<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1998.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OPTIVA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
WASHINGTON 3845 91-1405470
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
13222 S.E. 30TH STREET
BELLEVUE, WASHINGTON 98005
(425) 957-0970
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL D. STULL
VICE PRESIDENT OF FINANCE, TREASURER AND CHIEF FINANCIAL OFFICER
OPTIVA CORPORATION
13222 S.E. 30TH STREET
BELLEVUE, WASHINGTON 98005
(425) 957-0970
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
CHARLES J. KATZ, JR. CARLA S. NEWELL
DAVID C. CLARKE CRAIG M. SCHMITZ
MICHAEL T. PRIOR RICHARD R. HESP
PERKINS COIE LLP GUNDERSON DETTMER STOUGH VILLENEUVE
1201 THIRD AVENUE, 40TH FLOOR FRANKLIN & HACHIGIAN, LLP
SEATTLE, WASHINGTON 98101-3099 155 CONSTITUTION DRIVE
(206) 583-8888 MENLO PARK, CALIFORNIA 94025
(650) 321-2400
</TABLE>
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Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. [ ]
- ---------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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==============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value
per share................ 5,060,000 shares $17.00 $86,020,000 $25,376
==============================================================================================================================
</TABLE>
(1) Includes 660,000 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE
BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 12, 1998
PROSPECTUS
4,400,000 SHARES
[LOGO]
OPTIVA CORPORATION
Common Stock
Of the 4,400,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by the Company and 2,400,000 shares are being sold by the Selling
Shareholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholders. See "Principal and Selling Shareholders."
Prior to this offering, there has been no public market for the Company's
Common Stock. It is currently estimated that the initial public offering price
will be between $15.00 and $17.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. Application will be made to have the Common Stock listed on the New York
Stock Exchange under the symbol " ."
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
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Per Share........................... $ $ $ $
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Total(3)............................ $ $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $1,150,000.
(3) The Company and certain Selling Shareholders have granted to the
Underwriters a 30-day option to purchase up to 300,000 and 360,000
additional shares of Common Stock, respectively, solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount, Proceeds to Company and Proceeds to
Selling Shareholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1998, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST PAINEWEBBER INCORPORATED
, 1998
<PAGE> 3
[Artwork to be inserted here and on inside back cover consisting of SONICARE
product photographs, with no copy other than SONICARE logo and "A better kind of
clean" slogan]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
"SONICARE," "quadpacer," "Works Beyond the Bristles," "Beyond-the-Bristles"
and "Beyond the Reach of the Bristles" are registered trademarks of the Company.
Additionally, the Company has applied for registration of the marks "Optiva,"
"smartimer" and "A Better Kind of Clean." This Prospectus also contains other
trademarks and trade names, which are the property of their respective holders.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. The Common Stock offered hereby involves
a high degree of risk. See "Risk Factors." This Prospectus contains, in addition
to historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results or experience could differ
significantly from those discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Risk Factors," as well as those discussed elsewhere in
this Prospectus.
THE COMPANY
Optiva Corporation (the "Company" or "Optiva") develops, manufactures and
markets premium consumer oral care products offered under the SONICARE brand.
The SONICARE power toothbrush is designed to utilize patented sonic technology
to provide significant oral care benefits. Optiva has commissioned 38 clinical
and laboratory studies at major universities and research centers to document
the health benefits and safety of its products. This body of scientific
information has formed the foundation for Optiva's strategy of gaining the
support of dental professionals. Building on the brand awareness created through
recommendations by dental professionals, the Company conducted a phased
expansion into a variety of retail channels, including specialty retailers,
department stores, chain drug stores, warehouse clubs and mass merchandisers. To
continue to build brand awareness, Optiva pursues marketing and brand management
programs targeted at consumers, dental professionals and retailers. The
Company's net sales increased from $48.7 million in 1995 to $103.0 million in
1997.
Optiva's goal is to be a leading provider of premium-brand consumer oral
care products recognized for technological superiority, efficacy and value. To
achieve this goal, the Company intends to leverage its brand to increase retail
sales, expand support among dental professionals, develop complementary
products, and develop international opportunities. The Company was incorporated
in Washington in March 1988. The Company's executive offices are located at
13222 S.E. 30th Street, Bellevue, Washington 98005, and its telephone number is
(425) 957-0970.
THE OFFERING
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Common Stock offered by the Company................................ 2,000,000 shares
Common Stock offered by the Selling Shareholders................... 2,400,000 shares
Common Stock to be outstanding after this offering................. 18,674,440 shares (1)
Use of proceeds.................................................... Repayment of certain indebtedness, certain
capital expenditures, working capital and
other general corporate purposes, including
expenditures in connection with the Company's
planned relocation of its office,
manufacturing and research facilities. See
"Use of Proceeds."
Proposed New York Stock Exchange symbol............................ " "
</TABLE>
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(1) Excludes, as of March 31, 1998, 4,880,000 shares of Common Stock reserved
for issuance pursuant to the Company's benefit plans, of which options to
purchase 2,482,916 shares were outstanding at a weighted average exercise
price of $1.49 per share. Also excludes 239,812 shares of Common Stock
issuable upon exercise of warrants outstanding as of March 31, 1998 at a
weighted average exercise price of $2.71 per share. See
"Management -- Benefit Plans" and "Description of Capital
Stock -- Warrants."
3
<PAGE> 5
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Net sales................. $ 3,755 $16,558 $48,701 $72,695 $102,968 $19,009 $30,609
Income (loss) from
operations.............. (1,161) 1,176 5,409 8,902 17,789 2,118 3,921
Net income (loss)......... $(1,144) $ 1,048 $ 3,028 $ 5,868 $ 11,348 $ 1,314 $ 2,583
Diluted net income (loss)
per share (1)........... $ (0.10) $ 0.07 $ 0.19 $ 0.35 $ 0.64 $ 0.08 $ 0.14
Shares used in computation
of diluted net income
(loss) per share (1).... 11,120 14,227 15,765 16,830 17,749 17,330 18,060
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------
ACTUAL AS ADJUSTED(2)
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(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $15,073 $40,826
Working capital........................................ 26,431 53,510
Total assets........................................... 50,760 76,513
Shareholders' equity................................... 31,248 59,858
</TABLE>
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(1) For an explanation of diluted net income (loss) per share and the number of
shares used to compute diluted net income (loss) per share, see Note 1 of
Notes to Consolidated Financial Statements.
(2) Adjusted to give effect to the sale by the Company of the 2,000,000 shares
of Common Stock offered hereby at an assumed initial public offering price
of $16.00 per share and the application of a portion of the estimated net
proceeds therefrom to repay certain indebtedness. See "Use of Proceeds" and
"Capitalization."
-----------------------------
Except as otherwise indicated, all information contained in this Prospectus
(i) assumes no exercise of the Underwriters' over-allotment option, (ii)
reflects a four-for-one forward split of the Common Stock to be effected prior
to this offering and (iii) assumes the amendment of the Company's Articles of
Incorporation to increase the Company's authorized capital to 25,000,000 shares
of Preferred Stock and 100,000,000 shares of Common Stock. See "Underwriting."
4
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RISK FACTORS
This Prospectus contains forward-looking statements that involve
significant risks and uncertainties. The Company's actual results and the timing
of certain events could differ materially from those discussed in the
forward-looking statements as a result of certain factors, including the factors
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information contained in
this Prospectus before purchasing the shares of Common Stock offered hereby.
Intense Competition. The consumer oral care market is highly competitive
and is characterized by intense price competition. The Company competes directly
with manufacturers of mechanical oral care devices such as power toothbrushes
and oral irrigators, as well as manual toothbrushes. The Company also competes
indirectly, and may in the future compete directly, with sellers of consumables
such as toothpaste, mouthwash and dental floss. See "-- Potential New Markets."
The Company's SONICARE product line competes with products offered by a
number of larger companies, including The Gillette Company ("Gillette"),
manufacturer of the Braun Oral-B product line; Teledyne Industries, Inc.
("Teledyne"), manufacturer of the SenSonic sonic toothbrush; and Conair
Corporation ("Conair"), manufacturer of the Interplak power toothbrush product
line. The Company's principal competitors have substantially greater financial,
manufacturing, marketing and technical resources, and greater brand recognition
than the Company. These advantages may afford the Company's competitors greater
ability to manufacture large volumes of their products and achieve pricing
advantages as a result of greater economies of scale, develop product
innovations, expand distribution, compete for shelf space, reduce product prices
and influence consumer buying decisions. In addition, the Company's competitors
may be able to use their greater market standing and resources to exclude the
Company's products from certain retailers' shelves. Most power toothbrush
products currently are offered at prices substantially lower than the SONICARE
products. Price reductions by competitors could result in downward pressure on
the prices of the Company's products. There can be no assurance that the Company
would be able to increase its sales volume or reduce its per unit costs under
such circumstances while maintaining profitability. Competitive pressures also
may lead to an increase in other sales-related expenses, including advertising
and marketing costs. Furthermore, competitive price pressures may impair the
Company's ability to raise prices in line with any increase in its distribution,
promotional and manufacturing costs. The failure of the Company to respond to
competitive pressures, particularly price competition, in a timely or effective
manner would have a material adverse effect on the Company's business, operating
results and financial condition.
The Company and certain other power toothbrush manufacturers have in the
past made allegations or complaints to broadcasters, publishers of periodicals
and the National Advertising Division of the Better Business Bureau regarding
unfair or misleading product claims by competitors. While the Company has not to
date been materially adversely affected by any such allegations or complaints
concerning its product claims, there can be no assurance that in the future such
allegations or complaints would not have a material adverse effect on the
Company's business, operating results or financial condition.
The Company believes that certain of its key competitors have invested, and
will continue to invest, substantially greater funds in developing new products
and technologies. Accordingly, there can be no assurance that the Company's
competitors do not have, or will not develop or introduce, new products and
technologies that could render the Company's products less competitive or
obsolete. Any failure by the Company to compete effectively with regard to new
product offerings, product innovations and technological changes and to offer
products that provide performance that is at least comparable to competing
products would have a material adverse effect on the Company's business,
operating results and financial condition.
Gillette has recently announced, and the Company believes will imminently
launch, a new Braun Oral-B power toothbrush model, the "3-D," that may be
positioned at a price point comparable to that of the Company's SONICARE models.
The Company believes that this new Braun model may offer
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<PAGE> 7
improvements over existing Braun models and expects that Gillette will devote
substantial marketing resources to the launch of this new product. As a result,
the introduction of this new product could force the Company to increase its
marketing expenditures, redirect marketing or product development resources or
reduce prices on its products, and therefore could negatively affect the
Company's operating results. In addition, the introduction could result in
decreased sales of the Company's products because of market confusion or a shift
in consumer preferences, or could lead to a significant reduction in the shelf
space allocated to the SONICARE product line. See "Business -- Competition."
Fluctuating Quarterly Operating Results; Seasonality. The Company's
historical operating results have fluctuated significantly from quarter to
quarter and are likely to fluctuate significantly in the future based on a
number of factors, including (i) pricing changes by the Company or its
competitors; (ii) seasonality; (iii) the loss or addition of a major customer;
(iv) the time and expense involved in maintaining and expanding existing
distribution channels and establishing new distribution channels; (v)
discretionary marketing and promotional expenditures; (vi) timing of new product
introductions by the Company and its competitors; (vii) inventory shortages or
other factors affecting production volumes; (viii) timing of regulatory
approvals; (ix) market acceptance of new or enhanced products; (x) product
defects, recalls and other product quality problems; (xi) changes in the level
of operating expenses, including expenses related to the Company's planned
relocation to new office, research and manufacturing facilities; (xii)
significant litigation, regulatory action or complaints about the Company's
product claims; and (xiii) changes in the Company's product mix and in the
percentage of products sold through different distribution channels.
The Company's customers generally do not have long-term commitments to
purchase products. The Company's products are generally shipped as orders are
received, and as a result the Company generally does not have a significant
backlog. Consequently, quarterly sales and operating results depend primarily on
the volume and timing of orders received during the quarter, which are difficult
to predict. Furthermore, a significant portion of the Company's operating
expenses are relatively fixed, and planned expenditures are based on sales
forecasts. If sales levels fall below expectations, operating results are likely
to be materially adversely affected. There can be no assurance that the Company
will be profitable on a quarterly basis in the future.
The Company's business is seasonal in nature, with net sales and net income
generally highest in the fourth quarter and generally lower in the first quarter
than in the prior quarter. The Company believes that the historical increase in
sales of its products in the fourth quarter has been primarily due to higher
customer order volume in anticipation of holiday spending. Marketing and sales
expenses also have been historically higher in the fourth quarter. As a result,
the Company's quarterly results have fluctuated significantly, with net sales
and net income in the fourth quarter historically accounting for a
disproportionate percentage of annual net sales and net income. Any decreases in
net sales or net income in the fourth quarter due to competitive, operating,
economic and other business conditions are therefore likely to have a
disproportionate effect on the Company's annual operating results as compared to
other quarters. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Selected Quarterly Results of Operations."
The Company believes that quarter-to-quarter comparisons of its sales and
operating results are not necessarily meaningful, and that such comparisons may
not be accurate indicators of future performance. As a result of the foregoing
factors, in some future quarter or quarters the Company's operating results may
be below the expectations of market analysts and investors. In such event, the
trading price of the Company's Common Stock would be materially adversely
affected.
Dependence on Limited Product Line. All of the Company's revenue to date
has been attributable to the sale of its SONICARE product line, and the Company
currently anticipates that this product line will account for the vast majority
of its revenue for the foreseeable future. As a result, the Company's future
operating results depend upon continued market acceptance of its SONICARE
product line and future enhancements thereto. Consequently, a decline in the
demand for, market acceptance of, or the prices for, the Company's SONICARE
product line as a result of competition, technological change, developments in
oral care treatment, adverse clinical research findings or other factors would
have a
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<PAGE> 8
material adverse effect on the Company's business, operating results and
financial condition. The Company believes that its continued growth is highly
dependent on the growth of the overall market for power toothbrushes and related
products. If this market does not continue to grow or grows more slowly than
expected, the Company's business, operating results and financial condition
would be materially adversely affected. See "Business -- Products."
Risks of Product Defects and Product Recalls. The Company's business
exposes the Company to potential product liability and product recall risks that
are inherent in the design, development, manufacture and marketing of consumer
oral care products. There can be no assurance that the Company's product
liability insurance, with coverage limits of $26 million per occurrence and in
the aggregate, will be adequate to protect the Company against any future
product liability claims or that such insurance coverage will continue to be
available on commercially reasonable terms, if at all. From time to time, the
Company has received customer complaints concerning problems with the Company's
products. In addition, in 1996, the Company voluntarily recalled approximately
180,000 units of its SONICARE product line due to the discovery of a defective
charger shipped without electrical insulation. Of the approximately 150,000
chargers returned, five were found to contain this defect. Because not all
affected chargers were returned, defective units may still be in the field. The
recall had a material adverse effect on the Company's operating results for
1996, primarily due to lost sales and approximately $3 million in recall-related
expenses. A product liability or other judgment against the Company in excess of
the Company's insurance coverage, or another significant product recall, would
have a material adverse effect on the Company's brand image and business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Products" and "-- Manufacturing and Quality Assurance."
Risk of Adverse Findings or Reports. The Company relies heavily on clinical
and laboratory studies commissioned by the Company to demonstrate the safety and
efficacy of its products. The results of these studies are the primary basis of
the Company's product claims and, as a result, are critical to the Company's
marketing efforts. The Company is aware of a number of studies that negatively
reflect on certain of its product claims. Any significant adverse or conflicting
clinical results arising from studies commissioned by competitors, the Company
or others could significantly undermine the credibility and competitive position
of the Company's SONICARE product line in the market, and could have a material
adverse effect on the Company's business, operating results and financial
condition. Since the Company's inception, a substantial portion of the Company's
sales of its SONICARE product line have been the result of dental professional
recommendations. The Company believes that the results of its clinical and
laboratory studies have been critical in persuading dental professionals of the
benefits of the SONICARE product line and in generating sales. If as a result of
the introduction of competitive products, the publication of adverse scientific
findings or otherwise, recommendations by dental professionals were to
materially decline, the credibility of the SONICARE product line, and the
Company's business, operating results and financial condition, would be
materially adversely affected. In addition, adverse reviews of the Company's
products in consumer or professional publications or other adverse product
publicity could materially adversely affect the Company's brand image and its
sales. See "Business -- Clinical and Laboratory Research."
Dependence on Retail Channels; Customer Concentration. A key element of the
Company's growth strategy is continued sales growth in the retail channel. As a
result, the Company must continue to increase consumer interest in the SONICARE
product line and increase its retail shelf presence. Competition for shelf space
in the consumer oral care market is intense, and the sales and marketing costs
required to compete effectively for consumer attention in the retail channel are
substantial. The Company's principal competitors have substantially greater
sales and marketing budgets, personnel, experience and other resources than the
Company. There can be no assurance that the Company will be able to increase its
sales volume through retail channels, and the failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition. See "-- Intense Competition."
7
<PAGE> 9
A significant portion of the Company's sales in any particular period has
been attributable to a limited number of customers. Sales to Costco Companies,
Inc. ("Costco"), the Company's largest retail customer, accounted for
approximately 25% and 16% of the Company's net sales in 1997 and 1996,
respectively, and sales to the Company's four largest retail customers accounted
for approximately 39% and 31% of net sales in 1997 and 1996, respectively. The
Company expects that it will continue to depend upon a limited number of
customers for a significant portion of its sales in future periods. As a result
of this concentration of sales, the Company's business, operating results or
financial condition could be materially adversely affected by the failure of
anticipated orders from significant customers to materialize or by deferrals or
cancellations of orders by significant customers. In addition, significant
customers could demand price reductions from the Company which could reduce the
Company's margins and also lead to higher customer concentration due to
increased sales volume through such customers. There can be no assurance that
sales to Costco, or other major retail customers, will not decrease
significantly or that one or more of these retail chains will not choose to
replace the Company's products with those of its competitors. The loss of Costco
or any other major retail customer, or any significant decrease in the volume of
products sold through these retail distribution channels, would have a material
adverse effect on the Company's business, operating results and financial
condition. Furthermore, any disruption in the business of a major retail
customer as a result of bankruptcy or otherwise could materially increase the
Company's bad debt exposure. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Marketing and
Sales."
Management of Growth; Information Systems. The Company has experienced
substantial growth in recent years in all aspects of its business, which has
placed significant strains on its management resources, systems and operations.
The Company's future profitability depends on its ability to manage potential
future growth effectively and to upgrade its management information systems and
other infrastructure. The Company has purchased and intends to install an ERP
(enterprise resource planning) system later in 1998. Although the Company is in
the process of making information systems improvements, there can be no
assurance that these systems upgrades will be implemented successfully or in a
timely manner or that they will be adequate to manage any potential future
growth that may occur. If the Company's sales and operations were to continue to
grow, there would likely be increasing strain on the Company's management,
financial, manufacturing, marketing, distribution and other resources. As a
result, the Company could experience serious operating difficulties, including
difficulties in hiring, training and managing an increasing number of employees,
difficulties in obtaining sufficient materials and components and manufacturing
capacity to produce its products, problems in upgrading management information
and other systems, internal controls and procedures problems, and delays in
production and shipment of products. Projects such as the expansion of or
enhancements to product lines, and efforts to address broader markets and to
expand distribution channels, will place a further strain on the Company's
resources and personnel. If the Company's management is unable to effectively
manage any future growth that may occur, the Company's business, competitive
position, operating results and financial condition would be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Product Development Risks. The Company is dependent on its ability to
design and develop new products and enhancements to its current SONICARE product
line that will achieve market acceptance. The consumer oral care market in which
the Company competes is characterized by frequent introductions of new products
and changes in customer demands. The introduction of products embodying new
technologies can render existing products obsolete and unmarketable. The
development of new products and enhancements is subject to many creative,
technical, financial, legal and logistical challenges, and there can be no
assurance that the Company will be able to design and develop products and
enhancements economically, in a timely manner and with the features desired by
consumers, or that it will be able to successfully manufacture such new or
enhanced products cost effectively and in significant volumes. If any future new
products or enhancements are delayed, or if these products or enhancements fail
to achieve market acceptance when launched, the Company's
8
<PAGE> 10
business, operating results and financial condition could be materially
adversely affected. See "Business -- Products."
Potential New Markets. As part of the Company's product development
efforts, it is seeking to develop consumables that are complementary to the
SONICARE product line, such as toothpaste and mouthwash. The Company has no
experience in these markets and would be required to make substantial
expenditures to launch and promote any such product. The markets for these
consumable products are intensely competitive and are currently dominated by
large companies, including Colgate-Palmolive and Procter & Gamble, which have
substantially greater financial, marketing and manufacturing resources and
experience than the Company. These advantages may enable the Company's
competitors to more effectively compete for retail customers and shelf space,
reduce product prices and influence consumer buying decisions, and may require
the Company to make substantial marketing expenditures. In addition, the sale of
these types of products may subject the Company to additional review and
regulation by various governmental agencies for the countries, states and
localities in which the Company's products are manufactured or sold, including
the U.S. Food and Drug Administration (the "FDA"), which review and regulation
could significantly delay any product introduction and require the Company to
incur significant costs obtaining or maintaining regulatory approvals. See
"Business -- Products" and "-- Regulation."
Dependence on Key Personnel. The Company currently is, and expects to
continue to be, dependent on the efforts and abilities of its senior management,
particularly David Giuliani, its President, Chief Executive Officer and Chairman
of the Board, and other key personnel. The Company also depends on its ability
to identify, attract, train, retain and motivate other highly skilled technical,
managerial, sales, marketing and other personnel. Competition for qualified
personnel in the industry and in the Pacific Northwest is intense, and there can
be no assurance that the Company will be able to successfully attract,
assimilate or retain such personnel. In addition, each of the Company's
executive officers and key employees is employed on an at-will basis. The rate
at which the Company can attract and retain the highly trained personnel that
are integral to its direct sales, consulting and product development teams may
limit the ability of the Company to achieve its objectives. The Company has
obtained a $1 million term life insurance policy on the life of Mr. Giuliani.
The failure to retain and attract any of its key executive officers,
particularly Mr. Giuliani, or other key personnel could have a material adverse
effect on its business, operating results and financial condition. See
"-- Management of Growth; Information Systems," "Business -- Employees" and
"Management."
Risks Associated With Relocation; Risk of Interruption of Business. The
Company is planning to relocate its current operations and offices to new
corporate office, manufacturing, research and development and warehouse
facilities located on an 11-acre site approximately 15 miles east of its current
location. The Company expects that this move will occur in mid-1999. The Company
recently exercised an option to purchase the new facilities and intends to
finance this purchase and hold the property through a tax retention operating
lease arrangement with certain financial institutions. The Company expects to
incur significant costs in constructing the new facility, which has already
begun, and in relocating its operations once construction is completed. The
Company also could experience increased employee turnover and associated costs
in connection with the planned relocation, as well as costs related to
terminating its existing real property leases and to restoring the facilities
that are covered by these leases. There can be no assurance that the costs
associated with this planned move will not substantially exceed the Company's
expectations. In addition, the Company's development of a new facility will
result in new fixed and operating expenses, including substantial increases in
depreciation expense that will increase the Company's cost of sales. If revenue
levels do not increase sufficiently to offset these new expenses, the Company's
operating results could be materially adversely affected.
In addition, the development and construction of a new manufacturing
facility is subject to significant risks and uncertainties, including
construction delays, weather problems, equipment delays or shortages, production
start-up problems and other factors. As many of such factors are beyond the
Company's control, the Company cannot predict the length of any such delays,
which could be
9
<PAGE> 11
substantial. In addition, the Company may experience significant delays in
moving its operations, installing its manufacturing equipment, and building and
testing its systems and infrastructure, any of which could have a material
adverse effect on its ability to fill customer orders and on its overall
business, operating results and financial condition. There can be no assurance
that the Company will not encounter these or other unforeseen difficulties,
costs or delays in constructing and equipping the new manufacturing facility, in
relocating operations to the new facility or in commencing production at the new
facility. Any such difficulties or delays could limit the Company's production
volume and, accordingly, could have a material adverse effect on the Company's
business, operating results and financial condition. The Company may also
experience significant distribution problems and incur significant costs in
establishing its planned new distribution center, which could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Manufacturing and Quality Assurance."
Since the Company currently relies, and for the foreseeable future expects
to rely, on a single manufacturing facility, any prolonged disruption in the
operations of the Company's facilities for any other reason, including technical
or labor difficulties, regulatory action, inaccessability due to inclement
weather, destruction of or damage to the facility or other reasons, would have a
material adverse effect on the Company's business, operating results and
financial condition.
Manufacturing Capacity Constraints; Dependence on Key Suppliers. If demand
for the Company's products increases, the Company will be dependent on its
ability to increase its production volume on a timely and cost-effective basis
while maintaining product quality. If the Company attempts to significantly
increase production volumes, it may encounter difficulties, including problems
involving delays, quality control, shortages of qualified personnel, and
shortages of materials and components, particularly those with long lead times.
A significant increase in production volume may also require the Company to
increase its overall manufacturing capacity. In light of long lead times on
certain equipment required to increase capacity, the Company would have only a
limited ability to increase capacity on short notice in response to sudden
increases in demand. As a result, the Company may in the future experience
delays in its ability to fill customer orders if it does not increase capacity
on a timely basis. Significant delays in filling orders over an extended period
could damage customer relations and materially adversely affect the Company's
competitive position, which would materially adversely affect the Company's
business, operating results and financial condition. The production schedules
for the Company's products are based on forecasts of customer demand, and the
Company has only a limited ability to modify short-term production schedules.
The Company's ability to estimate demand may be less precise during periods of
rapid growth or with respect to new products. The Company's failure to forecast
its requirements accurately could lead to inventory shortages or surpluses that
could materially adversely affect its operating results and lead to fluctuations
in quarterly operating results. In addition, the Company's margins and
profitability could be materially adversely affected by the costs associated
with excess capacity if orders do not meet expectations.
The Company's products are composed of a number of components that are
provided by sole source suppliers. While the Company has identified alternative
sources for certain of these components, the qualification of additional or
replacement vendors is a lengthy process, and there can be no assurance that any
such additional or replacement vendors will be qualified or available, if
needed. This dependence on sole source suppliers involves significant risks,
including reduced control over production schedules, quality assurance,
manufacturing yields and costs and supply availability. Any significant supply
interruption would have a material adverse effect on the Company's ability to
manufacture its products and, therefore, on its business, operating results and
financial condition. In addition, any price increases by sole source or other
suppliers would increase the Company's operating costs and negatively impact
margins and profitability. See "Business -- Manufacturing and Quality
Assurance."
Risks Associated With International Sales and Operations. Although
international sales revenue to date has only accounted for a small percentage of
the Company's net sales, the Company believes that its continued growth depends
in part on the growth of its international sales. International expansion
10
<PAGE> 12
will require penetration into markets in which the Company has little or no
experience, and there can be no assurance that the Company will be successful in
penetrating these markets or maintaining or expanding international sales.
International sales are subject to inherent risks, including changes in
regulatory requirements and tariffs, difficulties in staffing and managing
foreign operations, increased distribution and shipping challenges, longer
payment cycles, greater difficulty in accounts receivable collection,
potentially adverse tax consequences, the difficulties of dealing with
litigation or regulatory actions in foreign countries, price controls or other
restrictions on foreign currency and difficulties in obtaining export and import
licenses. To the extent the Company's dependence on international sales revenue
increases, factors adversely affecting the Company's international operations
could materially adversely affect the Company's business, operating results and
financial condition as a whole. Although the Company has not experienced any
material adverse impact to date from fluctuations in foreign currencies, to the
extent that international sales become a greater percentage of net sales, there
can be no assurance that currency fluctuations will not have a material adverse
effect on the Company's business, operating results and financial condition. In
addition, the Company currently sells its products outside the United States
primarily through international distributors. There can be no assurance that the
Company will be successful in maintaining relationships with these distributors
or establishing relationships with additional distributors. The loss of one or
more major international distributors could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business -- International Operations."
Potential Health Risks. Concerns have been expressed that electromagnetic
emissions from electronic devices may pose potential health risks to the users
of those devices. The actual or perceived risk of frequent use of electronic
devices, or press reports thereon, could adversely affect sales of the Company's
products and have a material adverse effect on the Company's business, operating
results and financial condition.
Risks Related to Acquisitions. The Company has evaluated, and expects to
continue to evaluate, strategic opportunities available to it and may pursue
acquisitions of additional products, technologies or businesses. Although no
material acquisitions are currently being negotiated or planned, the Company's
future performance following an acquisition will depend on the Company's ability
to integrate or manage any organizations acquired, which, even if successful,
may take a significant period of time, will place a significant strain on the
Company's resources, and could subject the Company to additional expenses
following the acquisition. There can be no assurance that the Company would be
able to integrate or manage acquired businesses, if any, successfully or in a
timely manner. If the Company is unable to manage acquisition-based growth
effectively, its business, operating results and financial condition would be
materially adversely affected. Moreover, any new acquisition, depending on its
size, could result in the use of a significant amount of the Company's available
cash or the acquisition of additional debt or, if such acquisition is made
utilizing the Company's equity securities, could result in significant dilution
to the Company's shareholders. See "Use of Proceeds."
Limited Protection of Intellectual Property and Proprietary Rights. The
Company is dependent in large part on its proprietary rights and technology.
Optiva relies on a combination of patent, copyright, trademark and trade secret
laws, employee and third-party nondisclosure agreements and other methods to
protect its proprietary rights. The Company currently has seven issued U.S.
patents and five pending U.S. patent applications as well as a number of foreign
patents and pending patent applications. There can be no assurance that the
Company's pending or any future patent applications will be issued with the
scope of the claims sought by the Company, if at all, or that the Company's
patent claims will not be successfully challenged or circumvented by
competitors. Despite the precautions taken by the Company to protect its
intellectual property, it may be possible for unauthorized third parties to copy
certain portions of the Company's products or reverse engineer or obtain and use
information that the Company regards as proprietary. In addition, the laws and
practices of some foreign countries do not protect proprietary rights to the
same extent as do the laws and practices of the United States. In some
countries, the Company has decided not to file for patent or
11
<PAGE> 13
trademark protection of its proprietary rights because it has determined that
the costs of doing so are not warranted.
There can be no assurance that the measures taken by the Company to protect its
rights, and the Company's means of protecting its proprietary rights in the
United States or abroad, will be adequate, that competing companies will not
independently develop similar technology or that the time, diversion of
management attention and expense of defending the Company's proprietary rights
will not have a material adverse effect on the Company's business, operating
results and financial condition. In 1996, the Company and Teledyne settled
litigation between them that in part concerned a critical sonic technology
patent held by the Company. As part of the settlement the Company granted
Teledyne a nonexclusive, royalty-bearing license to that patent, under which
Teledyne is currently manufacturing and selling its SenSonic toothbrush.
The Company has received a limited number of claims of patent and trademark
infringement and likely will receive additional claims in the future. While none
of these claims has had a material adverse effect on the Company's business or
operations to date, the Company has incurred in the past, and could incur in the
future, substantial costs in defending itself and its customers against
infringement claims. In addition, because patent applications in the United
States are not publicly disclosed until the patent is issued, applications that
relate to the Company's products may have been filed of which the Company is
unaware. Litigation may be necessary to protect proprietary information and
rights of the Company or to determine the enforceability, scope and validity of
the proprietary rights of others. Any litigation or administrative proceedings
will likely result in substantial expense to the Company and significant
diversion of effort by the Company's technical and management personnel. The
prosecution and defense of intellectual property rights, as with any lawsuit,
are inherently uncertain and carry no assurance of success. An adverse
determination in litigation or administrative proceedings could subject the
Company to significant liabilities to third parties, require the Company to seek
licenses from third parties, prevent the Company from selling or making its
products or require the Company to modify its products. Furthermore, there can
be no assurance that any necessary licenses would be available to the Company on
satisfactory terms, if at all. See "Business -- Proprietary Rights and
Technology."
Governmental Regulation. The Company's consumer oral care products and
manufacturing facilities are regulated by the FDA and by various other
governmental agencies for the states, localities and foreign countries in which
the Company's products are manufactured and sold. The FDA requires pre-market
approval of new medical devices through submission of a Section 510(k)
Pre-Market Notification, a Pre-Market Approval Application or an available
exemption from the FDA's pre-market clearance requirements. The oral care
products currently marketed by the Company are exempt from FDA pre-market
clearance requirements, although products under development by the Company may
be subject to such requirements or other regulations. The Company's
manufacturing facilities are subject to the FDA's current Good Manufacturing
Practices. See "-- Potential New Markets."
Failure to comply with applicable FDA or other regulatory requirements can
result in, among other things, fines, suspensions or withdrawals of regulatory
clearances or approvals, product recalls, operating restrictions (including
suspension of production and distribution), product seizures and criminal
prosecution. In addition, governmental regulations may be established that could
prevent or delay regulatory clearances or approval of the Company's products.
Furthermore, changes in existing regulations or adoption of new regulations or
policies could prevent the Company from obtaining, or affect the timing of,
future regulatory clearances or approvals. There can be no assurance that the
Company will be able to achieve or maintain compliance with necessary U.S. or
foreign regulatory requirements, that it will be able to produce its products
profitably and in a timely manner while complying with such regulatory
requirements or that it will not be required to incur significant costs
obtaining or maintaining such regulatory approvals. Delays in receiving
necessary U.S. or foreign regulatory clearances or approvals, failure to receive
clearances or approvals, or the loss of previously received clearances or
approvals could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the long-term course of
regulatory policy cannot
12
<PAGE> 14
be predicted, and there can be no assurance that new laws or regulations will
not be introduced, or existing laws and regulations will not be applied in a
manner, that materially adversely affect the Company.
The Company's use of rechargeable batteries in its SONICARE models subjects
the Company to a variety of local, state, federal and international governmental
regulations relating to the recyclability and disposal of such batteries. The
failure to comply with current or future regulations could result in the
imposition of substantial fines on the Company, suspension of production,
alteration of its recycling and disposal processes or cessation of operations.
In addition, compliance with such regulations could require the Company to incur
substantial expenses. See "Business -- Regulation."
Changes in Economic Conditions and Consumer Spending. Purchases of premium
consumer oral care products, including the Company's SONICARE product line, are
discretionary and, therefore, such purchases may decline during periods of
national or regional economic recession or reduced consumer confidence. The
Company's success depends in part upon a number of economic factors affecting
discretionary consumer spending, including employment rates, business
conditions, future economic prospects, interest rates and tax rates. Shifts in
consumer discretionary spending away from premium consumer oral care products,
as well as general declines in consumer spending, could have a material adverse
effect on the Company's business, operating results and financial condition.
Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two-digit entries in the date code
field. Beginning in the Year 2000, 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 two years, computer systems and software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
In 1997, the Company purchased, and intends to install in 1998, an ERP
(enterprise resource planning) system that the vendor warrants is Year 2000
compliant. In addition, the Company is in the process of identifying and
assessing its mission-critical systems that may be affected by the Year 2000,
both internally and externally (with respect to the Company's suppliers and
customers). Although the Company plans to address Year 2000 issues with respect
to its mission-critical internal systems in sufficient time prior to the century
rollover, there can be no assurance that there will not be interruption of
operations or other limitations of system functionality, or that the Company
will not incur substantial costs to avoid such occurrences. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Absence of Prior Market for Common Stock; Price Volatility. Prior to this
offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active trading market will develop or, if
developed, will be sustained following this offering. The initial public
offering price of the Common Stock will be determined by negotiations between
the Company and the Underwriters, and may not be indicative of the market price
of the Common Stock after this offering. For a discussion of the factors to be
considered in determining the initial public offering price, see "Underwriting."
The market price of the Company's Common Stock is likely to be highly volatile
and could be subject to wide fluctuations in response to certain factors,
including fluctuations in operating results of the Company or its competitors,
sales of Common Stock into the market by existing shareholders, announcements of
new products by the Company or its competitors, announcements of clinical or
laboratory results, legal or regulatory actions against the Company, the
Company's failure to meet or exceed published earnings estimates, changes in
earnings estimates or recommendations by securities analysts, announcements of
technological innovations by the Company or its competitors, developments with
respect to patents, market conditions generally for equity securities of similar
companies and market conditions generally for publicly traded companies. In
addition, the market prices of many securities have been highly volatile in
recent years, often as a result of factors unrelated to a company's operations.
Accordingly, the market price of the Common Stock may decline even if the
Company's operating results or prospects have not changed. In the past,
securities class action litigation has often been instituted against a company
following periods of volatility in the market price of such company's
securities. If brought, such litigation could result in substantial costs and a
diversion
13
<PAGE> 15
of management's attention and resources, which could have a material adverse
effect on the Company's business, operating results and financial condition.
Shares Eligible for Future Sale. Sales of a substantial number of shares of
Common Stock in the public market following this offering could materially
adversely affect the market price of the Common Stock. In addition to the
4,400,000 shares of Common Stock offered hereby, as of the date of this
Prospectus (the "Effective Date") there will be 14,274,440 shares of Common
Stock outstanding (assuming no exercise of options or warrants after March 31,
1998), all of which are "restricted" shares (the "Restricted Shares") under the
Securities Act of 1933, as amended (the "Securities Act"). Approximately
Restricted Shares will become eligible for sale immediately after
the Effective Date pursuant to Rule 144(k) under the Securities Act,
approximately Restricted Shares will become eligible for sale
prior to 90 days after the Effective Date pursuant to Rule 144(k) under the
Securities Act, approximately Restricted Shares will become
eligible for sale 90 days after the Effective Date pursuant to Rule 144 and Rule
701 under the Securities Act, approximately Restricted Shares
will become eligible for sale 120 days after the Effective Date, and
approximately Restricted Shares will become eligible for sale
approximately 180 days after the Effective Date, upon the expiration of certain
lockup agreements with the Representatives of the Underwriters, subject in some
cases to compliance with the volume and other limitations under Rule 144. The
remaining approximately Restricted Shares held by existing
shareholders, or issuable pursuant to outstanding warrants, will become eligible
for sale from time to time in the future under Rule 144. Additionally, an
aggregate of approximately shares issuable upon the exercise of
stock options that were vested as of May 1, 1998 will become eligible for sale
in the public market 90 days after the Effective Date upon the filing with the
Securities and Exchange Commission (the "Commission") of a registration
statement on Form S-8 with respect to the shares subject to such options. As
described above, the number of shares of Common Stock available for sale in the
public market is limited by restrictions under the Securities Act and lockup
agreements under which the holders of such shares have agreed not to sell or
otherwise dispose of a portion of their shares for periods ranging from 120 to
180 days after the Effective Date without the prior written consent of Hambrecht
& Quist LLC, except that each of such holders may, without the consent of the
Representatives of the Underwriters, sell up to 1,000 shares of Common Stock.
See "Management -- Employee Benefit Plans," "Shares Eligible for Future Sale"
and "Underwriting."
Control by Directors and Executive Officers. Immediately upon completion of
this offering, the Company's directors and executive officers will beneficially
own approximately % of the outstanding shares of Common Stock
(approximately % if the Underwriters' over-allotment option is exercised in
full). As a result, the Company's directors and executive officers, acting
together, would be able to significantly influence or control many matters
requiring approval by the shareholders of the Company, including the election of
directors and approval of significant corporate transactions. In addition, this
concentration of ownership and voting power may have the effect of accelerating,
delaying or preventing a change in control of the Company or otherwise affect
the ability of any shareholder to influence the policies of the Company, which
in turn could have an adverse effect on the market price of the Common Stock.
See "Management" and "Principal and Selling Shareholders."
Antitakeover Considerations. Certain provisions of Washington law, the
Company's Amended and Restated Articles of Incorporation (the "Articles") and
Amended and Restated Bylaws (the "Bylaws") could discourage potential
acquisition proposals and could delay, defer or prevent a change in control of
the Company that may be in the best interests of the Company's shareholders. See
"Description of Capital Stock."
Dilution. The initial public offering price is substantially higher than
the book value per share of Common Stock. Investors purchasing shares of Common
Stock in this offering will incur immediate and substantial dilution of $12.80
in net tangible book value per share of Common Stock from the initial public
offering price and will incur additional dilution upon the exercise of
outstanding stock options. See "Dilution."
14
<PAGE> 16
Cautionary Language Regarding Forward-Looking Statements. This Prospectus
contains certain forward-looking statements, including, without limitation,
statements concerning the Company's operations, economic performance and
financial condition, particularly statements relating to the Company's growth
strategy. The words "believe," "intend," "plan," "expect" and "anticipate" and
other similar expressions generally identify forward-looking statements.
Investors are cautioned not to place undue reliance on these forward-looking
statements. These forward-looking statements are based largely on the Company's
current expectations and are subject to a number of risks and uncertainties,
including, without limitation, those identified under in this "Risk Factors"
section and elsewhere in this Prospectus. Other important factors to consider in
evaluating such forward-looking statements include changes in external market
factors, changes in the Company's business or growth strategy or an inability to
execute its strategy due to changes in its industry or the economy generally,
the emergence of new or growing competitors and various competitive factors. In
light of these risks and uncertainties, there can be no assurance that the
matters referred to in the forward-looking statements contained in this
Prospectus will in fact occur according to the Company's plans, if at all.
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,000,000 shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $16.00 per share, after deducting the
underwriting discount and estimated offering expense, are estimated to be
approximately $28,610,000 (approximately $33,074,000 if the Underwriters'
over-allotment option is exercised in full).
The Company intends to use (i) approximately $2.9 million of the net
proceeds to repay three term loans with final maturities ranging from November
1998 to February 2001 and bearing interest at rates ranging from the lender's
prime rate (which was 8.5% as of March 31, 1998) to the lender's prime rate plus
1%, and (ii) approximately $7.7 million for various capital expenditures,
including purchases of manufacturing and office equipment. The term loans were
used to finance equipment purchases. The Company intends to use the remainder of
the net proceeds for working capital and other general corporate purposes. While
the Company has not identified any specific amounts required, it may use
portions of the balance of the net proceeds for some or all of the following:
(i) improving and equipping the Company's planned new office, manufacturing and
research facilities, and relocating the Company's operations to such facilities;
(ii) establishing a new distribution center; (iii) expanding international
operations; and (iv) developing new products. In addition, the Company may use
an unspecified portion of the net proceeds, when and if the opportunity arises,
to acquire businesses, products or technologies that it believes will help
fulfill the Company's strategic goals. However, the Company currently has no
understandings, commitments or agreements with respect to any such acquisitions.
Pending such uses, the Company intends to invest the net proceeds in
investment-grade, interest-bearing securities. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Shareholders, other than
the proceeds from the exercise of stock options or warrants by certain Selling
Shareholders at the closing of this offering. See "Principal and Selling
Shareholders."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on shares of the
Common Stock. The Company currently intends to retain its earnings for future
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. Certain of the Company's financing agreements contain
limitations on the payment of dividends.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the Company's capitalization as of March 31,
1998 (i) on an actual basis and (ii) as adjusted to give effect to the sale by
the Company of the 2,000,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $16.00 per share, and the application of a
portion of the estimated net proceeds therefrom to repay certain indebtedness.
See "Use of Proceeds." This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt and capital lease obligations, less current
installments(1)........................................... $ 1,583 $ 52
Shareholders' equity:
Preferred stock, $0.01 par value per share: 25,000,000
shares authorized; no shares issued and outstanding... -- --
Common stock, $0.01 par value per share: 100,000,000
shares authorized; 16,674,440 shares issued and
outstanding, actual; 18,674,440 shares issued and
outstanding, as adjusted(2)........................... 167 187
Additional paid-in capital............................. 9,650 38,240
Unearned stock compensation............................ (43) (43)
Retained earnings...................................... 21,474 21,474
------- -------
Total shareholders' equity........................ 31,248 59,858
------- -------
Total capitalization............................ $32,831 $59,910
======= =======
</TABLE>
- ------------------------------
(1) See Notes 4 and 10 of Notes to Consolidated Financial Statements.
(2) Excludes, as of March 31, 1998, 4,880,000 shares of Common Stock reserved
for issuance pursuant to the Company's benefit plans, of which options to
purchase 2,482,916 shares were outstanding at a weighted average exercise
price of $1.49 per share. Also excludes 239,812 shares of Common Stock
issuable upon exercise of warrants outstanding as of March 31, 1998 at a
weighted average exercise price of $2.71 per share. See
"Management -- Benefit Plans" and "Description of Capital
Stock -- Warrants."
17
<PAGE> 19
DILUTION
As of March 31, 1998, the Company had a net tangible book value of
approximately $31.2 million, or $1.87 per share of Common Stock. Net tangible
book value per share represents the amount of total tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding. Without
taking into account any other changes in net tangible book value after March 31,
1998, other than to give effect to the receipt by the Company of the net
proceeds from the sale of 2,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $16.00 per share,
the pro forma net tangible book value of the Company as of March 31, 1998 would
have been approximately $59.8 million, or $3.20 per share. This represents an
immediate increase in net tangible book value of $1.33 per share to existing
shareholders and an immediate dilution in net tangible book value of $12.80 per
share to new investors purchasing shares of Common Stock in this offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $16.00
Net tangible book value per share as of March 31,
1998................................................. $1.87
Increase in net tangible book value per share
attributable to new investors in this offering....... 1.33
-----
Pro forma net tangible book value per share after this
offering.................................................. 3.20
------
Dilution per share to new investors......................... $12.80
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between existing shareholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES
PURCHASED(1)(2) TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 16,674,440 89.3% $ 8,765,299 21.5% $ 0.53
New investors........... 2,000,000 10.7 32,000,000 78.5 16.00
---------- ----- ----------- -----
Total......... 18,674,440 100.0% $40,765,299 100.0%
========== ===== =========== =====
</TABLE>
- ------------------------------
(1) Excludes, as of March 31, 1998, 4,880,000 shares of Common Stock reserved
for issuance pursuant to the Company's benefit plans, of which options to
purchase 2,482,916 shares were outstanding at a weighted average exercise
price of $1.49 per share. Also excludes 239,812 shares of Common Stock
issuable upon exercise of warrants outstanding as of March 31, 1998 at a
weighted average exercise price of $2.71 per share. See
"Management -- Benefit Plans" and "Description of Capital
Stock -- Warrants."
(2) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders to 14,274,440 shares, or approximately
76.4% (13,914,440 shares or approximately 73.3% if the Underwriters'
over-allotment option is exercised in full) of the total number of shares of
Common Stock outstanding after this offering and will increase the number of
shares held by new investors to 4,400,000 or approximately 23.6% (5,060,000
shares or approximately 26.7% if the Underwriter's over-allotment option is
exercised in full) of the total number of shares of Common Stock outstanding
after this offering. See "Principal and Selling Shareholders."
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's Consolidated Financial Statements and
Notes thereto and other financial information included elsewhere in this
Prospectus. The selected consolidated financial data set forth below for the
five years ended December 31, 1997 have been derived from the consolidated
financial statements of the Company which have been audited by Ernst & Young
LLP, independent auditors. The selected consolidated financial data set forth
below as of and for the three-month periods ended March 31, 1997 and 1998 are
derived from the unaudited consolidated financial statements of the Company
which, in the Company's opinion, include all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations of the Company for those periods. Operating results
for the three-month period ended March 31, 1998 are not necessarily indicative
of the results that may be expected for any other interim period or for the
entire year ending December 31, 1998.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales................................... $ 3,755 $16,558 $48,701 $72,695 $102,968 $19,009 $30,609
Cost of sales............................... 2,268 7,250 16,779 25,440 37,049 6,770 10,770
------- ------- ------- ------- -------- ------- -------
Gross profit................................ 1,487 9,308 31,922 47,255 65,919 12,239 19,839
------- ------- ------- ------- -------- ------- -------
Operating expenses:
Marketing and sales.................... 1,281 4,969 18,461 25,208 33,091 6,890 10,107
General and administrative............. 1,003 2,744 6,745 7,891 10,679 2,301 4,422
Research and development............... 364 419 1,307 2,295 4,672 930 1,389
Nonrecurring expenses(1)............... -- -- -- 2,959 (312) -- --
------- ------- ------- ------- -------- ------- -------
Total operating expenses........... 2,648 8,132 26,513 38,353 48,130 10,121 15,918
------- ------- ------- ------- -------- ------- -------
Income (loss) from operations............... (1,161) 1,176 5,409 8,902 17,789 2,118 3,921
Interest income (expense)................... 17 22 2 103 (91) (26) 116
Other nonoperating items(2)................. -- -- (461) 462 -- -- --
------- ------- ------- ------- -------- ------- -------
Income (loss) before income taxes........... (1,144) 1,198 4,950 9,467 17,698 2,092 4,037
Provision for income taxes.................. -- 150 1,922 3,599 6,350 778 1,454
------- ------- ------- ------- -------- ------- -------
Net income (loss)........................... $(1,144) $ 1,048 $ 3,028 $ 5,868 $ 11,348 $ 1,314 $ 2,583
======= ======= ======= ======= ======== ======= =======
Diluted net income (loss) per share(3)...... $ (0.10) $ 0.07 $ 0.19 $ 0.35 $ 0.64 $ 0.08 $ 0.14
Shares used in computation of diluted net
income (loss) per share(3)................ 11,120 14,227 15,765 16,830 17,749 17,330 18,060
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
--------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------- ------- ------- ------ -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................. $ 802 $1,509 $ 1,760 $ 2,774 $10,667 $ 226 $15,073
Working capital........................... 1,079 3,751 8,084 13,395 24,009 14,648 26,431
Total assets.............................. 2,041 7,051 16,723 31,385 46,575 28,921 50,760
Long term debt and capital lease
obligations, net of current
installments............................ 7 98 281 830 1,210 1,198 1,583
Shareholders' equity...................... 1,339 4,473 10,190 16,617 28,610 17,979 31,248
</TABLE>
- ------------------------------
(1) Represents costs directly related to a voluntary precautionary recall of the
SONICARE charger that commenced in November 1996. As a result of the recall,
the Company incurred significant direct costs, including advertising, public
relations, legal and professional fees, the cost of the units recalled
(including labor and freight involved in the recall process), and other
19
<PAGE> 21
costs. The direct and incremental recall costs of $2,958,618 were recorded
in 1996. These costs included the accrual of approximately $978,000 of
estimated remaining direct costs expected to be incurred in 1997. In 1997,
the Company incurred $666,419 of direct costs associated with the recall.
The remaining balance of the accrual of $311,581 was reversed in 1997. See
Note 9 of Notes to Consolidated Financial Statements.
(2) Reflects the gain on settlement, less related legal and other costs, of
litigation between the Company and Teledyne Industries, Inc. See Note 11 of
Notes to Consolidated Financial Statements.
(3) For an explanation of diluted net income (loss) per share and the number of
shares used to compute diluted net income (loss) per share, see Note 1 of
Notes to Consolidated Financial Statements.
21
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. In addition
to historical information, the following "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contains certain
forward-looking statements that involve known and unknown risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The Company's actual results and the timing of
certain events could differ materially from those anticipated in such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in the
section entitled "Risk Factors," as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
Optiva develops, manufactures and markets premium consumer oral care
products offered under the SONICARE brand. The Company was founded in 1988 to
develop consumer products based on sonic technology and began shipping its
SONICARE power toothbrush product in the fourth quarter of 1992. All of the
Company's revenue to date has been attributable to the sale of the SONICARE
power toothbrush and accessories. The Company's net sales grew from $48.7
million in 1995 to $103.0 million in 1997. See "Risk Factors -- Dependence on
Limited Product Line."
The Company initially sold its products primarily through dental
professionals. Building on the brand awareness created through this channel, the
Company has conducted a phased expansion into a variety of retail channels,
including specialty retailers, department stores, chain drug stores, warehouse
clubs and mass merchandisers. The Company's top four retail customers together
accounted for approximately 39% and 31% of net sales in 1997 and 1996,
respectively, with a single customer, Costco, accounting for approximately 25%
and 16% of 1997 and 1996 net sales, respectively. No customer accounted for more
than 10% of net sales in 1995. See "Risk Factors -- Dependence on Retail
Channels; Customer Concentration." The Company generally recognizes revenue from
product sales on shipment to customers, with a provision made for products
returned based on historical trends.
International sales accounted for approximately 6% of the Company's net
sales in 1997. A key element of the Company's strategy is to expand
international sales, although there can be no assurance that this strategy will
be successful. To the extent the Company continues to rely on distributors to
sell its products outside of the United States, an increase in the percentage of
net sales generated outside the United States could adversely affect the
Company's gross margins. See "Risk Factors -- Risks Associated With
International Sales and Operations."
The Company's business is seasonal in nature, with net sales generally
highest in the fourth quarter and generally lower in the first quarter than in
the prior quarter. The Company believes that the historical increase in sales of
its products in the fourth quarter has been primarily due to higher customer
order volume in anticipation of holiday spending. In addition, marketing and
sales expenses have been historically higher in the fourth quarter. As a result,
the Company's quarterly results have fluctuated significantly, with net sales
and net income in the fourth quarter historically accounting for a
disproportionate percentage of annual net sales and net income. Any decreases in
net sales or net income in the fourth quarter due to competitive, operating,
economic and other business conditions are therefore likely to have a
disproportionate effect on the Company's annual operating results as compared to
other quarters. See "-- Selected Quarterly Results of Operations" and "Risk
Factors -- Fluctuating Quarterly Operating Results; Seasonality."
The Company manufactures the SONICARE toothbrush at its facilities in
Bellevue, Washington. The Company intends to relocate its office, research and
manufacturing facilities to new facilities under construction in Snoqualmie,
Washington. The Company is also planning to move its distribution operations to
a separate facility in conjunction with this move. The Company has already
incurred, and expects to continue to incur, significant expenditures in
connection with this relocation, including
21
<PAGE> 23
costs associated with the construction of and improvements to the facilities,
direct moving costs, costs of new equipment, lease termination costs, costs of
restoring the Company's existing facilities and other costs. In addition, the
move to new facilities may result in substantial unplanned expenses, such as
moving and facility improvement cost overruns, and may materially adversely
affect net sales during the period in which the move takes place due to possible
disruptions to production and distractions of senior management and other
employees. See "Risk Factors -- Risks Associated With Relocation; Risk of
Interruption of Business" and "Business -- Properties."
In November 1996, Optiva announced a precautionary recall (the "Recall") of
all SONICARE chargers manufactured between September 3 and October 30, 1996. The
Company voluntarily issued the recall notice after it learned that a charger was
shipped without electrical insulation. The Recall was conducted in accordance
with FDA guidelines, with the Company delivering quality-assured chargers as
replacements for chargers submitted during the Recall. The Company recorded
approximately $3.0 million in direct costs of the Recall in 1996 and recorded a
credit of approximately $0.3 million in 1997 that reflected the partial reversal
of a provision made in 1996. In addition, the Recall had a material adverse
effect on the Company's sales, primarily in the fourth quarter of 1996, as the
Company suspended production and certain marketing campaigns. The Company
launched a special advertising and marketing campaign in the first quarter of
1997 to increase sales following the Recall. See "Risk Factors -- Risks of
Product Defects and Product Recalls" and Note 9 of Notes to Consolidated
Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's consolidated statements of
income to net sales. Any trends reflected by the following table may not be
indicative of future results.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
----------------------------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------------- -----------------
1995 1996 1997 1997 1998
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 34.5 35.0 36.0 35.6 35.2
----- ----- ----- ----- -----
Gross profit............................ 65.5 65.0 64.0 64.4 64.8
----- ----- ----- ----- -----
Operating expenses:
Marketing and sales................... 37.9 34.7 32.1 36.2 33.0
General and administrative............ 13.9 10.9 10.4 12.1 14.5
Research and development.............. 2.7 3.2 4.5 4.9 4.5
Nonrecurring expenses................. 0.0 4.0 (0.3) -- --
----- ----- ----- ----- -----
Total operating expenses...... 54.5 52.8 46.7 53.2 52.0
----- ----- ----- ----- -----
Income from operations.................. 11.1 12.2 17.3 11.2 12.8
Interest income (expense)............... 0.0 0.1 (0.1) (0.2) 0.4
----- ----- ----- ----- -----
Other nonoperating items................ (0.9) 0.7 0.0 0.0 0.0
Income before income taxes.............. 10.1 13.0 17.2 11.0 13.2
Provision for income taxes.............. 3.9 4.9 6.2 4.1 4.8
----- ----- ----- ----- -----
Net income.............................. 6.2% 8.1% 11.0% 6.9% 8.4%
===== ===== ===== ===== =====
</TABLE>
22
<PAGE> 24
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Net sales. Net sales increased 61% to $30.6 million in the three months
ended March 31, 1998 from $19.0 million in the three months ended March 31,
1997. The increase in net sales primarily reflects increased sales through
retail distribution channels. The Company believes that the significant
publicity that it received in connection with a television talkshow in the
fourth quarter of 1997 may have contributed to higher sales in the first quarter
of 1998. Sales through other distribution channels also increased but at a
slower rate than retail sales. Retail sales accounted for a majority of net
sales in 1997 and the three months ended March 31, 1998.
Gross profit. Gross profit consists of net sales less cost of sales, which
is comprised primarily of material, production overhead and labor costs. Gross
profit increased 62% to $19.8 million in the three months ended March 31, 1998
from $12.2 million in the three months ended March 31, 1997. As a percentage of
net sales, gross profit increased slightly to 64.8% in the three months ended
March 31, 1998 from 64.4% in the three months ended March 31, 1997. The slight
increase in gross margin reflects increased economies of scale due to higher
production volume.
Marketing and sales expenses. Marketing and sales expenses consist
primarily of advertising and promotional expenses, salaries and incentive
compensation. Marketing and sales expenses increased 47% to $10.1 million in the
three months ended March 31, 1998 from $6.9 million in the three months ended
March 31, 1997. The increase in marketing and sales expenses was primarily due
to increased marketing costs. Marketing expenses increased primarily as a result
of increased advertising expenses and the cost of promotional activities
directed at dental professionals. The increase also reflects an increase in
commissions and salaries paid, resulting from higher sales volumes and the
addition of more sales representatives. As a percentage of net sales, however,
marketing and sales expenses decreased to 33.0% in the three months ended March
31, 1998 from 36.2% in the three months ended March 31, 1997, largely reflecting
the added expense in the 1997 period of a special advertising campaign following
the Recall. The Company expects marketing and sales expenses to increase in
absolute terms as a result of a number of factors, including expansion to new
markets and potential product launches.
General and administrative expenses. General and administrative expenses
consist primarily of salaries and incentive compensation, infrastructure costs
and professional fees. General and administrative expenses increased 92% to $4.4
million in the three months ended March 31, 1998 from $2.3 million in the three
months ended March 31, 1997, primarily resulting from higher payroll costs
(reflecting an increase in headcount plus accrued bonuses), an increase in the
allowance for doubtful accounts and fees and expenses related to the Company's
expected move to new facilities in 1999. As a percentage of net sales, general
and administrative expenses increased to 14.5% in the three months ended March
31, 1998 from 12.1% in the three months ended March 31, 1997. The Company
expects its general and administrative expenses to increase in absolute terms as
the Company expands its operations and incurs the expenses associated with being
a public company.
Research and development expenses. Research and development expenses
include the cost of product development, as well as similar costs associated
with the Company's internal clinical and laboratory research efforts and fees
paid to universities and research centers conducting clinical and laboratory
studies. Research and development expenses increased 49% to $1.4 million in the
three months ended March 31, 1998 from $0.9 million in the three months ended
March 31, 1997 due to an increase in overall research and development
activities. As a percentage of net sales, however, research and development
expenses decreased to 4.5% in the three months ended March 31, 1998 from 4.9% in
the three months ended March 31, 1997. The Company expects to increase its
research and development expenditures as it continues to expand its research and
development activities.
Provision for income taxes. Provision for income taxes increased 87% to
$1.5 million in the three months ended March 31, 1998 from $0.8 million in the
three months ended March 31, 1997, reflecting an increase in taxable income. The
Company's effective income tax rate decreased to 36.0% in the three months ended
March 31, 1998 from 37.2% in the three months ended March 31, 1997.
24
<PAGE> 25
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Net sales. Net sales increased 42% to $103.0 million in the year ended
December 31, 1997 from $72.7 million in the year ended December 31, 1996. Sales
increased significantly through both of the Company's main distribution
channels, retail and dental professional, although retail sales grew at a faster
rate than sales through dental professionals.
Gross profit. Gross profit increased 39% to $66.0 million in 1997 from
$47.3 million in 1996. As a percentage of net sales, gross profit declined to
64.0% in 1997 from 65.0% in 1996. The slight decline in gross margin is due
primarily to higher production overhead costs associated with process
modifications, as well as increased occupancy expenses as the Company expanded
its facilities.
Marketing and sales expenses. Marketing and sales expenses increased 31% to
$33.1 million in 1997 from $25.2 million in 1996, primarily due to an increase
in marketing costs. Marketing costs were higher in 1997 due to an increase in
marketing activities aimed at consumers, such as television and print
advertising campaigns, an increase in marketing activities aimed at dental
professionals and unusually low marketing costs in the fourth quarter of 1996 as
the Company suspended or cancelled certain marketing campaigns during the
Recall. Sales expenses were also higher in 1997 as a portion of these expenses
generally increase as net sales increase, reflecting increased commissions and
sales bonuses. As a percentage of net sales, marketing and sales expenses
declined to 32.1% in 1997 from 34.7% in 1996, partly because of the negative
effect of the Recall on 1996 net sales.
General and administrative expenses. General and administrative expenses
increased 35% to $10.7 million in 1997 from $7.9 million in 1996, reflecting
higher overhead costs associated with the Company's growth. As a percentage of
net sales, general and administrative expenses decreased to 10.4% in 1997 from
10.9% in 1996.
Research and development expenses. Research and development expenses
increased 104% to $4.7 million in 1997 from $2.3 million in 1996. As a
percentage of net sales, research and development expenses increased to 4.5% of
net sales in 1997 from 3.2% of net sales in 1996. These increases were due to
both increased product development expenditures, such as the expansion of
facilities and staff, and increased clinical and laboratory research
expenditures, such as the expansion of research staff and increased expenditures
on clinical and laboratory studies conducted by outside institutions.
Nonrecurring expenses. Nonrecurring expenses reflect the direct costs
associated with the Recall, including advertising and public relations expenses,
legal and professional fees, the cost of the product recalled (including labor
and freight involved in the recall process), and other costs. In 1996 the
Company recorded $3.0 million in expenses directly related to the Recall,
including an accrual of $1.0 million for expenses expected to be incurred in
1997. In 1997 the Company incurred only $0.7 million in costs directly
attributable to the Recall, and therefore recorded a reversal of $0.3 million of
the reserve taken in 1996. See "-- Overview" and Note 9 of Notes to Consolidated
Financial Statements.
Other nonoperating items. In September 1996, the Company and Teledyne
settled litigation between them that related in part to one of the Company's
patents. In 1996, the Company recorded the lump sum paid to it by Teledyne as
part of the settlement, less legal and other related expenses incurred by the
Company during 1996. See Note 11 of Notes to Consolidated Financial Statements
and "Business -- Proprietary Rights and Technology."
Provision for income taxes. Provision for income taxes increased 76% to
$6.4 million in 1997 from $3.6 million in 1996, reflecting the Company's higher
taxable income in 1997. The Company's effective income tax rate decreased to
35.9% in 1997 from 38.0% in 1996 primarily due to a decrease in the blended
state income tax rate.
24
<PAGE> 26
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Net sales. Net sales increased 49% to $72.7 million in the year ended
December 31, 1996 from $48.7 million in the year ended December 31, 1995. The
increase resulted from higher sales to both the retail and dental professional
channels, with sales to the retail channel increasing at a greater rate, offset
by lower than expected sales in the fourth quarter of 1996 due to the Recall.
Gross profit. Gross profit increased 48% to $47.3 million in 1996 from
$31.9 million in 1995. As a percentage of net sales, gross profit declined
slightly to 65.0% in 1996 from 65.5% in 1995 as reductions in direct production
costs per unit were largely offset by increased fixed costs and infrastructure
related to the growth of the Company's operations.
Marketing and sales expenses. Marketing and sales expenses increased 37% to
$25.2 million in 1996 from $18.5 million in 1995. The increase primarily
reflects higher expenses associated with marketing to dental professionals, as
well as higher sales commissions and bonuses due to higher sales volume. These
factors were partly offset by lower advertising costs in 1996 because of the
suspension of marketing campaigns during the Recall and the Company's less
frequent airing of the SONICARE infomercial in 1996. As a percentage of net
sales, marketing and sales expenses declined to 34.7% in 1996 from 37.9% in
1995, primarily due to a shift in the Company's marketing mix, including lower
advertising expenses as a percentage of net sales.
General and administrative expenses. General and administrative expenses
increased 17% to $7.9 million in 1996 from $6.7 million in 1995, reflecting
higher overhead associated with the Company's growth, partly offset by lower
provisions made for doubtful accounts. As a percentage of net sales, general and
administrative expenses declined to 10.9% in 1996 from 13.9% in 1995, as net
sales increased at a faster rate than general and administrative expenses.
Research and development expenses. Research and development expenses
increased 76% to $2.3 million in 1996 from $1.3 million in 1995, as management
decided to increase product development and clinical research spending as the
Company's sales growth continued. As a percentage of net sales, research and
development expenses increased to 3.2% of net sales in 1996 from 2.7% in 1995.
Other nonoperating items. In 1996 the Company recorded a net gain of $0.5
million related to the Teledyne litigation, compared with costs of $0.5 million
in 1995.
Provision for income taxes. Provision for income taxes increased 87% to
$3.6 million in 1996 from $1.9 million in 1995. The effective income tax rate
decreased to 38.0% in 1996 from 38.8% in 1995.
26
<PAGE> 27
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statements of
income data for the five quarters ended March 31, 1998, as well as such data
expressed as a percentage of the Company's total net sales for the periods
indicated. This data has been derived from unaudited consolidated financial
statements that, in the Company's opinion, include all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of such
information when read in conjunction with the Company's audited Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus. The operating results for any quarter are not necessarily indicative
of the operating results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1997 1997 1997 1997 1998
--------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................. $19,009 $19,937 $23,422 $40,600 $30,609
Cost of sales............................. 6,770 7,232 8,692 14,355 10,770
------- ------- ------- ------- -------
Gross profit.............................. 12,239 12,705 14,730 26,245 19,839
------- ------- ------- ------- -------
Operating expenses:
Marketing and sales..................... 6,890 6,175 5,673 14,353 10,107
General and administrative.............. 2,301 2,648 2,657 3,073 4,422
Research and development................ 930 1,014 1,208 1,520 1,389
Nonrecurring expenses (benefit)......... -- (100) -- (212) --
------- ------- ------- ------- -------
Total operating expenses........... 10,121 9,737 9,538 18,734 15,918
------- ------- ------- ------- -------
Income from operations.................... 2,118 2,968 5,192 7,511 3,921
Interest income (expense)................. (26) (50) (19) 4 116
------- ------- ------- ------- -------
Income before income taxes................ 2,092 2,918 5,173 7,515 4,037
Provision for income taxes................ 778 1,085 1,830 2,657 1,454
------- ------- ------- ------- -------
Net income................................ $ 1,314 $ 1,833 $ 3,343 $ 4,858 $ 2,583
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 35.6 36.3 37.1 35.4 35.2
------- ------- ------- ------- -------
Gross profit.............................. 64.4 63.7 62.9 64.6 64.8
Operating expenses:
Marketing and sales..................... 36.2 31.0 24.2 35.3 33.0
General and administrative.............. 12.1 13.3 11.3 7.6 14.5
Research and development................ 4.9 5.0 5.2 3.7 4.5
Nonrecurring expenses(benefit).......... 0.0 (0.5) 0.0 (0.5) 0.0
------- ------- ------- ------- -------
Total operating expenses........... 53.2 48.8 40.7 46.1 52.0
------- ------- ------- ------- -------
Income from operations.................... 11.2 14.9 22.2 18.5 12.8
Interest income (expense)................. (0.2) (0.3) (0.1) 0 0.4
------- ------- ------- ------- -------
Income before income taxes................ 11.0 14.6 22.1 18.5 13.2
Provision for income taxes................ 4.1 5.4 7.8 6.5 4.8
------- ------- ------- ------- -------
Net income................................ 6.9% 9.2% 14.3% 12.0% 8.4%
======= ======= ======= ======= =======
</TABLE>
The Company's business is seasonal in nature, with net sales and net income
generally highest in the fourth quarter and generally lower in the first quarter
than in the prior quarter. The Company
26
<PAGE> 28
believes that the historical increase in sales of its products in the fourth
quarter has been primarily due to higher customer order volume in anticipation
of holiday spending. Marketing and sales expenses also have been historically
higher in the fourth quarter. As a result, the Company's quarterly results have
fluctuated significantly, with net sales and net income in the fourth quarter
accounting for a disproportionate percentage of annual net sales and net income.
Any decreases in net sales or net income in the fourth quarter due to
competitive, operating, economic and other business conditions are therefore
likely to have a disproportionate effect on the Company's annual operating
results as compared to other quarters.
The Company's historical operating results have fluctuated significantly
from quarter to quarter and are likely to fluctuate significantly in the future
based on a number of factors, including (i) pricing changes by the Company or
its competitors; (ii) seasonality; (iii) the loss or addition of a major
customer; (iv) the time and expense involved in maintaining and expanding
existing distribution channels and establishing new distribution channels; (v)
discretionary marketing and promotional expenditures; (vi) timing of new product
introductions by the Company and its competitors; (vii) inventory shortages or
other factors affecting production volumes; (viii) timing of regulatory
approvals; (ix) market acceptance of new or enhanced products; (x) product
defects, recalls and other product quality problems; (xi) changes in the level
of operating expenses, including expenses related to the Company's planned
relocation to new office, research and manufacturing facilities; (xii) the
advent of significant litigation, regulatory action or complaints about the
Company's product claims; and (xiii) changes in the Company's product mix and in
the percentage of products sold through different distribution channels. See
"Risk Factors -- Fluctuating Quarterly Operating Results; Seasonality."
The Company's customers generally do not have long-term commitments to
purchase products. The Company's products are generally shipped as orders are
received, and as a result the Company generally does not have a significant
backlog. Consequently, quarterly sales and operating results depend primarily on
the volume and timing of orders received during the quarter, which are difficult
to predict. Furthermore, a significant portion of the Company's operating
expenses are relatively fixed, and planned expenditures are based on sales
forecasts. If sales levels fall below expectations, operating results are likely
to be materially adversely affected. There can be no assurance that the Company
will be profitable on a quarterly basis in the future.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has met its operating and cash
requirements largely through funds generated from operations, private sales of
equity securities and, to a lesser extent, through bank borrowings and equipment
lease financings. As of March 31, 1998, the Company had cash and cash
equivalents of $15.1 million, compared to $10.7 million as of December 31, 1997.
Net cash provided by operating activities in 1997 was $10.4 million,
consisting primarily of net income adjusted for noncash charges related to
depreciation and amortization and increases in income taxes payable, offset in
part by increases in inventory, accounts receivables and decreases in accounts
payable. Net cash provided by operating activities in the year ended December
31, 1996 was $2.7 million, consisting primarily of net income adjusted for
noncash charges related to depreciation and amortization and increases in
accounts payable and accrued expenses, offset in part by increases in accounts
receivable and inventory. Net cash used by operating activities in 1995 was $0.4
million, consisting primarily of increases in receivables and inventory, offset
in part by net income and an increase in accrued expenses. Net cash provided by
operating activities in the first quarter of 1998 was $5.1 million, consisting
primarily of net income adjusted for noncash charges related to depreciation and
amortization and increases in accounts payable and accrued expenses, offset in
part by decreases in income taxes payable.
Cash used for the purchase of furniture and equipment increased to $3.4
million in 1997 from $3.1 million in 1996 and from $2.0 million in 1995. In the
first quarter of 1998, cash used for the
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<PAGE> 29
purchase of furniture and equipment totaled $1.4 million. The Company expects to
continue to expend significant amounts on the purchase of equipment as necessary
to expand capacity and replace existing equipment. The Company expects to expend
significant amounts on furniture and equipment for its planned new office,
manufacturing and research facility.
The Company is planning to move into its new facility in mid-1999. The
Company recently exercised an option to purchase this facility for approximately
$21 million and intends to finance the purchase price, together with related
expenditures of up to $8 million on facility improvements, through a tax
retention operating lease arrangement with certain financial institutions. There
can be no assurance that the Company will be able to obtain this tax retention
operating lease on terms favorable to the Company, if at all. Under this
arrangement, the Company will not retain title to the property. The Company
intends to move its distribution operations to a separate facility in connection
with the general facilities relocation, but has not budgeted expenditures for
this planned move, and there can be no assurance that the Company will find
facilities in a timely manner and on terms that are acceptable to it. See "Risk
Factors -- Risks Associated With Relocation; Risk of Interruption of Business"
and "Business -- Properties."
In the first quarter of 1998, and in 1997 and 1996, net cash provided by
financing activities of $0.7 million, $1.0 million and $1.4 million,
respectively, consisted primarily of net proceeds from capital leases and bank
term loans related to equipment financing. Net cash provided by financing
activities of $2.7 million in 1995 consisted primarily of $2.6 million in net
proceeds from the issuance of Common Stock. As of March 31, 1998, the aggregate
principal amount outstanding under these term loans was $2.9 million. The
Company intends to repay these loans with a portion of the net proceeds from the
offering of shares of Common Stock hereby. These loans have final maturities
ranging from November 1998 through February 2001 and bear interest at rates
ranging from the lender's prime rate (8.5% as of March 31, 1998) to the lender's
prime rate plus 1%. As of March 31, 1998, the Company had a secured $20.0
million revolving line of credit, all of which was available. The Company
intends to replace this line of credit with a line of credit with the financial
institution with which it is negotiating the tax retention operating lease
arrangement referred to above. See "Use of Proceeds."
The Company believes that its cash on hand, together with cash generated by
operations and the net proceeds of this offering, will be sufficient to meet its
capital requirements through 1999. The amount and timing of the Company's future
capital requirements, however, depend on numerous factors, including, without
limitation, the costs and timing of new product introduction and development and
the success of the Company's marketing, sales and distribution efforts. There
can be no assurance that additional funds, if required, will be available to the
Company on favorable terms, if at all. The Company has budgeted capital
expenditures of approximately $7.5 million for the last three quarters of 1998,
but numerous factors, including an acceleration of its purchases of furniture
and equipment for its planned new facility, may cause actual capital
expenditures for the period to be significantly higher.
INFLATION
The Company does not believe that inflation, which has been limited for the
Company's entire operating history, has had a material adverse effect to date on
net sales or results of operations.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the Year
2000, 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 two years, computer systems and software used by many companies may need to
be upgraded to comply with such "Year 2000" requirements. In 1997, the Company
purchased, and intends to install in 1998, an ERP (enterprise resource planning)
system that the vendor warrants is Year 2000 compliant. In addition, the Company
is in the process of identifying and assessing its mission-critical systems that
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<PAGE> 30
may be affected by the Year 2000, both internally and externally (with respect
to the Company's suppliers and customers). Although the Company plans to address
Year 2000 issues with respect to the Company's mission-critical internal systems
in sufficient time prior to the century rollover, there can be no assurance that
there will not be interruption of operations or other limitations of system
functionality, or that the Company will not incur substantial costs to avoid
such occurrences. However, based on currently available information, management
does not believe that the cost of the Year 2000 initiatives will have a material
adverse effect on the Company's operating results or financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income ("Statement 130"). Statement 130 establishes standards for
reporting and disclosure of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. Statement 130, which is effective for the Company in 1998, requires
reclassification of financial statements for earlier periods to be provided for
comparative purposes. The Company anticipates that implementing the provisions
of Statement 130 will not have a significant impact on its existing disclosures.
The Company has not yet determined the manner in which it will present the
information required by Statement 130.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Statement 131 is
effective for the Company in 1998. In the initial year of application,
comparative information for earlier years must be restated. The Company has not
yet determined the manner in which it will present the information required by
Statement 131.
29
<PAGE> 31
BUSINESS
OVERVIEW
Optiva develops, manufactures and markets premium consumer oral care
products offered under the SONICARE brand. The SONICARE power toothbrush is
designed to utilize patented sonic technology to decrease plaque bacteria Beyond
the Reach of the Bristles and reduce some symptoms of periodontal disease with
minimal abrasion. Optiva has commissioned 38 clinical and laboratory studies at
major universities and research centers to document the health benefits and
safety of its products. This body of information has formed the foundation for
Optiva's strategy of gaining the support of dental professionals. Building on
the brand awareness created through recommendations by dental professionals, the
Company conducted a phased expansion into a variety of retail channels,
including specialty retailers, department stores, chain drug stores, warehouse
clubs and mass merchandisers. To continue to build brand awareness, Optiva
pursues marketing and brand management programs targeted at consumers, dental
professionals and retailers. The Company's net sales increased from $48.7
million in 1995 to $103.0 million in 1997.
INDUSTRY BACKGROUND
Since the middle of the twentieth century, a series of technological
advancements have dramatically improved oral care standards. In the 1950s, the
fluoridation of water and the introduction of commercial fluoride products, both
of which were significant milestones for preventative care, helped to prevent
tooth decay. The late 1950s witnessed the introduction of the air turbine dental
drill, a major improvement in the delivery of dental treatment. More recent
innovations, such as the development of the soft-bristle toothbrush,
improvements in restorative dentistry, filling materials and cements, and
advances in orthodontics, periodontics and implantology, have also improved the
quality of oral care. As standards in oral care have evolved, the focus of
dental professionals has shifted from treating specific problems -- such as
repairing cavities and removing diseased teeth -- to promoting general oral
health, especially through preventative care. In 1996, U.S. retail sales of oral
hygiene products were approximately $3.6 billion, according to Packaged Facts, a
consumer research organization.
As consumers have become accustomed to high standards of professional
dental care, many of them have also become more health conscious in general and
more aware of the importance of preventative care in the home. Millions of
Americans, the "Baby Boom" generation, are entering the age range during which
many will begin to suffer from the effects of deteriorating oral health. The
American Academy of Periodontology estimates that gum disease, ranging from mild
gingivitis to advanced periodontal disease, will afflict a majority of Americans
at some time during their adulthood. The Company believes that these demographic
and market factors have stimulated demand for more effective consumer oral care
products, including products targeted specifically at plaque removal and
prevention of gum diseases. According to Packaged Facts, U.S. retail sales of
electric dental appliances (including power toothbrushes, oral irrigators and
accessories) were approximately $260 million in 1996.
OPTIVA'S OPPORTUNITY
Optiva believes that its intense focus on the following defining attributes
has been critical to its growth and is the foundation of its positioning in the
market for consumer oral care products:
Technological Leadership. The Company's products are based on proprietary
technology in the areas of sonic action, fluid dynamics and electro-mechanical
design for the removal of disease-causing plaque bacteria. Utilizing this
technology, Optiva has created a line of products that overcomes the physical
reach limits of manual toothbrushes and conventional power toothbrushes. By
surpassing a critical bristle tip velocity based on frequency and amplitude,
Optiva has created a fluid action that
33
<PAGE> 32
works Beyond-the-Bristles to remove plaque bacteria. To leverage this
technological expertise and to continue to develop new applications, Optiva has
dedicated significant resources to product research and development, with a
focus on the efficacy and reliability of its products.
Superior Clinical and Laboratory Results. Optiva's product line has been
the subject of 38 separate scientific studies commissioned by the Company at
major universities and research centers, which have provided information
regarding the health and safety benefits of the SONICARE product line. Key
findings include reduction in disease-causing plaque bacteria and some symptoms
of periodontal disease, with minimal gingival and tooth abrasion. The Company
believes that this extensive research has been influential in establishing its
credibility in the dental professional community.
Dental Professional Support and Distribution. From the Company's inception,
its philosophy has been that oral care products are most credible when they
receive the endorsement of individual dental professionals. The Company believes
dental professional recommendations have been an important factor in driving
sales in retail channels. In addition, the Company generates significant sales
directly through dental professionals.
Premium-Brand Positioning. The Company has positioned the SONICARE product
line as a premium brand supported by extensive clinical results and dental
professional recommendations. To enhance its premium-brand image, the Company
pursues focused marketing and brand management strategies targeted at consumers,
dental professionals and retailers.
GROWTH STRATEGY
Optiva's goal is to be a leading provider of premium-branded consumer oral
care products recognized for technical superiority, efficacy and value. To
achieve its goal, the Company is pursuing the following strategies:
Leverage Brand to Increase Retail Sales. The Company intends to expand
retail sales by broadening consumer brand awareness through national print and
television advertising campaigns while working with retail customers to increase
promotional activities and the shelf space allocated to the Company's products.
The Company plans to build on its existing significant retail distribution,
which includes major accounts in the warehouse club, chain drug, mass
merchandise, department store and specialty retail channels.
Expand Support Among Dental Professionals. The Company intends to expand
its marketing efforts directed at the dental community in order to gain new
professional recommenders while maintaining existing relationships. The Company
intends to expand its dental professional sales force, while continuing to
advertise in professional journals. The Company also intends to continue to
invest in clinical and laboratory research in order to expand its extensive base
of clinical findings, explore new applications for the Company's sonic
technology and evaluate new products.
Develop Complementary Products. Optiva intends to continue to develop new
and enhanced products for consumer oral care based on or complementary to its
core technology. These new products may include extensions to the SONICARE
product line and consumable products such as toothpaste and mouthwash.
Develop International Opportunities. The Company intends to pursue what it
believes are significant opportunities to increase its international sales. To
take advantage of these opportunities, the Company intends to focus initially on
selected markets that it believes have significant potential over the next few
years and to adapt its marketing and distribution strategies to address
differing local conditions. Recent initiatives include expansion of the
Company's efforts in the United Kingdom and Japan.
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<PAGE> 33
PRODUCTS
Core Technology. Optiva focuses on developing innovative products that use
its patented technology to achieve demonstrable advances in consumer oral care.
In particular, the Company's SONICARE product line is designed to provide oral
care benefits through the fluid dynamic effects generated by surpassing a
critical velocity of bristle tip movement. The Company has successfully patented
the use of this critical velocity with specific ranges of frequency and
amplitude which have particular cleansing effects for removing plaque bacteria
Beyond the Reach of the Bristles. The Company believes that this patented sonic
technology sets SONICARE apart from conventional power toothbrushes.
The SONICARE Product Line. Optiva introduced its first SONICARE model in
1992 and launched its most recent model in the third quarter of 1997. The
Company currently markets several SONICARE models, each at a price point that
the Company believes is appropriate for the channel through which the model is
primarily sold. Optiva also sells different styles of replacement brush heads,
which are designed to work with any SONICARE model. Optiva recommends that
SONICARE users replace their brush heads at least every six months.
A complete SONICARE toothbrush set includes a charger, a water-tight power
handle and one or two interchangeable brush heads. The brush head, which is
composed of individual tufts of soft end-rounded nylon bristles, utilizes a
patented, deeply scalloped bristle configuration designed to optimize sonic
frequency brushing. Each replacement brush head contains a new resonator arm,
thereby renewing the only moving part of the system. The SONICARE handle
contains an electromagnetic motor that generates 31,000 brush strokes per
minute. Its two rechargeable NiCad batteries deliver 20 to 30 uses between
recharging, and estimated battery life is about five years. Because many
dentists and hygienists recommend two minutes of brushing, all SONICARE models
have a built-in two-minute electronic timer (smartimer) that shuts the
toothbrush off automatically after two minutes. Some SONICARE models also
feature an electronic interval timer pacer (quadpacer) that emits a signal every
30 seconds reminding the user to shift to the next brushing quadrant in the
mouth.
Product Development. The Company's product development efforts are
concentrated on two main areas: appliance development and consumables
development. The appliance development team is working on several possible
additions and improvements to the SONICARE product line. The consumables
development efforts are focused both on developing products that are
complementary to Optiva's current product line, such as toothpaste and
mouthwash.
After initial testing at Optiva's facilities, all potential new products
are then tested at external research institutions, and, in some cases, undergo
an extensive regulatory review process. Accordingly, the Company cannot predict
when, or if, any such products will come to market. The development of new
products and enhancements is subject to many creative, technical, financial and
logistical challenges, and there can be no assurance that the Company will be
able to design and develop products and enhancements successfully, economically
or in a timely manner and with the features desired by consumers, or that it
will be able to successfully manufacture such new or enhanced products in
significant volumes. If any future new products or enhancements are delayed, or
if these products or enhancements fail to achieve market acceptance when
launched, the Company's business, operating results and financial condition
could be materially adversely affected. See "-- Regulation" and "Risk
Factors -- Product Development Risks," "-- Potential New Markets" and
"-- Governmental Regulation."
The Company's research and development team has experience in the fields of
electrical engineering, mechanical engineering, fluid dynamics and biological
sciences. Optiva utilizes computer aided design systems that interface with the
systems of tooling vendors for faster and more cost-effective design
implementation. New development projects are coordinated closely with the
Clinical Research Department, the Marketing Department and Operations to ensure
the achievement of product performance expectations and to meet launch
schedules.
