other real estate broker or salesman to act for it
in connection with this Lease. Landlord shall pay the compensation due such
real estate brokers in accordance with the separate agreements between Landlord
and such real estate brokers.
23.6 Landlord and Tenant each represents and warrants to the other
that (a) it is duly incorporated and validly existing under the laws of its
state of incorporation, (b) it is qualified to do business in California, (c) it
has full corporate right, power and authority to enter into this Lease and to
perform all of its obligations hereunder, and (d) each person signing this Lease
on behalf of the corporation 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 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.
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23.7 Tenant shall, during the term of this Lease, upon paying all of
the rent and performing all of the covenants of Tenant in accordance with this
Lease, peaceably and quietly enjoy the Premises, subject to the covenants and
conditions of this Lease.
23.8 Tenant shall have the right to use an equitable proportion of
space in the directory of the Building for the display of the name and location
of Tenant and principal officers, employees and subtenants of Tenant based on
the space in the Building leased by Tenant in relation to the total space in the
Building.
23.9 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. 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. This Lease may not
-46-
<PAGE>
be amended or modified in any respect whatsoever except by an instrument in
writing signed by Landlord and Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Office
Lease as of the date first hereinabove written.
HAMBRECHT & QUIST THE EQUITABLE LIFE ASSURANCE
INCORPORATED, a California SOCIETY OF THE UNITED STATES,
corporation a New York corporation
By /s/ [Signature unreadable] By /s/ [Signature unreadable]
--------------------------- ---------------------------
Title SVP Finance Title Attorney in Fact
------------------------ ------------------------
-47-
<PAGE>
Exhibit A, 11th Floor
[Graphic depiction omitted]
<PAGE>
EXHIBIT B
IMPROVEMENT OF THE PREMISES
1. THE WORK. Landlord, through Landlord's contractor, shall
construct and install in the Initial Premises, substantially in accordance
with plans, working drawings and specifications ("Tenant's Plans") prepared
by Tenant's architects and engineers and approved by Landlord, the
improvements (the "Work") described in Tenant's Plans (except work described
in paragraph 6 hereof). The costs of preparing Tenant's Plans and performing
the Work shall be allocated between, and paid by, Landlord and Tenant as set
forth in this Exhibit B. The Work shall be performed in a good and
workmanlike manner and in accordance with applicable laws and regulations.
The quantities, character and manner of construction and installation of the
Work shall be subject to all limitations and restrictions imposed by laws,
regulations and guidelines relating to health, safety, the environment,
handicapped persons and conservation of energy adopted by any public or
government authority.
2. TENANT'S PLANS.
(a) As soon as reasonably possible, but in any event on or before
"Tenant's Plans Date" specified in the BASIC LEASE INFORMATION, Tenant shall
submit Tenant's Plans to Landlord for Landlord's written approval (which
shall not be unreasonably withheld or delayed). Tenant's Plans shall be
prepared by Interior Architects or by other qualified licensed architects and
engineers retained by Tenant and approved in writing by Landlord (which shall
not be unreasonably withheld), shall comply with all applicable codes, laws,
ordinances, rules and regulations, shall be in a form sufficient to secure
the approval of all government authorities with jurisdiction over the
approval thereof, and shall be otherwise satisfactory to Landlord in
Landlord's reasonable discretion. Tenant's Plans shall be complete plans,
working drawings and specifications for the layout, improvement and finish of
the Initial Premises consistent with the design and construction of the
Building, including mechanical and electrical drawings and decorating plans,
showing the following:
(i) Location and type of all partitions;
(ii) Location and type of all doors, with hardware and keying
schedule;
(iii) Ceiling plans, including light fixtures;
Exhibit B-1
<PAGE>
(iv) Location of telephone equipment room, with all special electrical
and cooling requirements;
(v) Location and type of all electrical outlets, switches, telephone
outlets, and lights;
(vi) Location of all sprinklers;
(vii) Location and type of all equipment requiring special electrical
requirements;
(viii) Location, weight per square foot and description of any heavy
equipment or filing system exceeding fifty (50) pounds per square
foot live and dead load;
(ix) Requirements for special air conditioning or ventilation;
(x) Location and type of plumbing;
(xi) Location and type of kitchen equipment;
(xii) Indicate critical dimensions necessary for construction; and
(xiii) Corridor entrances, bracing or support of special walls or
glass partitions, and any other items or information requested by Landlord.
(b) As soon as reasonably possible, but in any event within one
(1) month after Tenant's Plans Date, Tenant shall submit supplemental plans,
which shall become part of Tenant's Plans upon written approval by Landlord,
to Landlord for Landlord's written approval (which shall not be unreasonably
withheld or delayed) showing the following:
(i) Type and color of floor covering;
(ii) Location, type and color of wall covering;
(iii) Location, type and color of paint or finishes; and
(iv) Details showing all millwork with verified dimensions and
dimensions of all equipment to be built in.
