UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
--------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 000-22327
PSW TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2796054
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6300 Bridgepoint Parkway, Building 3, Suite 200, Austin Texas 78730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (512) 343-6666
-------------------------
Indicate by check x whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _x No __________
As of July 31, 1998, the Registrant had outstanding 9,145,561 shares of
Common Stock, $.01 par value.
<PAGE>
PSW TECHNOLOGIES, INC.
Index to June 30, 1998 Form 10-Q
<TABLE>
<CAPTION>
Page
Part I -- Financial Information
<S> <C> <C>
Item 1. Financial Statements..................................................................................3
Condensed Balance Sheets -- June 30, 1998 and December 31, 1997.......................................3
Condensed Statements of Operations -- Three Months and Six Months Ended
June 30, 1998 and 1997................................................................................4
Condensed Statements of Cash Flows -- Six Months Ended June 30,
1998 and 1997.........................................................................................5
Notes to Condensed Financial Statements...............................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................................................9
Part II -- Other Information
Item 4. Submission of Matters to a Vote of Security Holders..................................................17
Item 5. Other Information....................................................................................18
Item 6. Exhibits and Reports on Form 8-K.....................................................................18
Signatures...........................................................................................19
</TABLE>
2
<PAGE>
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
PSW Technologies, Inc.
Condensed Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
<S> <C> <C>
Assets
Current assets:
Cash $ 1,321 $ 835
Short-term investments 20,958 22,470
Accounts receivable, net of allowance for doubtful
accounts of $165 at June 30, 1998 and
December 31, 1997 6,702 7,429
Unbilled revenue under customer contracts 864 418
Prepaid expenses and other current assets 982 483
---------- ----------
Total current assets 30,827 31,635
Other assets 4,306 3,785
---------- ----------
Total assets $ 35,133 $ 35,420
========== ==========
Liabilities and stockholders' equity
Current liabilities:
Trade payables 906 532
Accrued expenses and other current liabilities 2,223 3,029
----------- ----------
Total current liabilities 3,129 3,561
Stockholders' equity:
Preferred stock, par value $.01 per share, 1,000,000
shares authorized and none issued and outstanding - -
Common stock, par value $.01 per share, 34,000,000
shares authorized, 9,079,800 and 8,960,935 shares
issued and outstanding at June 30, 1998 and
December 31, 1997, respectively 91 90
Additional paid-in capital 29,931 29,484
Deferred compensation (161) (243)
Accumulated other comprehensive income 10 (27)
Retained earnings 2,133 2,555
---------- -----------
Total stockholders' equity 32,004 31,859
---------- -----------
Total liabilities and stockholders' equity $ 35,133 $ 35,420
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
PSW Technologies, Inc.
Condensed Statements of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ 9,867 $ 10,702 $ 19,625 $ 21,009
Operating expenses:
Technical staff 5,523 5,450 11,326 10,734
Selling and administrative staff 2,759 2,088 5,308 3,974
Other expenses 1,980 1,918 3,906 3,879
Special compensation expense 38 69 82 188
---------- ---------- ---------- ----------
Total operating expenses 10,300 9,525 20,622 18,775
---------- ---------- ---------- ----------
Income (loss) from operations (433) 1,177 (997) 2,234
Interest income (expense), net 223 (14) 475 (103)
---------- ----------- ---------- ----------
Income (loss) before provision (benefit) for
income taxes (210) 1,163 (522) 2,131
---------- ----------- ---------- ----------
Provision (benefit) for income taxes:
Nonrecurring charge for termination of
Subchapter S election - 1,200 - 1,200
C Corporation 100 (100) 100
----------- ---------- ---------- ----------
-
Total provision (benefit) for income taxes 1,300 (100) 1,300
----------- ---------- ---------- ---------
-
Net income (loss) $ (210) $ (137) $ (422) $ 831
========== ========== =========== =========
Basic earnings (loss) per share $ (0.02) $ (0.05)
=========== ===========
Diluted earnings (loss) per share $ (0.02) $ (0.05)
=========== ===========
Pro forma information:
Historical income before provision for
income taxes $ 1,163 $ 2,131
Pro forma provision for income taxes 442 810
--------- ----------
Pro forma net income $ 721 $ 1,321
========= ==========
Pro forma basic earnings per share $ 0.12 $ 0.22
========= ==========
Pro forma diluted earnings per share $ 0.10 $ 0.19
========= ==========
Shares used in basic earnings (loss) per share
calculation 9,057 6,221 9,023 5,884
========= ========= ========= ==========
Shares used in diluted earnings (loss) per share
Calculation 9,057 7,290 9,023 7,015
========= ========= ========= ==========
</TABLE>
See accompanying notes.
4
<PAGE>
PSW Technologies, Inc.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities
Net income $ (422) $ 831
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Special compensation 82 188
Depreciation and amortization 491 363
Bad debt expense 20 30
Changes in operating assets and liabilities:
Accounts receivable 707 (560)
Due to/from related party - (258)
Unbilled revenue under customer contracts (446) 48
Prepaid expenses and other current assets (499) (61)
Accounts payable and accrued expenses (552) 199
Deferred revenue 24 114
Income taxes - 1,300
---------- --------
Net cash provided by (used in) operating activities (595) 2,194
---------- --------
Investing activities
Purchase securities - (18,045)
Proceeds from sale of short term investments 1,549 -
Acquisition of property and equipment (829) (1,994)
---------- -----------
Net cash provided by (used in) investing activities 720 (20,039)
---------- -----------
Financing activities
Repayments of line of credit - (5,125)
Issuance of common stock 361 22,764
---------- -----------
Net cash provided by financing activities 361 17,639
---------- -----------
Net increase (decrease) in cash 486 (206)
Cash and cash equivalents, beginning of period 835 3,182
---------- -----------
Cash and cash equivalents, end of period $ 1,321 $ 2,976
========= ===========
Non-cash activities:
Unrealized gain on investments $ 37 $ -
Reduction of income taxes payable associated with the
exercise of stock options $ 87 $ -
</TABLE>
See accompanying notes.
5
<PAGE>
PSW Technologies, Inc.
Notes to Condensed Financial Statements
June 30, 1998
(unaudited)
1. Basis of Presentation
PSW Technologies, Inc. (the "Company") commenced operations as a separate,
stand-alone corporation effective October 1, 1996. The accompanying unaudited
financial statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") regarding
interim financial reporting. Accordingly, they do not include all the
information and notes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with the
financial statements and notes thereto for the year ended December 31, 1997
included in the Company's annual report on Form 10-K. The accompanying financial
statements reflect adjustments, all of which are of a normal recurring nature,
which are, in the opinion of management, necessary for a fair presentation.
The results for interim periods are not necessarily indicative of full year
results.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
could affect the financial statements and accompanying notes. Actual results
could differ from those estimates.
3. Pro Forma Provision for Income Taxes
From commencement through June 5, 1997 the Company had elected to be treated as
an S Corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended. As such, federal income taxes attributable to income through June 5,
1997 were the responsibility of the individual stockholders. Pro forma provision
for income taxes reflect the estimated corporate income tax expense that the
Company would have recognized had it not elected to be treated as an S
corporation for the period presented.
4. Pro Forma Earnings Per Share
The pro forma basic and diluted earnings per share amounts prior to the
Company's initial public offering, which occurred during the second quarter of
1997, have been restated as required to comply with Statement of Financial
Accounting Standards No. 128, Earnings Per Share, and the Securities and
Exchange Commission Staff Accounting Bulletin 98.
6
<PAGE>
PSW Technologies, Inc.
Notes to Condensed Financial Statements (Continued)
(unaudited)
5. Comprehensive Income
As of January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no impact on the Company's net income or shareholders' equity. SFAS No. 130
requires unrealized gains or losses on the Company's available-for-sale
securities, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. Prior year financial
statements have been reclassified to confirm to the requirements of SFAS No.
130.
The components of comprehensive income for the three and six months ended June
30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997(a) 1998 1997(a)
----------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $(210) $721 $(422) $1,321
Unrealized gain (loss) on short term
investments (2) - 37 -
Income tax expense related to items of other
comprehensive income - - (7) -
----------- ----------- -------- ---------
Comprehensive income (loss) $(212) $721 $ (392) $1,321
=========== =========== ======== ==========
</TABLE>
(a) Net income and comprehensive income amounts are presented on a
pro forma basis as if the Company had been subject to federal and
state income taxes.
The components of accumulated other comprehensive income at June 30, 1998 and
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------ --------------
<S> <C> <C>
Unrealized gain (loss) on short term investments $10 $(27)
============ ==============
</TABLE>
7
<PAGE>
PSW Technologies, Inc.
Notes to Condensed Financial Statements (Continued)
(unaudited)
6. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data) for the three months and six months
ended June 30:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997(1) 1998 1997(1)
-------------- --------------- -------------- --------------
Numerator:
<S> <C> <C> <C> <C>
Net income (loss) $ (210) $ 721 $ (422) $ 1,321
============== =============== ============== ==============
Denominator:
Shares used in basic earnings (loss) per
share calculation 9,057 6,221 9,023 5,884
Effect of dilutive securities:
Employee stock options - 563 - 626
Warrants - 506 - 505
-------------- --------------- -------------- --------------
Shares used in diluted earnings (loss) per
share calculation 9,057 7,290 9,023 7,015
============== =============== ============== ==============
Basic earnings (loss) per share $ (0.02) $ 0.12 $ (0.05) $ 0.22
============== =============== ============== ==============
Diluted earnings (loss) per share $ (0.02) $ 0.10 $ (0.05) $ 0.19
============== =============== ============== ==============
</TABLE>
(1) Net income and earnings per share amounts are presented on a pro forma basis
as if the Company had been subject to federal and state income taxes. The pro
forma basic and pro forma diluted earnings per share amounts prior to the
Company's initial public offering, which occurred during the second quarter of
1997, have been restated as required to comply with SFAS No. 128 and the
Securities and Exchange Commission Staff Accounting Bulletin 98 ("SAB 98"). The
adoption of the provisions of SFAS 128 and SAB 98 resulted in an increase to pro
forma diluted earnings per share for the three months and six months ended June
30, 1997 of $0.01 per share.
7. Income Taxes
During the second quarter, the Company revised its estimated annual effective
tax rate for 1998 from 32%, which was used during the first quarter of 1998, to
19% due to changes in management's estimate of projected levels of operating
income relative to tax-exempt income. Using a 19% annual effective tax rate
during the first and second quarter of 1998, net loss would have been $253,000
for the three months ended March 31, 1998 and $170,000 for the three months
ended June 30, 1998. The diluted loss per share would have remained at $0.02 for
the three months ended June 30, 1998 and decreased $.0.01 to a diluted loss per
share of $0.03 for the three months ended March 31, 1998.
8
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This report contains forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, that involve risks and uncertainties, such as statements concerning:
growth and future operating results; developments in the Company's markets and
strategic focus; and future economic and business conditions. These
forward-looking statements and other statements made elsewhere in this report
are made in reliance on the Private Securities Litigation Reform Act of 1995.
The section below entitled "Certain Factors That May Affect Future Results,
Financial Condition and Market Price of Securities" sets forth and incorporates
by reference certain factors that could cause actual future results of the
Company to differ materially from these statements.
Overview
PSW Technologies, Inc., (the "Company"), is a software services firm, operating
in one industry segment, that provides high value solutions to information
technology ("IT") vendors and IT users by mastering and applying critical
emerging technologies, including Web based distributed computing, object
oriented development, advanced operating systems and systems management
technologies. IT vendors primarily consist of software companies who utilize the
Company's services to help bring their products to market faster. IT users
generally utilize the Company's services to help define, develop and complete
high value, mission critical enterprise software systems for internal use. PSW
provides joint project-based development, porting and testing services to
selected IT vendor clients and applies the technical expertise learned to the
design and development of high value, mission critical enterprise business
systems for its Fortune 1000 IT user clients.
To date, revenue has been generated principally from time-and-materials
contracts for the Company's software services. Revenue from time-and-materials
contracts is recognized during the period in which the services are provided.
The Company also enters into fixed price contracts for its software services.
Revenue from fixed price contracts is recognized using the
percentage-of-completion method over the term of the client contract, measured
by the labor incurred as a percentage of the estimated total labor. The
cumulative impact of revisions in percentage of completion estimates is
reflected in the period in which the revisions are made. Provisions for
estimated losses on uncompleted contracts are made on a contract by contract
basis and are recognized in the period in which such losses are determined.
There can be no assurance of the accuracy of the Company's future work
completion estimates, and operating results may be adversely affected by
inaccurate estimates of contract related labor.
Year 2000 Compliance
Many older computer systems and software products currently in use are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than 18 months, computer systems and/or
software used by many companies will need to be upgraded to comply with such
"Year 2000" requirements.
All of the services currently offered by the Company are designed to be Year
2000 compliant. However, the Company's services are often integrated or used in
conjunction with third-party software; such software may not be compatible with
Company's services or Year 2000 compliant. The Company may in the future be
subject to claims based on Year 2000 problems in other's products, custom
scripts created by third parties to interface with the Company's services or
issues arising from the integration of multiple products and systems within an
overall system. The costs of defending and resolving Year 2000-related disputes,
and any liability of the Company for Year 2000-related damages, including
consequential damages, could have a material adverse effect on the Company's
business, operating results and financial condition.
9
<PAGE>
Over the past three years, the Company has made Year 2000 compliance a priority
in IT purchasing and installation decisions. The Company's internal information
technology group has adopted a Year 2000 compliance program to assess and
address any Year 2000 issues which remain related to the Company's IT systems.
The program consists of the following phases: identifying Year 2000 application
issues, updating applications, identifying Year 2000 systems and operating
systems issues (such phases are each at least 90% complete and scheduled to be
completed by August 31, 1998), collecting manufacturer's compliance statements,
verifying solutions to Year 2000 issues, updating and/or patching operating
systems, updating firmware and phasing out unsupported hardware (such phases are
in process and scheduled to be completed in the first quarter of fiscal 1999).
As of June 30, 1998, the Company has spent approximately $10,000 of the
currently estimated $30,000 total cost of the program. Costs incurred and
expected to be incurred consist primarily of the cost of Company personnel
involved in updating applications and operating systems and the costs of
software updates and patches (many of which are provided free of charge from the
vendors). Funds for the Year 2000 compliance program are expected to be provided
from available working capital. The Company has utilized the Company's internal
technical personnel, and intends to continue to use such personnel, to address
Year 2000 issues, rather than contract with third-party consultants.