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The Company spent approximately $1.3 million and $2.3 million on research
and development, including expenditures on clinical and laboratory research, in
1995 and 1996, respectively. Research and development spending more than doubled
in 1997 to approximately $4.7 million. To aid in financing research and
development, the Company has on several occasions applied for, and received,
funds from the National Institutes of Health under the Small Business Innovative
Research Program. The amount of these funds was not material in any year.
MARKETING AND SALES
Optiva's core marketing and sales strategy is to drive sales and support
premium pricing through a combination of professional recommendations and
consumer branding. The Company's products are sold primarily through dental
professionals and retailers and, to a lesser extent, through direct sales.
Dental Professionals. Since the launch of its SONICARE product line, the
Company has sought to gain the support of dentists and hygienists, primarily by
commissioning clinical and laboratory research and disseminating the findings.
The Company advertises extensively in professional journals, exhibits its
products at trade shows, and employs direct mail campaigns aimed at dental
professionals.
Retail Channels. Following its initial focus on sales to dental
professionals, Optiva began a phased expansion into retail channels. A majority
of the Company's sales in 1997 were made through retail channels. The Company
distributes its products through a variety of retailers, including warehouse
clubs (such as Costco and Sam's Club), chain drug stores (such as Walgreen and
Eckerd), mass merchandisers (such as WalMart and Target), specialty retailers
(such as The Sharper Image) and department stores (such as Sears). Sales to
Costco alone accounted for 25% of net sales in 1997. The Company uses
manufacturer representative organizations to assist in managing its retail
business. Marketing efforts focused on increasing sales through retail channels
include television advertisements, print advertisements in mainstream,
high-circulation magazines, and retailer cooperative advertising programs. See
"Risk Factors -- Dependence on Retail Channels; Customer Concentration."
Other Sales. The Company also sells its products through television home
shopping, "SONICARE Direct" (a program that facilitates sales directly to dental
patients), and has recently begun to offer products through an online retail
site that can be accessed through a hyperlink on the Company's Web site.
INTERNATIONAL OPERATIONS
Optiva believes that there are significant opportunities for the sale of
its products in international markets. To take advantage of these opportunities,
the Company's strategy is to focus initially on selected markets that the
Company believes have significant potential over the next few years and to adapt
its marketing and distribution strategies to address differing local markets.
The Company's international sales efforts are concentrated in a limited
number of countries. Recent initiatives include expansion of the Company's
efforts in the United Kingdom and Japan. The Company recently formed a U.K.
subsidiary and hired a manager of U.K. operations. The Company has employed a
sales and marketing strategy in the United Kingdom that closely follows that
utilized in the United States. In Japan, the Company is expanding its sales
primarily through retail channels. Optiva recently entered into a letter of
intent with Mitsui & Co., Ltd., a Japanese conglomerate with large retail
holdings, regarding the marketing and sale of the SONICARE product line by
Mitsui in Japan through its established retail network.
In 1997, approximately 6% of the Company's net sales were generated outside
the United States, compared to 5% of 1996 net sales. Further expansion of
international sales will require significant management attention and financial
resources, and could result in a significant portion of the Company's revenue
being subject to the risks associated with international sales. See "Risk
Factors -- Risks Associated With International Sales and Operations."
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PRODUCT SUPPORT
The Company's service and support staff is focused on reinforcing the
strength of the SONICARE brand by providing a high level of customer service and
support. Representatives who staff the Company's call center are trained to
respond directly to consumers' problems, including billing, replacement parts
and product malfunction. The Company employs an answering service for after-
hours support. The Company has a 30-day money-back guarantee on its SONICARE
models, as well as a 90-day better check-up guarantee. The Company provides a
limited warranty of up to two years on SONICARE models.
CLINICAL AND LABORATORY RESEARCH
Beginning with the first SONICARE toothbrush prototypes, Optiva has pursued
a strategy of establishing a strong scientific record of the efficacy and health
benefits of its products and technologies. Optiva has commissioned major
universities and research centers in the United States and Europe to perform
studies of its products in order to gain acceptance and approval among dental
professionals. In addition, the Company has invested in an internal clinical
science capability to support product development efforts and to continually
reexamine potential benefits of or uses for its existing technology and product
line. In some cases, universities and research centers are commissioned to
further investigate preliminary findings of studies that have been conducted
internally by the Company.
The Company selects investigators based on their reputations as leaders in
their fields and by their special skills, depending on the particular needs of
the area under study. The Company believes that the extensive scientific
findings have been critical in establishing the credibility of Optiva's products
among dental professionals. Optiva encourages publication of its commissioned
studies in peer-reviewed professional journals to further enhance the
credibility and dissemination of the findings.
A number of clinical and laboratory studies commissioned by the Company
have focused on examining the possible health benefits of SONICARE use. Findings
include the following:
REDUCING SYMPTOMS OF PERIODONTAL DISEASE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
FINDINGS STUDY
- --------------------------------------------------------------------------------
- SONICARE use over several months reduced gingival (1), (2)
bleeding in periodontitis patients.
- --------------------------------------------------------------------------------
- SONICARE use over several months reduced periodontal (1), (2)
pocket depth (a common indicator of periodontal disease)
in periodontitis patients.
- --------------------------------------------------------------------------------
</TABLE>
(1) Northwestern University Dental School, Chicago, IL 1997. A six-month
clinical comparison of the efficacy of the SONICARE and the Braun Oral-B
electric toothbrushes on improving periodontal health in adult periodontitis
patients. J. Clin. Dent., 8:4-9.
(2) University of Washington, Seattle, WA 1996. Efficacy of a sonic toothbrush
on inflammation and probing depth in adult periodontitis. J. Periodontol.
67:900-9080 (Dr. Michael D. Spektor, a co-author of this publication, is and
was at the time this paper was published a shareholder of Optiva
Corporation.)
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BACTERIAL REDUCTION
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
FINDINGS STUDY
- ---------------------------------------------------------------------------------------------------------------
- Substantial reductions in a cavity-causing interdental bacteria after using SONICARE for (1), (2)
approximately one month.
- ---------------------------------------------------------------------------------------------------------------
- SONICARE caused damage to, and removal of, plaque bacteria in laboratory studies. (3), (4)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) University of Milan, Italy 1998. Reduction of interdental cariogenic
microflora by a sonic toothbrush. J. Dent. Res., In Press (abstract).
(2) University of Milan, Italy 1998. Effects of two powered toothbrushes on
cariogenic microflora in vivo. J. Dent. Res., 77:287 (abstract).
(3) University of Washington, Seattle, WA 1993. Fimbria damage and removal of
adherent bacteria after exposure to acoustic energy. Oral Microbiol.
Immunol., 8:277-282. (Dr. L. David Engel and Dr. Roy Martin, co-authors of
this publication, were founders and directors of Optiva Corporation prior to
publication of this paper, and were and are shareholders of Optiva
Corporation.)
(4) University of Iowa, Iowa City, IA 1997. Efficacy of the SONICARE toothbrush
fluid dynamic action on removal of human supragingival plaque. J. Clin.
Dent., 8:10-14.
LOW ABRASION
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------------------
FINDINGS STUDY
- ---------------------------------------------------------------------------------------------------------------
- SONICARE was less abrasive than a soft manual toothbrush and certain conventional power (1), (2)
toothbrushes on gingival tissues.
- ---------------------------------------------------------------------------------------------------------------
- Gingival recession was not aggravated by SONICARE use. (3),(4)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) University of Zurich, Switzerland 1998. In vitro evaluation of effects of
electric toothbrushes on gingiva. J. Dent. Res., In Press (abstract). (A
co-author of this publication was serving on the Scientific Advisory Board
(see below) at the time this paper was published.)
(2) University of Zurich, Switzerland 1998. Relative effects of powered
toothbrushes on dentin and gingiva. J. Dent. Res., 77:717 (abstract). (A
co-author of this publication was serving on the Scientific Advisory Board
(see below) at the time this paper was published.)
(3) University of Munster, Germany 1998. Biological and mechanical effects of
powered toothbrushes on human gingiva. J. Dent. Res., 77:211 (abstract).
(4) University of Washington, Seattle, WA 1994. Clinical evaluation of the
efficacy and safety of a new sonic toothbrush. J. Periodontol. 65:692-697.
(Dr. Christopher McInnes, a co-author of this publication, is and was at the
time this paper was published an employee of Optiva Corporation.)
The Company is aware of a number of studies that negatively reflect on the
Company's products. For instance, some studies conclude that competitors'
products are superior to SONICARE in plaque or stain removal. Optiva believes
that the findings of some of these studies are contradicted by findings from its
studies or are not clinically meaningful. However, negative or conflicting
clinical results arising from studies commissioned by competitors, the Company
or others could significantly undermine the credibility and competitive position
of the Company's SONICARE product line and could have a material adverse effect
on the Company's business, operating results and financial condition. See "Risk
Factors -- Risk of Adverse Findings or Reports."
In addition to commissioning external studies, Optiva has an on-site
clinical research facility with three dental operatories which provides the
physical resources necessary to conduct in-house studies. These studies are
predominantly pilot clinical studies in new areas of interest and alpha-testing
of new Optiva products.
Optiva has established a 15-person Scientific Advisory Board to assist in
planning and reviewing clinical research and product development. The Scientific
Advisory Board is comprised of scientists and dental professionals, including
general dentists, periodontists, orthodontists, geriatric dentists and dental
hygienists. Members are located throughout the United States, as well as in the
Pacific Rim and Europe. The Scientific Advisory Board generally meets twice a
year, and members serve one- or two-year terms. Members receive a fee of $1,000
per meeting, plus expenses.
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MANUFACTURING AND QUALITY ASSURANCE
The Company's SONICARE products are manufactured at a manufacturing and
test facility at the Company's headquarters in Bellevue, Washington. The Company
believes its in-house final manufacturing and assembly operations enable it to
be flexible and responsive to changing market conditions and customer needs. The
Company's manufacturing operations are currently based on two shifts and a
five-day work week. The Company believes that control over its final
manufacturing and assembly allows it to more quickly introduce new products and
manufacturing technology. The majority of the components used in the Company's
manufacturing process are obtained from outside sources, which in some cases are
sole source suppliers. The Company is therefore dependent on manufacturers and
vendors of certain critical components. See "Risk Factors -- Manufacturing
Capacity Constraints; Dependence on Key Suppliers."
The Company expects to increase capacity when it moves to its new location
in Snoqualmie, Washington (approximately 15 miles east of its current location),
currently scheduled for mid-1999. The development and construction of a new
manufacturing facility is subject to significant risks and uncertainties. The
Company may experience significant delays in moving its operations, installing
its manufacturing equipment, and building and testing its systems and
infrastructure, any of which could have a material adverse effect on its ability
to fill customer orders and on its overall business, operating results and
financial condition. There can be no assurance that the Company will not
encounter these or other unforeseen difficulties, costs or delays in
constructing and equipping the new manufacturing facility, in relocating
operations to the new facility or in commencing production at the new facility.
See "Risk Factors -- Risks Associated With Relocation; Risk of Interruption of
Business."
The Company's quality assurance system involves product and process
sampling, cooperative interaction among the manufacturing and product
development teams, vendor inspections and product failure analysis. The Company
believes it is in substantial compliance with FDA current Good Manufacturing
Practices.
COMPETITION
The consumer oral care market is highly competitive and is characterized by
intense price competition. The Company competes directly with manufacturers of
mechanical oral care devices such as power toothbrushes and oral irrigators, as
well as manual toothbrushes. The Company also competes indirectly, and may in
the future compete directly, with sellers of consumables such as toothpaste,
mouthwash and dental floss. See "Risk Factors -- Potential New Markets."
The Company's SONICARE product line competes with products offered by a
number of larger companies, including Gillette, manufacturer of the Braun Oral-B
product line; Teledyne, manufacturer of the SenSonic sonic toothbrush; and
Conair, manufacturer of the Interplak power toothbrush product line. The
Company's principal competitors have substantially greater financial,
manufacturing, marketing and technical resources, greater brand recognition, and
larger manufacturing capacities than the Company. These advantages may afford
the Company's competitors greater ability to manufacture large volumes of their
products and achieve pricing advantages as a result of greater economies of
scale, develop product innovations, expand distribution, compete for shelf
space, reduce product prices and influence consumer buying decisions. In
addition, the Company's competitors may be able to use their greater market
standing and resources to exclude the Company's products from certain retailers'
shelves. Most power toothbrush products currently are offered at prices
substantially lower than the SONICARE products. Price reductions by competitors
could result in downward pressure on the prices of the Company's products. There
can be no assurance that the Company would be able to increase its sales volume
or reduce its per unit costs under such circumstances while maintaining
profitability. Competitive pressures also may lead to an increase in other
sales-related expenses, including advertising and marketing costs. Furthermore,
competitive price pressures may impair the Company's ability to raise prices in
line with any increase in its distribution, promotional and manufacturing costs.
The failure of the Company to respond to competitive pressures, particularly
40
<PAGE> 38
price competition, in a timely or effective manner would have a material adverse
effect on the Company's business, operating results and financial condition.
The Company and certain of its key competitors have in the past made
allegations or complaints to broadcasters, publishers of periodicals and the
National Advertising Division of the Better Business Bureau regarding unfair or
misleading product claims. While the Company has not to date been materially
adversely affected by any such allegations or complaints concerning its
products, there can be no assurance that in the future such allegations or
complaints would not have a material adverse effect on the Company's business,
operating results or financial condition.
The Company believes that certain of its key competitors have invested, and
will continue to invest, substantially greater funds in developing new products
and technologies. Accordingly, there can be no assurance that the Company's
competitors do not have, or will not develop or introduce, new products and
technologies that could render the Company's products less competitive or
obsolete. Any failure by the Company to compete effectively with regard to new
product offerings, product innovations and technological changes and to offer
products that provide performance that is at least comparable to competing
products would have a material adverse effect on the Company's business,
operating results and financial condition.
Gillette has recently announced, and the Company believes will imminently
launch, a new Braun Oral-B power toothbrush model, the "3-D," that may be
positioned at a price point comparable to that of the Company's SONICARE models.
The Company believes that this new Braun model may offer improvements over
existing Braun models and expects that Gillette will devote substantial
marketing resources to the launch of this new product. As a result, the
introduction of this new product could force the Company to increase its
marketing expenditures, redirect marketing or product development resources or
reduce prices on its products, and therefore could negatively affect the
Company's operating results. In addition, the introduction could result in
decreased sales of the Company's products because of market confusion or a shift
in consumer preferences, or could lead to a significant reduction in the shelf
space allocated to the SONICARE product line.
PROPRIETARY RIGHTS AND TECHNOLOGY
The Company relies on a combination of patents, trademarks, copyrights,
trade secret laws and confidentiality procedures to protect its intellectual
property. As of December 31, 1997, the Company had seven issued United States
patents and five pending U.S. patent applications. Issued U.S. patents are
described in the following table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. DATE
PATENT ISSUED PATENT TITLE PATENT CONTENT
- ------------------------------------------------------------------------------------------------------
5,189,751 3/2/93 Vibrating Toothbrush Using a Electromagnetic Driver Design
Magnetic Driver
- ------------------------------------------------------------------------------------------------------
5,263,218 11/23/93 Vibrating Toothbrush Using a Electromagnetic Driver Design
Magnetic Driver
- ------------------------------------------------------------------------------------------------------
5,305,492 4/26/94 Brush Element for an Acoustic Optimized Brush Design for Sonic
Toothbrush Brushing
- ------------------------------------------------------------------------------------------------------
5,309,590 5/10/94 Dentifrice/Medication Dispensing Dispenser for Delivering
Toothbrush Toothpaste to the Brushhead
- ------------------------------------------------------------------------------------------------------
5,378,153 1/3/95 High Performance Acoustical Critical Ranges for, and Cleansing
Cleaning Apparatus for Teeth Effects of, Achieving Sonic Brush
Performance
- ------------------------------------------------------------------------------------------------------
5,476,384 12/19/95 Dentifrice/Medication Dispensing Dispenser for Delivering
Toothbrush Toothpaste to the Brushhead
- ------------------------------------------------------------------------------------------------------
5,544,382 8/13/96 Pacing Toothbrush Timing Control Feature
- ------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 39
The Company has also filed for corresponding patent protection in certain
international jurisdictions. The Company intends to seek further U.S. and
international patents on these and other elements of its proprietary technology
when and where the Company believes such protection is worthwhile. In some
countries, the Company has decided not to file for patent or trademark
protection of its proprietary rights because it has determined that the costs of
doing so are not warranted.
There can be no assurance that the Company's pending or any future patent
applications will be issued with the scope of the claims sought by the Company,
if at all, or that the Company's patent claims will not be successfully
challenged or circumvented by competitors. Despite the precautions taken by the
Company to protect its intellectual property, it may be possible for
unauthorized third parties to copy certain portions of the Company's products or
reverse engineer or obtain and use information that the Company regards as
proprietary. In addition, the laws and practices of some foreign countries do
not protect proprietary rights to the same extent as do the laws and practices
of the United States. In some countries, the Company has decided not to file for
patent or trademark protection of its proprietary rights because it believes
that the costs outweigh the benefits. There can be no assurance that the
measures taken by the Company to protect its rights, and the Company's means of
protecting its proprietary rights in the United States or abroad, will be
adequate, that competing companies will not independently develop similar
technology or that the time, diversion of management attention and expense of
defending the Company's proprietary rights will not have a material adverse
effect on the Company's business, operating results and financial condition. In
1996, the Company and Teledyne settled litigation between them that in part
concerned a critical sonic technology patent held by the Company. As part of the
settlement the Company granted Teledyne a nonexclusive, royalty-bearing license
to that patent, under which Teledyne is currently manufacturing and selling its
SenSonic toothbrush.
The Company has received a limited number of claims of patent and trademark
infringement and likely will receive additional claims in the future. While none
of these claims have had a material adverse effect on the Company's business or
operations to date, the Company has incurred in the past, and could incur in the
future, substantial costs in defending itself and its customers against
infringement claims. In addition, because patent applications in the United
States are not publicly disclosed until the patent is issued, applications that
relate to the Company's products may have been filed of which the Company is
unaware. Litigation may be necessary to protect proprietary information and
rights of the Company or to determine the enforceability, scope and validity of
the proprietary rights of others. Any litigation or administrative proceedings
will likely result in substantial expense to the Company and significant
diversion of effort by the Company's technical and management personnel. The
prosecution and defense of intellectual property rights, as with any lawsuit,
are inherently uncertain and carry no assurance of success. An adverse
determination in litigation or administrative proceedings could subject the
Company to significant liabilities to third parties, require the Company to seek
licenses from third parties, prevent the Company from selling or making its
products or require the Company to modify its products. Furthermore, there can
be no assurance that any necessary licenses would be available to the Company on
satisfactory terms, if at all.
REGULATION
The Company's consumer oral care products and manufacturing facilities are
regulated by the FDA and by various other governmental agencies for the states,
localities and foreign countries in which the Company's products are
manufactured and sold. The FDA requires pre-market approval of new medical
devices through submission of a Section 510(k) Pre-Market Notification, a
Pre-Market Approval Application or an available exemption from the FDA's
pre-market clearance requirements. The oral care products currently marketed by
the Company are exempt from FDA pre-market clearance requirements, although
products under development by the Company may be subject to such requirements or
other regulations. The Company's manufacturing facilities are subject to the
FDA's current Good Manufacturing Practices.
Failure to comply with applicable FDA or other regulatory requirements can
result in, among other things, fines, suspensions or withdrawals of regulatory
clearances or approvals, product recalls,
38
<PAGE> 40
operating restrictions (including suspension of production and distribution),
product seizures and criminal prosecution. In addition, governmental regulations
may be established that could prevent or delay regulatory clearances or approval
of the Company's products. Furthermore, changes in existing regulations or
adoption of new regulations or policies could prevent the Company from
obtaining, or affect the timing of, future regulatory clearances or approvals.
There can be no assurance that the Company will be able to achieve or maintain
compliance with necessary U.S. or foreign regulatory requirements, that it will
be able to produce its products profitably and in a timely manner while
complying with such regulatory requirements or that it will not be required to
incur significant costs obtaining or maintaining such regulatory approvals.
Delays in receiving necessary U.S. or foreign regulatory clearances or
approvals, failure to receive clearances or approvals, or the loss of previously
received clearances or approvals could have a material adverse effect on the
Company's business, operating results and financial condition. In addition, the
long-term course of regulatory policy cannot be predicted, and there can be no
assurance that new laws or regulations will not be introduced, or existing laws
and regulations will not be applied in a manner, that materially adversely
affect the Company.
The Company's use of rechargeable batteries in its SONICARE models subjects
the Company to a variety of local, state, federal and international governmental
regulations relating to the recyclability and disposal of such batteries. The
failure to comply with current or future regulations could result in the
imposition of substantial fines on the Company, suspension of production,
alteration of its recycling and disposal processes or cessation of operations.
In addition, compliance with such regulations could require the Company to incur
substantial expenses.
EMPLOYEES
As of March 31, 1998, the Company had approximately 468 full-time and
part-time employees. The Company believes that its employees are an important
resource and emphasizes personal growth for all employees. In furtherance of
this general policy, the Company offers on-site English language classes and
provides tuition assistance to eligible employees pursuing relevant vocational
education. None of the Company's employees are covered by a collective
bargaining arrangement, and the Company believes that relations with its
employees are good.
PROPERTIES
The Company's corporate headquarters are located in Bellevue, Washington.
The Company leases four primary buildings at this site with a total of
approximately 130,000 square feet of office, research, production and warehouse
space. The Company is planning to relocate its current operations and offices to
a new approximately 175,000-square-foot facility under construction in
Snoqualmie, Washington on an 11-acre site. This facility will include corporate
office, manufacturing, research and development and warehouse facilities.
Construction of the facility recently commenced, and occupancy is currently
scheduled for mid-1999. The Company recently exercised an option to purchase the
new facilities and intends to finance this purchase and hold the property
through a tax retention operating lease arrangement with certain financial
institutions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." Additionally,
Optiva has an option to lease one or more buildings that are to be built on a
10-acre adjacent parcel, or to purchase this additional parcel of land. This
option expires on January 1, 1999, but may be extended for six months. The
Company also intends to lease or purchase in 1998 or 1999 additional facilities
in the Puget Sound region for use as a separate distribution center.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of
any pending or threatened litigation that could have a material adverse effect
on its business, operating results or financial condition.
39
<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages and
positions as of May 11, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David Giuliani(1)(2).............. 51 President, Chief Executive Officer and Chairman of the
Board
Ronald B. Ahlegian................ 50 Vice President of Sales
Karl F. Forsgaard................. 43 Vice President of Legal Affairs, Corporate Counsel and
Secretary
Judy M. Loucks.................... 43 Vice President of Human Resources
Eric P. Meyer..................... 41 Vice President of Marketing
Michael D. Stull.................. 37 Vice President of Finance, Treasurer and Chief
Financial Officer
John D. Tubbs..................... 48 Vice President of Operations
Vincent F. Coviello, Jr.(2)....... 58 Director
L. David Engel(1)................. 54 Director
Louis G. Yaseen(1)................ 53 Director
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
David Giuliani has served as President, Chief Executive Officer and
Chairman of the Board of Optiva since co-founding the Company in March 1988. In
1983, Mr. Giuliani co-founded, and from such date to 1987 he served as the
Executive Vice President of, International Biomedics, Inc., a biotechnology
company whose major assets were acquired by Abbott Laboratories in 1987. From
1987 to 1989, Mr. Giuliani oversaw the operations of the resulting Abbott
Research division, where he served as General Manager. Mr. Giuliani has authored
14 U.S. patents. He received his B.S. summa cum laude in Electrical Engineering
from the University of California, Santa Barbara, and studied graduate-level
electrical engineering and business at Stanford University.
Ronald B. Ahlegian has served as Vice President of Sales of Optiva since
September 1995. From October 1994 to September 1995, Mr. Ahlegian served as the
Company's Director of Sales. From September 1990 to September 1994, Mr. Ahlegian
was National Sales Manager for Thermoscan, Inc., a manufacturer and distributor
of tympanic ear thermometers. Mr. Ahlegian served as National Professional Sales
Manager for Dental Research Corporation, a marketer of Interplak, from April
1987 to September 1990 and as District Manager and National Program Manager of
Kerr Manufacturing/Division of Sybron Corporation from November 1981 to April
1987.
Karl F. Forsgaard has served as Vice President of Legal Affairs and
Corporate Counsel of Optiva since December 1996 and as the Company's Secretary
since May 1997. From September 1995 to November 1996, Mr. Forsgaard served as
the Company's Manager of Regulatory Affairs. Mr. Forsgaard was an attorney at
Bogle & Gates in Seattle, Washington from June 1989 to June 1995 and at
Pillsbury, Madison & Sutro in San Francisco, California from June 1983 to April
1989. Mr. Forsgaard received his B.A. in Biology cum laude from Harvard College
and his J.D. from the University of Washington School of Law.
Judy M. Loucks has served as Vice President of Human Resources of Optiva
since April 1998. From December 1996 to March 1998, Ms. Loucks served as the
Company's Director of Human Resources and from January 1996 to November 1996, as
its Human Resources Manager. From February 1994 to January 1996, Ms. Loucks
served as Director of Human Resources of Nichirei Foods America Inc., where she
established the Human Resources Department. From May 1992 to October 1993, Ms.
Loucks was Director of Human Resources for Security Properties Investment, Inc.,
a real estate investment
40
<PAGE> 42
and property management company. Ms. Loucks received her B.A. in Political
Science from the University of Montana and took graduate-level courses in Public
Administration at San Diego State University.
Eric P. Meyer has served as Vice President of Marketing of Optiva since
September 1995. From October 1994 to September 1995, Mr. Meyer served as the
Company's Director of Marketing and from November 1992 to September 1994 as
Director of Marketing and Sales. From 1985 to 1992, Mr. Meyer served in various
senior marketing and sales positions at LifeScan, Inc., a Johnson & Johnson
company. Mr. Meyer received his B.S. in Industrial and Operations Engineering
and his Bachelor of General Studies degree from the University of Michigan and
his M.B.A. from Stanford University.
Michael D. Stull has served as Vice President of Finance and Chief
Financial Officer of Optiva since September 1995 and as Treasurer since May
1998. From December 1993 to September 1995, Mr. Stull served as the Company's
Director of Finance. From January 1992 to June 1993, Mr. Stull was the Chief
Financial Officer of Meteor Communications Corp. ("Meteor"), a manufacturer of
high-technology communications and data acquisition systems, and from June 1989
to January 1992, he was Meteor's Controller. Mr. Stull received his B.A. in
Business Administration from the University of Washington.
John D. Tubbs has served as Vice President of Operations of Optiva since
September 1995. From April 1993 to October 1995, Mr. Tubbs served as the
Company's Director of Operations. From July 1992 to April 1993, Mr. Tubbs was
self-employed as an independent consultant. From June 1990 to June 1992, he was
a Principal with Pittiglio Rabin Todd & McGrath, an operations management
consulting company. From June 1984 to July 1989, Mr. Tubbs was Vice President of
Operations of Integrated Measurement Systems, Inc., a manufacturer of
semiconductor test and development equipment. Mr. Tubbs received his B.S. in
Chemical Engineering from Bucknell University and his M.B.A. from Drexel
University. Mr. Tubbs is a Certified Fellow in Production and Inventory
Management through the American Production and Inventory Control Society.
Vincent F. Coviello, Jr., has served as a Director of the Company since
December 1994. Since April 1993, Mr. Coviello has served as Chairman and
President of Turnberry Capital Corporation and Turnberry Financial Services,
companies engaged in venture capital investment and registered investment
advisory services. From 1980 to 1993, Mr. Coviello was the founder, Chairman and
Chief Executive Officer of the GNA group of companies, which are engaged in the
sale of mutual funds and annuities through banks and savings institutions. Mr.
Coviello currently serves as a director of Griffin Funds, the mutual fund family
of Home Savings of America. Mr. Coviello received his B.S. in Economics from the
Wharton School of Finance at the University of Pennsylvania and his L.L.B. from
the University of Pittsburgh Law School. Mr. Coviello is a Chartered Financial
Analyst.
L. David Engel was a co-founder of Optiva and has served as a Director
since inception. Since July 1997, Dr. Engel has provided consulting services to
the Company and, from March 1988 to April 1998, he was the Company's Treasurer.
From September 1995 to June 1997, Dr. Engel served as Optiva's Vice President of
Clinical Research and Regulatory Affairs and, from July 1994 to September 1995,
as its Director of Clinical Research and Regulatory Affairs. Prior to joining
Optiva, Dr. Engel was a scientist and faculty member at the University of
Washington from 1974 to 1994. Dr. Engel is presently a part-time faculty member
at the University of Southern California and is a member of a scientific
advisory panel for the University of Washington. Dr. Engel received his B.S. in
Biology and his D.D.S. from the University of Minnesota. Dr. Engel received his
M.S. in Microbiology and his Ph.D. in Experimental Pathology from the University
of Washington.
Louis G. Yaseen has served as a Director of and consultant to the Company
since December 1992. From October 1992 to the present, Mr. Yaseen has served as
President of The Winbrook Group, Ltd., a consulting firm. From December 1994 to
June 1995, Mr. Yaseen was President, and, from December 1994 to February 1996,
he was a director, of Circle Fine Art Corporation, a retailer of fine art
products. Mr. Yaseen was President of DoveBar International from its inception
in 1984 to 1986 when it was sold to Mars, Inc., and continued to work in a
management capacity there until 1989. Mr. Yaseen received
41
<PAGE> 43
his B.A. in Economics from Roosevelt University and his M.B.A. from the Graduate
School of Business of the University of Chicago.
KEY EMPLOYEES
Thomas Hassell, D.D.S., Dr.med.dent., Ph.D., joined Optiva in May 1996 as
Director of Clinical Research. Prior to joining Optiva, Dr. Hassell was
Professor and Chair of Periodontology at the University of Florida, Associate
Professor of Anatomy and Periodontics at the University of Maryland, and
Assistant Professor of Periodontics at the University of North Carolina. He
previously was head of the Experimental Bioelectronics Laboratory at the
University of Zurich, and maintained a private dental practice on Guam. Dr.
Hassell received his B.S. in Biology and his D.D.S. from Indiana University. He
trained in periodontology and received his research doctorate from the
University of Zurich, Switzerland, and his Ph.D. in Experimental Pathology from
the University of Washington.
Nathan M. Iyer, Ph.D., joined Optiva in December 1994 with more than 20
years of product development experience in consumables, formulations, hematology
and medical devices and is currently the Director of Consumables Development of
Optiva. From May 1985 to December 1994, Dr. Iyer worked at Abbott Laboratories
in various capacities, most recently as Manager of Technical Product
Development. Dr. Iyer was also a Research Associate at the University of
Washington and a Staff Scientist for Unilever Research. Dr. Iyer is the author
of seven patents. Dr. Iyer received his Ph.D. in Chemistry from the University
of Victoria, British Columbia.
Kenneth A. Pilcher has served as Director of Appliance Research and
Development of Optiva since November 1997. From December 1995 to June 1997, Mr.
Pilcher was President of Modelwerks Inc., an engineering services and rapid
prototyping firm. From January 1989 to November 1995, Mr. Pilcher was Director
of Product Development at Ioline Corporation, a computer peripherals
manufacturer. From 1980 to 1989, Mr. Pilcher held various research and
development positions at Eldec Corporation, a manufacturer of aerospace
electronics. Mr. Pilcher received his B.S. in Electrical Engineering from the
University of Washington.
BOARD OF DIRECTORS
The Company's Bylaws provide that the Board of Directors (the "Board")
shall be composed of not less than two or more than seven directors, with the
specific number to be set by Board resolution. The Company currently has four
directors but intends to recruit and add at least one additional nonemployee
director after this offering.
At the first election of directors following this offering, the Board will
be divided into three classes, with the number of directors comprising each
class to be as equal in number as possible. At the first election of directors
to the Board following this offering, each Class I director will be elected to
serve until the next annual shareholders meeting, each Class II director will be
elected to serve until the second annual shareholders meeting and each Class III
director will be elected to serve until the third annual shareholders meeting.
Thereafter each newly elected director will serve for a three-year term. All
directors will hold office until the annual shareholders meeting at which their
terms expire and their successors are duly elected and qualified. Directors may
be removed by shareholders only for cause. See "Risk Factors -- Antitakeover
Considerations."
The Board of Directors currently has an Audit Committee and a Compensation
Committee. The Audit Committee consists of Messrs. Giuliani and Coviello. The
Audit Committee reviews the functions of the Company's management and
independent auditors pertaining to the Company's financial statements and
performs such other related duties and functions as are deemed appropriate by
the Audit Committee and the Board. The Compensation Committee, which consists of
Messrs. Giuliani and Yaseen and Dr. Engel, determines officer and director
compensation. As soon as practicable after completion of this offering, the
Company intends to recruit and add at least one additional nonemployee director
to the Board and to reconstitute the Compensation and Audit Committees to
consist solely of nonemployee directors.
42
<PAGE> 44
DIRECTOR COMPENSATION
Currently, the Company reimburses directors for their expenses incurred in
attending Board and Committee meetings, but does not pay any other cash
compensation to directors serving in such capacity. During 1997, in
consideration of service on the Board, Mr. Coviello received a warrant to
purchase 4,000 shares of Common Stock at an exercise price of $3.00 per share,
Dr. Engel received an option to purchase 40,000 shares of Common Stock at an
exercise price of $3.00 per share and a warrant to purchase 2,000 shares of
Common Stock at an exercise price of $3.00 per share, and Mr. Yaseen received a
warrant to purchase 4,000 shares of Common Stock at an exercise price of $3.00
per share. On March 22, 1998, Messrs. Coviello and Yaseen and Dr. Engel each
received warrants to purchase 16,000 shares of Common Stock at an exercise price
of $8.00 per share. Two directors of the Company, Dr. Engel and Mr. Yaseen,
receive consulting fees from the Company for services outside their duties as
directors. See "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Giuliani, the Company's President and Chief Executive Officer, serves
as a member of the Compensation Committee of the Board. Dr. Engel and Mr.
Yaseen, directors of the Company, are parties to consulting agreements with the
Company. See "Certain Transactions." Following this offering, the Company
intends to appoint an additional nonemployee director to both the Compensation
and Audit Committees. No interlocking relationship exists between members of the
Company's Board or Compensation Committee and members of the board of directors
or compensation committee of any other company.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company during the fiscal year ended December 31, 1997 to its Chief
Executive Officer and to the other four most highly compensated executive
officers of the Company whose salary and bonus exceeded $100,000 during 1997
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) ($)(1)
--------------------------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C>
David Giuliani
President and Chief Executive Officer......... 262,500 156,750 80,000 5,586
Eric P. Meyer
Vice President of Marketing................... 146,346 85,000 48,000 4,447
John D. Tubbs
Vice President of Operations.................. 128,462 90,000 20,000 4,546
Ronald B. Ahlegian
Vice President of Sales....................... 136,538 65,000 12,000 518
Michael D. Stull
Vice President of Finance, Treasurer and Chief
Financial Officer............................. 100,000 50,000 0 4,299
</TABLE>
- ---------------
(1) Represents (a) $4,233 in matching 401(k) plan contributions by the Company
for each of Messrs. Giuliani, Meyer, Tubbs and Stull and (b) $1,353, $214,
$313, $518 and $66 for term life insurance premiums for each of Messrs.
Giuliani, Meyer, Tubbs, Ahlegian and Stull, respectively.
43
<PAGE> 45
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during the fiscal year ended December
31, 1997.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(4)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
---- ------------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David Giuliani(5)............. 80,000 11.76% $3.00 4/01/07 150,935 382,498
Eric P. Meyer(5).............. 48,000 7.06% 3.00 4/01/07 90,561 229,499
John D. Tubbs(5).............. 20,000 2.94% 3.00 4/01/07 37,734 95,625
Ronald B. Ahlegian(5)......... 12,000 1.76% 3.00 4/01/07 22,640 57,375
Michael D. Stull(5)........... 0 -- -- -- -- --
</TABLE>
- ------------------------------
(1) All options granted to the Named Executive Officers in 1997 were
nonqualified stock options with 10-year terms from the date of grant.
Options become exercisable in equal annual installments over a period of
four years, commencing one year after the date of grant.
(2) Based on a total of 680,100 shares subject to options granted to employees
and consultants in 1997.
(3) All options to Named Executive Officers were granted at fair market value on
the grant date. The exercise price of the options is payable in cash or
check, in shares of Common Stock, by promissory note or through a cashless
exercise procedure with a broker.
(4) The assumed rates of growth are prescribed by the Commission for
illustrative purposes only and are not intended to forecast or predict
future stock prices.
(5) On April 24, 1998, the Named Executive Officers were granted options to
purchase shares of Common Stock at an exercise price of $12.50 per share, as
follows: Mr. Giuliani -- 60,000 shares; Mr. Meyer -- 20,000 shares; Mr.
Tubbs -- 20,000 shares; Mr. Ahlegian -- 20,000 shares; and Mr.
Stull -- 40,000 shares. Each of the options becomes exercisable in equal
annual installments over a period of four years, commencing one year after
the date of grant.
The following table sets forth certain information regarding unexercised
stock options held by the Named Executive Officers as of December 31, 1997. No
options were exercised by the Named Executive Officers during the fiscal year
ended December 31, 1997.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT FISCAL
YEAR-END(#) YEAR-END ($)(1)
--------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David Giuliani................. 200,000 80,000 3,037,500 1,040,000
Eric P. Meyer.................. 52,754 90,262 785,636 1,239,158
John D. Tubbs.................. 138,500 51,500 2,138,644 718,532
Ronald B. Ahlegian............. 160,000 52,000 2,390,000 753,500
Michael D. Stull............... 87,500 22,500 1,319,532 328,594
</TABLE>
- ------------------------------
(1) Calculated based on the difference between the exercise price and the
assumed initial public offering price of $16.00 per share.
44
<PAGE> 46
BENEFIT PLANS
1998 Stock Incentive Compensation Plan
The purpose of the Company's 1998 Stock Incentive Compensation Plan (the
"1998 Plan") is to enhance the long-term shareholder value of the Company by
offering employees, directors, officers, consultants, agents, advisors and
independent contractors of the Company and its subsidiaries an opportunity to
participate in the Company's potential growth and success, and to encourage them
to remain in the service of the Company and its subsidiaries and acquire and
maintain stock ownership in the Company. The 1998 Plan includes both stock
options and stock awards, including restricted stock. A maximum of 1,600,000
shares of Common Stock will be available for issuance under the 1998 Plan. As of
the closing of this offering, approximately 475 persons will be eligible to
receive stock options or awards under the 1998 Plan.
Stock Option Grants. The Plan Administrator of the 1998 Plan will be the
Board of Directors (the "Plan Administrator") which will have the authority to
select individuals to receive options under the 1998 Plan and to specify the
terms and conditions of each option granted (incentive or nonqualified), the
exercise price (which must be at least equal to the fair market value of the
Common Stock on the date of grant for incentive stock options and at least equal
to 85% of the fair market value of the Common Stock on the date of grant for
nonqualified stock options), the vesting provisions and the option term. For
purposes of the 1998 Plan, fair market value means the average of the high and
low per share sales price as reported by the New York Stock Exchange or any
other applicable trading market on the date of grant. Unless otherwise provided
by the Plan Administrator and to the extent required by the Internal Revenue
Code of 1986, as amended (the "Code"), for incentive stock options, an option
granted under the 1998 Plan will expire 10 years from the date of grant, or if
earlier, three months after the optionee's termination of service with the
Company or its subsidiaries, other than termination for cause, or one year after
the optionee's death or disability.
Stock Awards. The Plan Administrator is authorized under the 1998 Plan to
issue shares of Common Stock to eligible participants on such terms and
conditions and subject to such restrictions, if any, as the Plan Administrator
may determine in its sole discretion. Such restrictions may be based on
continuous service with the Company or its subsidiaries or the achievement of
such performance goals as the Plan Administrator may determine. Holders of
restricted stock are recorded as shareholders of the Company and have, subject
to certain restrictions, all the rights of shareholders with respect to such
shares.
Adjustments. Proportional adjustments to the aggregate number of shares
issuable under the 1998 Plan and to outstanding awards will be made for stock
dividends, stock splits and other capital adjustments.
Corporate Transactions. In the event of certain Corporate Transactions (as
defined in the 1998 Plan), each outstanding option and restricted stock award
under the 1998 Plan will automatically accelerate so that it will become 100%
vested immediately before the Corporate Transaction, except that acceleration
will not occur if such option or restricted stock award is, in connection with
the Corporate Transaction, to be assumed by the successor corporation or parent
thereof. Any option or restricted stock award that is assumed or replaced in the
Corporate Transaction and does not otherwise accelerate at that time shall
accelerate in the event the holder, for Good Reason (as defined in the 1998
Plan), or the successor corporation, without Cause (as defined in the 1998
Plan), terminates the holder's employment or services within one year following
the Corporate Transaction.
1998 Employee Stock Purchase Plan
The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan"),
which is intended to qualify as an employee stock purchase plan under Section
423 of the Code, authorizes 400,000 shares of Common Stock for issuance upon
exercise of purchase rights granted thereunder, subject to adjustment for stock
dividends, stock splits and similar changes in the Company's capitalization. The
50
<PAGE> 47
Purchase Plan is designed to encourage stock ownership by employees of the
Company and will be administered by the Board (the "Plan Administrator").
All employees who have been employed by the Company for at least three
months and whose customary employment is for more than 20 hours per week or five
months in any calendar year will be eligible to participate in the Purchase
Plan. Owners of 5% or more of the Common Stock are not permitted to participate
in the Purchase Plan by statute.
Under the Purchase Plan, an eligible employee will be entitled to purchase
shares of Common Stock from the Company through payroll deductions ranging from
1% to 15% of cash compensation, at a price equal to the lesser of 85% of the
fair market value of the Company's Common Stock on the first or the last day of
each six-month offering period under the Purchase Plan, provided that the
purchase price for the first offering period will be equal to the lesser of 100%
of the offering price or 85% of the fair market value of the Common Stock on the
last day of the applicable offering period. Unless the Plan Administrator
determines otherwise, the offering periods will commence on July 1 and January 1
of each year, with the first offering period commencing on the Effective Date.
The Code limits purchases under the Purchase Plan to $25,000 worth of Common
Stock in any one calendar year, valued as of the first day of an offering
period.
Upon a Corporate Transaction (as defined in the Purchase Plan), the
purchase date will be the business day immediately preceding the effective date
of the Corporate Transaction, unless the Plan Administrator provides for the
assumption or substitution of the outstanding purchase rights.
Amended and Restated 1995 California Stock Option Plan
The Company's Amended and Restated 1995 California Stock Option Plan (the
"1995 Plan") provides for the grant of incentive and nonqualified stock options
to employees, officers, directors, agents, consultants, advisors and independent
contractors of the Company. An aggregate of 80,000 shares of Common Stock have
been authorized for issuance under the 1995 Plan. As of March 31, 1998, options
to purchase 46,400 shares of Common Stock were outstanding under the 1995 Plan,
with exercise prices ranging from $1.06 to $2.00 per share. As of March 31,
1998, no options had been exercised under the 1995 Plan. As of the Effective
Date, no additional options will be granted under the 1995 Plan. After such
time, options will be granted under the 1998 Plan, but the 1995 Plan will
continue to govern outstanding options granted under the 1995 Plan.
The 1995 Plan is administered by the Board which has the authority to
select individuals who are to receive options under the 1995 Plan and to specify
the terms and conditions of each option granted (incentive or nonqualified), the
exercise price (which, for incentive stock options, must at least equal the fair
market value of the Common Stock on the date of grant and for nonqualified stock
options, must at least equal 85% of the fair market value of the Common Stock on
the date of grant), the vesting provisions and the option term.
Upon a Corporate Transaction (as defined in the 1995 Plan), the outstanding
options will terminate unless such options are exchanged for those of another
corporation.
Amended and Restated 1990 Stock Option Plan
The Company's Amended and Restated 1990 Stock Option Plan (the "1990 Plan")
provides for the grant of incentive and nonqualified stock options to employees,
officers, directors, agents, consultants, advisors and independent contractors
of the Company. An aggregate of 4,800,000 shares of Common Stock have been
authorized for issuance under the 1990 Plan but, as of the Effective Date, this
number will be reduced to the minimum number of shares required for issuance
pursuant to the exercise of any options that remain outstanding under the 1990
Plan. As of March 31, 1998, options to purchase 2,436,516 shares of Common Stock
were outstanding under the 1990 Plan, with exercise prices ranging from $0.0025
to $8.00 per share and options to purchase 602,920 shares had been exercised. As
of the Effective Date no additional options will be granted under the 1990 Plan.
All future option grants will
51
<PAGE> 48
be made under the 1998 Plan, but options outstanding under the 1990 Plan will
continue to be governed by the terms thereof.
The 1990 Plan is administered by the Board which has the authority to
select individuals who are to receive options under the 1990 Plan and to specify
the terms and conditions of each option granted (incentive or nonqualified), the
exercise price (which, for incentive stock options, must at least equal the fair
market value of the Common Stock on the date of grant and for nonqualified stock
options, must at least equal 85% of the fair market value of the Common Stock on
the date of grant), the vesting provisions and the option term. In the event of
certain Corporate Transactions (as defined in the 1990 Plan), the vesting of
each outstanding option will accelerate so that it will become 100% vested
immediately prior to the Corporate Transaction. Vesting of options will also
fully accelerate in the event the options are exchanged for those of another
corporation.
CHANGE-IN-CONTROL ARRANGEMENTS
The vesting of outstanding stock options and restricted stock awards under
the Company's stock option plans will accelerate upon the occurrence of certain
Corporate Transactions involving the Company, to the extent provided in each of
such plans. See "-- Benefit Plans."
52
<PAGE> 49
CERTAIN TRANSACTIONS
The Company has consulting arrangements with Dr. Engel and Mr. Yaseen
pursuant to which they are compensated for assisting the Company in certain
matters outside their duties as directors. Dr. Engel's agreement, effective as
of September 1, 1997, requires him to advise and provide technical assistance to
the Company. Mr. Yaseen's agreement, formally entered into as of May 1, 1998,
obligates him to assist the Company with marketing, financial and real estate
matters. As compensation for consulting services during 1997, Dr. Engel received
$29,850 and Mr. Yaseen received $133,302 from the Company. For the fiscal
quarter ended March 31, 1998, Dr. Engel and Mr. Yaseen received $17,700 and
$35,998, respectively, for consulting fees.
During 1996 and 1995, Mr. Yaseen received $70,040 and $21,292,
respectively, in consulting fees.
53
<PAGE> 50
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of April 30, 1998, certain information
with respect to the beneficial ownership of the Common Stock by (i) each person
known by the Company to beneficially own more than 5% of the Common Stock, (ii)
each director of the Company, (iii) each of the Named Executive Officers, (iv)
each of the Selling Shareholders and (v) all of the Company's directors and
executive officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
---------------------------- SHARES ---------------------------
NAME AND ADDRESS SHARES PERCENTAGE(1)(2) OFFERED HEREBY SHARES PERCENTAGE(1)(2)
---------------- --------- ---------------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
David Giuliani(3)................ 2,755,332 16.8% %
13222 S.E. 30th St.
Bellevue, WA 98005
L. David Engel(4)................ 1,147,000 6.8%
4451 Huggins St.
San Diego, CA 92122
Vincent F. Coviello, Jr.(5)...... 746,000 4.5%
Louis G. Yaseen(6)............... 249,780 1.5%
Ronald B. Ahlegian(7)............ 231,000 1.4%
Eric P. Meyer(8)................. 251,508 1.5%
John D. Tubbs(9)................. 251,500 1.5%
Michael D. Stull(10)............. 124,500 *
All directors and executive
officers as a group (10
persons)(11)................... 5,786,620 32.8%
Other Selling Shareholders(12)...
</TABLE>
- ------------------------------
* Less than 1%.
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Common Stock subject to options currently exercisable or
exercisable within 60 days of April 30, 1998, are deemed outstanding for
purposes of computing the percentage ownership of any other person. Except
where indicated, and subject to community property laws where applicable,
the persons in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
(3) Includes 220,000 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 30, 1998, 120,000 shares held by Diane
Silven, Trustee for Nicole Roven Giuliani under Agreement Dated September
23, 1996 and 120,000 shares held by Diane Silven, Trustee for Daniel Roven
Giuliani under Agreement Dated September 23, 1996. Mr. Giuliani disclaims
beneficial ownership of the shares held by the two trusts established for
the benefit of his children.
(4) Includes 113,000 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 30, 1998 and 18,000 shares that are
issuable upon exercise of immediately exercisable warrants. Also includes
1,016,000 shares held by the Engel Family Trust for the benefit of Dr.
Engel's family, of which Dr. Engel is a trustee.
(5) Includes 16,000 shares issuable upon exercise of immediately exercisable
warrants. Also includes 110,000 shares held by the Coviello Family Ltd.
Partnership, of which Mr. Coviello is a general partner.
(6) Includes 71,100 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 30, 1998, 26,000 shares issuable upon
exercise of immediately exercisable warrants and 152,680 shares held by Mr.
Yaseen's spouse.
49
<PAGE> 51
(7) Includes 163,000 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 30, 1998.
(8) Includes 75,508 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 30, 1998.
(9) Includes 151,500 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 30, 1998.
(10) Includes 92,500 shares issuable upon exercise of stock options that are
exercisable within 60 days of April 30, 1998.
(11) See footnotes (3) - (10) above.
(12) Such group includes Selling Shareholders who individually beneficially own
less than 1% of the Common Stock.
55
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Articles and Bylaws, copies of
which are filed as exhibits to the Registration Statement of which this
Prospectus forms a part. The Company's authorized capital stock consists of
100,000,000 shares of Common Stock, $0.01 par value per share, and 25,000,000
shares of Preferred Stock, $0.01 par value per share.
COMMON STOCK
As of March 31, 1998, the Common Stock was held of record by 257 persons
and 16,674,440 shares were outstanding or committed for issuance. After the sale
of the shares of Common Stock offered hereby, there will be 18,674,440 shares of
Common Stock outstanding.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may be
applicable to any Preferred Stock outstanding at the time, holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board out of funds legally available therefor. In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of the Company's liabilities and the liquidation preference, if any, of any
outstanding shares of Preferred Stock. Holders of Common Stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All the
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon completion of this offering will be
fully paid and nonassessable. The rights, preferences and privileges of holders
of Common Stock are subject to, and may be adversely affected by, the rights of
holders of shares of any series of Preferred Stock that the Company may
designate and issue in the future.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 25,000,000 shares
of Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the Company's shareholders. No shares of
Preferred Stock have been issued. The issuance of Preferred Stock could have one
or more of the following effects: (i) restrict Common Stock dividends if
Preferred Stock dividends have not been paid, (ii) dilute the voting power and
equity interest of holders of Common Stock to the extent that any series of
Preferred Stock has voting rights or is convertible into Common Stock or (iii)
prevent current holders of Common Stock from participating in the Company's
assets upon liquidation until any liquidation preferences granted to holders of
Preferred Stock are satisfied. In addition, the issuance of Preferred Stock may,
under certain circumstances, have the effect of delaying, deferring or
preventing a change in control of the Company by, for example, granting voting
rights to holders of Preferred Stock that require approval by the separate vote
of the holders of Preferred Stock for any amendment to the Articles or any
reorganization, consolidation or merger (or other similar transaction involving
the Company). As a result, the issuance of such Preferred Stock may discourage
bids for the Company's Common Stock at a premium over the market price therefor
and could have a material adverse effect on the market value of the Common
Stock. The Board does not presently intend to issue any shares of Preferred
Stock. See "Risk Factors -- Antitakeover Considerations."
WARRANTS
As of March 31, 1998, the Company had outstanding warrants to purchase
239,812 shares of Common Stock at a weighted average exercise price of $2.71 per
share. No fractional shares of Common Stock will be issued in connection with
the exercise of the warrants. In the event a warrant
51
<PAGE> 53
holder fails to exercise the warrants prior to their expiration, the warrants
will expire and the holder will have no further rights with respect to such
warrants. A warrant holder will not have any rights, privileges or liabilities
as a shareholder of the Company prior to the exercise of the warrants. The
Company is required to keep available a sufficient number of authorized shares
of Common Stock to permit exercise of the warrants.
WASHINGTON ANTITAKEOVER STATUTE
Washington law imposes restrictions on certain transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the
Washington Business Corporation Act (the "WBCA"), which applies to Washington
corporations that have a class of voting stock registered under the Securities
Exchange Act of 1934, as amended, prohibits a "target corporation," with certain
exceptions, from engaging in certain "significant business transactions" with a
person or group of persons which beneficially owns 10% or more of the voting
securities of the target corporation (an "Acquiring Person") for a period of
five years after such acquisition, unless the transaction or acquisition of
shares is approved by a majority of the members of the target corporation's
board of directors prior to the time of acquisition. Such prohibited
transactions include, among other things, a merger or consolidation with,
disposition of assets to, or issuance or redemption of stock to or from, the
Acquiring Person, termination of 5% or more of the employees of the target
corporation as a result of the Acquiring Person's acquisition of 10% or more of
the shares or allowing the Acquiring Person to receive any disproportionate
benefit as a shareholder. After the five-year period, a "significant business
transaction" may take place as long as it complies with certain "fair price"
provisions of the statute. A corporation may not "opt out" of this statute. This
provision may have the effect of delaying, deferring or preventing a change in
control of the Company.
ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE ARTICLES AND BYLAWS
Election and Removal of Directors. Effective with the first election of
directors following this offering, the Articles provide for the division of the
Company's Board of Directors into three classes, with the number of directors
comprising each class to be as nearly equal in number as possible, each for a
three-year term, with one class being elected each year by the Company's
shareholders. See "Management -- Board of Directors." Directors may be removed
only for cause. Such Board composition may tend to discourage a third party from
making a tender offer or otherwise attempting to obtain control of the Company
and may maintain the incumbency of the Board, as it generally makes it more
difficult for shareholders to replace a majority of directors.
Approval for Certain Business Combinations. The Articles require that
certain business combinations (including a merger, share exchange and the sale,
lease, exchange, mortgage, pledge, transfer or other disposition or encumbrance
of a substantial part of the Company's assets other than in the usual and
regular course of business) be approved by the holders of not less than
two-thirds of the outstanding shares, unless such business combination has been
approved by a majority of Continuing Directors (defined as those individuals who
were members of the Board on July 1, 1998 or were elected thereafter on the
recommendation of a majority of Continuing Directors), in which case the
affirmative vote required shall be a majority of the outstanding shares.
Shareholder Meetings. Under the Articles and Bylaws, the shareholders may
call a special meeting only upon the request of holders of at least 25% of the
outstanding shares. Additionally, the Board, the Chairman of the Board and the
President may call special meetings of shareholders.
Vote Required to Amend or Repeal Certain Provisions of the Articles or
Bylaws. The Articles also provide that changes to certain provisions of the
Articles, including those regarding amendment of certain provisions of the
Bylaws or Articles, the classified Board of Directors, special voting provisions
57
<PAGE> 54
for business combinations and special meetings of shareholders, must be approved
by the holders of not less than two-thirds of the outstanding shares.
Requirements for Advance Notification of Shareholder Nominations and
Proposals. The Company's Bylaws establish advance notice procedures with respect
to shareholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the Board of
Directors or a committee thereof.
These provisions may have the effect of delaying, deterring or preventing a
change in control of the Company. See "Risk Factors -- Antitakeover
Considerations."
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
The Articles include a provision that limits the liability of the Company's
directors to the fullest extent permitted by the WBCA as it currently exists or
as it may be amended in the future. Consequently, subject to the WBCA, no person
shall be liable to the Company or its shareholders for monetary damages
resulting from such person's conduct as a director of the Company. Amendments to
the Articles may not adversely affect any right of a director of the Company
with respect to acts or omissions occurring prior to such amendment. Section
23B.08.320 of the WBCA provides that the Articles may not limit a director's
liability for acts or omissions involving intentional misconduct or knowing
violations of law, unlawful distributions or transactions from which the
director personally receives benefits in money, property or services to which
the director is not legally entitled. In addition, Washington law provides for
broad indemnification by the Company of its officers and directors. The Bylaws
implement this indemnification to the fullest extent permitted by law. Insofar
as the indemnity for liabilities arising under the Securities Act may be
permitted to directors or officers of the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
58
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Company's
securities. No prediction can be made as to the effect, if any, that market
sales of shares of the Common Stock or the availability of shares for sale will
have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market
after the lapse of the restrictions described below could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future. See "Risk Factors -- Shares Eligible for Future Sale."
Upon completion of this offering, the Company will have 18,674,440 shares
of Common Stock outstanding, assuming no exercise of outstanding options or
warrants after April 30, 1998. Of this amount, the 4,400,000 shares offered
hereby will be available for immediate sale in the public market as of the
Effective Date. In addition, approximately Restricted Shares will
become eligible for sale in the public market immediately after the Effective
Date pursuant to Rule 144(k) under the Securities Act, approximately
Restricted Shares will become eligible for sale prior to 90 days
after the Effective Date pursuant to Rule 144(k), approximately
Restricted Shares will become eligible for sale 90 days after the Effective Date
pursuant to Rule 144 and Rule 701, approximately Restricted
Shares will become eligible for sale in the public market approximately 120 days
after the Effective Date, and approximately Restricted Shares
will become eligible for sale in the public market approximately 180 days after
the Effective Date, subject, in some cases, to compliance with the volume and
other resale limitations of Rule 144. The remaining approximately
Restricted Shares held by existing shareholders will become
eligible for sale from time to time in the future under Rule 144.
<TABLE>
<CAPTION>
SHARES ELIGIBLE
DAYS AFTER EFFECTIVE DATE FOR SALE COMMENT
------------------------- --------------- -------
<S> <C> <C>
Upon effectiveness.................. Shares sold in offering
Upon effectiveness.................. Freely tradeable shares saleable
under Rule 144(k) that are not
subject to lockup agreements
0-90 days........................... Freely tradeable shares that become
saleable under Rule 144(k) that are
not subject to lockup agreements
90 days............................. Shares saleable under Rules 144 and
701 that are not subject to lockup
agreements
120 days............................ 120-day lockup released; shares
saleable under Rules 144 and 701
180 days............................ 180-day lockup released; shares
saleable under Rules 144 and 701
Thereafter.......................... Restricted securities held for one
year or less
</TABLE>
In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell within any three-month period commencing 90 days after the Effective
Date that number of shares that does not exceed the greater of (i) 1% of the
then-outstanding shares of Common Stock (approximately 186,744 shares
immediately after this offering) and (ii) the average weekly trading volume
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale who has beneficially
owned his or her shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations
54
<PAGE> 56
described above. Persons deemed to be affiliates must always sell pursuant to
Rule 144, even after the applicable holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, which depends on the market price of the Common Stock, the
personal circumstances of the sellers and other factors. Prior to this offering,
there has been no public market for the Common Stock, and there can be no
assurance that a significant public market for the Common Stock will develop or
be sustained after this offering. Any future sale of substantial amounts of the
Common Stock in the open market may adversely affect the market price of the
Common Stock offered hereby.
The Company and certain shareholders of the Company, including executive
officers, directors and certain employees, who will own in the aggregate
shares of Common Stock after this offering, have agreed pursuant
to the Underwriting Agreement and lockup agreements that they will not, without
the prior written consent of Hambrecht & Quist LLC, directly or indirectly sell,
offer or contract to sell, transfer the economic risk of ownership in, make any
short sale, pledge or otherwise dispose of any shares of Common Stock, options
or warrants to acquire Common Stock or securities exchangeable for or
convertible into shares of Common Stock owned by them during the 180-day period
after the Effective Date, except that each of such shareholders may, without the
consent of the Representatives, sell up to 1,000 shares of Common Stock.
Certain other shareholders of the Company who will own in the aggregate
shares of Common Stock after this offering have agreed pursuant
to lockup agreements that they will not, without the prior written consent of
Hambrecht & Quist LLC, for a period of 120 and 180 days after the Effective
Date, directly or indirectly sell, offer or contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge or otherwise dispose
of 100% and 50%, respectively, of any shares of Common Stock, options or
warrants to acquire Common Stock or securities exchangeable for or convertible
into shares of Common Stock owned by them, except that each of such shareholders
may, without the consent of the Representatives, sell up to 1,000 shares of
Common Stock.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register approximately 4,850,000 shares of Common Stock
subject to options outstanding or reserved for issuance under the Company's
stock option plans within 90 days after the Effective Date, thus permitting the
resale of such shares by nonaffiliates in the public market without restriction
under the Securities Act. See "Management -- Employee Benefit Plans."
Any employee of or consultant to the Company who purchased his or her
shares pursuant to a written compensatory plan or contract is entitled to rely
on the resale provisions of Rule 701, which permits nonaffiliates to sell their
Rule 701 shares without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding period restrictions, in each case commencing 90 days after the
Effective Date.
55
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), for whom Hambrecht & Quist LLC
and PaineWebber Incorporated are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Shareholders the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC....................................
PaineWebber Incorporated.................................
---------
Total.................................................... 4,400,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares, the offering price and
other selling terms may be changed by the Representatives. The Representatives
have advised the Company that the Underwriters do not intend to confirm
discretionary sales in excess of 5% of the shares of Common Stock offered
hereby.
The Company and certain of the Selling Shareholders have granted to the
Underwriters an option, exercisable no later than 30 days after the date of this
Prospectus, to purchase up to 660,000 additional shares of Common Stock at the
initial public offering price, less the underwriting discount, set forth on the
cover page of this Prospectus. To the extent that the Underwriters exercise this
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof which the number of shares of Common
Stock to be purchased by it shown in the above table bears to the total number
of shares of Common Stock offered hereby. The Company and certain of the Selling
Shareholders will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
Certain shareholders of the Company, including executive officers,
directors and certain employees, who will own in the aggregate
shares of Common Stock after this offering, have agreed that they will not,
without the prior written consent of Hambrecht & Quist LLC, directly or
indirectly sell, offer or contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned by
them during the 180-day period following the date of this Prospectus, except
that each of such
61
<PAGE> 58
shareholders may, without the consent of the Representatives, sell up to 1,000
shares of Common Stock. In addition, certain other shareholders of the Company
who will own in the aggregate shares of Common Stock after this
offering, have agreed that they will not, without the prior written consent of
Hambrecht & Quist LLC, for a period of 120 and 180 days following the date of
this Prospectus, directly or indirectly sell, offer or contract to sell,
transfer the economic risk of ownership in, make any short sale, pledge or
otherwise dispose of 100% and 50%, respectively, of any shares of Common Stock,
options or warrants to acquire shares of Common Stock or securities exchangeable
for or convertible into shares of Common Stock owned by them, except that each
of such shareholders may, without the consent of the Representatives, sell up to
1,000 shares of Common Stock. The Company has agreed that it will not, without
the prior written consent of Hambrecht & Quist LLC, directly or indirectly sell
offer or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock during the 180-day period following the date of this
Prospectus, except that the Company may issue shares upon the exercise of
options granted prior to the date hereof, and may grant additional options under
its stock option plans, provided that, without the prior written consent of
Hambrecht & Quist LLC, such additional options shall not be exercisable during
such period.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price are prevailing
market and economic conditions, sales and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant. The estimated initial public offering price range set
forth on the cover of this preliminary Prospectus is subject to change as a
result of market conditions and other factors.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
this offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with this
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the New
York Stock Exchange, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
At the request of the Company, the Underwriters have reserved for sale at
the initial public offering price to persons designated by the Company a number
of shares of Common Stock not to exceed 5% of the total number of shares of
Common Stock in this offering. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such shares.
Any such shares not so purchased will be offered by the Representatives to the
general public on the same basis as other shares offered hereby.
In December 1995, H&Q Optiva Investors, L.P. purchased 320,000 shares of
the Company's Common Stock for approximately $500,000, as part of an equity
financing on the same terms pursuant to which all other participants in the
financing purchased their shares. Certain of the limited partnership interests
of H&Q Optiva Investors, L.P. are beneficially owned by persons affiliated with
Hambrecht & Quist LLC.
62
<PAGE> 59
LEGAL MATTERS
Certain legal matters will be passed on for the Company by Perkins Coie
LLP, Seattle, Washington. Certain legal matters will be passed on for the
Underwriters by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP,
Menlo Park, California. Certain legal matters will be passed on for the Selling
Shareholders by Summit Law Group, P.L.L.C., Seattle, Washington.
EXPERTS
The consolidated financial statements and related financial statement
schedule of the Company as of December 31, 1997 and December 31, 1996, and for
each of the three years in the period ended December 31, 1997 appearing in this
Prospectus and the Registration Statement of which this Prospectus forms a part
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby
(the "Registration Statement"). This Prospectus, which constitutes part of the
Registration Statement, omits certain information contained in the Registration
Statement and the exhibits and schedule thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including the exhibits and schedule
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies may be obtained at the prescribed rates from
the Public Reference Section of the Commission at its principal office in
Washington, D.C. The Commission also maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically, including the Company, with the Commission at
http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
The Company intends to distribute to its shareholders annual reports
containing consolidated financial statements audited by its independent public
accountants and will make available copies of quarterly reports for the first
three quarters of each year containing unaudited consolidated financial
information.
63
<PAGE> 60
OPTIVA CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997
and March 31, 1998 (Unaudited)............................ F-3
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1996, and 1997 and the Quarters Ended
March 31, 1997 and 1998 (Unaudited)....................... F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1995, 1996, and 1997 and the
Quarter Ended March 31, 1998 (Unaudited).................. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996, and 1997 and the Quarters Ended
March 31, 1997 and 1998 (Unaudited)....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 61
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Optiva Corporation
We have audited the accompanying consolidated balance sheets of Optiva
Corporation (the Company) as of December 31, 1996 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Optiva
Corporation at December 31, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
February 6, 1998, except Note 14,
as to which the date is May , 1998
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the approval
of the stock dividend and the increase in the number of authorized shares by the
shareholders described in Note 14 to the Consolidated Financial Statements.
ERNST & YOUNG LLP
Seattle, Washington
May 11, 1998
F-2
<PAGE> 62
OPTIVA CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,774 $10,667 $15,073
Accounts receivable, net of allowance for doubtful
accounts of $460, $810, and $1,172 in 1996, 1997, and
1998, respectively..................................... 13,194 16,694 16,109
Receivable from Teledyne (Note 11)........................ 1,600 -- --
Inventories............................................... 7,825 10,105 10,144
Prepaid advertising....................................... 520 862 3
Deferred tax asset........................................ 785 1,449 1,595
Other current assets...................................... 496 917 1,098
------- ------- -------
Total current assets.............................. 27,194 40,694 44,022
Furniture and equipment, net................................ 4,181 5,803 6,648
Other noncurrent assets..................................... 10 78 90
------- ------- -------
Total assets...................................... $31,385 $46,575 $50,760
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,807 $ 3,164 $ 3,864
Accrued expenses.......................................... 7,097 8,821 10,222
Income taxes payable...................................... 1,318 3,640 2,119
Current installments of capital lease obligation.......... 137 71 60
Current installments of long-term debt.................... 440 989 1,326
------- ------- -------
Total current liabilities......................... 13,799 16,685 17,591
Capital lease obligations, less current installments........ 91 56 52
Long-term debt.............................................. 739 1,154 1,531
Deferred tax liability...................................... 139 70 338
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value:
Authorized shares - 25,000,000
Issued and outstanding shares - none................... -- -- --
Common stock, $0.01 par value:
Authorized shares - 100,000,000
Issued and outstanding shares - 16,109,060, 16,641,940,
and 16,674,440 in 1996, 1997, and 1998,
respectively......................................... 160 166 167
Additional paid-in capital................................ 8,946 9,579 9,650
Unearned stock compensation............................... (32) (26) (43)
Retained earnings......................................... 7,543 18,891 21,474
------- ------- -------
Total shareholders' equity........................ 16,617 28,610 31,248
------- ------- -------
Total liabilities and shareholders' equity........ $31,385 $46,575 $50,760
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 63
OPTIVA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
------------------------------ --------------------------
1995 1996 1997 1997 1998
------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $48,701 $72,695 $102,968 $19,009 $30,609
Cost of sales...................... 16,779 25,440 37,049 6,770 10,770
------- ------- -------- ------- -------
31,922 47,255 65,919 12,239 19,839
Operating expenses:
Marketing and sales.............. 18,461 25,208 33,091 6,890 10,107
General and administrative....... 6,745 7,891 10,679 2,301 4,422
Research and development......... 1,307 2,295 4,672 930 1,389
Nonrecurring expenses (Note 9)... -- 2,959 (312) -- --
------- ------- -------- ------- -------
26,513 38,353 48,130 10,121 15,918
------- ------- -------- ------- -------
Income from operations............. 5,409 8,902 17,789 2,118 3,921
Interest income (expense).......... 2 103 (91) (26) 116
Other nonoperating items (Note
11).............................. (461) 462 -- -- --
------- ------- -------- ------- -------
Income before income taxes......... 4,950 9,467 17,698 2,092 4,037
Provision for income taxes......... 1,922 3,599 6,350 778 1,454
------- ------- -------- ------- -------
Net income......................... $ 3,028 $ 5,868 $ 11,348 $ 1,314 $ 2,583
======= ======= ======== ======= =======
Net income per share:
Basic............................ $ 0.20 $ 0.37 $ 0.69 $ 0.08 $ 0.16
======= ======= ======== ======= =======
Diluted.......................... $ 0.19 $ 0.35 $ 0.64 $ 0.08 $ 0.14
======= ======= ======== ======= =======
Weighted average common and common
equivalent shares for net income
per share computations:
Basic............................ 14,807 16,004 16,544 16,172 16,664
======= ======= ======== ======= =======
Diluted.......................... 15,765 16,830 17,749 17,330 18,060
======= ======= ======== ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 64
OPTIVA CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNEARNED
NUMBER ADDITIONAL STOCK RETAINED TOTAL
OF COMMON PAID-IN COMPEN- EARNINGS SHAREHOLDERS'
SHARES STOCK CAPITAL SATION (DEFICIT) EQUITY
---------- ------ ---------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995........ 13,511,456 $135 $5,758 $(67) $(1,353) $ 4,473
Sale of common stock............ 1,587,820 16 2,465 - - 2,481
Exercise of common stock options
and warrants.................. 528,856 5 140 - - 145
Tax benefit of exercised
options....................... - - 4 - - 4
Compensation related to stock
options and warrants.......... - - 60 (60) - 0
Amortization of unearned stock
compensation.................. - - - 59 - 59
Net income...................... - - - - 3,028 3,028
---------- ---- ------ ---- ------- -------
Balance at December 31, 1995...... 15,628,132 156 8,427 (68) 1,675 10,190
Sale of common stock............ 160,000 2 248 - - 250
Exercise of common stock options
and warrants.................. 320,928 3 221 - - 224
Tax benefit of exercised
options....................... - - 49 - - 49
Amortization of unearned stock
compensation.................. - - - 36 - 36
Net income...................... - - - - 5,868 5,868
---------- ---- ------ ---- ------- -------
Balance at December 31, 1996...... 16,109,060 161 8,945 (32) 7,543 16,617
Exercise of common stock options
and warrants.................. 532,880 5 139 - - 144
Tax benefit of exercised
options....................... - - 472 - - 472
Compensation related to stock
options and warrants.......... - - 23 (23) - 0
Amortization of unearned stock
compensation.................. - - - 29 - 29
Net income...................... - - - - 11,348 11,348
---------- ---- ------ ---- ------- -------
Balance at December 31, 1997...... 16,641,940 166 9,579 (26) 18,891 28,610
Exercise of common stock options
and warrants -- (unaudited)... 32,500 1 20 - - 21
Tax benefit of exercised
options -- (unaudited)........ - - 28 - - 28
Compensation related to stock
options and warrants --
(unaudited)................... - - 23 (23) - 0
Amortization of unearned stock
compensation -- (unaudited)... - - - 6 - 6
Net income -- (unaudited)....... - - - - 2,583 2,583
---------- ---- ------ ---- ------- -------
Balance at March 31, 1998 --
(unaudited)..................... 16,674,440 $167 $9,650 $(43) $21,474 $31,248
========== ==== ====== ==== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 65
OPTIVA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
--------------------------- -------------------------
1995 1996 1997 1997 1998
------- ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................. $ 3,028 $ 5,868 $11,348 $ 1,314 $ 2,583
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization.......... 588 1,429 1,856 439 526
Amortization of unearned stock
compensation......................... 59 36 29 7 6
Deferred tax provision (benefit)....... (362) 17 (733) 40 122
Changes in operating accounts:
Decrease (increase) in receivables... (5,100) (6,364) (1,900) 3,259 585
Increase in inventories.............. (1,972) (4,818) (2,279) (3,411) (39)
Decrease (increase) in prepaid
advertising....................... (309) (211) (341) 361 859
Increase in other current assets..... (91) (406) (421) (22) (181)
Decrease (increase) in other
noncurrent assets................. 17 3 (69) 1 (12)
Increase (decrease) in accounts
payable........................... 1,000 3,058 (1,643) (1,828) 700
Increase (decrease) in accrued
expenses.......................... 2,469 3,324 1,724 (2,154) 1,401
Increase (decrease) in income taxes
payable........................... 236 778 2,794 (23) (1,493)
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities................................ (437) 2,714 10,365 (2,017) 5,057
INVESTING ACTIVITY -- cash used for purchase
of furniture and equipment................ (2,003) (3,115) (3,432) (779) (1,364)
FINANCING ACTIVITIES
Payments on capitalized lease obligations... (59) (106) (148) (36) (22)
Proceeds from long-term debt................ 124 1,089 1,304 287 875
Payments on long-term debt.................. - (42) (340) (15) (161)
Proceeds from sale of common stock.......... 2,626 474 144 12 21
------- ------- ------- ------- -------
Net cash provided by financing activities... 2,691 1,415 960 248 713
------- ------- ------- ------- -------
Net increase (decrease) in cash and
cash equivalents.......................... 251 1,014 7,893 (2,548) 4,406
Cash and cash equivalents at beginning of
period.................................... 1,509 1,760 2,774 2,774 10,667
------- ------- ------- ------- -------
Cash and cash equivalents at end of
period.................................... $ 1,760 $ 2,774 $10,667 $ 226 $15,073
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES
Interest paid............................... $ 25 $ 55 $ 178 $ 36 $ 54
Income taxes paid........................... 2,052 2,880 4,361 1,773 2,825
Capital lease obligations to acquire
furniture and equipment................... 178 83 78 - 7
</TABLE>
See accompanying notes.
F-6
<PAGE> 66
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Optiva Corporation (the Company), incorporated in the state of Washington,
commenced operations on March 25, 1988 and has two wholly owned subsidiaries,
Optiva International Sales, Inc. and Optiva Nevada Corp. The Company
manufactures and markets an oral hygiene device. In August 1992, the Company
obtained permission from the U.S. Food and Drug Administration to market its
product. The Company sells its product in the United States and overseas through
a network of various retailers, distributors, dental professionals, and direct
to consumers.
UNAUDITED INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 1998 and for the quarters ended
March 31, 1997 and 1998 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of the financial position at such dates and the operations and
cash flows for the periods then ended. Operating results for the quarter ended
March 31, 1998 are not necessarily indicative of results that may be expected
for the entire year.
BASIS OF PRESENTATION
All significant intercompany balances and transactions have been eliminated
in consolidation.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS
Investments with an original maturity of three months or less are
considered to be cash equivalents. The book value of cash equivalents
approximates fair value.
CONCENTRATION OF CREDIT RISK
The Company's exposure to credit risk is measured on an individual customer
basis, as well as by groups of customers that share similar attributes. To
reduce the potential for risk concentration, credit limits are established and
continually monitored in light of changing customer and market conditions. The
Company further reduces a majority of its credit risk through the purchase of
credit insurance. During 1996, 1997 and the quarters ended March 31, 1997 and
1998, approximately 16%, 25%, 24%, and 23% of net sales, respectively, were made
to one customer. No customer represented more than 10% of net sales in 1995.
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market value.
F-7
<PAGE> 67
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets, ranging from
three to seven years. Leasehold improvements are capitalized and amortized over
the lesser of the term of the remaining lease or its estimated useful life.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred. The
Company has been awarded grants from the National Institutes of Health, an
agency of the United States government. Funding from such grants is recognized
as the related research and development costs are incurred. The Company
recognized research funding of $180,000 and $70,000 in 1996 and 1997,
respectively, as a reduction of research and development expenses.
REVENUE RECOGNITION
Generally, revenue from product sales is recorded when products are shipped
to customers. Provision for sales returns is recorded for estimated products
returned by customers.
ADVERTISING COSTS
Advertising costs, including promotional materials, infomercial and other
media production costs, are charged to expense as incurred. Costs for placement
of advertisements and air time are prepaid and charged to expense once
broadcast. Advertising expense aggregated $9,080,000, $7,915,000, and $9,471,000
in 1995, 1996, and 1997, respectively.
OTHER FINANCIAL INSTRUMENTS
At December 31, 1997 and March 31, 1998, the carrying value of financial
instruments, such as receivables and payables, approximated their fair values
based on the short-term nature of these instruments.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), which became effective in 1996. The Company has
implemented SFAS No. 123 using the intrinsic value method; accordingly, the
accompanying footnotes include disclosure of the pro forma impact of the fair
value method on net income for 1995, 1996, and 1997. The adoption of SFAS No.
123 had no effect on the Company's financial position or results of operations.
NET INCOME PER SHARE
Basic net income per share is computed based on the weighted average number
of common shares outstanding during each period. Diluted net income per share is
computed based on the weighted
F-8
<PAGE> 68
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
average number of common and common equivalent shares outstanding during each
period. Common equivalent shares include outstanding warrants and stock options.
Common equivalent shares are not included in the per share calculations where
the effect of their inclusion would be antidilutive. All net income per share
amounts for all periods have been presented in conformity with Statement of
Financial Accounting Standards No. 128, "Earnings per Share."
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------ ------- ---------
<S> <C> <C> <C>
Parts and supplies.............................. $4,591 $ 6,871 $ 6,024
Assemblies and work in progress................. 392 480 636
Finished goods.................................. 2,842 2,754 3,484
------ ------- -------
$7,825 $10,105 $10,144
====== ======= =======
</TABLE>
3. FURNITURE AND EQUIPMENT
Furniture and equipment, net, consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- ---------
<S> <C> <C> <C>
Machinery and equipment........................ $ 3,970 $ 7,431 $ 7,782
Furniture and fixtures......................... 473 917 1,278
Leasehold improvements......................... 1,092 1,336 1,505
Assets under construction...................... 858 188 627
------- ------- -------
6,393 9,872 11,192
Less accumulated depreciation and
amortization................................. (2,212) (4,069) (4,544)
------- ------- -------
$ 4,181 $ 5,803 $ 6,648
======= ======= =======
</TABLE>
4. BANK AGREEMENTS
The Company has a revolving line of credit agreement with a bank expiring
on August 31, 1998. Borrowings are limited to $20,000,000, subject to certain
conditions. The line of credit is secured by substantially all of the Company's
assets. The agreement bears interest at the bank's prime rate (8.5% as of
December 31, 1997), payable monthly. The agreement requires the Company to
maintain certain financial ratios, including minimum net worth and debt to net
worth, and restricts the Company's ability to declare dividends.
The Company was in compliance with these covenants at December 31, 1997. No
amounts were outstanding on the line at December 31, 1997.
The Company also has $7 million in notes with a bank for equipment
financing. The notes are secured by the underlying equipment and require monthly
principal and interest payments through February 28, 2001. The notes bear
interest at rates ranging from the bank's prime rate (8.5% as of December 31,
1997) to the bank's prime rate plus 1%. The balance owed at December 31, 1997
was $2,143,479 and approximates fair value.
F-9
<PAGE> 69
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. BANK AGREEMENTS (CONTINUED)
Maturities of consolidated long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1998................................................. $ 989
1999................................................. 727
2000................................................. 371
2001................................................. 56
------
$2,143
======
</TABLE>
Interest expense, including imputed interest on capital leases, for 1995,
1996 and 1997 was $24,533, $54,894, $178,109, respectively.
5. INCOME TAXES
The provision for income taxes is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current federal income taxes..................... $2,086 $3,310 $6,887
Deferred federal tax provision (benefit), net.... (362) 17 (733)
State income taxes............................... 198 272 196
------ ------ ------
$1,922 $3,599 $6,350
====== ====== ======
</TABLE>
Differences between income taxes, computed by applying the U.S. federal
income tax rate of 34% in 1995 and 1996 and 35% in 1997 to income before federal
income taxes, and the provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1995 RATE 1996 RATE 1997 RATE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Federal income tax provision at
statutory rate........................ $1,683 34.00% $3,219 34.00% $6,194 35.00%
Nondeductible expenses.................. 78 1.58 40 .42 64 .36
State income taxes, net of federal
benefits.............................. 132 2.67 181 1.91 128 .72
Other................................... 29 .59 159 1.68 (36) (.20)
------ ----- ------ ----- ------ -----
Provision for income taxes.............. $1,922 38.84% $3,599 38.01% $6,350 35.88%
====== ===== ====== ===== ====== =====
</TABLE>
F-10
<PAGE> 70
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
5. INCOME TAXES (CONTINUED):
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
----- ------
<S> <C> <C>
Deferred tax assets:
Stock compensation....................................... $ 26 $ 1
Warranty reserve......................................... 171 194
Bad debt reserve......................................... 156 284
Return reserve........................................... 85 193
Co-op advertising........................................ 138 89
Accrued compensation..................................... 143 198
Furniture and equipment basis differences................ -- 297
Other.................................................... 66 193
----- ------
Total deferred tax assets........................ 785 1,449
Deferred tax liabilities:
Furniture and equipment basis difference................. (50) --
Other.................................................... (89) (70)
----- ------
Total deferred tax liabilities................... (139) (70)
Net deferred tax assets.................................... $ 646 $1,379
===== ======
</TABLE>
6. STOCK OPTIONS AND WARRANTS
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25), and related
interpretations in accounting for its employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). APB
No. 25 provides that compensation expense relative to the Company's employee
stock options is measured based on the intrinsic value of the stock option. SFAS
No. 123 requires companies that continue to follow APB No. 25 to provide a pro
forma disclosure of the impact of applying the fair value method of SFAS No.
123.
At December 31, 1997, the Company had stock-based option plans, which are
described below. The Company applies APB No. 25 and related interpretations in
accounting for the plans. Accordingly, stock compensation has been recognized
for the amortized intrinsic value of stock option grants. Had the stock
compensation expense for the Company's stock option plans been determined based
on the fair value at the grant dates for options and warrants granted in 1995,
1996, and 1997, consistent with
F-11
<PAGE> 71
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
6. STOCK OPTIONS AND WARRANTS (CONTINUED)
the method of SFAS No. 123, the Company's net income would have been reduced to
these pro forma amounts (in thousands, except per share data):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Net income:
As reported................................... $3,028 $5,868 $11,348
Pro forma..................................... 3,016 5,838 11,243
Diluted net income per share:
As reported................................... $ 0.19 $ 0.35 $ 0.64
Pro forma..................................... 0.19 0.35 0.63
</TABLE>
Compensation expense recognized in providing pro forma disclosures may not
be representative of the effects on pro forma net income for future years
because the amounts above include only the amortization for the fair value of
1995, 1996, and 1997 grants.
The fair value of each option grant is estimated on the date of grant,
based on the minimum value method using the following weighted-average
assumptions: dividend yield of 0%; risk-free interest rates ranging from 5.37%
to 7.52%, 5.24% to 6.69%, and 5.66% to 6.74% for 1995, 1996, and 1997,
respectively; and expected lives of five years.
EMPLOYEE STOCK OPTIONS PLANS
The Company's stock option plans, as amended, authorize issuance of
4,880,000 shares of its common stock. Generally, stock compensation, if any, is
measured as the difference between the exercise price of a stock option and the
fair market value of the Company's stock at the date of grant, which is then
amortized over the related service period. Generally, options vest 25% per year
over a four-year period and expire ten years from the date of grant.
A summary of the status of the Company's stock option plans at December 31,
1995, 1996, and 1997, and changes during the years then ended are presented
below (in thousands, except weighted average exercise price):
<TABLE>
<CAPTION>
1995 1996 1997
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.......... 1,585 $0.72 1,784 $0.84 1,988 $1.02
Granted................................... 305 1.20 409 1.58 688 2.72
Exercised................................. (14) 0.32 (168) 0.59 (90) 0.75
Canceled.................................. (92) 0.25 (37) 0.72 (85) 1.56
----- ----- ------
Outstanding at end of year................ 1,784 $0.84 1,988 $1.02 2,501 $1.48
===== ===== ======
Weighted average fair value of options
granted during the year................. $0.30 $0.37 $ 0.75
===== ===== ======
</TABLE>
F-12
<PAGE> 72
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
6. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER REMAINING
RANGE OF OUTSTANDING CONTRACTUAL
EXERCISE PRICES (IN THOUSANDS) LIFE (YEARS)
- --------------- -------------- ------------
<S> <C> <C>
$0.0025 - $1.00 680 4.95
$1.01 - $2.00 1,362 7.58
$2.01 - $3.00 429 9.38
$3.01 - $5.00 30 9.91
------
2,501
======
</TABLE>
In connection with the stock option plans, 2,689,880 shares of common stock
have been reserved for future issuance. At December 31, 1997, 1,273,004 options
were exercisable with a weighted average exercise price of $0.88 per option
share.