(c) Tenant's Plans shall be subject to Landlord's prior written
approval (which shall not be unreasonably
Exhibit B-2
<PAGE>
withheld or delayed). If Landlord reasonably disapproves Tenant's Plans, or
any portion thereof, Landlord shall promptly give notice to Tenant setting
forth the reasons for such disapproval and shall consult with Tenant
regarding possible revisions which Landlord would approve. As promptly as
reasonably possible thereafter, but not later than five (5) business days
after Landlord's notice, Tenant shall submit to Landlord revised Tenant's
Plans incorporating the revisions required by Landlord. Such revisions shall
be subject to Landlord's written approval (which shall not be unreasonably
withheld or delayed).
(d) Tenant shall promptly pay when due the entire cost of all space
planning, design, architectural and engineering services necessary for the
preparation of Tenant's Plans. All interior decorating services, such as the
selection of wall paint colors and wall coverings, fixtures, carpeting and all
other decorator selection work, required by Tenant shall be provided by Tenant
at Tenant's expense.
3. CONSTRUCTION. Upon completion of Tenant's Plans and approval
of Tenant's Plans by Landlord, Landlord shall have Landlord's contractor
prepare, on the basis of Tenant's Plans, and furnish to Landlord and Tenant
a reasonably itemized estimate of the cost of the Work. Landlord shall give
Tenant's architects, engineers and consultants a reasonable opportunity to
consult with Landlord's contractor in the preparation of such cost estimate.
Within five (5) business days after receipt of such cost estimate, Tenant
shall approve or disapprove such cost estimate in writing. Landlord shall
have no obligation to perform any Work in the Initial Premises until Tenant
has approved either such cost estimate or a revised cost estimate submitted
by Landlord's contractor after Tenant has revised Tenant's Plans (subject to
the prior written approval of Landlord which shall not be unreasonably
withheld) to permit such revised cost estimate. Tenant's approval of a cost
estimate shall constitute authorization for Landlord to perform the Work
substantially in accordance with Tenant's Plans, In the absence of such
authorization, Landlord shall not be obligated to commence the Work.
Landlord's contractor shall complete the Work in the Initial Premises
substantially in accordance with Tenant's Plans. Tenant shall promptly pay
when due the entire cost of all of the Work (including, without limitation,
the cost of all utilities, permits, fees, taxes, and property and liability
insurance in connection therewith) required by Tenant's Plans upon receipt of
monthly progress statements from Landlord as prepared by Landlord's
contractor.
Exhibit B-3
<PAGE>
4. LANDLORD'S CONTRIBUTION. As Landlord's contribution for the costs
of preparing Tenant's Plans and performing the Work and other work by Tenant
described in paragraph 6 hereof, Landlord shall give Tenant an allowance in
the amount of "Landlord's Contribution" specified in the BASIC LEASE
INFORMATION. Landlord shall pay Landlord's Contribution directly to Tenant's
architects, engineers, consultants or suppliers or to Landlord's contractor
for the account of Tenant, in installments as professional services for
Tenant's Plans are rendered or the Work is performed, upon Landlord's receipt
from Tenant of a request for payment accompanied by written invoices and
other written evidence reasonably satisfactory to Landlord showing the costs
incurred, until Landlord's Contribution is exhausted. Tenant shall have the
right from time to time to increase Landlord's Contribution by a total amount
not to exceed one million seven hundred seventeen thousand four hundred
eighty-five dollars ($1,717,485) and to reduce the Rent Credit by an equal
amount. Whenever Tenant wishes to increase Landlord's Contribution and to
decrease the Rent Credit, Tenant shall give Landlord a written notice
specifying the amount by which Landlord's Contribution is to be increased and
the Rent Credit is to be decreased, and such amount shall be added to
Landlord's Contribution and subtracted from the Rent Credit. The total
amount of such increase in Landlord's Contribution and corresponding decrease
in the Rent Credit shall in no event be more than the maximum amount set
forth in this paragraph 4. Landlord and Tenant each shall, promptly after any
such increase in Landlord's Contribution and decrease in the Rent Credit,
execute and deliver to the other an amendment to this Lease which sets forth
such increase and decrease, but such increase and decrease shall be effective
in accordance with this paragraph 4 whether or not such amendment is executed.
5. CHANGES. If Tenant requests any change in Tenant's Plans or
the Work, Tenant shall request such change in a written notice to Landlord.
Each such request shall be accompanied by plans, drawings and specifications
prepared by Tenant's architects or engineers, at Tenant's expense, necessary
to show and explain such change from the previously approved Tenant's Plans.
All changes in Tenant's Plans shall be subject to the prior written approval
of Landlord (which shall not be unreasonably withheld). If Landlord approves
a change, Landlord shall have Landlord's contractor give Tenant an estimate
of the construction cost, if any, which will be incurred for such change.