Although the Company has not completed its survey of third parties with which it
has a material relationship, the majority of the Company's customers are
sophisticated IT vendors and users who are addressing their own Year 2000 issues
and the Company relies primarily on its technical personnel and internal IT
systems, rather than third party suppliers. As the Company's Year 2000
compliance program is on schedule to be completed in the first quarter of fiscal
year 1999, the Company has not formulated a most reasonably likely worst case
scenario or formulated a contingency plan should the program fail to be
completed by such date.
Significant uncertainty still exists as to the global implications of the Year
2000 issue. The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues in a variety of ways.
Many companies (including customers of the Company, and customers or potential
customers of the Company's customers) are expending significant resources to
correct or patch their current hardware and software systems for Year 2000
compliance. Such expenditures may result in reduced funds available for the
Company's customers to pursue product development programs or IT systems
enhancements for which the Company's services would otherwise be utilized. Any
of the foregoing, including costs of defending and resolving Year 2000-related
disputes, reductions in development programs or IT systems enhancements by
customers and their customers or the failure of the Company to adequately
resolve internal Year 2000 compliance issues could result in a material adverse
effect on the Company's business, operating results and financial condition.
10
<PAGE>
Results of Operations
The following table sets forth the percentage of revenue of certain items
included in the Company's condensed statement of operations for the period
indicated:
<TABLE>
<CAPTION>
Three Months Six Months
ended June 30, ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> ................................. <C> <C> <C> <C>
Revenue ............................. 100% 100% 100% 100%
Operating expenses:
Technical staff .................. 56 51 58 51
Selling and administrative staff . 28 19 27 19
Other expenses ................... 20 18 20 18
Special compensation expense ..... -- 1 -- 1
---- ---- ---- ------
Total operating expense ............. 104 89 105 89
---- ---- ---- ------
Income (loss) from operations ....... (4) 11 (5) 11
Interest income (expense), net ...... 2 -- 2 (1)
Provision (benefit) from income taxes -- 4 (a) (1) 4 (a)
---- ---- ---- ------
Net income (loss) ................... (2)% 7%(a) (2)% 6%(a)
==== ==== ==== ======
</TABLE>
(a) Net income is presented on a pro forma basis as if the Company had been
fully subject to federal and state income taxes.
First Six Months of 1998 Compared with First Six Months of 1997
The following discussion of operations and trends also relates to the comparison
of the three month period ended June 30, 1998 to the three month period ended
June 30, 1997.
Revenue
The Company's revenue consists primarily of fees for software services provided.
Revenue was $19.6 million in the first six months of 1998, down 7% from $21.0
million for the first six months of 1997, principally due to the decline in IBM
business partially offset by new projects and new clients. Revenue attributable
to software services rendered to IT vendors was $12.7 million in the first six
months of 1998 and the first six months of 1997. Revenue attributable to
software services rendered to IT users was $6.9 million and $8.3 million for the
first six months of 1998 and the first six months of 1997, respectively, a
decrease of 17% in the first six months of 1998 over the first six months of
1997.
One client, including its wholly owned subsidiaries, accounted for 35% and 46%
of revenue in each of the first six months of 1998 and 1997, respectively. No
other client accounted for more than 10% of revenue for either period.
Technical Staff
Technical staff expenses consist of the cost of salaries, payroll taxes, health
insurance and workers' compensation, for technical staff personnel assigned to
client projects and unassigned technical staff personnel, and fees paid to
subcontractors for work performed in connection with a client project. Technical
staff expenses were $11.3 million in the first six months of 1998, an increase
of 6% over $10.7 million for the first six months of 1997. The increase in
technical staff expenses was primarily due to the addition of personnel to
service the increase in scope and number of client projects during 1997.
Technical staff expenses increased to 58% of revenue in the first six months of
1998 from 51% in the first six months of 1997, primarily as a result of lower
utilization of technical staff and lower revenues.
11
<PAGE>
Selling and Administrative Staff
Selling and administrative staff expenses consist of the cost of salaries,
payroll taxes, health insurance and workers' compensation for selling and
administrative personnel, all commissions and bonuses, and the cost of technical
staff salaries for technical staff personnel assigned to methodology development
projects or performing selling or training related tasks. Selling and
administrative staff expenses were $5.3 million in the first six months of 1998,
an increase of 34% from $4.0 million in the first six months of 1997. The
increase in selling and administrative staff expenses was primarily due to the
addition of sales and administrative personnel, and increased technical staff
training. Selling and administrative staff expenses were 27% of revenue in the
first six months of 1998 compared to 19% of revenue in the first six months of
1997, primarily as a result of increases in the sales staff, greater technical
staff involvement in sales and lower revenues.
Other Expenses
Other expenses consist of all non-staff related costs, such as occupancy costs,
travel, business insurance, business development, recruiting, training and
depreciation. Other expenses were $3.9 million in the first six months of 1998
and in the first six months of 1997, principally due to expense controls and
lower recruiting costs. Other expenses were 20% of revenue in the first six
months of 1998 compared to 18% in the first six months of 1997 due to lower
revenues.
Special Compensation Expense
Special compensation expense consists of stock-based compensation in connection
with the grants of replacement options to the Company's employees who
participated in the Pencom Systems Incorporated stock option plan. Special
compensation expense was $82,000, or less than 1% of revenue, in the first six
months of 1998 and $188,000, or 1% of revenue, in the first six months of 1997.
Income (Loss) from Operations
The Company recorded a loss from operations of $997,000 in the first six months
of 1998, down from $2.2 million of income from operations in the first six
months of 1997. Due primarily from the decrease in revenue, loss from operations
was 5% of revenue in the first six months of 1998, down from income from
operations of 11% of revenue in the first six months of 1997.
Income Taxes
From commencement through June 5, 1997 the Company had elected to be treated as
an S Corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended. As such, federal income taxes attributable to income through June 5,
1997 were the responsibility of the individual stockholders. The pro forma
disclosures on the statements of operations reflect adjustments to record
provisions for income taxes as if the Company had not been an S Corporation.
The pro forma provision for income taxes of $810,000 for the six months ended
June 30, 1997 is computed using an estimated annual effective tax rate of 38%,
which differs form the federal statutory rate of 34% primarily due to state
taxes.
The historical benefit for income taxes of $100,000 for the six months ended
June 30, 1998, is computed using an estimated annual effective tax rate of 19%,
which differs from the federal statutory rate of 34% as a result of state taxes
and tax-exempt income.
During the second quarter, the Company revised its estimated annual effective
tax rate for 1998 from 32% to 19% due to changes in management's estimate of
tax-exempt income relative to projected levels of operating income.
12
<PAGE>
Net Loss and Pro Forma Net Income
Net loss was $422,000 in the first six months of 1998 and pro forma net income
was $1,321,000 in the first six months of 1997. Net loss was 2% of revenue in
the first six months of 1998 and pro forma net income was 6% of revenue in the
first six months of 1997.
Liquidity and Capital Resources
At June 30, 1998, the Company had cash and short term investments totaling $22.3
million, a decrease from $23.3 million at December 31, 1997 as a result of
funding operating and investing activities.
The Company maintains a Credit Facility with a bank providing for borrowings of
up to $10 million, subject to a borrowing base requirement. The Credit Facility
expires on May 1, 1999. Available borrowings under the Credit Facility are based
upon a percentage of the Company's eligible accounts receivable. At June 30,
1998, no amount was outstanding under the Credit Facility and the available
borrowing amount was $7.5 million.
The Company anticipates that its existing capital resources described above,
together with cash provided by operating activities will be adequate to fund the
Company's operations for at least the next 12 months. There can be no assurance
that changes will not occur that would consume available capital resources
before such time. The Company's capital requirements depend on numerous factors,
including potential acquisitions, the timing of the receipt of accounts
receivable, employee growth and the percentage of projects performed at the
Company's facilities. There can be no assurance that additional funding, if
necessary, will be available on favorable terms, if at all.
Certain Factors That May Affect Future Results, Financial Condition
and Market Price of Securities
Numerous factors may affect the Company's business and results of operations.
These factors include, but are not limited to, industry concentration and
dependence on large projects, fixed price contracts and other project risks,
ability to manage growth, variability of quarterly operating results, need to
attract and retain professional staff, rapid technological advances and risk of
targeting emerging technologies, dependence on key personnel, risks of system
interruption and security risks, and uncertainty related to the Year 2000
Compliance issues. The discussion below addresses some of these factors. For a
more thorough discussion of these and other factors that may affect the
Company's future results, see the "Item 1 - Business" of the Company's Annual
Report of Form 10-K for the year ended December 31, 1997 and the Company's
Registration Statement of From S-1 (File No. 333-21565).
Industry Concentration; Dependence on Large Projects. The Company has
derived and believes it will continue to derive a significant portion of its
revenue from the technology vendor industry. As a result, the Company's
business, financial condition and results of operations are influenced by
economic and other conditions affecting such industry, such as economic
downturns which could lead to a reduction in spending on IT projects, which in
turn could lead to fewer new research and development outsourcing projects being
undertaken. Further, several of the Company's client contracts limit its ability
to provide services to competitors of such clients, thereby restricting the
field of potential future clients. In addition, as a result of the dynamic
nature of the IT vendor industry, the Company may lose clients due to the
acquisition, merger or consolidation of existing clients with entities which are
not current clients of the Company. The occurrence of any of the foregoing could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Fixed-Price Contracts and Other Project Risks. During 1997 and the
first six months of 1998, approximately 20% and 13%, respectively, of the
Company's revenue was generated on a fixed price, fixed-delivery-schedule
("fixed price") basis, rather than on a time-and-materials basis. The Company's
failure to accurately estimate the resources required for a fixed price project
or its failure to complete its contractual obligations in a timely manner
consistent with the project plan upon which its fixed price contract is based
13
<PAGE>
could have a material adverse effect on the Company's business, financial
condition and results of operations. In the past, the Company has found it
necessary to revise project plans after commencement of the project and commit
unanticipated additional resources to complete certain projects, which have
negatively affected the profitability of such projects. The Company may
experience similar situations in the future, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company may establish contract prices before the project design
specifications are finalized, which could result in a fixed price that proves to
be too low and therefore adversely affects the Company's business, financial
condition and results of operations.
Many of the Company's engagements involve projects which are critical
to the operations of its clients' businesses and which provide benefits that may
be difficult to quantify. The Company's failure to meet a client's expectations
in the performance of its services could damage the Company's reputation and
adversely affect its ability to attract new business, and may have a material
adverse effect upon its business, financial condition and results of operations.
The Company has undertaken, and may in the future undertake, projects in which
the Company guarantees performance based upon defined operating specifications
or guaranteed delivery dates. The Company has also undertaken projects in which
a material portion of total revenue is earned based upon meeting specified
delivery dates. Unsatisfactory performance or unanticipated difficulties or
delays in completing such projects may result in client dissatisfaction and a
reduction in payment to, or payment of damages by, the Company, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to limit its liability to clients, including liability arising from
the Company's failure to meet clients' expectations in the performance of
services, through contractual provisions, insurance or otherwise.
Management of Growth. The Company's growth has placed significant
demands on its management and other resources. For example, the Company's staff
increased from 167 full-time employees at December 31, 1994 to 456 full-time
employees at June 30, 1998. In order to manage its growth effectively, the
Company will need to continue to develop and improve its operational, financial
and other internal systems, as well as its business development capabilities,
and to continue to attract, train, retain, motivate and manage its employees. In
addition, the Company's future success will depend in large part on its ability
to continue to maintain high rates of employee utilization, set fixed price fees
accurately, maintain project quality and meet delivery dates, all as the Company
seeks to increase the number of projects in which it is engaged. If the Company
is unable to manage its growth and projects effectively, such inability would
have a material adverse effect on the quality of the Company's services, its
ability to retain key personnel and its business, financial condition and
results of operations. No assurance can be given that the Company's growth will
continue to be achieved, or if achieved, will be maintained or that the Company
will be successful in managing any such growth.
Recent Organization; Limited Operating History as an Independent
Business; Limited Relevance of Historical Financial Information. Prior to
October 1996, the Company conducted its business and operations as the software
division of Pencom Systems Incorporated, ("Pencom"). Accordingly, the Company
has only a limited independent operating history upon which an evaluation of the
Company and its prospects can be based. Prior to October 1996, the Company also
had limited accounting capability and depended upon Pencom for most accounting
functions. By October 1, 1996, the Company had assumed responsibility for most
internal accounting functions, but continued to depend upon Pencom for limited
accounting support in connection with the Company's 1996 year-end audit. There
can be no assurance that the Company will be successful in taking control of
these functions from Pencom. The Company has also relied upon, and will continue
to rely upon, Pencom for certain legal services and recruiting functions. The
Company's management has only limited experience operating the Company as a
stand-alone company, separate and apart from Pencom. Pencom has no obligation to
provide financial or management assistance to the Company and has no plans to do
so. The inability of the Company to operate successfully as an entity
independent from Pencom would have a material adverse effect on the Company's
business, financial condition and results of operations.
Variability of Quarterly Operating Results. The Company's quarterly
revenue, expenses and operating results have varied significantly in the past
and are likely to vary significantly from quarter to quarter in the future. Such
quarterly fluctuations are based on a number of factors, including the number,
size and scope of projects in which the Company is engaged, the contractual
14
<PAGE>
terms and degree of completion of such projects, any delays incurred in
connection with a project, the Company's success in earning bonuses or other
contingent payments, employee hiring and utilization rates, the adequacy of
provisions for losses, the accuracy of estimates of resources required to
complete ongoing projects and general economic conditions. Other factors which
may effect operating results include customer budget cycles and customer
spending priorities such as the Year 2000 compliance issue. A high percentage of
the Company's operating expenses, particularly personnel and rent, are fixed in
advance of any particular quarter. For example, while the number of professional
staff the Company employs may be adjusted to reflect active projects, such
adjustments take time and the Company must maintain a sufficient number of
senior professionals to oversee existing client engagements and to focus on
securing new client engagements. As a result, unanticipated variations in the
number or progress toward completion of the Company's projects or in employee
utilization rates may cause significant variations in operating results in any
particular quarter and could result in adverse changes to the Company's
business, financial condition and results of operations. In the second half of
1998, revenues may be adversely impacted by the Company's lengthy sales cycle,
among other matters, which may cause the Company's revenues and earnings to be
below the expectations of securities analysts. Any shortfall in revenue or
earnings from expected levels or other failures to meet expectations of
securities analysts or the market in general regarding results of operations
could have an immediate and material adverse effect on the market price of the
Company's Common Stock. Given the possibility of such quarterly fluctuations in
revenue or earnings, the Company believes that comparisons of its quarterly
results of operations are not necessarily meaningful and that such results for
one quarter should not be relied upon as an indication of future performance.