STOCK WARRANTS
The Company issues stock warrants to consultants as compensation for
services performed or to be performed. The warrants are exercisable for a period
extending up to ten years.
The fair value of each warrant grant is estimated on the date of grant,
based on the minimum value method using the following weighted-average
assumptions: dividend yield of 0%; risk-free interest rates ranging from 6.00%
to 7.00%, 5.70% to 6.21%, and 5.86% to 6.36% for 1995, 1996, and 1997,
respectively; and expected lives of five years.
A summary of the status of the Company's warrants at December 31, 1995,
1996, and 1997, and changes during the years ending on those dates are presented
below (in thousands, except weighted average exercise price):
<TABLE>
<CAPTION>
1995 1996 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
WARRANTS PRICE WARRANTS PRICE WARRANTS PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year....... 1,219 $0.29 729 $0.35 616 $0.33
Granted................................ 25 1.51 40 1.81 43 3.38
Exercised.............................. (515) 0.27 (153) 0.81 (447) 0.19
------ ----- -----
Outstanding at end of year............. 729 $0.35 616 $0.33 212 $1.24
====== ===== =====
Weighted average fair value of warrants
granted during the year.............. $ 0.03 $0.05 $1.02
====== ===== =====
</TABLE>
F-13
<PAGE> 73
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
6. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following summarizes information about warrants outstanding at December
31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICES OUTSTANDING LIFE (YEARS)
-------- -------------- ------------
(IN THOUSANDS)
<S> <C> <C>
$0.0025 - $1.00 101 3.11
$1.01 - $2.00 89 8.00
$2.01 - $3.00 6 9.25
$3.01 - $5.00 16 9.92
212
===
</TABLE>
A total of 211,808 shares of common stock have been reserved for exercise
of warrants. At December 31, 1997, 198,268 warrants were exercisable with a
weighted average exercise price of $0.95 per warrant share.
The intrinsic value of stock options issued with exercise prices less than
the estimated fair value of the underlying common stock at the date of grant is
recorded as unearned stock compensation. Upon issuance, the estimated fair value
of warrants is also recorded as unearned stock compensation. Unearned stock
compensation is being amortized over the related service periods.
7. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Numerator:
Net income................................. $ 3,028 $ 5,868 $11,348 $ 1,314 $ 2,583
======= ======= ======= ======= =======
Denominator:
Denominator for basic net income per
share -- weighted average shares........ 14,807 16,004 16,544 16,172 16,664
Effect of dilutive securities:
Warrants and stock options.............. 959 857 1,205 1,158 1,511
------- ------- ------- ------- -------
Denominator for diluted net income per
share -- adjusted weighted average
shares and assumed conversion of
warrants and stock options.............. 15,765 16,861 17,749 17,330 18,193
======= ======= ======= ======= =======
Basic net income per share................... $ 0.20 $ 0.37 $ 0.69 $ 0.08 $ 0.16
======= ======= ======= ======= =======
Diluted net income per share................. $ 0.19 $ 0.35 $ 0.64 $ 0.08 $ 0.14
======= ======= ======= ======= =======
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution 401(k) plan, which covers all
full-time employees with over one month of service. Contributions by the Company
to the plan are made at the discretion of the Board of Directors and totaled
approximately $156,000 and $265,811 for the years ended
F-14
<PAGE> 74
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
8. EMPLOYEE BENEFIT PLAN
December 31, 1996 and 1997, respectively. Effective January 1, 1998, the Company
amended the 401(k) plan and provided a Company match for employee contributions
at the rate of 50% of the first 5% of salary contributed.
9. PRODUCT RECALL
On November 6, 1996, the Company implemented a voluntary precautionary
recall (the Recall) of its charger base. Beginning in late November 1996, the
Company reintroduced all its quality assured products, including the charger, to
the market. As a result of the Recall, the Company incurred significant direct
Recall costs, including advertising, public relations, legal and professional
fees, the cost of the product recalled (including labor and freight involved in
the Recall process), and other costs. The direct and incremental Recall costs of
$2,958,618 were recorded in 1996. These costs included the accrual of
approximately $978,000 of estimated remaining direct costs expected to be
incurred in 1997.
In 1997, the Company incurred $666,419 of costs associated with the Recall.
The remaining balance of the accrual of $311,581 was reversed in 1997.
10. COMMITMENTS
LEASES
The Company rents its office and production facility under an operating
lease. Rent expense for 1995, 1996, and 1997 amounted to $481,985, $773,910, and
$1,094,199, respectively.
In November 1997, the Company entered into a lease agreement for new
production and office facilities. The lease, commencing April 1999, is for a
period of 12 years.
Minimum future rental commitments under existing capital leases and
noncancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1998..................................................... $79 $ 1,370
1999..................................................... 43 2,769
2000..................................................... 16 2,776
2001..................................................... -- 2,328
2002..................................................... -- 2,231
Thereafter............................................... -- 17,134
--- -------
Total minimum lease payments................... 138 $28,608
=======
Less amount representing interest at rates ranging from
2.76% to 14.11%........................................ 11
---
Present value of net minimum capital lease obligations... 127
Less current installments................................ 71
---
Capital lease obligations, less current installments..... $56
===
</TABLE>
Assets recorded under capital leases, net of accumulated depreciation,
amounted to approximately $198,271 at December 31, 1997 and are included in
machinery and equipment.
F-15
<PAGE> 75
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
11. LEGAL MATTERS AND UNCERTAINTIES
In February 1995, the Company filed a lawsuit against Teledyne Industries,
Inc. (Teledyne) claiming patent infringement and violation of a confidentiality
and nondisclosure agreement. Subsequently, Teledyne filed a counterclaim against
the Company for declaratory judgment of patent invalidity and various other
claims for injunctive and monetary relief.
On September 23, 1996, all ongoing litigation between the Company and
Teledyne was resolved by a stipulation of settlement, effectively eliminating
all claims against the Company and Teledyne.
In accordance with the settlement agreement dated September 23, 1996,
Teledyne paid the Company $1,600,000. In addition, Teledyne was granted a
nonexclusive royalty-bearing license for the remaining 15 years of the patent.
Legal and other costs incurred to pursue the claim were $1,137,413 in 1996 and
$460,598 in 1995. The gain on settlement and related legal and other costs are
included in the accompanying statements of income as other nonoperating items.
In addition to the above, the Company is involved in various legal
proceedings arising from the normal course of business. In the opinion of
management, any pending or threatened litigation involving the Company will not
likely have a material adverse effect on the Company's financial condition or
results of operation.
12. RELATED-PARTY TRANSACTION
For services rendered during 1995, 1996 and 1997, the Company paid $21,000,
$70,000 and $163,000, respectively, to directors for consulting fees.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the Company's unaudited quarterly results of
operations for the past two fiscal years and the quarter ended March 31, 1998
(in thousands, except per share data):
<TABLE>
<CAPTION>
DILUTED
NET
GROSS NET TOTAL TOTAL INCOME
NET SALES PROFIT INCOME ASSETS EQUITY PER SHARE
--------- ------- ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1998
First quarter.................. $30,609 $19,839 $2,583 $50,760 $31,248 $0.14
FISCAL 1997
Fourth quarter................. $40,601 $26,246 $4,858 $46,575 $28,610 $0.27
Third quarter.................. 23,422 14,729 3,343 37,807 23,550 0.19
Second quarter................. 19,936 12,705 1,833 31,596 19,879 0.11
First quarter.................. 19,009 12,239 1,314 28,993 18,027 0.08
FISCAL 1996
Fourth quarter................. $20,605 $12,797 $ 388 $31,320 $16,552 $0.02
Third quarter.................. 23,766 15,943 3,753 31,110 16,108 0.23
Second quarter................. 12,431 8,044 568 19,279 12,227 0.03
First quarter.................. 15,893 10,471 1,159 18,166 11,683 0.07
</TABLE>
F-16
<PAGE> 76
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
14. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
On May 2, 1998, the Company's Board of Directors authorized the Company to
file a Registration Statement under the Securities Act of 1933, as amended (the
1933 Act) with the Securities and Exchange Commission (the Commission) to permit
the Company to proceed with an initial public offering of its common stock (the
Offering). In connection with the Offering, the Company's Board of Directors
amended and restated the Company's Articles of Incorporation to increase the
amount of authorized common shares to 100,000,000, and to increase the amount of
authorized preferred shares to 25,000,000 and the Company's Board of Directors
approved a stock dividend in the amount of three shares for every one share of
common stock, thereby giving effect to a four-to-one stock split. The stock
dividend and the increase in authorized shares are subject to shareholder
approval at a special meeting to be held in June 1998. All outstanding common
and common equivalent shares and per-share amounts in the accompanying
consolidated financial statements and related notes to consolidated financial
statements have been retroactively adjusted to give effect to the stock
dividend.
1990 STOCK OPTION PLAN
Effective May 2, 1998, the Company amended and restated the 1990 Stock
Option Plan (the 1990 Option Plan). The amendment increased the number of shares
authorized by 1,600,000 shares to 4,800,000.
1998 EMPLOYEE STOCK PURCHASE PLAN
On May 2, 1998, the Board of Directors adopted the 1998 Employee Stock
Purchase Plan (the Purchase Plan), subject to shareholder approval. A total of
400,000 shares of common stock are reserved for issuance under the Purchase
Plan. The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions at a price equal to 85% of the fair market value of
the Company's common stock on the first day or the last day of the applicable
six-month offering period, whichever is lower. Unless the Plan Administrator
determines otherwise, the offering period will commence July 1 and January 1 of
each year, with the first offering period commencing on the initial public
offering date. Eligible employees may purchase up to a maximum of $25,000 of
common stock in any one calendar year. The Purchase Plan will begin on the
effective date of the Company's initial public offering.
The Board of Directors is authorized to amend or terminate the Purchase
Plan as long as such action does not adversely affect any outstanding rights to
purchase stock thereunder. The Purchase Plan has no fixed termination date.
1998 STOCK INCENTIVE COMPENSATION PLAN
Subject to shareholder approval, the 1998 Stock Incentive Compensation Plan
(the 1998 Plan) was adopted by the Board of Directors on May 2, 1998. A total of
1,600,000 shares of common stock has been reserved for issuance under the 1998
Plan. The 1998 Plan provides for the grant of nonqualified stock options (NSOs)
and incentive stock options (ISOs) to eligible participants. Options granted
under the 1998 Plan expire 10 years from the date of grant. The 1998 Plan will
have no fixed expiration date; provided, however, that no incentive stock
options may be granted more than 10 years after the earlier of the 1998 Plan's
adoption by the Board and shareholder approval.
F-17
<PAGE> 77
OPTIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE QUARTERS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
14. SUBSEQUENT EVENTS (CONTINUED)
Stock Option Grant Program for Nonemployee Directors
Subject to adoption by the Board of Directors, the Company intends to
implement a stock option grant program for nonemployee directors under the Plan
whereby each director of the Company elected or appointed who is not otherwise
an employee of the Company or any subsidiary (an Eligible Director) shall be
granted NSOs to purchase shares of common stock (the Initial Grant) upon such
Eligible Director's initial election or appointment to the Board. Initial grants
shall become fully vested and exercisable one year after the date of grant,
assuming continued service on the Board for such period. Thereafter, on the date
of each annual meeting of the Company's shareholders, commencing in 1999, each
Eligible Director shall be automatically granted an additional option to
purchase shares of common stock (an Annual Grant). Any Eligible Director who
received an Initial Grant within three months of an Annual Meeting shall not
receive an Annual Grant until immediately following the second Annual Meeting
after the date of such Initial Grant. Annual Grants shall become fully vested
and exercisable upon the next Annual Meeting after the date of grant, assuming
continued service on the Board for such period. The exercise price of such
options shall be equal to the fair market value of the Company's common stock on
the date of grant of the option.
SUSPENSION OF 1990 PLAN AND 1995 CALIFORNIA STOCK OPTION PLAN
Effective May 2, 1998, the Board of Directors resolved that both the 1990
Plan and the 1995 California Stock Option Plan (the 1995 Plan) shall be
suspended effective as of the effective date of the Company's Registration
Statement and, as of such date, no further grants of rights to acquire stock of
the Company shall be made pursuant to either the 1990 Plan or the 1995 Plan.
In addition, upon the suspension of the 1990 Plan and the 1995 Plan, the
total number of shares of the Company's common stock that is reserved for
issuance pursuant to each of the 1990 Plan and the 1995 Plan shall be reduced to
the minimum number of shares that may be required, at any one time and from time
to time, for issuance pursuant to the exercise of any options that remain
outstanding under each of the 1990 Plan and the 1995 Plan, and if any option
granted under the 1990 Plan or the 1995 Plan expires or is surrendered,
canceled, or terminated for any reason without having been exercised in full,
then the unpurchased shares subject thereto shall thereupon no longer be
available or reserved for issuance pursuant to the 1990 Plan or the 1995 Plan,
as the case may be, and such shares shall be deemed to be authorized but
unissued shares of the Company.
F-18
<PAGE> 78
============================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
SHAREHOLDER, OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 5
Use of Proceeds......................... 16
Dividend Policy......................... 16
Capitalization.......................... 17
Dilution................................ 18
Selected Consolidated Financial Data.... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations......................... 21
Business................................ 30
Management.............................. 40
Certain Transactions.................... 48
Principal and Selling Shareholders...... 49
Description of Capital Stock............ 51
Shares Eligible for Future Sale......... 54
Underwriting............................ 56
Legal Matters........................... 58
Experts................................. 58
Additional Information.................. 58
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
============================================================
============================================================
4,400,000 SHARES
[LOGO]
OPTIVA CORPORATION
COMMON STOCK
--------------------
PROSPECTUS
--------------------
HAMBRECHT & QUIST
PAINEWEBBER INCORPORATED
, 1998
============================================================
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount payable by the registrant and the selling shareholders in
connection with the sale of the Common Stock being registered hereby. All
amounts shown are estimates, except the Securities and Exchange Commission
registration fee, the NASD filing fee and the New York Stock Exchange listing
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 25,376
NASD filing fee............................................. 9,102
New York Stock Exchange listing fee......................... 144,100
Blue sky filing and counsel fees and expenses............... 10,000
Printing and engraving expenses............................. 225,000
Legal fees and expenses..................................... 300,000
Accountants' fees and expenses.............................. 200,000
Increased coverage under directors' and officers' liability
insurance................................................. 150,000
Transfer Agent and Registrar fees........................... 10,000
Miscellaneous expenses...................................... 76,422
----------
Total............................................. $1,150,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 10 of the registrant's Amended and Restated Bylaws
(Exhibit 3.2 hereto) provides for indemnification of the registrant's directors,
officers, employees and agents to the maximum extent permitted by Washington
law. The directors and officers of the registrant may also be indemnified
against liability they may incur for serving in that capacity pursuant to a
liability insurance policy maintained by the registrant for that purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for acts or omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. Article 8 of the registrant's Amended and Restated Articles of
Incorporation (Exhibit 3.1 hereto) contains provisions implementing, to the
fullest extent permitted by Washington law, such limitations on a director's
liability to the registrant and its shareholders.
Reference is also made to the Form of Underwriting Agreement (Exhibit 1.1
hereto) for indemnification by the Underwriters of the registrant and its
executive officers and directors, and by the registrant of the Underwriters, for
certain liabilities, including liabilities arising under the Securities Act, in
connection with matters specifically provided in writing by the Underwriters for
inclusion in this Registration Statement.
II-1
<PAGE> 80
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 1, 1995, the Company has issued and sold the following
unregistered securities (the following information assumes effectiveness of a
4-for-1 stock split to be effected in connection with the effectiveness of this
Registration Statement):
From September 18, 1995 through September 1, 1996, the Company issued
1,544,620 shares of Common Stock for an aggregate price of $2,413,468.75 or
$1.5625 per share, of which 116,800 shares were subsequently redeemed by the
Company for an aggregate redemption price of $182,500 or $1.5625 per share.
On December 22, 1995, the Company issued 320,000 shares of Common Stock for
an aggregate purchase price of $500,000 or $1.5625 per share.
From May 1, 1995 through April 30, 1998, the Company issued 309,600 shares
of Common Stock upon exercise of stock options pursuant to the Company's 1990
Stock Option Plan, as amended and restated, at exercise prices ranging from
$0.075 to $2.00 per share, or an aggregate cash consideration of $200,800.
From May 15, 1995 through December 31, 1997, the Company issued an
aggregate of 373,956 shares of Common Stock upon exercise of warrants for an
aggregate purchase price of $303,839.25 or $0.8125 per share.
From December 23, 1995 through January 27, 1998, the Company issued an
aggregate of 715,896 shares of Common Stock upon exercise of warrants for an
aggregate purchase price of $1,789.74 or $0.0025 per share.
On September 30, 1997, the Company issued 6,000 shares of Common Stock upon
exercise of a warrant for an aggregate purchase price of $9,000 or $1.50 per
share.
On September 30, 1997, the Company issued 4,000 shares of Common Stock upon
exercise of a warrant for an aggregate purchase price of $12,000 or $3.00 per
share.
On September 30, 1997, the Company issued 16,000 shares of Common Stock
upon exercise of a warrant for an aggregate purchase price of $17,000 or $1.0625
per share.
On November 7, 1997, the Company issued 20,000 shares of Common Stock upon
exercise of a warrant for an aggregate purchase price of $3,250 or $0.1625 per
share.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act principally
by virtue of Sections 3(b) and 4(2) thereof as transactions not involving any
public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Articles of Incorporation*
3.2 Amended and Restated Bylaws
4.1 Specimen Stock Certificate*
5.1 Opinion of Perkins Coie LLP*
10.1 Optiva Corporation Amended and Restated 1990 Stock Option
Plan
10.2 Optiva Corporation Amended and Restated 1995 California
Stock Option Plan
10.3 Optiva Corporation 1998 Stock Incentive Compensation Plan*
10.4 Optiva Corporation 1998 Employee Stock Purchase Plan*
10.5 Consulting Agreement dated September 1, 1997 between Dr.
David Engel and the registrant
10.6 Consulting Agreement dated as of May 1, 1998 between Louis
Yaseen and the registrant
10.7 Option and Real Estate Purchase and Sale Agreement dated as
of November 26, 1997 between The Quadrant Corporation and
the registrant
10.8 Expansion Agreement dated November 26, 1997 between The
Quadrant Corporation and the registrant
10.9 Lease Agreement dated July 22, 1997 between I. Bitners and
the registrant
</TABLE>
II-2
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.10 Lease Agreement dated April 29, 1996 between The Evans
Company and the registrant for 13222 SE 30th Street, A-1
10.11 Lease Agreement dated April 29, 1996 between The Evans
Company and the registrant for 13228 S.E. 30th Street, C-3
10.12 Lease Agreement dated September 6, 1995 between The Evans
Company and the registrant for 13226 S.E. 30th Street, B-1
10.13 Lease Agreement dated September 6, 1995 between The Evans
Company and the registrant for 13228 S.E. 30th Street, C-1
10.14 Amended and Restated Lease dated May 19, 1995 between Kamber
Park & Associates and the registrant
10.15 Lease Agreement dated July 29, 1995 between S.E. 30th
Company and the registrant
10.16 Lease Agreement dated August 19, 1996 between Stead Building
Partnership and the registrant
10.17 Agreement dated November 18, 1997 between Team Technologies,
Inc. and the registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Perkins Coie LLP (contained in the opinion to be
filed as Exhibit 5.1 hereto)*
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
(b)FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements of the
registrant or related notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on the 11th day of May, 1998.
OPTIVA CORPORATION
By: /s/ DAVID GIULIANI
------------------------------------
David Giuliani
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints David Giuliani and Michael D. Stull, and each of them, with full power
of substitution and resubstitution and full power to act without the other, as
his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person, individually and
in each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments and
amendments thereto and any registration statement relating to the same offering
as this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated below on the 11th day of May, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DAVID GIULIANI President, Chief Executive Officer and
- -------------------------------------------------------- Chairman of the Board (Principal Executive
David Giuliani Officer)
/s/ MICHAEL D. STULL Vice President of Finance, Treasurer and
- -------------------------------------------------------- Chief Financial Officer (Principal Financial
Michael D. Stull Officer and Principal Accounting Officer)
/s/ VINCENT COVIELLO, JR. Director
- --------------------------------------------------------
Vincent Coviello, Jr.
/s/ DAVID ENGEL Director
- --------------------------------------------------------
David Engel
/s/ LOUIS YASEEN Director
- --------------------------------------------------------
Louis Yaseen
</TABLE>
II-4
<PAGE> 83
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Optiva Corporation
as of December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997, and have issued our report thereon dated February 6,
1998 (except Note 14, as to which the date is May , 1998) (included elsewhere
in this Registration Statement). Our audits also included the financial
statement schedule listed in Item 16(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Seattle, Washington
May , 1998
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the approval
of the stock dividend and the increase in the number of authorized shares by the
shareholders described in Note 14 to the Consolidated Financial Statements.
ERNST & YOUNG LLP
Seattle, Washington
May 11, 1998
S-1
<PAGE> 84
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
OPTIVA CORPORATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------- ---------- ------------ ------------- ---------
ADDITIONS
------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS -- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE PERIOD
----------- ---------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts....... $ 460 $ 513 $163(1) $ 810
Sales return reserve..................... 250 300 0 550
------ ------ ---- ------
$ 710 $ 813 $163 $1,360
====== ====== ==== ======
Year Ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts....... $ 819 $ 27 $386(1) $ 460
Sales return reserve..................... 200 50 0 250
------ ------ ---- ------
$1,019 $ 477 $386 $ 710
====== ====== ==== ======
Year Ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts....... $ 122 $ 697 $ -- $ 819
Sales return reserve..................... 195 5 -- 200
------ ------ ---- ------
$ 317 $ 702 $ 0 $1,019
====== ====== ==== ======
</TABLE>
- ---------------
(1) Write-off of uncollectible accounts, net of recoveries.
S-2
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Articles of Incorporation*
3.2 Amended and Restated Bylaws
4.1 Specimen Stock Certificate*
5.1 Opinion of Perkins Coie LLP*
10.1 Optiva Corporation Amended and Restated 1990 Stock Option
Plan
10.2 Optiva Corporation Amended and Restated 1995 California
Stock Option Plan
10.3 Optiva Corporation 1998 Stock Incentive Compensation Plan*
10.4 Optiva Corporation 1998 Employee Stock Purchase Plan*
10.5 Consulting Agreement dated September 1, 1997 between Dr.
David Engel and the registrant
10.6 Consulting Agreement dated as of May 1, 1998 between Louis
Yaseen and the registrant
10.7 Option and Real Estate Purchase and Sale Agreement dated as
of November 26, 1997 between The Quadrant Corporation and
the registrant
10.8 Expansion Agreement dated November 26, 1997 between The
Quadrant Corporation and the registrant
10.9 Lease Agreement dated July 22, 1997 between I. Bitners and
the registrant
10.10 Lease Agreement dated April 29, 1996 between The Evans
Company and the registrant for 13222 SE 30th Street, A-1
10.11 Lease Agreement dated April 29, 1996 between The Evans
Company and the registrant for 13228 S.E. 30th Street, C-3
10.12 Lease Agreement dated September 6, 1995 between The Evans
Company and the registrant for 13226 S.E. 30th Street, B-1
10.13 Lease Agreement dated September 6, 1995 between The Evans
Company and the registrant for 13228 S.E. 30th Street, C-1
10.14 Amended and Restated Lease dated May 19, 1995 between Kamber
Park & Associates and the registrant
10.15 Lease Agreement dated July 29, 1995 between S.E. 30th
Company and the registrant
10.16 Lease Agreement dated August 19, 1996 between Stead Building
Partnership and the registrant
10.17 Agreement dated November 18, 1997 between Team Technologies,
Inc. and the registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Perkins Coie LLP (contained in the opinion to be
filed as Exhibit 5.1 hereto)*
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
AMENDED AND RESTATED BYLAWS
OF
OPTIVA CORPORATION
Originally adopted on: May 2, 1998
Amendments are listed on page i
<PAGE> 2
AMENDMENTS
<TABLE>
<CAPTION>
SECTION EFFECT OF AMENDMENT DATE OF AMENDMENT
------- ------------------- -----------------
<S> <C> <C>
</TABLE>
Page i
<PAGE> 3
CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 OFFICES ................................................................ 1
SECTION 2 SHAREHOLDERS ........................................................... 1
2.1 Annual Meeting ..................................................... 1
2.2 Special Meetings ................................................... 1
2.3 Meetings by Communication Equipment ................................ 1
2.4 Date, Time and Place of Meeting .................................... 2
2.5 Business for Shareholders' Meetings ................................ 2
2.5.1 Business at Annual Meetings ................................. 2
2.5.2 Business at Special Meetings ................................ 2
2.5.3 Notice to Corporation ....................................... 2
2.6 Notice of Meeting .................................................. 3
2.7 Waiver of Notice ................................................... 3
2.8 Fixing of Record Date for Determining Shareholders ................. 4
2.9 Voting Record ...................................................... 4
2.10 Quorum ............................................................. 4
2.11 Manner of Acting ................................................... 5
2.12 Proxies ............................................................ 5
2.13 Voting of Shares ................................................... 5
2.14 Voting for Directors ............................................... 5
2.15 Action by Shareholders Without a Meeting ........................... 5
SECTION 3 BOARD OF DIRECTORS ..................................................... 6
3.1 General Powers ..................................................... 6
3.2 Number and Tenure .................................................. 6
3.3 Nomination and Election ............................................ 6
3.3.1 Nomination .................................................. 6
3.3.2 Election .................................................... 7
3.4 Annual and Regular Meetings ........................................ 7
3.5 Special Meetings ................................................... 8
3.6 Meetings by Communications Equipment ............................... 8
3.7 Notice of Special Meetings ......................................... 8
3.7.1 Personal Delivery .......................................... 8
3.7.2 Delivery by Mail ........................................... 8
3.7.3 Delivery by Private Carrier ................................ 8
3.7.4 Facsimile Notice ........................................... 9
3.7.5 Delivery by Telegraph ...................................... 9
3.7.6 Oral Notice ................................................ 9
3.8 Waiver of Notice ................................................... 9
3.8.1 In Writing ................................................. 9
3.8.2 By Attendance .............................................. 9
</TABLE>
Page ii
<PAGE> 4
<TABLE>
<S> <C> <C>
3.9 Quorum ............................................................. 9
3.10 Manner of Acting ................................................... 10
3.11 Presumption of Assent .............................................. 10
3.12 Action by Board or Committees Without a Meeting .................... 10
3.13 Resignation ........................................................ 10
3.14 Removal ............................................................ 10
3.15 Vacancies .......................................................... 11
3.16 Executive and Other Committees ..................................... 11
3.16.1 Creation of Committees ..................................... 11
3.16.2 Authority of Committees .................................... 11
3.16.3 Audit Committee ............................................. 12
3.16.4 Compensation Committee ...................................... 12
3.16.5 Nominating and Organization Committee ....................... 12
3.16.6 Quorum and Manner of Acting ................................ 12
3.16.7 Minutes of Meetings ........................................ 13
3.16.8 Resignation ................................................ 13
3.16.9 Removal .................................................... 13
3.17 Compensation ....................................................... 13
SECTION 4 OFFICERS ............................................................... 13
4.1 Appointment and Term ............................................... 13
4.2 Resignation ........................................................ 14
4.3 Removal ............................................................ 14
4.4 Contract Rights of Officers ........................................ 14
4.5 Chairman of the Board .............................................. 14
4.6 President .......................................................... 14
4.7 Vice President ..................................................... 14
4.8 Secretary .......................................................... 15
4.9 Treasurer .......................................................... 15
4.10 Salaries ........................................................... 15
SECTION 5 CONTRACTS, LOANS, CHECKS AND DEPOSITS .................................. 15
5.1 Contracts .......................................................... 15
5.2 Loans to the Corporation ........................................... 15
5.3 Checks, Drafts, Etc. .............................................. 16
5.4 Deposits ........................................................... 16
SECTION 6 CERTIFICATES FOR SHARES AND THEIR TRANSFER ............................. 16
6.1 Issuance of Shares ................................................. 16
6.2 Certificates for Shares ............................................ 16
6.3 Stock Records ...................................................... 16
6.4 Restriction on Transfer ............................................ 16
6.5 Transfer of Shares ................................................. 17
6.6 Lost or Destroyed Certificates ..................................... 17
</TABLE>
Page iii
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 7 BOOKS AND RECORDS ...................................................... 17
SECTION 8 ACCOUNTING YEAR ........................................................ 18
SECTION 9 SEAL ................................................................... 18
SECTION 10 INDEMNIFICATION ....................................................... 18
10.1 Right to Indemnification ........................................... 18
10.2 Restrictions on Indemnification .................................... 19
10.3 Advancement of Expenses ............................................ 19
10.4 Right of Indemnitee to Bring Suit .................................. 20
10.5 Procedures Exclusive ............................................... 20
10.6 Nonexclusivity of Rights ........................................... 20
10.7 Insurance, Contracts and Funding ................................... 20
10.8 Indemnification of Employees and Agents of the Corporation ......... 21
10.9 Persons Serving Other Entities ..................................... 21
SECTION 11 AMENDMENTS ............................................................ 21
SECTION 12 VOTING SHARES OF ANOTHER CORPORATION .................................. 21
</TABLE>
Page iv
<PAGE> 6
AMENDED AND RESTATED BYLAWS
OF
OPTIVA CORPORATION
SECTION 1. OFFICES
The principal office of the corporation shall be located at the
principal place of business or such other place as the Board of Directors
("Board") may designate. The corporation may have such other offices, either
within or without the State of Washington, as the Board may designate or as the
business of the corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 ANNUAL MEETING
The annual meeting of the shareholders shall be held each year within 90
to 180 days after the fiscal year end of the corporation at a date, time and
location determined by resolution of the Board of Directors, for the purpose of
electing Directors and transacting such other business as may properly come
before the meeting. At any time prior to the commencement of the annual meeting,
the Board may postpone the annual meeting for a period of up to one hundred
twenty (120) days from the date fixed for such meeting in accordance with this
Subsection 2.1.
2.2 SPECIAL MEETINGS
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of the
shareholders shall be held if the holders of not less than 25% of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held.
2.3 MEETINGS BY COMMUNICATION EQUIPMENT
Shareholders may participate in any meeting of the shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall constitute
presence in person at a meeting.
Page 1
<PAGE> 7
2.4 DATE, TIME AND PLACE OF MEETING
Except as otherwise provided herein, all meetings of shareholders,
including those held pursuant to demand by shareholders as provided herein,
shall be held on such date and at such time and place, within or without the
State of Washington, designated by or at the direction of the Board.
2.5 BUSINESS FOR SHAREHOLDERS' MEETINGS
2.5.1 BUSINESS AT ANNUAL MEETINGS
In addition to the election of directors, other proper business may be
transacted at an annual meeting of shareholders, provided that such business is
properly brought before such meeting. To be properly brought before an annual
meeting, business must be (a) brought by or at the direction of the Board or (b)
brought before the meeting by a shareholder pursuant to written notice thereof,
in accordance with subsection 2.5.3 hereof, and received by the Secretary not
fewer than 60 nor more than 90 days prior to the date specified in subsection
2.1 hereof for such annual meeting (or if less than 60 days' notice or prior
public disclosure of the date of the annual meeting is given or made to the
shareholders, not later than the tenth day following the day on which the notice
of the date of the annual meeting was mailed or such public disclosure was
made). No business shall be conducted at any annual meeting of shareholders
except in accordance with this subsection 2.5.1. If the facts warrant, the
Board, or the chairman of an annual meeting of shareholders, may determine and
declare (a) that a proposal does not constitute proper business to be transacted
at the meeting or (b) that business was not properly brought before the meeting
in accordance with the provisions of this subsection 2.5.1 and, if, in either
case, it is so determined, any such business shall not be transacted. The
procedures set forth in this subsection 2.5.1 for business to be properly
brought before an annual meeting by a shareholder are in addition to, and not in
lieu of, the requirements set forth in Rule 14a-8 under Section 14 of the
Securities Exchange Act of 1934, as amended, or any successor provision.
2.5.2 BUSINESS AT SPECIAL MEETINGS
At any special meeting of the shareholders, only such business as is
specified in the notice of such special meeting given by or at the direction of
the person or persons calling such meeting, in accordance with subsection 2.4
hereof, shall come before such meeting.
2.5.3 NOTICE TO CORPORATION
Any written notice required to be delivered by a shareholder to the
corporation pursuant to subsection 2.4, subsection 2.5.1 or subsection 2.5.2
hereof must be given, either by personal delivery or by registered or certified
mail, postage prepaid, to the Secretary at the corporation's principal executive
offices. Any such shareholder notice shall set forth (i) the name and address of
the shareholder proposing such business; (ii) a representation that the
shareholder is entitled to vote at such meeting and a statement of the number of
shares of the
Page 2
<PAGE> 8
corporation which are beneficially owned by the shareholder; (iii) a
representation that the shareholder intends to appear in person or by proxy at
the meeting to propose such business; and (iv) as to each matter the shareholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting, the language of the proposal (if appropriate), and any
material interest of the shareholder in such business.
2.6 NOTICE OF MEETING
Written notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board, the Chairman of the
Board, the President or the Secretary to each shareholder entitled to notice of
or to vote at the meeting not less than 10 nor more than 60 days before the
meeting, except that notice of a meeting to act on an amendment to the Articles
of Incorporation, a plan of merger or share exchange, the sale, lease, exchange
or other disposition of all or substantially all of the corporation's assets
other than in the regular course of business or the dissolution of the
corporation shall be given not less than 20 nor more than 60 days before such
meeting. Such notice may be transmitted by mail, private carrier, personal
delivery, telegraph, teletype or communications equipment which transmits a
facsimile of the notice to like equipment which receives and reproduces such
notice. If these forms of written notice are impractical in the view of the
Board, the Chairman of the Board, the President or the Secretary, written notice
may be transmitted by an advertisement in a newspaper of general circulation in
the area of the corporation's principal office. If such notice is mailed, it
shall be deemed effective when deposited in the official government mail,
first-class postage prepaid, properly addressed to the shareholder at such
shareholder's address as it appears in the corporation's current record of
shareholders. Notice given in any other manner shall be deemed effective when
dispatched to the shareholder's address, telephone number or other number
appearing on the records of the corporation. Any notice given by publication as
herein provided shall be deemed effective five days after first publication.
2.7 WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Further, notice of the time, place and purpose of any
meeting will be deemed to be waived by any shareholder by attendance thereat in
person or by proxy, unless such shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting.
Page 3
<PAGE> 9
2.8 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS
For the purpose of determining shareholders entitled (a) to notice of or
to vote at any meeting of shareholders or any adjournment thereof, (b) to demand
a special meeting, or (c) to receive payment of any dividend, or in order to
make a determination of shareholders for any other purpose, the Board may fix a
future date as the record date for any such determination. Such record date
shall be not more than 70 days, and in case of a meeting of shareholders not
less than 10 days prior to the date on which the particular action requiring
such determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting, the
record date shall be the day immediately preceding the date on which notice of
the meeting is first given to shareholders. Such a determination shall apply to
any adjournment of the meeting unless the Board fixes a new record date, which
it shall do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting. If no record date is set for the
determination of shareholders entitled to receive payment of any stock dividend
or distribution (other than one involving a purchase, redemption, or other
acquisition of the corporation's shares) the record date shall be the date the
Board authorizes the stock dividend or distribution.
2.9 VOTING RECORD
At least 10 days before each meeting of shareholders, an alphabetical
list of the shareholders entitled to notice of such meeting shall be made,
arranged by voting group and by each class or series of shares therein, with the
address of and number of shares held by each shareholder. This record shall be
kept at the principal office of the corporation for 10 days prior to such
meeting, and shall be kept open at such meeting, for the inspection of any
shareholder or any shareholder's agent.
2.10 QUORUM
A majority of the votes entitled to be cast on a matter by the holders
of shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, are entitled to vote and be counted collectively upon
such matter, represented in person or by proxy, shall constitute a quorum of
such shares at a meeting of shareholders. If less than a majority of such votes
are represented at a meeting, a majority of the votes so represented may adjourn
the meeting from time to time without further notice if the new date, time or
place is announced at the meeting before adjournment. Any business may be
transacted at a reconvened meeting that might have been transacted at the
meeting as originally called, provided a quorum is present or represented
thereat. Once a share is represented for any purpose at a meeting other than
solely to object to holding the meeting or transacting business thereat, it is
deemed present for quorum purposes for the remainder of the meeting and any
adjournment thereof (unless a new record date is or must be set for the
adjourned meeting) notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
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2.11 MANNER OF ACTING
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Articles of Incorporation or the Washington
Business Corporation Act requires a greater number of affirmative votes.
2.12 PROXIES
A shareholder may vote by proxy executed in writing by the shareholder
or by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy shall become invalid 11 months after the date of its execution,
unless otherwise provided in the proxy. A proxy with respect to a specified
meeting shall entitle the holder thereof to vote at any reconvened meeting
following adjournment of such meeting but shall not be valid after the final
adjournment thereof.
2.13 VOTING OF SHARES
Except as provided in the Articles of Incorporation or in Section 2.13
hereof, each outstanding share entitled to vote with respect to a matter
submitted to a meeting of shareholders shall be entitled to one vote upon such
matter.
2.14 VOTING FOR DIRECTORS
Each shareholder entitled to vote at an election of Directors may vote,
in person or by proxy, the number of shares owned by such shareholder for as
many persons as there are Directors to be elected and for whose election such
shareholder has a right to vote. Unless otherwise provided in the Articles of
Incorporation, the candidates elected shall be those receiving the largest
number of votes cast, up to the number of Directors to be elected.
2.15 ACTION BY SHAREHOLDERS WITHOUT A MEETING
Any action which could be taken at a meeting of the shareholders may be
taken without a meeting if one or more written consents setting forth the action
so taken are signed by all shareholders entitled to vote on the action and are
delivered to the corporation. If not otherwise fixed by the Board, the record
date for determining shareholders entitled to take action without a meeting is
the date the first shareholder signs the consent. A shareholder may withdraw a
consent only by delivering a written notice of withdrawal to the corporation
prior to the time that all consents are in the possession of the corporation.
Action taken by written consent of shareholders without a meeting is effective
when all consents are in the possession of the corporation, unless the consent
specifies a later effective date. Any such consent shall be inserted in the
minute book as if it were the minutes of a meeting of the shareholders.
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SECTION 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS
All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the corporation shall be managed under the
direction of, the Board, except as may be otherwise provided in these Bylaws,
the Articles of Incorporation or the Washington Business Corporation Act.
3.2 NUMBER AND TENURE
The Board shall be composed of not less than two nor more than seven
Directors, the specific number to be set by resolution of the Board. The number
of Directors may be changed from time to time by amendment to these Bylaws, but
no decrease in the number of Directors shall have the effect of shortening the
term of any incumbent Director.
At the first election of Directors, whether at an annual meeting of
shareholders or otherwise (in either case, the "Next Director Election"), after
the closing of an initial public offering of equity securities of this
corporation pursuant to a registration statement filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, the Board of
Directors shall be divided into three classes, with such classes to be as equal
in number as may be possible and with the designation or nomination of
individual Directors to such classes for election at such Next Director Election
being in the discretion of the Board of Directors. At the Next Director
Election, each Class 1 Director shall be elected to serve until the next ensuing
annual meeting of shareholders, each Class 2 Director shall be elected to serve
until the second ensuing annual meeting of shareholders and each Class 3
Director shall be elected to serve until the third ensuing annual meeting of
shareholders. At each annual meeting of shareholders following the Next Director
Election, a number of Directors equal to the number of Directors in the class
whose term expires at the time of such meeting shall be elected to serve for a
three year term expiring at the third ensuing annual meeting of shareholders;
provided, however, that, if necessary to maintain relative equality among the
classes of Directors due to vacancies or removals of Directors, Directors may be
elected to a class whose term expires prior to such third ensuing annual meeting
of shareholders. Notwithstanding any of the foregoing provisions of this
Article, Directors shall serve until their successors are elected and qualified
or until their earlier death, resignation or removal from office, or until there
is a decrease in the number of Directors. Directors need not be shareholders of
the corporation or residents of the State of Washington and need not meet any
other qualifications.
3.3 NOMINATION AND ELECTION
3.3.1 NOMINATION
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as Directors. Nominations for the
election of Directors may be made
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(a) by or at the direction of the Board or (b) by any shareholder of record
entitled to vote for the election of Directors at such meeting; provided,
however, that a shareholder may nominate persons for election as Directors only
if written notice (in accordance with subsection 2.5.3 hereof) of such
shareholder's intention to make such nominations is received by the Secretary
not later than (i) with respect to an election to be held at an annual meeting
of the shareholders, not fewer than 60 nor more than 90 days prior to the date
specified in subsection 2.1 hereof for such annual meeting (or if less than 60
days' notice or prior public disclosure of the date of the annual meeting is
given or made to the shareholders, not later than the tenth day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure was made) and (ii) with respect to an election to be held at a
special meeting of the shareholders for the election of Directors, the close of
business on the seventh business day following the date on which notice of such
meeting is first given to shareholders. Any such shareholder's notice shall set
forth (a) the name and address of the shareholder who intends to make a
nomination; (b) a representation that the shareholder is entitled to vote at
such meeting and a statement of the number of shares of the corporation which
are beneficially owned by the shareholder; (c) a representation that the
shareholder intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (d) as to each person the
shareholder proposes to nominate for election or re-election as a Director, the
name and address of such person and such other information regarding such
nominee as would be required in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had such nominee been nominated
by the Board, and a description of any arrangements or understandings, between
the shareholder and such nominee and any other persons (including their names),
pursuant to which the nomination is to be made; and (e) the consent of each such
nominee to serve as a Director if elected. If the facts warrant, the Board, or
the chairman of a shareholders' meeting at which Directors are to be elected,
shall determine and declare that a nomination was not made in accordance with
the foregoing procedure and, if it is so determined, the defective nomination
shall be disregarded. The right of shareholders to make nominations pursuant to
the foregoing procedure is subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation. The procedures set forth in this subsection 3.3 for nomination
for the election of Directors by shareholders are in addition to, and not in
limitation of, any procedures now in effect or hereafter adopted by or at the
direction of the Board or any committee thereof.
3.3.2 ELECTION
At each election of Directors, the persons receiving the greatest number
of votes shall be the Directors.
3.4 ANNUAL AND REGULAR MEETINGS
An annual Board meeting shall be held without notice immediately after
and at the same place as the annual meeting of shareholders. By resolution the
Board, or any committee
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thereof, may specify the time and place either within or without the State of
Washington for holding regular meetings thereof without notice other than such
resolution.
3.5 SPECIAL MEETINGS
Special meetings of the Board or any committee designated by the Board
may be called by or at the request of the Chairman of the Board, the President,
the Secretary or, in the case of special Board meetings, any two Directors and,
in the case of any special meeting of any committee designated by the Board, by
the Chairman thereof. The person or persons authorized to call special meetings
may fix any place either within or without the State of Washington as the place
for holding any special Board or committee meeting called by them.
3.6 MEETINGS BY COMMUNICATIONS EQUIPMENT
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by, or conduct the meeting
through the use of, any means of communication by which all Directors
participating in the meeting can hear each other during the meeting.
Participation by such means shall constitute presence in person at a meeting.
3.7 NOTICE OF SPECIAL MEETINGS
Notice of a special Board or committee meeting stating the place, day
and hour of the meeting shall be given to a Director in writing or orally.
Neither the business to be transacted at, nor the purpose of, any special
meeting need be specified in the notice of such meeting.
3.7.1 PERSONAL DELIVERY
If notice is given by personal delivery, the notice shall be effective
if delivered to a Director at least two days before the meeting.
3.7.2 DELIVERY BY MAIL
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail at least five days before the meeting,
properly addressed to a Director at his or her address shown on the records of
the corporation, with postage thereon prepaid.
3.7.3 DELIVERY BY PRIVATE CARRIER
If notice is given by private carrier, the notice shall be deemed
effective when dispatched to a Director at his or her address shown on the
records of the corporation at least three days before the meeting.
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3.7.4 FACSIMILE NOTICE
If notice is delivered by wire or wireless equipment which transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched at
least two days before the meeting to a Director at his or her telephone number
or other number appearing on the records of the corporation.
3.7.5 DELIVERY BY TELEGRAPH
If notice is delivered by telegraph, the notice shall be deemed
effective if the content thereof is delivered to the telegraph company for
delivery to a Director at his or her address shown on the records of the
corporation at least three days before the meeting.
3.7.6 ORAL NOTICE
If notice is delivered orally, by telephone or in person, the notice
shall be deemed effective if personally given to the Director at least two days
before the meeting.
3.8 WAIVER OF NOTICE
3.8.1 IN WRITING
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board or any committee designated by
the Board need be specified in the waiver of notice of such meeting.
3.8.2 BY ATTENDANCE
A Director's attendance at or participation in a Board or committee
meeting shall constitute a waiver of notice of such meeting, unless the Director
at the beginning of the meeting, or promptly upon his or her arrival, objects to
holding the meeting or transacting business thereat and does not thereafter vote
for or assent to action taken at the meeting.
3.9 QUORUM
A majority of the number of Directors fixed by or in the manner provided
in these Bylaws shall constitute a quorum for the transaction of business at any
Board meeting but, if less than a majority are present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice.
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3.10 MANNER OF ACTING
If a quorum is present when the vote is taken, the act of the majority
of the Directors present at a Board meeting shall be the act of the Board,
unless the vote of a greater number is required by these Bylaws, the Articles of
Incorporation or the Washington Business Corporation Act.
3.11 PRESUMPTION OF ASSENT
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding the meeting or transacting any
business thereat, (b) the Director's dissent or abstention from the action taken
is entered in the minutes of the meeting, or (c) the Director delivers written
notice of the Director's dissent or abstention to the presiding officer of the
meeting before its adjournment or to the corporation within a reasonable time
after adjournment of the meeting. The right of dissent or abstention is not
available to a Director who votes in favor of the action taken.
3.12 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action which could be taken at a meeting of the Board or of any
committee created by the Board may be taken without a meeting if one or more
written consents setting forth the action so taken are signed by each of the
Directors or by each committee member either before or after the action is taken
and delivered to the corporation. Action taken by written consent of Directors
without a meeting is effective when the last Director signs the consent, unless
the consent specifies a later effective date. Any such written consent shall be
inserted in the minute book as if it were the minutes of a Board or a committee
meeting.
3.13 RESIGNATION
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President, the Secretary or the Board. Any such
resignation is effective upon delivery thereof unless the notice of resignation
specifies a later effective date and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
3.14 REMOVAL
At a meeting of shareholders called expressly for that purpose, one or
more members of the Board, including the entire Board, may be removed with or
without cause (unless the Articles of Incorporation permit removal for cause
only) by the holders of the shares entitled to elect the Director or Directors
whose removal is sought if the number of votes cast to remove the Director
exceeds the number of votes cast not to remove the Director. If the Articles of
Incorporation permit cumulative voting in the election of Directors, then a
Director
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may not be removed if the number of votes sufficient to elect such Director if
then cumulatively voted at an election of the entire Board or, if there are
classes of Directors, at an election of the class of Directors of which such
Director is a part, is voted against the Director's removal.
3.15 VACANCIES
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board may be filled by the shareholders, the Board or, if the
Directors in office constitute fewer than a quorum, by the affirmative vote of a
majority of the remaining Directors. Any vacant office held by a Director
elected by the holders of one or more classes or series of shares entitled to
vote and be counted collectively thereon shall be filled only by the vote of the
holders of such class or series of shares. A Director elected to fill a vacancy
shall serve only until the next election of Directors by the shareholders.
3.16 EXECUTIVE AND OTHER COMMITTEES
3.16.1 CREATION OF COMMITTEES
The Board, by resolution adopted by the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws, may create standing or temporary committees,
including an Executive Committee, and appoint members thereto from its own
number and invest such committees with such powers as it may see fit, subject to
such conditions as may be prescribed by the Board, these Bylaws and applicable
law. Each committee must have two or more members, who shall serve at the
pleasure of the Board.
3.16.2 AUTHORITY OF COMMITTEES
Each committee shall have and may exercise all of the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions pertaining thereto and adopted in like
manner, except that no such committee shall have the authority to: (1) authorize
or approve a distribution except according to a general formula or method
prescribed by the Board, (2) approve or propose to shareholders actions or
proposals required by the Washington Business Corporation Act to be approved by
shareholders, (3) fill vacancies on the Board or any committee thereof, (4)
adopt, amend or repeal Bylaws, (5) amend the Articles of Incorporation pursuant
to RCW 23B.10.020, (6) approve a plan of merger not requiring shareholder
approval, or (7) authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares except that the Board may authorize a
committee or a senior executive officer of the corporation to do so within
limits specifically prescribed by the Board.
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3.16.3 AUDIT COMMITTEE
In addition to any committees appointed pursuant to this Section 3.16.2,
there shall be an Audit Committee, appointed annually by the Board, consisting
of at least two Directors who are not members of management. It shall be the
responsibility of the Audit Committee to review the scope and results of the
annual independent audit of books and records of the corporation, to review
compliance with all corporate policies which have been approved by the Board and
to discharge such other responsibilities as may from time to time be assigned to
it by the Board. The Audit Committee shall meet at such times and places as the
members deem advisable, and shall make such recommendations to the Board as they
consider appropriate.
3.16.4 COMPENSATION COMMITTEE
The Board may, in its discretion, designate a Compensation Committee
consisting of not less than two Directors as it may from time to time determine.
The duties of the Compensation Committee shall consist of the following: (a) to
establish and review periodically, but not less than annually, the compensation
of the officers of the corporation and to make recommendations concerning such
compensation to the Board; (b) to consider incentive compensation plans for the
employees of the corporation; (c) to carry out the duties assigned to the
Compensation Committee under any stock option plan or other plan approved by the
corporation; (d) to consult with the President concerning any compensation
matters deemed appropriate by the President or the Compensation Committee; and
(e) to perform such other duties as shall be assigned to the Compensation
Committee by the Board.
3.16.5 NOMINATING AND ORGANIZATION COMMITTEE
The Board may, in its discretion, designate a Nominating and
Organization Committee consisting of not less than two Directors as it may from
time to time determine. The duties of the Nominating and Organization Committee
shall consist of the following: (a) to report and make recommendations to the
Board on the size and composition of the Board and nominees for Directors; (b)
to evaluate the performance of the officers of the corporation and together with
management, select and recommend to the Board appropriate individuals for
election, appointment and promotion as officers of the corporation and ensure
the continuity of capable management; (c) to report and make recommendations to
the Board on the organization of the corporation; and (d) to perform such other
duties as shall be assigned to the Nominating and Organization Committee by the
Board.
3.16.6 QUORUM AND MANNER OF ACTING
A majority of the number of Directors composing any committee of the
Board, as established and fixed by resolution of the Board, shall constitute a
quorum for the transaction of business at any meeting of such committee but, if
less than a majority are present at a meeting, a majority of such Directors
present may adjourn the meeting from time to time without further notice. Except
as may be otherwise provided in the Washington Business
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Corporation Act, if a quorum is present when the vote is taken the act of a
majority of the members present shall be the act of the committee.
3.16.7 MINUTES OF MEETINGS
All committees shall keep regular minutes of their meetings and shall
cause them to be recorded in books kept for that purpose.
3.16.8 RESIGNATION
Any member of any committee may resign at any time by delivering written
notice thereof to the Chairman of the Board, the President, the Secretary or the
Board. Any such resignation is effective upon delivery thereof, unless the
notice of resignation specifies a later effective date, and the acceptance of
such resignation shall not be necessary to make it effective.
3.16.9 REMOVAL
The Board may remove any member of any committee elected or appointed by
it but only by the affirmative vote of the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws.
3.17 COMPENSATION
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee member from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 APPOINTMENT AND TERM
The officers of the corporation shall be those officers appointed from
time to time by the Board or by any other officer empowered to do so. The Board
shall have sole power and authority to appoint executive officers. As used
herein, the term "executive officer" shall mean the President, any Vice
President in charge of a principal business unit, division or function or any
other officer who performs a policy-making function. The Board or the President
may appoint such other officers and assistant officers to hold office for such
period, have such authority and perform such duties as may be prescribed. The
Board may delegate to any other officer the power to appoint any subordinate
officers and to prescribe their respective terms of office, authority and
duties. Any two or more offices may be held by the
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same person. Unless an officer dies, resigns or is removed from office, he or
she shall hold office until his or her successor is appointed.
4.2 RESIGNATION
Any officer may resign at any time by delivering written notice thereof
to the corporation. Any such resignation is effective upon delivery thereof,
unless the notice of resignation specifies a later effective date, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
4.3 REMOVAL
Any officer may be removed by the Board at any time, with or without
cause. An officer or assistant officer, if appointed by another officer, may be
removed by any officer authorized to appoint officers or assistant officers.
4.4 CONTRACT RIGHTS OF OFFICERS
The appointment of an officer does not itself create contract rights.
4.5 CHAIRMAN OF THE BOARD
If appointed, the Chairman of the Board shall perform such duties as
shall be assigned to him or her by the Board from time to time and shall preside
over meetings of the Board and shareholders unless another officer is appointed
or designated by the Board as Chairman of such meetings.
4.6 PRESIDENT
If appointed, the President shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board, shall
preside over meetings of the Board and shareholders in the absence of a Chairman
of the Board, and, subject to the Board's control, shall supervise and control
all of the assets, business and affairs of the corporation. In general, the
President shall perform all duties incident to the office of President and such
other duties as are prescribed by the Board from time to time. If no Secretary
has been appointed, the President shall have responsibility for the preparation
of minutes of meetings of the Board and shareholders and for authentication of
the records of the corporation.
4.7 VICE PRESIDENT
In the event of the death of the President or his or her inability to
act, the Vice President (or if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President, or
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
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restrictions upon the President. Vice Presidents shall perform such other duties
as from time to time may be assigned to them by the President or by or at the
direction of the Board.
4.8 SECRETARY
If appointed, the Secretary shall be responsible for preparation of
minutes of the meetings of the Board and shareholders, maintenance of the
corporation records and stock registers, and authentication of the corporation's
records and shall in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the President or by or at the direction of the Board. In the absence of
the Secretary, an Assistant Secretary may perform the duties of the Secretary.
4.9 TREASURER
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws, and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by or at the direction of the Board. In the absence
of the Treasurer, an Assistant Treasurer may perform the duties of the
Treasurer. If required by the Board, the Treasurer or any Assistant Treasurer
shall give a bond for the faithful discharge of his or her duties in such amount
and with such surety or sureties as the Board shall determine.
4.10 SALARIES
The salaries of the officers shall be fixed from time to time by the
Board or by any person or persons to whom the Board has delegated such
authority. No officer shall be prevented from receiving such salary by reason of
the fact that he or she is also a Director of the corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
5.2 LOANS TO THE CORPORATION
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to specific
instances.
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5.3 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, or agent or agents, of the corporation and
in such manner as is from time to time determined by resolution of the Board.
5.4 DEPOSITS
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 ISSUANCE OF SHARES
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board to the extent such committee is
empowered to do so.
6.2 CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be signed,
either manually or in facsimile, by the President or any Vice President and by
the Treasurer or any Assistant Treasurer or the Secretary or any Assistant
Secretary and shall include on their face written notice of any restrictions
which may be imposed on the transferability of such shares. All certificates
shall be consecutively numbered or otherwise identified.
6.3 STOCK RECORDS
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
6.4 RESTRICTION ON TRANSFER
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the
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certificate, or on the reverse of the certificate if a reference to the legend
is contained on the face, which reads substantially as follows:
"The securities evidenced by this certificate have not been
registered under the Securities Act of l933, as amended, or any
applicable state law, and no interest therein may be sold,
distributed, assigned, offered, pledged or otherwise transferred
unless (a) there is an effective registration statement under
such Act and applicable state securities laws covering any such
transaction involving said securities or (b) this corporation
receives an opinion of legal counsel for the holder of these
securities (concurred in by legal counsel for this corporation)
stating that such transaction is exempt from registration or this
corporation otherwise satisfies itself that such transaction is
exempt from registration."
6.5 TRANSFER OF SHARES
The transfer of shares of the corporation shall be made only on the
stock transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and canceled.
6.6 LOST OR DESTROYED CERTIFICATES
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its
shareholders and the Board, a record of all actions taken by the shareholders or
the Board without a meeting, and a record of all actions taken by a committee of
the Board exercising the authority of the Board on behalf of the corporation.
(b) Maintain appropriate accounting records.
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares
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showing the number and class of shares held by each; provided, however, such
record may be maintained by an agent of the corporation.
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time.
(e) Keep a copy of the following records at its principal office:
1. the Articles of Incorporation and all amendments thereto as
currently in effect;
2. the Bylaws and all amendments thereto as currently in effect;
3. the minutes of all meetings of shareholders and records of all
action taken by shareholders without a meeting, for the past three years;
4. the financial statements described in Section 23B.16.200(1) of
the Washington Business Corporation Act, for the past three years;
5. all written communications to shareholders generally within
the past three years;
6. a list of the names and business addresses of the current
Directors and officers; and
7. the most recent annual report delivered to the Washington
Secretary of State.
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year,
provided that if a different accounting year is at any time selected by the
Board for purposes of federal income taxes, or any other purpose, the accounting
year shall be the year so selected.
SECTION 9. SEAL
The Board may provide for a corporate seal which shall consist of the
name of the corporation, the state of its incorporation and the year of its
incorporation.
SECTION 10. INDEMNIFICATION
10.1 RIGHT TO INDEMNIFICATION
Each person who was, is or is threatened to be made a named party to or
is otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether
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<PAGE> 24
formal or informal (hereinafter a "proceeding"), by reason of the fact that he
or she is or was a Director or officer of the corporation or, that being or
having been such a Director or officer or an employee of the corporation, he or
she is or was serving at the request of the corporation as a Director, officer,
partner, trustee, employee or agent of another corporation or of a partnership,
joint venture, trust, employee benefit plan or other enterprise (hereinafter an
"indemnitee"), whether the basis of a proceeding is alleged action in an
official capacity as such a Director, officer, partner, trustee, employee or
agent or in any other capacity while serving as such a Director, officer,
partner, trustee, employee or agent, shall be indemnified and held harmless by
the corporation against all expense, liability and loss (including counsel fees,
judgments, fines, ERISA excise taxes or penalties and amounts to be paid in
settlement) actually and reasonably incurred or suffered by such indemnitee in
connection therewith, and such indemnification shall continue as to an
indemnitee who has ceased to be a Director, officer, partner, trustee, employee
or agent and shall inure to the benefit of the indemnitee's heirs, executors and
administrators. Except as provided in subsection 10.2 of this Section with
respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if a proceeding (or part
thereof) was authorized or ratified by the Board. The right to indemnification
conferred in this Section shall be a contract right.
10.2 RESTRICTIONS ON INDEMNIFICATION
No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Washington Business Corporation Act,
for any transaction with respect to which it was finally adjudged that such
indemnitee personally received a benefit in money, property or services to which
the indemnitee was not legally entitled or if the corporation is otherwise
prohibited by applicable law from paying such indemnification, except that if
Section 23B.08.560 or any successor provision of the Washington Business
Corporation Act is hereafter amended, the restrictions on indemnification set
forth in this subsection 10.2 shall be as set forth in such amended statutory
provision.
10.3 ADVANCEMENT OF EXPENSES
The right to indemnification conferred in this Section shall include the
right to be paid by the corporation the expenses incurred in defending any
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"). An advancement of expenses shall be made upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this subsection 10.3.
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<PAGE> 25
10.4 RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under subsection 10.1 or 10.3 of this Section is not paid in
full by the corporation within 60 days after a written claim has been received
by the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the corporation to recover the
unpaid amount of the claim. If successful in whole or in part, in any such suit
or in a suit brought by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. The indemnitee
shall be presumed to be entitled to indemnification under this Section upon
submission of a written claim (and, in an action brought to enforce a claim for
an advancement of expenses, where the required undertaking has been tendered to
the corporation) and thereafter the corporation shall have the burden of proof
to overcome the presumption that the indemnitee is so entitled.
10.5 PROCEDURES EXCLUSIVE
Pursuant to Section 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and
advancement of expenses set forth in this Section are in lieu of the procedures
required by Section 23B.08.550 or any successor provision of the Washington
Business Corporation Act.
10.6 NONEXCLUSIVITY OF RIGHTS
The right to indemnification and the advancement of expenses conferred
in this Section shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Articles of
Incorporation or Bylaws of the corporation, general or specific action of the
Board, contract or otherwise.
10.7 INSURANCE, CONTRACTS AND FUNDING
The corporation may maintain insurance, at its expense, to protect
itself and any Director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Washington Business Corporation Act. The corporation
may enter into contracts with any Director, officer, partner, trustee, employee
or agent of the corporation in furtherance of the provisions of this Section and
may create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such amounts as may be necessary to effect indemnification as provided in this
Section.
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10.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees and agents or any class
or group of employees and agents of the corporation (i) with the same scope and
effect as the provisions of this Section with respect to the indemnification and
advancement of expenses of Directors and officers of the corporation; (ii)
pursuant to rights granted pursuant to, or provided by, the Washington Business
Corporation Act; or (iii) as are otherwise consistent with law.
10.9 PERSONS SERVING OTHER ENTITIES
Any person who, while a Director, officer or employee of the
corporation, is or was serving (a) as a Director or officer of another foreign
or domestic corporation of which a majority of the shares entitled to vote in
the election of its Directors is held by the corporation or (b) as a partner,
trustee or otherwise in an executive or management capacity in a partnership,
joint venture, trust or other enterprise of which the corporation or a wholly
owned subsidiary of the corporation is a general partner or has a majority
ownership shall be deemed to be so serving at the request of an executive
officer of the corporation and entitled to indemnification and advancement of
expenses under subsections 10.1 and 10.3 of this Section.
SECTION 11. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board, except that the Board may not repeal or amend any Bylaw
that the shareholders have expressly provided, in amending or repealing such
Bylaw, may not be amended or repealed by the Board. The shareholders may also
alter, amend and repeal these Bylaws or adopt new Bylaws. All Bylaws made by the
Board may be amended, repealed, altered or modified by the shareholders.
SECTION 12. VOTING SHARES OF ANOTHER CORPORATION
Shares of another corporation held by this corporation may be voted by
the president or vice-president, or by proxy appointment form executed by either
of them, unless the Directors by resolution shall designate some other person to
vote the shares.
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The foregoing Amended and Restated Bylaws were adopted by the Board of
Directors on May 2, 1998.
/s/ Karl F. Forsgaard
-----------------------------------
Secretary
Page 22
<PAGE> 1
OPTIVA CORPORATION
AMENDED AND RESTATED
1990 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Optiva Corporation Amended and Restated 1990 Stock
Option Plan (this "Plan") is to provide a means whereby selected employees,
directors, officers, agents, consultants, advisors and independent contractors
of Optiva Corporation, a Washington corporation (the "Company"), or of any
parent or subsidiary (as defined in subsection 5.8 and referred to hereinafter
as "related corporations") thereof, may be granted incentive stock options
and/or nonqualified stock options to purchase the Common Stock (as defined in
Section 3) of the Company, in order to attract and retain the services or advice
of such employees, directors, officers, agents, consultants, advisors and
independent contractors and to provide added incentive to such persons by
encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the Company
(the "Board") or a committee or committees (which term includes subcommittees)
appointed by, and consisting of two or more members of, the Board (the "Plan
Administrator"). If and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Board shall consider, in selecting the Plan Administrator and the
membership of any committee acting as the Plan Administrator of this Plan with
respect to any persons subject or likely to become subject to Section 16 under
the Exchange Act, the provisions regarding (a) "outside directors," as
contemplated by Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and (b) "nonemployee directors," as contemplated by Rule 16b-3
under the Exchange Act. The Board may delegate the responsibility for
administering this Plan with respect to designated classes of eligible
participants to different committees, subject to such limitations as the Board
deems appropriate. The members of any committee serving as the Plan
Administrator shall be appointed by the Board for such term as the Board may
determine. The Board may from time to time remove members from, or add members
to, any committee. Vacancies on a committee, however caused, shall be filled by
the Board.
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Amended and Restated 1990 Stock Option Plan Page 1
<PAGE> 2
2.1 PROCEDURES
The Board shall designate one of the members of the Plan Administrator
as chairman. The Plan Administrator may hold meetings at such times and places
as it shall determine. The acts of a majority of the members of the Plan
Administrator present at meetings at which a quorum exists, or acts reduced to
or approved in writing by all Plan Administrator members, shall be valid acts of
the Plan Administrator.
2.2 RESPONSIBILITIES
Except for the terms and conditions explicitly set forth in this Plan,
the Plan Administrator shall have the authority, in its discretion, to determine
all matters relating to the options to be granted under this Plan, including
selection of the individuals to be granted options, the number of shares to be
subject to each option, the exercise price, and all other terms and conditions
of the options. Grants under this Plan need not be identical in any respect,
even when made simultaneously. The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan or any option issued
hereunder, or of any rule or regulation promulgated in connection herewith,
shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
correspond to the requirements of Section 422 of the Code, the regulations
thereunder and any amendments thereto.
2.3 SECTION 16
Notwithstanding anything in this Plan to the contrary, the Board, in its
absolute discretion, may bifurcate this Plan so as to restrict, limit or
condition the application of any provision of this Plan to participants who are
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning this Plan with respect to other participants.
SECTION 3. SHARES SUBJECT TO THIS PLAN
The shares subject to this Plan shall be the Company's Common Stock (the
"Common Stock"), currently authorized but unissued or subsequently acquired by
the Company. Subject to adjustment as provided in Section 7, the aggregate
amount of Common Stock to be delivered upon the exercise of all options granted
under this Plan
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Amended and Restated 1990 Stock Option Plan Page 2
<PAGE> 3
shall not exceed 4,800,000 shares(1). If any option granted under this Plan
shall expire or be surrendered, exchanged for another option, cancelled or
terminated for any reason without having been exercised in full, the unpurchased
shares subject thereto shall thereupon again be available for purposes of this
Plan.
SECTION 4. ELIGIBILITY
An incentive stock option may be granted only to an individual who, at
the time the option is granted, is an employee of the Company or a related
corporation. A nonqualified stock option may be granted to any employee,
director, officer, agent, consultant, advisor or independent contractor of the
Company or any related corporation, whether an individual or an entity. Any
party to whom an option is granted under this Plan shall be referred to
hereinafter as an "Optionee."
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Options granted under this Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with this
Plan. Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE
The maximum number of shares that may be purchased pursuant to the
exercise of each option and the price per share at which such option is
exercisable (the "exercise price") shall be as established by the Plan
Administrator; provided that the Plan Administrator shall act in good faith to
establish an exercise price which shall be not less than the fair market value
per share of the Common Stock at the time the option is granted with respect to
incentive stock options and not less than 85% of the fair market value of the
Common Stock at the time the option is granted with respect to nonqualified
stock options, and also provided that, with respect to incentive stock options
granted to greater than 10% shareholders, the exercise price shall be as
required by subsection 6.1.
5.2 TERM AND MATURITY
Subject to the restrictions contained in Section 6 with respect to
granting incentive stock options to greater than 10% shareholders, the term of
each incentive
- --------
(1) This number reflects the stock split in connection with the offering.
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Amended and Restated 1990 Stock Option Plan Page 3
<PAGE> 4
stock option shall be as established by the Plan Administrator and, if not so
established, shall be 10 years from the date it is granted but in no event shall
it exceed 10 years. The term of each nonqualified stock option shall be as
established by the Plan Administrator and, if not so established, shall be 10
years. To ensure that the Company or a related corporation will achieve the
purpose and receive the benefits contemplated by this Plan, any option granted
to any Optionee hereunder shall, unless the condition of this sentence is waived
or modified in the agreement evidencing the option or by resolution adopted at
any time by the Plan Administrator, be exercisable according to the following
schedule:
<TABLE>
<CAPTION>
Period of Optionee's Continuous
Relationship With the Company or
Related Corporation From the Date Portion of Total Option
the Option Is Granted Which Is Exercisable
-------------------------------------------------------------
<S> <C>
after one year 25%
after two years 50%
after three years 75%
after four years 100%
</TABLE>
5.3 EXERCISE
Subject to the vesting schedule described in subsection 5.2, each option
may be exercised in whole or in part at any time and from time to time; provided
that only whole shares will be issued pursuant to the exercise of any option. An
option shall be exercised by delivery to the Company of notice of the number of
shares with respect to which the option is exercised, together with payment of
the exercise price.
5.4 PAYMENT OF EXERCISE PRICE
Payment of the option exercise price shall be made in full at the time
the notice of exercise of the option is delivered to the Company and shall be in
cash, bank certified or cashier's check, or personal check (unless at the time
of exercise the Plan Administrator in a particular case determines not to accept
a personal check) for the shares being purchased.
The Plan Administrator can determine at any time before exercise that
additional forms of payment will be permitted. To the extent permitted by the
Plan Administrator and applicable laws and regulations (including, but not
limited to, federal tax and securities laws and regulations and state corporate
law), an option may be exercised by:
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Amended and Restated 1990 Stock Option Plan Page 4
<PAGE> 5
(a) delivery of shares of Common Stock of the Company held by an
Optionee having a fair market value equal to the exercise price, such fair
market value to be determined in good faith by the Plan Administrator; provided,
however, that payment in stock held by an Optionee shall not be made unless the
stock shall have been owned by the Optionee for a period of at least six months;
(b) delivery of a full-recourse promissory note executed by the
Optionee; provided that (i) such note delivered in connection with an incentive
stock option shall, and such note delivered in connection with a nonqualified
stock option may, in the sole discretion of the Plan Administrator, bear
interest at a rate specified by the Plan Administrator but in no case less than
the rate required to avoid imputation of interest (taking into account any
exceptions to the imputed interest rules) for federal income tax purposes, (ii)
the Plan Administrator in its sole discretion shall specify the term and other
provisions of such note at the time an incentive stock option is granted or at
any time prior to exercise of a nonqualified stock option, (iii) the Plan
Administrator may require that the Optionee pledge to the Company for the
purpose of securing the payment of such note the shares of Common Stock to be
issued to the Optionee upon exercise of the option and may require that the
certificate representing such shares be held in escrow in order to perfect the
Company's security interest, and (iv) the Plan Administrator in its sole
discretion may at any time restrict or rescind this right upon notification to
the Optionee; or
(c) delivery of a properly executed exercise notice, together
with irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price and any federal, state
or local withholding tax obligations that may arise in connection with the
exercise.
5.5 WITHHOLDING TAX REQUIREMENT
The Company or any related corporation shall have the right to retain
and withhold from any payment of cash or shares of Common Stock under this Plan
the amount of taxes required by any government to be withheld or otherwise
deducted and paid with respect to such payment. At its discretion, the Company
may require an Optionee receiving shares of Common Stock to reimburse the
Company for any such taxes required to be withheld by the Company and withhold
any distribution in whole or in part until the Company is so reimbursed. In lieu
thereof, the Company shall have the right to withhold from any other cash
amounts due or to become due from the Company to the Optionee an amount equal to
such taxes. The Company may also retain and withhold or the Optionee may elect,
subject to approval by the Company at its sole discretion, to have the Company
retain and withhold a number of shares
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Amended and Restated 1990 Stock Option Plan Page 5
<PAGE> 6
having a market value not less than the amount of such taxes required to be
withheld by the Company to reimburse the Company for any such taxes and cancel
(in whole or in part) any such shares so withheld.
5.6 HOLDING PERIODS
5.6.1 SECURITIES AND EXCHANGE ACT SECTION 16
If an individual subject to Section 16 of the Exchange Act sells shares
of Common Stock obtained upon the exercise of a stock option within six months
after the date the option was granted, such sale may result in short-swing
profit recovery under Section 16(b) of the Exchange Act.
5.6.2 TAXATION OF STOCK OPTIONS
In order to obtain certain tax benefits afforded to incentive stock
options under Section 422 of the Code, an Optionee must hold the shares issued
upon the exercise of an incentive stock option for two years after the date of
grant of the option and one year from the date of exercise. An Optionee may be
subject to the alternative minimum tax at the time of exercise of an incentive
stock option.
The Plan Administrator may require an Optionee to give the Company
prompt notice of any disposition of shares acquired by the exercise of an
incentive stock option prior to the expiration of such holding periods.
Tax advice should be obtained by an Optionee when exercising any option
and prior to the disposition of the shares issued upon the exercise of any
option.
5.7 TRANSFERABILITY OF OPTIONS
Options granted under this Plan and the rights and privileges conferred
hereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will or by the
applicable laws of descent and distribution and shall not be subject to
execution, attachment or similar process. During an Optionee's lifetime, any
options granted under this Plan are personal to him or her and are exercisable
solely by such Optionee. Any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under this Plan or of any right or privilege
conferred hereby, contrary to the Code or to the provisions of this Plan, or the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void. Notwithstanding the foregoing, to the
extent permitted by Section 422 of the Code and any applicable law or
regulation, the Plan Administrator may permit an Optionee to (a) during the
Optionee's lifetime, designate
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Amended and Restated 1990 Stock Option Plan Page 6
<PAGE> 7
a person who may exercise the option after the Optionee's death by giving
written notice of such designation to the Company (such designation may be
changed from time to time by the Optionee by giving written notice to the
Company revoking any earlier designation and making a new designation) or (b)
with respect to nonqualified stock options, transfer the option and the rights
and privileges conferred hereby; provided, however, that any option so assigned
or transferred shall be subject to all the same terms and conditions contained
in the instrument evidencing the option.
5.8 TERMINATION OF RELATIONSHIP
If the Optionee's relationship with the Company or any related
corporation ceases for any reason other than termination for cause, death or
total disability, and unless by its terms the option sooner terminates or
expires, then the Optionee may exercise, for a three-month period, that portion
of the Optionee's option which is exercisable at the time of such cessation, but
the Optionee's option shall terminate at the end of such period following such
cessation as to all shares for which it has not theretofore been exercised,
unless such provision is waived in the agreement evidencing the option. If, in
the case of an incentive stock option, an Optionee's relationship with the
Company or any related corporation changes (i.e., from employee to nonemployee,
such as a consultant), such change shall constitute a termination of an
Optionee's employment with the Company or any related corporation and the
Optionee's incentive stock option shall terminate in accordance with this
subsection 5.8. Upon the expiration of the three-month period following
cessation of employment in the case of an incentive stock option, or at any time
prior to the expiration of the option in the case of a nonqualified stock
option, the Plan Administrator shall have sole discretion in a particular
circumstance to extend the exercise period following such cessation to any date
up to the termination or expiration of the option. If, however, in the case of
an incentive stock option, the Optionee does not exercise the Optionee's option
within three months after cessation of employment, the option will no longer
qualify as an incentive stock option under the Code.
If an Optionee is terminated for cause, each option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Optionee shall thereupon have no
right to purchase any shares pursuant to such option. "Termination for cause"
shall mean dismissal for dishonesty, conviction or confession of a crime (except
minor violations), fraud, misconduct or disclosure of confidential information.
If an Optionee's relationship with the Company or any related corporation is
suspended pending an investigation of whether or not the Optionee shall be
terminated for cause, the Optionee's rights under
- --------------------------------------------------------------------------------
Amended and Restated 1990 Stock Option Plan Page 7
<PAGE> 8
each option granted hereunder likewise shall be suspended during the period of
investigation.
If an Optionee's relationship with the Company or any related
corporation ceases because of a total disability, the Optionee's option shall
not terminate or, in the case of an incentive stock option, cease to be treated
as an incentive stock option until the end of the 12-month period following such
cessation (unless by its terms it sooner terminates or expires). As used in this
Plan, the term "total disability" refers to a mental or physical impairment of
the Optionee which is expected to result in death or which has lasted or is
expected to last for a continuous period of 12 months or more and which causes
the Optionee to be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties for the Company and to be engaged in
any substantial gainful activity. Total disability shall be deemed to have
occurred on the first day after the Company and the two independent physicians
have furnished their opinion of total disability to the Plan Administrator.
Options granted under the Plan shall not be affected by any change of
relationship with the Company so long as the Optionee continues to be an
employee, director, officer, agent, consultant, advisor or independent
contractor of the Company or of a related corporation; however, a change in an
Optionee's status from an employee to a nonemployee (e.g., consultant or
independent contractor) shall result in the termination of an outstanding
incentive stock option held by such Optionee. The Plan Administrator, in its
absolute discretion, may determine all questions of whether particular leaves of
absence constitute a termination of services; provided, however, that with
respect to incentive stock options, such determination shall be subject to any
requirements contained in the Code. The foregoing notwithstanding, with respect
to incentive stock options, employment shall not be deemed to continue beyond
the first 90 days of such leave, unless the Optionee's reemployment rights are
guaranteed by statute or by contract.
As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in,
at the time of the granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
Company is owned by one of the other corporations in such chain. When referring
to a parent corporation, the term "related corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
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Amended and Restated 1990 Stock Option Plan Page 8
<PAGE> 9
5.9 DEATH OF OPTIONEE
If an Optionee dies while he or she has a relationship with the Company
or any related corporation or within the three-month period (or 12-month period
in the case of totally disabled Optionees) following cessation of such
relationship, any option held by such Optionee to the extent that the Optionee
would have been entitled to exercise such option, may be exercised within one
year after his or her death by the personal representative of his or her estate
or by the person or persons to whom the Optionee's rights under the option shall
pass (a) by will or by the applicable laws of descent and distribution or (b) by
a designation or transfer pursuant to Section 5.7.
5.10 NO STATUS AS SHAREHOLDER
Neither the Optionee nor any party to which the Optionee's rights and
privileges under the option may pass shall be, or have any of the rights or
privileges of, a shareholder of the Company with respect to any of the shares
issuable upon the exercise of any option granted under this Plan unless and
until such option has been exercised.
5.11 CONTINUATION OF RELATIONSHIP
Nothing in this Plan or in any option shall confer upon any Optionee any
right to continue in the employ or other relationship of the Company or of a
related corporation, or to interfere in any way with the right of the Company or
of any such related corporation to terminate his or her employment or other
relationship with the Company at any time.
5.12 MODIFICATION AND AMENDMENT OF OPTION
Subject to the requirements of Code Section 422 with respect to
incentive stock options and to the terms and conditions and within the
limitations of this Plan, the Plan Administrator may modify or amend any
outstanding option granted under this Plan. The modification or amendment of an
outstanding option shall not, without the consent of the Optionee, impair or
diminish any of his or her rights or any of the obligations of the Company under
such option. Except as otherwise provided in this Plan, no outstanding option
shall be terminated without the consent of the Optionee.
5.13 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS
As to all incentive stock options granted under the terms of this Plan,
to the extent that the aggregate fair market value of the shares (determined at
the time the incentive stock option is granted) with respect to which incentive
stock options are
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Amended and Restated 1990 Stock Option Plan Page 9
<PAGE> 10
exercisable for the first time by the Optionee during any calendar year (under
this Plan and all other incentive stock option plans of the Company, a related
corporation or a predecessor corporation) exceeds $100,000, such options shall
be treated as nonqualified stock options. The previous sentence shall not apply
if the Internal Revenue Service issues a public rule, issues a private ruling to
the Company, any Optionee or any legatee, personal representative or distributee
of an Optionee or issues regulations changing or eliminating such annual limit.
SECTION 6. GREATER THAN 10% SHAREHOLDERS
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS
If an incentive stock option is granted under this Plan to any employee
who owns more than 10% of the total combined voting power of all classes of
stock of the Company or any related corporation, the term of such incentive
stock options shall not exceed five years and the exercise price shall be not
less than 110% of the fair market value of the shares at the time the incentive
stock option is granted. This provision shall control notwithstanding any
contrary terms contained in an option agreement or any other document.
6.2 ATTRIBUTION RULE
For purposes of subsection 6.1, in determining stock ownership, an
employee shall be deemed to own the shares owned, directly or indirectly, by or
for his or her brothers, sisters, spouse, ancestors and lineal descendants.
Shares owned, directly or indirectly, by or for a corporation, partnership,
estate or trust shall be deemed to be owned proportionately by or for its
shareholders, partners or beneficiaries. If an employee or a person related to
the employee owns an unexercised option or warrant to purchase shares of the
Company, the shares subject to that portion of the option or warrant which is
unexercised shall not be counted in determining stock ownership. For purposes of
this Section 6, shares owned by an employee shall include all shares actually
issued and outstanding immediately before the grant of the incentive stock
option to the employee.
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The aggregate number and class of shares for which options may be
granted under this Plan, the number and class of shares covered by each
outstanding option and the exercise price per share thereof (but not the total
price), and each such option, shall all be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock of the
Company resulting from a split-up or
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Amended and Restated 1990 Stock Option Plan Page 10
<PAGE> 11
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
7.1 EFFECT OF LIQUIDATION OR REORGANIZATION
7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK
Except as provided in subsection 7.1.2, upon a merger (other than a
merger of the Company in which the holders of shares of Common Stock immediately
prior to the merger have the same proportionate ownership of shares of Common
Stock in the surviving corporation immediately after the merger), consolidation,
acquisition of property or stock, separation, reorganization (other than a mere
reincorporation or the creation of a holding company) or liquidation of the
Company, as a result of which the shareholders of the Company receive cash,
stock or other property in exchange for or in connection with their shares of
Common Stock, any option granted hereunder shall terminate, but the Optionee
shall have the right immediately prior to any such merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation to
exercise such Optionee's option in whole or in part whether or not the vesting
requirements set forth in the option agreement have been satisfied; provided
that such acceleration will not occur if, in the opinion of the Company's
outside accountants, such acceleration would render unavailable "pooling of
interests" accounting treatment for any reorganization, merger or consolidation
of the Company for which pooling of interests accounting treatment is sought by
the Company.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE
If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger (other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and the corporation
issuing the Exchange Stock, in their sole discretion, determine that any or all
such options granted hereunder shall not be converted into options to purchase
shares of Exchange Stock but instead shall terminate in accordance with the
provisions of subsection 7.1.1. The amount and price of converted options shall
be determined by adjusting the amount and price of the options granted hereunder
in the same proportion as used for determining the number of shares of Exchange
Stock the holders of the shares of Common Stock
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Amended and Restated 1990 Stock Option Plan Page 11
<PAGE> 12
receive in such merger, consolidation, acquisition of property or stock,
separation or reorganization. The converted options shall be fully vested
whether or not the vesting requirements set forth in the option agreement have
been satisfied; provided that such acceleration will not occur if, in the
opinion of the Company's outside accountants, such acceleration would render
unavailable "pooling of interests" accounting treatment for any reorganization,
merger or consolidation of the Company for which pooling of interests accounting
treatment is sought by the Company.
7.2 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by any
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL
All Section 7 adjustments shall be made by the Board, and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. Unless an Optionee agrees otherwise, any
change or adjustment to an incentive stock option shall be made in such a manner
so as not to constitute a "modification" as defined in Code Section 424(h) and
so as not to cause his or her incentive stock option issued hereunder to fail to
continue to qualify as an incentive stock option as defined in Code Section
422(b).
SECTION 8. SECURITIES REGULATION
Shares shall not be issued with respect to an option granted under this
Plan unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance, including the
availability, if applicable, of an exemption from registration for the issuance
and sale of any shares hereunder. Inability of the Company to obtain, from any
regulatory body having jurisdiction, the authority deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares hereunder
or the unavailability of an exemption from registration for the issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.
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Amended and Restated 1990 Stock Option Plan Page 12
<PAGE> 13
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order against
any shares of stock may be placed on the official stock books and records of the
Company, and a legend indicating that the stock may not be pledged, sold or
otherwise transferred, unless an opinion of counsel is provided (concurred in by
counsel for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Plan Administrator may also require such
other action or agreement by the Optionees as may from time to time be necessary
to comply with the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.
SECTION 9. AMENDMENT AND TERMINATION
9.1 BOARD ACTION
The Board may at any time suspend, amend or terminate this Plan,
provided that, to the extent required for compliance with Section 422 of the
Code or by any applicable law or regulation, the Company's shareholders must
approve any amendment which will:
(a) increase the number of shares that may be issued under this
Plan;
(b) with respect to incentive stock options, change the
designation of the participants or class of participants eligible for
participation in this Plan; or
(c) otherwise require shareholder approval under any applicable
law or regulation.
Such shareholder approval must be obtained within 12 months of the
adoption by the Board of such amendment.
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Amended and Restated 1990 Stock Option Plan Page 13
<PAGE> 14
Any amendment made to this Plan which would constitute a "modification"
to incentive stock options outstanding on the date of such amendment, shall not
be applicable to such outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees otherwise.
9.2 AUTOMATIC TERMINATION
Unless sooner terminated by the Board, this Plan shall terminate ten
years from the earlier of (a) the date on which this Plan is adopted by the
Board or (b) the date on which this Plan is approved by the shareholders of the
Company. No option may be granted after such termination or during any
suspension of this Plan. The amendment or termination of this Plan shall not,
without the consent of the option holder, alter or impair any rights or
obligations under any option theretofore granted under this Plan.