Tenant shall, within two (2) business days after receipt of such estimate,
notify Landlord in writing to proceed or not to proceed with such change. In
the absence of such written notice to proceed, Landlord shall not be
obligated to make the change requested by Tenant and Landlord shall proceed
Exhibit B-4
<PAGE>
with the Work in accordance with the previously approved Tenant's Plans.
6. OTHER WORK BY TENANT. All work not within the scope of the
normal construction trades employed on the Building, such as the furnishing
and installing of furniture, telephone equipment and wiring and office
equipment, shall be furnished and installed by Tenant at Tenant's expense.
Tenant shall adopt a schedule in conformance with the schedule of Landlord's
contractors and conduct Tenant's work in such a manner as to maintain
harmonious labor relations and as not to interfere with or delay the work of
Landlord's contractors. Tenant's contractors, subcontractors and labor shall
be acceptable to and approved in writing by Landlord (which shall not be
unreasonably withheld) and shall be subject to the administrative supervision
of Landlord's general contractor. Landlord shall provide reasonable access
and entry to the Initial Premises to Tenant and Tenant's contractors and
subcontractors and reasonable opportunity and time and reasonable use of
facilities to enable Tenant to adapt the Initial Premises for Tenant's use.
7. REQUIREMENTS. Any work performed at the Building or on the
Initial Premises by Tenant or Tenant's contractor in connection with
improvements shall be subject to the following additional requirements:
(a) Such work shall not proceed until Landlord has approved (which
shall not be unreasonably withheld or delayed) in writing: (i) Tenant's
contractor, (ii) the amount and coverage of public liability and property
damage insurance, with Landlord named as an additional insured, carried by
Tenant's contractor, (iii) complete and detailed plans and specifications for
such work, and (iv) a schedule for the work.
(b) All work shall be done in conformity with a valid permit when
required, a copy of which shall be furnished to Landlord before such work is
commenced. In any case, all such work shall be performed in accordance with
all applicable laws. Notwithstanding any failure by Landlord to object to
any such work, Landlord shall have no responsibility for Tenant's failure to
comply with applicable laws.
(c) All work by Tenant or Tenant's contractor shall be done with
union labor in accordance with all union labor agreements applicable to the
trades being employed.
(d) All work by Tenant or Tenant's contractor shall be scheduled,
on a reasonable basis, through Landlord.
Exhibit B-5
<PAGE>
(e) Tenant or Tenant's contractor shall arrange for necessary
utility, hoisting and elevator service, on a nonexclusive basis, with
Landlord's contractor and shall pay such reasonable costs for such services
as may be charged by Landlord's contractor. Landlord shall have the right to
require any necessary movement of materials by the elevator to be done after
regular working hours at the expense of Tenant.
(f) Tenant's entry on the Initial Premises for any purpose,
including, without limitation, inspection or performance of improvement work
by Tenant, prior to the Commencement Date shall be subject to all of the
covenants of this Lease except the payment of rent. Entry by Tenant shall
include entry by Tenant's officers, employees, contractors, licensees,
agents, servants, guests, invitees or visitors.
Exhibit B-6
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. COMMON AREAS. The sidewalks, halls, passages, exits, entrances,
elevators and stairways of the Building shall not be obstructed by Tenant or
used for any purpose other than for ingress to and egress from the Premises.
The halls, passages, exits, entrances, elevators and stairways are not for
the general public and Landlord shall in all cases have the right to control
and prevent access thereto of all persons (including, without limitation,
messengers or delivery personnel not wearing uniforms) whose presence in the
judgment of Landlord would be prejudicial to the safety, character,
reputation or interests of the Building and its tenants. Neither Tenant nor
any agent, employee, contractor, invitee or licensee of Tenant shall go upon
the roof of the Building. Landlord shall have the right at any time, without
the same constituting an actual or constructive eviction and without
incurring any liability to Tenant therefor, to change the arrangement or
location of entrances or passageways, doors or doorways, corridors,
elevators, stairs, toilets and common areas of the Building.
2. SIGNS. No sign, placard, picture, name, advertisement or
notice visible from the exterior of the Premises shall be inscribed, painted,
affixed or otherwise displayed by Tenant on any part of the Building or the
Premises without the prior written consent of Landlord. Landlord will adopt
and furnish to tenants general guidelines relating to signs inside the
Building. Tenant agrees to conform to such guidelines. All approved signs
or lettering shall be printed, painted, affixed or inscribed at the expense
of Tenant by a person approved by Landlord. Material visible from outside the
Building will not be permitted.
3. PROHIBITED USES. The Premises shall not be used for the
storage of merchandise held for sale to the general public or for lodging.
No cooking shall be done or permitted on the Premises except that private use
by Tenant of microwave ovens and Underwriters' Laboratory-approved equipment
for brewing coffee, tea, hot chocolate and similar beverages will be
permitted, provided that such use is in accordance with all applicable
federal, state and municipal laws, codes, ordinances, rules and regulations.