Need to Attract and Retain Professional Staff. The Company's success
depends in large part upon its ability to attract, train, retain, motivate and
manage highly skilled employees, particularly project managers and other senior
technical personnel. Significant competition exists for employees with the
skills required to perform the services offered by the Company, and the Company
requires that a significant number of such employees travel to client sites to
perform services on its behalf, which may make a position with the Company less
attractive to potential employees. Qualified project managers, software
architects and senior technical and professional staff are in great demand
worldwide and are likely to remain a limited resource for the foreseeable
future. Furthermore, there is a high rate of attrition among such personnel.
There can be no assurance that a sufficient number of highly skilled employees
will continue to be available to the Company, that potential employees will be
willing to travel to client sites, or that the Company will be successful in
training, retaining and motivating current or future employees. The Company's
inability to attract, train and retain skilled employees or the Company's
employees' inability to achieve expected levels of performance could impair the
Company's ability to adequately manage and staff its existing projects and to
bid for or obtain new projects, which in turn would have a material adverse
effect on the Company's business, financial condition and results of operations.
Rapid Technological Advances; Risk of Targeting Emerging Technologies.
The Company has derived, and will continue to derive, a substantial portion of
its revenue from projects based on client/server systems. The client/server
systems market is continuing to develop and is subject to rapid technological
change. The Company's future success will also depend in part on its ability to
develop IT solutions which keep pace with continuing changes in information
processing technology, evolving industry standards and changing client
preferences. There can be no assurance that the Company will be successful in
addressing these developments in a timely manner or that, if addressed, the
Company will be successful in the marketplace. The Company's delay or failure to
address these developments could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, there can
be no assurance that products or technologies developed, or services offered, by
third parties will not render the Company's services noncompetitive or obsolete.
The Company's Software Technology Unit also seeks to identify emerging
technologies which it believes will develop into critical technologies with
broad application and longevity. Once identified, the Company may commit
substantial resources to provide services to the developers of such
technologies. No assurance can be given that the technologies identified by the
Company will develop into critical technologies with broad application and
longevity. The failure of the Company to align itself with such critical
emerging technologies would have a material adverse affect on its business,
financial condition and results of operations.
15
<PAGE>
Dependence on Key Personnel. The Company's future success will depend
in part upon the continued services of a number of key management employees,
particularly Dr. W. Frank King, Keith D. Thatcher, Brian E. Baisley, James T.
Kelsey and William C. Cason, and a number of key technical employees. The loss
of the services of any of the Company's key personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company's credit facility prohibits material
changes in management. The Company does not maintain key-person life insurance
on any of its employees. In addition, if one or more of the Company's key
employees resigns from the Company to join a competitor or to form a competing
company, any resulting loss of existing or potential clients to any such
competitor could have a material adverse effect on the Company's business,
financial condition and results of operations. In the event of the loss of any
such personnel, there can be no assurance that the Company would be able to
prevent the unauthorized disclosure or use of its technical knowledge, practices
or procedures by such personnel.
System Interruption and Security Risks. The Company's operations are
dependent on its ability to protect its intranet from interruption by damage
from telecommunications failure, fire, earthquake, power loss, unauthorized
entry or other events beyond the Company's control. Most of the Company's
computer equipment, including its processing equipment, is currently located at
a single site. There can be no assurance that unanticipated problems will not
cause any significant system outage or data loss. Despite the implementation of
security measures, the Company's infrastructure may also be vulnerable to
computer viruses, hackers or similar disruptive problems caused by Internet
users. Persistent problems continue to affect public and private data networks.
For example, it is common for Internet service providers to experience system
interruptions which cause the Company to lose access to the Internet, the means
by which the Company posts internal information and provides e-mail and time
sheet query and entry. Any damage or failure that causes interruptions in the
Company's operations could have a material adverse effect on the Company's
business, financial condition and results of operations.
Potential Volatility of Stock Price. The market for securities of
early-stage companies has been highly volatile in recent years as a result of
factors often unrelated to a company's operations. In addition, the Company
believes factors such as quarterly variations in operating results,
announcements of technological innovations or new products or services by the
Company or its competitors, general conditions in the IT industry or the
industries in which the Company's clients compete and changes in earnings
estimates by securities analysts, could contribute to the volatility of the
price of the Company's Common Stock. These factors, as well as general economic
conditions such as recessions or changes in interest rates, could adversely
affect the market price of the Company's Common Stock. Furthermore, in the past,
following periods of volatility in the market price of a company's securities,
securities class action claims have been brought against the issuing company.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, and any adverse determination
in such litigation could also subject the Company to significant liabilities,
all of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Effect of Certain Antitakeover Provisions. The Company's Board of
Directors has the authority to issue shares of Preferred Stock and to determine
the designations, preferences and rights and the qualifications or restrictions
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 Preferred Stock 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
antitakeover provisions of Section 203 of the Delaware General Corporation Law
(the "DGCL"). In general, this statute prohibits a publicly held 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 the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. Furthermore, certain other
provisions of the Company's Amended and Restated Certificate of Incorporation
and Amended and Restated Bylaws may have the effect of discouraging, delaying or
preventing a merger, tender offer or proxy contest, which could adversely affect
the market price of the Company's Common Stock.
16
<PAGE>
Uncertainty Related to the Year 2000 Compliance Issues. Many older
computer systems and software products currently in use are coded to accept only
two digit entries in the date code field. These date code fields will need to
accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result, in less than 18 months, computer systems and/or software
used by many companies will need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty still exists as to the global implications
of the Year 2000 issue. The Company believes that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues in a
variety of ways. Many companies (including customers of the Company, and
customers or potential customers of the Company's customers) are expending
significant resources to correct or patch their current hardware and software
systems for Year 2000 compliance. Such expenditures may result in reduced funds
available for the Company's customers to pursue product development programs or
IT systems enhancements for which the Company's services would otherwise be
utilized. Any of the foregoing, including costs of defending and resolving Year
2000-related disputes, reductions in development programs or IT systems
enhancements by customers and their customers or the failure of the Company to
adequately resolve internal Year 2000 compliance issues could result in a
material adverse effect on the Company's business, operating results and
financial condition.
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 20, 1998,
the folowing proposals were adopted by the vote specifed below.
<TABLE>
<CAPTION>
AGAINST OR
FOR WITHHELD ABSTAIN
------------ ------------------ -------------
<S> <C> <C> <C>
1. Election of Seven Directors
All directors proposed by
management were elected.
W. Frank King, Ph.D. 8,615,839 316,374 -
Wade E. Saadi 8,615,939 316,274 -
Edward C. Ateyeh, Jr. 8,616,339 315,874 -
Thomas A. Herring 8,616,339 315,874 -
Kevin B. Kurtzman 8,616,339 315,874 -
Michael J. Maples 8,615,161 317,052 -
Jonathan D. Wallace, Esq. 8,616,198 316,015 -
2. Approval of an amendment to 1996 6,434,699 1,555,585 2,175
Stock Option/Stock Issuance Plan to
increase the number of shares of
Common Stock available for
issuance thereunder from 1,715,000
to 2,715,000
3. Ratification of Ernst & Young LLP 8,928,904 2,000 1,309
as Independent auditors
</TABLE>
17
<PAGE>
Item 5. Other Information
Stockholder Proposals
Proposals of stockholders intended to be presented at the Company's 1999 annual
meeting of stockholders must be received at the Company's principal executive
offices not later than December 24, 1998 in order to be included in the
Company's proxy statement and form of proxy relating to the 1999 annual meeting.
Pursuant to new amendments to Rule 14a-4(c) of the Securities Exchange Act of
1934, as amended, if a stockholder who intends to present a proposal at the 1999
annual meeting of stockholders does not notify the Company of such proposal on
or prior to March 9, 1999, then management proxies would be allowed to use their
discretionary voting authority to vote on the proposal when the proposal is
raised at the annual meeting, even though there is no discussion of the proposal
in the 1999 proxy statement.
Pursuant to the Company's Bylaws, proposals of stockholders intended to be
presented at the Company's 1999 annual meeting of stockholders must be received
by the Secretary of the Company at the Company's principal executive offices not
earlier than the 150th day nor later than the 120th day prior to the first
anniversary of the date of the proxy statement delivered to stockholders in
connection with the preceding year's annual meeting in order to be brought
before the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibits
Number Description
10.1 Mountainview Lease Agreement dated May 11, 1998 between the
Registrant and South Bay/ Copley Joint Venture
10.2 Employment Agreement dated May 18, 1998 between the Registrant
and James T. Kelsey.
10.3 1996 Stock Option/Stock Issuance Plan Amendment.
27.1 Financial Data Schedule
- ---------
(b) Reports on Form 8-K
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PSW TECHNOLOGIES, INC.
(Registrant)
Date: August 14, 1998 \s\ W.Frank King
Dr. W. Frank King
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 \s\ Keith D. Thatcher
Keith D. Thatcher
Vice President of Finance, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Date: August 14, 1998 \s\ Kasaundra L. Simpson
Kasaundra L. Simpson
Financial Reporting and Budgeting Manager
(Principal Accounting Officer)
19
<PAGE>
Exhibit 10.1
LEASE AGREEMENT
This Lease, dated for reference purposes as of May 11, 1998, is made by and
between SOUTH BAY/COPLEY JOINT VENTURE, a California general partnership,
("Landlord"), and PSW TECHNOLOGIES, INC., a Delaware corporation, ("Tenant").
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord,
upon the terms and conditions hereinafter set forth, those certain premises (the
"Premises") situated in the City of Mountain View, County of Santa Clara, State
of California, described as follows: approximately ten thousand six hundred
seventy (10,670) square feet of rentable floor space commonly known 1380 Villa
Street, located in the building (the "Building"), as shown cross-hatched on the
site plan (the "Site Plan") attached hereto as Exhibit "A". The Building is
located on a larger parcel (the "Parcel") containing other buildings as shown on
the Site Plan (the Building and such other buildings are hereinafter referred to
as the "Buildings"), which Parcel is described in Exhibit "B" attached hereto.
In the event Landlord subdivides the Parcel in the future into two (2) or more
legal parcels, the term "Parcel" shall thereafter refer to the legal parcel on
which the Premises are located. Except as specifically provided in Exhibit "C"
attached hereto, Landlord shall not be required to make any alterations,
additions or improvements to the Premises and the Premises shall be leased to
Tenant in an "as-is" condition.
The term of this Lease ("Lease Term") shall be for five (5) years,
commencing on June 1, 1998 (the "Commencement Date") and ending on May 31, 2003
unless sooner terminated pursuant to any provision hereof. Notwithstanding said
scheduled Commencement Date, if for any reason Landlord cannot deliver
possession of the Premises to Tenant on said date, Landlord shall not be subject
to any liability therefor, nor shall such failure affect the validity of this
Lease or the obligations of Tenant hereunder, but in such case Tenant shall not
be obligated to pay rent until possession of the Premises is tendered to Tenant
and the commencement and termination dates of this Lease shall be revised to
conform to the date of Landlord's delivery of possession. In the event Landlord
shall permit Tenant to occupy the Premises prior to the Commencement Date, such
occupancy shall be subject to all the provisions of this Lease, including the
obligation to pay the Monthly Installment of rent, and Common Area Charges.
Rent
Tenant shall pay to Landlord as rent for the Premises the sum specified in
Subparagraph 4.B below (the "Monthly Installment") each month in advance on the
first day of each calendar month, without deduction or offset, prior notice or
demand, commencing on the Commencement Date and continuing through the term of
this Lease, together with such additional rents as are payable by Tenant to
Landlord under the terms of this Lease. The Monthly Installment for any period
during the Lease Term which period is less than one (1) full month shall be a
pro rata portion of the Monthly Installment based upon a thirty (30) day month.
The Monthly Installment of rent payable each month during the Lease Term
shall be the following respective amounts during the following respective time
periods:
TIME PERIOD MONTHLY INSTALLMENT
6/1/98 thru 5/31/99 $24,008.00
6/1/99 thru 5/31/00 25,208.00
6/1/00 thru 5/31/01 26,468.00
6/1/01 thru 5/31/02 27,792.00
6/1/02 thru 5/31/03 29,181.00
Tenant acknowledges that late payment by Tenant to Landlord of rent and
other sums due hereunder will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting charges,
and late charges which may be imposed on Landlord by the terms of any mortgage
or deed of trust covering the Premises. Accordingly, if any installment of rent
or any other sum due from Tenant shall not be received by Landlord within ten
(10) days after such amount shall be due, Tenant shall pay to Landlord, as
additional rent, a late charge equal to six percent (6%) 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 its other rights and remedies granted hereunder.
All taxes, insurance premiums, Common Area Charges, late charges, costs and
expenses which Tenant is required to pay hereunder, together with all interest
and penalties that may accrue thereon in the event of Tenant's failure to pay
such amounts, and all reasonable damages, costs, and attorneys' fees and
expenses which Landlord may incur by reason of any default of Tenant or failure
on Tenant's part to comply with the terms of this Lease, shall be deemed to be
additional rent ("Additional Rent") and shall be paid in addition to the Monthly
Installment of rent, and, in the event of nonpayment by Tenant, Landlord shall
have all of the rights and remedies with respect thereto as Landlord has for the
nonpayment of the Monthly Installment of rent.
Rent shall be payable in lawful money of the United States of America to
Landlord at 511 Division Street, Campbell, California 95008 or to such other
person(s) or at such other place(s) as Landlord may designate in writing.
Concurrently with the execution of this Lease, Tenant shall pay to Landlord
the sum of Twenty-Four Thousand Eight Dollars ($24,008.00) to be applied to the
Monthly Installment of rent first accruing under this Lease.
Tenant shall deposit the sum of Twenty-Nine Thousand, One Hundred
Eighty-One Dollars ($29,181.00) (the "Security Deposit") upon execution of this
Lease, to secure the faithful performance by Tenant of each term, covenant and
condition of this Lease. If Tenant shall at any time fail to make any payment or
fail to keep or perform any term, covenant or condition on its part to be made
or performed or kept under this Lease, Landlord may, but shall not be obligated
to and without waiving or releasing Tenant from any obligation under this Lease,
use, apply or retain the whole or any part of the Security Deposit (A) to the
extent of any sum due to Landlord; (B) to make any required payment on Tenant's
behalf; or (C) to compensate Landlord for any loss, damages, attorneys' fees or
expense sustained by Landlord due to Tenant's default. In such event, Tenant
shall, within five (5) days of written demand by Landlord, remit to Landlord
sufficient funds to restore the Security Deposit to its original sum. No
interest shall accrue on the Security Deposit. Landlord shall not be required to
keep the Security Deposit separate from its general funds. Should Tenant comply
with all the terms, covenants, and conditions of this Lease and at the end of
the term of this Lease leave the Premises in the condition required by this
Lease, then said Security Deposit, less any sums owing to Landlord or which
Landlord is otherwise entitled to retain, shall be returned to Tenant within
thirty (30) days after the termination of this Lease and vacancy of the Premises
by Tenant.
Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office and for no other purpose. Tenant shall indemnify, protect, defend, and
hold Landlord harmless against any loss, expense, damage, attorneys' fees or
liability arising out of the failure of Tenant to comply with any applicable
law. Tenant shall not commit or suffer to be committed, any waste upon the
Premises, or any nuisance, or other acts or things which may disturb the quiet
enjoyment of any other tenant in the buildings adjacent to the Premises, or
allow any sale by auction upon the Premises, or allow the Premises to be used
for any unlawful purpose, or place any loads upon the floor, walls or ceiling
which endanger the structure, or place any harmful liquids in the drainage
system of the Building. No waste materials or refuse shall be dumped upon or
permitted to remain upon any part of the Parcel outside of the Building, except
in trash containers placed inside exterior enclosures designated for that
purpose by Landlord. No materials, supplies, equipment, finished products or
semifinished products, raw materials or articles of any nature shall be stored
upon or permitted to remain on any portion of the Parcel outside of the
Building. Tenant shall strictly comply with the provisions of Paragraph 39
below.
Taxes and Assessments
Tenant shall pay before delinquency any and all taxes and assessments,
license fees and public charges levied, assessed or imposed upon or against
Tenant's fixtures, equipment, furnishings, furniture, appliances and personal
property installed or located on or within the Premises. Tenant shall cause said
fixtures, equipment, furnishings, furniture, appliances and personal property to
be assessed and billed separately from the real property of Landlord. If any of
Tenant's said personal property shall be assessed with Landlord's real property,
Tenant shall pay Landlord the taxes attributable to Tenant within ten (10) days
after receipt of a written statement from Landlord setting forth the taxes
applicable to Tenant's property.
Tenant shall pay, as Additional Rent, Tenant's Pro Rata Share (as defined
below) of all Property Taxes levied or assessed with respect to the land
comprising the Parcel and with respect to all buildings and improvements located
on the Parcel which become due or accrue during the term of this Lease. Tenant
shall pay such Property Taxes to Landlord on or before the later of the
following dates: (1) ten (10) days prior to the delinquency date; or (2) twenty
(20) days after receipt of billing. If Tenant fails to do so, Tenant shall
reimburse Landlord, on demand, for all interest, late fees and penalties that
the taxing authority charges Landlord. In the event Landlord's mortgagee
requires an impound for Property Taxes, then on the first day of each month
during the Lease Term, Tenant shall pay Landlord one twelfth (1/12) of its
annual share of such Property Taxes. Tenant's liability hereunder shall be
prorated to reflect the Commencement and termination dates of this Lease.
For the purpose of this Lease, "Property Taxes" means and includes all
taxes, assessments (including, but not limited to, assessments for public
improvements or benefits), taxes based on vehicles utilizing parking areas,
taxes based or measured by the rent paid, payable or received under this Lease,
taxes on the value, use, or occupancy of the Premises, the Buildings and/or the
Parcel, Environmental Surcharges, and all other governmental impositions and
charges of every kind and nature whatsoever, whether or not customary or within
the contemplation of the parties hereto and regardless of whether the same shall
be extraordinary or ordinary, general or special, unforeseen or foreseen, or
similar or dissimilar to any of the foregoing which, at any time during the
Lease Term, shall be applicable to the Premises, the Buildings and/or the Parcel
or assessed, levied or imposed upon the Premises, the Buildings and/or the
Parcel, or become due and payable and a lien or charge upon the Premises, the
Buildings and/or the Parcel, or any part thereof, under or by virtue of any
present or future laws, statutes, ordinances, regulations or other requirements
of any governmental authority whatsoever. The term "Environmental Surcharges"
shall mean and include any and all expenses, taxes, charges or penalties imposed
by the Federal Department of Energy, the Federal Environmental Protection
Agency, the Federal Clean Air Act, or any regulations promulgated thereunder or
any other local, state or federal governmental agency or entity now or hereafter
vested with the power to impose taxes, assessments, or other types of surcharges
as a means of controlling or abating environmental pollution or the use of
energy. The term "Property Taxes" shall not include any federal, state or local
net income, estate, or inheritance tax imposed on Landlord.
Tenant shall, as Additional Rent, pay or reimburse Landlord for any tax
based upon, allocable to, or measured by the area of the Premises or the
Buildings or the Parcel; or by the rent paid, payable or received under this
Lease; any tax upon or with respect to the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy of the Premises or
any portion thereof; any privilege tax, excise tax, business and occupation tax,
gross receipts tax, sales and/or use tax, water tax, sewer tax, employee tax,
occupational license tax imposed upon Landlord or Tenant with respect to the
Premises; any tax upon this transaction or any document to which Tenant is a
party creating or transferring an interest or an estate in the Premises.
Insurance
Tenant agrees to indemnify, protect and defend Landlord against and hold
Landlord harmless from any and all claims, causes of action, judgments,
obligations or liabilities, and all reasonable expenses incurred in
investigating or resisting the same (including reasonable attorneys' fees), on
account of, or arising out of, the operation, maintenance, use or occupancy of
the Premises and the Parcel and all areas appurtenant thereto. This Lease is
made on the express understanding that Landlord shall not be liable for, nor
suffer loss by reason of, injury to person or property, from whatever cause
(except for the active negligence or willful misconduct of Landlord), which in
any way may be connected with the operation, use or occupancy of the Premises
specifically including, without limitation, any liability for injury to the
person or property of Tenant, its agents, officers, employees, licensees and
invitees.
Tenant shall, at Tenant's expense, obtain and keep in force during the term
of this Lease a policy of comprehensive public liability insurance insuring
Landlord and Tenant against claims and liabilities arising out of the operation,
use, or occupancy of the Premises and all areas appurtenant thereto, including
parking areas. Such insurance shall be in an amount of not less than Three
Million Dollars ($3,000,000.00) for bodily injury or death as a result of any
one occurrence and Five Hundred Thousand Dollars ($500,000.00) for damage to
property as a result of any one occurrence. The insurance shall be with
companies approved by Landlord, which approval Landlord agrees not to withhold
unreasonably. Tenant shall deliver to Landlord, prior to possession, and at
least thirty (30) days prior to the expiration thereof, a certificate of
insurance evidencing the existence of the policy required hereunder and such
certificate shall certify that the policy (1) names Landlord as an additional
insured, (2) shall not be canceled or altered without thirty (30) days prior
written notice to Landlord, (3) insures performance of the indemnity set forth
in Subparagraph 8.A above, (4) the coverage is primary and any coverage by
Landlord is in excess thereto and (5) contains a cross-liability endorsement.
Landlord may maintain a policy or policies of comprehensive general
liability insurance insuring Landlord (and such others as are designated by
Landlord), against liability for personal injury, bodily injury, death and
damage to property occurring or resulting from an occurrence in, on or about the
Premises or the Common Area, with such limits of coverage as Landlord may from
time to time determine are reasonably necessary for its protection. The cost of
any such liability insurance maintained by Landlord shall be a Common Area
Charge and Tenant shall pay, as Additional Rent, Tenant's Pro Rata Share of such
cost to Landlord as provided in Paragraph 12 below.
Landlord shall obtain and keep in force during the term of this Lease a
policy or policies of insurance covering loss or damage to the Premises and the
Buildings, in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all risk"
insurance, plus a policy of rental income insurance in the amount of one hundred
percent (100%) of twelve (12) months rent (including, without limitation, sums
payable as Additional Rent), plus, at Landlord's option, flood insurance and
earthquake insurance, and any other coverages which Landlord may from time to
time elect to maintain or which may be required from time to time by Landlord's
mortgagee. Tenant shall have no interest in nor any right to the proceeds of any
insurance procured by Landlord on the Premises. Tenant shall, within twenty (20)
days after receipt of billing, pay to Landlord as Additional Rent, Tenant's Pro
Rata Share of such insurance procured and maintained by Landlord. Tenant
acknowledges that such insurance procured by Landlord shall contain a deductible
which reduces Tenant's cost for such insurance and, in the event of loss or
damage, Tenant shall be required to pay to Landlord Tenant's Pro Rata Share of
the amount of such deductible.
Tenant acknowledges that the insurance to be maintained by Landlord on the
Premises pursuant to Subparagraph 8.C above will not insure any of Tenant's
property. Accordingly, Tenant, at Tenant's own expense, shall maintain in full
force and effect on all of its fixtures, equipment, leasehold improvements and
personal property in the Premises, a policy of "All Risk" coverage insurance to
the extent of at least ninety percent (90%) of their insurable value. Tenant
hereby releases Landlord, and its partners, officers, agents, employees, and
servants, from any and all claims, demands, losses, expenses or injuries to the
Premises or to the furnishings, fixtures, equipment, inventory or other personal
property of Tenant in, about, or upon the Premises, which are caused by perils,
events or happenings where the same are covered by the insurance required by
this Lease or which are the subject of insurance carried by Tenant and in force
at the time of such loss.
Tenant and Landlord hereby mutually waive their respective rights for
recovery against each other for any loss of or damage to the property of either
party, to the extent such loss or damage is insured by any insurance policy
required to be maintained by this Lease or otherwise in force at the time of
such loss or damage. Each party shall obtain any special endorsements, if
required by the insurer, whereby the insurer waives its right of subrogation
against the other party hereto. The provisions of this Subparagraph E shall not
apply in those instances in which waiver of subrogation would cause either
party's insurance coverage to be voided or otherwise made uncollectible.
Tenant shall pay for all water, gas, light, heat, power, electricity,
telephone, trash pick-up, sewer charges, and all other services supplied to or
consumed on the Premises, and all taxes and surcharges thereon. In addition, the
cost of any utility services supplied to the Common Area or not separately
metered to the Premises shall be a Common Area Charge and Tenant shall pay
Tenant's Pro Rata Share of such costs to Landlord as provided in Paragraph 12
below.
Repairs and Maintenance
Subject to the provisions of Paragraph 16, Landlord shall keep and maintain
the structural elements, exterior roof and exterior walls of the Building in
good order and repair. Landlord shall not, however, be required to maintain,
repair or replace the interior surface of exterior walls, nor shall Landlord be
required to maintain, repair or replace the windows, doors or plate glass.
Landlord shall have no obligation to make repairs under this Subparagraph until
a reasonable time after receipt of written notice from Tenant of the need for
such repairs. Tenant shall reimburse Landlord, as Additional Rent, within
fifteen (15) days after receipt of billing, for the cost of such repairs and
maintenance which are the obligation of Landlord hereunder (including the cost
of repairs and maintenance of the roofing, roof membrane, skylights, gutters and
down spouts), provided however, that Tenant shall not be required to reimburse
Landlord for the cost of maintenance and repairs of the structural elements of
the Building unless such maintenance or repair is required because of the
negligence or willful misconduct of Tenant or its employees, agents, or
invitees. As used herein, the term "structural elements of the Building" shall
mean and be limited to the foundation, footings, floor slab (but not flooring),
structural walls, and roof structure (but not roofing or roof membrane).
Except as expressly provided in Subparagraph 10.A above, Tenant shall, at
its sole cost, keep and maintain the entire Premises and every part thereof,
including without limitation, the windows, window frames, plate glass, glazing,
skylights, truck doors, doors and all door hardware, the walls and partitions,
and the electrical, plumbing, lighting, heating, ventilating and air
conditioning systems and equipment in good order, condition and repair. The term
"repair" shall include replacements, restorations and/or renewals when necessary
as well as painting. Tenant's obligation shall extend to all alterations,
additions and improvements to the Premises, and all fixtures and appurtenances
therein and thereto. Tenant shall, at all times during the Lease Term, have in
effect a service contract for the maintenance of the heating, ventilating and
air conditioning ("HVAC") equipment with an HVAC repair and maintenance
contractor approved by Landlord. The HVAC service contract shall provide for
periodic inspection and servicing at least once every three (3) months during
the term hereof, and Tenant shall provide Landlord with a copy of such contract
and all periodic service reports.
Should Tenant fail to make repairs required of Tenant hereunder forthwith
upon five (5) days notice from Landlord or should Tenant fail thereafter to
diligently complete the repairs, Landlord, in addition to all other remedies
available hereunder or by law and without waiving any alternative remedies, may
make the same, and in that event, Tenant shall reimburse Landlord as Additional
Rent for the cost of such maintenance or repairs within five (5) days of written
demand by Landlord.
Landlord shall have no maintenance or repair obligations whatsoever with
respect to the Premises except as expressly provided in Subparagraph 10.A and
Paragraph 11 and 16. Tenant hereby expressly waives the provisions of Subsection
1 of Section 1932 and Sections 1941 and 1942 of the Civil Code of California and
all rights to make repairs at the expense of Landlord as provided in Section
1942 of said Civil Code. 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 business arising from the making of, or
the failure to make, any repairs, alterations, decorations, additions or
improvements in or to any portion of the Premises or the Building or Common Area
(or any of the areas used in connection with the operation thereof, or in or to
any fixtures, appurtenances or equipment), or by reason of the negligence of
Tenant or any other tenant or occupant of the Parcel. In no event shall Landlord
be responsible for any consequential damages arising or alleged to have arisen
from any of the foregoing matters. Tenant hereby agrees that Landlord shall not
be liable for injury to Tenant's business or any loss of income therefrom or for
damage to the goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers, or any other person in or about the Premises,
the Building, or the Common Area, nor, except in the case of Landlord's gross
negligence or wilful misconduct, shall Landlord be liable for injury to the
person of Tenant, Tenant's employees, agents or contractors whether such damage
or injury is caused by or results from fire, steam, electricity, gas, water or
rain, or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures,
or from any other cause, whether the said damage or injury results from
conditions arising upon the Premises or upon other portions of the Building, or
from other sources or places and regardless of whether the cause of such damage
or injury or the means of repairing the same is inaccessible to Tenant. Landlord
shall not be liable for any damages arising from any act or neglect of any other
tenant, if any, of the Building or the Parcel.