SECTION 10. EFFECTIVENESS OF THIS PLAN
This Plan shall become effective upon adoption by the Board so long as
it is approved by the Company's shareholders at any time within 12 months of
such adoption of this Plan.
Plan adopted by the Board of Directors on July 27, 1990 and approved by the
shareholders on August 15, 1990. Amended by the Board of Directors on October 8,
1992 and approved by the shareholders on October 22, 1992. Amended by the Board
of Directors on December 15, 1994 and approved by the shareholders on April 8,
1995. Amended and Restated by the Board on August 4, 1995 and approved by the
shareholders on August 24, 1995. Amended by the Board of Directors on April 15,
1996 and approved by the shareholders on April 27, 1996. Amended by the Board of
Directors on March 25, 1997 and approved by the shareholders on April 5, 1997.
Amended and Restated by the Board of Directors on ____________, 1998.
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Amended and Restated 1990 Stock Option Plan Page 14
<PAGE> 1
OPTIVA CORPORATION
AMENDED AND RESTATED
1995 CALIFORNIA STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Optiva Corporation Amended and Restated 1995
California Stock Option Plan (this "Plan") is to provide a means whereby
selected employees, directors, officers, agents, consultants, advisors and
independent contractors of Optiva Corporation, a Washington corporation (the
"Company"), or of any parent or subsidiary (as defined in subsection 5.8 and
referred to hereinafter as "related corporations") thereof, may be granted
incentive stock options and/or nonqualified stock options to purchase the Common
Stock (as defined in Section 3) of the Company, in order to attract and retain
the services or advice of such employees, directors, officers, agents,
consultants, advisors and independent contractors and to provide added incentive
to such persons by encouraging stock ownership in the Company.
SECTION 2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the Company
(the "Board") or a committee or committees (which term includes subcommittees)
appointed by, and consisting of two or more members of, the Board (the "Plan
Administrator"). If and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Board shall consider, in selecting the Plan Administrator and the
membership of any committee acting as the Plan Administrator of this Plan with
respect to any persons subject or likely to become subject to Section 16 under
the Exchange Act, the provisions regarding (a) "outside directors," as
contemplated by Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and (b) "nonemployee directors," as contemplated by Rule 16b-3
under the Exchange Act. The Board may delegate the responsibility for
administering this Plan with respect to designated classes of eligible
participants to different committees, subject to such limitations as the Board
deems appropriate. The members of any committee serving as the Plan
Administrator shall be appointed by the Board for such term as the Board may
determine. The Board may from time to time remove members from, or add members
to, any committee. Vacancies on a committee, however caused, shall be filled by
the Board.
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<PAGE> 2
2.1 PROCEDURES
The Board shall designate one of the members of the Plan Administrator
as chairman. The Plan Administrator may hold meetings at such times and places
as it shall determine. The acts of a majority of the members of the Plan
Administrator present at meetings at which a quorum exists, or acts reduced to
or approved in writing by all Plan Administrator members, shall be valid acts of
the Plan Administrator.
2.2 RESPONSIBILITIES
Except for the terms and conditions explicitly set forth in this Plan,
the Plan Administrator shall have the authority, in its discretion, to determine
all matters relating to the options to be granted under this Plan, including
selection of the individuals to be granted options, the number of shares to be
subject to each option, the exercise price, and all other terms and conditions
of the options. Grants under this Plan need not be identical in any respect,
even when made simultaneously. The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan or any option issued
hereunder, or of any rule or regulation promulgated in connection herewith,
shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
correspond to the requirements of Section 422 of the Code,the regulations
thereunder and any amendments thereto.
2.3 SECTION 16
Notwithstanding anything in this Plan to the contrary, the Board, in its
absolute discretion, may bifurcate this Plan so as to restrict, limit or
condition the application of any provision of this Plan to participants who are
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning this Plan with respect to other participants.
SECTION 3. SHARES SUBJECT TO THIS PLAN
The shares subject to this Plan shall be the Company's Common Stock (the
"Common Stock"), currently authorized but unissued or subsequently acquired by
the Company. Subject to adjustment as provided in Section 7, the aggregate
amount of Common Stock to be delivered upon the exercise of all options granted
under this Plan
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<PAGE> 3
shall not exceed Eighty Thousand (80,000)(1) shares as such Common Stock was
constituted on the effective date of this Plan. If any option granted under this
Plan shall expire or be surrendered, exchanged for another option, cancelled or
terminated for any reason without having been exercised in full, the unpurchased
shares subject thereto shall thereupon again be available for purposes of this
Plan.
SECTION 4. ELIGIBILITY
An incentive stock option may be granted only to an individual who, at
the time the option is granted, is an employee of the Company or a related
corporation. A nonqualified stock option may be granted to any employee,
director, officer, agent, consultant, advisor or independent contractor of the
Company or any related corporation, whether an individual or an entity. Any
party to whom an option is granted under this Plan shall be referred to
hereinafter as an "Optionee."
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Options granted under this Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with this
Plan. Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE
The maximum number of shares that may be purchased pursuant to the
exercise of each option and the price per share at which such option is
exercisable (the "exercise price") shall be as established by the Plan
Administrator; provided that the Plan Administrator shall act in good faith to
establish an exercise price which shall be not less than the fair market value
per share of the Common Stock at the time the option is granted with respect to
incentive stock options and not less than 85% of the fair market value of the
Common Stock at the time the option is granted with respect to nonqualified
stock options, and also provided that, with respect to incentive stock options
granted to greater than 10% shareholders, the exercise price shall be as
required by subsection 6.1.
- ----------
(1) This number reflects the stock split in connection with the offering.
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<PAGE> 4
5.2 TERM AND MATURITY
Subject to the restrictions contained in Section 6 with respect to
granting incentive stock options to greater than 10% shareholders, the term of
each incentive stock option shall be as established by the Plan Administrator
and, if not so established, shall be 10 years from the date it is granted but in
no event shall it exceed 10 years. The term of each nonqualified stock option
shall be as established by the Plan Administrator and, if not so established,
shall be 10 years. To ensure that the Company or a related corporation will
achieve the purpose and receive the benefits contemplated by this Plan, any
option granted to any Optionee hereunder shall, unless the condition of this
sentence is waived or modified in the agreement evidencing the option or by
resolution adopted at any time by the Plan Administrator, be exercisable
according to the following schedule:
<TABLE>
<CAPTION>
Period of Optionee's Continuous
Relationship With the Company or
Related Corporation From the Date Portion of Total Option
the Option Is Granted Which Is Exercisable
---------------------------------- ------------------------
<S> <C>
after one year 25%
after two years 50%
after three years 75%
after four years 100%
</TABLE>
5.3 EXERCISE
Subject to the vesting schedule described in subsection 5.2, each option
may be exercised in whole or in part at any time and from time to time; provided
that only whole shares will be issued pursuant to the exercise of any option. An
option shall be exercised by delivery to the Company of notice of the number of
shares with respect to which the option is exercised, together with payment of
the exercise price.
5.4 PAYMENT OF EXERCISE PRICE
Payment of the option exercise price shall be made in full at the time
the notice of exercise of the option is delivered to the Company and shall be in
cash, bank certified or cashier's check, or personal check (unless at the time
of exercise the Plan Administrator in a particular case determines not to accept
a personal check) for the shares being purchased.
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<PAGE> 5
The Plan Administrator can determine at any time before exercise that
additional forms of payment will be permitted. To the extent permitted by the
Plan Administrator and applicable laws and regulations (including, but not
limited to, federal tax and securities laws and regulations and state corporate
law), an option may be exercised by:
(a) delivery of shares of Common Stock of the Company held by an
Optionee having a fair market value equal to the exercise price, such fair
market value to be determined in good faith by the Plan Administrator; provided,
however, that payment in stock held by an Optionee shall not be made unless the
stock shall have been owned by the Optionee for a period of at least six months;
(b) delivery of a full-recourse promissory note executed by the
Optionee; provided that (i) such note delivered in connection with an incentive
stock option shall, and such note delivered in connection with a nonqualified
stock option may, in the sole discretion of the Plan Administrator, bear
interest at a rate specified by the Plan Administrator but in no case less than
the rate required to avoid imputation of interest (taking into account any
exceptions to the imputed interest rules) for federal income tax purposes, (ii)
the Plan Administrator in its sole discretion shall specify the term and other
provisions of such note at the time an incentive stock option is granted or at
any time prior to exercise of a nonqualified stock option, (iii) the Plan
Administrator may require that the Optionee pledge to the Company for the
purpose of securing the payment of such note the shares of Common Stock to be
issued to the Optionee upon exercise of the option and may require that the
certificate representing such shares be held in escrow in order to perfect the
Company's security interest, and (iv) the Plan Administrator in its sole
discretion may at any time restrict or rescind this right upon notification to
the Optionee; or
(c) delivery of a properly executed exercise notice, together
with irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price and any federal, state
or local withholding tax obligations that may arise in connection with the
exercise.
5.5 WITHHOLDING TAX REQUIREMENT
The Company or any related corporation shall have the right to retain
and withhold from any payment of cash or shares of Common Stock under this Plan
the amount of taxes required by any government to be withheld or otherwise
deducted and paid with respect to such payment. At its discretion, the Company
may require an Optionee receiving shares of Common Stock to reimburse the
Company for any such
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<PAGE> 6
taxes required to be withheld by the Company and withhold any distribution in
whole or in part until the Company is so reimbursed. In lieu thereof, the
Company shall have the right to withhold from any other cash amounts due or to
become due from the Company to the Optionee an amount equal to such taxes. The
Company may also retain and withhold or the Optionee may elect, subject to
approval by the Company at its sole discretion, to have the Company retain and
withhold a number of shares having a market value not less than the amount of
such taxes required to be withheld by the Company to reimburse the Company for
any such taxes and cancel (in whole or in part) any such shares so withheld.
5.6 HOLDING PERIODS
5.6.1 SECURITIES AND EXCHANGE ACT SECTION 16
If an individual subject to Section 16 of the Exchange Act sells shares
of Common Stock obtained upon the exercise of a stock option within six months
after the date the option was granted, such sale may result in short-swing
profit recovery under Section 16(b) of the Exchange Act.
5.6.2 TAXATION OF STOCK OPTIONS
In order to obtain certain tax benefits afforded to incentive stock
options under Section 422 of the Code, an Optionee must hold the shares issued
upon the exercise of an incentive stock option for two years after the date of
grant of the option and one year from the date of exercise. An Optionee may be
subject to the alternative minimum tax at the time of exercise of an incentive
stock option.
The Plan Administrator may require an Optionee to give the Company
prompt notice of any disposition of shares acquired by the exercise of an
incentive stock option prior to the expiration of such holding periods.
Tax advice should be obtained by an Optionee when exercising any option
and prior to the disposition of the shares issued upon the exercise of any
option.
5.7 TRANSFERABILITY OF OPTIONS
Options granted under this Plan and the rights and privileges conferred
hereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will or by the
applicable laws of descent and distribution and shall not be subject to
execution, attachment or similar process. During an Optionee's lifetime, any
options granted under this Plan are personal to him or her and are exercisable
solely by such Optionee. Any attempt to transfer, assign,
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pledge, hypothecate or otherwise dispose of any option under this Plan or of any
right or privilege conferred hereby, contrary to the Code or to the provisions
of this Plan, or the sale or levy or any attachment or similar process upon the
rights and privileges conferred hereby shall be null and void. Notwithstanding
the foregoing, to the extent permitted by Section 422 of the Code and any other
applicable law or regulation, the Plan Administrator may permit an Optionee to
(a) during the Optionee's lifetime, designate a person who may exercise the
option after the Optionee's death by giving written notice of such designation
to the Company (such designation may be changed from time to time by the
Optionee by giving written notice to the Company revoking any earlier
designation and making a new designation) or (b) with respect to nonqualified
stock options, transfer the option and the rights and privileges conferred
hereby; provided, however, that any option so assigned or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the option.
5.8 TERMINATION OF RELATIONSHIP
If the Optionee's relationship with the Company or any related
corporation ceases for any reason other than death or total disability, and
unless by its terms the option sooner terminates or expires, then the Optionee
may exercise, for a three-month period, that portion of the Optionee's option
which is exercisable at the time of such cessation, but the Optionee's option
shall terminate at the end of such period following such cessation as to all
shares for which it has not theretofore been exercised, unless such provision is
waived in the agreement evidencing the option. If, in the case of an incentive
stock option, an Optionee's relationship with the Company or any related
corporation changes (i.e., from employee to nonemployee, such as a consultant),
such change shall constitute a termination of an Optionee's employment with the
Company or any related corporation and the Optionee's incentive stock option
shall terminate in accordance with this subsection 5.8. Upon the expiration of
the three-month period following cessation of employment in the case of an
incentive stock option, or at any time prior to the expiration of the option in
the case of a nonqualified stock option, the Plan Administrator shall have sole
discretion in a particular circumstance to extend the exercise period following
such cessation to any date up to the termination or expiration of the option.
If, however, in the case of an incentive stock option, the Optionee does not
exercise the Optionee's option within three months after cessation of
employment, the option will no longer qualify as an incentive stock option under
the Code.
If an Optionee is terminated for cause, each option granted hereunder
shall automatically terminate as of the first discovery by the Company of any
reason for termination for cause, and such Optionee shall thereupon have no
right to purchase any shares pursuant to such option. "Termination for cause"
shall mean dismissal for
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<PAGE> 8
dishonesty, conviction or confession of a crime (except minor violations),
fraud, misconduct or disclosure of confidential information. If an Optionee's
relationship with the Company or any related corporation is suspended pending an
investigation of whether or not the Optionee shall be terminated for cause, the
Optionee's rights under each option granted hereunder likewise shall be
suspended during the period of investigation.
If an Optionee's relationship with the Company or any related
corporation ceases because of a total disability, the Optionee's option shall
not terminate or, in the case of an incentive stock option, cease to be treated
as an incentive stock option until the end of the 12-month period following such
cessation (unless by its terms it sooner terminates or expires). As used in this
Plan, the term "total disability" refers to a mental or physical impairment of
the Optionee which is expected to result in death or which has lasted or is
expected to last for a continuous period of 12 months or more and which causes
the Optionee to be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties for the Company and to be engaged in
any substantial gainful activity. Total disability shall be deemed to have
occurred on the first day after the Company and the two independent physicians
have furnished their opinion of total disability to the Plan Administrator.
Options granted under the Plan shall not be affected by any change of
relationship with the Company so long as the Optionee continues to be an
employee, director, officer, agent, consultant, advisor or independent
contractor of the Company or of a related corporation; however, a change in an
Optionee's status from an employee to a nonemployee (e.g., consultant or
independent contractor) shall result in the termination of an outstanding
incentive stock option held by such Optionee. The Plan Administrator, in its
absolute discretion, may determine all questions of whether particular leaves of
absence constitute a termination of services; provided, however, that with
respect to incentive stock options, such determination shall be subject to any
requirements contained in the Code. The foregoing notwithstanding, with respect
to incentive stock options, employment shall not be deemed to continue beyond
the first 90 days of such leave, unless the Optionee's reemployment rights are
guaranteed by statute or by contract.
As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in,
at the time of the granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
Company is owned by one of the other corporations in such chain. When referring
to a parent corporation, the term "related corporation" shall mean any
corporation in an unbroken chain of
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corporations ending with the Company if, at the time of the granting of the
option, each of the corporations other than the Company owns stock possessing
50% or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
5.9 DEATH OF OPTIONEE
If an Optionee dies while he or she has a relationship with the Company
or any related corporation or within the three-month period (or 12-month period
in the case of totally disabled Optionees) following cessation of such
relationship, any option held by such Optionee to the extent that the Optionee
would have been entitled to exercise such option, may be exercised within one
year after his or her death by the personal representative of his or her estate
or by the person or persons to whom the Optionee's rights under the option shall
pass (a) by will or by the applicable laws of descent and distribution or (b) by
a designation or transfer pursuant to Section 5.7.
5.10 NO STATUS AS SHAREHOLDER
Neither the Optionee nor any party to which the Optionee's rights and
privileges under the option may pass shall be, or have any of the rights or
privileges of, a shareholder of the Company with respect to any of the shares
issuable upon the exercise of any option granted under this Plan unless and
until such option has been exercised.
5.11 CONTINUATION OF RELATIONSHIP
Nothing in this Plan or in any option shall confer upon any Optionee any
right to continue in the employ or other relationship of the Company or of a
related corporation, or to interfere in any way with the right of the Company or
of any such related corporation to terminate his or her employment or other
relationship with the Company at any time.
5.12 MODIFICATION AND AMENDMENT OF OPTION
Subject to the requirements of Code Section 422 with respect to
incentive stock options and to the terms and conditions and within the
limitations of this Plan, the Plan Administrator may modify or amend any
outstanding option granted under this Plan. The modification or amendment of an
outstanding option shall not, without the consent of the Optionee, impair or
diminish any of his or her rights or any of the obligations of the Company under
such option. Except as otherwise provided in this Plan, no outstanding option
shall be terminated without the consent of the Optionee.
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5.13 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS
As to all incentive stock options granted under the terms of this Plan,
to the extent that the aggregate fair market value of the shares (determined at
the time the incentive stock option is granted) with respect to which incentive
stock options are exercisable for the first time by the Optionee during any
calendar year (under this Plan and all other incentive stock option plans of the
Company, a related corporation or a predecessor corporation) exceeds $100,000,
such options shall be treated as nonqualified stock options. The previous
sentence shall not apply if the Internal Revenue Service issues a public rule,
issues a private ruling to the Company, any Optionee or any legatee, personal
representative or distributee of an Optionee or issues regulations changing or
eliminating such annual limit.
SECTION 6. GREATER THAN 10% SHAREHOLDERS
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS
If an incentive stock option is granted under this Plan to any employee
who owns more than 10% of the total combined voting power of all classes of
stock of the Company or any related corporation, the term of such incentive
stock options shall not exceed five years and the exercise price shall be not
less than 110% of the fair market value of the shares at the time the incentive
stock option is granted. This provision shall control notwithstanding any
contrary terms contained in an option agreement or any other document.
6.2 ATTRIBUTION RULE
For purposes of subsection 6.1, in determining stock ownership, an
employee shall be deemed to own the shares owned, directly or indirectly, by or
for his or her brothers, sisters, spouse, ancestors and lineal descendants.
Shares owned, directly or indirectly, by or for a corporation, partnership,
estate or trust shall be deemed to be owned proportionately by or for its
shareholders, partners or beneficiaries. If an employee or a person related to
the employee owns an unexercised option or warrant to purchase shares of the
Company, the shares subject to that portion of the option or warrant which is
unexercised shall not be counted in determining stock ownership. For purposes of
this Section 6, shares owned by an employee shall include all shares actually
issued and outstanding immediately before the grant of the incentive stock
option to the employee.
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<PAGE> 11
SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The aggregate number and class of shares for which options may be
granted under this Plan, the number and class of shares covered by each
outstanding option and the exercise price per share thereof (but not the total
price), and each such option, shall all be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock of the
Company resulting from a split-up or consolidation of shares or any like capital
adjustment, or the payment of any stock dividend.
7.1 EFFECT OF LIQUIDATION OR REORGANIZATION
7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK
Except as provided in subsection 7.1.2, upon a merger (other than a
merger of the Company in which the holders of shares of Common Stock immediately
prior to the merger have the same proportionate ownership of shares of Common
Stock in the surviving corporation immediately after the merger), consolidation,
acquisition of property or stock, separation, reorganization (other than a mere
reincorporation or the creation of a holding company) or liquidation of the
Company, as a result of which the shareholders of the Company receive cash,
stock or other property in exchange for or in connection with their shares of
Common Stock, any option granted hereunder shall terminate, but the Optionee
shall have the right immediately prior to any such merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation to
exercise such Optionee's option to the extent that the vesting requirements set
forth in the option agreement have been satisfied.
7.1.2 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE
If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger (other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and the corporation
issuing the Exchange Stock, in their sole discretion, determine that any or all
such options granted hereunder shall not be converted into options to purchase
shares of Exchange Stock but instead shall terminate in accordance with the
provisions of subsection 7.1.1. The amount and price of converted options shall
be determined by adjusting the amount and price of
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<PAGE> 12
the options granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the shares of Common Stock
receive in such merger, consolidation, acquisition of property or stock,
separation or reorganization. Unless accelerated by the Board, the vesting
schedule set forth in the option agreement shall continue to apply to the
options granted for the Exchange Stock.
7.2 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by any
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
7.3 DETERMINATION OF BOARD TO BE FINAL
All Section 7 adjustments shall be made by the Board, and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive. Unless an Optionee agrees otherwise, any
change or adjustment to an incentive stock option shall be made in such a manner
so as not to constitute a "modification" as defined in Code Section 424(h) and
so as not to cause his or her incentive stock option issued hereunder to fail to
continue to qualify as an incentive stock option as defined in Code Section
422(b).
SECTION 8. SECURITIES REGULATION
Shares shall not be issued with respect to an option granted under this
Plan unless the exercise of such option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, any applicable state securities laws, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance, including the
availability, if applicable, of an exemption from registration for the issuance
and sale of any shares hereunder. Inability of the Company to obtain, from any
regulatory body having jurisdiction, the authority deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares hereunder
or the unavailability of an exemption from registration for the issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.
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<PAGE> 13
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order against
any shares of stock may be placed on the official stock books and records of the
Company, and a legend indicating that the stock may not be pledged, sold or
otherwise transferred, unless an opinion of counsel is provided (concurred in by
counsel for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration. The Plan Administrator may also require such
other action or agreement by the Optionees as may from time to time be necessary
to comply with the federal and state securities laws. THIS PROVISION SHALL NOT
OBLIGATE THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.
SECTION 9. AMENDMENT AND TERMINATION
9.1 BOARD ACTION
The Board may at any time suspend, amend or terminate this Plan,
provided that, to the extent required for compliance with Section 422 of the
Code or by any applicable law or regulation, the Company's shareholders must
approve any amendment which will:
(a) increase the number of shares that may be issued under this
Plan;
(b) with respect to incentive stock options, change the
designation of the participants or class of participants eligible for
participation in this Plan; or
(c) otherwise require shareholder approval under any applicable
law or regulation.
Such shareholder approval must be obtained within 12 months of the
adoption by the Board of such amendment.
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<PAGE> 14
Any amendment made to this Plan which would constitute a "modification"
to incentive stock options outstanding on the date of such amendment, shall not
be applicable to such outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees otherwise.
9.2 AUTOMATIC TERMINATION
Unless sooner terminated by the Board, this Plan shall terminate ten
years from the earlier of (a) the date on which this Plan is adopted by the
Board or (b) the date on which this Plan is approved by the shareholders of the
Company. No option may be granted after such termination or during any
suspension of this Plan. The amendment or termination of this Plan shall not,
without the consent of the option holder, alter or impair any rights or
obligations under any option theretofore granted under this Plan.
SECTION 10. EFFECTIVENESS OF THIS PLAN
This Plan shall become effective upon adoption by the Board so long as
it is approved by the Company's shareholders at any time within 12 months of
such adoption of this Plan.
Plan adopted by the Board of Directors on August 4, 1995 and approved by the
shareholders on ____________, 1995. Plan Amended and Restated by the Board of
Directors on _____________, 1998.
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<PAGE> 1
CONFIDENTIAL
Optiva Corporation
13222 SE 30th Street
Bellevue, WA 98005
(206) 957-0970 Voice
(206) 401-4824 Fax
CONSULTING AGREEMENT
THIS AGREEMENT is entered into this 1st day of September, 1997 between
Dr. David Engel ("Consultant") and Optiva Corp. ("Optiva").
WHEREAS Optiva desires to utilize Consultant's services, and Consultant
has expertise of use to Optiva;
NOW, THEREFORE, it is mutually agreed as follows:
1. Confidential Information and Materials. Consultant will or has already
entered into a CONFIDENTIALITY AGREEMENT with Optiva, and affirms his/her
willingness to uphold the terms of that agreement.
2. Status of Parties. It is agreed and understood that Consultant is an
independent contractor and is not an employee, partner, or joint venture of
Optiva. To the extent permitted by law, Consultant shall have the sole and
absolute discretion in judgment in the manner and means of carrying out his
business activities. Optiva shall not be liable for any obligations incurred by
Consultant, nor does Consultant have the authority to bind Optiva in any manner
without its specific written permission.
Optiva is not supplying a place of work for Consultant. Consultant
warrants that he/she maintains an independent business and has the resources
required to complete the projects.
Consultant warrants that he/she is under no disability that would
prevent him/her from entering into the agreement, from providing the services
required hereunder, or from completely complying with all provisions herein.
Consultant is responsible for all fees and expenses of his business, with the
exception of out-of-pocket expenses related to Optiva projects. These will be
fully reimbursed to the Consultant by Optiva.
3. Services to be Rendered. Consultant shall provide such technical assistance
and related services as required by Optiva during the term of this agreement.
Consultant warrants that he/she will use best efforts to complete such work on a
timely basis, devoting as much work as is agreed and necessary.
4. Fees. Optiva agrees to pay Consultant for two days/month at a rate of $5,900
per month (Five Thousand Nine Hundred Dollars) starting 9/1/97 through and
including as mutually agreed.
5. Term and Termination. This agreement shall be in full force and effect from
the date of its execution until completion of any such projects. Optiva may
terminate this agreement at any time for cause upon written notice to
Consultant. Such cause shall include but not be limited to failure by Consultant
to provide quality services or failure by Consultant to devote a satisfactory
amount of time to the projects. This Agreement may be terminated by either party
without cause
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<PAGE> 2
upon giving seven (7) days written notice. Upon termination, Optiva shall
promptly pay Consultant all fees earned prior to termination.
6. New Developments. "New Developments" are defined as any and all improvements,
inventions, discoveries, ideas and other things, whether patentable or not, that
are made or conceived by Consultant (whether alone or with others), and that
relate to or arise out of the services performed for Optiva.
Consultant agrees to promptly disclose to Optiva any New Developments,
and that such New Developments shall be and remain the sole and exclusive
property of Optiva, and that Consultant shall, at Optiva's request and without
further compensation, do all things reasonably necessary to insure Optiva's
ownership of such New Developments.
7. Indemnity. Consultant agrees to indemnify and hold Optiva harmless from all
claims, demands, and liabilities, including costs and attorney's fees, to which
Optiva is subjected by reason of any breach by Consultant of this Agreement.
Optiva agrees to indemnify and hold Consultant harmless from all claims,
demands, and liabilities, including costs and attorney's fees, to which
Consultant is subjected by reason of any breach by Optiva of this Agreement.
8. Miscellaneous. This Agreement is not assignable. Amendments to this Agreement
shall be made in writing and be signed by each of the parties. This Agreement
shall be governed by the laws of the State of Washington.
OPTIVA CORP. CONSULTANT
by /s/ David Giuliani by: /s/ David Engel
-------------------------- -----------------------------
its: PRES/CEO
------------------------- ---------------------------------
Address
4451 Huggins St.
---------------------------------
Date: 9/10/97 San Diego, CA 92122
---------------------------------
Telephone: 619-550-0393
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<PAGE> 1
[OPTIVA LETTERHEAD]
CONSULTING AGREEMENT
THIS AGREEMENT is entered into this 1st day of May, 1998 between
Louis Yaseen ("Consultant") and Optiva Corp. ("Optiva").
WHEREAS Optiva desires to utilize Consultant's services, and Consultant
has expertise of use to Optiva;
NOW, THEREFORE, it is mutually agreed as follows:
1. Confidential Information and Materials. Consultant will or has already
entered into a CONFIDENTIALITY AGREEMENT with Optiva, and affirms his/her
willingness to uphold the terms of that agreement.
2. Status of Parties. It is agreed and understood that Consultant is an
independent contractor and is not an employee, partner, or joint venture of
Optiva. To the extent permitted by law, Consultant shall have the sole and
absolute discretion in judgment in the manner and means of carrying out his
business activities. Optiva shall not be liable for any obligations incurred by
Consultant, nor does Consultant have the authority to bind Optiva in any manner
without its specific written permission.
Optiva is not supplying a place of work for Consultant. Consultant
warrants that he/she maintains an independent business and has the resources
required to complete the projects.
Consultant warrants that he/she is under no disability that would prevent
him/her from entering into the agreement, from providing the services required
hereunder, or from completely complying with all provisions herein. Consultant
is responsible for all fees and expenses of his business.
3. Services to be Rendered. Consultant shall provide such technical assistance
and related services as required by Optiva during the term of this agreement.
Consultant warrants that he/she will use best efforts to complete such work on a
timely basis, devoting as much work as is agreed and necessary.
4. Fees. Optiva agrees to pay Consultant for actual hours authorized and
expended at a rate of $85.00 / hour starting ______________ through
and including ____________________. Consultant shall submit invoices to Optiva
every month (accompanied by time reports). If Optiva disagrees with the amount
of the invoice or time reports, it shall so advise Consultant with five (5)
days.
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<PAGE> 2
5. Term and Termination. This agreement shall be in full force and effect from
the date of its execution until completion of any such projects. Optiva may
terminate this agreement at any time for cause upon written notice to
Consultant. Such cause shall include but not be limited to failure by Consultant
to provide quality services or failure by Consultant to devote a satisfactory
amount of time to the projects. This Agreement may be terminated by either party
without cause upon giving seven (7) days written notice. Upon termination,
Optiva shall promptly pay Consultant all fees earned prior to termination.
6. New Developments. "New Developments" are defined as any and all improvements,
inventions, discoveries, ideas and other things, whether patentable or not, that
are made or conceived by Consultant (whether alone or with others), and that
relate to or arise out of the services performed for Optiva.
Consultant agrees to promptly disclose to Optiva any New Developments, and
that such New Developments shall be and remain the sole and exclusive property
of Optiva, and that Consultant shall, at Optiva's request and without further
compensation, do all things reasonably necessary to insure Optiva's ownership of
such New Developments.
7. Indemnity. Consultant agrees to indemnify and hold Optiva harmless from all
claims, demands, and liabilities, including costs and attorney's fees, to which
Optiva is subjected by reason of any breach by Consultant of this Agreement.
Optiva agrees to indemnify and hold Consultant harmless from all claims,
demands, and liabilities, including costs and attorney's fees, to which
Consultant is subjected by reason of any breach by Optiva of this Agreement.
8. Miscellaneous. This Agreement is not assignable. Amendments to this Agreement
shall be made in writing and be signed by each of the parties. This Agreement
shall be governed by the laws of the State of Washington.
OPTIVA CORP. CONSULTANT
Louis Yaseen
by: /s/ David Giuliani by: /s/ Louis Yaseen
__________________ ___________________
its: President & CEO
__________________ ___________________
Address: 9525 NE 32nd Street
Clyde Hill, WA 98004
Date: May 5, 1998 Telephone: 425-646-6623
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<PAGE> 1
OPTION AND REAL ESTATE PURCHASE AND SALE AGREEMENT
THIS OPTION AND REAL ESTATE PURCHASE AND SALE AGREEMENT ("Agreement") is
made and entered into as of this November 26, 1997 ("Effective Date") by and
between THE QUADRANT CORPORATION, a Washington corporation ("Seller"), and
OPTIVA CORPORATION, a Washington corporation ("Purchaser").
RECITALS
A. Seller (or its affiliate) is the owner of that certain parcel of land
lying and being situated in the City of Snoqualmie, Washington, and being more
particularly described on Exhibit A hereto, which parcel of Land includes
approximately 11 acres ("Land").
B. Concurrently with the execution of this Agreement, Seller, as
Landlord, and Purchaser, as Tenant, have entered into a Lease ("Lease") under
which certain Premises to be constructed on the Land by Seller will be leased to
Purchaser. Concurrently with the Lease, the parties also entered into a
Construction Agreement for Lease ("Construction Agreement"), governing Seller's
construction of the Building Shell and Tenant Improvements constituting such
Premises. As a part of such Lease, Purchaser and Seller also agreed that
Purchaser would have the option to purchase the Land and Improvements.
C. Seller is now constructing or is about to commence construction of
Building 1 and Building 2, constituting the Premises under the Lease and
Construction Agreement, which two buildings will contain 176,609 square feet of
Gross Building Area ("GBA") in the aggregate. One Building ("Building 1") will
contain 79,800 GBA of space for offices and associated uses. The other Building
("Building 2") will consist of 91,471 GBA, including 65,150 GBA of space for
manufacturing, warehouse, office and associated uses on the first floor plus
approximately 26,321 GBA of space for office and associated uses on a second
floor mezzanine. The Premises also will include a separate 5,338 GBA link
between the two Buildings. The Premises are more fully described in the Building
Shell Construction Documents and Tenant Improvements Construction Documents, as
defined in the Construction Agreement. All such property and improvements,
together with all other improvements situated on the Land, and all appurtenances
thereto, all to the extent completed on the Closing Date, are called the
"Improvements" in this Agreement;
D. Upon the exercise of the option to purchase granted to Purchaser in
this Agreement, Seller desires to sell and Purchaser desires to purchase the
Land, the
<PAGE> 2
Improvements, to the extent completed as of the Closing Date, and related
property further described below, under the terms and subject to the conditions
set forth in this Agreement
Seller and Purchaser agree as follows:
ARTICLE I
PROPERTY
If Purchaser exercises its Option granted in Article II below, Seller
agrees to sell and convey to Purchaser, and Purchaser agrees to purchase from
Seller, subject to the terms and conditions set forth herein, the following:
1.1 the Land;
1.2 the Improvements;
1.3 All of the rights, privileges and easements, all development rights
and government approvals, and rights and appurtenances pertaining to or used in
connection with the beneficial use and enjoyment of the Land and the
Improvements, including all right, title and interest of Seller in and to
adjacent or abutting streets, alleys, water courses, water bodies, easements and
rights-of-way;
1.4 All of Seller's rights in all personal and other tangible property
now or hereafter through the Closing Date located on the Land, or in the
Improvements, or necessary to the construction of the Improvements on the Land,
or to Purchaser's operation of its business on the Land and in the Improvements,
including without limitation all fixtures, furnishings, equipment, machinery,
landscaping, tools and spare parts related to the foregoing (including without
limitation the commercial kitchen fixtures and equipment called for in the
Construction Agreement), all books, records, studies, documents, tests, reports,
licenses, permits, drawings, surveys, maps, plans, specifications, and deposits
hold by government authorities, all of which currently or hereafter in any way
relate to the Land or the Improvements;
1.5 All of Seller's rights in all of the intangible property now or
hereafter existing with respect to the Land and Improvements, including without
limitation accounts, contractual and other rights, warranties, service and
maintenance contracts, equipment leases (all as accepted by Purchaser); claims
or causes of action for tort, product liability, breach of contract, warranty,
or presentation, approvals, certificates, or other rights granted by any
governmental authority, non-proprietary financial and tax data, rights to
condemnation awards, or claims for insurance proceeds, all of which currently or
hereafter relate in any way to the Land or the Improvements.
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<PAGE> 3
1.6 All other rights, title and interest now owned or hereafter acquired
by Seller in the Land, Improvements, or any of the other foregoing described
property.
All of the items described above, shall be collectively referred to as the
"Property".
ARTICLE II
GRANT OF OPTION
In consideration of the payment of the Option Payment and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Seller hereby grants to Purchaser an option to purchase the
Property ("Option").
2.1 Exercise. Purchaser may exercise the Option by written notice of
Purchaser's exercise to Seller on or before expiration of the Option Term.
Notwithstanding the foregoing, Purchaser may not exercise the Option at any time
when Purchaser is in default under the Lease or the Construction Agreement
(after the expiration without cure of any cure periods provided therein).
2.2 Option Term. The Option Term shall commence on the Effective Date
and shall terminate on that date which is ten days after the Construction
Commencement Date or May 1, 1998, whichever is later ("Option Term"). As used
herein, the "Construction Commencement Date" shall be that date upon which
Seller commences any bona fide work, not including mobilization, on any portion
of the Land permitted by any grading, utility or building permit issued after
the date hereof in connection with the construction of the Improvements, and as
to which date Seller shall notify Purchaser in writing. If Tenant exercises the
Option, but fails to pay the Option Payment called for in Section 3 within five
business days following Seller's written notice to Purchaser of Purchaser's
failure to pay the Option Payment when due, then the Option shall terminate at
12:01 am on the sixth business day following Seller's notice.
2.3 Cancellation of Exercise. Purchaser's exercise of the Option in
accordance with the foregoing shall be subject to cancellation under the terms
and conditions of Article XVIII.
ARTICLE III
OPTION PAYMENT
The following option payments (collectively, "Option Payment") shall be
payable to Seller in the following manner upon the date specified hereinbelow:
3.1 First Option Payment. On the Effective Date, Purchaser shall pay to
Seller, in cash, the amount of $10.00.
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<PAGE> 4
3.2 Second Option Payment. No later than 6:00 p.m. on the fifth day
after Purchaser's exercise of the option to purchase the Property, Purchaser
shall pay to Seller, in cash, the amount of $100,000.
3.3 Treatment of Option Payment. Except as provided in Article XVIII,
the Option Payment and all portions thereof are nonrefundable to Purchaser,
except in the event of Seller's default hereunder, and shall be retained by
Seller as Seller's sole property. The Option Payment and all portions thereof
shall be credited against the Purchase Price at Closing.
3.4 Return of Option Payment. The Option Payment may be required to be
returned to Purchaser, without affecting the effectiveness of the exercise of
the Option, under the circumstances described in Article XVIII.
ARTICLE IV
PURCHASE PRICE
4.1 Purchase Price. The Purchase Price for the Property shall be the sum
of the following:
4.1.1 $7.25 times the gross square feet of the actual Land area
(as measured to the internal Business Park road rights-of-way and the
boundary between Lots 9 and 10, as shown on the BSIP 1, as defined in
Article XVIII), which shall constitute the "Land Value". The gross
square feet of the Land area shall be reasonably established by Seller's
engineer/surveyor at the time of final BSIP 1 approval by the City of
Snoqualmie and such determination shall be provided to Purchaser for
Purchaser's review and comment; and
4.1.2 An amount equal to the "Building Value at Closing". The
Building Value at Closing shall include the amount of Soft Costs
incurred to date, together with Progress Payments on account of the
Building Shell and Tenant Improvements. Such Progress Payments shall be
made on a Completion Percentage basis determined by Inspector as of a
date at least 10 business days prior to the Closing Date, in the manner
provided in Section 7.2 of the Construction Management Agreement
attached hereto as Exhibit D, and shall be subject to the Holdback of
Hard Costs as provided therein. Seller shall prepare and provide (a) a
Progress Payment Request, in the form prescribed by the Construction
Management Agreement, and (b) invoices and other reasonably detailed
evidence of Soft Costs incurred to date, for Purchaser's review not less
than 10 business days prior to Closing. Examples of the calculation of
Progress Payments are attached to the Construction Management Agreement
as Exhibit 4. For purposes of determining Building Value at Closing, the
terms Soft Costs,
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<PAGE> 5
Completion Percentage, Progress Payment, Inspector and Holdback shall
have the meanings set forth in the Construction Management Agreement.
4.2 Payment on the Closing Date. The Purchase Price shall be paid in all
cash, via wire transfer in immediately available funds, on or before 12 Noon
Seattle time on the Closing Date.
ARTICLE V
TITLE TO THE PROPERTY
5.1 Conveyance of Title to Land and Improvements. Upon the Closing Date,
Seller shall execute and deliver to Purchaser a Statutory Warranty Deed ("Deed")
conveying fee title to the Property, subject to the Permitted Exceptions
determined in accordance with Section 5.3. Except as may be provided herein,
Seller shall be solely responsible for discharging all liens, assessments and
other encumbrances against the Property not included as Permitted Exceptions
prior to the Closing Date.
5.2 Conveyance of Remainder of the Property. Upon the Closing Date,
Seller shall execute and deliver to Purchaser all documents necessary to convey,
assign and transfer the Property not otherwise conveyed by the Deed. Many of
these documents are set forth in Article X below.
5.3 Title Insurance. On the Closing Date, Seller shall cause Chicago
Title Insurance Company ("Title Company") to issue to Purchaser an ALTA Extended
Coverage Owner's Policy of Title Insurance (1970 Form B) ("Title Policy") with
liability in the amount of the Building Value as defined in the Construction
Management Agreement, insuring fee simple title in Purchaser to the Land and
Improvements and against any loss or damage by reason of defect in Seller's
title to the Property, subject only to the Title Company's standard preprinted
exceptions for such form and the Permitted Exceptions determined in accordance
with this Article V.
5.4 Title Review. Not later than February 1, 1998, Seller shall see that
Purchaser is furnished with a preliminary commitment for the Title Policy,
("Title Commitment"), together with complete and legible copies of any
exceptions identified in Schedule B thereof. Purchaser shall conduct its review
of the Title Commitment in accordance with the following procedures:
5.4.1 Purchaser's Notice. At least 60 days prior to the
expiration of the Option Term, Purchaser shall notify Seller in writing
of its approval and disapproval of each exception in Schedule 8 of the
Title Commitment, other than those exceptions to which Purchaser may
object within 10 business days after receiving the survey as provided in
Section 5.5. Failure to so deliver such notice shall constitute
Purchaser's approval of all exceptions in Schedule B as of the date of
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<PAGE> 6
such Title Commitment. Exceptions not disapproved by Purchaser shall be
Permitted Exceptions.
5.4.2 Seller's Notice. Seller shall have 20 business days after
receipt of Purchaser's notification in which to notify Purchaser whether
or not it elects to cure or remove any of the disapproved exceptions of
which Seller receives notice pursuant to Section 5.4.1. Seller's failure
to so notify Purchaser shall constitute Seller's agreement to remove all
such exceptions on or before the Closing Date. Seller shall remove all
exceptions it agrees to remove both from the real estate records and
from the Title Commitment on or before the Closing Date.
5.4.3 Purchaser's Election. If Seller does not elect to remove
all exceptions disapproved by Purchaser, Purchaser may, on or before
five business days after receipt of Seller's notice pursuant to Section
5.4.2, elect to terminate this Agreement by written notice to Seller;
and upon termination pursuant to this Section, Purchaser shall have no
obligation to pay the Second Option Payment, and if paid already shall
receive a prompt refund. If Purchaser does not so elect to terminate
this Agreement, disapproved exceptions that Seller has not elected to
remove shall become Permitted Exceptions. The foregoing notwithstanding,
Seller agrees that the lien for any nondelinquent taxes and the lien for
any nondelinquent special assessments are Permitted Exceptions, and that
Seller shall cause all liens for borrowed money against the Property
which are not accepted by Purchaser to be released of record by the
Closing Date.
5.4.4 New Exceptions. Seller shall remove any and all title
exceptions appearing subsequent to its delivery of the Title Commitment,
unless such exceptions are expressly agreed to in writing by Purchaser.
Purchaser shall not unreasonably withhold its approval of any such
exceptions to the extent they are consistent with Seller's planned
development approvals or do not otherwise materially restrict or affect
Purchaser's intended occupancy and use of the Land and Improvements.
5.4.5 Deemed Permitted Exceptions. Notwithstanding the foregoing,
the following shall be deemed Permitted Exceptions: (i) rights reserved
under federal patents or state deeds, (ii) existing easements of record
which do not materially interfere with Purchaser's intended use, (iii)
access, driveway, and utility easements as required between the Land and
Lot 10, (iv) water, sanitary sewer, storm drainage, electrical,
telephone, CATV and any and all other utility easements necessary to
enable the Premises to be served by such utilities (and not impairing
access to or the use of such Premises by Purchaser), and (v) the Binding
Site Improvements Plan 1 for the Property and those agreements,
covenants, easements and restrictions relating to Snoqualmie Ridge
Business Park and the Snoqualmie Ridge Master Plan Community, including
without limitation that
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Declaration of Protective Covenants, Conditions, Restrictions, Easements
and Agreements for Snoqualmie Ridge Business Park ("CC&R's") and the
Snoqualmie Ridge Council Declaration.
5.4.6 Title Not Insurable. If title is not insurable at the
Closing Date subject only to the Permitted Exceptions determined in
accordance with this Agreement, Purchaser may elect to proceed to close
the purchase despite such noninsurability thereby accepting any such
matters as Permitted Exceptions or Purchaser may claim that such
non-insurability constitutes the default of Seller entitling Purchaser
to exercise its remedies under Section 17.11 herein.
5.5 Survey. Seller shall, at its expense, cause an ALTA survey of the
Land to be delivered to the Purchaser on or before 30 days prior to the Closing
Date. Said survey shall:
5.5.1 State the legal description for the Land by metes and
bounds, as surveyed;
5.5.2 Show the corners, boundary lines, courses and distances of
the Land and the locations of all power lines, fences, easements,
setback lines, public and private rights-of-way, streams, railroads, and
encroachments, apparent or of record, to which the Property is subject;
5.5.3 Certify that there are no encroachments, easements of
record or apparent, setbacks, rights-of-way or streams, except as shown
on the survey;
5.5.4 Certify that no part of the Land is within a wetland or
other regulated environmentally sensitive area or a flood plain or a
special flood hazard area as designated by the applicable Federal
Emergency Management Agency Flood Insurance Rate Map;
5.5.5 Certify the approximate number of square feet comprising
the Land;
5.5.6 Certify that all of the parcels comprising the Land are
contiguous and without conflicts, overlaps, boundary gaps or
nonclosures;
5.5.7 Certify that access to and from the Land is available to a
public right-of-way; and
5.5.8 Include the survey date and the surveyor's name,
registration and seal.
Said survey shall be certified to the Purchaser and be in such form as to enable
the Title Company to issue its title policy without exceptions or qualifications
relating to boundary locations, gaps, nonclosures, encroachments, setbacks, and
easement locations.
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5.6 UCC Search. Seller shall, at its expense, obtain from a commercial
search service a report disclosing the existence of any UCC financing statements
or liens recorded or filed against any portion of the Property and shall deliver
such search to Purchaser within ten days following Purchaser's exercise of the
Option. Purchaser shall notify Seller within 20 days after receiving such report
as to whether it objects to any security interests or liens reflected in such
report. In the event of any such disapproval, such security interests or liens
shall be treated as title exceptions and the parties' rights and options shall
be governed by the provisions applicable to title exceptions in Section 5.4.
5.7 Termination of Lease. On the Closing Date, Purchaser and Seller
shall enter into a Termination of Lease Agreement in the form attached hereto as
Exhibit B ("Termination of Lease").
5.8 General Assignment. On the Closing Date, Seller shall deliver to
Purchaser a General Assignment in the form attached hereto as Exhibit C
("General Assignment"), pursuant to which Seller shall assign to Purchaser: (i)
all permits and approvals for the Improvements; and (ii) the documents,
contracts, and Building Shell Construction Documents and Tenant Improvements
Construction Documents relating to the Improvements, and Purchaser shall assume
any obligations under any Permitted Exceptions, including the maintenance,
repair, and insurance obligations arising under those utility and access
easements encumbering and benefiting the Property. The assignment and transfer
of rights and obligations under the General Assignment shall be subject,
however, to Seller's retention of all power and authority necessary or
appropriate to enable Quadrant to complete the Improvements pursuant to the
Construction Management Agreement, including without limitation the right to
enforce the Building Shell Construction Documents and Contract and the Tenant
Improvements Construction Documents and Contract.
ARTICLE VI
IMPROVEMENTS CONSTRUCTION
6.1 Completion of Construction of Building. Quadrant and Purchaser
shall, concurrently with the Closing, enter into the Construction Management
Agreement in the form attached hereto as Exhibit D, under which Seller shall
complete construction of the improvements for Purchaser.
6.2 Completion Guaranty. Concurrently with the Closing, Weyerhaeuser
Real Estate Company, a Washington corporation ("WRECO") shall issue its
Completion Guaranty to Purchaser in connection with Quadrant's performance of
its obligations under the Construction Management Agreement ("Completion
Guaranty"), which Completion Guaranty shall be executed by WRECO in the form
attached as Exhibit 4 to the Construction Management Agreement.
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ARTICLE VII
PURCHASER'S RIGHT OF ACCESS FOR INVESTIGATION
7.1 Right of Access. Seller agrees that Purchaser and its agents,
employees and designees shall be afforded access and entry on the Land and to
the Improvements for inspection and investigation between the exercise of the
Option and the Closing Date to conduct such studies, tests, inspections and
evaluations as Purchaser requires. All such investigations and inspection
requested by Purchaser shall occur at Purchaser's sole cost and expense.
Purchaser shall notify Seller in advance of any such investigation in order that
Seller may take such steps to prevent interruption or impairment of construction
of the Improvements which may then be on-going and to insure Purchaser's safety;
and provided, further that Purchaser may be precluded from entering the Property
or performing tests thereon if such entry or testing would interfere with
construction activities which may then be occurring with respect to the
Improvements. Purchaser shall indemnify and hold Seller harmless from any claim,
liability, loss or expense asserted against Seller or the Property in connection
with Purchaser's or its agents', employees' and designees' entry onto the Land
or Improvements, including without limitation damage which might occur to the
construction of the Improvements, and Purchaser shall provide Seller, at no cost
to Seller other than routine copying expenses, with copies of all reports and
studies conducted by Purchaser concerning the Land or the Improvements.
7.2 Copies of Leases, Contracts, Other Information. As soon as
practicable (and except to the extent delivered to Purchaser before the date of
this Agreement, Seller shall deliver to Purchaser or provide Purchaser access to
all of the following documents and reports: to the extent the same exist and are
in Seller's possession or which belong to Seller: all leases and contracts
affecting the Property, planning and zoning documents and approvals, plans and
specifications for the Improvements, and all environmental or soil or other
construction tests for the Property. Purchaser acknowledges Seller shall be
under no obligation to create any additional data or documentation or obtain any
reports for Purchaser.
ARTICLE VIII
PURCHASER'S CONDITIONS TO CLOSING
In addition to the conditions provided in other provisions of this
Agreement, Purchaser's obligation to purchase the Property is subject to the
fulfillment prior to the Closing Date of each of the following conditions, each
of which is for the benefit of Purchaser and any or all of which may be waived
by Purchaser in writing at its option:
8.1 Correctness of Representations and Warranties. The continuing
accuracy in all material respects on and as of the Closing Date of all of
Seller's warranties and representations in this Agreement, including the lack of
discovery of any material fact or
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circumstance at variance with Seller's representations and warranties, of which
Seller did not have knowledge on the date Seller executes this Agreement
(regardless of whether such fact or circumstance arose or was discovered
thereafter) with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date. Seller, by having closed
the sale of the Property, shall be deemed conclusively to have certified at
Closing that all such representations and warranties were true and correct on
and as of the Closing Date.
8.2 Compliance by Seller. Seller shall have performed, observed, and
complied with all of the covenants, agreements, obligations and conditions
required by this Agreement to be performed, observed and complied with by it
prior to or as of the Closing.
8.3 Title Policy. Issuance of the Title Policy in accordance with
Section 5.2, and deposit by Seller of the appropriate indemnity benefiting the
Title Company for issuance of the Title Policy to Purchaser free and clear of
any materialman's and mechanic's liens.
8.4 Construction Management Agreement. The Construction Management
Agreement shall have been executed by Quadrant and delivered to Escrow.
8.5 Termination of Lease. The Termination of Lease shall have been
executed by Seller and delivered to Escrow.
8.6 General Assignment. The General Assignment shall have been executed
by Seller and delivered to Escrow.
8.7 Completion Guaranty. The Completion Guaranty shall have been
executed by WRECO and delivered to Escrow.
8.8 No Adverse Change. The absence of any material and adverse changes
(i) regarding the access or utility service to Property, (ii) in the currently
existing zoning, building, development, environmental, health, occupancy, or
other laws or regulations which would materially impair the Purchaser's ability
to use the Property for Purchaser's intended purposes, and no material change in
the physical condition of any of the Property (other than attributable to the
ongoing construction of the Improvements).
8.9 Restrictions. The absence of any restrictive ordinance, utility
moratorium, bankruptcy, receivership, or litigation which, if undertaken, levied
or enacted, could materially impair the Purchaser's ability to use the Property
for Purchaser's intended purpose or increase the costs thereof;
8.10 Status of Title. The absence of any exception to title that is not
a Permitted Exception or otherwise approved by Purchaser;
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8.11 Permitted Uses. The absence of any material violation of any
applicable statute, law or regulation regarding the physical condition of the
Property or Seller's use thereof as an office, manufacturing, warehousing and
distribution facility, or of any material change in any laws or statutes that
materially affects Purchaser's ability to use the Property for its intended
purpose.
ARTICLE IX
SELLER'S CONDITIONS TO CLOSING
In addition to the conditions provided in other provisions of this
Agreement, Seller's obligation to sell the Property is subject to the
fulfillment at or prior to the Closing Date of each of the following conditions,
each of which is for the benefit of Seller and any or all of which may be waived
by Seller in writing at its option:
9.1 Compliance by Purchaser. Purchaser shall have performed, observed,
and complied with all of the covenants, agreements, obligations and conditions
required by this Agreement and the Lease and Construction Agreement to be
performed, observed and complied with by it prior to or as of the Closing Date.
9.2 Correctness of Representations and Warranties. The representations
and warranties of Purchaser stated in this Agreement shall be true and correct
on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date.
Purchaser, by having closed the sale of the Property, shall be deemed
conclusively to have certified at Closing that all such representations and
warranties were true and correct on and as of the Closing Date.
9.3 Construction Management Agreement. The Construction Management
Agreement shall have been executed by Purchaser and delivered to Escrow.
9.4 Termination of Lease. The Termination of Lease shall have been
executed by Purchaser and delivered to Escrow.
9.5 General Assignment. The General Assignment shall have been executed
by Purchaser and delivered to Escrow.
ARTICLE X
CLOSING
Execution and exchange of documents called for and completion of all
steps necessary to record the Deed in favor of the Purchaser ("Closing") shall
take place in the offices of the Title Company in Seattle or Bellevue,
Washington (or at such other place as the parties may mutually agree to in
writing) by an escrow officer of the Title Company, acting as escrow agent
("Escrow") and shall occur on a date which is no later than
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45 days after Purchaser's exercise of the Option (the date on which the Deed is
recorded being herein referred to as the "Closing Date"); provided, however,
that notwithstanding the foregoing, the Closing Date may be extended in the
event the BSIP 1 has not yet recorded pursuant to Section 18. Purchaser and
Seller shall place into Escrow all instruments, documents and moneys necessary
to complete the sale in accordance with this Agreement. Closing shall take place
in the manner and in accordance with the provisions set forth in this Agreement.
10.1 Delivery to Escrow. On or before the Closing Date, the following
documents and moneys shall be delivered to Escrow:
10.1.1 By Seller. Original documents and agreements, duly
executed and acknowledged by Seller, Quadrant or WRECO, as applicable,
which shall include:
(a) the Deed;
(b) the Termination of Lease;
(c) the General Assignment;
(d) the Construction Management Agreement;
(e) a real estate excise tax affidavit;
(f) FIRPTA Affidavit;
(g) the Completion Guaranty;
(h) the Title Policy;
(l) the warranty bill of sale for all personal
property; and
(i) any and all such other documents as may be required
by the Purchaser to convey or assign the Property or by the Title
Company as are consistent with the provisions of this Agreement.
10.1.2 By Purchaser. Original documents and agreements, duly
executed and acknowledged by Purchaser and any other party as may be
required thereunder, and moneys, which shall include:
(a) the Termination of Lease;
(b) the General Assignment;
(c) the Construction Management Agreement;
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(d) a real estate excise tax affidavit;
(e) the Purchase Price; and
(f) any and all other documents and agreements as may
be required by the Title Company as are consistent with the terms of this
Agreement.
10.2 Seller's Closing Costs. In connection with the Closing, Seller
shall pay the cost of the Title Policy to the extent of the premium for standard
Purchaser's coverage, the real estate excise taxes, one-half the Escrow fee, and
Seller's own attorneys' fees.
10.3 Purchaser's Closing Costs. In connection with the Closing,
Purchaser shall pay the cost of the Title Policy to the extent in excess of the
premium for standard Purchaser's coverage together with all endorsements to the
Policy requested by Purchaser, the cost of recording the Deed, one-half the
Escrow fee, and Purchaser's own attorneys' fees.
10.4 Prorations, Adjustments. At the Closing, prorations shall be
effected through Escrow as follows:
10.4.1 Taxes and Assessments. Real property taxes and public and
private assessments shall be prorated (based upon the year in which they
are payable) as of 12:01 AM on the Closing Date; and Seller shall be
reimbursed for the entirety of any taxes paid by Seller for the calendar
year of recording of the BSIP 1 or any subsequent calendar year
occurring after the Closing Date.
10.4.2 Utilities. Water charges, fuel charges or utility charges
(including, without limitation, telephone, gas and electricity) shall be
prorated as of 12:01 AM on the Closing Date;
10.4.3 Prepaid Rent, Security Deposits and Option Payments.
Prepaid Rent in the amount of $173,077 and the Option Payments shall be
applied as a credit to the Purchase Price (except to the extent
previously returned to Purchaser under Article XVIII).
10.5 Events of Closing. Subject to the conditions on Closing provided
for in this Agreement, this transaction will be closed on the Closing Date as
follows:
10.5.1 Seller shall provide Purchaser with a certificate to the
effect that except as therein identified, there have been no changes in
Seller's warranties under this Agreement.
10.5.2 Seller shall provide Purchaser with the Certificate of
Nonforeign Status as provided in I.R.C. Section 1445.
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10.5.3 Seller shall deliver the original copies of all of
Seller's documents, licenses, contracts, tests, studies and reports
relating to the Property and to be provided to Purchaser under the other
provisions of this Agreement, which are in Seller's or its agents'
possession or under their control and which have not previously been
provided to Purchaser
10.5.4 The Escrow Agent shall calculate the prorations described
in Section 10.4, and the parties shall be charged and credited
accordingly.
10.5.5 Purchaser shall pay the Purchase Price called for at the
Closing Date to Seller in cash, against which Purchaser shall be
credited with the Option Payment (unless previously returned to
Purchaser under Article XVIII), any Deposit held by Seller under the
Lease, and any Holdback provided for under Section 4.1.2.
10.5.6 Any liens to be paid by Seller at closing shall be paid
and satisfied of record at Seller's expense.
10.5.7 Seller shall convey the Land and Improvements to Purchaser
by statutory warranty deed, subject to the Permitted Exceptions.
10.5.8 Seller shall convey the personal property, if any, by bill
of sale with Seller warranties as to lien-free ownership, and shall
assign the matters covered by the General Assignment pursuant thereto.
10.5.9 The Escrow Agent shall be committed to issuing the Title
Policy upon recordation of the closing documents.
10.5.10 The Escrow Agent shall record the deed to Purchaser at
Purchaser's expense.
10.6 Failure of Closing Conditions. In the event any one or more of the
conditions to closing is not satisfied as of the Closing Date, the party whom
such condition is intended to benefit may by notice in writing to the other
party:
10.6.1 waive such condition, whereupon this sale shall close in
accordance with the terms hereof;
10.6.2 extend the Closing Date for up to ten business days; or
10.6.3 elect to cancel this Agreement, whereupon the Option
Payment shall be immediately paid to the party entitled thereto, in
which event the parties shall have the rights and remedies provided in
this Agreement.
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ARTICLE XI
POSSESSION
Subject to the rights of Quadrant under the Construction Management
Agreement, Purchaser shall be entitled to possession of the Property on the
Closing Date, free and clear of all liens, encumbrances and exceptions other
than the Permitted Exceptions, on the Closing Date.
ARTICLE XII
REPRESENTATIONS AND WARRANTIES OF SELLER
12.1 Representations and Warranties of Seller. Seller hereby represents
and warrants, as of the date hereof and as of the Closing Date, that:
12.1.1 Organization. Seller is a corporation or limited liability
company, duly organized and validly existing and in good standing under
the laws of the State of Washington and is qualified to do all things
required of it under this Agreement; all corporate or limited liability
company actions have been taken to approve this Agreement; and this
Agreement shall be binding on Seller in accordance with its terms.
12.1.2 Authority. Seller has the full right, title, authority and
capacity to execute and perform this Agreement and to consummate all of
the transactions contemplated herein, and the individual(s) who on
Seller's behalf, as the case may be, execute and deliver the Agreement
and all documents to be delivered to Purchaser hereunder, are and shall
be duly authorized to do so.
12.1.3 No Litigation. There is no litigation, administrative
action (other than routine land use administrative proceedings involving
the permit process for the Property, the Business Park and the
Snoqualmie Ridge Master Plan Community), attachment, execution,
assignment for the benefit of creditors, receivership, conservatorship,
employment dispute, or voluntary or involuntary proceedings in
bankruptcy or pursuant to any other debtor relief laws contemplated by
Seller or pending or, to Seller's knowledge, threatened, against Seller
before any court or administrative agency, in each case materially
affecting the Property not previously disclosed to Purchaser, or which
might result in Seller being unable to consummate this transaction.
12.1.4 No Conflict. Neither the execution of this Agreement nor
the consummation by Seller of the transactions contemplated hereby will
(i) conflict with or result in a breach of the terms, conditions or
provisions of or constitute a default, or result in a termination of any
agreement or instrument to which Seller is
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a party; (ii) violate any restriction to which Seller is subject; or
(iii) constitute a violation of any applicable law or legal requirement
of which Seller has knowledge.
12.1.5 Non-Foreign. Seller is not a foreign person, non-resident
alien, foreign corporation, foreign partnership, foreign trust, or
foreign estate, as those terms are defined in the Internal Revenue Code
and the Income Tax Regulations promulgated thereunder.
12.1.6 Title. At Closing, Seller will hold marketable fee title
to the Property, subject only to the Permitted Exceptions. At Closing,
no person will adversely possess or have obtained any prescriptive
easement in any portion of the Land and no person will have any right of
possession, club membership, timeshare interest, or other similar right
or license of any nature or description to use any of the Property
(other than contractors constructing the Improvements pursuant to the
Construction Agreement). At Closing, the Land will be neither classified
as open space nor have any similar characterization for the purpose of
reducing or deferring real property taxes. At Closing, there will be no
local improvement district or other special assessments against the
Property, and the Seller will have knowledge that any such assessments
have been proposed, other than assessments for a storm water utility
that may be created.
12.1.7 Condemnation. There is to Seller's knowledge no threat of
condemnation or eminent domain, or other governmental taking of the
Property, or any portion thereof.
12.1.8 Access and Common Area Improvements. On Substantial
Completion, as defined in the Construction Management Agreement, of the
Improvements, the Land will have readily usable vehicular and pedestrian
access to and from public roads, streets or rights of way. All roads,
curb and gutter, drainage systems, access ways, detention ponds and
other common improvements to the Business Park to be constructed have
been or will be complete on or before the date of Substantial Completion
of the Improvements to the extent necessary to obtain a temporary
certificate of occupancy for the Improvements.
12.1.9. Utilities. On or before the date of Substantial
Completion of the Improvements, the Land shall be serviced by
electrical, gas, water, telephone, and sewer lines sufficient to service
the uses of the Property contemplated by the Purchaser as described in
the Lease; there exists no threatened moratorium on the extension or
expansion of such services; all utilities shall be stubbed to the
Improvements, and there exist no unpaid connection, hook-up or similar
charges with respect to the Property that either have not been paid by
Substantial
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Completion or that have not been disclosed in the Title Commitment. All
utilities serving the Improvements are or will be on meters.
12.1.10 No Development Obligations. No commitments have been made
to any person or entity, including without limitation any governmental
or quasi-governmental authority, utility company, religious body, or
association which would impose an obligation upon the Purchaser or its
successors or assigns to make any contribution or dedications of money
or land or to construct, install, or maintain any improvements of a
public or private nature on or off the Land, and no governmental
authority has imposed any requirement that any owner of the Land pay
directly or indirectly any special fees or contributions or to incur any
expenses or obligations in connection with any development of the Land,
except for the CC&R's (if recorded by Closing)or the Snoqualmie Ridge
Council Declaration (if recorded by Closing), or as reflected in the
Title Commitment or as otherwise previously disclosed by Seller to
Purchaser, unless the same have been fully paid and performed.
12.1.11 Property Condition. No portion of the Land lies within
any riparian corridor, wetland or other environmentally sensitive area
which prohibits or restricts development or the 100 year flood plain
established by the federal government. No portion of the Property or any
contiguous property has to Seller's knowledge been used at any time for
the generation, storage or disposal of hazardous substances, sewage,
petroleum products, hazardous materials, toxic substances or any
pollutants or substances, defined as hazardous or toxic in applicable
federal, state and local laws and regulations ("Hazardous Substances").
The drainage of surface and subsurface waters does not adversely affect
the Property to an extent that has not been taken into account in the
design of the Improvements, and the Seller has not been involved in, or
to its knowledge threatened by or notified of litigation or claims
respecting the drainage of such waters.
12.1.12 No Violations. The Property complies, or, with respect to
the Improvements, will upon Substantial Completion comply, with all
applicable federal, state and local laws, including specifically, all
applicable building, development, zoning, health, occupancy, shoreline
management and environmental statutes, ordinances, and regulations; and
the Seller has no knowledge of receiving any citations or violation
notices with respect to the Property (including notices regarding the
physical condition or use thereof or relating to the alleged presence of
any Hazardous Substances). If, between the date of this Agreement and
the Closing Date Seller receives any written notice or written citation
of any alleged violation of any statute, code or ordinance with respect
to the Property or Seller's use thereof, it shall promptly provide
Purchaser with a true and correct copy thereof. To the best of Seller's
knowledge, all licenses, permits and other
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approvals required for the construction of the Improvements have been or
will be, upon commencement of construction or the relevant element of
construction, issued and are or will be in good standing.
12.1.13 Permitted Use. The Seller has no knowledge of any
federal, state or local statutes, ordinances, laws or regulations which
would prohibit or materially interfere with Purchaser's intended use of
the Property.
12.1.14 Accuracy of Records. To Seller's knowledge, all of the
books, records, tests, studies, assessments, documents and other data
Seller has provided and hereafter provides to Purchaser in connection
with this Agreement are true and accurate in all material respects.
12.1.15 Contract Default. To the best of Seller's knowledge,
there exist no material defaults under any management, maintenance or
service contracts executed in connection with the Property.
12.1.16 Executory Agreements. There are no management, service
or maintenance agreements or equipment leases for the Property.
12.1.17 No Condominium. There has not been any documentation
recorded to establish any portion or all of the Property as a
condominium or cooperative property under Washington state law.
12.1.18 Insurability of Property. Neither Seller nor its agents
have received any formal or informal notice from any insurance company
of any defect or inadequacies in the Property which would adversely
affect the insurability of the Improvements, or which would increase the
cost of any insurance beyond that which would ordinarily and customarily
be charged for comparable property.
12.1.19 Soil Conditions. To Seller's knowledge, the surface and
subsurface condition of the Land is such that it will support the
Improvements as they are before and after the date hereof initially
constructed consistent with recommendations of geotechnical reports that
Seller has obtained and will obtain.
12.2 No Other Warranties; Survival. The foregoing constitutes the
express warranties and representations of Seller, and, except for such
additional warranties and representations as may be made by Seller elsewhere in
this Agreement or under the Lease or Construction Agreement, Seller makes no
other warranties or representations, express or implied, direct or indirect. All
of the representations and warranties of Seller contained in this Agreement
shall survive the Closing Date in the same manner as Quadrant's warranties under
the Construction Management Agreement, and Seller shall indemnify and hold
Purchaser harmless from and against all claims, losses, demands,
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allegations or liabilities (including attorneys' fees) which are suffered as a
result of the breach of any inaccuracy thereof.
12.3 "Knowledge" Defined. As used in this Section 12, "Seller's
knowledge" means the actual knowledge of George Sherwin, Doug Bonner, Walter
Costello or Wayne Ullman, without any special inquiry.
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES OF PURCHASER
13.1 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants, as of the Effective Date and as of the Closing Date,
that:
13.1.1 Organization. Purchaser is a corporation, duly organized
and validly existing and in good standing under the laws of the State of
Washington, and is qualified to do all things required of it under this
Agreement; all corporate actions have been taken to approve this
Agreement; and this Agreement shall be binding on Seller in accordance
with its terms.
13.1.2 Authority. Purchaser has full right, title, authority and
capacity to execute and perform this Agreement and to consummate all of
the transactions contemplated herein, and the individual(s) who on
Purchaser's behalf execute and deliver the Agreement and all documents
to be delivered to Seller hereunder are and shall be duly authorized to
do so.
13.1.3 No Litigation. There is no litigation, administrative
action, attachment, execution, assignment for the benefit of creditors,
receivership, conservatorship, employment dispute, or voluntary or
involuntary proceedings in bankruptcy or pursuant to any other debtor
relief laws contemplated by Purchaser or pending or, to Purchaser's
knowledge, threatened, against Purchaser before any court or
administrative agency which might result in Purchaser being unable to
consummate this transaction.
13.1.4 No Conflict. Neither the execution of this Agreement nor
the consummation by Purchaser of the transactions contemplated hereby
will (i) conflict with or result in a breach of the terms, conditions or
provisions of or constitute a default, or result in a termination of any
agreement or instrument to which Purchaser is a party; (ii) violate any
restriction to which Purchaser is subject; or (iii) constitute a
violation of any applicable law or legal requirement of which Purchaser
is aware.
13.2 Survival. The foregoing constitutes the express warranties and
representations of Purchaser, and, except for such additional warranties and
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representations as may be made by Purchaser elsewhere in this Agreement or under
the Lease or the Construction Agreement, Purchaser makes no other warranties or
representations, express or implied, direct or indirect. All of the
representations and warranties of Purchaser contained in this Agreement shall
survive the Closing Date, and Purchaser shall indemnify and hold Seller harmless
from and against all claims, losses, demands, allegations or liabilities
(including attorneys' fees) which are suffered as a result of the breach of any
inaccuracy thereof.
ARTICLE XIV
NOTICES
All notices and demands which may or are to be required or permitted to
be given under this Agreement shall be in writing and if personally delivered
shall be effective when received. If mailed, a notice shall be deemed effective
on the third day after deposited as registered or certified mail, postage
prepaid, directed to the other party. Notices shall be delivered or mailed to
the following address and telephone numbers:
Seller: The Quadrant Corporation
11100 N.E. 8th, Suite 500
P.O. Box 130
Bellevue, Washington 98009
Attn: Commercial Division
Tel: 425-455-2900
Fax: 425-646-8300
Purchaser: Optiva Corporation
13222 SE 30th Street
Bellevue, WA 98005
Attn: Karl Forsgaard, Corporate Counsel
Tel: 1-800-957-9310
Fax: 425-401-4824
with a copy to: Gordon W. Tanner
Stoel Rives LLP
600 University Street, Suite 3600
Seattle, WA 98101-3197
Tel: 206-624-0900
Fax: 206-386-7500
Either party may change its address for notices by at least fifteen (15) days'
advance written notice to the other.
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ARTICLE XV
BROKERAGE COMMISSIONS
Other than a brokerage commission payable to Colliers Macaulay Nicolls,
Inc., in connection with this transaction, pursuant to the terms of a separate
agreement, which commission shall be paid by Seller in accordance with the terms
of such separate agreement, each party represents to the other that no brokerage
commission, finder's fee, acquisition fee or like payment arises through such
party with regard to the sale or lease of the Property. Purchaser hereby
indemnifies and holds Seller harmless from any claim, liability, loss or expense
for any brokerage commission, finder's fee, acquisition fee, or like payment
asserted against Seller arising out of any agreement entered into by Purchaser
in connection with this Agreement or the Property, arising through Purchaser;
and Seller hereby indemnifies and holds Purchaser harmless from any claim,
liability, loss or expense for any brokerage commission, finder's fee,
acquisition fee, or like payment asserted against Purchaser in connection with
this Agreement or the Property, arising through Seller. No sales commission
shall be paid or charged as part of the Closing under this Agreement; provided
however that Colliers Macaulay Nicolls, Inc. shall be paid on the Closing Date
its full leasing commission under its agreement with Seller as if the Property
were being leased to Purchaser. The obligations of the parties under this
Article 15 shall survive the Closing Date.
ARTICLE XVI
DAMAGE OR CONDEMNATION PRIOR TO THE CLOSING
16.1 Damage. Any damage to the Improvements prior to the Closing Date
shall be repaired and restored by Quadrant in accordance with the requirements
and to the condition called for in the Construction Management Agreement.
16.2 Condemnation. If, prior to the Closing Date, all or any portion of
the Property is taken by, or made subject to, condemnation, eminent domain or
other governmental acquisition proceedings, then Purchaser, at its sole option,
may elect either:
16.2.1 Termination. To terminate this Agreement by written notice
to Seller given at or prior to the Closing Date, and, neither party
hereto shall have any further rights against, or obligations to, the
other under this Agreement; or
16.2.2 Reduce Purchase Price. To agree to close and deduct from
the Purchase Price an amount equal to any sum paid to Seller for such
governmental acquisition; provided, if no award has been paid to Seller
prior to the Closing Date, then, on the Closing Date, the Purchase Price
shall not be adjusted; and, on the Closing Date, Seller shall assign,
transfer and set over to Purchaser all of
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Seller's right, title and interest in and to any awards which may in the
future be made on account of such governmental acquisition.
16.2.3 Street Dedications. Notwithstanding anything herein to the
contrary, condemned or dedicated portions of the Land for purposes of
street construction and right of way as reflected on the BSIP 1 shall
not constitute condemnation action subject to the provisions of this
Article XVI.
ARTICLE XVII
MISCELLANEOUS
17.1 Attorneys' Fees. In the event of any litigation, arbitration or
other proceeding (including proceedings in bankruptcy and probate and on appeal)
brought to enforce or interpret or otherwise arising under this Agreement, the
substantially prevailing party therein shall be entitled to the award of its
reasonable attorneys' fees, witness fees, and court costs incurred therein and
in preparation therefor.
17.2 Counterparts. This Agreement may be executed simultaneously or in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same contract
17.3 Entire Agreement. This Agreement embodies and constitutes the
entire understanding between the parties hereto with respect to the purchase and
sale of the Property, and all prior agreements, understandings, representations
and statements, oral or written, concerning such transaction are superseded and
merged into this Agreement. The parties acknowledge there are additional
agreements between them pertaining to the Property, including without limitation
a Lease, a Construction Agreement and an Expansion Agreement between the parties
of even date herewith. Such documents are a part of the agreement of the
parties.
17.4 Modification. Neither this Agreement nor any provision hereof may
be waived, modified, amended, discharged or terminated except as provided herein
or by an instrument in writing signed by the party against which the enforcement
of such waiver, modification, amendment, discharge or termination is sought, and
then only to the extent set forth in such instrument.
17.5 Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Washington. Venue for any action to
enforce or interpret this Agreement shall lie in the Superior Court of King
County, Washington. All sums referred to in this Agreement shall be calculated
by and payable in the lawful currency of the United States.
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17.6 Headings. Descriptive headings are used in this Agreement for
convenience only and shall not control, limit, amplify or otherwise modify or
affect the meaning or construction of any provision of this Agreement.
17.7 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective permitted heirs,
successors and assigns.
17.8 Assignment. Purchaser shall have the right to assign its rights
under this Agreement in whole or in part to any entity acquiring, merging with
or related to Purchaser (before or after the assignment) without the prior
written consent of Seller. Any other assignment by Purchaser shall require the
prior written consent of Seller, which consent may not be unreasonably withheld,
conditioned or delayed. Seller may freely assign this Agreement, but no such
assignment shall relieve Quadrant of its obligations hereunder.
17.9 Survival of Provisions. The covenants, representations, agreements,
terms and provisions contained herein shall survive the Closing and shall not be
deemed to have merged with or into the Deed.
17.10 Time of Essence; Business Day. Time is of the essence of this
Agreement and of each covenant and agreement that is to be performed at a
particular time or within a particular period of time. However, if the final
date of any period which is set out in any provision of this Agreement or the
Closing Date falls on a Saturday, Sunday or legal holiday under the laws of the
United States, or the State of Washington, then the time of such period or the
Closing Date, as the case may be, shall be extended to the next date which is
not a Saturday, Sunday or legal holiday.
17.11 Rights and Remedies Upon Default.
17.11.1 Seller's Default. In the event of a default by Seller of
any of its covenants, representations, warranties or other agreements
set forth in this Agreement, Purchaser may, elect (i) nevertheless to
proceed with the purchase of the Property, and to pursue specific
performance of this Agreement, or (ii) to terminate this Agreement by
written notice to Seller delivered prior to the Closing Date, whereupon
the Option Payments shall be returned to Purchaser (unless previously
returned to Purchaser under Article XVIII), or (iii) to pursue all
remedies available at law and in equity, including specific performance
of this Agreement and damages.
17.11.2 Purchaser's Default. In the event of a default by
Purchaser of any of its covenants, representations, warranties or other
agreements set forth in this Agreement, Seller shall be entitled (i) to
retain the Option Payment, and (ii) to pursue all remedies available at
law and in equity, including specific performance
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<PAGE> 24
of this Agreement and/or damages up to $2,000,000 in damages, with or
without terminating this Agreement.
17.11.3 Termination. Upon termination of this Agreement under
this Article, both parties shall be relieved of all further obligations
hereunder, neither party shall have any further rights under this
Agreement, and each of the parties hereby waive any other rights or
remedies available to it at law or in equity by virtue of this
Agreement. Termination of this Agreement shall not affect the Lease or
the Construction Agreement, which shall continue until terminated in
accordance with its terms.
17.12 Invalid Provision. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws, such
provision shall be fully severable; this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part of this Agreement; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by
such illegal, invalid or unenforceable provision or by its severance from this
Agreement.
17.13 Right of Termination. This Agreement shall be terminated in the
event the Lease is terminated in accordance with the provisions of Section 1A.1
of the Lease.
17.14 Cooperation. The parties shall cooperate in good faith with one
another and shall use diligent efforts to carry out the intent and provisions of
this Agreement.
17.15 Interpretation. This Agreement has been submitted to the scrutiny
of all parties hereto and their counsel, if desired, and shall be given a fair
and reasonable interpretation in accordance with the words hereof, without
consideration or weight being given to its having been drafted by any party
hereto or its counsel.
17.16 Waive. The failure of either party at any time to require
performance of any provision of this Agreement shall not limit the party's right
to enforce such provision. Waiver of any breach of any provision shall not be a
waiver of any succeeding breach of the provision or a waiver of the provision
itself or any other provision.
17.17 Description of Transaction. This Agreement creates only the
relationship of seller and buyer and no joint venture, partnership or other
joint undertaking is intended hereby, and neither party hereto shall have any
rights to make any representations or incur any obligations on behalf of the
other. Neither party has authorized any agent to make any representations, admit
any liability or undertake any obligation on its behalf. Neither party is
executing this Agreement on behalf of an undisclosed principal, and no third
party is intended to be benefited by this contract. The parties agree that this
Agreement involves only the sale and purchase of real, personal and intangible
property, that Purchaser is not acquiring any business or ongoing liability of
Seller, and except to
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the limited extent assumed by Purchaser in writing, Purchaser shall have no
successor liability to any employee, agent or other person with whom Seller has
contracted or to whom Seller is liable.
17.18 Indemnified Parties. Any indemnification contained in this
Agreement for the benefit of Purchaser shall extend to Purchaser's officers,
employees, and agents.
17.19 Exhibits; Addenda. Exhibits and Addenda, if any, affixed to this
Agreement are a part of and incorporated into this Agreement.
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ARTICLE XVIII
BINDING SITE IMPROVEMENTS PLAN 1
Purchaser understands, acknowledges and agrees that Seller has applied
for and is currently seeking approval by the Hearing Examiner for the City of
Snoqualmie ("Hearing Examiner") of a Conceptual Binding Site Improvement Plan 1
for the Snoqualmie Ridge Business Park, submitted for approval under No. 9701 in
which the Land is included ("BSIP 1"); and that upon the recording of the BSIP 1
with the King County Department of Records and Elections , the Land shall be
established as legally subdivided lot(s). Seller shall diligently proceed to
prepare such materials required to obtain approval of the BSIP 1; provided,
however, that Seller's obligation to convey the Property shall be subject to
issuance of final approval of the BSIP 1 by the City Council of the City of
Snoqualmie in a manner and with such terms as are acceptable to Seller and
recording of the same. If the BSIP 1 is not approved and recorded on or before
the Closing Date, Seller shall be entitled to extend the Closing Date for such
period of time as is reasonably necessary to approve and record the BSIP 1. If,
however, the BSIP 1 is not approved and recorded on or before the Commencement
Date of the Lease, Seller shall return the Option Payment to Purchaser at
Purchaser's request, and this Agreement shall otherwise remain in full force and
effect. Furthermore, if the BSIP 1 is not approved and recorded within six
months after the Commencement Date under the Lease, Purchaser may cancel its
exercise of the Option and receive the return of the Option Payment (if not
already returned under the preceding sentence) whereupon the Lease and
Construction Agreement shall remain in full force and effect, and no party shall
have any further right or remedy hereunder. If Purchaser does not exercise its
option to terminate this Agreement, then Seller shall complete the sale of the
Property to Purchaser as soon as it may be legally conveyed.
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<PAGE> 27
EXECUTED as of the day and year above written.
SELLER:
THE QUADRANT CORPORATION
By /s/ George F. Sherwin, Jr.
------------------------------------
George F. Sherwin, Jr.
Its Vice President
PURCHASER:
OPTIVA CORPORATION
By /s/ David Giuliani
-------------------------------------
David Giuliani
Its President
EXHIBITS
Exhibit A Legal Description of Land
Exhibit B Termination of Lease
Exhibit C General Assignment
Exhibit D Construction Management Agreement
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<PAGE> 28
EXHIBIT D
CONSTRUCTION MANAGEMENT AGREEMENT
THIS CONSTRUCTION MANAGEMENT AGREEMENT is dated and effective this ___
day of __________, 1998, by and between OPTIVA CORPORATION, a Washington
corporation ("Owner"), and THE QUADRANT CORPORATION, a Washington corporation
("Quadrant").
R E C I T A L S
A. Quadrant, as seller, and Owner, as purchaser, have heretofore entered
into that certain Option and Real Estate Purchase and Sale Agreement for the
sale of the Land and Buildings (defined below), as to which Quadrant has
commenced construction.
B. Prior to such purchase and sale, Quadrant [or its assignee] was the
Landlord and Owner [or Owner's affiliate] was the Tenant, under a Lease dated
November __, 1997. Under the Lease, including a Construction Agreement for Lease
executed concurrently with the Lease, and a copy of which is attached hereto as
Exhibit 1 and incorporated herein ("Construction Agreement") and other exhibits
incorporated therein, Quadrant, as Landlord, agreed to construct for and lease
to Owner, as Tenant, and Owner agreed to lease from Quadrant, the Buildings.
C. The Lease has terminated pursuant to the Option and Real Estate
Purchase and Sale Agreement concurrently with the closing thereunder.
D. The parties have agreed that Owner shall engage Quadrant as
Construction Manager to complete construction of the Building Shell and Tenant
Improvements for Owner, at the cost of Owner, in the manner required in the
Construction Agreement and this Construction Management Agreement.
A G R E E M E N T S
The parties agree as follows:
1. Definitions. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the same meanings as in the Construction
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
"Base Building Shell Price" means the amount of $__________
[TBD--$125 TIMES 145,000 GBA, MINUS LAND VALUE, MINUS TI ALLOWANCE
($4,945,052), PLUS MEZZANINE STRUCTURE ALLOWANCE ($389,000), PLUS
INCREASE IN
Page 1 of Exhibit D
<PAGE> 29
LINK STRUCTURE ALLOWANCE ($344,000), PLUS INCREASE IN SPACE PLANNING
ALLOWANCE ($176,609), PLUS SHELL IMPROVEMENTS ALLOWANCE ($932,534)].
"Buildings" means the Building Shell and Tenant Improvements for
each of Building 1 and Building 2, all as defined more fully in the
Construction Agreement.
"Building Plans" means the Building Shell Construction Documents
and the Tenant Improvements Construction Documents, as created and
modified from time to time in accordance with the Construction
Agreement.
"Building Value" means the total amount to be paid to Quadrant
under this Agreement, and is an amount equal to the Base Building Shell
Price plus Tenant Improvement Costs plus Excess Mezzanine Structure
Costs, plus Excess Link Structure Costs, Excess Shell Improvements
Allowance Costs, plus any increases resulting from changes to the
Buildings under Section 9 of this Agreement. The Building Value consists
of the sum of the Building Value At Closing and the Building Value After
Closing.
"Building Value After Closing" means an amount equal to the
Building Value minus the Building Value at Closing. The Building Value
After Closing is to be paid to Quadrant on a Progress Payment basis
under Section 7.2.
"Building Value At Closing" means the amount of the Building
Value to be paid at Closing under Section 4.1.2 of the Purchase
Agreement, and equals Soft Costs incurred to a date at least ten
business days prior to Closing plus a Progress Payment of Building Value
made on a Completion Percentage basis in accordance with the procedures
described in this Agreement, as of a date prior to Closing.