Tenant shall not place any load on the floors of the Building exceeding fifty
(50) pounds per square foot, live or dead load. Tenant shall not use
electricity for lighting, machines or equipment in excess of four (4) watts
per square foot.
4. JANITORIAL SERVICE. Tenant shall not employ any person other
than the janitor of Landlord for the purpose
Exhibit C-1
<PAGE>
of cleaning the Premises unless otherwise agreed to by Landlord in writing.
Except with the written consent of Landlord, no persons other than those
approved by Landlord shall be permitted to enter the Building for the purpose
of cleaning the Premises. Tenant shall not cause any unnecessary labor by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness. Landlord shall not be responsible to Tenant for any
loss of property in the Premises, however occurring, or for any damage done
to the effects of Tenant by the janitor or any other employee or any other
person.
5. KEYS. 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. Tenant shall not alter any lock or
install a new or additional lock or any bolt on any door of the Premises.
Tenant, upon the termination of this Lease, shall deliver to Landlord all
keys to doors in the Building.
6. MOVING PROCEDURES. Landlord shall designate appropriate entrances
for deliveries or other movement to or from the Premises of equipment,
materials, supplies, furniture or other property, and Tenant shall not use
any other entrances for such purposes. All moves shall be scheduled and
carried out during nonbusiness hours of the Building. All persons employed
and means or methods used to move equipment, materials, supplies, furniture
or other property in or out of the Building must be approved by Landlord
prior to any such movement. Landlord shall have the right to prescribe the
maximum weight, size and position of all equipment, materials, furniture or
other property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on a platform of such thickness as is necessary
properly to distribute the weight. Landlord will not be responsible for loss
of or damage to any such property from any cause, and all damage done to the
Building by moving or maintaining such property shall be repaired at the
expense of Tenant.
7. NO NUISANCES. Tenant shall not use or keep in the Premises or the
Building any kerosene, gasoline or inflammable or combustible fluid or
material other than limited quantities thereof reasonably necessary for the
operation or maintenance of office equipment. Tenant shall not use any
method of heating or air conditioning other than that supplied by Landlord.
Tenant shall not use or keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors or
Exhibit C-2
<PAGE>
vibrations, or interfere in any way with other tenants or those having
business in the Building, nor shall any animals be brought or kept in the
Premises or the Building.
8. CHANGE OF ADDRESS. Landlord shall have the right, exercisable
without notice and without liability to Tenant, to change the name or street
address of the Building or the room or suite number of the Premises.
9. BUSINESS HOURS. Landlord establishes the hours of 8 A.M. to 6 P.M.
Monday through Friday, except union holidays and legal holidays, as
reasonable and usual business hours for the purposes of section 7.1 of this
Lease. If Tenant requests electricity or heat or air conditioning or any
other services during any other hours or on any other days, and if Landlord
is able to provide the same, Tenant shall pay Landlord such charge as
Landlord shall establish from time to time for providing such services during
such hours. Any such charges which Tenant is obligated to pay shall be
deemed to be additional rent under this Lease.
10. ACCESS TO BUILDING. Landlord reserves the right to exclude from
the Building during the evening, night and early morning hours beginning at 6
P.M. and ending at 8 A.M. Monday through Friday, and at all hours on
Saturdays, Sundays, union holidays and legal holidays, all persons who do not
present identification acceptable to Landlord, Tenant shall provide Landlord
with a list of all persons authorized by Tenant to enter the Premises 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. In the case of invasion, mob,
riot, public excitement 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.
11. BUILDING DIRECTORY. The directory of the Building will be provided
for the display of the name and location of Tenant and a reasonable number of
the principal officers and employees of Tenant at the expense of Tenant.
Landlord reserves the right to restrict the amount of directory space
utilized by Tenant but Tenant shall be entitled to an equitable proportion of
such directory space in relation to the portion of the space in the Building
leased by Tenant.
12. WINDOW COVERINGS. No curtains, draperies, blinds, shutters,
shades, screens or other coverings, hangings or decorations shall be attached
to, hung or placed in, or
Exhibit C-3
<PAGE>
used in connection with any window of the Building without the prior written
consent of Landlord. In any event, with the prior written consent of Landlord,
such items shall be installed on the office side of Landlord's standard window
covering and shall in no way be visible from the exterior of the Building.
Tenant shall keep window coverings closed when the effect of sunlight (or the
lack thereof) would impose unnecessary loads on the Building's air conditioning
systems.
13. FOOD AND BEVERAGES. Tenant shall not obtain for use in the
Premises ice, drinking water, food, beverage, towel or other similar
services, except at such reasonable hours and under such reasonable
regulations as may be established by Landlord.