Subject to the terms and conditions of this Lease and such rules and
regulations as Landlord may from time to time prescribe, Tenant and Tenant's
employees, invitees and customers shall, in common with other occupants of the
Parcel, and their respective employees, invitees and customers, and others
entitled to the use thereof, have the non-exclusive right to use the access
roads, parking areas and facilities provided and designated by Landlord for the
general use and convenience of the occupants of the Parcel, which areas and
facilities are referred to herein as "Common Area." This right shall terminate
upon the termination of this Lease. Landlord reserves the right from time to
time to make changes in the shape, size, location, amount and extent of the
Common Area. Landlord further reserves the right to promulgate such reasonable
rules and regulations relating to the use of the Common Area, and any part or
parts thereof, as Landlord may deem appropriate for the best interest of the
occupants of the Parcel. The rules and regulations shall be binding upon Tenant
upon delivery of a copy of them to Tenant, and Tenant shall abide by them and
cooperate in their observance. Such rules and regulations may be amended by
Landlord from time to time, with or without advance notice, and all amendments
shall be effective upon delivery of a copy of them to Tenant. Tenant shall have
the non-exclusive use of no more than forty (40) of the parking spaces in the
Common Area as designated from time to time by Landlord. Tenant shall not at any
time park or permit the parking of Tenant's trucks or other vehicles, or the
trucks or other vehicles of others, adjacent to loading areas so as to interfere
in any way with the use of such areas, nor shall Tenant at any time park or
permit the parking of Tenant's vehicles or trucks, or the vehicles or trucks of
Tenant's suppliers or others, in any portion of the Common Area not designated
by Landlord for such use by Tenant. Tenant shall not abandon any inoperative
vehicles or equipment on any portion of the Common Area. Tenant shall make no
alterations, improvements or additions to the Common Area.
Landlord shall operate, manage, insure, maintain and repair the Common Area
in good order, condition and repair similar to the manner the Common Area is
currently being maintained. The manner in which the Common Area shall be
maintained and the expenditures for such maintenance shall be at the discretion
of Landlord. The cost of such repair, maintenance, operation, insurance and
management, including without limitation, maintenance and repair of landscaping,
irrigation systems, paving, sidewalks, fences, and lighting, shall be a Common
Area Charge and Tenant shall pay to Landlord Tenant's Pro Rata Share of such
costs as provided in Paragraph 12 below.
Tenant shall pay to Landlord, as Additional Rent, upon demand but not more
often than once each calendar month, an amount equal to Tenant's Pro Rata Share
of the Common Area Charges as defined in Subparagraph 8.B and Paragraphs 9, 11,
13 and 36 of this Lease. Tenant acknowledges and agrees that the Common Area
Charges shall include an additional five percent (5%) of the actual expenditures
in order to compensate Landlord for accounting, management and processing
services.
Tenant shall not make, or suffer to be made, any alterations, improvements
or additions in, on, about or to the Premises or any part thereof, without the
prior written consent of Landlord and without a valid building permit issued by
the appropriate governmental authority. As a condition to giving such consent,
Landlord may require that Tenant agree to remove any such alterations,
improvements or additions at the termination of this Lease, and to restore the
Premises to their prior condition. Unless Landlord requires that Tenant remove
any such alteration, improvement or addition, any alteration, addition or
improvement to the Premises, except movable furniture and trade fixtures not
affixed to the Premises, shall become the property of Landlord upon termination
of the Lease and shall remain upon and be surrendered with the Premises at the
termination of this Lease. Without limiting the generality of the foregoing, all
heating, lighting, electrical (including all wiring, conduit, outlets, drops,
buss ducts, main and subpanels), air conditioning, partitioning, drapery, and
carpet installations made by Tenant regardless of how affixed to the Premises,
together with all other additions, alterations and improvements that have become
an integral part of the Building, shall be and become the property of the
Landlord upon termination of the Lease, and shall not be deemed trade fixtures,
and shall remain upon and be surrendered with the Premises at the termination of
this Lease.
If, during the Term hereof, any alteration, addition or change of any sort
to all or any portion of the Premises is required by law, regulation, ordinance
or order of any public agency, Tenant shall promptly make the same at its sole
cost and expense. If during the Lease Term, any alteration, addition, or change
to the Common Area is required by law, regulation, ordinance or order of any
public agency, Landlord shall make the same and the cost of such alteration,
addition or change shall be a Common Area Charge and Tenant shall pay Tenant's
Pro Rata Share of said cost to Landlord as provided in Paragraph 12 above.
By entry and taking possession of the Premises pursuant to this Lease,
Tenant accepts the Premises as being in good and sanitary order, condition and
repair and accepts the Premises in their condition existing as of the date of
such entry, and Tenant further accepts the tenant improvements to be constructed
by Landlord, if any, as being completed in accordance with the plans and
specifications for such improvements, except for punch list items. Tenant
acknowledges that neither Landlord nor Landlord's agents has made any
representation or warranty as to the suitability of the Premises to the conduct
of Tenant's business. Any agreements, warranties or representations not
expressly contained herein shall in no way bind either Landlord or Tenant, and
Landlord and Tenant expressly waive all claims for damages by reason of any
statement, representation, warranty, promise or agreement, if any, not contained
in this Lease. This Lease constitutes the entire understanding between the
parties hereto and no addition to, or modification of, any term or provision of
this Lease shall be effective until set forth in a writing signed by both
Landlord and Tenant.
Default
A breach of this Lease by Tenant shall exist if any of the following events
(hereinafter referred to as "Event of Default") shall occur:
(1) Default in the payment when due of any installment of rent or other
payment required to be made by Tenant hereunder, where such default shall not
have been cured within three (3) days after written notice of such default is
given to Tenant. If Landlord serves Tenant with a Notice to Pay or Quit pursuant
to the applicable unlawful detainer statutes, such Notice to Pay or Quit shall
also constitute the written notice required by this clause;
(2) Tenant's breach or violation of any of the provisions of Paragraph 25
below;
(3) Tenant's breach or violation of any of the provisions of Paragraph 39
below;
(4) Tenant's failure to perform any other term, covenant or condition
contained in this Lease where such failure shall have continued for ten (10)
days after written notice of such failure is given to Tenant;
(5) Tenant's vacating or abandonment of the Premises;
(6) Tenant's assignment of its assets for the benefit of its creditors;
(7) The sequestration of, attachment of, or execution on, any substantial
part of the property of Tenant or on any property essential to the conduct of
Tenant's business, shall have occurred and Tenant shall have failed to obtain a
return or release of such property within thirty (30) days thereafter, or prior
to sale pursuant to such sequestration, attachment or levy, whichever is
earlier;
(8) Tenant or any guarantor of Tenant's obligations hereunder shall
commence any case, proceeding or other action seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seek appointment of a receiver, trustee, custodian, or other
similar official for it or for all or any substantial part of its property;
(9) Tenant or any such guarantor shall take any corporate action to
authorize any of the actions set forth in Clause 8 above; or
(10) Any case, proceeding or other action against Tenant or any guarantor
of Tenant's obligations hereunder shall be commenced seeking to have an order
for relief entered against it as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property, and such case,
proceeding or other action (i) results in the entry of an order for relief
against it which is not fully stayed within seven (7) business days after the
entry thereof or (ii) remains undismissed for a period of forty-five (45) days.
Upon any Event of Default, Landlord shall have the following remedies, in
addition to all other rights and remedies provided by law, to which Landlord may
resort cumulatively, or in the alternative:
(1) Recovery of Rent. Landlord shall be entitled to keep this Lease in full
force and effect (whether or not Tenant shall have abandoned the Premises) and
to enforce all of its rights and remedies under this Lease, including the right
to recover rent and other sums as they become due, plus interest at the
Permitted Rate (as defined in Paragraph 33 below) from the due date of each
installment of rent or other sum until paid.
(2) Termination. Landlord may terminate this Lease by giving Tenant written
notice of termination. On the giving of the notice all of Tenant's rights in the
Premises and the Building and Parcel shall terminate. Upon the giving of the
notice of termination, Tenant shall surrender and vacate the Premises in the
condition required by Paragraph 34, and Landlord may re-enter and take
possession of the Premises and all the remaining improvements or property and
eject Tenant or any of Tenant's subtenants, assignees or other person or persons
claiming any right under or through Tenant or eject some and not others or eject
none. This Lease may also be terminated by a judgment specifically providing for
termination. Any termination under this paragraph shall not release Tenant from
the payment of any sum then due Landlord or from any claim for damages or rent
previously accrued or then accruing against Tenant. In no event shall any one or
more of the following actions by Landlord constitute a termination of this
Lease:
(a) maintenance and preservation of the Premises;
(b) efforts to relet the Premises;
(c) appointment of a receiver in order to protect Landlord's interest
hereunder;
(d) consent to any subletting of the Premises or assignment of this Lease
by Tenant, whether pursuant to provisions hereof concerning subletting and
assignment or otherwise; or
(e) any other action by Landlord or Landlord's agents intended to mitigate
the adverse effects from any breach of this Lease by Tenant.
(3) Damages. In the event this Lease is terminated pursuant to Subparagraph
15.B.2 above, or otherwise, Landlord shall be entitled to damages in the
following sums:
(a) the worth at the time of award of the unpaid rent which has been earned
at the time of termination; plus
(b) the worth at the time of award of the amount by which the unpaid rent
which would have been earned after termination until the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided; plus
(c) the worth at the time of award of the amount by which the unpaid rent
for the balance of the term after the time of award exceeds the amount of such
rental loss that Tenant proves could be reasonably avoided; and
(d) any other amount necessary to compensate Landlord for all detriment
proximately caused by Tenant's failure to perform Tenant's obligations under
this Lease, or which in the ordinary course of things would be likely to result
therefrom including, without limitation, the following: (i) expenses for
cleaning, repairing or restoring the Premises; (ii) expenses for altering,
remodeling or otherwise improving the Premises for the purpose of reletting,
including installation of leasehold improvements (whether such installation be
funded by a reduction of rent, direct payment or allowance to the succeeding
lessee, or otherwise); (iii) real estate broker's fees, advertising costs and
other expenses of reletting the Premises; (iv) costs of carrying the Premises
such as taxes and insurance premiums thereon, utilities and security
precautions; (v)expenses in retaking possession of the Premises; (vi)
attorneys' fees and court costs; and (vii) any unamortized real estate brokerage
commission paid in connection with this Lease.
(e) The "worth at the time of award" of the amounts referred to in
Subparagraphs (a) and (b) of this Paragraph 15.B(3) is computed by allowing
interest at the Permitted Rate. The "worth at the time of award" of the amounts
referred to in Subparagraph (c) of this Paragraph 15.B(3) is computed by
discounting such amount at the discount rate of the Federal Reserve Board of San
Francisco at the time of award plus one percent (1%). The term "rent" as used in
this Paragraph 15 shall include all sums required to be paid by Tenant to
Landlord pursuant to the terms of this Lease.
In the event that any portion of the Premises are destroyed or damaged by
an uninsured peril, Landlord or Tenant may, upon written notice to the other,
given within thirty (30) days after the occurrence of such damage or
destruction, elect to terminate this Lease; provided, however, that either party
may, within thirty (30) days after receipt of such notice, elect to make any
required repairs and/or restoration at such party's sole cost and expense, in
which event this Lease shall remain in full force and effect, and the party
having made such election to restore or repair shall thereafter diligently
proceed with such repairs and/or restoration.
In the event the Premises are damaged or destroyed from any insured peril
to the extent of fifty percent (50%) or more of the then replacement cost of the
Premises, Landlord may, upon written notice to Tenant, given within thirty (30)
days after the occurrence of such damage or destruction, elect to terminate this
Lease. If Landlord does not give such notice in writing within such period,
Landlord shall be deemed to have elected to rebuild or restore the Premises, in
which event Landlord shall, at its expense, promptly rebuild or restore the
Premises to their condition prior to the damage or destruction and Tenant shall
pay to Landlord upon commencement of reconstruction the amount of any deductible
from the insurance policy.
In the event the Premises are damaged or destroyed from any insured peril
to the extent of less than fifty percent (50%) of the then replacement cost of
the Premises, Landlord shall, at Landlord's expense, promptly rebuild or restore
the Premises to their condition prior to the damage or destruction and Tenant
shall pay to Landlord upon commencement of reconstruction the amount of any
deductible from the insurance policy.
In the event that, pursuant to the foregoing provisions, Landlord is to
rebuild or restore the Premises, Landlord shall, within thirty (30) days after
the occurrence of such damage or destruction, provide Tenant with written notice
of the time required for such repair or restoration. If such period is longer
than two hundred seventy (270) days from the issuance of a building permit,
Tenant may, within thirty (30) days after receipt of Landlord's notice, elect to
terminate the Lease by giving written notice to Landlord of such election,
whereupon the Lease shall immediately terminate. The period of time for Landlord
to complete the repair or restoration shall be extended for delays caused by the
fault or neglect of Tenant or because of acts of God, acts of public agencies,
labor disputes, strikes, fires, freight embargoes, rainy or stormy weather,
inability to obtain materials, supplies or fuels, acts of contractors or
subcontractors, or delay of contractors or subcontractors due to such causes, or
other contingencies beyond the control of Landlord. Landlord's obligation to
repair or restore the Premises shall not include restoration of Tenant's trade
fixtures, equipment, merchandise, or any improvements, alterations or additions
made by Tenant to the Premises.
Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect; provided, however, that during any
period of repairs or restoration, rent and all other amounts to be paid by
Tenant on account of the Premises and this Lease shall be abated in proportion
to the area of the Premises rendered not reasonably suitable for the conduct of
Tenant's business thereon. Tenant hereby expressly waives the provisions of
Section 1932, Subdivision 2 and Section 1933, Subdivision 4 of the California
Civil Code.
Condemnation
For the purposes of this Lease, the term (1) "Taking" means a taking of the
Premises or damage to the Premises related to the exercise of the power of
eminent domain and includes a voluntary conveyance, in lieu of court
proceedings, to any agency, authority, public utility, person or corporate
entity empowered to condemn property; (2) "Total Taking" means the taking of the
entire Premises or so much of the Premises as to prevent or substantially impair
the use thereof by Tenant for the uses herein specified; provided, however, in
no event shall a Taking of less than ten percent (10%) of the Premises be deemed
a Total Taking; (3) "Partial Taking" means the taking of only a portion of the
Premises which does not constitute a Total Taking; (4) "Date of Taking" means
the date upon which the title to the Premises, or a portion thereof, passes to
and vests in the condemnor or the effective date of any order for possession if
issued prior to the date title vests in the condemnor; and (5) "Award" means the
amount of any award made, consideration paid, or damages ordered as a result of
a Taking.