"Completion Percentage" means that certain percentage of the
construction of the Building Shell and the Tenant Improvements which is
determined, at the time of each payment of each Progress Payment, to
have been completed. Such determination shall be made by Inspector,
subject to the review and comment by Owner and Quadrant; notwithstanding
such review and comment, however, the determination of Inspector shall
control. For purposes of calculating the Completion Percentages,
Inspector shall assume that Substantial Completion of the Building Shell
or Tenant Improvements, as the case may be, constitutes 100% completion
thereof. In determining the Completion Percentages, Inspector shall
consider the following information: (i) a physical inspection of the
Buildings; and (ii) a comparison of the work completed against the work
remaining to be completed based upon an analysis of the Building Plans.
"Construction Agreement" means the Construction Agreement for
Lease dated the same date as the Lease, between Quadrant and Owner,
entered into and
Page 2 of Exhibit D
<PAGE> 30
made a part of the Lease. Although the Lease has terminated, the
Construction Agreement is incorporated into this Agreement by reference
and as part of this Agreement shall continue to apply to the
construction of the Buildings.
"Effective Date" means the date upon which delivery of this
Agreement fully executed by all parties thereto shall have occurred.
"Final Completion" means that Substantial Completion has occurred
and all post-substantial completion obligations under Section 8 have
been fulfilled.
"Hard Costs" means that portion of the Building Value After
Closing consisting of those construction costs identified in the
Building Shell Construction Contract and Tenant Improvements
Construction Contract, not including taxes applicable thereto.
"Holdback Amount" means an amount equal to 5% of Hard Costs, to
be held back from Progress Payments in accordance with Section 7 of this
Agreement.
"Inspector" means Falkin & Associates, who has been engaged to
determine the Completion Percentage during construction in accordance
with this Agreement.
"Land" means that certain real property described on Exhibit 2
attached hereto.
"Land Value" means the gross Purchase Price paid by Owner at
Closing for the Land, under Section 4.1.1 of the Purchase Agreement.
"Lease" means that certain Lease of the Buildings dated November
__, 1997, between Quadrant, as Landlord, and Owner, as Tenant, together
with all exhibits thereto. The Lease terminated at closing of Owner's
purchase of the Land and Buildings.
"Progress Inspection" means the inspection(s) undertaken by
Inspector for each Progress Payment Request during the construction of
the Building, on which inspections each of Quadrant and Optiva shall
have the opportunity to have their Representatives accompany the
Inspector. Following each Progress Inspection, Inspector shall issue its
written determination of the Completion Percentages on or before the
first day of each calendar month for each Progress Payment Request in
accordance with Section 7.3.
"Progress Payments" means those certain progress payments made to
Quadrant from time to time by Owner in accordance with Section 7 of this
Agreement toward payment of the Building Value After Closing.
Page 3 of Exhibit D
<PAGE> 31
"Project Costs" means all out-of-pocket costs actually expended
by Quadrant (as opposed to Quadrant's internal costs), as Landlord or as
Quadrant for the design, development, and construction of the Land and
Buildings and all improvements, systems and installations therein and
thereto, including without limitation all of the following reasonably
allocated to the Land and the Buildings:
(i) all architectural, engineering (civil and structural),
mechanical, electrical, geotechnical, accounting, legal, environmental
and any other consulting fees and expenses of any kind or nature;
(ii) all traffic mitigation, signalization, and any other
improvements related to vehicular traffic and transportation management
for the Property;
(iii) all site preparation costs and expenses;
(iv) utilities installation and connection costs, fees and
charges (as opposed to costs, fees and charges for actual usage),
including without limitation, storm drainage, sanitary sewer,
electrical, water, natural gas, and any other utility (excluding
telephone, cable television, data transmission, satellite transmission,
and security system equipment and services or computer cabling or
wiring);
(v) all Hard and Soft Costs;
(vi) any and all insurance premiums, retail sales and business
and occupation taxes and any other applicable premiums or taxes in
addition to those identified above;
(vii) any and all fees, charges and expenses in connection with
obtaining, environmental and other review and issuance of any and all
permits required for design, development, construction and occupancy of
the Buildings and the Land, including expenses incurred in providing any
bonds to secure completion obligations to the City of Snoqualmie;
(viii) any and all costs of the removal and remediation of
Hazardous Substances from the Land, if any;
(ix) any other cost, expense, fee, charge or interest incurred by
Quadrant, as Landlord or as Quadrant on an "out of pocket" basis
relating to or arising from the planning, design, development,
marketing, testing, and construction of the Buildings and performance of
Quadrant's obligations, as Landlord and as Construction Manager, to
achieve final completion of the Buildings;
(x) the cost of any ALTA survey with respect to the Land required
by the City of Snoqualmie upon completion of the Buildings;
Page 4 of Exhibit D
<PAGE> 32
(xi) any and all legal and other consultant's or other third
party costs incurred in connection with the negotiation and execution of
this Agreement and the Purchase Agreement, including without limitation
real estate brokerage commissions applicable thereto;
(xii) closing costs incurred in connection with closing under the
Purchase Agreement;
(xiii) any cost, expense and charge in order to enforce the
obligations of any Owner to the extent such cost, expense or charge is
not otherwise recovered from Owner;
(xiv) interest accruing on all of such items from time to time as
they are incurred from and after the date of execution of the Lease, at
the floating rate per annum of one percent over the prime rate in effect
at Seafirst Bank or its successor.
"Purchase Agreement" means that certain Option and Real Estate
Purchase and Sale Agreement dated the same date as the Lease, between
Quadrant, as Seller, and Owner, as Purchaser, under which the Land and
Buildings have been sold and conveyed to Owner.
"Soft Costs" means that portion of the Building Value consisting
all costs other than Hard Costs arising in connection with the
Buildings, such as design, architectural, engineering, environmental,
soils analysis, permitting and similar costs, and all taxes applicable
thereto.
"State" means the State of Washington.
2. Engagement of Quadrant as Construction Manager; Construction
Agreement. Owner hereby engages Quadrant as Construction Manager and Quadrant
agrees, subject to Owner's performance of its obligations hereunder, to cause,
supervise, manage and complete the Buildings by performing all of Quadrant's
obligations set forth in the Construction Agreement, as supplemented and
modified by the terms and conditions of this Agreement. Quadrant shall have all
the rights and obligations of Quadrant under the Construction Agreement, and
Owner shall have all the rights of Optiva under the Construction Agreement. The
Construction Agreement and this Agreement shall be construed together and read
harmoniously where possible, but to the extent of inconsistency between the
Construction Agreement and this Agreement, this Agreement shall control.
3. Diligent Efforts; General Responsibility; Authorized Representatives.
Page 5 of Exhibit D
<PAGE> 33
3.l In providing its services hereunder, Quadrant shall use
diligent efforts and shall furnish its best skill and judgment.
3.2 Quadrant shall cooperate with, coordinate, manage, direct and
supervise the General Contractor, Architect, TI Architect and all other
engineers, design consultants, managers, and other contractors retained in
connection with the development and construction of the Building so as to cause
Substantial Completion in accordance with and subject to the provisions of this
Agreement.
3.3 Subject to Owner's performance of its obligations under this
Agreement, Quadrant shall complete the Building in accordance with the Building
Plans and all applicable laws and ordinances, free of all liens (except as
otherwise provided in this Agreement) for work performed by or under the
direction of Quadrant; Quadrant's warranty liability shall be as set forth in
Section 10 of the Construction Agreement.
4. Mutual Cooperation. Quadrant and Owner shall cooperate in good faith
with each other in all aspects of performance under this Agreement, to
accomplish each of the purposes hereof. Such cooperation shall include without
limitation Owner's granting of easements to public utilities and municipalities
if reasonably necessary or beneficial for the Buildings or the Business Park and
to the extent that any of such easements is not already in place by the date of
this Agreement.
5. Term. The rights and obligations of the parties hereunder shall
commence on the Effective Date and shall continue through Quadrant's completion
of the Post-Substantial Completion obligations set forth in Section 8, until the
end of the Warranty Period.
6. Quadrant's Duties. Quadrant shall see to it that the Buildings are
Substantially Completed in accordance with the Building Plans and that the
Substantially Complete Buildings are delivered by the Scheduled Substantial
Date, as it may change from time to time, and shall have the following specific
duties and responsibilities relating to the construction of the Buildings,
unless otherwise specifically provided or unless already accomplished under the
Construction Agreement:
6.1 Design, Bidding and Contracting. In connection with the
design and bidding of construction work for the Building:
6.1.1 Quadrant shall oversee all design work by Architect,
TI Architect and engineers for the development and construction of the
Buildings.
6.1.2 Either Owner or Quadrant, acting as Owner's agent,
shall enter into any and all contracts relating to the design,
construction or permitting of the Buildings.
Page 6 of Exhibit D
<PAGE> 34
6.1.3 Quadrant shall enforce, administer, oversee and
implement all contracts entered into by Owner (or by Quadrant, as
Owner's agent) with General Contractor subcontractors, suppliers,
agents, employees, or other persons in connection with the development
and construction of the Buildings.
6.2 Development. In connection with the development
of the Buildings, as agent for Owner, Quadrant shall arrange for and supervise
the completion and submission of all applications, grading permits, building
permits, occupancy permits, and other land use or development applications and
documentation required by applicable governmental authority to accomplish
development of the Buildings.
6.3 General Matters Related to Construction. Quadrant shall:
6.3.1 Coordinate the scheduling of construction of the
Buildings, including sequence of operations among contractors and
employees, the receipt of material and equipment deliveries and the
inspection of completed work.
6.3.2 In consultation with the Architect and TI Architect,
conduct necessary inspections to determine that the Buildings are
completed in accordance with all applicable Building Plans.
6.3.3 Subject to its receipt of the Building Value as and
when required in this Agreement, Quadrant shall cause any mechanic's or
materialmen's lien or liens against the Buildings to be immediately
discharged; provided, however, that if Quadrant disputes any such lien,
then Quadrant shall not be required to discharge any such lien until
such dispute is resolved to Quadrant's satisfaction.
6.3.4 Subject to its receipt of Progress Payments as and
when required in this Agreement, Quadrant shall cause all retail sales
and excise taxes to be paid.
6.3.5 Quadrant shall at all times during construction of
the Buildings keep and maintain the site in a safe condition.
6.4 Owner's Liability for Costs. Notwithstanding any other
provision of this Agreement, Owner shall not be liable for and Quadrant shall
pay all costs to complete construction of the Building Shell in excess of the
Base Building Shell Price, excluding however, any cost for construction of the
Building Shell if such costs result from Owner initiated changes pursuant to
Section 9 or if such costs are Excess Mezzanine Structure Costs, Excess Link
Structure Costs, Excess Shell Improvements Allowance Costs, and costs exceeding
insurance proceeds necessary to restore the damage or destruction in accordance
with Section 11.1.
Page 7 of Exhibit D
<PAGE> 35
7. Payment of Building Value After Closing
7.1 Progress Payments. Owner shall pay the Building Value After
Closing to Quadrant on a Progress Payment basis directly to Quadrant as
described in this Section 7.
7.2 Progress Payments Determination and Procedure. Progress
Payments shall be made monthly in accordance with the following procedures and
shall continue until the Building Value, including the Holdback Amount, has been
paid in full:
7.2.1 Quadrant shall provide to Inspector on or before the
25th day of each calendar month after the Effective Date such
information as is required for Inspector to determine the Completion
Percentage for each of the Building Shell and the Tenant Improvements.
Inspector shall issue its determination of the Completion Percentages as
of the date of determination on or before of the 30th day of such month;
7.2.2 For purposes of calculating Progress Payments, the
Building Value after Closing shall be paid in two separate components:
Building Shell and Tenant Improvements.
7.2.3 For purposes of calculating Progress Payments, the
Completion Percentage for the Building Shell shall be applied against
the Base Building Shell Price, and the Completion Percentage for the
Tenant Improvements shall be applied against the Tenant Improvements
Costs, including the Tenant Improvements Allowance and any Excess Tenant
Improvements Costs identified by Closing under the Purchase Agreement.
7.2.4 Within five business days after the receipt of
Inspector's determination of the Completion Percentages, Quadrant shall
provide to Owner a Progress Payment Request in the form attached hereto
as Exhibit 3, requesting payment of a specified dollar amount.
7.2.5 For the Building Shell, the payment amount shall be
equal to the Completion Percentage of the Building Shell determined by
Inspector, times the Base Building Shell Price, minus the amount
(including taxes) previously paid (or held back) against the Base
Building Shell Price, plus retail sales and excise taxes due on amounts
paid to General Contractor for the Building Shell covered by the
Progress Payment Request, and minus a Holdback equal to 5% of Building
Shell Hard Costs covered by such Progress Payment Request.
7.2.6 For the Tenant Improvements, the payment amount
shall be equal to the Completion Percentage of the Tenant Improvements
determined by Inspector, times the amount of Tenant Improvements Costs
identified by the
Page 8 of Exhibit D
<PAGE> 36
parties on or before Closing under the Purchase Agreement, minus the
amount (including taxes) previously paid (or held back) against such
costs, plus retail sales and excise taxes due on amounts paid to General
Contractor for the Tenant Improvements covered by the Progress Payment
Request, and minus a Holdback equal to 5% of Tenant Improvements Hard
Costs covered by such Progress Payment Request.
7.2.7 Within three days of receipt of a Progress Payment
Request, Owner shall either approve or provide detailed reasons why it
does not approve the Progress Payment Request. Owner shall exercise
reasonable and good faith discretion in its review and approval or
non-approval of Progress Payment Requests. If Inspector and Owner and/or
Quadrant disagree regarding the Completion Percentages, Quadrant,
Inspector, and Owner shall meet within the subsequent two-day period and
diligently attempt to resolve such differences. If such differences are
not resolved within said two-day period, then the determination by
Inspector shall control, and Owner shall make the Progress Payment based
on the Inspector's determination. Any remaining dispute over such
Progress Payment may be resolved by reference to the dispute resolution
procedures set forth in Section 19.7 of the Lease (and the provisions of
such section are incorporated in this Agreement despite the termination
of the Lease); provided, however, that Owner shall timely make the
Progress Payment in accordance with the Inspector's determination even
if the parties are pursuing such dispute resolution procedures, and may
not invoke such procedures unless it has made such payment. Payments to
be made thereafter under this Agreement shall be adjusted as necessary
to reflect the outcome of such dispute resolution procedures.
7.2.8 An example illustrating the determination of
Progress Payments is set forth on Exhibit 4 hereto. Such example shall
be read in conjunction with the provisions of this Section 7.2.
7.3 Payment of Progress Payment. Owner shall pay each Progress
Payment to Quadrant not later than three business days after the amount thereof
is determined in accordance with the foregoing.
7.4 Progress Payment Upon Substantial Completion. Within ten days
after Substantial Completion, a Progress Payment shall be made using a
Completion Percentage of 100% for the Building Shell and the Tenant
Improvements.
7.5 Final Payment of Building Value. Any remaining portion of the
Building Value After Closing, including without limitation the Holdback Amount,
plus any additional Excess Tenant Improvement Costs, plus any Excess Mezzanine
Structure Costs, plus any Excess Link Structure Costs, plus any Excess Building
Shell Allowance
Page 9 of Exhibit D
<PAGE> 37
Costs, plus any increases resulting from changes to the Buildings under Section
9 of this Agreement, shall be paid by Owner to Quadrant as the final Progress
Payment. Such payment shall be made at Final Completion, or as soon thereafter
as such costs are finally determined in accordance with the Construction
Agreement and this Agreement, not later than 30 days after Quadrant's submittal
of a written request for payment.
7.6 Maximum Amount of Payments. Not later than 90 days after the
date of Final Completion, Quadrant shall submit to Optiva an itemized, detailed
statement of actually incurred Project Costs. If requested by Optiva, such
submittal shall include the General Contractor's actual job cost report,
including individual entries, payroll reports, timecards and copies of invoices.
Such submittal may include such other information that reasonably bears on the
determination of Project Costs. If the positive difference, if any, between (i)
the total amounts paid to Quadrant as the Building Value at Closing under the
Purchase Agreement and as Progress Payments under this Agreement, and (ii) all
Project Costs, exceeds $1.4 million, Owner shall have no further obligation to
pay Progress Payments or the final payment of Building Value, and Quadrant shall
pay Owner the amount of any such difference in cash within ten business days
after the submittal of such statement.
8. Post-Substantial Completion Obligations. Following Substantial
Completion (as defined in the Construction Agreement), and on or before 90 days
after the Substantial Completion Date, or, if not completed within such period,
then as soon as practically possible, Quadrant and Owner shall complete the
items of work and provide the documents of items of information as are set forth
below:
8.1 By Quadrant. Quadrant shall provide to Owner the following:
8.1.1 Final Certificate of Occupancy. The issued final
Certificate of Occupancy for the Buildings.
8.1.2 Punch List. Completion of the Punch List Items as
developed under the Construction Agreement.
8.1.3 Manuals. All technical and service, instruction and
procedure manuals relating to the operation and maintenance of all HVAC
systems and other mechanical devices and equipment installed in the
Buildings, except insofar as relating to Optiva's furniture, fixtures
and equipment.
8.1.4 Warranties. An assignment and delivery of all
warranties, guarantees, maintenance contracts, and machinery and
equipment warranties received by Quadrant from the General Contractor,
or any subcontractor thereof, or any supplier, materialmen or
manufacturer relating to the Buildings.
Page 10 of Exhibit D
<PAGE> 38
8.1.5 Title Endorsement. Title insurance for the Buildings
dated down, to reflect no mechanic's, materialman's, contractor's
supplier's or similar liens or claims affecting title to the Buildings.
8.2 By Owner and Quadrant. Owner and Quadrant shall complete the
following:
8.2.1 Access and Utility Easements. Any and all access,
driveway and utility easements as may be required by and between the
Land and certain adjacent real property owned by Quadrant or
Weyerhaeuser Real Estate Company or their successors shall have been
executed, recorded and of full force and effect upon such terms as are
acceptable to Quadrant. In addition, Owner shall cooperate with Quadrant
as reasonably required to establish such water, sanitary sewer, storm
drainage, electrical, telephone, CATV and any and all other utility
easements to serve the Buildings with such utilities. Such cooperation
shall include without limitation execution of any and all such easement
documentation.
8.2.2 Bonds. Quadrant shall have posted such bonds as may
be required by the City of Snoqualmie in order to obtain issuance of the
final certificate of occupancy and any other matters related to the
Business Park. Quadrant shall maintain such bonds in full force and
effect during the term such bonds are required to be maintained;
provided, however, that Owner shall take no action to invalidate such
bonds and, except to the extent covered by Quadrant's warranty under
Section 13, shall assume and comply with the requirements of all such
bonds, such that the bonds can remain in full force and effect.
9. Building Changes. Changes made after the date of this Agreement to
the Building Plans shall be governed by Sections 5 and 6 of the Construction
Agreement. The cost of Mandatory Changes and changes initiated by Owner (or
Optiva) to the Building Shell and Tenant Improvements shall be Project Costs.
The cost of Mandatory Changes to the Building Shell shall not increase the Base
Building Shell Price, except to the extent resulting from Optiva-initiated
changes to the Building Shell or Tenant Improvements or to the extent such costs
are Excess Link Structure Costs, Excess Mezzanine Structure Costs, or Excess
Shell Improvements Allowance Costs. The cost of Mandatory Changes to the Tenant
Improvements shall increase the Building Value to the extent such costs are
Excess Tenant Improvement Costs.
10. Insurance.
10.1 Prior To Substantial Completion. Prior to the Substantial
Completion Date, Quadrant shall obtain and maintain the following insurance in
full force and effect, at Quadrant's initial expense and as a Project Cost,
which insurance shall be evidenced by the submittal of evidence of insurance:
Page 11 of Exhibit D
<PAGE> 39
10.1.1 All-Risk Builder's Risk insurance (with standard
exclusions including earthquake and flood exclusions) in an amount
sufficient to cover the completed value of the Buildings, on which Owner
shall be an additional insured.
10.1.2 Commercial General Liability insurance in the
amount of $5,000,000 combined single limit and $5,000,000 general
aggregate, upon which Owner and General Contractor shall be additional
insureds.
10.2 After the Date of Substantial Completion. After the date of
Substantial Completion and before Final Completion, the following insurance
shall be provided and maintained in full force and effect by the party
indicated. No portion of the premium for such insurance attributable to such
period shall be included in Project Costs or paid by Quadrant. Such insurance
shall be evidenced by the submittal of evidence of insurance:
10.2.1 All-Risk Builder's Risk insurance (with standard
exclusions including earthquake and flood exclusions except to the
extent Owner desires such coverage and pays the cost therefor) in amount
of the completed value of the Buildings, to be provided by Owner or
continued by Quadrant, and upon which Quadrant and Owner shall be
insureds, as their interests may appear.
10.2.2 Commercial General Liability Insurance in the
amount reasonably deemed appropriate by Owner, and on which Quadrant
shall be an additional insured.
11. Damage and Destruction. Quadrant shall give Owner prompt written
notice of any casualty to the Buildings during construction.
11.1 Prior to Substantial Completion. If, prior to Substantial
Completion, damage or destruction occurs to the Buildings, Quadrant shall
proceed diligently to reconstruct and restore the Buildings in accordance with
the Building Plans and this Agreement. Insurance proceeds available for such
reconstruction and restoration shall be fully available to Quadrant for payment
of the costs of such restoration of the Buildings. Unless such damage or
destruction to the Buildings occurred as a result of the breach, default, or
negligence of Owner under this Agreement, the Building Value After Closing shall
not be affected by such damage or destruction or delays occasioned thereby, and
all costs of such restoration of the Buildings exceeding the amount of the
insurance proceeds shall be paid by Quadrant, regardless of whether adequate
insurance proceeds exist to pay the same, provided, however, that all such costs
shall constitute a Project Cost and up to $25,000 of the deductible under such
insurance shall be added to the Building Value.
11.2 After Substantial Completion. If, after Substantial
Completion, damage or destruction occurs to the Buildings, Owner elects in its
discretion to repair such damage or destruction, Quadrant shall proceed
diligently to reconstruct and restore
Page 12 of Exhibit D
<PAGE> 40
the Buildings in accordance with the Building Plans; provided, however, that all
insurance proceeds shall be available to Owner with respect to such
reconstruction and restoration, and the provisions of this Construction
Management Agreement with respect to the Building Value, Project Costs or
maximum payment under Section 7.6 shall not be applicable; and Owner shall pay
all costs arising with respect to the reconstruction and restoration of the
Buildings, including without limitation any and all costs of such restoration of
the Buildings exceeding the amount of the insurance proceeds Quadrant shall have
the right and obligation to carry out such reconstruction and restoration for
Owner, and Owner shall elect to repair such damage or destruction, unless and
until Owner has paid Quadrant in full the entire amount that would have been
paid to Quadrant under this Agreement through Final Completion as though
Quadrant had achieved Final Completion without such damage or destruction having
occurred.
12. Completion Guaranty. The obligations of Quadrant to achieve
Substantial Completion under this Agreement are guaranteed by Weyerhaeuser Real
Estate Company ("WRECO") in accordance with the Completion Guaranty attached
hereto as Exhibit 5 ("Completion Guaranty"), which Completion Guaranty is to be
executed by WRECO and delivered to Owner as of the Effective Date.
13. Quadrant Warranty. Effective upon Substantial Completion, Quadrant
makes the representations and warranties set forth in Section 10 of the
Construction Agreement
14. Default.
14.1 Quadrant Default. If Quadrant materially fails to perform
any of its obligations under this Agreement such failure shall constitute an
"Event of Default" by Quadrant.
14.2 Owner Remedies upon Quadrant Event of Default. Upon any
Event of Default by Quadrant, Owner may give Quadrant written notice of the
same. Quadrant shall have ten days following receipt of such written notice
within which to commence all necessary action to cure any such Event of Default
(and if such cure is commenced, proceed to diligently complete such cure within
a reasonable period of time thereafter and not later than 90 days thereafter).
In the event Quadrant fails to commence or proceed to diligently complete a cure
of such Event of Default within the time period set forth above, and such Event
of Default relates to an obligation covered by the Completion Guaranty, Owner
shall first demand performance by WRECO under the Completion Guaranty. If (i)
Owner has given written notice of a failure by Quadrant to perform its
obligations under this Agreement (ii) Quadrant has failed to commence and
diligently proceed to cure such Event of Default within the required time
periods, and (iii) if the Event of Default relates to an obligation covered by
the Completion Guaranty, Owner has demanded performance by WRECO and WRECO fails
to perform in accordance with the
Page 13 of Exhibit D
<PAGE> 41
Completion Guaranty, then Owner shall have the right to pursue its rights and
remedies at law and in equity under this Agreement.
14.3 Owner Default. The following shall constitute an "Event
of Default" by Owner:
14.3.1 Owner fails to pay timely to Quadrant any amount of
money owed to Quadrant under this Agreement within five days after
Owner's receipt from Quadrant of notice of such non-payment, including
without limitation, all moneys due and owing in connection with the
Building Value After Closing , including the Holdback Amount.
14.3.2 Owner materially fails to perform any other
obligation under this Agreement.
14.4 Quadrant Remedies Upon Owner Event of Default. Upon any
Event of Default by Owner, Quadrant may give Owner written notice of the same,
whereupon receipt of such written notice Owner shall have five additional days,
if the Event of Default arises under to Section 14.3.1 and, 30 days, if the
Event of Default arises under Section 14.3.2, to cure such Event of Default. In
the event Owner fails to cure such Event of Default within the applicable
period, Quadrant shall have the right but shall not be required to (i) stop all
work relating to the construction of the Buildings, (ii) fund all or any portion
of the costs of the Buildings which Owner's Progress Payment should have covered
and which Owner has failed to make hereunder, and/or (iii) pursue its rights and
remedies at law and in equity under this Agreement, including without limitation
specific performance of Owner's obligations hereunder, recovery of Default
Interest and other late changes and assessments under Section 14.5, and all
other damages.
14.5 Default Interest. In the event of any Event of Default by
Owner under Section 14.3.1, Owner shall pay Quadrant a late charge in the amount
of $3,500 per occurrence to cover Quadrant's administrative and accounting
expenses in connection with each such funding, and the amount that Owner has
failed to pay shall bear interest at the prime rate in effect at Seafirst Bank,
Main Office on the date such payment is made, and as it may thereafter may
change, plus five percent per annum ("Default Interest") from the date such
payment was due until paid in full.
15. Remedies Not Exclusive. No remedy conferred upon either party in
this Agreement is intended to be exclusive of any other remedy herein or by law
provided or permitted, but each shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity.
16. Notices. Wherever in this Agreement a notice is required to be
given, such notice shall be in writing, addressed to the person entitled to such
notice, and shall be sent by either (i) personal service (ii) recognized
overnight express service which
Page 14 of Exhibit D
<PAGE> 42
customarily maintains a contemporaneous permanent delivery record, or (iii) fax,
to the address of such person as set forth in this Agreement, or such other
address or addresses designated in writing from time to time. The notice shall
be deemed delivered on the earlier of (i) the date of actual delivery by
personal service, (ii) the delivery date as shown in the regular business
records of the overnight courier service, or (iii) the date of actual receipt by
the recipient, as the case may be. A copy of each notice sent by shall be sent
to:
To Owner at: Optiva Corporation
13222 SE 30th Street
Bellevue, WA 98005
Attn: Karl Forsgaard, Corporate Counsel
Telephone: 1-800-957-9310
Fax: 425-401-4825
with a copy to Gordon W. Tanner
Stoel Rives LLP
600 University Street, Suite 3600
Seattle, WA 98101-3197
Telephone: 206-624-0900
Fax: 206-386-7500
To Quadrant at: The Quadrant Corporation
11100 N.E. 8th, Suite 500
P.O. Box 130
Bellevue, WA 98009
Attention: Commercial Division
Telephone: 425 455-2900
Fax: 425-646-8300
Either party may change its address for the purposes of this section by giving
written notice of such change to the other party in the manner provided in this
Section.
17. Entire Agreement. This Agreement, including its exhibits,
constitutes the entire agreement among the parties with respect to the subject
matter hereof and may be amended only in writing signed by both parties. This
Agreement may be signed in counterpart or duplicate copies, and any signed
counterpart, duplicate or telephonic facsimile copy shall be equivalent to a
signed original for all purposes.
18. Further Encumbrances of the Land or Buildings Prohibited. Owner
shall not encumber, mortgage, or grant any security interest in the Land or
Buildings during the term of this Agreement, except upon terms which are
mutually acceptable to Quadrant and Owner.
Page 15 of Exhibit D
<PAGE> 43
EXECUTED as of the date first above written.
OWNER:
OPTIVA CORPORATION
By______________________________________
____________, its_____________________
CONSTRUCTION MANAGER:
THE QUADRANT CORPORATION
By______________________________________
____________, its_____________________
Page 16 of Exhibit D
<PAGE> 44
EXHIBIT 1
TO CONSTRUCTION MANAGEMENT AGREEMENT
CONSTRUCTION AGREEMENT FOR LEASE
[ATTACH WHEN EXECUTED]
<PAGE> 45
CONSTRUCTION AGREEMENT FOR LEASE
This Agreement is dated November 26, 1997, and supplements and
constitutes a part of that certain Lease by and between THE QUADRANT
CORPORATION, a Washington corporation ("Quadrant"), as Landlord, and OPTIVA
CORPORATION, a Washington corporation ("Optiva"), as Tenant (the "Lease"). With
respect to the construction of the Premises to be leased by Quadrant to Optiva
pursuant to the Lease, Quadrant and Optiva hereby agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
terms shall have the following meanings. All other capitalized terms shall have
the meanings ascribed to them in the Lease:
"Architect" means Lance Mueller & Associates, Seattle,
Washington.
"Building(s)" means Buildings 1 and 2, comprising the Premises,
all as defined in the Lease.
"Building Plans" means the Building Shell Construction Documents
and the Tenant Improvements Construction Documents, as created and modified from
time to time in accordance with this Agreement.
"Building Shell" means that certain scope of work to be
undertaken and completed by Quadrant as more particularly set forth in the
Building Shell Construction Documents, which shall include the Mezzanine
Structure and the Link Structure, all as more particularly described in the
Building Shell Schematic Plans.
"Building Shell Construction Contract" means that certain
Construction Agreement by and between General Contractor and Quadrant for actual
construction of the Building Shell.
"Building Shell Construction Documents" means those certain
detailed drawings, and final plans and specifications determined by Landlord
which provide for the construction of the Building Shell, consistent with the
Building Shell Schematic Plans prepared by Architect and upon which Optiva shall
have an adequate opportunity to review and comment and which Optiva shall
initial to indicate that it has had such opportunity.
"Building Shell Schematic Plans" means those certain schematic
plans and outline specifications for the Building Shell that have been approved
by Tenant and are referenced in Exhibit 2.
"Consultant" means the consultant engaged by Optiva to monitor
construction progress.
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<PAGE> 46
"Excess Link Structure Costs" means Link Structure Costs in
excess of the Link Structure Allowance.
"Excess Mezzanine Structure Costs" means Mezzanine Structure
Costs in excess of the Mezzanine Structure Allowance.
"Excess Shell Improvements Allowance Costs" means Shell
Improvements Allowance Costs in excess of the Shell Improvements Allowance.
"Excess Tenant Improvements Costs" means Tenant Improvements
Costs in excess of the Tenant Improvements Allowance.
"Final Completion" means the Building Shell and Tenant
Improvements are Substantially Complete, all Punch List Items have been
completed, and a final certificate of occupancy for the Building Shell and
Tenant Improvements has been issued.
"GBA" means gross building area (in square feet) as defined for
single-tenant buildings in the Standard Method for Measuring Floor Area in
Office Buildings (An American National Standard ANSI/BOMA Z65.1-1996 (Revised
and readopted June 7, 1996) published by Building Owners and Managers
Association International ("BOMA Standard").
"General Contractor" means Gall, Landau Young Construction Co.,
Inc.
"Link" means the structural link between Building 1 and Building
2, consisting of 5,338 GBA.
"Link Structure" means the portion of the Link to be constructed
as part of the construction of the Building Shell, as distinguished from the
Tenant Improvements in the Link.
"Link Structure Allowance" means the amount of Link Structure
Costs to be paid by Quadrant as part of its payment of the costs of Building
Shell Construction, without reimbursement by Optiva, as described in Section 3B.
"Link Structure Costs" means costs of construction of the Link
Structure, which shall consist of all line items in the Building Shell
Construction Contract specifically allocable to the Link, as disclosed to
Optiva, and an additional portion of the guaranteed maximum price set forth in
the Building Shell Construction Contract that is reasonably allocable to the
Link, as the same may be adjusted by changes in accordance with the terms of the
Building Shell Construction Contract and this Agreement. Link Structure Costs
shall also include certain other charges not covered as a part of the guaranteed
maximum price, consisting of (i) any and all applicable municipal fees and
charges relating or allocable to the Link Structure, including without
limitation, building
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<PAGE> 47
permit application and issuance fees, and necessary third-party inspection fees,
(ii) all applicable taxes, including without limitation retail sales taxes and
business and occupation taxes allocable to the Link Structure; (iii) all
third-party design and engineering costs attributable to the Link Structure; and
(iv) all third-party costs (not otherwise covered by the Building Shell
Construction Contract) relating to or allocable to the Link Structure of
compliance during construction with all requirement of the Americans With
Disabilities Act and the Occupational Safety and Health Act and similar state or
local laws. Quadrant and Optiva shall mutually determine and agree on the amount
of Link Structure Costs in accordance with the foregoing as part of the process
of developing Building Shell Construction Documents. Link Structure Costs shall
be subject to final determination following construction in the manner provided
in Section 3.3.6.
"Mezzanine" means the mezzanine office space in Building 2 to be
constructed as part of the Building Shell and Tenant Improvements under this
Agreement.
"Mezzanine Structure" means the portion of the Mezzanine to be
constructed as part of the construction of the Building Shell, as distinguished
from the Tenant Improvements in the Mezzanine.
"Mezzanine Structure Allowance" means the amount of Mezzanine
Structure Costs to be paid by Quadrant as part of its payment of the costs of
Building Shell Construction, without reimbursement by Optiva, as described in
Section 3A.
"Mezzanine Structure Costs" means costs of construction of the
Mezzanine Structure, which shall consist of all line items in the Building Shell
Construction Contract specifically allocable to the Mezzanine, as disclosed to
Optiva, and an additional portion of the Guaranteed Maximum Price set forth in
the Building Shell Construction Contract that is reasonably allocable to the
Mezzanine, as the same may be adjusted by changes in accordance with the terms
of the Building Shell Construction Contract and this Agreement. Mezzanine
Structure Costs shall also include certain other charges not covered as a part
of the Guaranteed Maximum Price, consisting of (i) any and all applicable
municipal fees and charges relating or allocable to the Mezzanine Structure,
including without limitation, building permit application and issuance fees, and
necessary third-party inspection fees, (ii) all applicable taxes, including
without limitation retail sales taxes and business and occupation taxes
allocable to the Mezzanine Structure; (iii) all third-party design and
engineering costs attributable to the Mezzanine Structure; and (iv) all
third-party costs (not otherwise covered by the Building Shell Construction
Contract) relating to or allocable to the Mezzanine Structure of compliance
during construction with all requirement of the Americans With Disabilities Act
and the Occupational Safety and Health Act and similar state or local laws.
Quadrant and Optiva shall mutually determine and agree on the amount of
Mezzanine Structure Costs in accordance with the foregoing as part of the
process of developing Building Shell
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<PAGE> 48
Construction Documents. Mezzanine Structure Costs shall be subject to final
determination following construction in the manner provided in Section 3.3.6.
"Optiva Inspection" means the inspection(s) undertaken by Optiva
from time to time during the course of construction of the Premises, provided
that inspections shall occur only following reasonable prior notice to Quadrant
(which notice may be delivered telephonically or otherwise without being in
writing), and upon which inspections Optiva and its Consultant and other
representatives shall be accompanied by a representative of Quadrant. Quadrant
and Optiva will each provide to the other in writing the name of their
respective authorized representative(s) at the time construction of the Building
Shell commences. Optiva Inspections shall include the Preliminary Punch List
Inspection and the Punch List Inspection.
"Optiva's Personal Property" means Optiva's office furniture,
telephone lines, computer cabling and movable property placed in the Premises by
Optiva, including any trade fixtures and any property installed in or on the
Premises by Optiva for the purposes of conducting Optiva's business, ornament,
decoration or similar related use in the Premises.
"Pre-Construction Schedule" means that schedule set forth in
Exhibit 1 hereto, which shall serve as the schedule for taking the actions set
forth herein in order to achieve Substantial Completion on or before Scheduled
Substantial Completion Date.
"Preliminary Punch List Inspection" means the inspection
occurring approximately 30 days before the estimated Substantial Completion
Date, but in any event before Optiva enters the Premises under Section 3.3.2. At
the Preliminary Punch List Inspection, which may occur in one meeting or a
series of separate meetings, Quadrant, Optiva, General Contractor, Architect, TI
Architect, Consultant and the designated representatives of Quadrant and Optiva
shall conduct a preliminary on-site tour and inspection of the Buildings. Such
parties shall, acting reasonably and in good faith, prepare and submit to
Quadrant an itemized list ("Preliminary Punch List") of certain "punch list"
matters required to be installed or completed for Substantial Completion of the
Building Shell and Tenant Improvements to occur ("Preliminary Punch List
Items"); provided, however, that no matter on the Preliminary Punch List shall
exceed the scope, quality or quantity of the Building Shell or Tenant
Improvements as set forth in the Building Shell Construction Documents or the
Tenant Improvements Construction Documents.
"Punch List Inspection" means the inspection occurring no later
than 30 days after the Substantial Completion Date. At the Punch List
Inspection, which may occur in one meeting or a series of separate meetings,
Quadrant, Optiva, General Contractor, Architect, TI Architect, Consultant and
other the designated representatives of Quadrant and Optiva shall again conduct
an on-site tour and inspection of the Buildings.
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<PAGE> 49
Such parties shall, acting reasonably and in good faith, prepare and submit to
Quadrant an itemized list ("Punch List") of certain "punch list" matters
required to be installed or completed for Final Completion of the Building Shell
and Tenant Improvements to occur ("Punch List Items"); provided, however, that
no matter on the Punch List shall exceed the scope, quality or quantity of the
Building Shell or Tenant Improvements as set forth in the Building Shell
Construction Documents or the Tenant Improvements Construction Documents.
"Representative" means any of the representatives appointed to
act for Optiva or Quadrant under Section 9.2.
"Scheduled Substantial Completion Date" means April 1, 1999,
subject to adjustment under Section 7 or by agreement of the parties.
"Shell Improvements Allowance" means the amount of Shell
Improvements Allowance Costs to be paid by Quadrant as part of its payment of
the costs of Building Shell construction, without reimbursement by Optiva, as
described in Section 3C.
"Shell Improvements Allowance Costs" means costs of construction
of the mechanical, electrical and other Building Shell improvements covered by
the Shell Improvements Allowance, as identified in the Building Shell Schematic
Plans. Shell Improvements Allowance Costs shall consist of all line items in the
Building Shell Construction Contract specifically allocable to such
improvements, and an additional portion of the guaranteed maximum price set
forth in the Building Shell Construction Contract that is reasonably allocable
to such improvements, as the same may be adjusted by changes in accordance with
the terms of the Building Shell Construction Contract and this Agreement. Shell
Improvements Allowance Costs shall also include certain other charges not
covered as a part of the guaranteed maximum price, consisting of (i) any and all
applicable municipal fees and charges relating or allocable to such
improvements, including without limitation, building permit application and
issuance fees, and necessary third-party inspection fees, (ii) all applicable
taxes, including without limitation retail sales taxes and business and
occupation taxes allocable to such improvements; (iii) all third-party design
and engineering costs attributable to such improvements; and (iv) all
third-party costs (not otherwise covered by the Building Shell Construction
Contract) relating to or allocable to such improvements of compliance during
construction with all requirement of the Americans With Disabilities Act and the
Occupational Safety and Health Act and similar state or local laws. Quadrant and
Optiva shall mutually determine and agree on the amount of Shell Improvements
Allowance Costs in accordance with the foregoing as part of the process of
developing Building Shell Construction Documents. Shell Improvements Allowance
Costs shall be subject to final determination following construction in the
manner provided in Section, 3.3.6.
"Substantial Completion" means that the following shall have
occurred:
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<PAGE> 50
Tenant Improvements. The Tenant Improvements shall have
been completed in accordance with the Tenant Improvement Construction Documents,
which Substantial Completion shall be conclusively deemed to have occurred upon
(i) issuance by the City of Snoqualmie of a temporary certificate of occupancy
for the Premises (such temporary certificate of occupancy to be obtained by
Quadrant) and (ii) issuance by TI Architect of a Certificate of Substantial
Completion for the Tenant Improvements, which Certificate of Substantial
Completion shall be in the form of AIA Document G704. The existence of Punch
List Items or additional work required for issuance of a final certificate of
occupancy by the City of Snoqualmie shall not be matters which will delay
Substantial Completion from having occurred; but Quadrant shall correct and/or
complete such Punch List Items, complete the work necessary to obtain issuance
of a final certificate of occupancy and obtain issuance of such final
certificate of occupancy within 90 days thereafter or as soon as reasonably
practical if any such Punch List Item or work required for issuance of a final
certificate of occupancy cannot be completed within such 90-day period. That
there are outstanding Punch List Items and/or work required for City of
Snoqualmie issuance of a final certificate of occupancy shall not delay the
Commencement Date or corresponding Rent Commencement Date of the Lease under any
circumstances provided that Substantial Completion has occurred; and
Building Shell. The Building Shell shall have been
completed in accordance with the Building Shell Construction Documents, which
Substantial Completion shall be conclusively deemed to have occurred upon (i)
issuance by the City of Snoqualmie of a temporary certificate of occupancy for
the Buildings (such temporary certificate of occupancy to be obtained by
Quadrant) and (ii) issuance by Architect of a Certificate of Substantial
Completion for the Building Shell, which Certificate of Substantial Completion
shall be in the form of AIA Document G704. The existence of Punch List Items or
additional work required for issuance of a final certificate of occupancy by the
City of Snoqualmie shall not be matters which will delay Substantial Completion
from having occurred; but Quadrant shall correct and/or complete such punch list
Items, complete the work necessary to obtain issuance of a final certificate of
occupancy and obtain issuance of such final certificate of occupancy within 90
days thereafter or as soon as reasonably practical if any such punch list Item
or work required for issuance of a final certificate of occupancy cannot be
completed within such 90-day period. That there are outstanding Punch List Items
and/or work required for City of Snoqualmie issuance of a final certificate of
occupancy shall not delay the Commencement Date or corresponding Rent
Commencement Date of the Lease under any circumstances, provided that
Substantial Completion has occurred.
"Substantial Completion Date" means the actual date of
Substantial Completion.
"TI Architect" means NBBJ.
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"Tenant Improvements" means those certain interior improvements
to the Premises, to be constructed by Quadrant, all of which are more
specifically defined in the Tenant Improvements Schematic Plans and, ultimately,
the Tenant Improvements Construction Documents.
"Tenant Improvements Allowance" means the amount of Tenant
Improvements Costs to be paid by Quadrant, without reimbursement by Optiva, as
described in Section 3.3.3.
"Tenant Improvements Construction Contract" means the
Construction Agreement entered into by Quadrant and General Contractor for
construction of the Tenant Improvements, which Construction Agreement shall be
in the form of the Cost of the Work Plus a Fee with a Guaranteed Maximum Price
(AIA Document A111) and shall reflect a General Contractor fee of 4.3% of the
Cost of the Work (exclusive of applicable taxes).
"Tenant Improvements Construction Documents" means detailed
drawings, and final plans and specifications determined to be mutually
acceptable to Quadrant and Optiva providing for the construction of the Tenant
Improvements which shall supersede the Tenant Improvements Schematic Plans.
Quadrant and Optiva shall sign the Tenant Improvement Construction Documents
indicating their approval thereof.
"Tenant Improvements Costs" means costs of construction of the
Tenant Improvements which shall consist of (i) the Guaranteed Maximum Price set
forth in the Tenant Improvements Construction Contract as the same may be
adjusted by changes in accordance with the terms of that Contract and this
Agreement plus certain other charges not covered as a part of the Guaranteed
Maximum Price, consisting of (ii) any and all applicable municipal fees, and
charges relating to such Tenant Improvements, including without limitation,
building permit application and issuance fees, and necessary third-party
inspection fees, (iii) all applicable taxes, including without limitation retail
sales taxes and business and occupation taxes; and (iv) all third-party costs
(not otherwise covered by the Tenant Improvements Construction Contract)
allocable to the Tenant Improvements of compliance during construction with all
requirements of the Americans With Disabilities Act and the Occupational Safety
and Health Act and similar state or local laws. Tenant Improvements Costs shall
be subject to final determination following construction in the manner provided
in Section 3.3.6.
"Tenant Improvements Schematic Plans" means the preliminary floor
plans and outline specifications that have been prepared by TI Architect and
approved by Landlord and Tenant, as referenced in Exhibit 3.
2. Building Shell.
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2.1 Contracts. Quadrant shall contract with Architect for design
services and preparation of the Building Shell Construction Documents; and with
General Contractor for the construction of the Building Shell pursuant to the
Building Shell Construction Contract. The forms of the Quadrant/Architect
Contract for the Building Shell and Building Shell Construction Contract have
been approved by Optiva. The final Building Shell Construction Contract (without
dollar amounts) shall be provided to Optiva for review and comment.
2.2 Construction; Payment.
2.2.1 Construction. The Building Shell shall be
constructed in accordance with the Building Shell Construction Documents as set
forth in the Building Shell Construction Contract. Quadrant shall commence
construction of the Building Shell as soon as reasonably possible after issuance
of all necessary governmental permits and approvals; and shall diligently and
continuously pursue Substantial Completion of the Building Shell. Quadrant shall
use diligent efforts to achieve Substantial Completion of the Building Shell by
the Scheduled Substantial Completion Date and Final Completion no later than 90
days thereafter. In the event Substantial Completion of the Building Shell does
not occur on or before the Scheduled Substantial Completion Date, Quadrant shall
make the applicable payments set forth in Section 7.4 of this Agreement.
2.2.2 Payment. The entire cost of construction, design,
development and installation of the Building Shell (other than Excess Link
Structure Costs, Excess Mezzanine Structure Costs, and Excess Shell Improvements
Costs, and except as otherwise provided in Section 5), including all applicable
taxes and all costs of compliance of the Building Shell with the Americans With
Disabilities Act and, during construction, with the Occupational Safety and
Health Act, shall be paid by Quadrant.
2.3 Footings Inspection. When the footings for the foundation of
the Building Shell are framed, Quadrant shall notify Optiva, and Architect shall
inspect the footing locations for compliance with the Building Shell
Construction Documents, shall re-calculate the projected actual GBA of the
Premises based on the actual footing locations (together with construction plans
for the Mezzanine), and shall report Architect's conclusions in writing to
Quadrant and Optiva. If Architect determines that, based on the actual locations
of the footings the GBA of the Premises will be less than the GBA of the
Premises stated in Section 1 of the Lease by a difference of 100 GBA or more,
Quadrant shall at Quadrant's option either (i) cause the footings to be
re-located to reduce such discrepancy to within 100 GBA of the GBA of the
Premises stated in Section 1 of the Lease (which re-location shall be inspected
and reported on by Architect), or (ii) agree to reduce the GBA of the Premises
stated in Section 1 of the Lease to the Architect's projected actual GBA of the
Premises based on such inspection, with corresponding reductions in the Base
Monthly Rent, the Security Deposit, the Prepaid Rent, the Tenant Improvements
Allowance and the Space Planning Allowance. Such
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reduction in the GBA of the Premises and corresponding reductions in other terms
shall be reflected in an amendment of this Lease to be executed by the parties.
If Architect determines that the projected actual GBA of the Premises will be
greater than the GBA of the Premises stated in Section 1 of the Lease, Landlord
shall have the right but not the obligation to cause the footings to be
re-located to reduce the discrepancy to within 100 GBA of the GBA of the
Premises stated in Section 1 of the Lease (which relocation shall be inspected
and reported on by Architect). In no event shall the GBA of the Premises, or
such other Lease terms, be increased in such event, however. Following the
inspection, whether or not the footings are re-located, the Building Shell
Construction Documents shall be amended by Quadrant and initialed by Quadrant
and Optiva to reflect the actual locations of the footings. Except to the extent
the Lease and the Building Shell Construction Documents are so amended, the
Lease (including the GBA of the Premises stated therein) shall not be affected
for any purpose by any re-measurement of the Premises unless Landlord and Tenant
agree otherwise.
3. Tenant Improvements.
3.1 Determination of Tenant Improvements Subcontractors.
Quadrant, and Optiva have agreed that General Contractor shall serve as
contractor for the Tenant Improvements pursuant to the Tenant Improvements
Construction Contract and have further agreed that the mechanical subcontractor
shall be McKinstry Company and the electrical subcontractor shall be Prime
Electric. Quadrant shall furnish Optiva with the names of subcontractors who
bid. For every other subcontractor for the Tenant Improvements, General
Contractor shall obtain a minimum of three competitive bids, which bids shall be
available for Optiva's review and comment. After receipt of such bids, Quadrant
and Optiva shall each review and consult each other regarding the bids whereupon
the other subcontractors shall be selected by Quadrant and General Contractor.
Bid packages will clearly identify and distinguish the Building Shell and Tenant
Improvement work. Optiva shall also be entitled to receive copies of
subcontractor bids for Building Shell work, without amounts. Selection shall not
be based solely upon the lowest bid, but shall also evaluate such factors as
financial creditworthiness, expertise, reputation, work history and experience.
3.2 Contracts. Optiva shall contract with TI Architect for design
services, including Tenant Improvements Schematic Plans and Tenant Improvements
Construction Documents. Quadrant shall contract with General Contractor for
construction of the Tenant Improvements pursuant to the Tenant Improvements
Construction Contract. Quadrant's contract with General Contractor is subject to
Optiva's review and approval prior to such contracts being effective.
3.3 Construction of Tenant Improvements; Payment.
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3.3.1 Construction. The Tenant Improvements shall be
constructed in accordance with the Tenant Improvements Construction Documents as
set forth in the Tenant Improvements Construction Contract. To the extent not
determined on the date of execution of this Agreement, Quadrant and Optiva shall
mutually determine the Tenant Improvements Construction Documents in accordance
with the Pre-Construction Schedule and in a manner consistent with the Tenant
Improvements Schematic Plans ; and upon completion of such Tenant Improvements
Construction Documents, Quadrant and Optiva shall each initial and/or sign the
same. Quadrant shall commence construction of the Tenant Improvements at such
time as has been determined in the construction schedule developed by Quadrant
and General Contractor; and shall diligently pursue Substantial Completion of
the Tenant Improvements. A copy of such determined construction schedule shall
be provided to Optiva for its information and as a guide for progress of
construction of the Tenant Improvements. Quadrant agrees to use diligent and
continuous efforts to achieve Substantial Completion of Tenant Improvements by
the Scheduled Substantial Completion Date. In the event Substantial Completion
of the Tenant Improvements does not occur on or before the Scheduled Substantial
Completion Date, Quadrant shall make the applicable payments set forth in
Section 7.4 of this Agreement.
3.3.2 Optiva Access. Quadrant and Optiva shall arrange
for Optiva to have access to the Premises a minimum of 30 days prior to the
estimated date of Substantial Completion of Tenant Improvements, or at such
earlier times as may be possible, in order to allow Optiva to install telephone
lines and telephone systems, fiber optics, computer cabling, and related similar
matters, and, on a "space ready" basis only, to commence installation of
Optiva's Personal Property. Quadrant shall use diligent efforts to provide
Optiva with a minimum of 90 days prior written notice of such estimated date of
Substantial Completion of Tenant Improvements. Optiva shall schedule
installation of such items with Quadrant and General Contractor so as not to
unreasonably impede, interfere with or delay the progress of construction of the
Building Shell and Tenant Improvements; and Optiva shall perform such
installation in accordance with reasonable guidelines promulgated by General
Contractor Any and all costs of installation of such items shall be at Optiva's
sole cost and expense. Delay of Substantial Completion caused by installation of
such items other than in accordance with such guidelines shall constitute an
Optiva Delay under Section 7.2.
3.3.3 Payment of Tenant Improvements Costs. The Tenant
Improvements Costs shall be paid by Quadrant or Optiva as follows:
3.3.3.1 $4,945,052 ("Tenant Improvements
Allowance") of the Tenant Improvements Costs shall be paid by Quadrant.
3.3.3.2 Any and all remaining Tenant Improvements
Costs shall be Excess Tenant Improvements Costs and shall be paid by
Optiva.
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3.3.4 Manner of Payment. During the construction of the
Tenant Improvements, Quadrant shall pay directly the Tenant Improvements Costs
to General Contractor or other applicable payee until Quadrant's payments equal
the Tenant Improvement Allowance. Optiva shall pay any and all Tenant
Improvements Costs exceeding the Tenant Improvements Allowance. Optiva shall pay
Tenant Improvements Costs not later than ten business days after Quadrant's
submittal of request for payment on the form of payment request agreed to by the
parties, together with applicable statements, invoices, bills and similar
requests by subcontractors, suppliers and materialmen relating thereto. Payments
by Optiva shall be paid to Quadrant, whereupon Quadrant shall pay General
Contractor, as and when due under the Tenant Improvements Construction Contract,
or other applicable payee, as and when due. Any of the foregoing approvals and
delivery of information may occur by fax transmission, followed as soon as
reasonably possible thereafter with a "hard" copy.
3.3.5 Quadrant's Right To Advance Funds. Notwithstanding
the foregoing, if Quadrant, as a result of Optiva's failure to timely pay Excess
Tenant Improvements Costs, if any, (or any request for payment of a part
thereof), elects to advance any Excess Tenant Improvements Costs in order to
expedite Substantial Completion, any such advance shall accrue interest thereon
at the three percent above prime rate of interest in effect at Seafirst Bank,
Main Office (i.e., "prime plus three") from the date of Quadrant's advance until
paid by Optiva. Quadrant shall not, however, have any obligation to advance its
own funds. Any such advance, together with interest accrued thereon shall be
repaid by Optiva to Quadrant upon demand. Optiva acknowledges and agrees that
Optiva's failure to timely pay Excess Tenant Improvements Costs may result in
Optiva Delays under Section 7.2.
3.3.6 Determination of Final, Actual Tenant Improvements
Costs. Not later than 90 days after the date of Quadrant's completion of Punch
List Items and issuance of a final certificate of occupancy by the City of
Snoqualmie for the Building Shell and Tenant Improvements, Quadrant shall submit
to Optiva an itemized, detailed statement of actually incurred Tenant
Improvements Costs. If requested by Optiva, documentation shall include the
General Contractor's actual job cost report, including individual entries,
payroll reports, timecards and copies of invoices.
3A. Payment of Mezzanine Structure Costs. Mezzanine Structure Costs shall be
paid by Quadrant or Optiva as follows:
3A.1 $389,000 of the Mezzanine Structure Costs shall be paid by
Quadrant, as the Mezzanine Structure Allowance.
3A.2 Any and all remaining Mezzanine Structure Costs shall be
Excess Mezzanine Structure Costs and shall be paid by Optiva.
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Mezzanine Structure Costs shall be paid during construction in the same manner
as Tenant Improvements Costs are paid under Section 3.3.4. Quadrant shall have
the right to advance funds in payment of Excess Mezzanine Structure Costs in the
manner provided for Excess Tenant Improvements Costs in Section 3.3.5. Mezzanine
Structure Costs shall be finally determined and submitted to Optiva in the same
manner as Tenant Improvements Costs are finally determined and submitted under
Section 3.3.6.
3B. Payment of Link Structure Costs. Link Structure Costs shall be paid by
Quadrant or Optiva as follows:
3B.1 $400,000 of the Link Structure Costs shall be paid by
Quadrant, as the Link Structure Allowance.
3B.2 Any and all remaining Link Structure Costs shall be Excess
Link Structure Costs and shall be paid by Optiva.
Link Structure Costs shall be paid during construction in the same manner as
Tenant Improvements Costs are paid under Section 3.3.4. Quadrant shall have the
right to advance funds in payment of Excess Link Structure Costs in the manner
provided for Excess Tenant Improvements Costs in Section 3.3.5. Link Structure
Costs shall be finally determined and submitted to Optiva in the same manner as
Tenant Improvements Costs are finally determined and submitted under Section
3.3.6.
3C. Payment of Shell Improvements Allowance Costs. Shell Improvements Allowance
Costs shall be paid by Quadrant or Optiva as follows:
3C.1 $932,534 of the Shell Improvements Allowance Costs shall be
paid by Quadrant, as the Shell Improvements Allowance.
3C.2 Any and all remaining Shell Improvements Allowance Costs
shall be Excess Shell Improvements Allowance Costs and shall be paid by
Optiva.
Shell Improvements Allowance Costs shall be paid during construction in the same
manner as Tenant Improvements Costs are paid under Section 3.3.4. Quadrant shall
have the right to advance funds in payment of Excess Shell Improvements
Allowance Costs in the manner provided for Excess Tenant Improvements Costs in
Section 3.3.5. Shell Improvements Allowance Costs shall be finally determined
and submitted to Optiva in the same manner as Tenant Improvements Costs are
finally determined and submitted under Section 3.3.6.
3D. Space Planning Allowance. As part of the Building Shell costs, Quadrant
shall pay for up to $212,609 for interior architecture and space planning costs
incurred with TI Architect ("Space Planning Allowance"). Quadrant has paid a
portion of such Space Planning Allowance directly to the TI Architect prior to
the date hereof. Quadrant shall
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pay the remainder such allowance to Optiva from time to time not later than ten
business days after Optiva's submittal of request for payment on the form of
payment request agreed to by the parties, together with a copy of TI Architect's
invoice relating thereto. Once Quadrant has paid the Space Planning Allowance,
all such costs in excess of the Space Planning Allowance shall be paid by
Optiva. If Optiva purchases the Buildings pursuant to the Real Estate Option and
Purchase and Sale Agreement, Quadrant shall not be required to pay any unused
portion of the Space Planning Allowance remaining at Closing.
3E. Treatment of Unused Allowances. Upon the final determination of Tenant
Improvements Costs, Mezzanine Structure Costs, Link Structure Costs, Shell
Improvements Allowance Costs, and costs subject to the Space Planning Allowance,
any unused amount of the Tenant Improvements Allowance, Mezzanine Structure
Allowance, Link Structure Allowance, Shell Improvements Allowance or Space
Planning Allowance shall be paid by Quadrant to Optiva in cash within 30 days
after Optiva's receipt of Quadrant's itemized statement under Section 3.3.6 or,
at Optiva's election, offset against any Excess Tenant Improvements Costs,
Excess Mezzanine Structure Costs, Excess Shell Improvements Allowance Costs or
Excess Link Structure Costs not yet paid by Optiva.
4. Schedule For Matters Related to Building Shell and Tenant Improvements.
4.1 Schedule. Quadrant and Optiva shall use diligent efforts to achieve
each Action by indicated the Action Date, all as set forth in the
Pre-Construction Schedule. If Quadrant or Optiva, as the case may be, except for
reasons of Force Majeure, do not complete any Action by its associated Action
Date shown in the Pre-Construction Schedule, the provisions of Section 7.2 or
7.3, as the case may be, shall be applied. As used herein, Optiva shall be
construed to include such consultants, if any, retained by Optiva, who shall be
instructed to respond in accordance with the terms of this Agreement and to
fully cooperate with Quadrant.
4.2 Quadrant and Optiva Actions. Quadrant and Optiva shall each proceed
with all necessary due diligence and in good faith to complete such matters as
require action or approval on the part of Quadrant and Optiva in accordance with
the Pre-Construction Schedule and during the course of construction anticipated
under this Agreement; and Quadrant and Optiva agree to promptly and diligently
respond to all questions and concerns raised by architects, engineers and other
consultants. Optiva and Quadrant shall each endeavor to respond to submissions
from Architect and TI Architect promptly, on an ongoing basis in order that
revisions required by Optiva, Quadrant or applicable governmental agencies, can
be promptly completed, and no later than in compliance with Section 9 of this
Agreement. During construction of the Building Shell and Tenant Improvements,
Quadrant, Optiva, General Contractor, Architect and TI Architect together with
other applicable consultants shall meet at least twice monthly in order to
review status and scheduling of Building Shell and Tenant Improvements
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construction and determine possible changes required, Delays anticipated, costs
being incurred and all related matters.
4.3 Optiva's Review and Approval of Plans. If Optiva disapproves,
objects to or requires a change to any matter in any of the documents for which
Optiva's approval is required which matter in any such document: (a) was earlier
approved by Optiva, or (b) is consistent with the earlier approved Tenant
Improvements Schematic Plans, or Tenant Improvements Construction Documents,
then any delays resulting from such disapproval or objection may constitute a
Optiva Delay and the provisions of Section 7.2 shall apply.
5. Changes To Building Shell.
5.1 Mandatory Changes. Optiva understands and agrees that Quadrant shall
make changes to the Building Shell Construction Documents as are required by
governmental authority or are required to address a circumstance arising during
construction which was not reasonably foreseen at the time of the finalization
of the Building Shell Construction Documents. Quadrant shall notify Optiva of
such changes arising under this Section 5.1 to the Building Shell Construction
Documents from time to time, promptly as such changes occur, including
particularly but without limitation any such changes that may affect the design
or cost of the Tenant Improvements. All cost of such changes made under this
Section 5.1 shall be paid by Quadrant as part of Quadrant's payment of Building
Shell costs, except to the extent such changes are made to or relate to the
Tenant Improvements, the Mezzanine Structure the Link Structure or the
improvements covered by the Shell Improvements Allowance, in which case the
costs of such changes shall be Tenant Improvement Costs, Mezzanine Structure
Costs, Link Structure Costs, or Shell Improvements Allowance Costs,
respectively.
5.2 Optiva Initiated Changes. Optiva may, at Optiva's election, request
other revisions, modifications, changes and amendments to the Building Shell
Construction Documents, and, subject to the approval process set forth in this
Section, the Building Shell Construction Documents shall be so revised,
provided, however, that all costs relating to redesign of the Building Shell for
such changes, costs for changes to the Building Shell Construction Documents,
additional permitting or fees which may be required in connection with such
change, and any increased costs relating to construction of the Building Shell
shall be paid by Optiva in the same manner as Excess Tenant Improvement Costs
are paid under Sections 3.3.3-3.3.6, except that there shall be no "Savings."
Additionally, delays resulting from any such changes together with the time
period for the preparation of estimates and review and approval by Quadrant and
Optiva as described in this Section 5.2 may constitute a Optiva Delay in
accordance with the provisions of Section 7.2. Within three business days of the
time of Optiva's request, Quadrant shall indicate its disapproval or preliminary
approval of Optiva's requested changes. If Quadrant preliminary approves
Optiva's requested changes, General
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Contractor and Architect shall provide Optiva and Quadrant with estimates of
resulting Building Shell costs adjustments from the then current budget
estimates of such Building Shell costs (and, if applicable, possible changes in
Tenant Improvements Costs as a result of changes in the Building Shell) and
estimated Optiva Delays. After reviewing such estimates, but not longer than
three business days after receiving all such estimates, Quadrant shall indicate
its final disapproval or approval of Optiva's requested changes. If Quadrant
approves Optiva's requested changes, then, within three business days after
receiving Quadrant's notice of such approval, Optiva may, by notice to Quadrant
(verbal notice being sufficient so long as it is followed by written notice),
either withdraw its request for such Optiva initiated changes to the Building
Shell or elect to proceed with such Optiva initiated changes. If
Optiva-initiated changes are approved as provided in this Section, changes to
the Building Shell Construction Documents shall be evidenced by written change
order(s) signed by Quadrant, Optiva and General Contractor. Quadrant's approval
under this Section may be granted or withheld in Quadrant's reasonable
discretion. Without limiting the foregoing, it shall be deemed reasonable for
Quadrant to reject any such proposed changes to the Building Shell Construction
Documents which reduce the quality or caliber of the Building Shell from that
then evidenced by the Building Shell Construction Documents or otherwise affect
the value of the Building Shell for future leasing. Optiva's failure to timely
notify Quadrant shall be treated as Optiva's withdrawal of such Optiva initiated
changes to the Building Shell.
6. Changes To Tenant improvements.
6.1 Mandatory Changes. Quadrant shall not, without first obtaining
Optiva's prior written approval, modify, change, or amend the Tenant
Improvements Schematic Plans or Tenant Improvements Construction Documents;
provided, however, that upon written notice to Optiva, (i) Quadrant can
substitute a product of comparable quality in the event any product specified in
the Tenant Improvements Construction Documents is not available or is not
available within a time frame required to achieve the Scheduled Substantial
Completion Date; and (ii) Quadrant shall be authorized to make changes to the
Tenant Improvement Construction Documents as are required by governmental
authority. Except to the extent of on-going minor "field changes", any and all
changes to Tenant Improvements Construction Documents shall be authorized in
writing by Optiva and Quadrant, on one or more forms to be approved by Quadrant
and Optiva. Ongoing minor "field changes" shall be formally presented to Optiva
during the meetings referenced in Section 4.2 above, and shall be subject to
approval by Optiva during such meetings; provided, however, that as soon as
reasonably possible after such field changes occur, Quadrant shall issue written
notice to Optiva of such changes made under this Section 6.1 with respect to the
Tenant Improvements. Any costs of such changes shall be included in Tenant
Improvements Costs.
6.2 Optiva Initiated Changes. Optiva may, at Optiva's election, request
other revisions, modifications, changes and amendments to the Tenant Improvement
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Construction Documents, and, subject to Quadrant's reasonable revisions,
modifications, changes or amendments to the Tenant Improvements Construction
Documents to accommodate such changes being requested by Optiva, the Tenant
Improvements Construction Documents shall be so revised, provided, however, that
all costs relating to re-design of the Tenant Improvements for such change,
costs for changes to the Tenant Improvements Construction Documents, and
additional permitting or fees which may be required in connection with such
change, shall be included in Tenant Improvements Costs. Additionally, delays
resulting from any such changes together with the time period for the
preparation of estimates and review and approval by Quadrant and Optiva as
described in this Section 6.2 may constitute a Optiva Delay in accordance with
the provisions of Section 7.2. Within three business days of Optiva's request,
General Contractor and Architect shall provide Optiva with estimates of
resulting Tenant Improvements Cost adjustments as a result of such changes in
the Tenant Improvements) and Optiva Delays. After reviewing such estimates, but
not longer than three business days after receiving all of such estimates,
Optiva may, by notice to Quadrant (verbal notice being sufficient, so long as it
is followed by written notice), either withdraw its request for such Optiva
initiated changes to Tenant Improvements, or elect to proceed with such Optiva
initiated changes, subject to Quadrant's reasonable modifications described
above. Changes to the Tenant Improvements Construction Documents shall be
authorized in writing by Optiva and Quadrant, on one or more forms to be
approved by Quadrant and Optiva. Optiva's failure to timely notify Quadrant
shall be treated as Optiva's withdrawal of such Optiva initiated changes to the
Tenant Improvements.
7. Delays. Quadrant and Optiva agree that the Scheduled Substantial Completion
Date, and, correspondingly, the Commencement Date of the Lease, and the time
periods for Substantial Completion may be extended in accordance with the
provisions set forth in this Section 7. If Quadrant believes there is an Optiva
Delay (as defined in Section 7.2) or any other events or circumstances
warranting an extension of the Scheduled Substantial Completion Date under this
Agreement, Quadrant shall give Optiva written notice, setting forth the reasons
for its belief and the length of such extension it believes is warranted by such
Optiva Delay or other events or circumstances. No such extension shall be
effective until Optiva has a reasonable opportunity (including up to ten
business days) either to comment upon Quadrant's notice and/or, if the parties
are unable to resolve any disagreement about the extension, to initiate dispute
resolution proceedings under Section 19.7 of the Lease. The parties shall
confirm any changes in the Scheduled Substantial Completion Date provided for in
this Section 7 in writing. No such change shall be effective without such
written confirmation.
7.1 Delays From Force Majeure. In the event Substantial Completion is
delayed by reason of acts of God, the presence of unknown Hazardous Substances
(as described in Section 8), labor troubles or strikes, natural causes, or
circumstances beyond the reasonable control of Quadrant (or General Contractor)
or Optiva, then the Scheduled Substantial Completion Date shall be extended by
the period of such delay, and the
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scheduled Commencement Date of the Lease shall be likewise extended. The
inability to obtain all required permits and approvals for the development of
the Business Park or the construction of the Premises shall not be included in
Force Majeure, except to the extent such inability is caused by an Optiva Delay.
Quadrant nevertheless acknowledges that prompt Substantial Completion is
critical to Optiva's business and that Quadrant shall, upon consultation with
Optiva, attempt to determine measures which could be taken to minimize any delay
which may occur in the event of delay occurring due to Force Majeure; provided,
however, that neither Quadrant nor Optiva shall be obligated to incur additional
costs other than those anticipated hereunder in the event of delay occurring due
to Force Majeure. In the event of Force Majeure occurring, Quadrant shall give
Optiva written notice of the same, together with the estimated period of such
Force Majeure, as provided in the first paragraph of this Section 7. Either
Optiva or Quadrant may elect, by written notice to the other, to augment the
construction schedule, at such party's sole cost and expense, in order to avoid
incurring any Force Majeure. Estimates of such costs of augmentation of the
construction schedule shall be provided by General Contractor.
7.2 Delay From Optiva Actions. In the event Substantial Completion is
delayed due to the fault or negligence of Optiva (including, without limitation,
Optiva's failure to meet the Action Dates for approvals by Optiva in accordance
with the Pre-Construction Schedule or Optiva's actions, omissions or failure to
meet the time constraints under Sections 4.2 and 9, changes by Optiva pursuant
to Section 4.3, 5.2, and 6.2, the interference with the construction progress as
a result of Optiva's access under Section 3.3(2)) or due to the failure of TI
Architect to respond promptly to requests for information or to adhere to the
Pre-Construction Schedule (provided that Quadrant promptly notifies Optiva in
the event of such failure by TI Architect so that Optiva can take such steps as
may be available to avoid an Optiva Delay), in each case to the extent not by
reason of fault, actions or inactions of Quadrant, Force Majeure or failure to
obtain all required permits and approvals for the development of the Business
Park or the construction of the Premises ("Optiva Delays"), Quadrant shall be
entitled to an equitable adjustment in the Scheduled Substantial Completion
Date. Optiva shall pay Base Monthly Rent beginning as of the date Optiva would
have been required to pay but for Optiva's Delays. In the event of Optiva Delay
occurring, Quadrant shall promptly give Optiva written notice of the same,
together with the estimated period of such Optiva Delay, as provided in the
first paragraph of this Section 7. Optiva may elect, by written notice to
Quadrant to augment the construction schedule, at Optiva's sole cost and
expense, in order to avoid incurring any Optiva Delay.
7.3 Delay from Quadrant Actions. In the event Quadrant fails to achieve
Substantial Completion by the Scheduled Substantial Completion Date and to the
extent such failure is not caused by Optiva Delay or Force Majeure ("Quadrant
Delays"), the scheduled Commencement Date of the Lease shall be adjusted in the
manner provided in the Lease, and Quadrant shall give Optiva written notice of
such Quadrant Delay, together with the estimated duration of such Quadrant
Delay, as provided in the first
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paragraph of this Section 7; or, if Optiva believes such Quadrant Delay has
occurred, then Optiva may give Quadrant written notice of the same. Quadrant may
elect, by written notice to Optiva to augment the construction schedule, at
Quadrant's sole cost and expense, in order to avoid incurring any Quadrant
Delay. In addition, Quadrant shall pay liquidated damages under the terms and
conditions of Section 7.4.
7.4 Liquidated Damages. In the event of Quadrant Delay resulting in the
failure of Substantial Completion to have occurred by the Scheduled Substantial
Completion Date, Quadrant shall make the following payments, as liquidated
damages to Optiva for such failure, the parties agreeing that the actual damages
that Optiva would occur in such event are inherently difficult to quantify:
7.4.1 If construction of the Building Shell does not start on or
before November 1, 1998, the amount of $1,000 per day shall accrue in a
memorandum account ("Late Start Account") until the date construction
starts, and shall be payable to Optiva under Section 7.4.2. For purposes
of this Section 7.4.1, construction shall start when Quadrant or its
contractors perform any bona fide construction activity on the Property
under permits issued after the date of execution of this Agreement,
including fine grading (but not including grading activities in 1997),
other than mere mobilization. At Optiva's request after construction has
started, Quadrant shall notify Optiva of the date construction started
within the meaning of this Section 7.4.
7.4.2 If Substantial Completion does not occur by the Scheduled
Substantial Completion Date, as it may be adjusted under this Section 7
or otherwise by agreement of Optiva and Quadrant, Quadrant shall pay
Optiva the balance in the Late Start Account, within ten days after the
Scheduled Substantial Completion Date;
7.4.3 If Substantial Completion does not occur by 30 days after
the Scheduled Substantial Completion Date, per diem damages shall accrue
beginning on the 31st day after the Scheduled Substantial Completion
Date and continuing until Substantial Completion. Such per diem damages
shall accrue in the amount of $5,000 per day for up to the first 30
days, in the amount of $7,500 per day for up to the next 30 days, and in
the amount of $10,000 per day thereafter. Quadrant shall pay accrued per
diem damages in cash to Optiva within ten days of after Substantial
Completion or, if Substantial Completion has not occurred, on a monthly
basis, by the fifth day of each calendar month.
8. Hazardous Substances. Quadrant acknowledges and agrees that in the event
Hazardous Substances are discovered in on or about the Property during
construction of the Building Shell and Tenant Improvements, remediation of such
Hazardous Substances shall constitute a part of Quadrant's obligations with
respect to construction of the
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Building Shell hereunder and shall be performed by Quadrant, at Quadrant's
expense, in accordance with the requirements of applicable environmental laws,
regulations and permit requirements, and in accordance with the provisions for
construction of the Building Shell as set forth in this Agreement; provided,
however, that delays occurring in Substantial Completion as a result of the
presence of Hazardous Substances not known to exist on the date of execution of
this Agreement shall constitute delays attributable to Force Majeure.
9. Approval or Consent; Representatives.
9.1 Approval or Consent. Quadrant and Optiva each shall respond
promptly, completely and diligently to all matters requiring its response in
order that the process through which the Building Shell or Tenant Improvements
Construction Documents are finalized and construction occurs can proceed as
rapidly as possible. Any consent or approval to any act or matter required under
this Agreement shall, to the extent reasonably practical, be in writing and
shall apply only with respect to the particular act or matter to which such
consent or approval is given, and shall not relieve any party from the
obligation to obtain consent or approval, as applicable, whenever required under
this Agreement or any other act or matter. To the extent any approval given by
Optiva or Quadrant is not in writing, a writing confirming such verbal approval
shall be submitted to the other party promptly thereafter, or shall be reflected
in the minutes of any meetings of the parties or their Representatives occurring
during the term of this Agreement. Except as provided in the Pre-Construction
Schedule or otherwise stated in this Agreement, Optiva, Quadrant, Architect, TI
Architect or General Contractor, as the case may be, shall be deemed to have
responded promptly if a response is made within three business days from the
date of receipt of any request for response or approval of any proposal, act,
plans, or matter; provided, however, that if such response or approval is
requested with respect to such matters as require a more urgent response Optiva,
Quadrant, Architect, TI Architect or General Contractor shall exert their best
and diligent efforts to respond more quickly than such three-business day
period, consistent with the circumstances then occurring. Optiva's or Quadrant's
failure to respond within said three-business day period shall constitute
Optiva's or Quadrant's (as the case may be) approval of the matter submitted for
approval or consent.
9.2 Representatives. Optiva appoints John Tubbs as Optiva's
Representative to act for Tenant in all matters under this Agreement. All
inquiries, requests, instructions, authorizations, and other communications
under this Agreement may be made by Quadrant to any of Optiva's Representatives,
and any approvals to be given by Optiva under this Agreement may be given by any
of Optiva's Representatives. Optiva may change the identity of any of its
Representatives or designate one or more additional Representatives by notice in
writing to Quadrant. Quadrant appoints George Sherwin, Doug Bonner and Wally
Costello as Quadrant's Representatives to act for Quadrant in all matters under
this Agreement. All inquiries, requests, instructions, authorizations, and
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other communications under this Agreement may be made by Optiva to any of
Quadrant's Representatives, and any approvals to be given by Quadrant under this
Agreement may be given by any of Quadrant's Representatives. Quadrant may change
the identity of its Representatives or designate one or more additional
Representatives by notice in writing to Optiva.
10. Warranties. Quadrant shall obtain from all contractors and subcontractors,
including General Contractor, providing material and labor in the construction
of the Building all commercially reasonable warranties (including manufacturers'
warranties) for their respective materials or labor which are available from
such contractors or subcontractors. All such warranties shall be in writing and
shall run to Quadrant and shall be assignable by Quadrant in the event of any
sale of the Building. To the extent there exists any defect in the Building
Shell or Tenant Improvements, which is covered by the warranties obtained under
this Section, Quadrant shall seek to enforce such warranties in accordance with
their terms. For a period expiring two years after Substantial Completion
(Warranty Period"), Quadrant represents and warrants to Optiva as follows:
10.1 Building Shell. The Building Shell shall have been constructed in
accordance with the Building Shell Construction Documents and in compliance with
applicable laws, including without limitation, the Americans With Disabilities
Act; and the heating, air conditioning, plumbing, ventilating, elevator,
utility, sprinkler and other mechanical and electrical systems, apparatus and
appliances (excluding telephone, cable television, data transmission, satellite
transmission, and security system equipment and services or computer cabling or
wiring) located in the Building Shell, are, and, provided the Premises
Maintenance and Services Obligations under the Lease are fulfilled and the use
and operation of such systems and equipment by Optiva is in accordance with
applicable requirements, shall at all time during the Warranty Period, remain,
in good working order, condition and repair; and the Building Shell and its
equipment and systems (excluding telephone, cable television, data transmission,
satellite transmission, and security system equipment and services or computer
cabling or wiring) are, and, provided the Premises Maintenance and Services
Obligations under the Lease are fulfilled and the use and operation of such
systems and equipment by Optiva is in accordance with applicable requirements,
shall, at all time during the Warranty Period, remain, free from defects in
workmanship and materials in connection with the construction and installation
thereof; and
10.2 Tenant Improvements. The Tenant Improvements shall be constructed
in accordance with the Tenant Improvements Construction Documents and in
compliance with applicable laws, including without limitation, the Americans
With Disabilities Act, and the equipment and systems therein (excluding
telephone, cable television, data transmission, satellite transmission, and
security system equipment and services or computer cabling or wiring), are, and,
provided the Premises Maintenance and Services
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Obligations under the Lease are fulfilled and the use and operation of such
systems and equipment by Optiva is in accordance with applicable requirements,
shall at all time during the Warranty Period remain, in good working order,
condition and repair; and the applicable Tenant Improvements are, and, provided
the Premises Maintenance and Services Obligations under the Lease are fulfilled
and the use and operation of such systems and equipment by Optiva is in
accordance with applicable requirements, shall at all time during the Warranty
Period, remain, free from defects in workmanship and materials in connection
with the construction and installation thereof.
10.3 Survival. Quadrant's warranties in this Section 10 shall expire and
be of no further force or effect, unless Optiva shall have made a Claim thereon
(as defined below) on or before the expiration of the Warranty Period. In the
event Optiva alleges a breach of any of the foregoing warranties, Optiva shall
give Quadrant written notice of any such allegation together with a detailed
explanation of the alleged breach ("Claim"). Quadrant shall, within 15 days of
receipt of the Claim, proceed to commence to cure the circumstances specified in
Claim, or provide Optiva with written notice of Quadrant's dispute of the Claim.
If Quadrant commences a cure or correction of the matter alleged in the Claim,
Quadrant shall proceed diligently and continuously to complete such cure or
correction, within a reasonable period of time not to exceed 90 days or as soon
thereafter as is reasonably practicable in the circumstances.
11. Insurance. During the period of construction of the Building Shell and
Tenant Improvements hereunder, until the date of Final Completion or such
earlier date when permanent property insurance as is required under the Lease is
available, Quadrant shall obtain and maintain in full force and effect at its
initial expense and as a cost of the Building Shell, and in addition to any
other insurance to be provided by Landlord under the Lease, a policy of All Risk
Builder's Risk insurance (with standard exclusions including earthquake and
flood exclusions) in the amount sufficient to cover the completed value of the
Premises. Optiva shall be an additional insured on such policy, and Quadrant
shall provide evidence of such coverage to Optiva.
11A. Construction of Business Park. Quadrant and Optiva have concurrently with
this Agreement entered into an Expansion Agreement, under which, among other
things, Quadrant or its successor, as Developer, shall complete construction and
development of the Business Park.
12. Notices. Wherever in this Agreement a notice is required to be given, such
notice shall be in writing and shall be given in accordance with the notice
provisions of the Lease.
13. Binding Effect. Except as otherwise stated herein, this Agreement shall bind
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
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14. Entire Agreement. This Agreement constitutes the entire agreement among the
parties with respect to the subject matter hereof and may be amended only in
writing signed by both parties. This Agreement may be signed in counterpart or
duplicate copies, and any signed counterpart, duplicate or telephonic facsimile
copy shall be equivalent to a signed original for all purposes.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
16. Relationship of Parties. Quadrant is an independent contractor with respect
to Optiva. Quadrant shall have no authority to bind Optiva except as expressly
provided in this Agreement. Quadrant and Optiva shall not be construed as joint
venturers or general partners, and neither shall have the power to bind or
obligate the other party except as set forth in this Agreement. Nothing herein
shall be construed as reserving to Optiva the right to control Quadrant's
business.
17. Neutral Authorship. In connection with the execution and delivery hereof,
each party has been represented by counsel. Each of the provisions of this
Agreement has been reviewed and negotiated, and represents the combined work
product of both parties. No presumption or other rules of construction which
would interpret the provisions of this Agreement in favor of or against the
party preparing the same shall be applicable in connection with the construction
or interpretation of any of the provisions of this Agreement.
18. Attorneys' Fees. In the event either party brings any suit or other
proceeding with respect to the subject matter or enforcement of this Agreement,
the prevailing party (as determined by the court, agency or other authority
before which such suit or proceeding is commenced) shall, in addition to such
other relief as may be awarded, be entitled to recover attorneys fees and
expenses as actually incurred (including without limitation, attorneys fees and
expenses incurred in appellate proceedings, or in any action or participation
in, or in connection with any case or proceeding under the Bankruptcy Code).
19. Miscellaneous. Time is of the essence of this Agreement. Except as herein
expressly provided, no waiver by a party of any breach of this Agreement shall
be deemed to be a waiver of any other breach by such party. No failure or delay
by a party to exercise any right it may have by reason of the default of the
other shall operate as a waiver of such default or result in the modification of
this Agreement.
20. Assignment. During any period of construction of Building Shell or Tenant
Improvements hereunder, including the completion of Punch List Items, and
obtaining issuance of a final, certificate of occupancy, the obligations of
Optiva hereunder shall not be assigned except in connection with a permitted
assignment by Optiva of the Lease. Optiva's rights and obligations hereunder
shall be assigned in connection with any
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permitted assignment by Optiva of the
Lease. In the event of such assignment Optiva shall remain liable for its
obligations under this Agreement subject to release in the same manner as Optiva
may be released under the Lease. The obligations of Quadrant hereunder may be
assigned, concurrent with the assignment of the Lease, without the prior consent
of Tenant; provided, however, that in the event of such assignment, Quadrant's
successor or assignee shall not be required to assume the obligations of
Quadrant under this Construction Agreement for Lease and, whether or not such
obligations are assumed, Quadrant shall remain fully liable to Optiva for the
obligations of Quadrant hereunder.
21. Exhibits. The Exhibits hereto are made a part of and incorporated into this
Agreement.
QUADRANT:
THE QUADRANT CORPORATION
By_______________________________
George F. Sherwin, Jr.
Its Vice President
OPTIVA:
OPTIVA CORPORATION
By________________________________
David Giuliani
Its President
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EXPANSION AGREEMENT
EXPANSION AGREEMENT, made and entered into this 26 day of November, 1997
by and between THE QUADRANT CORPORATION, a Washington corporation ("Developer"),
and OPTIVA CORPORATION, a Washington corporation ("Optiva").
RECITALS
A. Developer or its affiliate is the owner of that certain parcel of
land situated in the City of Snoqualmie, Washington, and being more particularly
described on Exhibit A hereto which parcel of Land includes approximately 11
acres ("Initial Land").
B. Concurrently with the execution of this Agreement, Developer, as
Landlord, and Optiva, as Tenant, have entered into a Lease ("Initial Lease")
under which certain buildings to be constructed on the Initial Land by the
Landlord ("Initial Premises") will be leased to Optiva. Concurrently with the
Initial Lease, Developer, as Landlord, and Optiva, as Tenant, also entered into
a Construction Agreement for Lease, governing Landlord's construction of the
Building Shell and Tenant Improvements constituting the Initial Premises. As a
part of the Initial Lease, Landlord and Tenant also entered into an Option and
Real Estate Purchase and Sale Agreement ("Initial Premises Option Agreement'),
under which Tenant has the option to purchase the Initial Land and Initial
Premises. Under the Initial Premises Option Agreement, following Optiva's
purchase of the Initial Land upon exercise of such option, Developer would be
engaged as Construction Manager to complete construction of the Initial Premises
for Optiva, pursuant to a Construction Management Agreement to be entered into
upon closing of such purchase.