14. PROCEDURES WHEN LEAVING. Tenant shall ensure that the doors of the
Premises are closed and locked and that all water faucets, water apparatus
and utilities are shut off before Tenant and its employees leave the Premises
so as to prevent waste or damage. For any default or carelessness in this
regard, Tenant shall be liable and pay for all damage and injuries sustained
by Landlord or other tenants or occupants of the Building. On
multiple-tenancy floors, Tenant shall keep the doors to the Building
corridors closed at all times except for ingress and egress.
15. BATHROOMS. 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, 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 paid by Tenant if caused by Tenant
or its agents, employees, contractors, invitees or licensees.
16. PROHIBITED ACTIVITIES. Except with the prior written consent of
Landlord, Tenant shall not sell at retail newspapers, magazines, periodicals,
theatre or travel tickets or any other goods or merchandise to the general
public in or on the Premises, nor shall Tenant carry on or permit or allow
any employee or other person to carry on the business of stenography,
typewriting, printing or photocopying or any similar business in or from the
Premises for the service or accommodation of occupants of any other portion
of the Building, nor shall the Premises be used for manufacturing of any
kind, or any business or activity other than that specifically provided for
in this Lease.
17. NO ANTENNA. Tenant shall not install any radio or television
antenna, loudspeaker, or other device on the roof or exterior walls of the
Building. No television
Exhibit C-4
<PAGE>
or radio or recorder shall be played in such a manner as to cause a nuisance
to any other tenant.
18. VEHICLES. There shall not be used in any space, or in the public
halls of the Building, either by Tenant or others, any hand trucks except
those equipped with rubber tires and side guards or such other material
handling equipment as Landlord approves. No other vehicles of any kind shall
be brought by Tenant into the Building or kept in or about the Premises.
19. TRASH REMOVAL. Tenant shall store all its trash and garbage within
the 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 office building
trash and garbage in the City and County of San Francisco without being in
violation of any law or ordinance governing such disposal. All garbage and
refuse disposal shall be made only through entryways and elevators provided
for such purposes and at such times as Landlord shall designate. Tenant
shall crush and flatten all boxes, cartons and containers. Tenant shall pay
extra charges for any unusual trash disposal.
20. NO SOLICITING. Canvassing, soliciting, distribution of handbills
or any other written material and peddling in the Building are prohibited,
and Tenant shall cooperate to prevent the same.
21. SERVICES. The requirements of Tenant will be attended to only upon
application in writing at the office of the Building. Personnel of Landlord
shall not perform any work or do anything outside of their regular duties
unless under special instructions from Landlord.
22. WAIVER. 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
of the tenants of the Building.
23. SUPPLEMENTAL TO LEASE. These Rules and Regulations are in addition
to, and shall not be construed to in any way modify or amend, in whole or in
part, the covenants of this Lease.
24. AMENDMENTS AND ADDITIONS. Landlord reserves the right to make such
other rules and regulations, and to
Exhibit C-5
<PAGE>
amend or repeal these Rules and Regulations, as in Landlord's judgment may
from time to time be desirable for the safety, care and cleanliness of the
Building and for the preservation of good order therein.
Exhibit C-6
<PAGE>
LEASE AMENDMENT NO. ONE
THIS AMENDMENT, made as of August 1, 1989, by and between THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation ("Landlord"), and
HAMBRECHT & QUIST INCORPORATED, a California corporation ("Tenant"),
W I T N E S S E T H:
RECITAL OF FACTS:
Landlord and Tenant entered into the Office Lease (the "Lease") dated
November 9, 1988. Landlord and Tenant will amend the Lease as set forth in
this Amendment.
Now, Therefore, for valuable consideration, receipt of which is acknowledged,
Landlord and Tenant agree as follows:
1. In accordance with Exhibit B-4, paragraph 4 of the Lease ("Landlord's
Contribution"), Tenant exercised its right to increase Landlord's
Contribution by the amount of two hundred eighty two thousand nine hundred
seventy-five dollars ($282,975) and to reduce the Rent Credit by an equal
amount. Therefore, Tenant's Rent Credit is decreased from two hundred
eighty two thousand nine hundred seventy-five dollars ($282,975) to no
dollars ($0) and Landlord's Contribution is increased from four hundred
four thousand two hundred fifty dollars ($404,250) to six hundred eighty
seven thousand two hundred twenty-five dollars ($687,225).
5. In accordance with Article 2 of the Lease ("Term"), Landlord and Tenant
shall each execute and deliver to the other an amendment to the Lease which
sets forth the Commencement Date and Expiration Date for the Lease. Now,
therefore, Landlord and Tenant agree that the term of said Lease shall
commence April 10, 1989 and expire December 31, 1993.
All other terms and conditions of the Lease are hereby reaffirmed as being
in full force and effect.