The parties agree that in the event of a Taking all rights between them or
in and to an Award shall be as set forth herein and Tenant shall have no right
to any Award except as set forth herein.
In the event of a Total Taking during the term hereof (1) the rights of
Tenant under the Lease and the leasehold estate of Tenant in and to the Premises
shall cease and terminate as of the Date of Taking; (2) Landlord shall refund to
Tenant any prepaid rent; (3) Tenant shall pay Landlord any rent or charges due
Landlord under the Lease, each prorated as of the Date of Taking; (4) Tenant
shall receive from Landlord those portions of the Award attributable to trade
fixtures of Tenant and for moving expenses of Tenant; and (5) the remainder of
the Award shall be paid to and be the property of Landlord.
In the event of a Partial Taking during the term hereof (1) the rights of
Tenant under the Lease and the leasehold estate of Tenant in and to the portion
of the Premises taken shall cease and terminate as of the Date of Taking; (2)
from and after the Date of Taking the Monthly Installment of rent shall be an
amount equal to the product obtained by multiplying the Monthly Installment of
rent immediately prior to the Taking by a fraction, the numerator of which is
the number of square feet contained in the Premises after the Taking and the
denominator of which is the number of square feet contained in the Premises
prior to the Taking; (3) Tenant shall receive from the Award the portions of the
Award attributable to trade fixtures of Tenant; and (4) the remainder of the
Award shall be paid to and be the property of Landlord.
Tenant shall (A) pay for all labor and services performed for, materials
used by or furnished to, Tenant or any contractor employed by Tenant with
respect to the Premises; (B) indemnify, defend, protect and hold Landlord and
the Premises harmless and free from any liens, claims, liabilities, demands,
encumbrances, or judgments created or suffered by reason of any labor or
services performed for, materials used by or furnished to, Tenant or any
contractor employed by Tenant with respect to the Premises; (C) give notice to
Landlord in writing five (5) days prior to employing any laborer or contractor
to perform services related to, or receiving materials for use upon the
Premises; and (D) permit Landlord to post a notice of nonresponsibility in
accordance with the statutory requirements of California Civil Code Section 3094
or any amendment thereof. In the event Tenant is required to post an improvement
bond with a public agency in connection with the above, Tenant agrees to include
Landlord as an additional obligee.
Tenant shall permit Landlord and its agents to enter the Premises at any
reasonable time for the purpose of inspecting the same, performing Landlord's
maintenance and repair responsibilities, posting a notice of non-responsibility
for alterations, additions or repairs and at any time within one hundred eighty
(180) days prior to expiration of this Lease, to place upon the Premises,
ordinary "For Lease" or "For Sale" signs.
Tenant shall, at its own cost, comply with all of the requirements of all
municipal, county, state and federal authorities now in force, or which may
hereafter be in force, pertaining to the use and occupancy of the Premises, and
shall faithfully observe all municipal, county, state and federal law, statutes
or ordinances now in force or which may hereafter be in force. The judgment of
any court of competent jurisdiction or the admission of Tenant in any action or
proceeding against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any such ordinance or statute in the use and occupancy of
the Premises shall be conclusive of the fact that such violation by Tenant has
occurred.
The following provisions shall govern the relationship of this Lease to any
underlying lease, mortgage or deed of trust which now or hereafter affects the
Premises, the Building and/or the Parcel, or Landlord's interest or estate
therein (the "Project") and any renewal, modification, consolidation,
replacement, or extension thereof (a "Security Instrument").
This Lease is subject and subordinate to all Security Instruments existing
as of the Commencement Date. However, if any Lender so requires, this Lease
shall become prior and superior to any such Security Instrument.
At Landlord's election, this Lease shall become subject and subordinate to
any Security Instrument created after the Commencement Date. Notwithstanding
such subordination, Tenant's right to quiet possession of the Premises shall not
be disturbed so long as Tenant is not in default and performs all of its
obligations under this Lease, unless this Lease is otherwise terminated pursuant
to its terms.
Tenant shall execute any reasonable document or instrument required by
Landlord or any Lender to make this Lease either prior or subordinate to a
Security Instrument, which may include such other matters as the Lender
customarily requires in connection with such agreements, including provisions
that the Lender, if it succeeds to the interest of Landlord under this Lease,
shall not be (i) liable for any act or omission of any prior landlord (including
Landlord), (ii) subject to any offsets or defenses which Tenant may have against
any prior landlord (including Landlord), (iii) bound by any rent or Additional
Rent paid more than one (1) month in advance of its date due under this Lease
unless the Lender receives it from Landlord, (iv) liable for any defaults on the
part of Landlord occurring prior to the time that the Lender takes possession of
the Premises in connection with the enforcement of its Security Instrument, (v)
liable for the return of any Security Deposit unless such deposit has been
delivered to Lender, or (vi) bound by any agreement or modification of the Lease
made without the prior written consent of Lender. Tenant's failure to execute
any such document or instrument with ten (10) days after written demand therefor
shall constitute a default by Tenant.
Tenant shall attorn (1) to any purchaser of the Premises at any foreclosure
sale or private sale conducted pursuant to any Security Instrument encumbering
the Project; (2) to any grantee or transferee designated in any deed given in
lieu of foreclosure; or (3) to the lessor under any underlying ground lease
should such ground lease be terminated.
As used in this Lease, the term "Lender" shall mean (1) any beneficiary,
mortgagee, secured party, or other holder of any deed of trust, mortgage, or
other written security device or agreement affecting the Project; and (2) any
lessor under any underlying lease under which Landlord holds its interest in the
Project.
This Lease shall terminate without further notice at the expiration of the
Lease Term. Any holding over by Tenant after expiration shall not constitute a
renewal or extension or give Tenant any rights in or to the Premises except as
expressly provided in this Lease. Any holding over after the expiration with the
consent of Landlord shall be construed to be a tenancy from month to month, at
one hundred fifty percent (150%) of the monthly rent for the last month of the
Lease Term, and shall otherwise be on the terms and conditions herein specified
insofar as applicable.
Any notice required or desired to be given under this Lease shall be in
writing with copies directed as indicated below and shall be personally served
or given by mail. Any notice given by mail shall be deemed to have been given
when forty-eight (48) hours have elapsed from the time such notice was deposited
in the United States mails, certified and postage prepaid, addressed to the
party to be served with a copy as indicated herein at the last address given by
that party to the other party under the provisions of this Paragraph 23. At the
date of execution of this Lease, the address of Landlord is:
511 Division Street
Campbell, CA 95008
and the address of Tenant is:
Building 3, Suite 200
6300 Bridgepoint Parkway
Austin, TX 78730
Attn: Keith D. Thatcher, CFO
In the event either party shall bring any action or legal proceeding for
damages for any alleged breach of any provision of this Lease, to recover rent
or possession of the Premises, to terminate this Lease, or to enforce, protect
or establish any term or covenant of this Lease or right or remedy of either
party, the prevailing party shall be entitled to recover as a part of such
action or proceeding, reasonable attorneys' fees and court costs, including
attorneys' fees and costs for appeal, as may be fixed by the court or jury. The
term "prevailing party" shall mean the party who received substantially the
relief requested, whether by settlement, dismissal, summary judgment, judgment,
or otherwise.
Nonassignment
Tenant's interest in this Lease is not assignable, by operation of law or
otherwise, nor shall Tenant have the right to sublet the Premises, transfer any
interest of Tenant therein or permit any use of the Premises by another party,
without the prior written consent of Landlord to such assignment, subletting,
transfer or use, which consent Landlord agrees not to withhold unreasonably
subject to the provisions of Subparagraph 25.B below. A consent to one
assignment, subletting, occupancy or use by another party shall not be deemed to
be a consent to any subsequent assignment, subletting, occupancy or use by
another party. Any assignment or subletting without such consent shall be void
and shall, at the option of Landlord, terminate this Lease.
Landlord's waiver or consent to any assignment or subletting hereunder
shall not relieve Tenant from any obligation under this Lease unless the consent
shall so provide.
If Tenant desires to assign its interest in this Lease or sublet the
Premises, or transfer any interest of Tenant therein, or permit the use of the
Premises by another party (hereinafter collectively referred to as a
"Transfer"), Tenant shall give Landlord at least thirty (30) days prior written
notice of the proposed Transfer and of the terms of such proposed Transfer,
including, but not limited to, the name and legal composition of the proposed
transferee, a financial statement of the proposed transferee, the nature of the
proposed transferee's business to be carried on in the Premises, the payment to
be made or other consideration to be given to Tenant on account of the Transfer,
and such other pertinent information as may be requested by Landlord, all in
sufficient detail to enable Landlord to evaluate the proposed Transfer and the
prospective transferee. It is the intent of the parties hereto that this Lease
shall confer upon Tenant only the right to use and occupy the Premises, and to
exercise such other rights as are conferred upon Tenant by this Lease. The
parties agree that this Lease is not intended to have a bonus value nor to serve
as a vehicle whereby Tenant may profit by a future Transfer of this Lease or the
right to use or occupy the Premises as a result of any favorable terms contained
herein, or future changes in the market for leased space. It is the intent of
the parties that any such bonus value that may attach to this Lease shall be and
remain the exclusive property of Landlord. Accordingly, in the event Tenant
seeks to Transfer its interest in this Lease or the Premises, Landlord shall
have the following options, which may be exercised at its sole choice without
limiting Landlord in the exercise of any other right or remedy which Landlord
may have by reason of such proposed Transfer:
(1) Landlord may elect to terminate this Lease effective as of the proposed
effective date of the proposed Transfer and release Tenant from any further
liability hereunder accruing after such termination date by giving Tenant
written notice of such termination within twenty (20) days after receipt by
Landlord of Tenant's notice of intent to transfer as provided above. If Landlord
makes such election to terminate this Lease, Tenant shall surrender the
Premises, in accordance with Paragraph 34, on or before the effective
termination date; or
(2) Landlord may consent to the proposed Transfer on the condition that
Tenant agrees to pay to Landlord, as Additional Rent, forty percent (40%) of the
positive difference, if any, between (i) any and all rents or other
consideration (including key money) received by Tenant from the transferee by
reason of such Transfer less (ii) the sum of the rent payable by Tenant to
Landlord under this Lease and any brokerage commissions or advertising expenses
incurred by Tenant in connection with the Transfer. Tenant expressly agrees that
the foregoing is a reasonable condition for obtaining Landlord's consent to any
Transfer; or
(3) Landlord may reasonably withhold its consent to the proposed Transfer.
The covenants and agreements contained in this Lease shall be binding on
the parties hereto and on their respective heirs, successors and assigns (to the
extent the Lease is assignable).
In the event of any default on the part of Landlord, Tenant will give
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgagee of a mortgage encumbering the Premises, whose address shall have been
furnished to Tenant, and shall offer such beneficiary or mortgagee a reasonable
opportunity to cure the default, including time to obtain possession of the
Premises by power of sale or judicial foreclosure, if such should prove
necessary to effect a cure.
Tenant agrees promptly following request by Landlord to (A) execute and
deliver to Landlord any documents, including estoppel certificates presented to
Tenant by Landlord, (1) certifying that this Lease is unmodified and in full
force and effect (or, if modified, specifying such modification and certifying
that the Lease as so modified is in full force and effect) and the date to which
the rent and other charges are paid in advance, if any, and (2) acknowledging
that there are not, to Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder (or specifying such defaults, if any, that are claimed), and
(3) evidencing the status of the Lease as may be required either by a lender
making a loan to Landlord to be secured by a deed of trust or mortgage covering
the Premises or a purchaser of the Premises from Landlord and (B) to deliver to
Landlord the financial statement of Tenant with an opinion of a certified public
accountant, including a balance sheet and profit and loss statement, for the
last completed fiscal year all prepared in accordance with generally accepted
accounting principles consistently applied. Tenant's failure to deliver an
estoppel certificate promptly following such request shall be an Event of
Default under this Lease.
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 subtenants, or operate as
an assignment to Landlord of any or all such subleases or subtenants.
The waiver by Landlord or Tenant of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained.
General
The captions and paragraph headings used in this Lease are for the purposes
of convenience only. They shall not be construed to limit or extend the meaning
of any part of this Lease, or be used to interpret specific sections. The
word(s) enclosed in quotation marks shall be construed as defined terms for
purposes of this Lease. As used in this Lease, the masculine, feminine and
neuter and the singular or plural number shall each be deemed to include the
other whenever the context so requires.
The term Landlord as used in this Lease, so far as the covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner at the time in question of the fee title of the Premises,
and in the event of any transfer or transfers of the title of such fee, the
Landlord herein named (and in case of any subsequent transfers or conveyances,
the then grantor) shall after the date of such transfer or conveyance be
automatically freed and relieved of all liability with respect to performance of
any covenants or obligations on the part of Landlord contained in this Lease,
thereafter to be performed; provided that any funds in the hands of Landlord or
the then grantor at the time of such transfer, in which Tenant has an interest,
shall be turned over to the grantee. It is intended that the covenants and
obligations contained in this Lease on the part of Landlord shall, subject as
aforesaid, be binding upon each Landlord, its heirs, personal representatives,
successors and assigns only during its respective period of ownership.
Time is of the essence for the performance of each term, covenant and
condition of this Lease.
In case any one or more of the provisions contained herein, except for the
payment of rent, shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Lease, but this Lease shall be
construed as if such invalid, illegal or unenforceable provision had not been
contained herein. This Lease shall be construed and enforced in accordance with
the laws of the State of California.
If Tenant is more than one person or entity, each such person or entity
shall be jointly and severally liable for the obligations of Tenant hereunder.
As used in this Lease, the term "Law(s)" or "law(s)" shall mean any
judicial decision, statute, constitution, ordinance, resolution, regulation,
rule, administrative order, or other requirement of any government agency or
authority having jurisdiction over the parties to this Lease or the Premises or
both, in effect at the Commencement Date of this Lease or any time during the
Lease Term, including, without limitation, any regulation, order, or policy of
any quasi-official entity or body (e.g., board of fire examiners, public utility
or special district).
As used in this Lease, the term "Agent" shall mean, with respect to either
Landlord or Tenant, its respective agents, employees, contractors (and their
subcontractors), and invitees (and in the case of Tenant, its subtenants).