C. The Initial Land is part of Developer's larger parcel of land,
approximately 122.67 acres in area, known as Snoqualmie Ridge Business Park
("Business Park"). Developer is processing its application for a Binding Site
Improvement Plan 1 for the Business Park, under City of Snoqualmie File No. BSIP
97-01 ("BSIP 1"). A copy of Developer's BSIP 1 application ("BSIP 1
Application") has been furnished to Optiva. Upon approval of the BSIP 1, the
Initial Land will become Lots 8 and 9 of the Business Park.
D. Optiva desires to reserve the right to purchase all or part of, or
lease one or more buildings on, an approximately 1 0-acre parcel in the Business
Park adjacent to the Initial Land for expansion of its operations, and Developer
is willing to grant such right, all in accordance with the provisions of this
Agreement.
E. Whether Optiva exercises its expansion rights under this Agreement or
not, Optiva desires certain assurances from Developer concerning the development
of the Business Park.
<PAGE> 2
AGREEMENTS
Developer and Optiva agree as follows:
1. Completion of Business Park; Noninterference.
1.1 BSIP 1 Approval. Developer shall use diligent efforts to
obtain approval by the Snoqualmie City Council of the BSIP 1 for the Business
Park ("BSIP 1 Approval") in accordance with the BSIP 1 Application, subject to
minor adjustments. Following BSIP 1 Approval, Quadrant shall inform Optiva of
any proposed material changes to the BSIP 1 as approved, before any such changes
are finalized.
1.2 Completion of Business Park Construction. Following BSIP 1
Approval, Developer shall complete development of the Business Park in
accordance with all requirements and conditions of the BSIP 1 and other
governmental requirements, and as otherwise determined by Developer, including
without limitation obtaining all further permits for work to be performed,
posting all governmentally required bonds to secure its development obligations,
and causing all required land development work to be completed. In particular,
Developer shall either complete or bond all required work before recordation of
the binding site plan for the Business Park in accordance with the BSIP 1
Approval. To the extent necessary for Optiva's occupancy of the Initial
Premises, Developer shall carry out such development completion obligations
under this Section 1.2 on or before Substantial Completion of the Initial
Premises. Developer shall maintain liability and casualty insurance covering the
risks attendant to its construction of the Business Park, with coverage and
terms and conditions as Developer deems prudent in view of the risks.
1.3 Non-interference with Initial Premises. The Initial Premises
will be constructed while development and construction of the Business Park, as
described in Section 1.2, is in progress. Developer shall conduct all work
associated with the development of the Business Park in such a manner as is
calculated not to impede access to the Initial Premises after occupancy thereof
by Optiva, interrupt utility service to the Initial Premises, or materially
interfere with Optiva's operations in the Initial Premises, all at any time.
1.4 Planned Interruptions. Following occupancy of the Initial
Premises by Optiva, Developer shall keep Optiva reasonably informed as to the
progress of Business Park construction activities. If Developer anticipates that
it will be necessary to interrupt utility service to the Initial Premises,
impede access to the Initial Premises, or interfere with Optiva's operations, in
each case because of such activities as, for example, excavation around existing
utilities serving the Initial Premises, grading and construction of roads and
access ways, and work on drainage systems ("Planned Interruption"), Developer
shall give Optiva as much advance notice as is reasonably practicable of the
Planned Interruption. Landlord shall use diligent efforts to accommodate
Optiva's expressed desires concerning any Planned Interruptions, and to minimize
the duration thereof. Any Planned Interruptions shall be carried out in
consultation and coordination with Optiva to the extent reasonably practicable.
No Planned Interruption shall result in liability to Developer of any kind,
provided the Planned Interruption proceeds as planned.
1.5 Accidental Interruptions; Self-Help. Following occupancy of
the Initial Premises by Optiva, any events or circumstances in connection with
Developer's completion of the Business Park that interrupt utility service to
the Initial Premises, impede access to the
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Initial Premises, or interfere with Optiva's operations, other than a Planned
Interruption ("Accidental Interruption") shall be remedied by Developer (if the
Accidental Interruption is within Developer's control) as promptly as is
practicable under the circumstances. Optiva shall give prompt written notice to
Developer of any Accidental Interruptions. If (i) Developer fails to commence a
remedy of the Accidental Interruption within 3 days of Optiva's notice or (ii)
the interruption persists for 7 consecutive days after Optiva's notice (or if
Developer is using diligent and continuous efforts to correct the interruption,
then for such longer period as is reasonably necessary to correct the
interruption under such circumstances), then Optiva shall have the right to take
such actions as may be necessary to remedy the situation or attempt to cause the
utility purveyor to remedy the situation, as the case may be, and shall give
Developer contemporaneous notice of the actions it is taking. All costs and
expenses reasonably incurred by Optiva in so taking any such actions that are
the responsibility of Developer rather than the utility purveyor shall be
reimbursed by Developer within 30 days of invoice by Optiva.
1.6 Emergency Action by Optiva. Nothing in Section 1.5 shall be
deemed to prohibit Optiva from acting alone to address any situation that Optiva
reasonably believes is an emergency that threatens to harm persons or property
if not acted upon immediately, provided that Optiva shall in good faith attempt
to contact Developer in advance of so acting to give Developer the first
opportunity to address the situation. If the emergency involves a matter over
which Developer has responsibility under this Agreement, Optiva shall be
entitled to reimbursement from Developer of the costs of so acting, up to the
amount of costs that Developer would reasonably have incurred if Developer had
acted instead. Such costs shall be reimbursed by Developer within 30 days of
invoice by Optiva.
1.7 Business Park Zoning. Developer represents and warrants to
Optiva that the Initial Land and Expansion Land are zoned to permit development
of business park uses, pursuant to the Mixed Use Final Plan for Snoqualmie Ridge
dated September 15, 1995.
1.8 Termination. Developer's obligations under this Section 1
shall terminate upon release of all performance bonds for Business Park
improvements maintained as a condition of BSIP 1 Approval.
1.9 Coordinated Development. If Optiva becomes the owner of the
Expansion Land, Optiva shall cooperate with Developer as requested by Developer
to coordinate site development work on the Expansion Land and on the remainder
of Lots 10, 11 and 12. Such cooperation shall include, for example, sharing of
costs of joint grading, utility work and similar land development matters, in
each case where such joint work would be practicable and it appears that
efficiency would be enhanced and costs reduced by such cooperation. The costs of
such work shall be shared by the parties on an equitable basis to be agreed upon
that reflects the relative benefits to each party of such work; provided,
however, that Developer shall bear the entire cost of such work that is Business
Park construction for which Developer is responsible under Section 1.2.
1.10 Shared Driveway and Utility Easement. If the Initial Land
and Initial Premises are purchased pursuant to the Initial Premises Option
Agreement, Optiva shall grant an easement for a shared driveway and utilities
between the Initial Land and Lot 10 of the Business Park, as shown on plans for
the Business Park that have been furnished to Optiva, containing reasonable
provisions for maintenance cost sharing and other typically covered
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matters. To the extent that such easement is in place by the time of closing of
Optiva's acquisition of the Initial Land, the obligations under this Section
shall not apply.
2. Determination and Reservation of Expansion Land.
2.1 Reservation. Developer shall initially reserve from (i) sale
to any other party, (11) development for lease to any other party, (iii)
development for speculative purposes or (iv) development for its own use,
proposed Lots 10, 11 and 12 in the Business Park, the legal description of which
proposed Lots is attached hereto as Exhibit B. The land to be reserved by
Developer shall be further defined and reduced as provided in this Agreement.
Such reservation shall be at no cost to Optiva.
2.2 General Description of Expansion Land. The Expansion Land
shall consist of approximately ten contiguous acres located in proposed Lots 10,
11 and 12 of the Business Park, adjacent to the Initial Land, suitable for
development of expansion space for Optiva in size and design comparable to the
Initial Premises.
2.3 Identification of Expansion Land. The size, location and
configuration of the Expansion Land within the requirements set forth in Section
2.2 shall be proposed by Developer at any time after March 1, 1998, and mutually
agreed upon by Developer and Optiva in good faith in a manner that assures to
the greatest extent possible the developability of the Expansion Land and of the
remaining lots in the Business Park. The parties shall use diligent efforts to
reach such agreement within 60 days after Developer's proposal. Any design or
engineering costs incurred with third parties selected by mutual agreement of
the parties in connection with the identification of the Expansion Land shall be
split equally between Developer and Optiva. The agreed Expansion Land shall be
subject to further agreed reduction in area following exercise of the Expansion
Option, as provided in Section 7.
2.4 Term of Reservation. The term of Developer's reservation of
the Expansion Land shall be coterminous with the Option Term set forth in
Section 4.1.
2.5 Developer's Use of Expansion Land. Developer's reservation of
land under this Section 2 shall not prevent Developer from using any or all of
Lots 10, 11 or 12 of the Business Park for any legal purpose, including without
limitation as a staging or storage area for Business Park construction, or for
rental to or use by others for any legal purposes.
3. Optiva's Expansion Option. Developer grants to Optiva the option
("Expansion Option") either to:
3.1 Expansion Lease. Lease ("Expansion Lease') one or more
buildings to be constructed by Developer on the Expansion Land ("Expansion
Premises"), which lease shall be accompanied by an option to purchase, all as
described in Section 5; or
3.2 Expansion Purchase. Purchase the Expansion Land for
development and construction thereon by Optiva of the Expansion Premises, as
described in Section 6 ("Expansion Purchase").
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4. Exercise; Option Term; Extensions.
4.1 Manner of Exercise; Option Term. Optiva shall exercise the
Expansion Option, if at all, by notice to Developer ("Exercise Notice") on or
before January 1, 1999 (as it may be extended under Section 4.2, "Option Term").
The Exercise Notice shall specify either that Optiva is exercising its option
for Expansion Lease, or that Optiva is exercising its option for Expansion
Purchase.
4.2 Extension of Option Term. Optiva shall have the right to
extend the Option Term until as late as June 30, 1999. Optiva shall exercise
such right, if at all, on a monthly basis by notifying Developer on or before
the expiration of the Option Term, as it may have been previously extended, that
it desires to extend the Option Term. Such notice shall be accompanied by a cash
extension payment to Developer in the amount of $25,000 for each of January
1999, February 1999 and March 1999, and $50,000 for each of April 1999, May 1999
and June 1999 ("Extension Payments') whereupon the Option Term shall be extended
until the end of such month.
4.3 Applicability of Extension Payments. The entire amount of the
Extension Payments for January and February and 50% of the Extension Payments
for March, April, May and June shall be applied to the base monthly rent for any
Expansion Lease or to the purchase price at closing if Optiva exercises its
option for Expansion Purchase.
4.4 Nonrefundability of Extension Payments. Extension Payments
are compensation to Developer for the reservation of the Expansion Land under
Section 2, and shall be nonrefundable and fully earned by Developer when made.
4.5 Termination of Expansion Option. If no Exercise Notice is
given before the expiration of the Option Term, as it may have been extended, or
if Optiva notifies. Developer that it will not exercise the Expansion Option,
the Expansion Option will lapse and terminate, and Developer's obligation to
reserve the Expansion Land shall terminate.
4.6 Nonexercisability of Expansion Option on Default. In the
event of any such Default by Optiva (following the expiration of any cure
periods without cure) under the Initial Lease, Construction Agreement for Lease
of the Initial Premises, Initial Premises Option Agreement, or Construction
Management Agreement for the Initial Premises, Developer shall have the right to
terminate the Expansion Option by notice to Optiva, whether the Expansion Option
has already been exercised or not.
5. Expansion Lease. If Optiva exercises its option for an Expansion
Lease:
5.1 Expansion Lease Documents. Developer and Optiva shall enter
into a Lease, Construction Agreement for Lease, and Option to Purchase and Real
Estate Purchase and Sale Agreement with Construction Management Agreement
substantially in the same form as the form of such documents entered into in
connection with the Initial Lease, except as otherwise provided in this Section
5 and as otherwise agreed at the time. Such documents shall be entered into
within 90 days after the Exercise Notice.
5.2 Delay Provisions. Provisions of the Construction Agreement
for Lease concerning the consequences of delay by either Optiva or Developer
shall be negotiated in good faith to reflect the parties' circumstances at the
time.
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5.3 Basis for Determination of Rent. The amount of base monthly
rent shall be based on a return of capital formula (including all Project Costs
including the Expansion Land at $9.00 per gross square foot of the actual land
area as measured to the internal Business Park road rights-of-way and the
boundary between Lots 9 and 10, as shown on the BSIP 1) and developer fee
schedule negotiated by the parties in good faith. Notwithstanding the foregoing,
Project Costs for purposes of this subsection shall not include the cost of land
development of the Business Park as required to be completed by Developer under
Section 1.2 (e.g., roads, access ways, common improvements, detention ponds, and
all utilities stubbed to the Expansion Land).
5.4 Rent Adjustment; Application of Extension Payments. Rent
shall be subject to CPI adjustment in the manner negotiated by the parties. To
the extent provided in Section 4, Extension Payments shall be applied against
base monthly rent as it becomes due under the Expansion Lease.
5.5 Building Shell and Tenant Improvements Plans. The building
shell and tenant improvements of the Expansion Premises shall be designed by a
mutually approved architect and constructed by a mutually approved general
contractor selected by competitive bidding or by negotiation. The building shell
and tenant improvements plans and construction documents shall be subject to
mutual agreement of the parties and shall be consistent with the Design
Guidelines and Development Standards under the CC&R's and the Snoqualmie Ridge
Council Declaration. All estimated building shell and tenant improvements
construction costs shall be fully disclosed to and approved by Optiva.
5.6 No Excluded Areas. The Expansion Lease will not include
provision for portions of the Expansion Premises to be constructed separately
from the Premises or excluded from the rentable area of the Premises.
5.7 Tenant's Option to Purchase. Optiva shall have the option to
purchase the Expansion Land, exercisable around the time of commencement of
construction of the Expansion Premises, in which event Developer would be
engaged as Construction Manager to complete construction of the Premises. Such
option shall be governed by an Option and Real Estate Purchase and Sale
Agreement and Construction Management Agreement to contain terms negotiated by
the parties generally along the lines of such documents for the Initial Lease.
No Completion Guaranty shall be required to be provided by Developer or any of
its affiliates.
5.8 Pricing; Payment. If Optiva exercises its option to purchase
under the Option and Real Estate Purchase and Sale Agreement entered into in
connection with the Expansion Lease, the purchase price shall include the
Expansion Land at $9.00 per gross square foot of the actual land area as
measured to the internal Business Park road rights-of-way and the boundary
between Lots 9 and 10, as shown on the BSIP 1). The Construction Management
Agreement shall provide for payment by Optiva to Developer of the Building Value
on a percentage of completion basis substantially in the same manner as in the
Construction Management Agreement entered into in connection with the Initial
Lease. The Building Value shall be a fixed amount stated in the Construction
Management Agreement reflecting the agreed value of the Expansion Land and
Expansion Premises upon completion, which amount shall be negotiated by the
parties on a capitalization of income basis, based on a hypothetical rent
determined using a return on capital formula. There shall be no limitation on
Developer's profit under the Construction Management Agreement.
6
<PAGE> 7
6. Expansion Purchase. If Optiva exercises its option for Expansion
Purchase:
6.1 Expansion Purchase Documents. Developer and Optiva shall
enter into a Real Estate Purchase and Sale Agreement substantially in the same
form as the form of the purchase and sale provisions of the Option and Purchase
and Sale Agreement entered into for the Initial Lease, except as otherwise
provided in this Section 6 and as otherwise agreed at the time.
6.2 Pricing; Payment. If Optiva exercises its Expansion Purchase
option, the purchase price for the Expansion Land shall be $9.00 per gross
square foot of actual land area, as measured to the abutting road rights-of-way,
the boundary between Lots 9 and 10, as shown on the BSIP 1, and any other Lot
boundary.
6.3 Condition of Expansion Land. At closing of the Expansion
Land, Developer shall deliver the Expansion Land substantially in the condition
depicted in the grading plan for the Business Park, with erosion control in
place in the manner deemed prudent by Developer, with required utilities stubbed
to the Lot lines, and with no Hazardous Substances, as defined in the Initial
Lease, other than as may be present on the Expansion Land on the date of
execution of this Agreement.
6.4 Construction Management by Quadrant. Concurrently with the
Real Estate Purchase and Sale Agreement, at Optiva's election Optiva and
Quadrant shall also enter into a Construction Management Agreement under which
Quadrant shall be engaged on a fee basis to manage the construction of the
Expansion Premises for Optiva. Such Construction Management Agreement shall
contain terms and conditions consistent with this Agreement and otherwise as
negotiated by the parties in good faith. Optiva shall enter into all
construction contracts directly, and such construction shall be at Optiva's sole
cost and risk. If Optiva does not elect to enter into a Construction Management
Agreement with Quadrant, then Optiva shall pay Quadrant $50,000 at closing of
the purchase and sale of the Expansion Land, as compensation for Quadrant's lost
opportunity to serve as construction manager.
6.5 Construction Management Fee. Quadrant's construction
management fee shall be 5% of the first $5,000,000 of actual direct construction
costs and 4% of all other actual direct construction costs.
6.6 Rights of First Opportunity and First Refusal.
6.6.1 From and after the closing of Optiva's purchase of
the Expansion Land, Developer shall have a right of first
opportunity and a right of first refusal to repurchase the
Expansion Land from Optiva, as provided in this Section 6.6.
References to "Expansion Land" in this Section 6.6 refer to all
or any portion of the Expansion Land.
6.6.2 From and after the closing of Optiva's purchase of
the Expansion Land, Developer shall have the exclusive, first
opportunity to purchase the Expansion Land in the event Optiva
intends to sell the Expansion Land ("Right of First
Opportunity"). Before listing the Expansion Land for sale, or
offering to sell or soliciting offers to buy the Expansion Land,
Optiva shall give Developer written notice ("Right of First
Opportunity Notice") that Optiva intends to sell the Expansion
Land.
7
<PAGE> 8
6.6.3 Within seven days after the Right of First
Opportunity Notice, Developer may make an offer to purchase the
Expansion Land by written notice to Optiva ("Developer Offer").
If Developer does not make such an offer the Rights of First
Opportunity and First Refusal shall both terminate and be of no
further force or effect. If a Developer Offer is made and
accepted, the parties shall proceed in accordance with the
Developer Offer.
6.6.4 If the Developer Offer is made but not accepted,
Optiva may list the Expansion Land for Sale, or offer to sell or
solicit offers to buy the Expansion Land, or may negotiate with
Developer, subject to Developer's Right of First Refusal.
6.6.5 Developer shall have an ongoing right of first
refusal ("Right of First Refusal") with respect to any bona fide
offer that Optiva accepts (conditional on the Right of First
Refusal), as evidenced by a signed letter of intent or purchase
and sale agreement. However, if such bona fide offer is made
after Developer has made a Developer Offer, such offer shall be
subject to the Right of First Refusal only if the total
consideration to be paid to Optiva under such offer is an amount
that is less than or equal to 95% of the total consideration set
forth in the Developer Offer. If such consideration exceeds such
amount, Optiva may proceed to sell the Expansion Land pursuant to
such offer, free of the Right of First Refusal.
6.6.6 If the bona fide offer is subject to the Right of
First Refusal, Optiva shall notify Developer in writing, which
notice shall include a complete copy of such offer. Within five
business days after such notice, Developer may elect by notice to
Optiva to purchase the Expansion Land on the same terms as in the
bona fide offer, including any feasibility or due diligence
period provisions. In the event of such election, Developer shall
purchase and Optiva shall sell the Expansion Land under the terms
and subject to the conditions of the subject offer. If the
purchase and sale does not close for any reason other than a
default by Developer, the Expansion Land shall remain subject to
the Right of First Opportunity and Refusal unless they have
otherwise terminated under this Section 6.6.
6.6.7 The Rights of First Opportunity and First Refusal
shall not apply to the following sales of the Expansion Land:
6.6.7.1 A sale of the Expansion Land together with
the Initial Land and Initial Premises;
6.6.7.2 A sale of the Expansion Land to an
affiliate of Optiva (or its assigns) that is regularly
engaged in commercial real estate development or
construction; or
6.6.7.3 A sale of the Expansion Land to a third
party developer for build-to-suit construction for Optiva
or its assigns).
6.6.8 The Right of First Opportunity and Right of First
Refusal shall terminate upon commencement of construction of one
or more buildings on the
8
<PAGE> 9
Expansion Land, or on the expiration of three years after the
closing of the sale of the Expansion Land to Optiva, whichever
occurs first. The Right of First Refusal shall apply to bona
fide offers received by Optiva before such termination date.
6.7 Timing of Expansion Purchase Documents. The Real Estate
Purchase and Sale Agreement, Construction Management Agreement, and the Rights
of First Opportunity and First Refusal Agreement shall be entered into within 60
days after the Exercise Notice.
7. Size of Expansion Premises and Expansion Land. The Expansion Premises
shall contain at least 50,000 square feet of gross building area, and otherwise
shall be sized by Developer and Optiva as part of the agreement on Expansion
Lease documents or Expansion Purchase documents, as applicable, to fulfill
Optiva's expansion objectives within applicable legal requirements. Within 30
days following exercise of the Expansion Option, the Expansion Land size shall
be finalized by agreement of Developer and Optiva to a size, not less than three
acres, as reasonably accommodates the Expansion Premises in accordance with the
CC&R's, the Snoqualmie Ridge Council Declaration, and applicable legal
requirements and, if necessary, Developer shall cause the lot lines of the
Business Park to be adjusted accordingly.
8. Effect of Failure to Agree. Upon exercise of the Expansion Option,
Optiva and Developer shall negotiate exclusively, diligently and in good faith
with one another concerning the terms of the required documents. If, despite
such good faith efforts, Optiva and Developer do not agree on the terms of
definitive documents consistent with this Agreement within 90 days after
exercise of the Expansion Option, either Developer or Optiva may terminate
negotiations by notice to the other, whereupon this Agreement shall terminate
and neither party shall have any further obligation to the other hereunder. If
Optiva has exercised the Expansion Option for Expansion Lease and the parties
are unable to agree on the terms of definitive documents within 60 days, Optiva
may exercise the Expansion Option for Expansion Purchase at any time before the
expiration of 90 days after exercise of the Expansion Option for Expansion
Lease.
9. Assignment. This Agreement may be assigned by Optiva, but only as
part of an assignment of the Initial Lease or, if Optiva purchases the Initial
Premises pursuant to the Option and Real Estate Purchase and Sale Agreement, in
connection with Optiva's subsequent sale of the Initial Premises. This Agreement
shall be assigned to the assignee in the event of any permitted assignment of
the Initial Lease, or to the purchaser of the Initial Premises in the event
Optiva exercises its option to purchase and subsequently sells the Initial
Premises. This Agreement may be assigned by Developer to any entity to whom
Developer sells or transfers the Business Park and the right and responsibility
to complete development and construction of the Business Park. Upon any such
assignment by Developer, such purchasing or transferee entity shall assume the
obligations of Developer under this Agreement, whereupon Developer shall be
relieved of further responsibility hereunder. Notwithstanding the foregoing, the
right to serve as Construction Manager for the Expansion Premises in the event
the Expansion Purchase option is exercised shall remain with Quadrant.
10. Recordation. A Memorandum of this Agreement shall be recorded
against the property described on Exhibit B on a mutually agreeable form, and
such memorandum shall among other things include references to the Rights of
First Opportunity and Refusal as
9
<PAGE> 10
provided in Section 6.6. Upon identification of the Expansion Land under Section
2.3, such Memorandum shall be recorded only against the Expansion Land and shall
otherwise be released. Such Memorandum shall remain of record following closing
of Optiva's purchase of the Expansion Land. Such Memorandum shall be released if
the Expansion Option is not exercised by the expiration of the Option Term, as
it may be extended in accordance herewith. This Agreement shall not be recorded.
11. Real Estate Commissions. In the event the Expansion Option is
exercised, Landlord shall pay a real estate commission to Colliers Macaulay
Nicolls International pursuant to a commission agreement dated September 30,
1997 between Colliers Macaulay Nicolls International and Quadrant.
12. Prior Agreements. This Agreement, together with the Initial Lease,
Construction Agreement for Lease, Option and Real Estate Purchase and Sale
Agreement and Construction Management Agreement for the Initial Land and Initial
Premises, contains all of the agreements of the parties with respect to the
matters covered by this Agreement, and no prior agreements or understandings
pertaining to any such matters shall be effective for any purpose. Without
limiting the foregoing, the Letter of Intent dated July 9, 1997 concerning the
Initial Lease and the matters covered hereby is superseded and of no further
force or effect with respect to the matters covered hereby.
13. Attorneys' Fees. In the event of any litigation, arbitration or
other proceeding (including proceedings in bankruptcy and probate and on appeal)
brought to enforce or interpret or otherwise arising under this Agreement, the
substantially prevailing party therein shall be entitled to the award of its
reasonable attorneys' fees, witness fees, and court costs incurred therein and
in preparation therefor.
14. Notices. All notices and demands which may or are to be required or
permitted to be given under this Lease shall be in writing and if personally
delivered shall be effective when received. If mailed, a notice shall be deemed
effective on the third day after deposited as registered or certified mail,
postage prepaid, directed to the other party. Notices shall be delivered or
mailed to the parties at the following addresses:
If to Developer: If to Optiva:
- ---------------- -------------
The Quadrant Corporation Optiva Corporation
Quadrant Plaza, Suite 500 13222 SE 30th Street
NE 8th Street at 112th Ave. NE Bellevue, WA 98005
Bellevue, WA 98004 Attn: Karl Forsgaard, Corporate Counsel
Tel: 425-455-2900 Tel: 425-401-2307
Fax: 425-646-8300 Fax: 425-401-4824
Attn: Commercial Division
with a copy to:
Gordon W. Tanner
Stoel Rives LLP
600 University Street, Suite 3600
Seattle, WA 98101-3197
Tel: 206-624-0900
Fax: 206-386-7500
10
<PAGE> 11
Either party may change its address for notices by at least 15 days' advance
written notice to the other.
15. Exhibits. The Exhibits hereto are made a part of and incorporated
into this Agreement.
16. Modification. Neither this Agreement nor any provision hereof may be
waived, modified, amended, discharged or terminated except as provided herein or
by an instrument in writing signed by the party against which the enforcement of
such waiver, modification, amendment, discharge or termination is sought, and
then only to the extent set forth in such instrument.
17. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Washington. Venue for any action to
enforce or interpret this Agreement shall lie in the Superior Court of King
County, Washington. All sums referred to in this Agreement shall be calculated
by and payable in the lawful currency of the United States.
18. Headings. Descriptive headings are used in this Agreement for
convenience only and shall not control, limit, amplify or otherwise modify or
affect the meaning or construction of any provision of this Agreement.
19. Binding Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective permitted heirs,
successors and assigns.
20. Capitalized Terms. Capitalized terms not otherwise defined in this
Agreement shall have the meanings ascribed to them in the Initial Lease or the
Construction Agreement for Lease, Option and Real Estate Purchase and Sale
Agreement or Construction Management Agreement for the Initial Land and Initial
Premises.
21. Waiver. The failure of either party at any time to require
performance of any provision of this Agreement shall not limit the party's right
to enforce such provision. Waiver of any breach of any provision shall not be a
waiver of any succeeding breach of the provision or a waiver of the provision
itself or any other provision.
22. Description of Transaction. This Agreement creates only the
relationship of seller and buyer and no joint venture, partnership or other
joint undertaking is intended hereby, and neither party hereto shall have any
rights to make any representations or incur any obligations on behalf of the
other. Neither party has authorized any agent to make any representations, admit
any liability or undertake any obligation on its behalf. Neither party is
executing this Agreement on behalf of an undisclosed principal, and no third
party is intended to be benefited by this contract.
23. Time of Essence; Business Day. Time is of the essence of this
Agreement and of each covenant and agreement that is to be performed at a
particular time or within a particular period of time. However, if the final
date of any period which is set out in any provision of this Agreement falls on
a Saturday, Sunday or legal holiday under the laws of the United States, or the
State of Washington, then the time of such period, as the case may be, shall be
extended to the next date which is not a Saturday, Sunday or legal holiday.
11
<PAGE> 12
24. Invalid Provision. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws, such provision
shall be fully severable; this Agreement shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part of
this Agreement; and the remaining provisions of this Agreement shall remain in
full force and effect and shall not be affected by such illegal, invalid or
unenforceable provision or by its severance from this Agreement.
25. Cooperation. The parties shall cooperate in good faith with one
another and shall use diligent efforts to carry out the intent and provisions of
this Agreement.
EXECUTED as of the date first above written.
DEVELOPER:
THE QUADRANT CORPORATION
By /s/ George F. Sherwin, Jr.
George F. Sherwin, Jr., its Vice President
OPTIVA:
OPTIVIA CORPORATION
By /s/ David Giuliani
David Giuliani, its President
12
<PAGE> 13
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On this 26th day of November, 1997, before me, the undersigned, a Notary
Public in and for the State of Washington, personally appeared George F.
Sherwin, Jr., to me known to be the Vice President of THE QUADRANT CORPORATION,
the corporation that executed the foregoing instrument, and acknowledged the
said instrument to be the free and voluntary act and deed of said corporation,
for the uses and purposes therein mentioned, and on oath stated that he/she was
authorized to execute the said instrument on behalf of said corporation.
WITNESS MY HAND AND OFFICIAL SEAL hereto affixed the day and year first
above written.
/s/ Linda L. Hamm
------------------------------------
Name Linda L. Hamm
-------------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at Redmond, WA.
My commission expires 4-25-2000 .
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On this 26th day of November, 1997, before me, the undersigned, a Notary
Public in and for the State of Washington, personally appeared David Giuliani,
to me known to be the President of OPTIVA CORPORATION, the corporation that
executed the foregoing instrument, and acknowledged the said instrument to be
the free and voluntary act and deed of said corporation, for the uses and
purposes therein mentioned, and on oath stated that he/she was authorized to
execute the said instrument on behalf of said corporation.
WITNESS MY HAND AND OFFICIAL SEAL hereto affixed the day and year first
above written.
/s/ Linda L. Hamm
------------------------------------
Name Linda L. Hamm
-------------------------------
NOTARY PUBLIC in and for the State of
Washington, residing at Redmond, WA.
My commission expires 4-25-2000 .
13
<PAGE> 1
DHL BUILDING
13429 S.E. 30TH
BELLEVUE, WASHINGTON
TENANT: OPTIVA CORPORATION
LANDLORD: I. BITNERS
<PAGE> 2
D.H.L. BUILDING
INDUSTRIAL LEASE
1. BASIC LEASE TERMS
a. DATE OF LEASE: July 11, 1997
b. TENANT: Optiva Corporation
Trade Name: Optiva
Address (Leased Premises): 13429 S.E. 30th
Bellevue, WA
Building/Unit:
Address (For Notices): OPTIVA CORPORATION
ATTN: FACILITIES MANAGER
13222 S.E. 30th Street, Bellevue, WA 98005
c. LANDLORD: I. Bitners
Address (For Notices): 11711 S.E. 8th St., #310
Bellevue, WA 98005
d. TENANT'S USE OF PREMISES: Warehouse
e. PREMISES AREA: 10,000 Rentable Square Feet
f. PROJECT AREA: 28,000 Square Feet
g. TERM OF LEASE: Commencement 7/23/97 Expiration July 31, 1999
(24 month lease after which the lease will be month to month
with thirty (30) days notice to vacate
h. BASE MONTHLY RENT: $5,300.000 NNN
i. RENT ADJUSTMENT (Initial One):
Landlord
Tenant
(1) Cost of living. If this provision is
initialed, the cost of living provisions of
section 4.b(1) apply. NONE
Landlord
Tenant
<PAGE> 3
(2 Step Increase. If this provision is
initialed, the step adjustment provisions of
section 4.b(2) apply as follows: N/A
k. PREPAID RENT: $____________
l. DEPOSIT: $5,300.00 plus $900.000 = $6,200.000 total deposit
$6,200.000 (1st month's rent)
NON-REFUNDABLE CLEANING FEE: $0
m. BROKER(S): Sven Goldmaris Payable to: I.I. BITNERS
9008 SE 59th St.
Mercer Island, WA 98040
Tel: (206) 644-2425 (Office)
(206) 232-7478 (Home)
n. GUARANTOR(S): None
o. ADDITIONAL SECTIONS
Additional sections of this lease numbered 29 through 0 are
attached hereto and made a part hereof. If non, so state in
the following space: 0.
p. ADDITIONAL EXHIBITS
Additional exhibits lettered D through 0 are attached hereto
and made a part hereof. If none, so state in the following
space: 0.
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<PAGE> 4
2. PREMISES
Landlord leases to Tenant the premises [_________________________]
project described on Exhibit B (the "Project"). By entry on the Premises, Tenant
acknowledges that it has examined the Premises and accepts the Premises in their
present condition, subject to any additional work Landlord has agreed to do.
Tenant represents and warrants that it agrees with the square footage specified
for the Premises in Section 1 and will not hereafter challenge such
determination and agreement.
3. TERM
The term of this lease is for the period set forth in Section 1,
commencing on the date in Section 1. If Landlord, for any reason, cannot deliver
possession of the Premises to Tenant upon commencement of the term, this Lease
shall not be void or voidable, nor shall Landlord be liable to Tenant for any
loss or damage resulting from such delay. In that event, however, there shall be
a rent abatement covering the period between the commencement of the term and
the time when Landlord delivers possession to Tenant, and all other terms and
conditions of this Lease shall remain in full force and effect, provided,
however, that if Landlord cannot deliver possession of the Premises to Tenant,
this Lease shall be void. If a delay in possession is caused by Tenant's failure
to perform any obligation in accordance with this Lease, the term shall commence
as set forth in Section 1 and there shall be no reduction of rent between the
commencement of the term and the time Tenant takes possession.
4. RENT
a. BASE RENT
Tenant shall pay Landlord monthly base rent in the initial amount in
Section 1 which shall be payable monthly in advance on the first day of each and
every calendar month ("Base Monthly Rent") provided, however, the first month's
rent is due and payable upon execution of this Lease. If the term of this Lease
contains any rental abatement period, Tenant hereby agrees that if Tenant
breaches the Lease and/or abandons the Premises before the end of the Lease
term, or if Tenant's right to possession is terminated by Landlord because of
Tenant's breach of the Lease, Landlord shall, at its option, (1) void the rental
abatement period; and (2) recover from Tenant, in addition to any damages due
Landlord under the terms and conditions of the Lease, rent prorated for the
entirety of the rental abatement period at a rental rate equivalent to two (2)
times the Base Monthly rent.
-3-
<PAGE> 5
For purposes of Section 467 of the Internal Revenue Code, the parties
to this Lease hereby agree to allocate the stated rents, provided herein, to the
periods which correspond to the actual rent payments as provided under the terms
and conditions of this agreement.
b. EXPENSES
The purpose of this Section 4.c is to ensure that Tenant bears a share
of all Expenses related to the use, maintenance, ownership, repair or
replacement, and insurance of the Project. Accordingly, beginning on the date
Tenant takes possession of the Premises, Tenant shall pay to Landlord, Tenant's
Share (as defined below) of Expenses related to the Protect.
1) EXPENSES DEFINED. The term "Expenses" shall mean the following
costs:
(a) All supplies, materials, labor, equipment, and utilities used
in or related to the operation and maintenance of the Project;
(b) All maintenance, management, janitorial, insurance, and
service agreement costs related to the Project;
(c) All maintenance, replacement and repair costs relating to the
areas within or around the Project, including, without limitation, air
conditioning systems, sidewalks, landscaping, service areas, driveways, parking
areas (including resurfacing and restriping parking areas), walkways, building
exteriors (including painting), signs and directories, repairing and replacing
roofs, walls, etc. These costs may be included based on actual expenditures;
(d) Amortization (along with reasonable financing charges) of
capital improvements made to the Project which may be required by any government
authority or which will improve the operating efficiency of the Project
(provided, however, that the amount of such amortization for improvements not
mandated by government authority shall not exceed in any year the amount of
costs reasonably determined by Landlord to have been saved by the expenditure
either through the reduction or minimization of increases which would have
otherwise occurred).
(e) Real Property Taxes including all taxes, assessments (general
and special) and other impositions or charges which may be taxed, charged,
levied, assessed or imposed upon all or any portion of or in relation to the
Project or any portion thereof, any leasehold estate in the Premises or measured
by rent from the Premises, including any increase caused by the transfer, sale
or encumbrance of the
-4-
<PAGE> 6
Project or any portion thereof. Real Property Taxes shall also include any form
of assessment, levy, penalty, charge or tax (other than estate, inheritance, net
income, or franchise taxes) imposed by any authority having a direct or indirect
power to tax or charge, including, without limitation, any city, county, state
federal or any improvement or other district, whether such tax is (1) determined
by the value of the Project or the rent or other sums payable under this Lease;
(2) upon or with respect to any legal or equitable interest of Landlord in the
Project or any part thereof; (3) upon this transaction or any document to which
Tenant is a party creating a transfer in any interest in the Project; (4) in
lieu of or as a direct substitute in whole or in part of or in addition to any
real property taxes on the Project; (5) based on any parking spaces or parking
facilities provided in the Project; or (6) in consideration for services, such
as police protection, fire protection, street, sidewalk and roadway maintenance,
refuse removal or older services that may be provided by any governmental or
quasigovernmental agency from time to time which were formerly provided without
charge or with less charge to property owners or occupants.
2) ANNUAL ESTIMATE OF EXPENSES; TENANT'S SHARE. When Tenant takes
possession of the Premises, Landlord shall estimate Tenant's share of Expenses
for the remainder of the calendar year, and at the commencement of each calendar
year thereafter, Landlord shall estimate Tenant's Share or Expenses for the
coming year by multiplying the estimated annual per square foot Project Expenses
by the Premises Area.
3) MONTHLY PAYMENT OF EXPENSES. Tenant shall pay to Landlord, monthly
in advance, as additional rent, one-twelfth (1/12) of the Annual Estimate of
Expenses beginning on the date Tenant takes possession of the Premises. As soon
as practical following each calendar year, Landlord shall prepare an accounting
of actual Expenses incurred during the prior calendar year and such accounting
shall reflect Tenant's Share of Expenses. If the additional rent paid by Tenant
under this Section 4.c.3 during the preceding calendar year was less than the
actual amount of Tenant's Share of Expenses, Landlord shall so notify Tenant and
Tenant shall pay such amount to Landlord within 30 days of receipt of such
notice. Such amount shall be deemed to have accrued during the prior calendar
year and shall be due and payable from Tenant even though the term of this Lease
has expired or this Lease has been terminated prior to Tenant's receipt of this
notice. Tenant shall have thirty (30) days from receipt of such notice to
contest the amount due; failure to so notify Landlord shall represent final
determination of Tenant's Share of expenses. If Tenant's payments were greater
than the actual amount, then such overpayment shall be credited by Landlord to
all present rent due under this Section 4.c.3.
-5-
<PAGE> 7
4) RENT WITHOUT OFFSET AND LATE CHARGE. All rent shall be paid by
Tenant to Landlord monthly in advance on the first day of every calendar month,
at the address shown in Section 1, or such other place as landlord may designate
in writing from time to time. All rent shall be paid without prior demand or
notice and without any deduction or offset whatsoever. All rent shall be paid in
lawful currency of the United States of America. Proration of rent due for any
partial month shall be calculated by dividing the number of days in the month
for which rent is due by the actual number of days in that month and multiplying
by the applicable monthly rate. Tenant acknowledges that late payment by Tenant
to Landlord of any rent or other sums due under this Lease will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of such cost
being extremely difficult and impracticable to ascertain. Such costs include,
without limitation, processing and accounting charges and late charges that may
be imposed on Landlord by the terms of any encumbrance or note secured by the
Premises. Therefore, if any rent or other sum due from Tenant is not received
when due, Tenant shall pay to Landlord an additional sum equal to 10% of such
overdue payment. Landlord and Tenant hereby agree that such late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of any such late payment and that the late charge is in addition to
any and all remedies available to the Landlord and that the assessment and/or
collection of the late charge shall not be deemed a waiver of any other default.
Additionally, all such delinquent rent or other sums, plus this late charge,
shall bear interest at the rate of 18 percent per annum. If the interest rate
specified in this Lease is higher than the rate permitted by law, the interest
rate is hereby decreased to the maximum legal interest rate permitted by law.
Any payments of any kind returned for insufficient funds will be subject to an
additional handling charge of $25.00, and thereafter, Landlord may require
Tenant to pay all future payments of rent or other sums due by money order or
cashier's check.
7. USE OF PREMISES AND PROJECT FACILITIES
Tenant shall use the Premises solely for the purposes set forth in
Section 1 and for no other purpose without obtaining the prior written consent
of Landlord. Tenant acknowledges that neither Landlord nor any agent of Landlord
has made any representation or warranty with respect to the Premises or with
respect to the suitability of the Premises or the Project for the conduct of
Tenant's business, nor has Landlord agreed to undertake any modification,
alteration or improvement to the Premises or the Project, except as provided in
writing in this Lease. Tenant acknowledges that Landlord may from time to time,
at its sole discretion, make such modifications, alterations, deletions or
improvements to the Project as Landlord may deem necessary or desirable, without
compensation or notice to Tenant. Tenant shall promptly comply with all laws,
ordinances, orders and regulations affecting the
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Premises and the Project, including, without limitation, any rules and
regulations that may be attached to this Lease and to any reasonable
modifications to these rules and regulations as Landlord may adopt from time to
time. Tenant shall not do or permit anything to be done in or about the Premises
or bring or keep anything in the Premises that will in any way increase the
premiums paid by Landlord on its insurance related to the Project or which will
in any way increase the premiums for fire or casualty insurance carried by other
tenants in the Project. Tenant will not perform any act or carry on any
practices that may injure the Premises or the Project; that may be a nuisance or
menace to other tenants in the Project; or that shall in any way interfere with
the quiet enjoyment of such other tenants. Tenant shall not use the Premises for
sleeping, washing clothes, cooking or the preparation, manufacture or mixing of
anything that might emit any objectionable odor, noises, vibrations or lights
onto such other tenants. If sound insulation is required to muffle noise
produced by Tenant on the Premises, Tenant at its own cost shall provide all
necessary insulation. Tenant shall not do anything on the premises which will
overload any existing parking or service to the Premises. Pets and/or animals of
any type shall not be kept on the Premises.
8. EMISSIONS; STORAGE, USE AND DISPOSAL OF WASTE
a. EMISSIONS
Tenant shall not:
1) Permit any vehicle on the premises to emit exhaust which is
in violation of any governmental law, rule, regulation or requirement;
2) Discharge, emit or permit to be discharged or emitted, any
liquid, solid or gaseous matter, or any combination thereof, into the
atmosphere, the ground or any body of water which matter, as reasonable
determined by Lessor or any governmental entity, does, or may, pollute or
contaminate the same, or is, or may become, radioactive or does, or may,
adversely affect the (a) health or safety of persons, wherever located, whether
on the Premises or anywhere else, (b) condition, use or enjoyment of the
Premises or any other real or personal property, whether on the Premises or
anywhere else, or (c) Premises or any of the Improvements thereto or thereon
Including buildings, foundations, pipes, utility lines, landscaping or parking
areas;
3) Produce, or permit to be produced, any intense glare, light
or heat except within an enclosed or screened area and then only in such manner
that the glare, light or heat shall not be discernible from outside the
Premises;
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4) Create, or permit to be created, any sound pressure level
which will interfere with the quiet enjoyment of any real property outside the
Premises, or which will create a nuisance or violate any governmental law, rule,
regulation or requirement.
5) Create, or permit to be created, any ground vibration that
is discernible outside the Premises.
6) Transmit, receive or permit to be transmitted or received,
any electromagnetic, microwave or other radiation which is harmful or hazardous
to any person or property in, or about the Premises, or anywhere else.
b. STORAGE AND USE
1) Storage. Subject to the uses permitted and prohibited to
Tenant under this lease, Tenant shall store in appropriate leak proof containers
all solid, liquid or gaseous matter, or any combination thereof, which matter,
if discharged or emitted into the atmosphere, the ground or any body of water,
does or may (a) pollute or contaminate the same, or (b) adversely affect the (i)
health or safety of persons, whether on the Premises or anywhere else, (ii)
condition, use or enjoyment of the Premises or any real or personal property,
whether on the Premises or anywhere else, or (iii) Premises or any of the
improvements thereto or thereon.
2) Use. In addition, without Landlord's prior written consent,
Tenant shall not use, store or permit to remain on the Premises any solid,
liquid or gaseous matter which is, or may become radioactive. If Landlord does
give its consent, Tenant shall store the materials in such a manner that no
radioactivity will be detectable outside a designated storage area and Tenant
shall use the materials in such a manner that (a) no real or personal property
outside the designated storage area shall become contaminated thereby or (b)
there are and shall be no adverse effects on the (i) health or safety of
persons, whether on the Premises or anywhere else, (ii) condition, use or
enjoyment of the Premises or any real or personal properly thereon or therein,
or (iii) Premises or any of the Improvements thereto or thereon.
c. DISPOSAL OF WASTE
1) Refuse Disposal. Tenant shall not keep any trash, garbage,
waste or other refuse on the Premises except in sanitary containers and shall
regularly and frequently remove same from the Premises. Tenant shall keep all
incinerators, containers or other equipment used for storage or disposal of such
materials in a clean and sanitary condition.
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2) Sewage Disposal. Tenant shall properly dispose of all
sanitary sewage and shall not use the sewage disposal system (a) for the
disposal of anything except sanitary sewage or (b) excess of the lesser amount
(i) reasonably contemplated by the uses permitted under this Lease or (ii)
permitted by any governmental entity. Tenant shall keep the sewage disposal
system free of all obstructions and in good operating condition.
3) Disposal of Other Waste. Tenant shall properly dispose of
all other waste or other matter delivered to, stored upon, located upon or
within, used on, or removed from, the Premises in such a manner that it does
not, and will not, adversely affect the (a) health or safety of persons,
wherever located, whether on the Premises or elsewhere (b) condition, use or
enjoyment of the Premises or any other real or personal property, wherever
located, whether on the Premises or anywhere else, or (c) Premises or any of the
improvements thereto or thereon including buildings, foundations, pipes, utility
lines, landscaping or parking areas.
d. INFORMATION
Tenant shall provide Landlord with any and all information regarding
hazardous or toxic materials in the Premises, including copies of all fillings
and reports to governmental entities at the time they are originated. In the
event of any accident, spill or other incident involving hazardous or toxic
matter, Tenant shall immediately report the same to Landlord and supply Landlord
with all information and reports with respect to the same.
e. COMPLIANCE WITH LAW
Notwithstanding any other provision in this Lease to the contrary,
Tenant shall comply with all laws, statutes, ordinances, regulations, rules and
other governmental requirements in complying with its obligations under this
lease, and in particular, relating to the storage, use and disposal of hazardous
or toxic matter.
f. INDEMNIFICATION
Tenant shall defend, indemnify and hold Landlord harmless from any
loss, claim, liability or expense, including attorneys' fees and costs, arising
out of or in connection with its failure to observe or comply with the
provisions of this Lease.
9. SIGNAGE
All signing shall comply with rules and regulations set forth by
Landlord as may be modified from time to time. Tenant shall place no window
covering (e.g.,
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shades, blinds, curtains, drapes, screens, or tinting materials), stickers,
signs, lettering, banners or advertising or display material on or near exterior
windows or doors if such materials are visible from the exterior of the
Premises, without Landlord's prior written consent. Similarly, Tenant may not
install any alarm boxes, foil protection tape or other security equipment on the
Premises without Landlord's prior written consent. Any material violating this
provision may be destroyed by Landlord without compensation to Tenant.
10. PERSONAL PROPERTY TAXES
Tenant shall pay before delinquency all taxes, assessments, license
fees and public charges levied, assessed or imposed upon its business operations
as well as upon all trade fixtures, leasehold improvements, merchandise and
other personal property in or about the Premises.
11. PARKING
Landlord grants to Tenant and Tenant's customers, suppliers, employees
and Invitees, a non-exclusive license to use the designated parking areas in the
Project for the use of motor vehicles during the term of this Lease. Landlord
reserves the right at any time to grant similar non-exclusive use to other
tenants, to promulgate rules and regulations relating to the use of such parking
areas, including reasonable restrictions on parking by tenants and employees, to
designate specific spaces for the use of any tenant, to make charges in the
parking layout from time to time, and to establish reasonable time limits on
parking. Overnight parking is prohibited and any vehicle violating this or any
other vehicle regulation adopted by Landlord is subject to removal at the
owner's expense.
12. UTILITIES (Strike and initial clause which does not apply).
a. OFFICE SPACE
Landlord shall provide, in the area shown on Exhibit A hereto as office
space, all heal, electricity and gas, during the hours of 8:00 a.m. to 6:00 p.m.
Monday through Friday, except legal holidays, and water for restroom facilities,
if any. If Tenant uses water, electricity, heat or in excess of normal office
use, Landlord may separately meter the increased use and Tenant shall pay the
increased cost directly to the appropriate utility; or Landlord may, in its sole
judgment, measure or estimate the increased use and Tenant shall pay Landlord,
on demand, any increased costs so measured or estimated. In any event, Tenant
shall pay all telephone, waste removal and any other services for which Tenant
shall contract.
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Landlord IB
Tenant DG
b. INDUSTRIAL SPACE
Tenant shall pay for all water, gas, heat, light, power, sewer,
electricity, telephone or other service metered, chargeable or provided to the
Premises. Landlord reserves the right to install separate meters for any such
utility and to charge Tenant for the cost of such installation.
Landlord IB
Tenant DG
13. MAINTENANCE
Landlord shall maintain, in good condition, the structural parts of the
Premises, which shall include only the foundations, bearing and exterior walls
(excluding glass), subflooring and roof (excluding skylights), the unexposed
electrical, plumbing and sewerage systems, including those portions of the
systems lying outside the Premises, gutters and downspouts on the Building and
the heating, ventilating and air conditioning system servicing the Premises;
provided, however, the cost of all such maintenance shall be considered
"Expenses" for purposes of Section 4.c. Except as provided above, Tenant shall
maintain and repair the Premises in good condition, including, without
limitation, maintaining and repairing all walls, storefronts, floors, ceilings,
interior and exterior doors, exterior and interior windows and fixtures and
interior plumbing as well as damage caused by Tenant, its agents, employees or
invitees. Upon expiration or termination of this Lease, Tenant shall surrender
the Premises to Landlord in the same condition as existed at the commencement of
the term, except for reasonable wear and tear or damage caused by fire or other
casualty for which Landlord has received all funds necessary for restoration of
the Premises from insurance proceeds.
14. ALTERATIONS
Tenant shall not make any alterations to the Premises, or to the
Project, including any changes to the existing landscaping, without Landlord's
prior written consent. If Landlord gives its consent to such alterations,
Landlord may post notices in accordance with the laws of the state in which the
premises are located. Any alterations made shall remain on and be surrendered
with the Premises upon expiration or termination of this Lease, except that
Landlord may, within 30 days before or 30 days after expiration of the term,
elect to require Tenant to remove any alterations which Tenant may have made to
the Premises. If Landlord so elects, at its
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own cost Tenant shall restore the Premises to the condition designated by
Landlord in its election, before the last day or the term or within 30 days
after notice of its election is given, whichever is later.
Should Landlord consent in writing to Tenant's alterations of the
Premises, Tenant shall contract with a contractor approved by Landlord for the
construction of such alterations, shall secure all appropriate governmental
approvals and permits, and shall complete such alterations with due diligence in
compliance with plans and specifications approved by Landlord. All such
construction shall be performed in a manner which will not interfere with the
quiet enjoyment of other tenants of the Project. Tenant shall pay all costs for
such construction and shall keep the Premises and the Project free and clear of
all mechanics' liens which may result from construction by Tenant.
15. RELEASE AND INDEMNITY
As material consideration to Landlord, Tenant agrees that Landlord
shall not be liable to Tenant for any damage to Tenant or Tenant's property from
any cause, and Tenant waives all claims against Landlord for damage to persons
or property arising for any reason, except for damage resulting directly from
Landlord's breach of its express obligations under this Lease which Landlord has
not cured within a reasonable time after receipt of written notice of such
breach from Tenant. Tenant shall indemnify and hold Landlord harmless from all
damages arising out of any damage to any person or property occurring in, on or
about the Premises to the extent caused by Tenant's use of the Premises or
Tenant's breach of any term of this Lease.
16. INSURANCE
Tenant, at its cost, shall maintain public liability and property
damage insurance and products liability insurance with a single combined
liability limit of $1,000,000, insuring against all liability of Tenant and its
representatives, employees, invitees, and agents arising out of or in connection
with Tenant's use or occupancy of the Premises. Public liability insurance,
products liability insurance and property damage insurance shall insure
performance by Tenant of the indemnity provisions of Section 15. Landlord shall
be named as additional insured and the policy shall contain cross-liability
endorsements. All insurance required to be provided by Tenant under this Lease
shall release Landlord from any claims for damage to any person or the Premises
and the Project, and to Tenant's fixtures, personal property, improvements and
alterations in or on the Premises or the Project, caused by or resulting from
risks insured against under any insurance policy carried by Tenant in force at
the time of such damage. All insurance required to be provided by Tenant under
this Lease: (a) shall be issued by insurance companies authorized to do business
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in the state in which the premises are located with a financial rating of at
least an A+XII status as rated in the most recent edition of Best's Insurance
Reports; (b) shall be issued as a primary policy; and (c) shall contain an
endorsement requiring at least 30 days prior written notice of cancellation to
Landlord and Landlord's lender, before cancellation or change in coverage, scope
or amount of any policy. Tenant shall deliver a certificate or copy of such
policy together with evidence of payment of all current premiums to Landlord
within 30 days of execution of this Lease. Tenant's failure to provide evidence
of such coverage to Landlord may, in Landlord's sole discretion, constitute a
default under this Lease.
17. DESTRUCTION
If during the term, the Premises or Project are more than 10% destroyed
from any cause, or rendered inaccessible or unusable from any cause, Landlord
may, in its sole discretion, terminate this Lease by delivery of notice to
Tenant within 30 days of such event without compensation to Tenant. If in
Landlord's estimation, the Premises cannot be restored within 90 days following
such destruction, the Landlord shall notify Tenant and Tenant may terminate this
Lease by delivery of notice to Landlord within 30 days of receipt of Landlord's
notice. If Landlord does not terminate this Lease and if in Landlord's
estimation the Premises can be restored within 90 days, then Landlord shall
commence to restore the Premises in compliance with then existing laws and shall
complete such restoration with due diligence. In such event, this Lease shall
remain in full force and effect, but there shall be an abatement of rent between
the date of destruction and the date of completion of restoration, based on the
extent to which destruction interferes with Tenant's use of the Premises.
18. CONDEMNATION
a. DEFINITIONS
The following definitions shall apply. (1) "Condemnation" means (a) the
exercise of any governmental power of eminent domain, whether by legal
proceedings or otherwise by condemnor and (b) the voluntary sale or transfer by
Landlord to any condemnor either under threat of condemnation or while legal
proceedings for condemnation are proceeding; (2) "Date of Taking" means the date
the condemnor has right to possession of the property being condemned; (3)
"Award" means all compensation, sums or anything of value awarded, paid or
received on a total or partial condemnation; and (4) "Condemnor" means any
public or quasi-public authority, or private corporation or individual, having
power of condemnation.
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b. OBLIGATIONS TO BE GOVERNED BY LEASE
If during the term of the Lease there is any taking of all or any part
of the Premises or the Project, the rights and obligations of the parties shall
be determined pursuant to this Lease.
c. TOTAL OR PARTIAL TAKING
If the Premises are totally taken by condemnation, this Lease shall
terminate on the date of taking. If any portion of the Premises is taken by
condemnation, this Lease shall remain in effect, except that Tenant can elect to
terminate this Lease if the remaining portion of the Premises is rendered
unsuitable for Tenant's continued use of Premises. If Tenant elects to terminate
this Lease, Tenant must exercise its right to terminate by giving notice to
Landlord within 30 days after the nature and extent of the taking have been
finally determined. If Tenant elects to terminate this Lease, Tenant shall also
notify Landlord of the date of termination, which date shall not be earlier than
30 days nor later than 90 days after Tenant has notified Landlord of its
election to terminate, except that this lease shall terminate on the date of
taking if the date of taking falls on a date before the date of termination as
designated by Tenant. If any portion of the Premises is taken by condemnation
and this Lease remains in full force and effect, on the date of taking the rent
shall be reduced by an amount in the same ratio as the total number of square
feet in the Premises taken bears to the total number of square feet in the
Premises immediately before the date of taking.
19. ASSIGNMENT OR SUBLEASE
Tenant shall not assign or encumber its interest in this Lease or the
Premises except to a parent, subsidiary or affiliate of Tenant, or sublease all
or any part of the Premises or allow any other person or entity (except Tenant's
authorized representatives, employees, invitees or guests) to occupy or use all
or any part of the Premises without first obtaining Landlord's consent which
shall not be unreasonably withheld. Any such assignment, encumbrance or sublease
without Landlord's written consent shall be voidable and at Landlord's election,
shall constitute a default. If Tenant is a partnership, a withdrawal or change,
voluntary, involuntary or by operation of law of any partner, or the dissolution
of the partnership, shall be deemed a voluntary assignment. If Tenant consists
of more than one person, a purported assignment, voluntary or involuntary or by
operation of law from one person to the other shall be deemed a voluntary
assignment.
No interest of Tenant in this Lease shall be assignable by involuntary
assignment through operation of law (including without limitation the transfer
of this Lease by testacy or intestacy). Each of the following acts shall be
considered an
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involuntary assignment: (a) if Tenant is or becomes bankrupt or insolvent, makes
an assignment for the benefit of creditors, or institutes proceedings under the
Bankruptcy Act in which Tenant is the bankrupt; or if Tenant is a partnership or
consists of more than one person or entity, if any partner of the partnership or
other person or entity is or becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors; or (b) if a writ of attachment or
execution is levied on this Lease; or (c) if in any proceeding or action to
which Tenant is a party, a receiver is appointed with authority to take
possession of the Premises. An involuntary assignment shall constitute a default
by Tenant and Landlord shall have the right to elect to terminate this Lease, in
which case this Lease shall not be treated as an asset of Tenant.
20. DEFAULT
The occurrence of any of the following shall constitute a default by
Tenant: (a) a failure to pay rent or other charge when due; (b) abandonment and
vacation of the Premises (failure to occupy and operate the Premises for ten
consecutive days shall be deemed an abandonment and vacation); or (c) failure to
perform any other provision of this Lease.
21. LANDLORD'S REMEDIES
Landlord shall have the following remedies if Tenant is in default.
(These remedies are not exclusive; they are cumulative and in addition to any
remedies now or later allowed by law): Landlord may terminate Tenant's right to
possession of the Premises at any time. No act by Landlord other than giving
notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to
relet the Premises, or the appointment of a receiver on Landlord's initiative to
protect Landlord's interest under this Lease shall not constitute a termination
of Tenant's right to possession. Upon termination of Tenant's right to
possession, Landlord has the right to recover from Tenant: (1) the worth of the
unpaid rent that had been earned at the time of termination of Tenant's right to
possession; (2) the worth of the amount of the unpaid rent that would have been
earned after the date of termination of Tenant's right to possession; (3) any
other amount, including but not limited to, expenses incurred to relet the
premises, court, attorney and collection costs, necessary to compensate Landlord
for all detriment caused by Tenant's default. "The Worth," as used for Item
21(l) in this Paragraph 21 is to be computed by allowing interest at the rate of
18 percent per annum. If the interest rate specified in this Lease is higher
than the rate permitted by law, the interest rate is hereby decreased to the
maximum legal interest rate permitted by law. "The Worth" as used for Item 21(2)
in this Paragraph 21 is to be computed by discounting the amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of termination of
Tenant's right of possession.
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22. ENTRY ON PREMISES
Landlord and its authorized representatives shall have the right to
enter the Premises at all reasonable times and upon reasonable notice for any of
the following purposes: (a) to determine whether the Premises are in good
condition and whether Tenant is complying with its obligations under this Lease;
(b) to do any necessary maintenance and to make any restoration to the Premises
or the Project that Landlord has the right or obligation to perform; (c) to post
"for sale" signs at any time during the term, to post "for rent" or "for lease"
signs during the last 90 days of the term, or during any period while Tenant is
in default; (d) to show the Premises to prospective brokers, agents, buyers,
tenants or persons interested in leasing or purchasing the Premises, at any time
during the term; or (e) to repair, maintain or improve the Project and to erect
scaffolding and protective barricades around and about the Premises but not so
as to prevent entry to the Premises and to do any other act or thing necessary
for the safety or preservation of the Premises or the Project. Landlord shall
not be liable in any manner for any inconvenience, disturbance, loss of
business, nuisance or other damage arising out of Landlord's entry onto the
Premises as provided in this Section 22. Tenant shall not be entitled to an
abatement or reduction of rent if Landlord exercises any rights reserved in this
Section 22. Landlord shall conduct his activities on the Premises as provided
herein in a manner that will cause the least inconvenience, annoyance or
disturbance to Tenant. For each of these purposes, Landlord shall at all times
have and retain a key with which to unlock all the doors in, upon and about the
Premises, excluding Tenant's vaults and safes. Tenant shall not alter any lock
or install a new or additional lock or bolt on any door of the Premises without
prior written consent of Landlord. If Landlord gives its consent, Tenant shall
furnish Landlord with a key for any such lock.
23. SUBORDINATION
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, and at the election of
Landlord or any mortgagee or any beneficiary of a Deed of Trust with a lien on
the Project or any ground lessor with respect to the Project, this Lease shall
be subject and subordinate at all times to (a) all ground leases or underlying
leases which may now exist or hereafter be executed affecting the Project, and
(b) the lien of any mortgage or deed of trust which may now exist or hereafter
be executed in any amount for which the Project, ground leases or underlying
leases, or Landlord's interest or estate in any of said items is specified as
security. In the event that any ground lease or underlying lease terminates for
any reason or any mortgage or Deed of Trust [_______________________] in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the
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successor in interest to Landlord, at the option of such successor in interest.
Tenant covenants and agrees to execute and deliver, upon demand by Landlord and
in the form requested by Landlord any additional documents evidencing the
priority or subordination of this Lease with respect to any such ground lease or
underlying leases or the lien of any such mortgage or Deed of Trust. Tenant
hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute,
deliver and record any such document in the name and on behalf of Tenant.
Tenant, within ten days from notice from Landlord, shall execute and
deliver to Landlord, in recordable form, certificates stating that this Lease is
not in default, is unmodified and in full force and effect, or in full force and
effect as modified, and stating the modifications. This certificate should also
state the amount of current monthly rent, the dates to which rent has been paid
in advance, and the amount of any security deposit and prepaid rent. Failure to
deliver this certificate to Landlord within ten days shall be conclusive upon
Tenant that this Lease is in full force and effect and has not been modified
except as may be represented by Landlord.
24. NOTICE
Any notice, demand, request, consent, approval or communication desired
by either party or required to be given, shall be in writing and served either
personally or sent by prepaid certified first class mail, addressed as set forth
in Section 1. Either party may change its address by notification to the other
party. Notice shall be deemed to be communicated 48 hours from the time of
mailing, or from the time of service as provided in this Section 24.
25. WAIVER
No delay or omission in the exercise of any right or remedy by Landlord
shall impair such right or remedy or be construed as a waiver. No act or conduct
of Landlord, including without limitation, acceptance of the keys to the
Premises, shall constitute an acceptance of the surrender of the Premises by
Tenant before the expiration of the term. Only written notice from Landlord to
Tenant shall constitute acceptance of the surrender of the Premises and
accomplish termination of the Lease. Landlord's consent to or approval of any
act by Tenant requiring Landlord's consent or approval shall not be deemed to
waive or render unnecessary Landlord's consent to or approval of any subsequent
act by Tenant. Any waiver by Landlord of any default must be in writing and
shall not be a waiver of any other default concerning the same or any other
provision of the Lease.
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26. SURRENDER OF PREMISES; HOLDING OVER
Upon expiration of the term, Tenant shall surrender to Landlord the
Premises and all Tenant improvements and alterations in good condition, except
for ordinary wear and tear and alterations. Tenant has the right or is obligated
to remove under the provisions of Section 14 herein. Tenant shall remove all
personal property including, without limitation, all wallpaper, paneling and
other decorative improvements or fixtures and shall perform all restoration made
necessary by the removal of any alterations or Tenant's personal property before
the expiration of the term, including for example, restoring all wall surfaces
to their condition prior to the commencement of this Lease. Landlord can elect
to retain or dispose of in any manner Tenant's personal property not removed
from the Premises by Tenant prior to the expiration of the term. Tenant waives
all claims against Landlord for any damage to Tenant resulting from Landlord's
retention or disposition of Tenant's personal property. Tenant shall be liable
to Landlord for Landlord's cost for storage, removal or disposal of Tenant's
personal property.
If Tenant, with Landlord's consent, remains in possession of the
Premises after expiration or termination of the term, or after the date in any
notice given by Landlord to Tenant terminating this Lease, such possession by
Tenant shall be deemed to be a month-to-month tenancy terminable on written
30-day notice at any time, by either party. All provisions of this Lease, except
those pertaining to term and rent, shall apply to the month-to-month tenancy.
Tenant shall pay monthly rent in an amount equal to 125% of Rent for the last
full calendar month during the regular term plus 100% of said last month's
estimate of Tenant's share of Expenses pursuant to Section 4.c.3.
27. LIMITATION OF LIABILITY
In consideration of the benefits accruing hereunder, Tenant agrees
that, in the event of any actual or alleged failure, breach or default of this
Lease by Landlord, if Landlord is a partnership:
a. The sole and exclusive remedy shall be against the
partnership and its partnership assets;
b. No partner of Landlord shall be sued or named as a party in
any suit or action, except as required by law in order to maintain an action
against the partnership and its partnership assets.
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c. No service of process shall be made against any partner of
Landlord, except as required by law in order to maintain an action against the
partnership and its partnership assets.
d. No partner of Landlord shall be required to answer or
otherwise plead to any service or process;
e. No judgment may be taken against any partner of Landlord;
f. Any judgment taken against any partner of Landlord shall be
vacated and set aside at any time without hearing;
g. No writ of execution will ever be levied against the assets
of any partner of Landlord;
h. These covenants and agreements are enforceable both by
Landlord and also by any partner of Landlord.
Tenant agrees that each of the foregoing provisions shall be applicable
to any covenant or agreement either expressly contained in this Lease or imposed
by statute or at common law.
28. MISCELLANEOUS PROVISIONS
a. TIME OF ESSENCE. Time is of the essence of each provision
of this Lease.
b. SUCCESSOR. This Lease shall be binding on and inure to the
benefit of the parties and their successors, except as provided in Section 19
herein.
c. LANDLORD'S CONSENT. Any consent required by Landlord under
this Lease must be granted in writing and may be withheld or conditioned by
Landlord in its sole and absolute discretion, unless otherwise provided.
d. COMMISSIONS. Each party represents that it has not had
dealings with any real estate broker, finder or other person, with respect to
this Lease in any manner, except for the broker identified in Section 1, who
shall be compensated by Landlord.
e. OTHER CHARGES. If Landlord becomes a party to any
litigation concerning this Lease, the Premises or the Project, by reason of any
act or omission of Tenant or Tenant's authorized representatives, Tenant shall
be liable to Landlord for reasonable attorney's fees and court costs incurred by
Landlord in the litigation.
-19-
<PAGE> 21
Should the court render a decision which is thereafter appealed by any party
thereto, Tenant shall be liable to Landlord for reasonable attorneys' fees and
court costs incurred by Landlord in connection with such appeal.
If either party commences any litigation against the other party or
files an appeal of a decision arising out of or in connection with the Lease,
the prevailing party shall be entitled to recover from the other party
reasonable attorney's fees and costs of suit. If Landlord employs a collection
agency to recover delinquent charges, Tenant agrees to pay all collection agency
and attorneys' fees charged to Landlord in addition to rent, late charges,
interest and other sums payable under this Lease. Tenant shall pay a charge of
$75 to Landlord for preparation of a demand for delinquent rent.
f. LANDLORD'S SUCCESSORS. In the event of a sale or conveyance
by Landlord of the Project, the same shall operate to release Landlord from any
liability under this Lease, and in such event Landlord's successor in interest
shall be solely responsible for all obligations of Landlord under this Lease.
g. INTERPRETATION. This Lease shall be construed and
interpreted in accordance with the laws of the state in which the premises are
located. This Lease constitutes the entire agreement between the parties with
respect to the Premises and the Project, except for such guarantees or
modifications as may be executed in writing by the parties from time to time.
When required by the context of this Lease, the singular shall include the
plural, and the masculine shall include the feminine and/or neuter. "Party"
shall mean Landlord or Tenant. If more than one person or entity constitutes
Landlord or Tenant, the obligations imposed upon that party shall be joint and
several. The enforceability, invalidity or illegality of any provision shall not
render the other provisions unenforceable, invalid or illegal.
Landlord: /s/ I.I. Bitners July 23, 1997
------------------------------
By owner
----------------------------
By
----------------------------
Tenant: s/s David Guiliani
----------------------------
By its President and CEO
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By 7/29/97
----------------------------
-20-
<PAGE> 1
[LOGO] The Evans Company
LEASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page
------- ----- ----
<S> <C> <C>
Lease Summary
1 Premises 1
2 Term 1
3 Rent 1 & 2
4 Security Deposit 2
5 Property Taxes and Insurance 2 & 3
6 Personal Property Taxes 3
7 Insurance and Indemnity 3 & 4
8 Use, Signs, Liens 4 & 5
9 Utilities and Janitor Service 5
10 Maintenance of Premises 5 & 6
11 Common Areas 6
12 Alterations 6 & 7
13 Assignment and Subletting 7
14 Access By Landlord 7
15 Damage or Destruction 7
16 Default or Re-Entry 8
17 Late Charges 8
18 Costs and Attorney's Fees 8
19 Non-Waiver of Breach 8
20 Removal of Property 8 & 9
21 Heirs and Successors 9
22 Hold-Over 9
23 Subordination, Quiet Enjoyment 9
24 Personal Property and Trade Fixtures 9
25 Condemnation 9 & 10
26 Notices 10
27 Corporate Authority 10
28 Miscellaneous 10
29 Hazardous and Toxic Waste Materials 10 & 11
30 Special Articles 11
</TABLE>
Exhibit
A Legal Description
B Site Plan
C Description of Landlord's and Tenant's
Work of Improvement
C-1 Demising Plan of Premises
D Corporate Resolution of Tenant
<PAGE> 2
LEASE SUMMARY
<TABLE>
<S> <C>
LEASE DATE: April 29,1996
LANDLORD: The Evans Company
ADDRESS OF LANDLORD: 1457 130th Ave NE
Bellevue WA 98005
TELEPHONE: 454-8211
TENANT'S TRADE NAME: Optiva Corporation
ADDRESS OF TENANT (Address of Premises): 13222 SE 30th St. Suite A-1
Bellevue WA 98005
TELEPHONE AT PREMISES: 957-0970
BUSINESS HOME OFFICE ADDRESS:
BUSINESS HOME OFFICE TELEPHONE:
OWNER RESIDENCE ADDRESS:
OWNER RESIDENCE TELEPHONE:
PREFERRED MAILING ADDRESS FOR NOTICES: xx PREMISES
BUSINESS HOME OFFICE
OWNER RESIDENCE
LEASED PREMISES: BUILDING A
SPACE(S) 1
SQUARE FEET OF PREMISES APPROXIMATELY 12,540
LEASE TERM: 24 MONTHS
LEASE COMMENCEMENT DATE: August 1, 1996
RENT COMMENCEMENT DATE: August 1,1996
LEASE TERMINATION DATE: July 31, 1998
MINIMUM MONTHLY RENT: Nine Thousand Four Hundred Five and
NO/100 Dollars ($9,405.00)
PER MONTH AS INCREASED BY THE TERMS OF THE LEASE.
SECURITY DEPOSIT: Seven Thousand Five Hundred and NO/100
Dollars ($7,500.00) from prior lease
PERMITTED USES: Office, assembly, light manufacturing,
distribution and warehouse storage
GUARANTOR:
ADDRESS OF GUARANTOR: 13222 SE 30th St. Suite A-1
(Business Address) Bellevue WA 98005
TELEPHONE NO: 957-0970
</TABLE>
Landlord's Initials /s/
Tenant's Initials /s/
<PAGE> 3
LEASE AGREEMENT
THIS LEASE, dated for reference purposes only, April 29, 1996, is made by
and between The Evans Company hereinafter ("Landlord") and Optiva Corporation
(hereinafter "Tenant"). For and in consideration of the rental and of the
covenants and agreements hereinafter set forth to be kept and performed by the
Tenant, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the Premises herein described for the term, at the rental and subject to and
upon all of the terms, covenants and agreements hereinafter set forth.
1.1 PREMISES
1.1 PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord that certain space (herein called "Premises") containing
approximately 12,540 square feet of floor area, the approximate location of
which is shown crosshatched on Exhibit B attached hereto. The Premises are
located in Mercer Park, the legal description of which is set forth on Exhibit A
attached hereto, which is in the City of Bellevue, County of King, State of
Washington. The address of the Premises is as follows: 13222 SE 30th St. Suite
A-1, Bellevue WA 98005. This Lease is subject to the terms, covenants and
conditions herein set forth and the Tenant covenants as a material part of the
consideration for this Lease to keep and perform each and all of said terms,
covenants and conditions by it to be kept and performed.
1.2 WORK OF IMPROVEMENT. The obligations of Landlord and Tenant to
perform the work and supply material and labor to prepare the Premises for
occupancy are set forth in detail in Exhibits C and C-1. Landlord and Tenant
shall expend all funds and do all acts required in Exhibit C and C-1 and shall
have the work performed promptly and diligently in a first-class workmanlike
manner. By taking possession of the premises, Tenant acknowledges that it has
examined the Premises and accepts the Premises in their condition at the time of
taking possession thereof.
2. TERM
2.1 TERM. The Term of this Lease shall be for 24 months commencing
August 1, 1996 and ending on July 31, 1998 unless sooner terminated pursuant to
this Lease. The rent commencement date shall be August 1, 1996 ("Rent
Commencement Date").
2.2 COMMENCEMENT. Tenant agrees that in the event of the inability of
Landlord for any reason to deliver possession of the Premises to Tenant on the
commencement date set forth in Section 2.1, Landlord shall not be liable for any
damage thereby nor shall such inability affect the validity of this Lease or the
obligations of Tenant hereunder, but in such case Tenant shall not be obligated
to pay rent or other monetary sums until possession of the Premises is tendered
to Tenant; provided that if the delay in delivery of possession exceeds thirty
(30) days, then the expiration date of the term of the Lease shall be extended
by the period of time computed from the scheduled commencement date to the date
possession is tendered. In the event Landlord shall not have delivered
possession of the Premises within four (4) months from the scheduled
commencement date, then Tenant at its option to be exercised within thirty (30)
days after the end of said four (4) month period may terminate this Lease and
upon Landlord's return of any moneys previously deposited by Tenant the parties
shall have no further rights or liabilities toward each other. If Tenant
occupies the Premises prior to said commencement date, such occupancy shall be
subject to all provisions hereof, such occupancy shall not advance the
termination date and Tenant shall pay rent for such period at the initial
monthly rates as set forth below.
2.3 DELIVERY OF POSSESSION. Tenant shall be deemed to have taken
possession of the Premises when any of the following occur: (a) Landlord
delivers possession of the Premises to Tenant and a Certificate of Occupancy is
granted by the proper governmental agency, (b) upon a letter from Landlord that
the Premises are ready for occupancy, or (c) upon occupancy by the Tenant.
3. RENT
3.1 MINIMUM MONTHLY RENT. Tenant shall pay to Landlord as Minimum
Monthly Rent for THE Premises the sum of Nine Thousand Four Hundred Five and
NO/100 Dollars ($9,405.00) per month,
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<PAGE> 4
which sum shall be paid in advance on the first day of each calendar month
beginning with the Rent Commencement Date and thereafter throughout the term of
the Lease. All rent to be paid by Tenant to Landlord shall be paid in lawful
money of the United States of America and shall be without deduction or offset,
prior notice or demand, and at such place or places as may be designated from
time to time by Landlord. If the Rent Commencement date is not the first day of
a month, or if the Lease termination date is not the last day of a month, a pro
rated monthly installment shall be paid at the then current rate for the
fractional month during which the Lease commences and/or terminates.
Concurrently with Tenant's execution of this Lease, Tenant shall pay to Landlord
the sum Eleven Thousand Six Hundred Eighty-five and NO/100 Dollars ($11.685.00)
as Minimum Monthly Rent and Adjustments for August 1996.
The Minimum Monthly Rent shall be increased or decreased by the
percentage of change, if any, in the Consumer Price Index - All Urban Consumers,
All ltems (1982 - 84 = 100) equals Base ("CPI"), as published by the United
States Department of Labor's Bureau of Labor Statistics. The base period, for
purposes of such adjustment, shall be the CPI for the fourth calendar month
immediately preceding the first Lease Year (the "Base CPI"). The Minimum Monthly
Rent shall be adjusted for each Lease Year after the first Lease Year on the
basis of the percentage change in the CPI for the fourth calendar month
immediately preceding the Lease Year subject to adjustment compared to the Base
CPI. In no event, however, shall the rent payable in any Lease Year be reduced
below the Minimum Monthly Rent. Should the CPI be discontinued, the parties
shall select another similar index which reflects consumer prices and if the
parties cannot agree on another index it shall be selected by the Superior Court
of the County in which the premises are located.
(By way of illustration only, if the Base CPI is 190 and the CPI figure
for the fourth month before the second Lease Year is 195, then the Minimum
Monthly Rent for the second lease year shall be increased by 2.63%.)
3.2 ADJUSTMENTS. In addition to the Minimum Monthly Rent provided in
Section 3.1 above, Tenant shall pay to Landlord in monthly installments the
Tenant's portion of those items, herein called "Adjustments", delineated in
Sections 5, 9, 10 and 11. Upon commencement of the Term Landlord shall submit to
Tenant a statement of the anticipated monthly Adjustments for the period between
such commencement and the following January and Tenant shall pay same and all
subsequent monthly payments concurrently with the payment of Minimum Monthly
Rent. Tenant shall continue to make said monthly payments until notified by
Landlord of a change thereof. By March 1 of each year Landlord shall endeavor to
give Tenant a statement showing the total Adjustments for the Mercer Park for
the prior calendar year and Tenant's allocable share thereof, prorated from the
commencement of rental. Tenant's pro rata share, where applicable, shall be
determined in accordance with the total floor area of the Premises as it relates
to the total gross leasable floor area of the building or buildings of which the
Premises are a part. In the event the total of the monthly payments which Tenant
has made for the prior calendar year are less than the Tenant's actual share of
such Adjustments then Tenant shall pay the difference in a lump sum within ten
days after receipt of such statement from Landlord and shall concurrently pay
the difference on monthly payments made in the then calendar year and the amount
of monthly payments which are then calculated as monthly Adjustments based on
the prior year's experience. Any overpayment by Tenant shall be credited towards
the monthly Adjustments next coming due. The actual Adjustments for the prior
year shall be used for purposes of calculating the anticipated monthly
Adjustments for the then current year, with actual determination of such
Adjustments after each calendar year as above provided. Even though the term has
expired and Tenant has vacated the Premises, when the final determination is
made of Tenant's share of said Adjustments for the year in which this Lease
terminated, Tenant shall immediately pay any increase due over the estimated
Adjustments previously paid and, conversely, any overpayment made shall be
immediately rebated by Landlord to Tenant.
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Tenant's Initials /s/
<PAGE> 5
4. SECURITY DEPOSIT
Concurrently with Tenant's execution of this Lease, Tenant shall
deposit with Landlord the sum of Seven Thousand Five Hundred and NO/100 Dollars
($7,500.00) transferred from prior lease . Said sum shall be held by Landlord as
a Security Deposit for the faithful performance by Tenant of all of the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults with respect to any provisions of
this Lease, including but not limited to the provisions relating to the payment
of rent and any of the monetary sums due herewith, Landlord may (but shall not
be required to) use, apply or retain all or any part of this Security Deposit
for the payment of any other amount which Landlord may spend or become obligated
to spend by reason of Tenant's default or to compensate Landlord for any other
loss or damage which Landlord may suffer by reason of Tenant's default. If any
portion of said Deposit is so used or applied, Tenant shall, within ten (10)
days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount; Tenant's
failure to do so shall be material breach of this Lease. Landlord shall not be
required to keep this Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on such Deposit. If Tenant shall fully
and faithfully perform every provision of this Lease to be performed by it, the
Security Deposit or any balance thereof shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interest hereunder) at the
expiration of the Lease term and after Tenant has vacated the Premises. In the
event of termination of Landlord's interest in this Lease, Landlord shall
transfer said Deposit to Landlord's successor in interest, whereupon Tenant
agrees to release Landlord from all liability for the return of such Deposit or
the accounting therefore.
5. ADJUSTMENTS FOR REAL PROPERTY TAXES AND INSURANCE
In addition to the Minimum Monthly Rent provided in Section 3.1 above,
and commencing as of the commencement of the term of the Lease, Tenant shall pay
to Landlord in monthly installments, the Tenant's portion of the following items
herein called "Adjustments":
All insurance premiums paid on policies, maintained by Landlord with
respect to the Premises, including land, building and improvements including
without limitation, all premiums for fire, extended coverage, liability and with
respect to the Premises and all real estate taxes imposed on the Premises or
arising in respect to the occupancy, use or possession of the Premises. Real
property taxes shall include, without limitation, all assessments whether
general, special, ordinary, extraordinary, unforeseen or foreseen, of any kind
or nature levied, imposed or to become a lien upon or against the Premises and
any building, structure, fixture, improvement, personal property or inventory
now or hereafter located thereon, assessment or improvement bonds for water,
sewer, road and other public purposes, license, permit and inspection fees and
taxes, commercial rental tax and any other public charge, levy, or assessment
against any interest in the Premises or the real property of which the Premises
are a part, or against Landlord's right to rent or other income therefrom (other
than income taxes). All of the foregoing expenses shall be apportioned in
accordance with the Tenant's "pro rata share" which shall be determined in
accordance with the total floor area of the Premises as it relates to the total
gross leasable floor area of the building or buildings which the Premises are a
part; provided, however, that if any tenants in said building or buildings pay
taxes directly to any taxing authority or carry their own insurance, as may be
provided in their leases, their square footage shall not be deemed a part of the
floor area for purposes of prorating such expenses.
6. PERSONAL PROPERTY TAXES
Tenant shall pay, before delinquency, all taxes, assessments, license
fees and public charges levied, assessed or imposed upon or measured by the
value of its business operation, including but not limited to the furniture,
fixtures, leasehold improvements, equipment and other property of Tenant at any
time situated on or installed in the Premises by Tenant. If at any time during
the term of this Lease any of the foregoing are assessed as part of the real
property of which the Premises are a part, Tenant shall pay
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Tenant's Initials /s/
<PAGE> 6
to Landlord upon demand the amount of such additional taxes as may be levied
against said real property by reason thereof. For the purpose of determining
said amount, figures supplied by the County Assessor as to the amount so
assessed shall be conclusive.
7. INSURANCE AND INDEMNITY
7.1 INDEMNIFICATION. It is understood and agreed that Landlord shall
not be liable for injury to any person, or for the loss of or damage to any
property (including property of Tenant) occurring in or about the Premises from
any cause whatsoever except for Landlord's negligence, reckless or willful
misconduct. Tenant hereby indemnifies and holds Landlord harmless from and
against and agrees to defend Landlord against any and all claims, charges,
liabilities, obligations, penalties, damages, costs and expenses (including
attorney's fees) arising, claimed, charged or incurred against or by Landlord
from any matter or thing arising from Tenant's use of the Premises, the conduct
of its business or from any activity, work or other things done, permitted or
suffered by the Tenant in or about the Premises, and Tenant shall further
indemnify and hold harmless Landlord from and against any and all claims arising
from any breach or default in the performance of any obligation on Tenant's part
to be performed under the terms of this Lease, or arising from any act or
negligence of the Tenant, or any officer, agent, employee, guest, or invitee of
Tenant, and from all costs, attorney's fees and liabilities incurred in or about
the defense of any such claim or any action or proceeding brought thereon and in
case any action or proceeding be brought against Landlord by reason of such
claim. Tenant, upon notice from Landlord, shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Landlord. Tenant as a material
part of the consideration to Landlord hereby assumes all risk of damage to
property or injury to persons in, upon or about the Premises, from any cause
other than Landlord's negligence, or willful misconduct, and Tenant hereby
waives all claims in respect thereof against Landlord. The indemnification
provided for in this Section with respect to any acts or omissions during the
term of this Lease shall survive any termination or expiration of this Lease.