HAMBRECHT & QUIST INCORPORATED THE EQUITABLE LIFE
a California corporation ASSURANCE SOCIETY OF THE
UNITED STATES,
a New York corporation
By /s/ illegible By /s/ illegible
------------------------ ------------------------
Title Senior Vice President Title Attorney-in-Fact
--------------------- ---------------------
-1-
<PAGE>
LEASE AMENDMENT NO. ONE
THIS AMENDMENT, made as of January 27, 1993, by and between THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation
("Landlord"), and HAMBRECHT & QUIST, INC., a California corporation ("Tenant"),
W I T N E S S E T H:
RECITAL OF FACTS:
Landlord and Tenant entered into the Office Lease (the "Lease") dated
November 9, 1988. Landlord and Tenant will amend the Lease as set forth in this
Amendment.
Now, therefore, for valuable consideration, receipt of which is
acknowledged, Landlord and Tenant agree as follows:
1. Amendment of Lease. Effective as of the date of this Amendment, the
Lease is amended as follows:
(a) In the Paragraph titled "Expiration Date", of the Basic Lease
Information of the Lease and wherever else referenced is hereby amended to read
December 31, 1998.
(b) In the Paragraphs titled "Interim Rent and Base Rent", of the
Basic Lease Information of the Lease and wherever else referenced are hereby
amended effective January 1, 1993 to read as follows:
January 1, 1993-December 31, 1993 =$26,950.00 per month
January 1, 1994-June 30, 1994 =$ -0- per month
July, 1994 =$19,538.75 per month
August 1, 1994-December 31, 1998 =$26,950.00 per month
(c) In the Paragraphs titled "Base Expense Year" and "Base Tax Year",
of the Basic Lease Information of the Lease and wherever else referenced are
hereby amended effective January 1, 1994 to read "1994".
2. Brokerage Commissions. Tenant acknowledges and agrees that there
is no brokerage commission payable by Landlord to any broker who may have
represented or consulted with Tenant on this transaction. Tenant agrees to
indemnify and hold Landlord harmless from and against any and all claims,
demands, losses, liabilities, lawsuits, judgements, and costs and expenses
(including without limitation reasonable attorney's fees) with respect to any
alleged leasing commission or equivalent compensation alleged to be owing on
account of Tenant's dealings with any real estate broker or agent.
3. Legal Effect. Except as amended by this Amendment the Lease is
unchanged and as so amended the Lease shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
Amendment No. One as of the dates herein below written.
Lessor: Lessee:
THE EQUITABLE LIFE ASSURANCE HAMBRECHT & QUIST, INC.,
SOCIETY OF THE UNITED STATES, a California corporation
a New York corporation
By /s/ Christopher C. Curtis By /s/ illegible
-------------------------- -------------------------
Title Attorney-in-Fact Title CFO
----------------------- -----------------------
Date 2/9/93 Date 2/3/93
----------------------- -----------------------
-2-
<PAGE>
LEASE AMENDMENT NUMBER TWO
THIS AMENDMENT, dated as of May 14, 1993, by and between THE EQUITABLE
LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation
("Landlord"), and Hambrecht & Quist, INC., a California corporation ("Tenant"),
W I T N E S S E T H:
RECITAL OF FACTS
Landlord and Tenant entered into the Office Lease (the "Lease") dated
November 9, 1988, and subsequently amended January 27, 1993, respecting certain
premises on the 11th floor of the building as described therein (the
"Premises"). Capitalized terms not otherwise defined herein have the same
meaning as given in the Lease. Landlord and Tenant wish to amend the Lease, as
set forth in the Amendment, in order to provide for the addition of Suite 1350
("Expansion Space") on the 13th floor as described in Exhibit A attached hereto.
NOW, THEREFORE, for valuable consideration, receipt of which is
acknowledged, Landlord and Tenant agree as follows;:
1. Amendment of Lease. The Lease is hereby amended and supplemented
as follows, effective upon the date of this amendment.
(a) In the Paragraph titled "Premises", of the Basic Lease
Information of the Lease and wherever else referenced, is hereby amended to
read: A portion of floor 11 consisting of 13,475 square feet and Suite 1350
consisting of approximately 2,447 rentable square feet.
(b) The term for the Expansion Space shall be on a month to month
basis, commencing June 1, 1993.
(c) In the Paragraph titled "Base Rent", of the Basic Lease
Information Lease and wherever else referenced, is hereby amended to read:
Effective June 1, 1993 the Base Rent shall be increased by $4,894.00 per
month ($24.00 per rentable square foot, per year, times 2,447 rentable
square feet).
(d) The Base Expense Year and Base Tax Year for the Expansion Space
shall be the 1993 operating expenses and property taxes projected to a 100%
occupancy level.
(e) Tenant's percentage share for the Expansion Space for the purpose
of calculating the operating expense and property tax passthroughs is eighty
seven one hundredths of one percent (.87%).
2. TENANT IMPROVEMENTS. Tenant agrees to take the premises on an "As
Is" basis, with Landlord having no obligation to make any alterations to the
premises.