WAIVER OF JURY TRIAL
LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY OF ANY
CAUSE OF ACTION, CLAIM, COUNTERCLAIM OR CROSS-COMPLAINT IN ANY ACTION,
PROCEEDING AND/OR HEARING BROUGHT BY EITHER LANDLORD AGAINST TENANT OR TENANT
AGAINST LANDLORD ON ANY MATTER WHATSOEVER ARISING OUT OF, OR IN ANY WAY
CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S
USE OR OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE, OR THE
ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR REGULATION, EMERGENCY OR
OTHERWISE, NOW OR HEREAFTER IN EFFECT.
INITIALS: ______ (Landlord) ______ (Tenant)
Tenant shall not place or permit to be placed any sign or decoration on the
Parcel or the exterior of the Building without the prior written consent of
Landlord. Tenant, upon written notice by Landlord, shall immediately remove any
sign or decoration that Tenant has placed or permitted to be placed on the
Parcel or the exterior of the Building without the prior written consent of
Landlord, and if Tenant fails to so remove such sign or decoration within five
(5) days after Landlord's written notice, Landlord may enter upon the Premises
and remove said sign or decoration and Tenant agrees to pay Landlord, as
Additional Rent upon demand, the cost of such removal. At the termination of
this Lease, Tenant shall remove any sign which it has placed on the Parcel or
Building and shall repair any damage caused by the installation or removal of
such sign.
Any Monthly Installment of rent or any other sum due from Tenant under this
Lease which is received by Landlord after the date the same is due shall bear
interest from said due date until paid, at an annual rate equal to the greater
of (the "Permitted Rate"): (1) ten percent (10%); or (2) five percent (5%) plus
the rate established by the Federal Reserve Bank of San Francisco, as of the
twenty-fifth (25th) day of the month immediately preceding the due date, on
advances to member banks under Sections 13 and 13(a) of the Federal Reserve Act,
as now in effect or hereafter from time to time amended. Payment of such
interest shall not excuse or cure any default by Tenant. In addition, Tenant
shall pay all costs and attorneys' fees incurred by Landlord in collection of
such amounts.
On the last day of the Lease Term, or on the sooner termination of this
Lease, Tenant shall surrender the Premises to Landlord in their condition
existing as of the Commencement Date of this Lease, ordinary wear and tear
excepted, with all originally painted interior walls washed, and other interior
walls cleaned, and repaired or replaced, all carpets shampooed and cleaned, the
air conditioning and heating equipment serviced and repaired by a reputable and
licensed service firm, all floors cleaned and waxed, all to the reasonable
satisfaction of Landlord. Tenant shall remove all of Tenant's personal property
and trade fixtures from the Premises, and all property not so removed shall be
deemed abandoned by Tenant. Tenant, at its sole cost, shall repair any damage to
the Premises caused by the removal of Tenant's personal property, machinery and
equipment, which repair shall include, without limitation, the patching and
filling of holes and repair of structural damage. If the Premises are not so
surrendered at the termination of this Lease, Tenant shall indemnify, defend,
protect and hold Landlord harmless from and against loss or liability resulting
from delay by Tenant in so surrendering the Premises including without
limitation, any claims made by any succeeding tenant or losses to Landlord due
to lost opportunities to lease to succeeding tenants.
The undersigned parties hereby warrant that they have proper authority and
are empowered to execute this Lease on behalf of Landlord and Tenant,
respectively.
This Lease is made subject to all matters of public record affecting title
to the property of which the Premises are a part. Tenant shall abide by and
comply with all private conditions, covenants and restrictions of public record
now or hereafter affecting the Premises and any amendment thereof.
All assessments and charges which are imposed, levied or assessed against
the Parcel and Buildings pursuant to the above-described covenants, conditions
and restrictions shall be a Common Area Charge and Tenant shall pay its share of
such assessments and charges to Landlord as provided in Paragraph 12 above.
Tenant represents and warrants to Landlord that it has not dealt with any
broker respecting this transaction (other than CB/Richard Ellis) and hereby
agrees to indemnify and hold Landlord harmless from and against any brokerage
commission or fee, obligation, claim or damage (including attorneys' fees) paid
or incurred respecting any broker (other than CB/Richard Ellis) claiming through
Tenant or with which/whom Tenant has dealt.
Tenant, for itself and its successors and assigns (to the extent this Lease
is assignable), hereby agrees that in the event of any actual, or alleged,
breach or default by Landlord under this Lease that:
A. Tenant's sole and exclusive remedy against Landlord shall be as against
Landlord's interest in the Buildings and Parcel;
B. No partner of Landlord shall be sued or named in a party in a suit or
action (except as may be necessary to secure jurisdiction of the partnership);
C. No service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the partnership);
D. No partner of Landlord shall be required to answer or otherwise plead to
any service of process;
E. No judgment will be taken against any partner of Landlord;
F. Any judgment taken against any partner of Landlord may be vacated
and set aside at any time nunc pro tunc;
G. No writ of execution will ever be levied against the assets of any
partner of Landlord;
H. The covenants and agreements of Tenant set forth in this Paragraph
38 shall be enforceable by Landlord and any partner of Landlord.
Hazardous Material
As used herein, the term "Hazardous Material" shall mean any
substance: (i) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance, order,
action, policy or common law; (ii) which is or becomes defined as a
"hazardous waste," "hazardous substance," pollutant or contaminant under
any federal, state or local statute, regulation, rule or ordinance or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section
9601 et seq.) and/or the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.); (iii) which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise
hazardous and is or becomes regulated by any governmental authority,
agency, department, commission, board, agency or instrumentality of the
United States, the State of California or any political subdivision
thereof; (iv) the presence of which on the Premises causes or threatens to
cause a nuisance upon the Premises or to adjacent properties or poses or
threatens to pose a hazard to the health or safety of persons on or about
the Premises; (v) the presence of which on adjacent properties could
constitute a trespass by Landlord or Tenant; (vi) without limitation which
contains gasoline, diesel fuel or other petroleum hydrocarbons; (vii)
without limitation which contains polychlorinated biphenyls (PCBs),
asbestos or urea formaldehyde foam insulation; or (viii) without limitation
radon gas.
Subject to the compliance by Tenant with the provisions of
Subparagraphs C, D, E, F, G, H, and I below, Tenant shall be permitted to
use and store on the Premises those Hazardous Materials listed in Exhibit
"D" attached hereto, in the quantities set forth in Exhibit "D".
Hazardous Materials Management Plan
(i) Prior to Tenant using, handling, transporting or storing any
Hazardous Material at or about the Premises (including, without limitation,
those listed in Exhibit "D"), Tenant shall submit to Landlord a Hazardous
Materials Management Plan ("HMMP") for Landlord's review and approval,
which approval shall not be unreasonably withheld. The HMMP shall describe:
(aa) the quantities of each material to be used, (bb) the purpose for which
each material is to be used, (cc) the method of storage of each material,
(dd) the method of transporting each material to and from the Premises and
within the Premises, (ee) the methods Tenant will employ to monitor the use
of the material and to detect any leaks or potential hazards, and (ff) any
other information any department of any governmental entity (city, state or
federal) requires prior to the issuance of any required permit for the
Premises or during Tenant's occupancy of the Premises. Landlord may, but
shall have no obligation to review and approve the foregoing information
and HMMP, and such review and approval or failure to review and approve
shall not act as an estoppel or otherwise waive Landlord's rights under
this Lease or relieve Tenant of its obligations under this Lease. If
Landlord determines in good faith by inspection of the Premises or review
of the HMMP that the methods in use or described by Tenant are not adequate
in Landlord's good faith judgment to prevent or eliminate the existence of
environmental hazards, then Tenant shall not use, handle, transport, or
store such Hazardous Materials at or about the Premises unless and until
such methods are approved by Landlord in good faith and added to an
approved HMMP. Once approved by Landlord, Tenant shall strictly comply with
the HMMP and shall not change its use, operations or procedures with
respect to Hazardous Materials without submitting an amended HMMP for
Landlord's review and approval as provided above.
(ii) Tenant shall pay to Landlord when Tenant submits an HMMP (or
amended HMMP) the amount reasonably determined by Landlord to cover all
Landlord's costs and expenses reasonably incurred in connection with
Landlord's review of the HMMP which costs and expenses shall include, among
other things, all reasonable out-of-pocket fees of attorneys, architects,
or other consultants incurred by Landlord in connection with Landlord's
review of the HMMP. Landlord shall have no obligation to consider a request
for consent to a proposed HMMP unless and until Tenant has paid all such
costs and expenses to Landlord, and Tenant shall pay all such costs and
expenses to Landlord irrespective of whether Landlord consents to such
proposed HMMP. Tenant shall pay to Landlord on demand the excess, if any,
of such costs and expenses actually incurred by Landlord over the amount of
such costs and expenses actually paid by Tenant, and Landlord shall
promptly refund to Tenant the excess, if any, of such costs and expenses
actually paid by Tenant over the amount of such costs and expenses actually
incurred by Landlord.
Except as specifically allowed in Subparagraph B above, Tenant shall
not cause or permit any Hazardous Material to be used, stored, generated,
discharged, transported to or from, or disposed of in or about the
Premises, Building or Parcel or any other land or improvements in the
vicinity of the Premises, Building or Parcel. Without limiting the
generality of the foregoing, Tenant, at its sole cost, shall comply with
all Laws relating to the storage, use, generation, transport, discharge and
disposal by Tenant or its Agents of any Hazardous Material. If the presence
of any Hazardous Material on the Premises, Building or Parcel caused or
permitted by Tenant or its Agents results in contamination of the Premises,
Building or Parcel or any soil, air, ground or surface waters under,
through, over, on, in or about the Premises, Building or Parcel, Tenant, at
its expense, shall promptly take all actions necessary to return the
Premises, Building or Parcel and/or the surrounding real property to the
condition existing prior to the appearance of such Hazardous Material. In
the event there is a release, discharge or disposal of or contamination of
the Premises, Building or Parcel by a Hazardous Material which is of the
type that has been stored, handled, transported or otherwise used or
permitted by Tenant or its Agents on or about the Premises, Building or
Parcel, Tenant shall have the burden of proving that such release,
discharge, disposal or contamination is not the result of the acts or
omissions of Tenant or its Agents.
Tenant shall defend, protect, hold harmless and indemnify Landlord and
its Agents and Lenders with respect to all actions, claims, losses
(including, diminution in value of the Premises), fines, penalties, fees
(including, but not limited to, attorneys' and consultants' fees) costs,
damages, liabilities, remediation costs, investigation costs, response
costs and other expenses arising out of, resulting from, or caused by (i)
any Hazardous Material used, generated, discharged, transported to or from,
stored, or disposed of by Tenant or its Agents in, on, under, over, through
or about the Premises, Building or Parcel and/or the surrounding real
property or (ii) any disposal or release of any Hazardous Material on the
surface of the Premises occurring after the Commencement Date and prior to
the termination of this Lease. Tenant shall not suffer any lien to be
recorded against the Premises, Building or Parcel as a consequence of the
disposal of any Hazardous Material on the Premises by Tenant or its Agents,
including any so called state, federal or local "super fund" lien related
to the "clean up" of any Hazardous Material in, over, on, under, through,
or about the Premises.
Tenant shall immediately notify Landlord of any inquiry, test,
investigation, enforcement proceeding by or against Tenant or the Premises
concerning any Hazardous Material. Any remediation plan prepared by or on
behalf of Tenant must be submitted to Landlord prior to conducting any work
pursuant to such plan and prior to submittal to any applicable government
authority and shall be subject to Landlord's consent. Tenant acknowledges
that Landlord, as the owner of the Premises, at its election, shall have
the sole right to negotiate, defend, approve and appeal any action taken or
order issued with regard to any Hazardous Material by any applicable
governmental authority.
It shall not be unreasonable for Landlord to withhold its consent to
any proposed assignment or subletting if (i)the proposed assignee's or
subtenant's anticipated use of the Premises involves the storage,
generation, discharge, transport, use or disposal of any Hazardous
Material; (ii) if the proposed assignee or subtenant has been required by
any prior landlord, lender or governmental authority to "clean up" or
remediate any Hazardous Material; (iii) if the proposed assignee or
subtenant is subject to investigation or enforcement order or proceeding by
any governmental authority in connection with the use, generation,
discharge, transport, disposal or storage of any Hazardous Material.
Upon the expiration or earlier termination of the Lease, Tenant, at
its sole cost, shall remove all Hazardous Materials from the Premises,
Building or Parcel that Tenant or its Agents introduced to the Premises,
Building or Parcel. If Tenant fails to so surrender the Premises, Tenant
shall indemnify, protect, defend and hold Landlord harmless from and
against all damages resulting from Tenant's failure to surrender the
Premises as required by this Paragraph, including, without limitation, any
actions, claims, losses, liabilities, fees (including, but not limited to,
attorneys' and consultants' fees), fines, costs, penalties, or damages in
connection with the condition of the Premises including, without
limitation, damages occasioned by the inability to relet the Premises or a
reduction in the fair market and/or rental value of the Premises by reason
of the existence of any Hazardous Material in, on, over, under, through or
around the Premises.
Landlord shall have the right to appoint a consultant to conduct an
investigation to determine whether any Hazardous Material is being used,
generated, discharged, transported to or from, stored or disposed of in,
on, over, through, or about the Premises, in an appropriate and lawful
manner. If Tenant has violated any Law or covenant in this Lease regarding
the use, storage or disposal of Hazardous Materials on or about the
Premises, Tenant shall reimburse Landlord for the cost of such
investigation. Tenant, at its expense, shall comply with all reasonable
recommendations of the consultant required to conform Tenant's use, storage
or disposal of Hazardous Materials to the requirements of applicable Law or
to fulfill the obligations of Tenant hereunder.
If any action of any kind is required or requested to be taken by any
governmental authority to clean-up, remove, remediate or monitor any
Hazardous Material (the presence of which is the result of the acts or
omissions of Tenant or its Agents) and such action is not completed prior
to the expiration or earlier termination of the Lease, Tenant shall be
deemed to have impermissibly held over until such time as such required
action is completed, and Landlord shall be entitled to all damages directly
or indirectly incurred in connection with such holding over, including
without limitation, damages occasioned by the inability to re-let the
Premises or a reduction of the fair market and/or rental value of the
Premises.
The provisions of this Paragraph 39 shall survive the expiration or
termination of this Lease.
The provisions of this Paragraph 39 are intended to govern the rights
and liabilities of the Landlord and Tenant hereunder respecting Hazardous
Materials to the exclusion of any other provisions in this Lease that might
otherwise be deemed applicable. The provisions of this Paragraph 39 shall
be controlling with respect to any provisions in this Lease that are
inconsistent with this Paragraph 39.
Third Opportunity to Lease 1390 Villa Street.