Landlord and its agents shall not be liable for any loss or damage to persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water or rain which may leak from any part of the Premises or from
pipes, appliances or plumbing works therein or from the roof, street or
subsurface or from any other place resulting from dampness or any other cause
whatsoever, unless caused by or due to the negligence of Landlord, its agents,
servants or employees. Landlord and its agents shall not be liable for
interference with the light, air or for any latent defect on the Premises.
Tenant shall give prompt notice to Landlord in case of casualty or accidents on
the Premises.
7.2 INSURANCE. During the entire Lease Term the Tenant shall, at its
own expense, maintain adequate liability insurance with a reputable insurance
company or companies with minimum amounts of $1,000,000.00 Combined Single
Limits (including bodily injury and property damage) to indemnify both Landlord
and Tenant against any such claims, demands, losses, damages, liabilities and
expenses. Landlord shall be named as one of the insureds and shall be furnished
with a copy of such policy or policies of insurance, which shall bear an
endorsement that the same shall not be canceled except upon not less than twenty
(20) days prior written notice to Landlord. Tenant shall also at its own expense
maintain, during the Lease Term, insurance covering its furniture, fixtures,
equipment and inventory in an amount equal to the full insurable value thereof,
against fire and risks covered by standard extended coverage endorsement and
insurance covering all plate glass and other glass on the Premises. Tenant shall
provide Landlord with copies of the policies of insurance or certificates
thereof. If Tenant fails to maintain such insurance, Landlord may maintain the
same on behalf of Tenant. Any premiums paid by Landlord shall be deemed
additional rent and shall be due on the payment date of the next installment of
Minimum Monthly Rental hereunder.
7.3 INCREASE IN INSURANCE PREMIUM. Tenant shall not keep, use, sell or
offer for sale in or upon the Premises any article which may be prohibited by
the standard form of fire insurance policy. Tenant shall pay any increase in
premiums for casualty and fire (including extended coverage) insurance that may
be charged during the Term of this Lease on the amount of such insurance which
may be carried by
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<PAGE> 7
Landlord on the Premises or the building of which they are a part, resulting
from Tenant's occupancy or from the type of merchandise which Tenant stores or
sells on the Premises, whether or not Landlord has consented thereto. In such
event, Tenant shall also pay any additional premium on the insurance policy that
Landlord may carry for its protection against rent loss through fire or
casualty. In determining whether increased premiums are the result of Tenant's
use of the Premises, a schedule, issued by the organization setting the
insurance rate on the Premises, showing the various components of such rate,
shall be conclusive evidence of the several items and charges which make up the
casualty and fire insurance rate on the Premises. Landlord shall deliver bills
for such additional premiums to Tenant at such times as Landlord may elect, and
Tenant shall immediately reimburse Landlord therefor.
7.4 WAIVER OF SUBROGATION. Landlord and Tenant hereby mutually release
each other from liability and waive all right of recovery against each other for
any loss in or about the Premises, from perils insured against under their
respective fire insurance contracts, including any extended coverage
endorsements thereof, whether due to negligence or any other cause; provided
that this Section shall be inapplicable if it would have the effect, but only to
the extent it would have the effect, of invalidating any insurance coverage of
Landlord or Tenant.
7.5 COMPANIES. Insurance required hereunder shall be issued by
companies rated AAA or better in "Bests" Insurance Guide.
7.6 CERTIFICATE OF INSURANCE. A certificate issued by the insurance
carrier for each policy of insurance required to be maintained by Tenant under
the provisions of this Lease shall be delivered to Landlord on or before the
commencement date of the Lease Term hereof and thereafter, as respects policy
renewals, within thirty (30) days prior to the expiration of the term of each
such policy. Each of said certificates of insurance and each such policy of
insurance required to be maintained by Tenant hereunder shall expressly evidence
insurance coverage as required by this Lease. All such policies shall be written
as primary policies not contributing with and not in excess of coverage which
Landlord may carry.
8. USE
8.1 USE. The Premises shall be used and occupied by Tenant for only the
following purposes and for no other purposes whatsoever without obtaining the
prior written consent of Landlord: office, assembly, light manufacturing,
distribution and warehouse storage.
8.2 SUITABILITY. If the Premises are completed as of the date of
execution hereof, then Tenant, by execution of this Lease, shall be deemed to
have accepted the Premises in the condition existing as of the date of execution
and in any event this Lease shall be subject to all applicable zoning ordinances
and to any municipal, county and state laws and regulations governing and
regulating the use of the Premises. Tenant acknowledges that neither Landlord
nor Landlord's agent has made any representation or warranty as to the
suitability of the Premises for the conduct of Tenant's business.
8.3 USES PROHIBITED. Tenant shall not do or permit anything to be done
in or about the Premises which will increase the existing rate of insurance upon
the Premises (unless Tenant shall pay any increased premium as a result of such
use or acts) or cause the cancellation of any insurance policy covering said
Premises or any building of which the Premises may be a part, nor shall Tenant
sell or permit to be kept, used or sold in or about said Premises any articles
which may be prohibited by a standard form policy of fire insurance.
Tenant shall not do or permit anything to be done in or about the
Premises which will obstruct or interfere with the rights of other tenants or
occupants of any building of which the Premises may be a part or injure or annoy
them or use or allow the Premises to be used for any unlawful, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon or about the
Premises.
Tenant shall not dispose of nor otherwise allow the release of any
hazardous waste or substance in, on or under the Premises, any improvements
placed thereon or any adjacent property.
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Tenant represents and warrants to Landlord that Tenant's intended use of the
Premises does not involve the use, production, disposal or bringing on the
Premises of any hazardous waste or substance of types other than, or in
quantities in excess of, those normally incident to the use of the Premises for
general office use. For purposes of this Lease the term "hazardous waste or
substance" shall mean any substance, waste or material defined or designated as
hazardous, toxic or dangerous (or any similar term) by any federal, state or
local statute regulation, rule or ordinance now or hereafter in effect.
Tenant shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law, statute, zoning
restriction, ordinance or governmental rule or regulation or requirements or
duly constituted public authorities now in force or which may hereafter be
enacted or promulgated. Tenant shall at its sole cost and expense promptly
comply with all laws, statutes, ordinances and governmental rules, regulations
or requirements now in force or which may hereafter be in force and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises. The judgment of any court of competent jurisdiction, whether
Landlord be a party thereto or not, that Tenant has violated any law, statute,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
8.4 SIGNS.
(a) GENERAL. Tenant shall not place or suffer to be placed on
the exterior walls of the Premises or upon the roof or any exterior door or wall
or on the exterior or interior of any window thereof any sign, awning, canopy,
marquee, advertising matter, decoration, letter or other thing of any kind
(exclusive of signs, if any, which may be provided for in the original
construction or improvement plans and specifications approved by the Landlord or
Tenant herein, and which conform to the Landlord's sign criteria as specified in
Exhibit F attached hereto if applicable) without the prior written consent of
Landlord. Landlord hereby reserves the exclusive right to the use for any
purpose whatsoever of the roof and exterior of the walls of the Premises or the
Building of which the Premises are a part.
(b) TENANT'S INTERIOR SIGNS. Except as otherwise herein
provided, Tenant shall have the right, at its sole cost and expense, to erect
and maintain within the Interior of the Premises all signs and advertising
matter customary or appropriate in the conduct of Tenant's business; provided,
however, that Tenant shall upon demand of the Landlord immediately remove any
sign, advertisement, decoration, lettering or notice which Tenant has placed or
permitted to be placed in, upon or about the Premises and which Landlord
reasonably deems objectionable or offensive, and if Tenant fails or refuses do
to so, the Landlord may enter upon the Premises and remove the same at Tenant's
cost and expense.
8.5 LIENS. Tenant shall keep the Premises and any building of which the
Premises are a part free from any liens arising out of work performed, materials
furnished or obligations incurred by Tenant and shall indemnify, hold harmless
and defend Landlord from any liens and encumbrances arising out of any work
performed or material furnished by or at the direction of Tenant. In the event
that Tenant shall not, within twenty (20) days following the imposition of any
such lien, cause such lien to be released of record by payment or posting of a
proper bond not to be less than 120% of the lien claim, Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but not
the obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All such sums
paid by Landlord and all expenses incurred by it in connection therewith
including attorney's fees and costs shall be payable to Landlord by Tenant on
demand. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or which Landlord shall
deem proper, for the protection of Landlord and the Premises, and any other
party having an interest therein, from mechanics' and materialmen liens, and
Tenant shall give to Landlord at least ten (10) business days prior written
notice of the expected date of commencement of any work relating to alterations
or additions to the Premises.
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9. UTILITIES AND JANITOR SERVICE
Tenant shall be liable for and shall pay throughout the term of this
Lease all charges for utilities, including but not limited to electricity, heat,
oil, gas and water consumed upon the leased Premises and telephone, sewage,
drainage and garbage disposal services, if any, including any charges imposed
for such services by the Municipality of Metropolitan Seattle; and shall
provide its own janitor services and replacement of light bulbs and tubes and
all washroom and toilet supplies. If any such services are not separately
metered to Tenant, Tenant shall pay its pro rata share as specified in Section
3.2 above.
10. MAINTENANCE OF PREMISES
10.1 MAINTENANCE AND REPAIR BY TENANT. Tenant shall at all times
throughout the Lease Term at its sole cost and expense, keep the Premises
(including exterior doors and entrances, all windows and mouldings and trim of
all doors and windows) and all partitions, door surfaces, fixtures, equipment
and appurtenances thereof (including lighting, heating and plumbing fixtures and
any air conditioning system) in good order, condition and repair, damage by
unavoidable casualty excepted (but not excluding damage from burglary or
attempted burglary of the Premises). When there is an air conditioning system,
Landlord will contract for service checks and filter changes and Tenant agrees
to pay for such service calls and filter changes on the units serving Tenant's
Premises, all as set forth in Section 3.2 above. Without limiting the
generalities thereof, Tenant shall keep the glass of all windows, doors, and
showcases clean and presentable; replace immediately all broken glass in the
Premises; at reasonable intervals paint or refinish the interior of the
Premises; make any necessary repairs to, or replacements of, all door closure
apparatuses and mechanisms; keep all plumbing clean and in good state of repair
including pipes, drains, toilets, basins and those portions of the heating
system within the walls of the Premises; and keep all utilities within the
Premises in a good state of repair.
10.2 FAILURE TO MAINTAIN. If Tenant fails to keep and preserve the
Premises as set forth in Section 10.1 above, Landlord may at its option, put or
cause the same to be put in the condition and state of repair agreed upon, and
in such case, upon receipt of written statements from Landlord, Tenant shall
promptly pay the entire cost thereof as additional rent. Landlord shall have the
right, without liability, to enter the Premises for the purpose of making such
repairs.
10.3 REPAIRS BY LANDLORD. Landlord shall keep the roof, exterior walls,
foundations and buildings structure of the Premises in a good state of repair,
and shall accomplish such repairs as may be needed promptly after receipt of
written notice from Tenant. Should such repairs be required by reason of
Tenant's negligent acts, Tenant shall promptly pay Landlord for the cost
thereof as additional rent. Tenant shall immediately inform Landlord of any
necessary repairs and Tenant shall make none of such repairs without Landlord's
prior written consent. Landlord shall not be liable for any failure to make any
such repairs or to perform any maintenance required of Landlord hereunder unless
such failure shall persist for an unreasonable time after written notice of the
need of such repair is given to Landlord by Tenant. Except as otherwise
specifically provided herein, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or improvements in
or to any portion of the Premises or building of which the Premises is a part or
in or to fixtures, appurtenances and equipment herein.
10.4 SURRENDER OF PREMISES. At the expiration or sooner termination of
this Lease, Tenant shall return the Premises to Landlord in the same condition
in which received (or, if altered by Landlord or by Tenant with the Landlord's
consent, then the Premises shall be returned in such altered condition),
reasonable wear and tear excepted. Tenant shall remove all trade fixtures,
appliances and equipment which do not become a part of the Premises and
alterations which Landlord designates to be removed, and shall restore the
Premises to the condition they were in prior to the Installation of said items.
Tenant's obligation to perform this covenant shall survive the expiration or
termination of this Lease.
10.5 TAKING POSSESSION. By taking possession, Tenant shall be deemed to
have accepted the Premises as being in good and sanitary order, condition and
repair.
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11. COMMON AREAS
11.1 CONTROL OF COMMON AREAS BY LANDLORD. Landlord shall at all times
have the exclusive control and management of the Common Areas which shall
include but not be limited to all automobile parking areas, access roads,
driveways, entrances, retaining walls and exits thereto, the truck way or ways,
loading docks, package pick-up stations, washrooms, pedestrian malls, courts,
sidewalks and ramps, landscaped areas, exterior stairways, and other areas,
improvements, facilities and special services provided by Landlord for the
general use, in common, of tenants of the Mercer Park, and their officers,
agents, employees and invitees. With respect to the Common Areas and facilities,
Landlord shall have the right from time to time to employ personnel; to
establish, modify and enforce reasonable rules and regulations; to construct,
maintain and operate lighting facilities; to police the Common Areas and
facilities; from time to time to change the area, level, location and
arrangement of parking areas and other facilities herein above referred to; to
restrict parking by Tenant, its officers, agents and employees to employee
parking areas; to close all or any portion of the Common Areas and facilities to
such extent as may, in the opinion of Landlord's counsel be legally sufficient
to prevent a dedication thereof or the accrual of any person or the public
therein; to close temporarily all or any portion of the parking areas or
facilities; to discourage non-customer parking; and to do and perform such other
acts in and to the Common Areas and facilities as, in the use of good business
judgment, Landlord shall determine to be advisable with a view to the
improvement of the convenience and use thereof by Tenants of the Mercer Park,
their employees, invitees and customers.
11.2 LICENSE. All Common Areas and facilities, excluding Tenant's
physical space, which Tenant may be permitted to use and occupy, are to be used
and occupied under a revocable license. If the amount of such areas or
facilities be diminished, such diminution shall not be deemed constructive or
actual eviction, Landlord shall not be subject to any liability, nor shall
Tenant be entitled to any compensation or diminution or abatement of rent. In
addition, Landlord shall provide parking to reasonably accommodate the operation
of Tenant's business.
11.3 MAINTENANCE CHARGE. Tenant shall pay to Landlord, as additional
rent, in the manner provided in Section 3.2 a monthly maintenance charge to
defray the operating cost of the Common Areas and facilities. The amount of the
monthly Maintenance Charge shall be equal to 1/12 of Tenant's estimated pro rata
share of the operating costs for the calendar year, which share shall be
determined by multiplying such costs by a fraction, the numerator of which is
the total floor area of the leased Premises and the denominator of which is the
total gross leasable floor area of Mercer Park on the first day of such calendar
year. For purposes of this paragraph, the term "operating cost of the Common
Areas and facilities" means the total cost and expense incurred in operating,
accounting, maintaining, administering and cleaning the Common Areas and
facilities, actually used or available for use by Tenant and the employees,
agents, servants, customers and invitees of Tenant, specifically including,
without limitation, gardening and landscaping, the cost of public liability and
property damage insurance, repairs, asphalt patching, line painting, minor roof
repairs, lighting, sanitary control, removal of snow, trash rubbish, garbage and
other refuse, machinery and equipment used in such maintenance, and the cost of
personnel to implement such services, including the policing of and traffic
control on the Common Areas and facilities. Management fees shall be limited to
the lesser of Fair Market Value or five percent (5%)
12. ALTERATIONS
12.1 ACCEPTANCE OF LEASE PREMISES. Upon acceptance of the Premises by
Tenant, Tenant shall acknowledge to Landlord that Tenant has inspected the
leased Premises and accepts them in their present condition or else shall notify
Landlord of any deficiencies then apparent.
12.2 ALTERATIONS BY TENANT. Tenant shall not make any alterations,
additions or improvements in or to the leased Premises without the prior written
consent of Landlord, which consent may be reasonably subject to such conditions
as Landlord may deem appropriate. Any such alterations, additions or
improvements consented to by Landlord shall be made at Tenant's sole expense.
Tenant shall secure
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any and all governmental permits required in connection with any such work, and
shall hold Landlord harmless from any and all liability (including attorney's
fees) and any and all liens resulting therefrom. All alterations, additions and
improvements (and expressly including all light fixtures and floor coverings),
except trade fixtures and appliances and equipment which do not become a part of
the leased Premises, excepting cabinets and general equipment installed by
Tenant which may be removed provided Tenant repairs all damage caused by their
removal, shall immediately become the property of Landlord without any
obligation to pay therefor, and shall not be removed by Tenant. Upon the
expiration or sooner termination of the Term hereof, at Landlord's option Tenant
shall at Tenant's sole cost and expense, forthwith and with all due diligence,
remove any alterations, additions, or improvements made by Tenant, which
Landlord designates to be removed, and Tenant shall, forthwith and with all due
diligence, at its sole cost and expense, repair any damage to the Premises
caused by such removal.
13. ASSIGNMENT AND SUBLETTING
Tenant shall not assign, transfer, mortgage, pledge, hypothecate or
encumber this Lease or any interest therein, nor sublet the whole or any part of
the Premises, nor shall this Lease or any interest hereunder be assignable or
transferable by operation of law or by any process or proceeding of any court,
or otherwise, without the prior written consent of Landlord which consent may be
reasonably subject to such conditions as Landlord may deem appropriate and which
consent may not be unreasonably withheld. Without in any way limiting Landlord's
right to refuse to give such consent for any other reason or reasons, Landlord
reserves the right to refuse to give such consent unless Tenant remains fully
liable during the unexpired Lease Term hereof and Landlord further reserves the
right to refuse to give such consent if in Landlord's reasonable business
judgment the quality of merchandising experience or the financial worth of the
proposed new Tenant is less than that of the Tenant executing this Lease or of
Tenant and Tenant's Guarantor as the case may be. Tenant agrees to reimburse
Landlord for Landlord's reasonable attorneys' fees incurred in conjunction with
the processing and documentation of any such requested transfer, assignment,
subletting, licensing or concession agreement, change of fee ownership or
hypothecation of this Lease or Tenant's interest in and to the Premises.
14. ACCESS BY LANDLORD
14.1 RIGHT OF ENTRY. Landlord or Landlord's employees, agents and/or
contractors shall have the right to enter the Premises at any time to examine
the same, and to show them to prospective purchasers or Tenants of the Building,
and to make such repairs, alterations, improvements or additions as Landlord may
deem reasonably necessary or desirable. If Tenant is not personally present to
permit entry and an entry is necessary, Landlord may in case of emergency
forcibly enter the same, without rendering Landlord liable therefor. Nothing
contained herein shall be construed to impose upon Landlord any duty of repair
of the Premises or Building of which the Premises are a part except as otherwise
specifically provided for herein.
14.2 EXCAVATION. If an excavation is made upon property adjacent to the
Premises, Tenant shall afford to the person causing or authorized to cause such
excavation, license to enter upon the Premises for the purpose of doing such
work as Landlord shall deem reasonably necessary to preserve the wall of the
building of which the Premises is a part from injury or damage and to support
the same by proper foundations, without any claim for damages or indemnification
against Landlord or diminution or abatement of rent.
15. DAMAGE OR DESTRUCTION
In the event the Premises are damaged to such an extent as to render
the same untenantable in whole or in a substantial part thereof, or are
destroyed, it shall be optional with the Landlord to repair or
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rebuild the same; and after the happening of any such contingency, the Tenant
shall give Landlord or Landlord's agent immediate written notice thereof.
Landlord shall have not more than ninety (90) days after date of such
notification to notify the Tenant in writing of Landlord's intention to repair
or rebuild said Premises, or the part so damaged as aforesaid, and if Landlord
elects to repair or rebuild said Premises, Landlord shall prosecute the work of
such repairing or rebuilding without unnecessary delay, and during such period
the rent of said Premises shall be abated in the same ratio that that portion of
the Premises rendered for the time being unfit for occupancy shall bear to the
whole of the leased Premises. If the Landlord shall fail to give the notice
aforesaid, Tenant shall have the right to declare his Lease terminated by
written notice upon the Landlord or Landlord's agent. In the event the building
in which the Premises hereby leased are located shall be damaged (even though
the Premises hereby shall not be damaged thereby) to such an extent that in the
opinion of Landlord it shall not be practical to repair or rebuild, or is
destroyed, then it shall be optional with Landlord to terminate this Lease by
written notice served on Tenant within ninety (90) days after such damage or
destruction.
16. DEFAULT AND RE-ENTRY
If any rents reserved herein or any part thereof shall be and remain
unpaid ten (10) days after the date they shall become due, or if Tenant shall
violate or default in any of the covenants or agreements herein contained, then
the Landlord may elect to:
(a) terminate this Lease, in which event Tenant shall immediately pay
to Landlord all rent and other sums accrued to date plus the then present value
of the total rent and other sums reserved or due under the Lease for the balance
of the lease term. Tenant shall receive a credit against the amount due pursuant
to this subparagraph(s) equal to the reasonable rental value (which Tenant
proves by a preponderance of the evidence) of the Premises for the balance of
the lease term;
(b) without terminating this Lease relet all or any part of the
Premises for the account of Tenant upon such terms and conditions as Landlord
may deem advisable, in which event the rents received on such reletting shall be
applied first to the expenses of reletting and collection (including without
limitation, all necessary renovation, repair and alteration of the Premises,
reasonable attorney fees, real estate commissions and rental or other
concessions granted to a new tenant) and thereafter to payment of all sums due
or become due Landlord hereunder, and if a sufficient amount is not realized to
pay such sums and other charges Tenant shall pay monthly to Landlord any
deficiency and Landlord may bring, at any time, an action for the entire amount
of the deficiency which will accrue during the balance of the lease term; or
(c) pursue any other right or remedy Landlord may have under the laws
of the State of Washington.
No action of Landlord shall terminate this Lease unless Landlord
notifies Tenant in writing that Landlord elects to terminate this Lease.
Landlord shall in no way be responsible or liable for any failure to relet the
property or any part thereof, or for any failure to collect any rent due upon
reletting. No reentry by Landlord shall excuse or relieve Tenant of its
liability and obligations under this lease and such liability and obligations
shall survive any such action by Landlord. Any sums received by Landlord upon
reletting of the property in excess of the rent and other sums due by Tenant
hereunder shall be the sole property of Landlord and Landlord shall not be
required to pay over any such sum to Tenant. Tenant assumes full responsibility
to mitigate damages resulting from Tenant's breach of abandonment by obtaining a
subtenant or assignee reasonably acceptable to Landlord. Landlord shall have no
responsibility to mitigate damages resulting from Tenant's breach or abandonment
other than to not unreasonably withhold consent to Tenant's proposed subleases
and assignments. Tenant waives any defense or claim based on Landlord's failure
to mitigate damages except as provided in the preceding sentence.
Notwithstanding the foregoing Washington State Law shall prevail.
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17. LATE CHARGES
Tenant hereby 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 trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Tenant shall not be received by
Landlord or Landlord's designee within ten (10) days after such amount shall be
due, Tenant shall pay to Landlord a late charge equal to five percent (5%) of
such overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder. A twenty-five dollar ($25.00) charge shall be paid to Landlord for
any returned check.
18. COSTS AND ATTORNEYS' FEES
In the event of an action (or any appeal thereof) between the parties
hereto to enforce any of the terms or provisions of this Lease, the successful
party shall be entitled to recover from the unsuccessful party, in addition to
any other award, a reasonable sum as attorney fees to be determined by the court
and included as a part of the judgment.
19. NON-WAIVER OF BREACH
The failure of the Landlord or Tenant to insist upon strict performance
of any of the covenants and agreements of this Lease, or to exercise any option
herein conferred in any one or more instances, shall not be construed to be a
waiver or relinquishment of any such, or any other covenants or agreements, but
the same shall be and remain in full force and effect.
20. REMOVAL OF PROPERTY
In the event of any entry in, or taking possession of, the leased
Premises as aforesaid, the Landlord shall have the right, which right shall not
be exercised unreasonably, but not the obligation, to remove from the leased
Premises all personal property located therein, and may store the same in any
place selected by Landlord, including but not limited to a public warehouse, at
the expense and risk of the owners thereof, with the right to sell such stored
property, without notice to Tenant, after it has been stored for a period of
thirty (30) days or more, the proceeds of such sale to be applied first to the
cost of such sale, second to the payment of the charges for storage, if any, and
third to the payment of any other sums of money which may then be due from
Tenant to Landlord under any of the terms hereof, the balance, if any, to be
paid to Tenant. Landlord shall not remove any property without reasonable
advance notice to Tenant.
21. HEIRS AND SUCCESSORS
Subject to the provisions hereof pertaining to Assignment and
Subletting, the covenants and agreements of this Lease shall be binding upon the
heirs, legal representatives, successors and assigns of any or all of the
parties hereto.
22. HOLD OVER
If the Tenant shall, with the written consent of Landlord, hold over
after the expiration of the Term of this Lease, such tenancy shall be for an
indefinite period of time on the month-to-month tenancy, which tenancy may be
terminated as provided by the laws of the State of Washington. During such
tenancy, Tenant agrees to pay to the Landlord the same rate of rental as set
forth herein, unless a different rate is agreed upon, and to be bound by all of
the terms, covenants, and conditions as herein specified, so far as applicable.
If Tenant shall, without the written consent of Landlord, hold over after
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the expiration of the term of this Lease, such tenancy shall be month-to-month,
on the same terms and conditions as contained herein; provided, however, the
rental rate shall be twice one and one quarter (1 1/4) that in effect during the
last month of the lease term.
23. SUBORDINATION, QUIET ENJOYMENT
This Lease is subject to and is hereby subordinated to all present and
future mortgages, deeds of trust and other encumbrances affecting the leased
Premises or the property of which said Premises are a part. Tenant will, upon
demand by Landlord, execute such instruments as may be required at any time, and
from time to time, to subordinate the rights and interests of the Tenant under
this Lease to the lien of any mortgage or trust deed at any time placed on the
land of which the leased Premises are a part; provided, however, that such
subordination shall not affect Tenant's right to possession, use and occupancy
of the leased Premises so long as Tenant shall not be in default under any of
the terms or conditions of this Lease, Tenant further agrees:
That any such subordination agreement will contain a provision
satisfactory to Landlord's financing lender whereby Tenant will agree, in the
event of foreclosure of any such mortgage or trust deed to attorn to and
recognize as its Landlord under the terms of this Lease said lender or any
purchaser of the leased property at a foreclosure sale or their heirs,
successors, or assigns, and that it will execute and deliver to such lender an
Estoppel Certificate in form satisfactory to such lender.
24. PERSONAL PROPERTY AND TRADE FIXTURES
It is contemplated that certain furniture, fixtures and equipment to be
installed by Tenant in the leased Premises, are or may be either leased by
Tenant or purchased by Tenant from a lessor or conditional seller or otherwise
hypothecated to a third party. In this connection, it is agreed that all of such
furniture, fixtures and equipment installed by Tenant in the leased Premises
shall at all times be and remain personal property, regardless of the method in
which the same are affixed to the Premises, and shall remain the personal
property of Tenant and/or such third party. Landlord specifically agrees that
its rights, if any, in such furniture, fixtures and equipment shall at all times
be subject and subordinate to the rights of any such described third party.
Landlord agrees to execute, upon request, any documents reasonably required by
any such described third party in order to effectuate the purposes of this
paragraph, it being specifically agreed by Landlord herein that any such third
party shall have the right to remove the furniture, fixtures or equipment from
the leased Premises in the event of the default of Tenant in complying with its
agreements relating to such furniture, fixtures and equipment. Tenant agrees to
repair any damage caused by any such removal at its expense.
25. CONDEMNATION
If the Premises or any portion thereof are taken under the power of
eminent domain, or sold by Landlord under the threat of the exercise of said
power (all of which is referred to as "Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever occurs first. If more than ten percent (10%) of
the floor area of any buildings on the Premises, or more than twenty-five
percent (25%) of the land area of the Premises not covered with buildings, is
taken by Condemnation, either Landlord or Tenant may terminate this Lease as of
the date the condemning authority takes possession, by notice in writing of such
election within twenty (20) days after Landlord shall have notified Tenant of
the taking, or in the absence of such notice then within twenty (20) days after
the condemning authority shall have taken possession. If this Lease is not
terminated by either Landlord or Tenant then it shall remain in full force and
effect as to the portion of the Premises remaining, provided the rent shall be
reduced in the proportion that the floor area of the buildings taken within the
Premises bears to the total floor area of all buildings located on the Premises.
In the event this Lease is not so terminated then Landlord agrees, at Landlord's
sole cost, to restore the Premises to a complete unit of like quality and
character as existed prior to the condemnation as soon as reasonably possible.
All awards for the taking of any part of the Premises or any payment made under
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the threat of the exercise of power of eminent domain shall be the property of
Landlord, whether made as compensation for diminution of value of a leasehold or
for the taking of the fee or as severance damages; provided, however, that
Tenant shall be entitled to any award for loss of or damage to Tenant's trade
fixtures and removable personal property. In the event that this Lease is not
terminated by reason of such Condemnation, Landlord shall, to the extent of
severance damages received by Landlord in connection with such Condemnation,
repair any damage to the Premises caused by such Condemnation except to the
extent that Tenant has been reimbursed therefor by the condemning authority.
26. NOTICES
Wherever under this Lease provision is made for any demand, notice or
declaration of any kind, or where it is deemed desirable or necessary by either
party to give or serve any such notice, demand or declaration to the other
party, it shall be in writing and served either personally or sent by United
States mail, postage prepaid, addressed to the address set forth herein below:
Landlord: Tenant:
The Evans Company Optiva Corporation
1457 130th Ave NE 13228 SE 30th St. Suite C-3
Bellevue, WA 98005 Bellevue, WA 98005
27. CORPORATE AUTHORITY
If Tenant is a corporation, each individual executing this Lease on
behalf of said corporation represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation in accordance with
a duly adopted resolution of the Board of Directors of said corporation or in
accordance with the by-laws of said corporation, and that this Lease is binding
upon said corporation in accordance with its terms. If Tenant is a corporation
Tenant shall, within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of a resolution of the Board of Directors of said
corporation substantially the same as or identical to Exhibit D authorizing or
ratifying the execution of this Lease.
28. MISCELLANEOUS
28.1 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale or
conveyance by Landlord of Landlord's interest in the Premises other than a
transfer for security purposes only, Landlord shall be relieved from, after the
date specified in such notice of transfer, all obligations and liabilities
accruing thereafter on the part of the Landlord, provided that any funds in the
hands of Landlord at the time of transfer in which Tenant has an interest, shall
be delivered to the successor of Landlord. This Lease shall not be affected by
any such sale and Tenant agrees to attorn to the purchaser or assignee, provided
all Landlord's obligations hereunder are assumed in writing by the transferee.
28.2 SEVERABILITY. If any term or provision of this Lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforceable to the
fullest extent permitted by law.
28.3 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence of this
Lease and each and every provision hereof, except as to the conditions relating
to the delivery of possession of the Premises to Tenant. All the terms,
covenants and conditions contained in this Lease to be performed by either
party, if such party shall consist of more than one person or organization,
shall be deemed to be Joint and Several, and all rights and remedies of the
parties shall be cumulative and non-exclusive of any other remedy at law or in
equity.
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28.4 MEMORANDUM OF LEASE. This Lease shall not be recorded, but upon
written request of Landlord or Tenant, a Memorandum of Lease describing the
Premises, giving the term of this Lease and the name and address of Landlord and
Tenant, referring to this Lease, and in form suitable under law as record
notice, shall be promptly executed, acknowledged and delivered by both parties;
such Memorandum of Lease may be recorded by either party.
29. HAZARDOUS AND TOXIC WASTE MATERIALS
Tenant shall be fully responsible for any release of any hazardous
waste or substance in or on or under the Premises or on any adjacent property
during the lease term by Tenant, Tenant's officers, directors, successors,
assigns, subleases, guests, invitees, visitors, employees, agents, contractors
in or about the Premises. Tenant shall promptly comply with all statutes,
regulations and ordinances and with all orders, decrees or judgments of
governmental authorities or courts having jurisdiction relating to the use,
collection, treatment, disposal, storage, control, removal or cleanup of
hazardous waste or substances in, on or under the Premises or any adjacent
property or incorporated in any of the improvements, at Tenant's sole expense
provided that Tenant shall have the right, prior to compliance, to exhaust
judicial and administrative remedies, including without limitation appeals and
judicial or administrative challenges to the validity of any government action,
with prior approval from Landlord which shall not be unreasonably withheld.
After notice to Tenant and a reasonable opportunity for Tenant to affect such
compliance, Landlord may, but shall not be obligated to, enter upon the Premises
and take such actions and incur such costs and expenses to affect such
compliance as it deems advisable to protect its interest in the Premises;
provided however, Landlord shall not be obligated to give Tenant notice and
opportunity to affect compliance if (i) such delay might result in material
adverse harm to Landlord or the Premises; (ii) Tenant has already had actual
knowledge of the situation and a reasonable opportunity to affect compliance; or
(iii) an emergency exists. Whether or not Tenant has actual knowledge of the
release of hazardous waste or substances on the Premises or any adjacent
property as a result of Tenant's use of the Premises, Tenant shall reimburse
Landlord for the full amount of all costs and expenses incurred by Landlord in
connection with such compliance activities, and such obligation shall survive
any termination of this Lease. Tenant shall notify Landlord immediately of any
release of any hazardous waste or substance on the Premises. Tenant shall
indemnify and hold Landlord harmless from any and all losses, liabilities,
suits, obligations, fines, damages, judgments, penalties, claims, charges,
cleanup costs, remedial actions, costs and expenses (including, without
limitation, attorneys fees and disbursements) which may be imposed on,
reasonably incurred or paid by, or asserted against Landlord or the Premises by
reason of (i) any misrepresentation, breach of warranty or other default by
Tenant under this Lease resulting in the release of any hazardous waste or
substance or (ii) the act or omissions of Tenant, Tenant's officers, directors,
successors, assigns, subleases, guests, invitees, visitors, employees, agents,
contractors resulting in the release of any hazardous waste or materials in, on
or under the Premises or any adjacent property. Landlord may perform any
inspections, audits or surveys of the Premises as Landlord deems necessary or
advisable at any time during the term of this Lease.
30. SPECIAL ARTICLES
The following numbered sections are made a part hereof, N/A , and
appear below on Addendum(s) N/A attached hereto. The following Exhibit(s) not
referenced in the lease above are also made a part hereof, D , and are attached
hereto.
In Witness Whereof, the Landlord and Tenant have executed this Lease
the date and year first above written.
Landlord: Tenant:
By: By:
/s/ Steve Evans /s/ Michael D. Stull
--------------------------- -------------------------------
Vice President VP Finance & CFO
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<PAGE> 1
CONFIDENTIAL
[LOGO] The Evans Company
LEASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
Lease Summary
1 Premises 1
2 Term 1
3 Rent 1 & 2
4 Security Deposit 2
5 Property Taxes and Insurance 2 & 3
6 Personal Property Taxes 3
7 Insurance and Indemnity 3 & 4
8 Use, Signs, Liens 4 & 5
9 Utilities and Janitor Service 5
10 Maintenance of Premises 5 & 6
11 Common Areas 6
12 Alterations 6 & 7
13 Assignment and Subletting 7
14 Access By Landlord 7
15 Damage or Destruction 7
16 Default or Re-Entry 8
17 Late Charges 8
18 Costs and Attorney's Fees 8
19 Non-Waiver of Breach 8
20 Removal of Property 8 & 9
21 Heirs and Successors 9
22 Hold-Over 9
23 Subordination, Quiet Enjoyment 9
24 Personal Property and Trade Fixtures 9
25 Condemnation 9 & 10
26 Notices 10
27 Corporate Authority 10
28 Miscellaneous 10
29 Hazardous and Toxic Waste Materials 10 & 11
30 Special Articles 11
</TABLE>
Exhibit
A Legal Description
B Site Plan
C Description of Landlord's and Tenant's Work of Improvement
C-1 Demising Plan of Premises
D Corporate Resolution of Tenant
<PAGE> 2
CONFIDENTIAL
LEASE SUMMARY
<TABLE>
<S> <C>
LEASE DATE: April 29, 1997
LANDLORD: The Evans Company
ADDRESS OF LANDLORD: 1457 130th Ave NE
Bellevue WA 98005
TELEPHONE: 454-8211
TENANT'S TRADE NAME: Optiva Corporation
ADDRESS OF TENANT (Address of Premises): 13228 SE 30th St. Suite C-3
Bellevue WA 98005
TELEPHONE AT PREMISES: 957-0970
BUSINESS HOME OFFICE ADDRESS:
BUSINESS HOME OFFICE TELEPHONE:
OWNER RESIDENCE ADDRESS:
OWNER RESIDENCE TELEPHONE:
PREFERRED MAILING ADDRESS FOR NOTICES: xx PREMISES
BUSINESS HOME OFFICE
OWNER RESIDENCE
LEASED PREMISES: BUILDING C
SPACE(S) 3
SQUARE FEET OF PREMISES APPROXIMATELY 1,200
LEASE TERM: 24 MONTHS
LEASE COMMENCEMENT DATE: August 1, 1996
RENT COMMENCEMENT DATE: August 1, 1996
LEASE TERMINATION DATE: July 31, 1998
MINIMUM MONTHLY RENT: Six Hundred Eighty-nine and NO/100
Dollars ($689.00)
PER MONTH AS INCREASED BY THE TERMS OF THE LEASE.
SECURITY DEPOSIT: Seven Thousand Five Hundred and
NO/100 Dollars ($7,500.00)
PERMITTED USES: Office, assembly, light
manufacturing, distribution and
warehouse storage
GUARANTOR:
ADDRESS OF GUARANTOR: 13228 SE 30th St. Suite C-3
(Business Address) Bellevue, WA 98005
TELEPHONE NO: 957-0970
</TABLE>
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CONFIDENTIAL
[LOGO] The Evans Company
LEASE AGREEMENT
THIS LEASE, dated for reference purposes only, April 29, 1996 , is made
by and between The Evans Company (hereinafter "Landlord") and Optiva Corporation
(hereinafter "Tenant"). For and in consideration of the rental and of the
covenants and agreements hereinafter set forth to be kept and performed by the
Tenant, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the Premises herein described for the term, at the rental and subject to and
upon all of the terms, covenants and agreements hereinafter set forth.
1. PREMISES
1.1 PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord that certain space (herein called "Premises") containing
approximately 1,200 square feet of floor area, the approximate location of which
is shown crosshatched on Exhibit B attached hereto. The Premises are located in
Mercer Park , the legal description of which is set forth on Exhibit A attached
hereto, which is in the City of Bellevue, County of King, State of Washington.
The address of the Premises is as follows: 13228 SE 30th St. Suite C-3,
Bellevue WA 98005 . This Lease is subject to the terms, covenants and conditions
herein set forth and the Tenant covenants as a material part of the
consideration for this Lease to keep and perform each and all of said terms,
covenants and conditions by it to be kept and performed.
1.2 WORK OF IMPROVEMENT. The obligations of Landlord and Tenant to
perform the work and supply material and labor to prepare the Premises for
occupancy are set forth in detail in Exhibits C and C-1. Landlord and Tenant
shall expend all funds and do all acts required in Exhibit C and C-1 and shall
have the work performed promptly and diligently in a first-class workmanlike
manner. By taking possession of the premises, Tenant acknowledges that it has
examined the Premises and accepts the Premises in their condition at the time of
taking possession thereof.
2. TERM
2.1 TERM. The Term of this Lease shall be for 24 (twenty-four) months
commencing August 1, 1996 and ending on July 31, 1998 unless sooner terminated
pursuant to this Lease. The rent commencement date shall be August 1,1996 ("Rent
Commencement Date").
2.2 COMMENCEMENT. Tenant agrees that in the event of the inability of
Landlord for any reason to deliver possession of the Premises to Tenant on the
commencement date set forth in Section 2.1, Landlord shall not be liable for any
damage thereby nor shall such inability affect the validity of this Lease or the
obligations of Tenant hereunder, but in such case Tenant shall not be obligated
to pay rent or other monetary sums until possession of the Premises is tendered
to Tenant; provided that if the delay in delivery of possession exceeds thirty
(30) days, then the expiration date of the term of the Lease shall be extended
by the period of time computed from the scheduled commencement date to the date
possession is tendered. In the event Landlord shall not have delivered
possession of the Premises within four (4) months from the scheduled
commencement date, then Tenant at its option to be exercised within thirty (30)
days after the end of said four (4) month period may terminate this Lease and
upon Landlord's return of any moneys previously deposited by Tenant the parties
shall have no further rights or liabilities toward each other. If Tenant
occupies the Premises prior to said commencement date, such occupancy shall be
subject to all provisions hereof, such occupancy shall not advance the
termination date and Tenant shall pay rent for such period at the initial
monthly rates as set forth below.
2.3 DELIVERY OF POSSESSION. Tenant shall be deemed to have taken
possession of the Premises when any of the following occur: (a) Landlord
delivers possession of the Premises to Tenant and a Certificate of Occupancy is
granted by the proper governmental agency, (b) upon a letter from Landlord that
the Premises are ready for occupancy, or (c) upon occupancy by the Tenant.
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3. RENT
3.1 MINIMUM MONTHLY RENT. Tenant shall pay to Landlord as Minimum
Monthly Rent for the Premises the sum of Six Hundred Eighty-nine and NO/100
Dollars ($689.00)--------- per month, which sum shall be paid in advance on the
first day of each calendar month beginning with the Rent Commencement Date and
thereafter throughout the term of the Lease. All rent to be paid by Tenant to
Landlord shall be paid in lawful money of the United States of America and shall
be without deduction or offset, prior notice or demand, and at such place or
places as may be designated from time to time by Landlord. If the Rent
Commencement date is not the first day of a month, or if the Lease termination
date is not the last day of a month, a pro rated monthly installment shall be
paid at the then current rate for the fractional month during which the Lease
commences and/or terminates. Concurrently with Tenant's execution of this Lease,
Tenant shall pay to Landlord the sum of Eight Hundred Eighty-four and NO/100
Dollars ($884.00)---------------- as Minimum Monthly Rent and Adjustments for
August 1996 .
The Minimum Monthly Rent shall be increased or decreased by the
percentage of change, if any, in the Consumer Price Index - All Urban Consumers,
All Items (1982 - 84 = 100) equals Base ("CPI"), as published by the United
States Department of Labor's Bureau of Labor Statistics. The base period, for
purposes of such adjustment, shall be the CPI for the fourth calendar month
immediately preceding the first Lease Year (the "Base CPI"). The Minimum Monthly
Rent shall be adjusted for each Lease Year after the first Lease Year on the
basis of the percentage change in the CPI for the fourth calendar month
immediately preceding the Lease Year subject to adjustment compared to the Base
CPI. In no event, however, shall the rent payable in any Lease Year be reduced
below the Minimum Monthly Rent. Should the CPI be discontinued, the parties
shall select another similar index which reflects consumer prices and if the
parties cannot agree on another index it shall be selected by the Superior Court
of the County in which the premises are located.
(By way of illustration only, if the Base CPI is 190 and the CPI figure
for the fourth month before the second Lease Year is 195, then the Minimum
Monthly Rent for the second lease year shall be increased by 2.63%.)
3.2 ADJUSTMENTS. In addition to the Minimum Monthly Rent provided in
Section 3.1 above, Tenant shall pay to Landlord in monthly installments the
Tenant's portion of those items, herein called "Adjustments", delineated in
Sections 5, 9, 10 and 11. Upon commencement of the Term Landlord shall submit to
Tenant a statement of the anticipated monthly Adjustments for the period between
such commencement and the following January and Tenant shall pay same and all
subsequent monthly payments concurrently with the payment of Minimum Monthly
Rent. Tenant shall continue to make said monthly payments until notified by
Landlord of a change thereof. By March 1 of each year Landlord shall endeavor to
give Tenant a statement showing the total Adjustments for the Mercer Park for
the prior calendar year and Tenant's allocable share thereof, prorated from the
commencement of rental. Tenant's pro rata share, where applicable, shall be
determined in accordance with the total floor area of the Premises as it relates
to the total gross leasable floor area of the building or buildings of which the
Premises are a part. In the event the total of the monthly payments which Tenant
has made for the prior calendar year are less than the Tenant's actual share of
such Adjustments then Tenant shall pay the difference in a lump sum within ten
days after receipt of such statement from Landlord and shall concurrently pay
the difference on monthly payments made in the then calendar year and the amount
of monthly payments which are then calculated as monthly Adjustments based on
the prior year's experience. Any overpayment by Tenant shall be credited towards
the monthly Adjustments next coming due. The actual Adjustments for the prior
year shall be used for purposes of calculating the anticipated monthly
Adjustments for the then current year, with actual determination of such
Adjustments after each calendar year as above provided. Even though the term has
expired and Tenant has vacated the Premises, when the final determination is
made of Tenant's share of said Adjustments for the year in which this Lease
terminated, Tenant shall immediately pay any increase due over the estimated
Adjustments previously paid and, conversely, any overpayment made shall be
immediately rebated by Landlord to Tenant.
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4. SECURITY DEPOSIT
Concurrently with Tenant's execution of this Lease, Tenant shall deposit
with Landlord the sum of Seven Thousand Five Hundred and NO/100 Dollars
($7,500.00) See Suite A-1. Said sum shall be held by Landlord as a Security
Deposit for the faithful performance by Tenant of all of the terms, covenants,
and conditions of this Lease to be kept and performed by Tenant during the term
hereof. If Tenant defaults with respect to any provisions of this Lease,
including but not limited to the provisions relating to the payment of rent and
any of the monetary sums due herewith, Landlord may (but shall not be required
to) use, apply or retain all or any part of this Security Deposit for the
payment of any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default or to compensate Landlord for any other loss
or damage which Landlord may suffer by reason of Tenant's default. If any
portion of said Deposit is so used or applied, Tenant shall, within ten (10)
days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount; Tenant's
failure to do so shall be material breach of this Lease. Landlord shall not be
required to keep this Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on such Deposit. If Tenant shall fully
and faithfully perform every provision of this Lease to be performed by it, the
Security Deposit or any balance thereof shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interest hereunder) at the
expiration of the Lease term and after Tenant has vacated the Premises. In the
event of termination of Landlord's interest in this Lease, Landlord shall
transfer said Deposit to Landlord's successor in interest, whereupon Tenant
agrees to release Landlord from all liability for the return of such Deposit or
the accounting therefore.
5. ADJUSTMENTS FOR REAL PROPERTY TAXES AND INSURANCE
In addition to the Minimum Monthly Rent provided in Section 3.1 above,
and commencing as of the commencement of the term of the Lease, Tenant shall pay
to Landlord in monthly installments, the Tenant's portion of the following items
herein called "Adjustments":
All insurance premiums paid on policies, maintained by Landlord with
respect to the Premises, including land, building and improvements including
without limitation, all premiums for fire, extended coverage, liability with
respect to the Premises and all real estate taxes imposed on the Premises or
arising in respect to the occupancy, use or possession of the Premises. Real
property taxes shall include, without limitation, all assessments whether
general, special, ordinary, extraordinary, unforeseen or foreseen, of any kind
or nature levied, imposed or to become a lien upon or against the Premises and
any building, structure, fixture, improvement, personal property or inventory
now or hereafter located thereon, assessment or improvement bonds for water,
sewer, road and other public purposes, license, permit and inspection fees and
taxes, commercial rental tax and any other public charge, levy, or assessment
against any interest in the Premises or the real property of which the Premises
are a part, or against Landlord's right to rent or other income therefrom (other
than income taxes). All of the foregoing expenses shall be apportioned in
accordance with the Tenant's "pro rata share" which shall be determined in
accordance with the total floor area of the Premises as it relates to the total
gross leasable floor area of the building or buildings which the Premises are a
part; provided, however, that if any tenants in said building or buildings pay
taxes directly to any taxing authority or carry their own insurance, as may be
provided in their leases, their square footage shall not be deemed a part of the
floor area for purposes of prorating such expenses.
6. PERSONAL PROPERTY TAXES
Tenant shall pay, before delinquency, all taxes, assessments, license
fees and public charges levied, assessed or imposed upon or measured by the
value of its business operation, including but not limited to the furniture,
fixtures, leasehold improvements, equipment and other property of Tenant at any
time situated on or installed in the Premises by Tenant. If at any time during
the term of this Lease any of the foregoing are assessed as part of the real
property of which the Premises are a part, Tenant shall pay to Landlord upon
demand the amount of such additional taxes as may be levied against said real
property by reason thereof. For the purpose of determining
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said amount, figures supplied by the County Assessor as to the amount so
assessed shall be conclusive.
7. INSURANCE AND INDEMNITY
7.1 INDEMNIFICATION. It is understood and agreed that Landlord shall not
be liable for injury to any person, or for the loss of or damage to any property
(including property of Tenant) occurring in or about the Premises from any cause
whatsoever except for Landlord's negligence, reckless or willful misconduct.
Tenant hereby indemnifies and holds Landlord harmless from and against and
agrees to defend Landlord against any and all claims, charges, liabilities,
obligations, penalties, damages, costs and expenses (including attorney's fees)
arising, claimed, charged or incurred against or by Landlord from any matter or
thing arising from Tenant's use of the Premises, the conduct of its business or
from any activity, work or other things done, permitted or suffered by the
Tenant in or about the Premises, and Tenant shall further indemnify and hold
harmless Landlord from and against any and all claims arising from any breach or
default in the performance of any obligation on Tenant's part to be performed
under the terms of this Lease, or arising from any act or negligence of the
Tenant, or any officer, agent, employee, guest, or invites of Tenant, and from
all costs, attorney's fees and liabilities incurred in or about the defense of
any such claim or any action or proceeding brought thereon and in case any
action or proceeding be brought against Landlord by reason of such claim.
Tenant, upon notice from Landlord, shall defend the same at Tenant's expense by
counsel reasonably satisfactory to Landlord. Tenant as a material part of the
consideration to Landlord hereby assumes all risk of damage to property or
injury to persons in, upon or about the Premises, from any cause other than
Landlord's negligence, or willful misconduct, and Tenant hereby waives all
claims in respect thereof against Landlord. The indemnification provided for in
this Section with respect to any acts or omissions during the term of this Lease
shall survive any termination or expiration of this Lease. Landlord and its
agents shall not be liable for any loss or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Premises or from pipes, appliances
or plumbing works therein or from the roof, street or subsurface or from any
other place resulting from dampness or any other cause whatsoever, unless caused
by or due to the negligence of Landlord, its agents, servants or employees.
Landlord and its agents shall not be liable for interference with the light, on
the Premises. Tenant shall give prompt notice to Landlord in case of casualty or
accidents on the Premises.
7.2 INSURANCE. During the entire Lease Term the Tenant shall, at its own
expense, maintain adequate liability insurance with a reputable Insurance
company or companies with minimum amounts of $1,000,000.00 Combined Single
Limits (including bodily injury and property damage) to indemnify both Landlord
and Tenant against any such claims, demands, losses, damages, liabilities and
expenses. Landlord shall be named as one of the insureds and shall be furnished
with a copy of such policy or policies of insurance, which shall bear an
endorsement that the same shall not be canceled except upon not less than twenty
(20) days prior written notice to Landlord. Tenant shall also at its own expense
maintain, during the Lease Term, insurance covering its furniture, fixtures,
equipment and inventory in an amount equal to the full insurable value thereof,
against fire and risks covered by standard extended coverage endorsement and
insurance covering all plate glass and other glass on the Premises. Tenant shall
provide Landlord with copies of the policies of insurance or certificates
thereof. If Tenant fails to maintain such insurance, Landlord may maintain the
same on behalf of Tenant. Any premiums paid by Landlord shall be deemed
additional rent and shall be due on the payment date of the next installment of
Minimum Monthly Rental hereunder.
7.3 INCREASE IN INSURANCE PREMIUM. Tenant shall not keep, use, sell or
offer for sale in or upon the Premises any article which may be prohibited by
the standard form of fire insurance policy. Tenant shall pay any increase in
premiums for casualty and fire (including extended coverage) insurance that may
be charged during the Term of this Lease on the amount of such insurance which
may be carried by Landlord on the Premises or the building of which they are a
part, resulting from Tenant's occupancy or from the type of merchandise which
Tenant stores or sells on the Premises, whether or not Landlord has consented
thereto. In such event, Tenant shall also pay any additional premium on the
insurance policy that Landlord may carry for its protection against rent loss
through
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fire or casualty. In determining whether increased premiums are the
result of Tenant's use of the Premises, a schedule, issued by the organization
setting the insurance rate on the Premises, showing the various components of
such rate, shall be conclusive evidence of the several items and charges which
make up the casualty and fire insurance rate on the Premises. Landlord shall
deliver bills for such additional premiums to Tenant at such times as Landlord
may elect, and Tenant shall immediately reimburse Landlord therefor.
7.4 WAIVER OF SUBROGATION. Landlord and Tenant hereby mutually release
each other from liability and waive all right of recovery against each other for
any loss in or about the Premises, from perils insured against under their
respective fire insurance contracts, including any extended coverage
endorsements thereof, whether due to negligence or any other cause; provided
that this Section shall be inapplicable if it would have the effect, but only to
the extent it would have the effect, of invalidating any insurance coverage of
Landlord or Tenant.
7.5 COMPANIES. Insurance required hereunder shall be issued by companies
rated AAA or better in "Bests" Insurance Guide.
7.6 CERTIFICATE OF INSURANCE. A certificate issued by the insurance
carrier for each policy of insurance required to be maintained by Tenant under
the provisions of this Lease shall be delivered to Landlord on or before the
commencement date of the Lease Term hereof and thereafter, as respects policy
renewals, within thirty (30) days prior to the expiration of the term of each
such policy. Each of said certificates of insurance and each such policy of
insurance required to be maintained by Tenant hereunder shall expressly evidence
insurance coverage as required by this Lease. All such policies shall be written
as primary policies not contributing with and not in excess of coverage which
Landlord may carry.
8. USE
8.1 USE. The Premises shall be used and occupied by Tenant for only the
following purposes and for no other purposes whatsoever without obtaining the
prior written consent of Landlord: office, assembly, light manufacturing,
distribution and warehouse storage.
8.2 SUITABILITY. If the Premises are completed as of the date of
execution hereof, then Tenant, by execution of this Lease, shall be deemed to
have accepted the Premises in the condition existing as of the date of execution
and in any event this Lease shall be subject to all applicable zoning ordinances
and to any municipal, county and state laws and regulations governing and
regulating the use of the Premises. Tenant acknowledges that neither Landlord
nor Landlord's agent has made any representation or warranty as to the
suitability of the Premises for the conduct of Tenant's business.
8.3 USES PROHIBITED. Tenant shall not do or permit anything to be done
in or about the Premises which will increase the existing rate of insurance upon
the Premises (unless Tenant shall pay any increased premium as a result of such
use or acts) or cause the cancellation of any insurance policy covering said
Premises or any building of which the Premises may be a part, nor shall Tenant
sell or permit to be kept, used or sold in or about said Premises any articles
which may be prohibited by a standard form policy of fire insurance.
Tenant shall not do or permit anything to be done in or about the
Premises which will obstruct or interfere with the rights of other tenants or
occupants of any building of which the Premises may be a part or injure or annoy
them or use or allow the Premises to be used for any unlawful, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon or about the
Premises.
Tenant shall not dispose of nor otherwise allow the release of any
hazardous waste or substance in, on or under the Premises, any improvements
placed thereon or any adjacent property. Tenant represents and warrants to
Landlord that Tenant's intended use of the Premises does not involve the use,
production, disposal or bringing on the Premises of any hazardous waste or
substance of types other than, or in quantities in excess of, those normally
incident to the use of the Premises for general office use. For purposes of this
Lease the term "hazardous waste or substance" shall mean any substance, waste or
material defined or designated as hazardous, toxic or
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dangerous (or any similar term) by any federal, state or local statute
regulation, rule or ordinance now or hereafter in effect.
Tenant shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law, statute, zoning
restriction, ordinance or governmental rule or regulation or requirements or
duly constituted public authorities now in force or which may hereafter be
enacted or promulgated. Tenant shall at its sole cost and expense promptly
comply with all laws, statutes, ordinances and governmental rules, regulations
or requirements now in force or which may hereafter be in force and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises. The judgment of any court of competent jurisdiction , whether
Landlord be a party thereto or not, that Tenant has violated any law, statute,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
8.4 SIGNS.
(a) GENERAL. Tenant shall not place or suffer to be placed on the
exterior walls of the Premises or upon the roof or any exterior door or wall or
on the exterior or interior of any window thereof any sign, awning, canopy,
marquee, advertising matter, decoration, letter or other thing of any kind
(exclusive of signs, if any, which may be provided for in the original
construction or improvement plans and specifications approved by the Landlord or
Tenant herein, and which conform to the Landlord's sign criteria as specified in
Exhibit F attached hereto if applicable) without the prior written consent of
Landlord. Landlord hereby reserves the exclusive right to the use for any
purpose whatsoever of the roof and exterior of the walls of the Premises or the
Building of which the Premises are a part.
(b) TENANT'S INTERIOR SIGNS. Except as otherwise herein provided,
Tenant shall have the right, at its sole cost and expense, to erect and maintain
within the interior of the Premises all signs and advertising matter customary
or appropriate in the conduct of Tenant's business; provided, however, that
Tenant shall upon demand of the Landlord immediately remove any sign,
advertisement, decoration, lettering or notice which Tenant has placed or
permitted to be placed in, upon or about the Premises and which Landlord
reasonably deems objectionable or offensive, and if Tenant fails or refuses do
to so, the Landlord may enter upon the Premises and remove the same at Tenant's
cost and expense.
8.5 LIENS. Tenant shall keep the Premises and any building of which the
Premises are a part free from any liens arising out of work performed, materials
furnished or obligations incurred by Tenant and shall indemnify, hold harmless
and defend Landlord from any liens and encumbrances arising out of any work
performed or material furnished by or at the direction of Tenant. In the event
that Tenant shall not, within twenty (20) days following the imposition of any
such lien, cause such lien to be released of record by payment or posting of a
proper bond not to be less than 120% of the lien claim, Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but not
the obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All such sums
paid by Landlord and all expenses incurred by it in connection therewith
including attorney's fees and costs shall be payable to Landlord by Tenant on
demand. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or which Landlord shall
deem proper, for the protection of Landlord and the Premises, and any other
party having an interest therein, from mechanics' and materialmen liens, and
Tenant shall give to Landlord at least ten (10) business days prior written
notice of the expected date of commencement of any work relating to alterations
or additions to the Premises.
9. UTILITIES AND JANITOR SERVICE
Tenant shall be liable for and shall pay throughout the term of this
Lease all charges for utilities, including but not limited to electricity, heat,
oil, gas and water consumed upon the leased Premises and telephone, sewage,
drainage and garbage disposal services, if any, including any charges imposed
for such services by the Municipality of Metropolitan Seattle; and shall
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provide its own janitor services and replacement of light bulbs and tubes and
all washroom and toilet supplies. If any such services are not separately
metered to Tenant, Tenant shall pay its pro rata share as specified in Section
3.2 above.
10. MAINTENANCE OF PREMISES
10.1 MAINTENANCE AND REPAIR BY TENANT. Tenant shall at all times
throughout the Lease Term at its sole cost and expense, keep the Premises
(including exterior doors and entrances, all windows and mouldings and trim of
all doors and windows) and all partitions, door surfaces, fixtures, equipment
and appurtenances thereof (including lighting, heating and plumbing fixtures and
any air conditioning system) in good order, condition and repair, damage by
unavoidable casualty excepted (but not excluding damage from burglary or
attempted burglary of the Premises). When there is an air conditioning system,
Landlord will contract for service checks and filter changes and Tenant agrees
to pay for such service calls and filter changes on the units serving Tenant's
Premises, all as set forth in Section 3.2 above. Without limiting the
generalities thereof, Tenant shall keep the glass of all windows, doors, and
showcases clean and presentable; replace immediately all broken glass in the
Premises; at reasonable intervals paint or refinish the interior of the
Premises; make any necessary repairs to, or replacements of, all door closure
apparatuses and mechanisms; keep all plumbing clean and in good state of repair
including pipes, drains, toilets, basins and those portions of the heating
system within the walls of the Premises; and keep all utilities within the
Premises in a good state of repair.
10.2 FAILURE TO MAINTAIN. If Tenant fails to keep and preserve the
Premises as set forth in Section 10.1 above, Landlord may at its option, put or
cause the same to be put in the condition and state of repair agreed upon, and
in such case, upon receipt of written statements from Landlord, Tenant shall
promptly pay the entire cost thereof as additional rent. Landlord shall have the
right, without liability, to enter the Premises for the purpose of making such
repairs.
10.3 REPAIRS BY LANDLORD. Landlord shall keep the roof, exterior walls,
foundations and buildings structure of the Premises in a good state of repair,
and shall accomplish such repairs as may be needed promptly after receipt of
written notice from Tenant. Should such repairs be required by reason of
Tenant's negligent acts, Tenant shall promptly pay Landlord for the cost
thereof as additional rent. Tenant shall immediately inform Landlord of any
necessary repairs and Tenant shall make none of such repairs without Landlord's
prior written consent. Landlord shall not be liable for any failure to make any
such repairs or to perform any maintenance required of Landlord hereunder unless
such failure shall persist for an unreasonable time after written notice of the
need of such repair is given to Landlord by Tenant. Except as otherwise
specifically provided herein, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or improvements in
or to any portion of the Premises or building of which the Premises is a part or
in or to fixtures, appurtenances and equipment herein.
10.4 SURRENDER OF PREMISES. At the expiration or sooner termination of
this Lease, Tenant shall return the Premises to Landlord in the same condition
in which received (or, if altered by Landlord or by Tenant with the Landlord's
consent, then the Premises shall be returned in such altered condition),
reasonable wear and tear excepted. Tenant shall remove all trade fixtures,
appliances and equipment which do not become a part of the Premises and
alterations which Landlord designates to be removed, and shall restore the
Premises to the condition they were in prior to the installation of said items.
Tenant's obligation to perform this covenant shall survive the expiration or
termination of this Lease.
10.5 TAKING POSSESSION. By taking possession, Tenant shall be deemed to
have accepted the Premises as being in good and sanitary order, condition and
repair.
11. COMMON AREAS
11.1 CONTROL OF COMMON AREAS BY LANDLORD. Landlord shall at all times
have the exclusive control and management of the Common Areas which shall
include but not be limited to all automobile parking areas, access roads,
driveways, entrances, retaining wails and exits thereto, the truck way or ways,
loading docks, package pick-up stations, washrooms, pedestrian malls, courts,
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sidewalks and ramps, landscaped areas, exterior stairways, and other areas,
improvements, facilities and special services provided by Landlord for the
general use, in common, of tenants of the Mercer Park, and their officers,
agents, employees and invitees. With respect to the Common Areas and facilities,
Landlord shall have the right from time to time to employ personnel; to
establish, modify and enforce reasonable rules and regulations; to construct,
maintain and operate lighting facilities; to police the Common Areas and
facilities; from time to time to change the area, level, location and
arrangement of parking areas and other facilities herein above referred to; to
restrict parking by Tenant, its officers, agents and employees to employee
parking areas; to close all or any portion of the Common Areas and facilities to
such extent as may, in the opinion of Landlord's counsel be legally sufficient
to prevent a dedication thereof or the accrual of any person or the public
therein; to close temporarily all or any portion of the parking areas or
facilities; to discourage non-customer parking; and to do and perform such other
acts in and to the Common Areas and facilities as, in the use of good business
judgment, Landlord shall determine to be advisable with a view to the
improvement of the convenience and use thereof by Tenants of the Mercer Park,
their employees, invitees and customers.
11.2 LICENSE. All Common Areas and facilities, excluding Tenant's
physical space, which Tenant may be permitted to use and occupy, are to be used
and occupied under a revocable license. If the amount of such areas or
facilities be diminished, such diminution shall not be deemed constructive or
actual eviction, Landlord shall not be subject to any liability, nor shall
Tenant be entitled to any compensation or diminution or abatement of rent. In
addition, Landlord shall provide parking to reasonably accommodate the operation
of Tenant's business.
11.3 MAINTENANCE CHARGE. Tenant shall pay to Landlord, as additional
rent, in the manner provided in Section 3.2 a monthly maintenance charge to
defray the operating cost of the Common Areas and facilities. The amount of the
monthly Maintenance Charge shall be equal to 1/12 of Tenant's estimated pro rata
share of the operating costs for the calendar year, which share shall be
determined by multiplying such costs by a fraction, the numerator of which is
the total floor area of the leased Premises and the denominator of which is the
total gross leasable floor area of Mercer Park on the first day of such calendar
year. For purposes of this paragraph, the term "operating cost of the Common
Areas and facilities" means the total cost and expense incurred in operating,
accounting, maintaining, administering and cleaning the Common Areas and
facilities, actually used or available for use by Tenant and the employees,
agents, servants, customers and invitees of Tenant, specifically including,
without limitation, gardening and landscaping, the cost of public liability and
property damage insurance, repairs, asphalt patching, line painting, minor
roof repairs, lighting, sanitary control, removal of snow, trash rubbish,
garbage and other refuse, machinery and equipment used in such maintenance, and
the cost of personnel to implement such services, including the policing of and
traffic control on the Common Areas and facilities. Management fees shall be
limited to the lesser of Fair Market Value or five percent (5%)
12. ALTERATIONS
12.1 ACCEPTANCE OF LEASE PREMISES. Upon acceptance of the Premises by
Tenant, Tenant shall acknowledge to Landlord that Tenant has inspected the
leased Premises and accepts them in their present condition or else shall notify
Landlord of any deficiencies then apparent.
12.2 ALTERATIONS BY TENANT. Tenant shall not make any alterations,
additions or improvements in or to the leased Premises without the prior written
consent of Landlord, which consent may be reasonably subject to such conditions
as Landlord may deem appropriate. Any such alterations, additions or
improvements consented to by Landlord shall be made at Tenant's sole expense.
Tenant shall secure any and all governmental permits required in connection with
any such work, and shall hold Landlord harmless from any and all liability
(including attorney's fees) and any and all liens resulting therefrom. All
alterations, additions and improvements (and expressly including all light
fixtures and floor coverings), except trade fixtures and appliances and
equipment which do not become a part of the leased Premises, excepting cabinets
and general equipment installed by Tenant which may be removed provided Tenant
repairs all damage caused by their removal, shall immediately become the
property of Landlord without any obligation to pay therefor, and shall not be
removed by Tenant. Upon the expiration or sooner termination of the Term hereof,
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at Landlord's option Tenant shall at Tenant's sole cost and expense, forthwith
and with all due diligence, remove any alterations, additions, or improvements
made by Tenant, which Landlord designates to be removed, and Tenant shall,
forthwith and with all due diligence, at its sole cost and expense, repair any
damage to the Premises caused by such removal.
13. ASSIGNMENT AND SUBLETTING
Tenant shall not assign, transfer, mortgage, pledge, hypothecate or
encumber this Lease or any interest therein, nor sublet the whole or any part of
the Premises, nor shall this Lease or any interest hereunder be assignable or
transferable by operation of law or by any process or proceeding of any court,
or otherwise, without the prior written consent of Landlord which consent may be
reasonably subject to such conditions as Landlord may deem appropriate and which
consent may not be unreasonably withheld. Without in any way limiting Landlord's
right to refuse to give such consent for any other reason or reasons, Landlord
reserves the right to refuse to give such consent unless Tenant remains fully
liable during the unexpired Lease Term hereof and Landlord further reserves the
right to refuse to give such consent if in Landlord's reasonable business
judgment the quality of merchandising experience or the financial worth of the
proposed new Tenant is less than that of the Tenant executing this Lease or of
Tenant and Tenant's Guarantor as the case may be. Tenant agrees to reimburse
Landlord for Landlord's reasonable attorneys' fees incurred in conjunction with
the processing and documentation of any such requested transfer, assignment,
subletting, licensing or concession agreement, change of fee ownership or
hypothecation of this Lease or Tenant's interest in and to the Premises.
14. ACCESS BY LANDLORD
14.1 RIGHT OF ENTRY. Landlord or Landlord's employees, agents and/or
contractors shall have the right to enter the Premises at any time to examine
the same, and to show them to prospective purchasers or Tenants of the Building,
and to make such repairs, alterations, improvements or additions as Landlord may
deem reasonably necessary or desirable. If Tenant is not personally present to
permit entry and an entry is necessary, Landlord may in case of emergency
forcibly enter the same, without rendering Landlord liable therefor. Nothing
contained herein shall be construed to impose upon Landlord any duty of repair
of the Premises or Building of which the Premises are a part except as otherwise
specifically provided for herein.
14.2 EXCAVATION. If an excavation is made upon property adjacent to the
Premises, Tenant shall afford to the person causing or authorized to cause such
excavation, license to enter upon the Premises for the purpose of doing such
work as Landlord shall deem reasonably necessary to preserve the wall of the
building of which the Premises is a part from injury or damage and to support
the same by proper foundations, without any claim for damages or indemnification
against Landlord or diminution or abatement of rent.
15. DAMAGE OR DESTRUCTION
In the event the Premises are damaged to such an extent as to render the
same untenantable in whole or in a substantial part thereof, or are destroyed,
it shall be optional with the Landlord to repair or rebuild the same; and after
the happening of any such contingency, the Tenant shall give Landlord or
Landlord's agent immediate written notice thereof. Landlord shall have not more
than ninety (90) days after date of such notification to notify the Tenant in
writing of Landlord's intention to repair or rebuild said Premises, or the part
so damaged as aforesaid, and if Landlord elects to repair or rebuild said
Premises, Landlord shall prosecute the work of such repairing or rebuilding
without unnecessary delay, and during such period the rent of said Premises
shall be abated in the same ratio that that portion of the Premises rendered for
the time being unfit for occupancy shall bear to the whole of the leased
Premises. If the Landlord shall fail to give the notice aforesaid, Tenant shall
have the right to declare his Lease terminated by written notice upon the
Landlord or Landlord's agent. In the event the building in which the Premises
hereby leased are
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located shall be damaged (even though the Premises hereby shall not be damaged
thereby) to such an extent that in the opinion of Landlord it shall not be
practical to repair or rebuild, or is destroyed, then it shall be optional with
Landlord to terminate this Lease by written notice served on Tenant within
ninety (90) days after such damage or destruction. [illegible lines]
16. DEFAULT AND RE-ENTRY
If any rents reserved herein or any part thereof shall be and remain
unpaid ten (10) days after the date they shall become due, or if Tenant shall
violate or default in any of the covenants or agreements herein contained, then
the Landlord may elect to:
(a) terminate this Lease, in which event Tenant shall immediately
pay to Landlord all rent and other sums accrued to date plus the then present
value of the total rent and other sums reserved or due under the Lease for the
balance of the lease term. Tenant shall receive a credit against the amount due
pursuant to this subparagraph(s) equal to the reasonable rental value (which
Tenant proves by a preponderance of the evidence) of the Premises for the
balance of the lease term;
(b) without terminating this Lease relet all or any part of the
Premises for the account of Tenant upon such terms and conditions as Landlord
may deem advisable, in which event the rents received on such reletting shall be
applied first to the expenses of reletting and collection (including without
limitation, all necessary renovation, repair and alteration of the Premises,
reasonable attorney fees, real estate commissions and rental or other
concessions granted to a new tenant) and thereafter to payment of all sums due
or become due Landlord hereunder, and if a sufficient amount is not realized to
pay such sums and other charges Tenant shall pay monthly to Landlord any
deficiency and Landlord may bring, at any time, an action for the entire amount
of the deficiency which will accrue during the balance of the lease term; or
(c) pursue any other right or remedy Landlord may have under the
laws of the State of Washington.
No action of Landlord shall terminate this Lease unless Landlord
notifies Tenant in writing that Landlord elects to terminate this Lease.
Landlord shall in no way be responsible or liable for any failure to relet the
property or any part thereof, or for any failure to collect any rent due upon
reletting. No reentry by Landlord shall excuse or relieve Tenant of its
liability and obligations under this lease and such liability and obligations
shall survive any such action by Landlord. Any sums received by Landlord upon
reletting of the property in excess of the rent and other sums due by Tenant
hereunder shall be the sole property of Landlord and Landlord shall not be
required to pay over any such sum to Tenant. Tenant assumes full responsibility
to mitigate damages resulting from Tenant's breach of abandonment by obtaining a
subtenant or assignee reasonably acceptable to Landlord. Landlord shall have no
responsibility to mitigate damages resulting from Tenant's breach or abandonment
other than to not unreasonably withhold consent to Tenant's proposed subleases
and assignments. Tenant waives any defense or claim based on Landlord's failure
to mitigate damages except as provided in the preceding sentence. Not
withstanding the foregoing Washington State Law shall prevail.
17. LATE CHARGES
Tenant hereby 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 trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Tenant shall not be received by
Landlord or Landlord's designee within ten (10) days after such amount shall be
due, Tenant shall pay to Landlord a late charge equal to five percent (5%) of
such overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights
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and remedies granted hereunder. A twenty-five dollar ($25.00) charge shall be
paid to Landlord for any returned check.
18. COSTS AND ATTORNEYS' FEES
In the event of an action (or any appeal thereof) between the parties
hereto to enforce any of the terms or provisions of this Lease, the successful
party shall be entitled to recover from the unsuccessful party, in addition to
any other award, a reasonable sum as attorney fees to be determined by the court
and included as a part of the judgment.
19. NON-WAIVER OF BREACH
The failure of the Landlord or Tenant to insist upon strict performance
of any of the covenants and agreements of this Lease, or to exercise any option
herein conferred in any one or more instances, shall not be construed to be a
waiver or relinquishment of any such, or any other covenants or agreements, but
the same shall be and remain in full force and effect.
20. REMOVAL OF PROPERTY
In the event of any entry in, or taking possession of, the leased
Premises as aforesaid, the Landlord shall have the right, which right shall not
be exercised unreasonably, but not the obligation, to remove from the leased
Premises all personal property located therein, and may store the same in any
place selected by Landlord, including but not limited to a public warehouse, at
the expense and risk of the owners thereof, with the right to sell such stored
property, without notice to Tenant, after it has been stored for a period of
thirty (30) days or more, the proceeds of such sale to be applied first to the
cost of such sale, second to the payment of the charges for storage, if any, and
third to the payment of any other sums of money which may then be due from
Tenant to Landlord under any of the terms hereof, the balance, if any, to be
paid to Tenant. Landlord shall not remove any property without reasonable
advance notice to Tenant.
21. HEIRS AND SUCCESSORS
Subject to the provisions hereof pertaining to Assignment and
Subletting, the covenants and agreements of this Lease shall be binding upon the
heirs, legal representatives, successors and assigns of any or all of the
parties hereto.
22. HOLDOVER
If the Tenant shall, with the written consent of Landlord, hold over
after the expiration of the Term of this Lease, such tenancy shall be for an
indefinite period of time on the month-to-month tenancy, which tenancy may be
terminated as provided by the laws of the State of Washington. During such
tenancy, Tenant agrees to pay to the Landlord the same rate of rental as set
forth herein, unless a different rate is agreed upon, and to be bound by all of
the terms, covenants, and conditions as herein specified, so far as applicable.
If Tenant shall, without the written consent of Landlord, hold over after the
expiration of the term of this Lease, such tenancy shall be month-to-month, on
the same terms and conditions as contained herein; provided, however, the rental
rate shall be one and one quarter (1 1/4) that in effect during the last month
of the lease term.
23. SUBORDINATION, QUIET ENJOYMENT
This Lease is subject to and is hereby subordinated to all present and
future mortgages, deeds of trust and other encumbrances affecting the leased
Premises or the property of which said Premises are a part. Tenant will, upon
demand by Landlord, execute such instruments as may be required at any time, and
from time to time, to subordinate the rights and interests of the Tenant under
this Lease to the lien of any mortgage or trust deed at any time placed on the
land of which the leased Premises are a part; provided, however, that such
subordination shall not affect Tenant's right to possession, use and occupancy
of the leased Premises so long as Tenant shall not be in default under any of
the terms or conditions of this Lease, Tenant further agrees:
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That any such subordination agreement will contain a provision
satisfactory to Landlord's financing lender whereby Tenant will agree, in the
event of foreclosure of any such mortgage or trust deed to attorn to and
recognize as its Landlord under the terms of this Lease said lender or any
purchaser of the leased property at a foreclosure sale or their heirs,
successors, or assigns, and that it will execute and deliver to such lender an
Estoppel Certificate in form satisfactory to such lender.
24. PERSONAL PROPERTY AND TRADE FIXTURES
It is contemplated that certain furniture, fixtures and equipment to be
installed by Tenant in the leased Premises, are or may be either leased by
Tenant or purchased by Tenant from a lessor or conditional seller or otherwise
hypothecated to a third party. In this connection, it is agreed that all of such
furniture, fixtures and equipment installed by Tenant in the leased Premises
shall at all times be and remain personal property, regardless of the method in
which the same are affixed to the Premises, and shall remain the personal
property of Tenant and/or such third party. Landlord specifically agrees that
its rights, if any, in such furniture, fixtures and equipment shall at all times
be subject and subordinate to the rights of any such described third party.
Landlord agrees to execute, upon request, any documents reasonably required by
any such described third party in order to effectuate the purposes of this
paragraph, it being specifically agreed by Landlord herein that any such third
party shall have the right to remove the furniture, fixtures or equipment from
the leased Premises in the event of the default of Tenant in complying with its
agreements relating to such furniture, fixtures and equipment. Tenant agrees to
repair any damage caused by any such removal at its expense.
25. CONDEMNATION
If the Premises or any portion thereof are taken under the power of
eminent domain, or sold by Landlord under the threat of the exercise of said
power (all of which is referred to as "Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever occurs first. If more than ten percent (10%) of
the floor area of any buildings on the Premises, or more than twenty-five
percent (25%) of the land area of the Premises not covered with buildings, is
taken by Condemnation, either Landlord or Tenant may terminate this Lease as of
the date the condemning authority takes possession, by notice in writing of such
election within twenty (20) days after Landlord shall have notified Tenant of
the taking, or in the absence of such notice then within twenty (20) days after
the condemning authority shall have taken possession. If this Lease is not
terminated by either Landlord or Tenant then it shall remain in full force and
effect as to the portion of the Premises remaining, provided the rent shall be
reduced in the proportion that the floor area of the buildings taken within the
Premises bears to the total floor area of all buildings located on the Premises.
In the event this Lease is not so terminated then Landlord agrees, at Landlord's
sole cost, to restore the Premises to a complete unit of like quality and
character as existed prior to the condemnation as soon as reasonably possible.
All awards for the taking of any part of the Premises or any payment made under
the threat of the exercise of power of eminent domain shall be the property of
Landlord, whether made as compensation for diminution of value of a leasehold or
for the taking of the fee or as severance damages; provided, however, that
Tenant shall be entitled to any award for loss of or damage to Tenant's trade
fixtures and removable personal property. In the event that this Lease is not
terminated by reason of such Condemnation, Landlord shall, to the extent of
severance damages received by Landlord in connection with such Condemnation,
repair any damage to the Premises caused by such Condemnation except to the
extent that Tenant has been reimbursed therefor by the condemning authority.
26. NOTICES
Wherever under this Lease provision is made for any demand, notice or
declaration of any kind, or where it is deemed desirable or necessary by either
party to give or serve any such notice, demand or declaration to the other
party, it shall be in writing and served either personally or sent by United
States mail, postage prepaid, addressed to the address set forth herein below:
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Landlord: Tenant:
The Evans Company Optiva Corporation
1457 130th Ave NE 13228 SE 30th St. Suite C-3
Bellevue WA 98005 Bellevue WA 98005
27. CORPORATE AUTHORITY
If Tenant is a corporation, each individual executing this Lease on
behalf of said corporation represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation in accordance with
a duly adopted resolution of the Board of Directors of said corporation or in
accordance with the by-laws of said corporation, and that this Lease is binding
upon said corporation in accordance with its terms. If Tenant is a corporation
Tenant shall, within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of a resolution of the Board of Directors of said
corporation substantially the same as or identical to Exhibit D authorizing or
ratifying the execution of this Lease.
28. MISCELLANEOUS
28.1 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale or
conveyance by Landlord of Landlord's interest in the Premises other than a
transfer for security purposes only, Landlord shall be relieved from, after the
date specified in such notice of transfer, all obligations and liabilities
accruing thereafter on the part of the Landlord, provided that any funds in the
hands of Landlord at the time of transfer in which Tenant has an interest, shall
be delivered to the successor of Landlord. This Lease shall not be affected by
any such sale and Tenant agrees to attorn to the purchaser or assignee, provided
all Landlord's obligations hereunder are assumed in writing by the transferee.
28.2 SEVERABILITY. If any term or provision of this Lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforceable to the
fullest extent permitted by law.
28.3 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence of this
Lease and each and every provision hereof, except as to the conditions relating
to the delivery of possession of the Premises to Tenant. All the terms,
covenants and conditions contained in this Lease to be performed by either
party, if such party shall consist of more than one person or organization,
shall be deemed to be Joint and Several, and all rights and remedies of the
parties shall be cumulative and non-exclusive of any other remedy at law or in
equity.
28.4 MEMORANDUM OF LEASE. This Lease shall not be recorded, but upon
written request of Landlord or Tenant, a Memorandum of Lease describing the
Premises, giving the term of this Lease and the name and address of Landlord and
Tenant, referring to this Lease, and in form suitable under law as record
notice, shall be promptly executed, acknowledged and delivered by both parties;
such Memorandum of Lease may be recorded by either party.
29. HAZARDOUS AND TOXIC WASTE MATERIALS
Tenant shall be fully responsible for any release of any hazardous waste
or substance in or on or under the Premises or on any adjacent property during
the lease term by Tenant, Tenant's officers, directors, successors, assigns,
subleases, guests, invitees, visitors, employees, agents, contractors in or
about the Premises. Tenant shall promptly comply with all statutes, regulations
and ordinances and with all orders, decrees or judgments of governmental
authorities or courts having jurisdiction relating to the use, collection,
treatment, disposal, storage, control, removal or cleanup of hazardous waste or
substances in, on or under the Premises or any adjacent property or incorporated
in any of the improvements, at Tenant's sole
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expense provided that Tenant shall have the right, prior to compliance, to
exhaust judicial and administrative remedies, including without limitation
appeals and judicial or administrative challenges to the validity of any
government action, with prior approval from Landlord which shall not be
unreasonably withheld. After notice to Tenant and a reasonable opportunity for
Tenant to affect such compliance, Landlord may, but shall not be obligated to,
enter upon the Premises and take such actions and incur such costs and expenses
to affect such compliance as it deems advisable to protect its interest in the
Premises; provided however, Landlord shall not be obligated to give Tenant
notice and opportunity to affect compliance if (i) such delay might result in
material adverse harm to Landlord or the Premises; (ii) Tenant has already had
actual knowledge of the situation and a reasonable opportunity to affect
compliance; or (iii) an emergency exists. Whether or not Tenant has actual
knowledge of the release of hazardous waste or substances on the Premises or any
adjacent property as a result of Tenant's use of the Premises, Tenant shall
reimburse Landlord for the full amount of all costs and expenses incurred by
Landlord in connection with such compliance activities, and such obligation
shall survive any termination of this Lease. Tenant shall notify Landlord
immediately of any release of any hazardous waste or substance on the Premises.
Tenant shall indemnify and hold Landlord harmless from any and all losses,
liabilities, suits, obligations, fines, damages, judgments, penalties, claims,
charges, cleanup costs, remedial actions, costs and expenses (including, without
limitation, attorneys fees and disbursements) which may be imposed on,
reasonably incurred or paid by, Landlord or the Premises by reason of (i) any
misrepresentation, breach of warranty or other default by Tenant under this
Lease resulting in the release of any hazardous waste or substance or (ii) the
act or omissions of Tenant, Tenant's officers, directors, successors, assigns,
subleases, guests, invitees, visitors, employees, agents, contractors resulting
in the release of any hazardous waste or materials in, on or under the Premises
or any adjacent property. Landlord may perform any inspections, audits or
surveys of the Premises as Landlord deems necessary or advisable at any time
during the term of this Lease.
30. SPECIAL ARTICLES
The following numbered sections are made a part hereof, N/A, and appear
below on Addendum(s) N/A attached hereto. The following Exhibit(s) not
referenced in the lease above are also made a part hereof, D , and are attached
hereto.
In Witness Whereof, the Landlord and Tenant have executed this Lease the
date and year first above written.
Landlord: Tenant:
By: /s/ SCOTT EVANS By: /s/ MIKE STULL
-------------------- ----------------------------
Vice President VP Finance + CFO
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LANDLORD
Corporate
STATE OF WASHINGTON )
ss.
COUNTY OF KING )
On this 30th day of July, in the year 1996, before me, Debbie Sorensen, the
undersigned Notary Public, personally appeared Mike Stull, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person who
executed the within instrument as CFO & VP Finance on behalf of Optiva, the
corporation therein named, and acknowledged to me that the corporation executed
it.
/s/ DEBBIE J. SORENSEN Residing at Kirkland, WA.
- ------------------------------ -----------------------------
Notary's Signature
[SEAL]
================================================================================
CORPORATE
STATE OF WASHINGTON )
ss.