<PAGE>
3. BROKERAGE COMMISSIONS. Tenant acknowledges and agrees that there is
no brokerage commission payable by Landlord to any broker who may have
represented or consulted with Tenant on this Lease Amendment Number Two and
subject matter thereof. Tenant agrees to indemnify and hold Landlord harmless
from and against any and all claims, demands, loses, liabilities, law suits,
judgements, and cost and expenses (including without limitation reasonable
attorney's fees) with respect to any alleged leasing commission or equivalent
compensation alleged to be owing on account of Tenant's dealings with any real
estate broker, or agent, on this Lease Amendment Number Two and subject matter
thereof.
4. SURRENDER OF PREMISES. Either party, upon thirty days written
notice delivered thereto, shall have the right to terminate this Lease Amendment
Number Two as it relates to the Expansion Space. Upon vacating the premises,
Tenant shall surrender the premises to Landlord in the same condition as the
premises were delivered to Tenant upon the commencement of this Lease Amendment
Number Two, reasonable wear and tear accepted.
5. LEGAL EFFECT. Except as amended by this Amendment and any previous
Amendment's the Lease is unamended and remains in full force and effect, and
Landlord and Tenant hereby ratify the terms of the Lease as amended hereby.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
Amendment Number Two as of the dates herein below written.
Lessor: Lessee:
THE EQUITABLE LIFE ASSURANCE HAMBRECHT & QUIST, INC.
SOCIETY OF THE UNITED STATES, a California corporation
a New York corporation
By _______________________ By \s\
----------------------
Title ____________________ Title Vice President
-------------------
Date _____________________ Date 5/18/93
--------------------
<PAGE>
Exhibit A
[Graphic Depiction of Expansion Space]
<PAGE>
LEASE AMENDMENT NUMBER THREE
THIS AMENDMENT, dated as of January 17, 1995, by and between THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation
("Landlord"), and HAMBRECHT & QUIST, INC., a California corporation ("Tenant"),
W I T N E S S E T H:
RECITAL OF FACTS:
Landlord and Tenant entered into the Office Lease (the "Lease")
dated November 9, 1989, subsequently amended August 1, 1989, respecting
certain premises on the 11th floor of the building as described therein (the
"Premises"), and further amended January 27, 1993 respecting the Premises,
and further amended May 28, 1993 respecting certain premises on the 11th and
13th floors of the buildings as described therein ("Premises"). Capitalized
terms not otherwise defined herein have the same meaning as given in the Lease.
Landlord and Tenant wish to amend the Lease, as set forth in this Amendment,
in order to provide for the addition of Suite 650 ("Expansion Space") on the
6th floor as described in Exhibit A attached hereto.
NOW, THEREFORE, for valuable consideration, receipt of which is
acknowledged, Landlord and Tenant agree as follows:
1. AMENDMENT OF LEASE. The Lease is herby amended and
supplemented as follows, effective upon the date of this amendment;
(a) In the Paragraph titled "Premises", of the Basic Lease
Information of the Lease and whereever else referenced, is hereby amended to
read: Suite 650 consisting of approximately 4,141 rentable square feet.
(b) The term for the Expansion Space shall commence April 1, 1995,
and expire on December 31, 1998.
(c) In the Paragraph titled "Base Rent", of the Basic Lease
Information Lease and wherever else referenced, is hereby amended to read:
Effective April 1, 1995 the Base Rent shall be increased by $7,936.92 per
month ($23.00 per rentable square foot, per year, times 4,141 rentable
square feet).
(d) The Base Expense Year and Base Tax Year for the Expansion Space
shall be the 1995 operating expenses and property taxes projected to a 100%
occupancy level.
(e) Tenant's percentage share for the Expansion Space for the
purpose of calculating the operating expense and property tax passthroughs is
one and forty eight one hundredth, of one percent (1.48%).
2. TENANT IMPROVEMENTS. Lanlord, at Landlord's expense will clean
the carpets, paint the office walls, and construct an additional office
utilizing building standard materials.
<PAGE>
3. BROKERAGE COMMISSIONS. Tenant acknowledges and agrees that there
is no brokerage commission payable by Landlord to any broker who may have
represented or consulted with Tenant on this Lease Amendment Number Three and
subject matter thereof. Tenant agrees to indemnify and hold Landlord harmless
from and against any and all claims, demands, loses, liabilities, law suits,
judgements, and cost and expenses (including without limitation reasonable
attorney's fees) with respect to any alleged leasing commission or equivalent
compensation alleged to be owing on account of Tenant's dealings with any real
estate broker, or agent, on this Lease Amendment Number Two and subject matter
thereof.
4. LEGAL EFFECT. Except as amended by this Amendment and any
previous Amendment's, the Lease is unamended and remains in full force and
effect, and Landlord and Tenant hereby ratify the terms of the Lease as amended
hereby.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
Amendment Number Three as of the dates herein below written.