A. Tenant acknowledges that Landlord has previously granted to
Mayfield Publishing Company ("Mayfield") and to Neuron Data ("Neuron")
rights to lease the premises containing approximately six thousand three
hundred twenty-eight (6,328) square feet known as 1390 Villa Street (the
"Expansion Space") which rights are prior to the rights hereinafter granted
to Tenant with respect to the Expansion Space.
B. Grant of Third Opportunity to Lease. If (i) Tenant is not in
default under this Lease; (ii) this Lease is in full force and effect;
(iii) Tenant has not assigned this Lease and is in physical occupancy of at
least fifty percent (50%) of the area of the Premises; and (iv) no existing
tenant of the Expansion Space has elected to continue to Lease the
Expansion Space after the expiration of such existing tenant's current
lease; and (iv) neither Mayfield nor Neuron has exercised their respective
prior rights to lease the Expansion Space, then, and only then, when the
Expansion Space becomes available for lease, Landlord shall notify Tenant
in writing ("Landlord's Notice") of the form of lease Landlord intends to
use and the following basic business terms upon which Landlord is willing
to lease such space (the "Basic Business Terms"): (i) the term of the
lease; (ii) the tenant improvements, if any, Landlord is willing to
construct or the contribution Landlord is willing to make to pay for such
tenant improvements, if any, (iii) the rent for the term or the formula to
be used to determine such rent; (iv) the commencement date of the lease
term and (iv) any other business terms Landlord elects to specify.
C. Second Lease. If Tenant, within five (5) days after receipt of
Landlord's Notice notifies Landlord in writing of Tenant's agreement to
lease the Expansion Space on the Basic Business Terms stated in Landlord's
Notice (the "Second Lease"), and, within five (5) days after Tenant's
receipt of the Second Lease from Landlord, Tenant executes and returns to
Landlord the Second Lease, then Landlord shall lease to Tenant and Tenant
shall lease from Landlord the Expansion Space on the terms and conditions
contained in the Second Lease; provided, however, that this Lease shall be
modified to include, and the Second Lease shall include, a cross-default
provision providing that Tenant will be in default under both the Second
Lease and this Lease if Tenant is in default under either lease.
D. Failure to Exercise. If Tenant does not notify Landlord in writing
of Tenant's agreement to lease the Expansion Space on the terms contained
in Landlord's Notice within the five (5) day time period, or if Tenant does
not execute and return to Landlord the Second Lease within five (5) days
after Tenant's receipt thereof, then Landlord shall thereafter have the
unfettered right to lease the Expansion Space to a third party on any terms
as Landlord may determine.
IN WITNESS WHEREOF, the parties have executed this Lease on the dates set forth
below.
TENANT:
PSW TECHNOLOGIES, INC.
a Delaware corporation
DATED: __________________ By: \s\ W. Frank King
Name: Dr. W. Frank King
Title: Cheif Executive Officer
DATED: __________________ By: \s\ Julie Kirk
Name: Julie Kirk
Title: Vice President, Human Resources
LANDLORD:
SOUTH BAY/COPLEY JOINT VENTURE,
a California general partnership
By: Metropolitan Life Insurance Company
on behalf of its Developmental
Properties Account General Partner
By: AEW Real Estate Advisor, Inc.,
a Massachusetts corporation,
its duly authorized asset
manager and advisor
DATED: ____________________ By:
Name:
Title:
EXHIBIT "A"
Site Plan
(showing Premises as cross-hatched)
EXHIBIT "B"
Legal Description of Parcel
EXHIBIT "C"
Tenant Improvements to be
Constructed by Landlord, if any
Landlord shall carpet and paint the Premises with Landlord's standard
paint and carpet. Landlord's standard carpet is 26 oz. level loop or cut
pile (not to exceed $14.50 per square yard, installed). Landlord's standard
paint shall be one color, exclusive of any accent colors.
EXHIBIT "D"
List of Hazardous Materials Tenant will use on Premises
(if none, write "none")
TYPE OF MATERIAL QUANTITY
LEASE AGREEMENT
by and between
SOUTH BAY/COPLEY JOINT VENTURE,
a California general partnership,
as LANDLORD
and
PSW TECHNOLOGIES
a Delaware corporation,
as TENANT
for Premises located at
1380 Villa Street
Mountain View, California
<TABLE>
<CAPTION>
<S> <C>
1. Parties...................................................................................................1
2. Demise of Premises........................................................................................1
3. Term......................................................................................................1
4. Rent......................................................................................................1
A. Time of Payment...................................................................................1
B. Monthly Installment...............................................................................2
C. Late Charge.......................................................................................2
D. Additional Rent...................................................................................2
E. Place of Payment..................................................................................2
F. Advance Payment...................................................................................2
5. Security Deposit..........................................................................................2
6. Use of Premises...........................................................................................3
7. Taxes and Assessments.....................................................................................3
A. Tenant's Property.................................................................................3
B. Property Taxes....................................................................................3
C. Other Taxes.......................................................................................4
8. Insurance.................................................................................................4
A. Indemnity.........................................................................................4
B. Liability Insurance...............................................................................4
C. Property Insurance................................................................................5
D. Tenant's Insurance; Release of Landlord...........................................................5
E. Mutual Waiver of Subrogation......................................................................5
9. Utilities.................................................................................................5
10. Repairs and Maintenance...................................................................................6
A. Landlord's Repairs................................................................................6
B. Tenant's Repairs..................................................................................6
11. Common Area...............................................................................................7
12. Common Area Charges.......................................................................................7
13. Alterations...............................................................................................8
14. Acceptance of the Premises................................................................................8
15. Default...................................................................................................8
A. Events of Default.................................................................................8
B. Remedies..........................................................................................9
16. Destruction..............................................................................................11
17. Condemnation.............................................................................................11
A. Definition of Terms..............................................................................11
B. Rights...........................................................................................12
C. Total Taking.....................................................................................12
D. Partial Taking...................................................................................12
18. Mechanics' Lien..........................................................................................12
19. Inspection of the Premises...............................................................................12
20. Compliance with Laws.....................................................................................12
21. Subordination............................................................................................13
A. Priority.........................................................................................13
B. Subsequent Security Instruments..................................................................13
C. Documents........................................................................................13
D. Tenant's Attornment..............................................................................13
E. Lender...........................................................................................13
22. Holding Over.............................................................................................13
23. Notices..................................................................................................14
24. Attorneys' Fees..........................................................................................14
25. Nonassignment............................................................................................14
A. Landlord's Consent Required......................................................................14
B. Transferee Information Required..................................................................14
26. Successors...............................................................................................15
27. Mortgagee Protection.....................................................................................15
28. Landlord Loan or Sale....................................................................................15
29. Surrender of Lease Not Merger............................................................................16
30. Waiver...................................................................................................16
31. General..................................................................................................16
A. Captions.........................................................................................16
B. Definition of Landlord...........................................................................16
C. Time of Essence..................................................................................16
D. Severability.....................................................................................16
E. Joint and Several Liability......................................................................16
F. Law..............................................................................................16
G. Agent............................................................................................16
H. WAIVER OF JURY TRIAL.............................................................................17
32. Sign.....................................................................................................17
33. Interest on Past Due Obligations.........................................................................17
34. Surrender of the Premises................................................................................17
35. Authority................................................................................................18
36. Public Record............................................................................................18
37. Brokers..................................................................................................18
38. Limitation on Landlord's Liability.......................................................................18
39. Hazardous Material.......................................................................................18
A. Definitions......................................................................................18
B. Permitted Use....................................................................................19
C. Hazardous Materials Management Plan..............................................................19
D. Use Restriction..................................................................................20
E. Tenant Indemnity.................................................................................20
F. Compliance.......................................................................................20
G. Assignment and Subletting........................................................................20
H. Surrender........................................................................................20
I. Right to Appoint Consultant......................................................................21
J. Holding Over.....................................................................................21
K Provisions Survive Termination...................................................................21
L. Controlling Provisions...........................................................................21
40. Third Opportunity to Lease 1389 Villa Street.............................................................21
</TABLE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
This agreement, entered into this 18th day of May, 1998, between PSW
Technologies, Inc. and James T. Kelsey (herein after referred to as
"EMPLOYEE").
1. PSW Technologies, Inc. hereby employs EMPLOYEE in the position of
Senior Vice President of Sales & Marketing.
2. EMPLOYEE shall receive a salary of $150,000.00 per annum, paid in
twenty-four (24) equal semi-monthly installments of $6,250.00. EMPLOYEE
shall receive the benefits set forth in the "Benefits Package" as amended
from time to time.
3. EMPLOYEE will devote his or her full business time and best efforts
to PSW Technologies, Inc. will provide technical services on such projects
or to such clients as PSW Technologies, Inc. designates, and will perform
such administrative duties related to his or her other duties as PSW
Technologies, Inc. may reasonably assign.
4. EMPLOYEE agrees not to disclose to third parties, or to use for his
or her own benefit, information, materials or other property (including
without limitation, source code, object code, design documents, test
suites, protocols, other computer related information, the customer list,
billing rates, methods of doing business or other materials marked
confidential) belonging to PSW Technologies, Inc. or its clients. All
information gained as a result of this Agreement is confidential and such
information shall not be disclosed to third parties. EMPLOYEE further
agrees that upon termination he or she will return to PSW Technologies,
Inc. all such information and material in his or her possession. This
paragraph shall survive the expiration or termination of this Agreement.
5. EMPLOYEE shall not during the term of this Agreement, and for a
period of one year thereafter, directly or indirectly:
a. Solicit or induce any employee or consultant of PSW Technologies to
terminate his or her employment.
b. Solicit or induce any customer of PSW Technologies to terminate its
business relationship with PSW Technologies, Inc. including firms that have
been customers of PSW Technologies, Inc. within the twelve (12) months
preceding EMPLOYEE'S termination.
c. Accept any opportunity (whether of a contract or full-time
employment) with a PSW Technologies, Inc. client if Employee learned about
the opportunity in the course of Employee's employment by PSW Technologies,
Inc.
6. EMPLOYEE agrees to disclose to PSW Technologies, Inc. in writing
any and all documentation, inventions, improvements or discoveries which
arise out of his or her employment with PSW Technologies, Inc.
7. All copyrightable work is "work for hire" and EMPLOYEE hereby
assigns to PSW Technologies, Inc. all rights and interest in any
copyrightable work, invention or idea made or conceived while in the
performance of any job related duties during the term of this Agreement.
EMPLOYEE will execute any documents, and at PSW Technologies' expense
provide any cooperation reasonably necessary to create or record any such
transfer of ownership.
8. EMPLOYEE represents that EMPLOYEE has the right to enter into this
Agreement without infringing any prior agreement to which EMPLOYEE is a
party; that all deliverable work provided hereunder will be original and
will not infringe any copyright, patent or other intellectual property
right; that the EMPLOYEE is an American citizen or legal permanent resident
of the United States and, at the same time this Agreement is signed, will
sign an I-9 form and will provide to PSW Technologies, Inc. the
documentation required. EMPLOYEE will obey all PSW Technologies' rules and
regulations as they may be issued from time to time.
9. It is understood that either party may terminate this Agreement
without cause by giving two weeks prior written notice to the other. In its
sole discretion, PSW Technologies, Inc. may terminate employee, without
cause, effective immediately, upon payment of two weeks salary to employee.
PSW Technologies, Inc. may terminate immediately upon written notice to
EMPLOYEE for cause (including without limitation PSW Technologies' client
requesting termination of EMPLOYEE's services).
10. This Agreement will be governed by Texas law.
11. This Agreement may not be assigned by either party without the
prior written consent of the other.
12. This Agreement, and any written amendments thereto, contain all
terms and conditions agreed upon by the parties hereto, and no other
agreements, oral or otherwise, shall be deemed to exist or to bind any of
the parties hereto. All previous communications, representations,
warranties, promises, conditions or agreements of any kind shall not be
binding upon the parties unless incorporated into this Agreement. This
Agreement may not be amended or modified, except by a writing signed by
both parties.
____________________
READ AND ACCEPTED BY EMPLOYEE:
\s\ James T. Kelsey
James T. Kelsey
Address of Employee is as follows:
5709 Highland Hills Circle
Austin, TX 78731
PSW TECHNOLOGIES, INC.
\s\ W.Frank King
W. Frank King
President & CEO
EXHIBIT 10.3
AMENDMENT NO. 1
1996 STOCK OPTION/STOCK ISSUANCE PLAN
PSW TECHNOLOGIES, INC.
AMENDMENT NO. 1
TO THE
1996 STOCK OPTION/STOCK ISSUANCE PLAN
The PSW Technologies, Inc. 1996 Stock Option/Stock Issuance
Plan (the "Plan") is hereby amended, effective March 31, 1998, as follows:
1. The second sentence of Article One, Section V, Paragraph A
is hereby amended to read as follows:
The maximum number of shares of Common Stock which may be
issued over the term of the Plan shall not exceed 2,715,000
shares.
2. Except as modified by this Plan amendment, the terms and
provisions of the Plan as in effect on the date hereof shall continue to shall
remain in full force and effect.
IN WITNESS WHEREOF, PSW Technologies, Inc. has authorized this
Plan amendment to be executed on its behalf by its duly-authorized officer
effective as of March 31, 1998.
PSW TECHNOLOGIES, INC.
By: /s/ Keith D. Thatcher
Title: VP of Finance, Treasurer,
and Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
RESTATED
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-1-1998 JAN-1-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 1,321 2,976
<SECURITIES> 20,958 18,045
<RECEIVABLES> 6,867 6,798
<ALLOWANCES> 165 150
<INVENTORY> 0 0
<CURRENT-ASSETS> 30,827 28,206
<PP&E> 6,543 5,205
<DEPRECIATION> 2,471 1,664
<TOTAL-ASSETS> 35,133 31,747
<CURRENT-LIABILITIES> 3,129 6,438
<BONDS> 0 0
0 0
0 0
<COMMON> 91 84
<OTHER-SE> 31,913 25,200
<TOTAL-LIABILITY-AND-EQUITY> 35,133 31,747
<SALES> 0 0
<TOTAL-REVENUES> 19,625 21,009
<CGS> 0 0
<TOTAL-COSTS> 11,326 10,734
<OTHER-EXPENSES> 9,296 8,041
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (475) 103
<INCOME-PRETAX> (522) 2,131
<INCOME-TAX> (100) 810
<INCOME-CONTINUING> (422) 1,321
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (422) 1,321
<EPS-PRIMARY> (0.05) 0.22
<EPS-DILUTED> (0.05) 0.19
</TABLE>