Lessor: Lessee:
THE EQUITABLE LIFE ASSURANCE HAMBRECHT & QUIST, INC.
SOCIETY OF THE UNITED STATES, a California corporation
a New York corporation
By /s/ John F. Faust By /s/ illegible
---------------------- ----------------------
John F. Faust
Title Investment Officer Title Vice President
------------------- -------------------
Date 2/27/95 Date 2/1/95
------------------- --------------------
<PAGE>
EXHIBIT A
[Graphic Floor Plan of Premises]
<PAGE>
LEASE AMENDMENT NUMBER FOUR
----------------------------
THIS AMENDMENT, dated as of January 8, 1996, by and between THE
EQUITABLE LIFE
--------
- ----------
ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation ("Landlord"), and
HAMBRECHT
- --------------------------------------
---------
& QUIST LLC, a Delaware limited liability company ("Tenant"),
- -----------
WITNESSETH:
Recital of Facts:
-----------------
Landlord and Tenant entered in to the Office Lease (the "Lease") dated
November 9, 1988, subsequently amended August 1, 1989, respecting certain
premises on the 11th floor of the building as described therein (the
"Premises"), subsequently amended January 27, 1993 respecting the Premises, and
subsequently amended May 28, 1993 respecting certain premises on the 11th and
13th floors of the building as described therein ("Premises"), and further
amended January 17, 1995 respecting certain premises on the 6th floor of the
building described therein ("Premises"). Capitalized terms not otherwise
defined herein have the same meaning as given in the Lease. Landlord and Tenant
wish to amend the Lease, as set forth in this Amendment, in order to provide for
the addition of Suite 400 ("Expansion Space") on the 4th floor as described in
Exhibit A attached hereto.
NOW, THEREFORE, for valuable consideration, receipt of which is
acknowledged, Landlord and Tenant agree as follows:
1. Amendment of Lease. The Lease is hereby amended and supplemented as
-------------------
follows, effective upon the date of this amendment:
(a) In the Paragraph titled "Premises", of the Basic Lease Information of
the Lease and wherever else referenced, is hereby amended to read: Suite 400
consisting of approximately 7,186 rentable square feet.
(b) The term for the Expansion Space shall commence February 1, 1996, and
expire on December 31, 1998.
(c) In the Paragraph titled "Base Rent", of the Basic Lease Information
Lease and wherever else referenced, is hereby amended to read:
Effective February 1, 1996 the Base Rent shall be increased as follows:
Months 1 - 02: Free Rent
Months 3 - 35: $15,569.66 per month
($26.00 per rentable square foot, per year, times 7,186 rentable
square feet).
(d) The Base Expense Year and Base Tax Year for the Expansion Space shall
be the 1996 operating expenses and property taxes projected to a 100% occupancy
level.
VI.A.1
<PAGE>
(e) Tenant's percentage share for the Expansion Space for the purpose of
calculating the operating expense and property tax passthroughs is two and fifty
seven one hundredth, of one percent (2.57%).
2. Tenant Improvements. Landlord, at Landlord's expense shall provide
--------------------
building standard carpet and base, paint the office walls, and provide
$ 11,000.00 towards the cabling of the Premises.
3. Brokerage Commissions. Tenant acknowledges and agrees that there is no
---------------------
brokerage commission payable by Landlord to any broker who may have represented
or consulted with Tenant on this Lease Amendment Number Four and subject matter
thereof. Tenant agrees to indemnify and hold Landlord harmless from and against
any and all claims, demands, loses, liabilities, law suits, judgements, and cost
and expenses (including without limitation reasonable attorney's fees) with
respect to any alleged leasing commission or equivalent compensation alleged to
be owing on account of Tenant's dealings with any real estate broker, or agent,
on this Lease Amendment Number Four and subject matter thereof.
4. Legal Effect. Except as amended by this Amendment and any previous
-------------
Amendment's, the Lease is unamended and remains in full force and effect, and
Landlord and Tenant hereby ratify the terms of the Lease as amended hereby.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease Amendment
------------------
Number Four as of the dates herein below written.
Lessor: Lessee:
THE EQUITABLE LIFE ASSURANCE HAMBRECHT & QUIST LLC
SOCIETY OF THE UNITED STATES, a Delaware limited
a New York corporation liability company
By /s/ John F. Faust By /s/ [Signature Unreadable]
Title Investment Officer Title Vice President
Date [Date Unreadable] Date [Date Unreadable]
EXHIBIT A
To the Lease Amendment Number Four
dated January 5, 1996
[Exhibit presents a graphic floorplan layout of the premises]
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this Registration Statement filed by Hambrecht & Quist Group, Inc. dated
July 25, 1996.
ARTHUR ANDERSEN LLP
San Francisco, California
July 25, 1996