COUNTY OF KING )
On this 31st day of July, in the year 1996, before me, Dana C. Laviner, the
undersigned Notary Public, personally appeared Scott Evans, personally known to
me to be the person who executed the within instrument on behalf of the
corporation and acknowledged to me that the corporation executed it.
/s/ DANA C. LAVINER Residing at Woodinville.
- ------------------------------- ----------------------------
Notary's Signature
[SEAL]
================================================================================
TENANT
Corporate
STATE OF WASHINGTON )
ss.
COUNTY OF KING )
On this_________ day of____________, in the year 19__, before
me,______________________ , the undersigned Notary Public, personally appeared
_________________ , personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person who executed the within instrument as
______________________ on behalf of____________________ , the corporation
therein named, and acknowledged to me that the corporation executed it.
____________________________________ Residing at__________________________.
Notary's Signature
Page 15 of 17
<PAGE> 18
================================================================================
Partnership
STATE OF WASHINGTON )
ss.
COUNTY OF KING )
On this___ day of_______________ , in the year 19__ , before me,
___________________ , the undersigned Notary Public, personally appeared
___________________________ , personally known to me to be the person who
executed the within instrument on behalf of the partnership and acknowledged to
me that the partnership executed it.
_______________________________ Residing at____________________________.
Notary's Signature
================================================================================
Individual
STATE OF WASHINGTON )
ss.
COUNTY OF KING )
On this____ day of____________________ , in the year 19__ , before me
______________________________ , personally appeared________________________ ,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is(are) subscribed to this instrument, and
acknowledged that he(she/they) executed it. WITNESS my hand and official seal.
_______________________________ Residing at____________________________.
Notary's Signature
Page 16 of 17
<PAGE> 1
CONFIDENTIAL
THE EVANS COMPANY
September 6, 1995
STATEMENT OF ADJUSTMENTS
Tenant Name: Optiva Corporation
and Address: 13226 SE 30th St B-1
Bellevue WA 98005
Lease Site Location: Mercer Park
Square Footage: 810
Current Lease Term: 09/15/95 - 12/31/98
Date of Lease: September 6, 1995
STATEMENT OF TOTAL MONTHLY RENT
<TABLE>
<S> <C>
Minimum Monthly Rent $ 648.00
Monthly Share of Estimated Adjustments: 142.00
Taxes, insurance, common area maintenance, utilities and garbage.
TOTAL MONTHLY RENT BEGINNING OCTOBER 1, 1995 $ 790.00
</TABLE>
<PAGE> 2
THE EVANS COMPANY
Lease Agreement
Table of Contents
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
Lease Summary 3
1 Premises 4
2 Term 4
3 Rent 5
4 Security Deposit 6
5 Property Taxes and Insurance 7
6 Personal Property Taxes 7
7 Insurance and Indemnity 8
8 Use, Signs, Liens 10
9 Utilities and Janitor Service 12
10 Maintenance of Premises 12
11 Common Areas 13
12 Alterations 14
13 Assignment and Subletting 15
14 Access by Landlord 15
15 Damage or Destruction 16
16 Default or Re-Entry 16
17 Late Charges 17
18 Costs and Attorney's Fees 17
19 Non-Waiver of Breach 17
20 Removal of Property 18
21 Heirs and Successors 18
22 Hold-Over 18
23 Subordination, Quiet Enjoyment 18
24 Personal Property and Trade 19
Fixtures
25 Condemnation 19
26 Notices 20
27 Corporate Authority 20
28 Miscellaneous 20
29 Hazardous and Toxic Waste 21
Materials
30 Special Articles 22
Exhibit
- -------
A Legal Description
B Site Plan
C Description of Landlord's and Tenants Work of Improvement
C-1 Demising Plan of Premises
D Corporate Resolution of Tenant
E Guaranty of Lease
</TABLE>
2
<PAGE> 3
LEASE SUMMARY
<TABLE>
<S> <C>
LEASE DATE: September 6, 1995
LANDLORD: The Evans Company
ADDRESS OF LANDLORD: 1457 130th Ave NE
Bellevue WA 98005
TELEPHONE: 454-8211
TENANT'S TRADE NAME: Optiva Corporation
ADDRESS OF TENANT (Address of Premises): 13226 SE 30th St B-1
Bellevue WA 98005
TELEPHONE AT PREMISES: 957-0970
BUSINESS HOME OFFICE ADDRESS: 13222 SE 30th A-1
Bellevue WA 98005
BUSINESS HOME OFFICE TELEPHONE: 957-0970
OWNER RESIDENCE ADDRESS:
OWNER RESIDENCE TELEPHONE:
PREFERRED MAILING ADDRESS FOR NOTICES: PREMISES
xx BUSINESS HOME OFFICE
OWNER RESIDENCE
LEASED PREMISES: BUILDING B
SPACE(S) 1
SQUARE FEET OF PREMISES APPROXIMATELY 810
LEASE TERM: 39.5 MONTHS
LEASE COMMENCEMENT DATE: September 15, 1995
RENT COMMENCEMENT DATE: September 15, 1995
LEASE TERMINATION DATE: December 31, 1998
MINIMUM MONTHLY RENT: Six Hundred Forty-eight and NO/100 Dollars
($648.000)
PER MONTH AS INCREASED BY THE TERMS OF THE LEASE.
SECURITY DEPOSIT: Nine Hundred and NO/100 Dollars ($900.00)
PERMITTED USES: Office
GUARANTOR: David Giuliani
ADDRESS OF GUARANTOR: 13226 SE 30th St B-1
(Business Address) Bellevue WA 98005
TELEPHONE NO: 957-0970
</TABLE>
THE EVANS COMPANY Landlord's Initials_____
Tenant's Initials_____
3
<PAGE> 4
LEASE AGREEMENT
THIS LEASE, dated for reference purposes only, September 6, 1995 , is made
by and between The Evans Company (hereinafter "Landlord") and Optiva Corporation
(hereinafter "Tenant"). For and in consideration of the rental and of the
covenants and agreements hereinafter set forth to be kept and performed by the
Tenant, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the Premises herein described for the term, at the rental and subject to and
upon all of the terms, covenants and agreements hereinafter set forth.
1. PREMISES
1.1 PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord that certain space (herein called "Premises") containing
approximately 810 square feet of floor area, the approximate location of which
is shown crosshatched on Exhibit B attached hereto. The Premises are located in
Mercer Park, the legal description of which is set forth on Exhibit A attached
hereto, which is in the City of Bellevue, County of King, State of Washington.
The address of the Premises is as follows: 13226 SE 30th St. B-1, Bellevue WA
98005. This Lease is subject to the terms, covenants and conditions herein set
forth and the Tenant covenants as a material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed.
1.2 WORK OF IMPROVEMENT. The obligations of Landlord and Tenant to
perform the work and supply material and labor to prepare the Premises for
occupancy are set forth in detail in Exhibits C and C-1. Landlord and Tenant
shall expend all funds and do all acts required in Exhibit C and C-1 and shall
have the work performed promptly and diligently in a first-class workmanlike
manner. By taking possession of the premises, Tenant acknowledges that it has
examined the Premises and accepts the Premises in their condition at the time of
taking possession thereof.
2. TERM
2.1 TERM. The Term of this Lease shall be for 39.5 (thirty nine and a
half) months commencing September 15, 1995 and ending on December 31, 1998
unless sooner terminated pursuant to this Lease. The rent commencement date
shall be September 15, 1995 ("Rent Commencement Date").
2.2 COMMENCEMENT. Tenant agrees that in the event of the inability of
Landlord for any reason to deliver possession of the Premises to Tenant on the
commencement date set forth in Section 2.1, Landlord shall not be liable for any
damage thereby nor shall such inability affect the validity of this Lease or the
obligations of Tenant hereunder, but in such case Tenant shall not be obligated
to pay rent or other monetary sums until possession of the Premises is tendered
to Tenant; provided that if the delay in delivery of possession exceeds thirty
(30) days, then the expiration date of the term of the Lease shall be extended
4
<PAGE> 5
by the period of time computed from the scheduled commencement date to the date
possession is tendered. In the event Landlord shall not have delivered
possession of the Premises within four (4) months from the scheduled
commencement date, then Tenant at its option to be exercised within thirty (30)
days after the end of said four (4) month period may terminate this Lease and
upon Landlord's return of any moneys previously deposited by Tenant the parties
shall have no further rights or liabilities toward each other. If Tenant
occupies the Premises prior to said commencement date, such occupancy shall be
subject to all provisions hereof, such occupancy shall not advance the
termination date and Tenant shall pay rent for such period at the initial
monthly rates as set forth below.
2.3 DELIVERY OF POSSESSION. Tenant shall be deemed to have taken
possession of the Premises when any of the following occur: (a) Landlord
delivers possession of the Premises to Tenant and a Certificate of Occupancy is
granted by the proper governmental agency, (b) upon a letter from Landlord that
the Premises are ready for occupancy, or (c) upon occupancy by the Tenant.
3. RENT
3.1 MINIMUM MONTHLY RENT. Tenant shall pay to Landlord as Minimum
Monthly Rent for the Premises the sum of Six Hundred Forty-eight and NO/100
Dollars ($648.00) per month, which sum shall be paid in advance on the first day
of each calendar month beginning with the Rent Commencement Date and thereafter
throughout the term of the Lease. All rent to be paid by Tenant to Landlord
shall be paid in lawful money of the United States of America and shall be
without deduction or offset, prior notice or demand, and at such place or places
as may be designated from time to time by Landlord. If the Rent Commencement
date is not the first day of a month, or if the lease termination date is not
the last day of a month, a pro rated monthly installment shall be paid at the
then current rate for me fractional month during which the Lease commences
and/or terminates. Concurrently with Tenant's execution of this Lease, Tenant
shall pay to Landlord the sum Three Hundred Ninety-five and NO/100 Dollars
($395.00) as Minimum Monthly Rent and Adjustments for September 1995.
The Minimum Monthly Rent shall be increased or decreased by the
percentage of change, if any, in the Consumer Price Index - All Urban Consumers,
All Items (1982 - 84 = 100) equals Base ("CPI"), as published by the United
States Department of Labor's Bureau of Labor Statistics. The base period, for
purposes of such adjustment, shall be the CPI for the fourth calendar month
immediately preceding the first Lease Year (the "Base CPI"). The Minimum Monthly
Rent shall be adjusted for each Lease Year after the first Lease Year on the
basis of the percentage change in the CPI for the fourth calendar month
immediately preceding the Lease Year subject to adjustment compared to the Base
CPI. In no event, however, shall the rent payable in any Lease Year be reduced
below the Minimum Monthly Rent. Should the CPI be discontinued, the parties
shall select another similar index which reflects consumer prices and if the
parties cannot agree on another index it shall be selected by the Superior Court
of the County in which the premises are located.
5
<PAGE> 6
(By way of illustration only, if the Base CPI is 190 and the CPI figure
for the fourth month before the second Lease Year is 195, then the Minimum
Monthly Rent for the second lease year shall be increased by 2.63%.)
3.2 ADJUSTMENTS. In addition to the Minimum Monthly Rent provided in
Section 3.1 above, Tenant shall pay to Landlord in monthly installments the
Tenant's portion of those items, herein called "Adjustments", delineated in
Sections 5, 9, 10 and 11. Upon commencement of the Term Landlord shall submit to
Tenant a statement of the anticipated monthly Adjustments for the period between
such commencement and the following January and Tenant shall pay same and all
subsequent monthly payments concurrently with the payment of Minimum Monthly
Rent. Tenant shall continue to make said monthly payments until notified by
Landlord of a change thereof. By March 1 of each year Landlord shall endeavor to
give Tenant a statement showing the total Adjustments for the Mercer Park for
the prior calendar year and Tenant's allocable share thereof, prorated from the
commencement of rental. Tenant's pro rata share, where applicable, shall be
determined in accordance with the total floor area of the Premises as it relates
to the total gross leasable floor area of the building or buildings of which the
Premises are a part. In the event the total of the monthly payments which Tenant
has made for the prior calendar year are less than Tenant's actual share of such
Adjustments then Tenant shall pay the difference in a lump sum within ten days
after receipt of such statement from Landlord and shall concurrently pay the
difference on monthly payments made in the then calendar year and the amount of
monthly payments which are then calculated as monthly Adjustments based on the
prior year's experience. Any overpayment by Tenant shall be credited towards the
monthly Adjustments next coming due. The actual Adjustments for the prior year
shall be used for purposes of calculating the anticipated monthly Adjustments
for the then current year, with actual determination of such Adjustments after
each calendar year as above provided. Even though the term has expired and
Tenant has vacated the Premises, when the final determination is made of
Tenant's share of said Adjustments for the year in which this Lease terminated,
Tenant shall immediately pay any increase due over the estimated Adjustments
previously paid and, conversely, any overpayment made shall be immediately
rebated by Landlord to Tenant.
4. SECURITY DEPOSIT
Concurrently with Tenant's execution of this Lease, Tenant shall deposit
with Landlord the sum of Nine Hundred and NO/100 Dollars ($900.00). Said sum
shall be held by Landlord as a Security Deposit for the faithful performance by
Tenant of all of the terms, covenants, and conditions of this Lease to be kept
and performed by Tenant during the term hereof. If Tenant defaults with respect
to any provisions of this Lease, including but not limited to the provisions
relating to the payment of rent and any of the monetary sums due herewith,
Landlord may (but shall not be required to) use, apply or retain all or any part
of this Security Deposit for the payment of any other amount which Landlord may
spend or become obligated to spend by reason of Tenant's default or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's
6
<PAGE> 7
default. If any portion of said Deposit is so used or applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with Landlord
in an amount sufficient to restore the Security Deposit to its original amount;
Tenant's failure to do so shall be material breach of this Lease. Landlord shall
not be required to keep this Security Deposit separate from its general funds,
and Tenant shall not be entitled to interest on such Deposit. If Tenant shall
fully and faithfully perform every provision of this Lease to be performed by
it, the Security Deposit or any balance thereof shall be returned to Tenant (or,
at Landlord's option, to the last assignee of Tenant's interest hereunder) at
the expiration of the Lease term and after Tenant has vacated the Premises. In
the event of termination of Landlord's interest in this Lease, Landlord shall
transfer said Deposit to Landlord's successor in interest, whereupon Tenant
agrees to release Landlord from all liability for the return of such Deposit or
the accounting therefore.
5. ADJUSTMENTS FOR REAL PROPERTY TAXES AND INSURANCE
In addition to the Minimum Monthly Rent provided in Section 3.1 above,
and commencing as of the commencement of the term of the Lease, Tenant shall pay
to Landlord in monthly installments, the Tenant's portion of the following items
herein called "Adjustments":
All insurance premiums paid on policies, maintained by Landlord with
respect to the Premises, including land, building and improvements including
without limitation, all premiums for fire, extended coverage, liability with
respect to the Premises and all real estate taxes imposed on the Premises or
arising in respect to the occupancy, use or possession of the Premises. Real
property taxes shall include, without limitation, all assessments whether
general, special, ordinary, extraordinary, unforeseen or foreseen, of any kind
or nature levied, imposed or to become a lien upon or against the Premises and
any building, structure, fixture, improvement, personal property or inventory
now or hereafter located thereon, assessment or improvement bonds for water,
sewer, road and other public purposes, license, permit and inspection fees and
taxes, commercial rental tax and any other public charge, levy, penalty or
assessment against any interest in the Premises or the real property of which
the Premises are a part, or against Landlord's right to rent or other income
therefrom (other than income taxes). All of the foregoing expenses shall be
apportioned in accordance with the Tenant's "pro rata share" which shall be
determined in accordance with the total floor area of the Premises as it relates
to the total gross leasable floor area of the building or buildings which the
Premises are a part; provided, however, that if any tenants in said building or
buildings pay taxes directly to any taxing authority or carry their own
insurance, as may be provided in their leases, their square footage shall not be
deemed a part of the floor area for purposes of prorating such expenses.
6. PERSONAL PROPERTY TAXES
Tenant shall pay, before delinquency, all taxes, assessments, license
fees and public charges levied, assessed or imposed upon or measured by the
value of its business
7
<PAGE> 8
operation, including but not limited to the furniture, fixtures, leasehold
improvements, equipment and other property of Tenant at any time situated on or
installed in the Premises by Tenant. If at any time during the term of this
Lease any of the foregoing are assessed as part of the real property of which
the Premises are a part, Tenant shall pay to Landlord upon demand the amount of
such additional taxes as may be levied against said real property by reason
thereof. For the purpose of determining said amount, figures supplied by the
County Assessor as to the amount so assessed shall be conclusive.
7. INSURANCE AND INDEMNITY
7.1 INDEMNIFICATION. It is understood and agreed that Landlord shall not
be liable for injury to any person, or for the loss of or damage to any property
(including property of Tenant) occurring in or about the Premises from any cause
whatsoever except for Landlord's negligence or willful misconduct. Tenant hereby
indemnifies and holds Landlord harmless from and against and agrees to defend
Landlord against any and all claims, charges, liabilities, obligations,
penalties, damages, costs and expenses (including attorney's fees) arising,
claimed, charged or incurred against or by Landlord from any matter or thing
arising from Tenant's use of the Premises, the conduct of its business or from
any activity, work or other things done, permitted or suffered by the Tenant in
or about the Premises, and Tenant shall further indemnify and hold harmless
Landlord from and against any and all claims arising from any breach or default
in the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any act or negligence of the Tenant, or any
officer, agent, employee, guest, or invitee of Tenant, and from all costs,
attorney's fees and liabilities incurred in or about the defense of any such
claim or any action or proceeding brought thereon and in case any action or
proceeding be brought against Landlord by reason of such claim. Tenant, upon
notice from Landlord, shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord. Tenant as a material part of the
consideration to Landlord hereby assumes all risk of damage to property or
injury to persons in, upon or about the Premises, from any cause other than
Landlord's negligence, or willful misconduct, and Tenant hereby waives all
claims in respect thereof against Landlord. The indemnification provided for in
this Section with respect to any acts or omissions during the term of this Lease
shall survive any termination or expiration of this Lease. Landlord and its
agents shall not be liable for any toss or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Premises or from pipes, appliances
or plumbing works therein or from the roof, street or subsurface or from any
other place resulting from dampness or any other cause whatsoever, unless caused
by or due to the negligence of Landlord, its agents, servants or employees.
Landlord and its agents shall not be liable for interference with the light, on
the Premises. Tenant shall give prompt notice to Landlord in case of casualty or
accidents on the Premises.
7.2 INSURANCE. During the entire Lease Term the Tenant shall, at its own
expense, maintain adequate liability insurance with a reputable insurance
company or companies
8
<PAGE> 9
with minimum amounts of $1,000,000.00 Combined Single Limits (including bodily
injury and property damage) to indemnify both Landlord and Tenant against any
such claims, demands, tosses, damages, liabilities and expenses. Landlord shall
be named as one of the insureds and shall be furnished with a copy of such
policy or policies of insurance, which shall bear an endorsement that the same
shall not be canceled except upon not less than twenty (20) days prior written
notice to Landlord. Tenant shall also at its own expense maintain, during the
Lease Term, insurance covering its furniture, fixtures, equipment and inventory
in an amount equal to the full insurable value thereof, against fire and risks
covered by standard extended coverage endorsement and insurance covering all
plate glass and outer glass on the Premises. Tenant shall provide Landlord with
copies of the policies of insurance or certificates thereof. If Tenant fails to
maintain such insurance, Landlord may maintain the same on behalf of Tenant. Any
premiums paid by Landlord shall be deemed additional rent and shall be due on
the payment date of the next installment of Minimum Monthly Rental hereunder.
7.3 INCREASE IN INSURANCE PREMIUM. Tenant shall not keep, use, sell or
offer for sale in or upon the Premises any article which may be prohibited by
the standard form of fire insurance policy. Tenant shall pay any increase in
premiums for casualty and fire (including extended coverage) insurance that may
be charged during the Term of this Lease on the amount of such insurance which
may be carried by Landlord on the Premises or the building of which they are a
part, resulting from Tenant's occupancy or from the type of merchandise which
Tenant stores or sells on the Premises, whether or not Landlord has consented
thereto. In such event, Tenant shall also pay any additional premium on the
insurance policy that Landlord may carry for its protection against rent loss
through fire or casualty. In determining whether increased premiums are the
result of Tenant's use of the Premises, a schedule, issued by the organization
setting the insurance rate on the Premises, showing the various components of
such rate, shall be conclusive evidence of the several items and charges which
make up the casualty and fire insurance rate on the Premises. Landlord shall
deliver bills for such additional premiums to Tenant at such times as Landlord
may elect, and Tenant shall immediately reimburse Landlord therefor.
7.4 WAIVER OF SUBROGATION. Landlord and Tenant hereby mutually release
each other from liability and waive all right of recovery against each other for
any loss in or about the Premises, from perils insured against under their
respective fire insurance contracts, including any extended coverage
endorsements thereof, whether due to negligence or any other cause; provided
that this Section shall be inapplicable if it would have the effect, but only to
the extent it would have the effect, of invalidating any insurance coverage of
Landlord or Tenant.
7.5 COMPANIES. Insurance required hereunder shall be issued by companies
rated AAA or better in "Bests" Insurance Guide.
7.6 CERTIFICATE OF INSURANCE. A certificate issued by the insurance
carrier for each policy of insurance required to be maintained by Tenant under
the provisions of this Lease shall be delivered to Landlord on or before the
commencement date of the Lease Term hereof and thereafter, as respects policy
renewals, within thirty (30) days prior to the
9
<PAGE> 10
expiration of the term of each such policy. Each of said certificates of
insurance and each such policy of insurance required to be maintained by Tenant
hereunder shall expressly evidence insurance coverage as required by this Lease.
All such policies shall be written as primary policies not contributing with and
not in excess of coverage which Landlord may carry.
8. USE
8.1 USE. The Premises shall be used and occupied by Tenant for only the
following purposes and for no other purposes whatsoever without obtaining the
prior written consent of Landlord: Office, Research, assembly and other uses
consistent with those currently occurring in Bldg.
8.2 SUITABILITY. If the Premises are completed as of the date of
execution hereof, then Tenant, by the date of execution of this Lease, shall be
deemed to have accepted the Premises in the condition existing as of the dale of
execution and in any event this Lease shall be subject to all applicable zoning
ordinances and to any municipal, county and state laws and regulations governing
and regulating the use of the Premises. Tenant acknowledges that neither
Landlord nor Landlord's agent has made any representation or warranty as to the
suitability of the Premises for the conduct of Tenant's business.
8.3 USES PROHIBITED. Tenant shall not do or permit anything to be done
in or about the Premises which will increase the existing rate of insurance upon
the Premises (unless Tenant shall pay any increased premium as a result of such
use or acts) or cause the cancellation of any insurance policy covering said
Premises or any building of which the Premises may be a part, nor shall Tenant
sell or permit to be kept, used or sold in or about said Premises any articles
which may be prohibited by a standard form policy of fire insurance.
Tenant shall not do or permit anything to be done in or about the
Premises which will obstruct or interfere with the rights of other tenants or
occupants of any building of which the Premises may be a part or injure or annoy
them or use or allow the Premises to be used for any unlawful, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon or about the
Premises.
Tenant shall not dispose of nor otherwise allow the release of any
hazardous waste or substance in, on or under the Premises, any improvements
placed thereon or any adjacent property. Tenant represents and warrants to
Landlord that Tenant's intended use of the Premises does not involve the use,
production, disposal or bringing on the Premises of any hazardous waste or
substance of types other than, or in quantities in excess of, those normally
incident to the use of the Premises for general office use. For purposes of this
Lease the term "hazardous waste or substance" shall mean any substance, waste or
material defined or designated as hazardous, toxic or dangerous (or any similar
term) by any federal, state or local statute regulation, rule or ordinance now
or hereafter in effect.
Tenant shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law, statute, zoning
restriction, ordinance
10
<PAGE> 11
or governmental rule or regulation or requirements or duly constituted public
authorities now in force or which may hereafter be enacted or promulgated.
Tenant shall at its sole cost and expense promptly comply with all laws,
statutes, ordinances and governmental rules, regulations or requirements now in
force or which may hereafter be in force and with the requirements of any board
of fire underwriters or other similar body now or hereafter constituted relating
to or affecting the condition, use or occupancy of the Premises. The judgment of
any court of competent jurisdiction, whether Landlord be a party thereto or not,
that Tenant has violated any law, statute, ordinance or governmental rule,
regulation or requirement, shall be conclusive of that fact as between Landlord
and Tenant.
8.4 SIGNS.
(a) GENERAL. Tenant shall not place or suffer to be placed on the
exterior walls of the Premises or upon the roof or any exterior door or wall or
on the exterior or interior of any window thereof any sign, awning, canopy,
marquee, advertising matter, decoration, letter or other thing of any kind
(exclusive of signs, if any, which may be provided for in the original
construction or improvement plans and specifications approved by the Landlord or
Tenant herein, and which conform to the Landlord's sign criteria as specified in
Exhibit F attached hereto if applicable) without the prior written consent of
Landlord. Landlord hereby reserves the exclusive right to the use for any
purpose whatsoever of the roof and exterior of the walls of the Premises or the
Building of which the Premises are a part.
(b) TENANT'S INTERIOR SIGNS. Except as otherwise herein provided, Tenant
shall have the right, at its sole cost and expense, to erect and maintain within
the interior of the Premises all signs and advertising matter customary or
appropriate in the conduct of Tenant's business; provided, however, that Tenant
shall upon demand of the Landlord immediately remove any sign, advertisement,
decoration, lettering or notice which Tenant has placed or permitted to be
placed in, upon or about the Premises and which Landlord reasonably deems
objectionable or offensive, and if Tenant fails or refuses do to so, the
Landlord may enter upon the Premises and remove the same at Tenant's cost and
expense.
8.5 LIENS. Tenant shall keep the Premises and any building of which the
Premises are a part free from any liens arising out of work performed, materials
furnished or obligations incurred by Tenant and shall indemnify, hold harmless
and defend Landlord from any liens and encumbrances arising out of any work
performed or material furnished by or at the direction of Tenant. In the event
that Tenant shall not, within twenty (20) days following the imposition of any
such lien, cause such lien to be released of record by payment or posting of a
proper bond not to be less than 120% of the lien claim, Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but not
the obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All such sums
paid by Landlord and all expenses incurred by it in connection therewith
including attorney's fees and costs shall be payable to Landlord by Tenant on
demand. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or
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which Landlord shall deem proper, for the protection of Landlord and the
Premises, and any other party having an interest therein, from mechanics' and
material men liens, and Tenant shall give to Landlord at least ten (10) business
days prior written notice of the expected dale of commencement of any work
relating to alterations or additions to the Premises.
9. UTILITIES AND JANITOR SERVICE
Tenant shall be liable for and shall pay throughout the term of this
Lease all charges for utilities, including but not limited to electricity, heat,
oil, gas and water consumed upon the leased Premises and telephone, sewage,
drainage and garbage disposal services, if any, including any charges imposed
for such services by the Municipality of Metropolitan Seattle (METRO); and shall
provide its own janitor services and replacement of light bulbs and tubes and
all washroom and toilet supplies. If any such services are not separately
metered to Tenant, Tenant shall pay its pro rata share as specified in Section
3.2 above.
10. MAINTENANCE OF PREMISES
10.1 MAINTENANCE AND REPAIR BY TENANT. Tenant shall at all times
throughout the Lease Term at its sole cost and expense, keep the Premises
(including exterior doors and entrances, all windows and mouldings and trim of
all doors and windows) and all partitions, door surfaces, fixtures, equipment
and appurtenances thereof (including lighting, heating and plumbing fixtures and
any air conditioning system) in good order, condition and repair, damage by
unavoidable casualty excepted (but not excluding damage from burglary or
attempted burglary of the Premises). When there is an air conditioning system,
Landlord will contract for service checks and filter changes and Tenant agrees
to pay for such service calls and filter changes on the units serving Tenant's
Premises, all as set forth in Section 3.2 above. Without limiting the
generalities thereof, Tenant shall keep the glass of all windows, doors, and
showcases clean and presentable; replace immediately all broken glass in the
Premises; at reasonable intervals paint or refinish the inferior of the
Premises; make any necessary repairs to, or replacements of, all door closure
apparatuses and mechanisms; keep all plumbing clean and in good state of repair
including pipes, drains, toilets, basins and those portions of the heating
system within the walls of the Premises; and keep all utilities within the
Premises in a good state of repair upon the failure of Tenant to do so.
10.2 FAILURE TO MAINTAIN. If Tenant fails to keep and preserve the
Premises as set forth in Section 10.1 above, Landlord may at its option, put or
cause the same to be put in the condition and state of repair agreed upon, and
in such case, upon receipt of written statements from Landlord, Tenant shall
promptly pay the entire cost thereof as additional rent. Landlord shall have the
right, without liability, to enter the Premises for the purpose of making such
repairs.
10.3 REPAIRS BY LANDLORD. Landlord shall keep the roof, exterior walls,
foundations and buildings structure of the Premises in a good state of repair,
and shall accomplish such repairs as may be needed promptly after receipt of
written notice from Tenant. Should such repairs be required by reason of
Tenant's negligent acts, Tenant shall
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promptly pay Landlord for the cost thereof as additional rent. Tenant shall
immediately inform Landlord of any necessary repairs and Tenant shall make none
of such repairs without Landlord's prior written consent. Landlord shall not be
liable for any failure to make any such repairs or to perform any maintenance
required of Landlord hereunder unless such failure shall persist for an
unreasonable time after written notice of the need of such repair is given to
Landlord by Tenant. Except as otherwise specifically provided herein, there
shall be no abatement of rent and no liability of Landlord by reason of any
injury to or interference with Tenants business arising from the making of any
repairs, alterations or improvements in or to any portion of the Premises or
building of which the Premises is a part or in or to fixtures, appurtenances and
equipment herein.
10.4 SURRENDER OF PREMISES. At the expiration or sooner termination of
this Lease, Tenant shall return the Premises to Landlord in the same condition
in which received (or, if altered by Landlord or by Tenant with the Landlord's
consent, then the Premises shall be returned in such altered condition),
reasonable wear and tear excepted. Tenant shall remove all trade fixtures,
appliances and equipment which do not become a part of the Premises and
alterations which Landlord designates to be removed, and shall restore the
Premises to the condition they were in prior to the installation of said items.
Tenant's obligation to perform this covenant shall survive the expiration or
termination of this Lease.
10.5 TAKING POSSESSION. By taking possession, Tenant shall be deemed to
have accepted the Premises as being in good and sanitary order, condition and
repair.
11. COMMON AREAS
11.1 CONTROL OF COMMON AREA BY LANDLORD. Landlord shall at all times
have the exclusive control and management of the Common Areas which shall
include but not be limited to all automobile parking areas, access roads,
driveways, entrances, retaining walls and exits thereto, the truck way or ways,
loading docks, package pick-up stations, washrooms, pedestrian malls, courts,
sidewalks and ramps, landscaped areas, exterior stairways, and other areas,
improvements, facilities and special services provided by Landlord for the
general use, in common, of tenants of the Mercer Park, and their officers,
agents, employees and invitees. With respect to the Common Areas and facilities,
Landlord shall have the right from lime to lime to employ personnel; to
establish, modify and enforce reasonable rules and regulations; to construct,
maintain and operate lighting facilities; to police the Common Areas and
facilities; from time to time to change the area, level, location and
arrangement of parking areas and other facilities herein above referred to; to
restrict parking by Tenant, its officers, agents and employees to employee
parking areas; to close all or any portion of the Common Areas and facilities to
such extent as may, in the opinion of Landlord's counsel be legally sufficient
to prevent a dedication thereof or the accrual of any person or the public
therein; to close temporarily all or any portion of the parking areas or
facilities; to discourage non-customer parking; and to do and perform such other
acts in and to the Common Areas and facilities as, in the use of good business
judgment, Landlord shall determine to be advisable with a view to the
improvement of the
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convenience and use thereof by Tenants of the Mercer Park, their employees,
invitees and customers.
11.2 LICENSE. All Common Areas and facilities excluding Tenant's
physical space which Tenant may be permitted to use and occupy, are to be used
and occupied under a revocable license. If the amount of such areas or
facilities be diminished, such diminution shall not be deemed constructive or
actual eviction, Landlord shall not be subject to any liability, nor shall
Tenant be entitled to any compensation or diminution or abatement of rent.
Provided however, Landlord shall provide parking to reasonably accommodate the
operation of Tenant's business.
11.3 MAINTENANCE CHARGE. Tenant shall pay to Landlord, additional rent,
in the manner provided in Section 3.2 a monthly maintenance charge to defray the
operating cost of the Common Areas and facilities. The amount of the monthly
Maintenance Charge shall be equal to 1/12 of Tenants estimated pro rate share of
the operating costs for the calendar year, which share shall be determined by
multiplying such costs by a fraction, the numerator of which is the total floor
area of the leased Premises and the denominator of which is the total gross
leasable floor area of Mercer Park on the first day of such calendar year. For
purposes of this paragraph, the term "operating cost of the Common Areas and
facilities" means the total cost and expense incurred in operating, accounting,
maintaining, administering and cleaning the Common Areas and facilities,
actually used or available for use by Tenant and the employees, agents, secants,
customers and invitees of Tenant, specifically including, without limitation,
gardening and landscaping, the cost of public liability and property damage
insurance, repairs, asphalt patching, line painting, minor roof repairs,
lighting, sanitary control, removal of snow, trash rubbish, garbage and other
refuse, machinery and equipment used in such maintenance, and the cost of
personnel to implement such services, including the policing of and traffic
control on the Common Areas and facilities. Management fees shall be limited to
the lesser of fair market value or 5%.
12. ALTERATIONS
12.1 ACCEPTANCE OF LEASE PREMISES. Upon acceptance of the Premises by
Tenant, Tenant shall acknowledge to Landlord that Tenant has inspected the
leased Premises and accepts them in their present condition or else shall notify
Landlord of any deficiencies then apparent.
12.2 ALTERATIONS BY TENANT. Tenant shall not make any alterations,
additions or improvements in or to the leased Premises without the prior written
consent of Landlord, which consent may be reasonably subject to such conditions
as Landlord may deem appropriate. Any such alterations, additions or
improvements consented to by Landlord shall be made at Tenant's sole expense.
Tenant shall secure any and all governmental permits required in connection with
any such work, and shall hold Landlord harmless from any and ail liability
(including attorney's fees) and any and all liens resulting therefrom. All
alterations, additions and improvements (and expressly including all light
fixtures and floor coverings), except trade fixtures and appliances and
equipment which do not become
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a part of the leased Premises, excepting cabinets and general equipment
installed by Tenant may be removed provided tenant repairs all damage caused by
removal, shall immediately become the property of Landlord without any
obligation to pay therefor, and shall not be removed by Tenant. Upon the
expiration or sooner termination of the Term hereof, at Landlord's option Tenant
shall at Tenant's sole cost and expense, forthwith and with all due diligence,
remove any alterations, additions, or improvements made by Tenant, which
Landlord designates to be removed, and Tenant shall, forthwith and with all due
diligence, at its sole cost and expense, repair any damage to the Premises
caused by such removal.
13. ASSIGNMENT AND SUBLETTING
Tenant shall not assign, transfer, mortgage, pledge, hypothecate
or encumber this Lease or any interest therein, nor sublet the whole or any part
of the Premises, nor shall this Lease or any interest hereunder be assignable or
transferable by operation of law or by any process or proceeding of any court,
or otherwise, without the prior written consent of Landlord which consent may be
reasonably subject to such conditions as Landlord may deem appropriate and which
consent may not be unreasonably withheld. Without in any way limiting Landlord's
right to refuse to give such consent for any other reason or reasons, Landlord
reserves the right to refuse to give such consent unless Tenant remains fully
liable during the unexpired Lease Term hereof and Landlord further reserves the
right to refuse to give such consent if in Landlord's reasonable business
judgment the quality of merchandising experience or the financial worth of the
proposed new Tenant is less than that of the Tenant executing this Lease or of
Tenant and Tenant's Guarantor as the case may be. Tenant agrees to reimburse
Landlord for Landlord's reasonable attorneys' fees incurred in conjunction with
the processing and documentation of any such requested transfer, assignment,
subletting, licensing or concession agreement, change of fee ownership or
hypothecation of this Lease or Tenant's interest in and to the Premises.
14. ACCESS BY LANDLORD
14.1 RIGHT OF ENTRY. Landlord or Landlord's employees, agents and/or
contractors shall have the right to enter the Premises at any time to examine
the same, and to show them to prospective purchasers or Tenants of the Building,
and to make such repairs, alterations, improvements or additions as Landlord may
deem reasonably necessary or desirable. If Tenant is not personally present to
permit entry and an entry is necessary, Landlord may in case of emergency
forcibly enter the same, without rendering Landlord liable therefor. Nothing
contained herein shall be construed to impose upon Landlord any duty of repair
of the Premises or Building of which the Premises are a part except as otherwise
specifically provided for herein.
14.2 EXCAVATION. If an excavation is made upon property adjacent to the
Premises, Tenant shall afford to the person causing or authorized to cause such
excavation, license to enter upon the Premises for the purpose of doing such
work as Landlord shall deem reasonably necessary to preserve the wall of the
building of which the Premises is a part from injury or damage and to support
the same by proper foundations, without any claim for damages or indemnification
against Landlord or diminution or abatement of rent.
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15. DAMAGE OR DESTRUCTION
In the event the Premises are damaged to such an extent as to render the
same untenantable in whole or in a substantial part thereof, or are destroyed,
it shall be optional with the Landlord to repair or rebuild the same; and after
the happening of any such contingency, the Tenant shall give Landlord or
Landlord's agent immediate written notice thereof. Landlord shall have not more
than ninety (90) days after date of such notification to notify the Tenant in
writing of Landlord's intention to repair or rebuild said Premises, or the part
so damaged as aforesaid, and if Landlord elects to repair or rebuild said
Premises, Landlord shall prosecute the work of such repairing or rebuilding
without unnecessary delay, and during such period the rent of said Premises
shall be abated in the same ratio that that portion of the Premises rendered for
the time being unfit for occupancy shall bear to the whole of the leased
Premises. If the Landlord shall fail to give the notice aforesaid, Tenant shall
have the right to declare his Lease terminated by written notice upon the
Landlord or Landlord's agent. In the event the building in which the Premises
hereby leased are located shall be damaged (even though the Premises hereby
shall not be damaged thereby) to such an extent that in the opinion of Landlord
it shall not be practical to repair or rebuild, or is destroyed, then it shall
be optional with Landlord to terminate this Lease by written notice served on
Tenant within ninety (90) days after such damage or destruction.
16. DEFAULT AND RE-ENTRY
If any rents reserved herein or any part thereof shall be and
remain unpaid (10) days after the date they shall become due, or if Tenant shall
violate or default in any of the covenants or agreements herein contained, then
the Landlord may elect to:
(a) terminate this Lease, in which event Tenant shall immediately pay to
Landlord all rent and other sums accrued to date plus the then present value of
the total rent and other sums reserved or due under the Lease for the balance of
the lease term. Tenant shall receive a credit against the amount due pursuant to
this subparagraph(s) equal to the reasonable rental value (which Tenant proves
by a preponderance of the evidence) of the Premises for the balance of the lease
term;
(b) without terminating this Lease relet all or any part of the Premises
for the account of Tenant upon such terms and conditions as Landlord may deem
advisable, in which event the rents received on such reletting shall be applied
first to the expenses of reletting and collection (including without limitation,
all necessary renovation, repair and alteration of the Premises, reasonable
attorney fees, real estate commissions and rental or other concessions granted
to a new tenant) and thereafter to payment of all sums due or become due
Landlord hereunder, and if a sufficient amount is not realized to pay such sums
and other charges Tenant shall pay monthly to Landlord any deficiency and
Landlord may bring, at any time, an action for the entire amount of the
deficiency which will accrue during the balance of the lease term; or
(c) pursue any other right or remedy Landlord may have under the laws of
the State of Washington.
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No action of Landlord shall terminate this Lease unless Landlord
notifies Tenant in writing that Landlord elects to terminate this Lease.
Landlord shall in no way be responsible or liable for any failure to relet the
property or any part thereof, or for any failure to collect any rent due upon
reletting. No reentry by Landlord shall excuse or relieve Tenant of its
liability and obligations under this lease and such liability and obligations
shall survive any such action by Landlord. Any sums received by Landlord upon
reletting of the property in excess of the rent and other sums due by Tenant
hereunder shall be the sole property of Landlord and Landlord shall not be
required to pay over any such sum to Tenant. Tenant assumes full responsibility
to mitigate damages resulting from Tenant's breach of abandonment by obtaining a
subtenant or assignee reasonably acceptable to Landlord. Landlord shall have no
responsibility to mitigate damages resulting from Tenant's breach or abandonment
other than to not unreasonably withhold consent to Tenant's proposed subleases
and assignments. Tenant waives any defense or claim based on Landlord's failure
to mitigate damages except as provided in the preceding sentence.
Notwithstanding the foregoing Washington State law shall prevail.
17. LATE CHARGES
Tenant hereby 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 trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Tenant shall not be received by
Landlord or Landlord's designee within ten (10) days after such amount shall be
due, Tenant shall pay to Landlord a late charge equal to five percent (5%) of
such overdue amount. the parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder. A twenty-five dollar ($25.00) charge shall be paid to Landlord for
any returned check.
18. COSTS AND ATTORNEYS' FEES
In the event of an action (or any appeal thereof) between the parties
hereto to enforce any of the terms or provisions of this Lease, the successful
party shall be entitled to recover from the unsuccessful party, in addition to
any other award, a reasonable sum as attorney fees to be determined by the court
and included as a part of the judgment.
19. NON-WAIVER OF BREACH
The failure of the Landlord to insist upon strict performance of any of
the covenants and agreements of this Lease, or to exercise any option herein
conferred in any one or more instances, shall not be construed to be a waiver or
relinquishment of any such, or any other covenants or agreements, but the same
shall be and remain in full force and effect.
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20. REMOVAL OF PROPERTY
In the event of any entry in, or taking possession of, the leased
Premises as aforesaid, the Landlord shall have the right, which right shall not
be exercised unreasonably, but not the obligation, to remove from the leased
Premises all personal property located therein, and may store the same in any
place selected by Landlord, including but not limited to a public warehouse, at
the expense and risk of the owners thereof, with the right to sell such stored
property, without notice to Tenant, after it has been stored for a period of
thirty (30) days or more, the proceeds of such sale to be applied first to the
cost of such sale, second to the payment of the charges for storage, if any, and
third to the payment of any other sums of money which may then be due from
Tenant to Landlord under any of the terms hereof, the balance, if any, to be
paid to Tenant. Landlord shall not remove any property without reasonable
advance notice to Tenant.
21. HEIRS AND SUCCESSORS
Subject to the provisions hereof pertaining to Assignment and
Subletting, the covenants and agreements of this Lease shall be binding upon the
heirs, legal representatives, successors and assigns of any or all of the
parties hereto.
22. HOLD OVER
If the Tenant shall, with the written consent of Landlord, hold over
after the expiration of the Term of this Lease, such tenancy shall be for an
indefinite period of time on the month-to-month tenancy, which tenancy may be
terminated as provided by the laws of the State of Washington. During such
tenancy, Tenant agrees to pay to the Landlord the same rate of rental as set
forth herein, unless a different rate is agreed upon, and to be bound by all of
the terms, covenants, and conditions as herein specified, so far as applicable.
If Tenant shall, without the written consent of Landlord, hold over after the
expiration of the term of this Lease, such tenancy shall be month-to-month, on
the same terms and conditions as contained herein; provided, however, the rental
rate shall be one and one quarter that in effect during the last month of the
lease term.
23. SUBORDINATION, QUIET ENJOYMENT
This Lease is subject to and is hereby subordinated to all present and
future mortgages, deeds of trust and other encumbrances affecting the leased
Premises or the property of which said Premises are a part. Tenant will, upon
demand by Landlord, execute such instruments as may be required at any time, and
from time to time, to subordinate the rights and interests of the Tenant under
this Lease to the lien of any mortgage or trust deed at any time placed on the
land of which the leased Premises are a part, provided, however, that such
subordination shall not affect Tenant's right to possession, use and occupancy
of the leased Premises so long as Tenant shall not be in default under any of
the terms or conditions of this Lease, Tenant further agrees:
That any such subordination agreement will contain a provision
satisfactory to Landlord's financing lender whereby Tenant will agree, in the
event of foreclosure of any such mortgage or trust deed to attorn to and
recognize as its Landlord under the terms of
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this Lease said lender or any purchaser of the leased property at a foreclosure
sale or their heirs, successors, or assigns, and that it will execute and
deliver to such lender an Estoppel Certificate in form satisfactory to such
lender.
24. PERSONAL PROPERTY AND TRADE FIXTURES
It is contemplated that certain furniture, fixtures and equipment to be
installed by Tenant in the leased Premises, are or may be either leased by
Tenant or purchased by Tenant from a lessor or conditional seller or otherwise
hypothecated to a third party. In this connection, it is agreed that all of such
furniture, fixtures and equipment installed by Tenant in the leased Premises
shall at all times be and remain personal property, regardless of the method in
which the same are affixed to the Premises, and shall remain the personal
property of Tenant and/or such third party. Landlord specifically agrees that
its rights, if any, in such furniture, fixtures and equipment shall at all times
be subject and subordinate to the rights of any such described third party.
Landlord agrees to execute, upon request, any documents reasonably required by
any such described third party in order to effectuate the purposes of this
paragraph, it being specifically agreed by Landlord herein that any such third
party shall have the right to remove the furniture, fixtures or equipment from
the leased Premises in the event of the default of Tenant in complying with its
agreements relating to such furniture, fixtures and equipment. Tenant agrees to
repair any damage caused by any such removal at its expense.
25. CONDEMNATION
If the Premises or any portion thereof are taken under the power of
eminent domain, or sold by Landlord under the threat of the exercise of said
power (all of which is referred to as "Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever occurs first. If more than ten percent (10%) of
the floor area of any buildings on the Premises, or more than twenty-five
percent (25%) of the land area of the Premises not covered with buildings, is
taken by Condemnation, either Landlord or Tenant may terminate this Lease as of
the date the condemning authority takes possession, by notice in writing of such
election within twenty (20) days after Landlord shall have notified Tenant of
the taking, or in the absence of such notice then within twenty (20) days after
the condemning authority shall have taken possession. If this Lease is not
terminated by either Landlord or Tenant, then it shall remain in full force and
effect as to the portion of the Premises remaining, provided the rent shall be
reduced in the proportion that the floor area of the buildings taken within the
Premises bears to the total floor area of all buildings located on the Premises.
In the event this Lease is not so terminated, then Landlord agrees, at
Landlord's sole cost, to restore the Premises to a complete unit of like quality
and character as existed prior to the condemnation as soon as reasonably
possible. All awards for the taking of any part of the Premises or any payment
made under the threat of the exercise of power of eminent domain shall be the
property of Landlord, whether made as compensation for diminution value of a
leasehold or for the taking of the fee or as severance damages; provided,
however, that Tenant shall be entitled to any award for loss of or damage to
Tenant's trade
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fixtures and removable personal property. In the event that this Lease is not
terminated by reason of such Condemnation, Landlord shall, to the extent of
severance damages received by Landlord in connection with such Condemnation,
repair any damage to the Premises caused by such Condemnation except to the
extent that Tenant has been reimbursed therefor by the condemning authority.
26. NOTICES
Wherever under this Lease provision is made for any demand, notice or
declaration of any kind, or where it is deemed desirable or necessary by either
party to give or serve any such notice, demand or declaration to the other
party, it shall be in writing and served either personally or sent by United
States mail, postage prepaid, addressed to the address set forth herein below:
Landlord: Tenant:
The Evans Company Optiva Corporation
1457 130th Ave NE 13226 SE 30th St B-1
Bellevue WA 98005 Bellevue WA 98005
27. CORPORATE AUTHORITY
If Tenant is a corporation, each individual executing this Lease on
behalf of said corporation represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation in accordance with
a duly adopted resolution of the Board of Directors of said corporation or in
accordance with the by-laws of said corporation, and that this Lease is binding
upon said corporation in accordance with its terms. If Tenant is a corporation
Tenant shall, within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of a resolution of the Board of Directors of said
corporation substantially the same as or identical to Exhibit D authorizing or
ratifying the execution of this Lease.
28. MISCELLANEOUS
28.1 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale or
conveyance by Landlord of Landlord's interest in the Premises other than a
transfer for security purposes only, Landlord shall be relieved from, after the
date specified in such notice of transfer, all obligations and liabilities
accruing thereafter on the part of the Landlord, provided that any funds in the
hands of Landlord at the time of transfer in which Tenant has an interest, shall
be delivered to the successor of Landlord. This Lease shall not be affected by
any such sale and Tenant agrees to attorn to the purchaser or assignee, provided
all Landlord's obligations hereunder are assumed in writing by the transferee.
28.2 SEVERABILITY. If any term or provision of this Lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the
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remainder of this Lease shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforceable to the fullest extent
permitted by law.
28.3 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence of this
Lease and each and every provision hereof, except as to the conditions relating
to the delivery of possession of the Premises to Tenant. All the terms,
covenants and conditions contained in this Lease to be performed by either
party, if such party shall consist of more than one person or organization,
shall be deemed to be Joint and Several, and all rights and remedies of the
parties shall be cumulative and non-exclusive of any other remedy at law or in
equity.
28.4 MEMORANDUM OF LEASE. This Lease shall not be recorded, but upon
written request of Landlord or Tenant, a Memorandum of Lease describing the
Premises, giving ale term of this Lease and the name and address of Landlord and
Tenant, referring to this Lease, and in form suitable under law as record
notice, shall be promptly executed, acknowledged and delivered by both parties;
such Memorandum of Lease may be recorded by either party.
29. HAZARDOUS AND TOXIC WASTE MATERIALS
Tenant shall be fully responsible for any release of any hazardous waste
or substance in or on or under the Premises or on any adjacent property during
the lease term by Tenant, Tenant's officers, directors, successors, assigns,
subleases, guests, invitees, visitors, employees, agents, contractors or any
other person or entity in or about the Premises. Tenant shall promptly comply
with all statutes, regulations and ordinances and with all orders, decrees or
judgments of governmental authorities or courts having jurisdiction relating to
the use, collection, treatment, disposal, storage, control, removal or cleanup
of hazardous waste or substances in, on or under the Premises or any adjacent
property or incorporated in any of the improvements, at Tenant's sole expense.
After notice to Tenant and a reasonable opportunity for Tenant to affect such
compliance, Landlord may, but shall not be obligated to, enter upon the Premises
and take such actions and incur such costs and expenses to affect such
compliance as it deems advisable to protect its interest in the Premises;
provided however, Landlord shall not be obligated to give Tenant notice and
opportunity to affect compliance if (i) such delay might result in material
adverse harm to Landlord or the Premises; (ii) Tenant has already had actual
knowledge of the situation and a reasonable opportunity to affect compliance; or
(iii) an emergency exists. Whether or not Tenant has actual knowledge of the
release of hazardous waste or substances on the Premises or any adjacent
property as a result of Tenant's use of the Premises, Tenant shall reimburse
Landlord for the full amount of all costs and expenses incurred by Landlord in
connection with such compliance activities, and such obligation shall survive
any termination of this Lease. Tenant shall notify Landlord immediately of any
release of any hazardous waste or substance on the Premises. Tenant shall
indemnify and hold Landlord harmless from any and all losses, liabilities,
suits, obligations, fines, damages, judgments, penalties, claims, charges,
cleanup costs, remedial actions, costs and expenses (including, without
limitation, attorneys fees and disbursements) which may be
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imposed on, incurred or paid by, or asserted against Landlord or the Premises by
reason of (i) any misrepresentation, breach of warranty or other default by
Tenant under this Lease resulting in the release of any hazardous waste or
substance or (ii) the act or omissions of Tenant, Tenant's officers, directors,
successors, assigns, subleases, guests, invitees, visitors, employees, agents,
contractors or any other person whatsoever other than Landlord resulting in the
release of any hazardous waste or materials in, on or under the Premises or any
adjacent property. Landlord may perform any inspections, audits or surveys of
the Premises as Landlord deems necessary or advisable at any time during the
term of this Lease.
30. SPECIAL ARTICLES
The following numbered sections are made a part hereof, N/A , and appear
below on Addendums N/A attached hereto. The following Exhibit(s) not referenced
in the lease above are also made a part hereof, D, E , and are attached hereto.
In Witness Whereof, the Landlord and Tenant have executed this Lease the
date and year first above written.
Landlord: Tenant:
By: /s/ Scott Evans By: /s/ David Giuliani
-------------------------- --------------------------
Vice President Optiva Corp. Pres/CEO
-------------------------- --------------------------
22
<PAGE> 23
LANDLORD
CORPORATE
STATE OF WASHINGTON)
ss.
COUNTY OF KING )
On this 11 day of October, in the year 1995, before me Edward T. Babbitt, the
undersigned Notary Public, personally appeared Scott Evans, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person who
executed the within instrument as VICE PRESIDENT on behalf of THE EVANS COMPANY,
the corporation therein named, and acknowledged to me that the corporation
executed it.
/s/ Edward T. Babbitt Residing At Redmond.
- ----------------------------- ---------------------
Notary's Signature
================================================================================
PARTNERSHIP
STATE OF WASHINGTON)
ss.
COUNTY OF KING )
On this ______ day of _______________ , in the year 19___, before
me______________________________ , the undersigned Notary Public, personally
appeared _____________________________________ , personally known to me to be
the person who executed the within instrument on behalf of the partnership and
acknowledged to me that the partnership executed it.
___________________________ Residing At______________________.
Notary's Signature
TENANT
CORPORATE
STATE OF WASHINGTON)
ss.
COUNTY OF KING )
23
<PAGE> 24
On this ______ day of ________________, in the year 19___, before me
___________________________________ , the undersigned Notary Public, personally
appeared _____________________________________ , personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person who
executed the within instrument as _________________________________ on behalf of
- ---------------------, the corporation therein named, and acknowledged to me
that the corporation executed it.
___________________________ Residing At______________________.
Notary's Signature
================================================================================
PARTNERSHIP
STATE OF WASHINGTON)
ss.
COUNTY OF KING )
On this ______ day of ________________, in the year 19___, before me
____________________________________, the undersigned Notary Public, personally
appeared _____________________________________ , personally known to me to be
the person who executed the within instrument on behalf of the partnership and
acknowledged to me that the partnership executed it.
___________________________ Residing At______________________.
Notary's Signature
================================================================================
INDIVIDUAL
STATE OF WASHINGTON)
ss.
COUNTY OF KING )
On this________day of_________________, in the year 19___, before me
______________________________, personally appeared ___________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is(are) subscribed to this instrument, and
acknowledged to me that he(she) executed it. WITNESS my hand and official seal.
___________________________ Residing At______________________.
Notary's Signature
24
<PAGE> 1
CONFIDENTIAL
[The Evans Company LOGO]
September 6, 1995
STATEMENT OF ADJUSTMENTS
Tenant Name: Optiva Corporation
and Address: 13228 SE 30th St C-1
Bellevue WA 98005
Lease Site Location: Mercer Park
Square Footage: 1,380
Current Lease Term: 09/15/95 - 12/31/98
Date of Lease: September 6, 1995
STATEMENT OF TOTAL MONTHLY RENT
<TABLE>
<S> <C>
Minimum Monthly Rent $1,104.00
Monthly Share of Estimated Adjustments: $208.00
Taxes, insurance, common area maintenance, utilities and garbage.
TOTAL MONTHLY RENT BEGINNING OCTOBER 1, 1995 $1,312.00
</TABLE>
<PAGE> 2
The Evans Company
LEASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
Lease Summary
1 Premises 1
2 Term 1
3 Rent 1 &2
4 Security Deposit 2
5 Property Taxes and Insurance 2 & 3
6 Personal Property Taxes 3
7 Insurance and Indemnity 3 & 4
8 Use, Signs, Liens 4 & 5
9 Utilities and Janitor Service 5
10 Maintenance of Premises 5 & 6
11 Common Areas 6
12 Alterations 6 &7
13 Assignment and Subletting 7
14 Access By Landlord 7
15 Damage or Destruction 7
16 Default or Re-Entry 8
17 Late Charges 8
18 Costs and Attorney's Fees 8
19 Non-Waiver of Breach 8
20 Removal of Property 8 & 9
21 Heirs and Successors 9
22 Hold-Over 9
23 Subordination, Quiet Enjoyment 9
24 Personal Property and Trade Fixtures 9
25 Condemnation 9 & 10
26 Notices 10
27 Corporate Authority 10
28 Miscellaneous 10
29 Hazardous and Toxic Waste Materials 10 & 11
30 Special Articles 11
Exhibit
- -------
A Legal Description
B Site Plan
C Description of Landlord's and Tenant's Work
of Improvement
C-1 Demising Plan of Premises
D Corporate Resolution of Tenant
E Guaranty of Lease
</TABLE>
<PAGE> 3
LEASE SUMMARY
<TABLE>
<S> <C>
LEASE DATE: September 6, 1995
LANDLORD: The Evans Company
ADDRESS OF LANDLORD: 1457 130th Ave NE
Bellevue WA 98005
TELEPHONE: 454-8211
TENANT'S TRADE NAME: Optiva Corporation
ADDRESS OF TENANT (Address of Premises): 13228 SE 30th St C-1
Bellevue WA 98005
TELEPHONE AT PREMISES: 957-0970
BUSINESS HOME OFFICE ADDRESS: 13222 SE 30th A-1
Bellevue WA 98005
BUSINESS HOME OFFICE TELEPHONE: 957-0970
OWNER RESIDENCE ADDRESS:
OWNER RESIDENCE TELEPHONE:
PREFERRED MAILING ADDRESS FOR NOTICES: PREMISES
xx BUSINESS HOME OFFICE
OWNER RESIDENCE
LEASED PREMISES: BUILDING C
SPACE(S) 1
SQUARE FEET OF PREMISES APPROXIMATELY 1,380
LEASE TERM: 39.5 MONTHS
LEASE COMMENCEMENT DATE: September 15, 1995
RENT COMMENCEMENT DATE: September 15, 1995
LEASE TERMINATION DATE: December 31, 1998
MINIMUM MONTHLY RENT: One Thousand One Hundred Four and NO/100
Dollars ($1.104.00)
PER MONTH AS INCREASED BY THE TERMS OF THE LEASE.
SECURITY DEPOSIT: One Thousand Four Hundred Fifty and NO/100
Dollars ($1.450.00)
PERMITTED USES: Office
GUARANTOR: David Giuliani
ADDRESS OF GUARANTOR: 13226 SE 30th St B-1
(Business Address) Bellevue WA 98005
TELEPHONE NO: 957-0970
</TABLE>
Landlord's Initials SE
Tenant's Initials DG
<PAGE> 4
THE EVANS COMPANY
LEASE AGREEMENT
THIS LEASE, dated for reference purposes only, September 6, 1995, is
made by and between The Evans Company (hereinafter "Landlord") and Optiva
Corporation (hereinafter "Tenants). For and in consideration of the rental and
of the covenants and agreements hereinafter set forth to be kept and performed
by the Tenant, Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises herein described for the term, at the rental and subject
to and upon all of the terms, covenants and agreements hereinafter set forth.
1. PREMISES
1.1 PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord that certain space (herein called "Premises") containing
approximately 1,380 square feet of floor area, the approximate location of which
is shown crosshatched on Exhibit B attached hereto. The Premises are located in
Mercer Park, the legal description of which is set forth on Exhibit A attached
hereto, which is in the City of Bellevue, County of King, State of Washington.
The address of the Premises is as follows: 13228 SE 30th St C-1, Bellevue WA
98005. This Lease is subject to the terms, covenants and conditions herein set
forth and the Tenant covenants as a material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants and conditions
by it to be kept and performed.
1.2 WORK OF IMPROVEMENT. The obligations of Landlord and Tenant to
perform the work and supply material and labor to prepare the Premises for
occupancy are set forth in detail in Exhibits C and C-1. Landlord and Tenant
shall expend all funds and do all acts required in Exhibit C and C-1 and shall
have the work performed promptly and diligently in a first-class workmanlike
manner. By taking possession of the premises, Tenant acknowledges that it has
examined the Premises and accepts the Premises in their condition at the time of
taking possession thereof.
2. TERM
2.1 TERM. The Term of this Lease shall be for 39.5 (thirty nine and a
half) months commencing September 15, 1995 and ending on December 31, 1998
unless sooner terminated pursuant to this Lease. The rent commencement date
shall be September 15, 1995 ("Rent Commencement Date").
2.2 COMMENCEMENT. Tenant agrees that in the event of the inability of
Landlord for any reason to deliver possession of the Premises to Tenant on the
commencement date set forth in Section 2.1, Landlord shall not be liable for any
damage thereby nor shall such inability affect the validity of this Lease or the
obligations of Tenant hereunder, but in such case Tenant shall not be obligated
to pay rent or other monetary sums until possession of the Premises is tendered
to Tenant; provided that if the delay in delivery of possession exceeds thirty
(30) days, then the expiration date of the term of the Lease shall be extended
by the period of time computed from the scheduled commencement date to the date
possession is tendered. In the event Landlord shall not have delivered
possession of the Premises within four (4) months from the scheduled
commencement date, then Tenant at its option to be exercised within thirty (30)
days after the end of said four (4) month period may terminate this Lease and
upon Landlord's return of any moneys previously deposited by Tenant the parties
shall have no further rights or liabilities toward each other. If Tenant
occupies the Premises prior to said commencement date, such occupancy shall be
subject to all provisions hereof, such occupancy shall not advance the
termination date and Tenant shall pay rent for such period at the initial
monthly rates as set forth below.
2.3 DELIVERY OF POSSESSION. Tenant shall be deemed to have taken
possession of the Premises when any of the following occur: (a) Landlord
delivers possession of the Premises to Tenant and a Certificate of Occupancy is
granted by the proper governmental agency, (b) upon a letter from Landlord that
the Premises are ready for occupancy, or (c) upon occupancy by the Tenant.
3. RENT
3.1 MINIMUM MONTHLY RENT. Tenant shall pay to Landlord as Minimum
Monthly Rent for the Premises the sum of One Thousand One Hundred Four and
NO/100 Dollars ($1,104.00) per month, which sum shall be paid in advance on the
first day of each calendar month beginning with the Rent Commencement Date and
thereafter throughout the term of the Lease. All rent to be paid by Tenant to
Landlord shall be paid in lawful money of the United States of America and shall
be without deduction or offset, prior notice or demand, and at such place or
places as may be designated from time to time by Landlord. If the Rent
Commencement date is not the first day of a month, or if the Lease termination
date is not the last day of a month, a pro rated monthly installment shall be
paid at the then current rate for the fractional month during which the Lease
commences and/or terminates. Concurrently with Tenant's execution of this Lease,
Tenant shall pay to Landlord the sum Six Hundred Fifty-six and NO/100 Dollars
($656.00) as Minimum Monthly Rent and Adjustments for September 1995.
The Minimum Monthly Rent shall be increased or decreased by the
percentage of change, If any, in the Consumer Price Index - All Urban Consumers,
All Items (1982 - 84 = 100) equals Base ("CPI"), as published by the United
States Department of Labor's Bureau of Labor Statistics. The base period, for
purposes of such adjustment, shall be the CPI for the fourth calendar month
immediately preceding the first Lease Year (the "Base CPI"). The Minimum Monthly
Rent shall be adjusted for each Lease Year after the first Lease Year on the
basis of the percentage change in the CPI for the fourth calendar month
immediately preceding the Lease Year subject to adjustment compared to the Base
CPI. In no event, however, shall the rent payable in any Lease Year be reduced
below the Minimum Monthly Rent. Should the CPI be discontinued, the parties
shall select another similar index which reflects consumer prices and if the
parties cannot agree on another index it shall be selected by the Superior Court
of the County in which the premises are located.
Page 1 of 11
Landlord's Initials SE
Tenant's Initials DG
<PAGE> 5
(By way of illustration only, if the Base CPI is 190 and the CPI figure
for the fourth month before the second Lease Year is 195, then the Minimum
Monthly Rent for the second lease year shall be increased by 2.63%.)
3.2 ADJUSTMENTS. In addition to the Minimum Monthly Rent provided in
Section 3.1 above, Tenant shall pay to Landlord in monthly installments the
Tenant's portion of those items, herein called "Adjustments", delineated in
Sections 5, 9, 10 and 11. Upon commencement of the Term Landlord shall submit to
Tenant a statement of the anticipated monthly Adjustments for the period between
such commencement and the following January and Tenant shall pay same and all
subsequent monthly payments concurrently with the payment of Minimum Monthly
Rent. Tenant shall continue to make said monthly payments until notified by
Landlord of a change thereof. By March 1 of each year Landlord shall endeavor to
give Tenant a statement showing the total Adjustments for the Mercer Park for
the prior calendar year and Tenant's allocable share thereof, prorated from the
commencement of rental. Tenant's pro rata share, where applicable, shall be
determined in accordance with the total floor area of the Premises as it relates
to the total gross leasable floor area of the building or buildings of which the
Premises are a part. In the event the total of the monthly payments which Tenant
has made for the prior calendar year are less than the Tenant's actual share of
such Adjustments then Tenant shall pay the difference in a lump sum within ten
days after receipt of such statement from Landlord and shall concurrently pay
the difference on monthly payments made in the then calendar year and the amount
of monthly payments which are then calculated as monthly Adjustments based on
the prior year's experience. Any overpayment by Tenant shall be credited towards
the monthly Adjustments next coming due. The actual Adjustments for the prior
year shall be used for purposes of calculating the anticipated monthly
Adjustments for the then current year, with actual determination of such
Adjustments after each calendar year as above provided. Even though the term has
expired and Tenant has vacated the Premises, when the final determination is
made of Tenant's share of said Adjustments for the year in which this Lease
terminated, Tenant shall immediately pay any increase due over the estimated
Adjustments previously paid and, conversely, any overpayment made shall be
immediately rebated by Landlord to Tenant.
4. SECURITY DEPOSIT
Concurrently with Tenant's execution of this Lease, Tenant shall deposit
with Landlord the sum of One Thousand Four Hundred Fifty and NO/100 Dollars
($1.450.00). Said sum shall be held by Landlord as a Security Deposit for the
faithful performance by Tenant of all of the terms, covenants, and conditions of
this Lease to be kept and performed by Tenant during the term hereof. If Tenant
defaults with respect to any provisions of this Lease, including but not limited
to the provisions relating to the payment of rent and any of the monetary sums
due herewith, Landlord may (but shall not be required to) use, apply or retain
all or any part of this Security Deposit for the payment of any other amount
which Landlord may spend or become obligated to spend by reason of Tenant's
default or to compensate Landlord for any other loss or damage which Landlord
may suffer by reason of Tenant's default. If any portion of said Deposit is so
used or applied, Tenant shall, within ten (10) days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to its original amount; Tenant's failure to do so shall be
material breach of this Lease. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Deposit. If Tenant shall fully and faithfully
perform every provision of this Lease to be performed by it, the Security
Deposit or any balance thereof shall be returned to Tenant (or, at Landlord's
option, to the last assignee of Tenant's interest hereunder) at the expiration
of the Lease term and after Tenant has vacated the Premises. In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer said
Deposit to Landlord's successor in interest, whereupon Tenant agrees to release
Landlord from all liability for the return of such Deposit or the accounting
therefore.
5. ADJUSTMENTS FOR REAL PROPERTY TAXES AND INSURANCE
In addition to the Minimum Monthly Rent provided in Section 3.1 above,
and commencing as of the commencement of the term of the Lease, Tenant shall pay
to Landlord in monthly installments, the Tenant's portion of the following items
herein called "Adjustments":
All insurance premiums paid on policies, maintained by Landlord with
respect to the Premises, including land, building and improvements including
without limitation, all premiums for fire, extended coverage, liability with
respect to the Premises and all real estate taxes imposed on the Premises or
arising in respect to the occupancy, use or possession of the Premises. Real
property taxes shall include, without limitation, all assessments whether
general, special, ordinary, extraordinary, unforeseen or foreseen, of any kind
or nature levied, imposed or to become a lien upon or against the Premises and
any building, structure, fixture, improvement, personal property or inventory
now or hereafter located thereon, assessment or improvement bonds for water,
sewer, road and other public purposes, license, permit and inspection fees and
taxes, commercial rental tax and any other public charge, levy, penalty or
assessment against any interest in the Premises or the real property of which
the Premises are a part, or against Landlord's right to rent or other income
therefrom (other than income taxes). All of the foregoing expenses shall be
apportioned in accordance with the Tenant's "pro rata share" which shall be
determined in accordance with the total floor area of the Premises as it relates
to the total gross leasable floor area of the building or buildings which the
Premises are a part; provided, however, that if any tenants in said building or
buildings pay taxes directly to any taxing authority or carry their own
insurance, as may be provided in their leases, their square footage shall not be
deemed a part of the floor area for purposes of prorating such expenses.
6. PERSONAL PROPERTY TAXES
Tenant shall pay, before delinquency, all taxes, assessments, license
fees and public charges levied, assessed or imposed upon or measured by the
value of its business operation, including but not limited to the furniture,
fixtures, leasehold improvements, equipment and other property of Tenant at any
time situated on or installed in the Premises by Tenant. If at any time during
the term of this Lease any of the foregoing are assessed as part of the real
property of which the Premises are a part, Tenant shall pay to Landlord upon
demand the amount of such additional taxes as may be levied against said real
Page 2 of 11
Landlord's Initials SE
Tenant's Initials DG
<PAGE> 6
property by reason thereof. For the purpose of determining said amount, figures
supplied by the County Assessor as to the amount so assessed shall be
conclusive.
7. INSURANCE AND INDEMNITY
7.1 INDEMNIFICATION. It is understood and agreed that Landlord shall not
be liable for injury to any person, or for the loss of or damage to any property
(including property of Tenant) occurring in or about the Premises from any cause
whatsoever except for Landlord's negligence or willful misconduct. Tenant hereby
indemnifies and holds Landlord harmless from and against and agrees to defend
Landlord against any and all claims, charges, liabilities, obligations,
penalties, damages, costs and expenses (including attorney's fees) arising,
claimed, charged or incurred against or by Landlord from any matter or thing
arising from Tenant's use of the Premises, the conduct of its business or from
any activity, work or other things done, permitted or suffered by the Tenant in
or about the Premises, and Tenant shall further indemnify and hold harmless
Landlord from and against any and all claims arising from any breach or default
in the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any act or negligence of the Tenant, or any
officer, agent, employee, guest, or invitee of Tenant, and from all costs,
attorney's fees and liabilities incurred in or about the defense of any such
claim or any action or proceeding brought thereon and in case any action or
proceeding be brought against Landlord by reason of such claim. Tenant, upon
notice from Landlord, shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord. Tenant as a material part of the
consideration to Landlord hereby assumes all risk of damage to property or
injury to persons in, upon or about the Premises, from any cause other than
Landlord's negligence, or willful misconduct, and Tenant hereby waives all
claims in respect thereof against Landlord. The indemnification provided for in
this Section with respect to any acts or omissions during the term of this Lease
shall survive any termination or expiration of this Lease. Landlord and its
agents shall not be liable for any loss or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak from any part of the Premises or from pipes, appliances
or plumbing works therein or from the roof, street or subsurface or from any
other place resulting from dampness or any other cause whatsoever, unless caused
by or due to the negligence of Landlord, its agents, servants or employees.
Landlord and its agents shall not be liable for interference with the light, on
the Premises. Tenant shall give prompt notice to Landlord in case of casualty or
accidents on the Premises.
7.2 INSURANCE. During the entire Lease Term the Tenant shall, at its own
expense, maintain adequate liability insurance with a reputable insurance
company or companies with minimum amounts of $1,000,000.00 Combined Single
Limits (including bodily injury and property damage) to indemnify both Landlord
and Tenant against any such claims, demands, losses, damages, liabilities and
expenses. Landlord shall be named as one of the insureds and shall be furnished
with a copy of such policy or policies of insurance, which shall bear an
endorsement that the same shall not be canceled except upon not less than twenty
(20) days prior written notice to Landlord. Tenant shall also at its own expense
maintain, during the Lease Term, insurance covering its furniture, fixtures,
equipment and inventory in an amount equal to the full insurable value thereof,
against fire and risks covered by standard extended coverage endorsement and
insurance covering all plate glass and other glass on the Premises. Tenant shall
provide Landlord with copies of the policies of insurance or certificates
thereof. If Tenant fails to maintain such insurance, Landlord may maintain the
same on behalf of Tenant. Any premiums paid by Landlord shall be deemed
additional rent and shall be due on the payment date of the next installment of
Minimum Monthly Rental hereunder.
7.3 INCREASE IN INSURANCE PREMIUM. Tenant shall not keep, use, sell or
offer for sale in or upon the Premises any article which may be prohibited by
the standard form of fire insurance policy. Tenant shall pay any increase in
premiums for casualty and fire (including extended coverage) insurance that may
be charged during the Term of this Lease on the amount of such insurance which
may be carried by Landlord on the Premises or the building of which they are a
part, resulting from Tenant's occupancy or from the type of merchandise which
Tenant stores or sells on the Premises, whether or not Landlord has consented
thereto. In such event, Tenant shall also pay any additional premium on the
insurance policy that Landlord may carry for its protection against rent loss
through fire or casualty. In determining whether increased premiums are the
result of Tenant's use of the Premises, a schedule, issued by the organization
setting the insurance rate on the Premises, showing the various components of
such rate, shall be conclusive evidence of the several items and charges which
make up the casualty and fire insurance rate on the Premises. Landlord shall
deliver bills for such additional premiums to Tenant at such times as Landlord
may elect, and Tenant shall immediately reimburse Landlord therefor.
7.4 WAIVER OF SUBROGATION. Landlord and Tenant hereby mutually release
each other from liability and waive all right of recovery against each other for
any loss in or about the Premises, from perils insured against under their
respective fire insurance contracts, including any extended coverage
endorsements thereof, whether due to negligence or any other cause; provided
that this Section shall be inapplicable if it would have the effect, but only to
the extent it would have the effect, of invalidating any insurance coverage of
Landlord or Tenant.
7.5 COMPANIES. Insurance required hereunder shall be issued by companies
rated AAA or better in "Bests" Insurance Guide.
7.6 CERTIFICATE OF INSURANCE. A certificate issued by the insurance
carrier for each policy of insurance required to be maintained by Tenant under
the provisions of this Lease shall be delivered to Landlord on or before the
commencement date of the Lease Term hereof and thereafter, as respects policy
renewals, within thirty (30) days prior to the expiration of the term of each
such policy. Each of said certificates of insurance and each such policy of
insurance required to be maintained by Tenant hereunder shall expressly evidence
insurance coverage as required by this Lease. All such policies shall be written
as primary policies not contributing with and not in excess of coverage which
Landlord may carry.
8. USE
8.1 USE. The Premises shall be used and occupied by Tenant for only the
following purposes and for no other purposes whatsoever without obtaining the
prior written consent of Landlord: Office, research, assembly and other uses
consistent with those currently occurring in Bldg A.
Page 3 of 11
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<PAGE> 7
8.2 SUITABILITY. If the Premises are completed as of the date of
execution hereof, then Tenant, by execution of this Lease, shall be deemed to
have accepted the Premises in the condition existing as of the date of execution
and in any event this Lease shall be subject to all applicable zoning ordinances
and to any municipal, county and state laws and regulations governing and
regulating the use of the Premises. Tenant acknowledges that neither Landlord
nor Landlord's agent has made any representation or warranty as to the
suitability of the Premises for the conduct of Tenant's business.
8.3 USES PROHIBITED. Tenant shall not do or permit anything to be done
in or about the Premises which will increase the existing rate of insurance upon
the Premises (unless Tenant shall pay any increased premium as a result of such
use or acts) or cause the cancellation of any insurance policy covering said
Premises or any building of which the Premises may be a part, nor shall Tenant
sell or permit to be kept, used or sold in or about said Premises any articles
which may be prohibited by a standard form policy of fire insurance.
Tenant shall not do or permit anything to be done in or about the
Premises which will obstruct or interfere with the rights of other tenants or
occupants of any building of which the Premises may be a part or injure or annoy
them or use or allow the Premises to be used for any unlawful nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon or about the
Premises.
Tenant shall not dispose of nor otherwise allow the release of any
hazardous waste or substance in, on or under the Premises, any improvements
placed thereon or any adjacent property. Tenant represents and warrants to
Landlord that Tenant's intended use of the Premises does not involve the use,
production, disposal or bringing on the Premises of any hazardous waste or
substance of types other than, or in quantities in excess of, those normally
incident to the use of the Premises for general office use. For purposes of this
Lease the term "hazardous waste or substance" shall mean any substance, waste or
material defined or designated as hazardous, toxic or dangerous (or any similar
term) by any federal, state or local statute regulation, rule or ordinance now
or hereafter in effect.
Tenant shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law, statute, zoning
restriction, ordinance or governmental rule or regulation or requirements or
duly constituted public authorities now in force or which may hereafter be
enacted or promulgated. Tenant shall at its sole cost and expense promptly
comply with all laws, statutes, ordinances and governmental rules, regulations
or requirements now in force or which may hereafter be in force and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises. The judgment of any court of competent jurisdiction whether
Landlord be a party thereto or not, that Tenant has violated any law, statute,
ordinance or governmental rule, regulation or requirement, shall be conclusive
of that fact as between Landlord and Tenant.
8.4 SIGNS.
(a) GENERAL. Tenant shall not place or suffer to be placed on the
exterior walls of the Premises or upon the roof or any exterior door or wall or
on the exterior or interior of any window thereof any sign, awning, canopy,
marquee, advertising matter, decoration, letter or other thing of any kind
(exclusive of signs, if any, which may be provided for in the original
construction or improvement plans and specifications approved by the Landlord or
Tenant herein, and which conform to the Landlord's sign criteria as specified in
Exhibit F attached hereto if applicable) without the prior written consent of
Landlord. Landlord hereby reserves the exclusive right to the use for any
purpose whatsoever of the roof and exterior of the walls of the Premises or the
Building of which the Premises are a part.
(b) TENANT'S INTERIOR SIGNS. Except as otherwise herein provided, Tenant
shall have the right, at its sole cost and expense, to erect and maintain within
the interior of the Premises all signs and advertising matter customary or
appropriate in the conduct of Tenant's business; provided, however, that Tenant
shall upon demand of the Landlord immediately remove any sign, advertisement,
decoration, lettering or notice which Tenant has placed or permitted to be
placed in, upon or about the Premises and which Landlord reasonably deems
objectionable or offensive, and if Tenant fails or refuses do to so, the
Landlord may enter upon the Premises and remove the same at Tenant's cost and
expense.
8.5 LIENS. Tenant shall keep the Premises and any building of which the
Premises are a part free from any liens arising out of work performed, materials
furnished or obligations incurred by Tenant and shall indemnify, hold harmless
and defend Landlord from any liens and encumbrances arising out of any work
performed or material furnished by or at the direction of Tenant. In the event
that Tenant shall not, within twenty (20) days following the imposition of any
such lien, cause such lien to be released of record by payment or posting of a
proper bond not to be less than 120% of the lien claim, Landlord shall have, in
addition to all other remedies provided herein and by law, the right, but not
the obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All such sums
paid by Landlord and all expenses incurred by it in connection therewith
including attorney's fees and costs shall be payable to Landlord by Tenant on
demand. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or which Landlord shall
deem proper, for the protection of Landlord and the Premises, and any other
party having an interest therein, from mechanics' and material men liens, and
Tenant shall give to Landlord at least ten (10) business days prior written
notice of the expected date of commencement of any work relating to alterations
or additions to the Premises.
9. UTILITIES AND JANITOR SERVICE
Tenant shall be liable for and shall pay throughout the term of this
Lease all charges for utilities, including but not limited to electricity, heat,
oil, gas and water consumed upon the leased Premises and telephone, sewage,
drainage and garbage disposal services, if any, including any charges imposed
for such services by the Municipality of Metropolitan Seattle (METRO); and shall
provide its own janitor services and replacement of light bulbs and tubes and
all washroom and toilet supplies. If any such services are not separately
metered to Tenant, Tenant shall pay its pro rata share as specified in Section
3.2 above.
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10. MAINTENANCE OF PREMISES
10.1 MAINTENANCE AND REPAIR BY TENANT. Tenant shall at all times
throughout the Lease Term at its sole cost and expense, keep the Premises
(including exterior doors and entrances, all windows and mouldings and trim of
all doors and windows) and all partitions, door surfaces, fixtures, equipment
and appurtenances thereof (including lighting, heating and plumbing fixtures and
any air conditioning system) in good order, condition and repair, damage by
unavoidable casualty excepted (but not excluding damage from burglary or
attempted burglary of the Premises). When there is an air conditioning system,
Landlord will contract for service checks and filter changes and Tenant agrees
to pay for such service calls and filter changes on the units serving Tenant's
Premises, all as set forth in Section 3.2 above. Without limiting the
generalities thereof, Tenant shall keep the glass of all windows, doors, and
showcases clean and presentable; replace immediately all broken glass in the
Premises; at reasonable intervals paint or refinish the interior of the
Premises; make any necessary repairs to, or replacements of, all door closure
apparatuses and mechanisms; keep all plumbing clean and in good state of repair
including pipes, drains, toilets, basins and those portions of the heating
system within the walls of the Premises; and keep all utilities within the
Premises in a good state of repair upon the failure of Tenant to do so.
10.2 FAILURE TO MAINTAIN. If Tenant fails to keep and preserve the
Premises as set forth in Section 10.1 above, Landlord may at its option, put or
cause the same to be put in the condition and state of repair agreed upon, and
in such case, upon receipt of written statements from Landlord, Tenant shall
promptly pay the entire cost thereof as additional rent. Landlord shall have the
right, without liability, to enter the Premises for the purpose of making such
repairs.
10.3 REPAIRS BY LANDLORD. Landlord shall keep the roof, exterior walls,
foundations and buildings structure of the Premises in a good state of repair,
and shall accomplish such repairs as may be needed promptly after receipt of
written notice from Tenant. Should such repairs be required by reason of
Tenant's negligent acts Tenant shall promptly pay Landlord for the cost thereof
as additional rent. Tenant shall immediately inform Landlord of any necessary
repairs and Tenant shall make none of such repairs without Landlord's prior
written consent. Landlord shall not be liable for any failure to make any such
repairs or to perform any maintenance required of Landlord hereunder unless such
failure shall persist for an unreasonable time after written notice of the need
of such repair is given to Landlord by Tenant. Except as otherwise specifically
provided herein, there shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or to any
portion of the Premises or building of which the Premises is a part or in or to
fixtures, appurtenances and equipment herein.
10.4 SURRENDER OF PREMISES. At the expiration or sooner termination of
this Lease, Tenant shall return the Premises to Landlord in the same condition
in which received (or, if altered by Landlord or by Tenant with the Landlord's
consent, then the Premises shall be returned in such altered condition)
reasonable wear and tear excepted. Tenant shall remove all trade fixtures,
appliances and equipment which do not become a part of the Premises and
alterations which Landlord designates to be removed and shall restore the
Premises to the condition they were in prior to the installation of said items.
Tenant's obligation to perform this covenant shall survive the expiration or
termination of this Lease.
10.5 TAKING POSSESSION. By taking possession, Tenant shall be deemed to
have accepted the Premises as being in good and sanitary order, condition and
repair.
11. COMMON AREAS
11.1 CONTROL OF COMMON AREAS BY LANDLORD. Landlord shall at all times
have the exclusive control and management of the Common Areas which shall
include but not be limited to all automobile parking areas, access roads,
driveways, entrances, retaining walls and exits thereto, the truck way or ways,
loading docks, package pick-up stations, washrooms, pedestrian malls, courts,
sidewalks and ramps, landscaped areas, exterior stairways, and other areas,
improvements, facilities and special services provided by Landlord for the
general use, in common, of tenants of the Mercer Park , and their officers,
agents, employees and invitees. With respect to the Common Areas and facilities,
Landlord shall have the right from time to time to employ personnel; to
establish, modify and enforce reasonable rules and regulations; to construct,
maintain and operate lighting facilities; to police the Common Areas and
facilities; from time to time to change the area, level, location and
arrangement of parking areas and other facilities herein above referred to; to
restrict parking by Tenant, its officers, agents and employees to employee
parking areas; to close all or any portion of the Common Areas and facilities to
such extent as may, in the opinion of Landlord's counsel be legally sufficient
to prevent a dedication thereof or the accrual of any person or the public
therein; to close temporarily all or any portion of the parking areas or
facilities; to discourage non-customer parking; and to do and perform such other
acts in and to the Common Areas and facilities as, in the use of good business
judgment, Landlord shall determine to be advisable with a view to the
improvement of the convenience and use thereof by Tenants of the Mercer Park ,
their employees, invitees and customers.
11.2 LICENSE. All Common Areas and facilities, excluding Tenant's
physical space which Tenant may be permitted to use and occupy, are to be used
and occupied under a revocable license. If the amount of such areas or
facilities be diminished, such diminution shall not be deemed constructive or
actual eviction, Landlord shall not be subject to any liability, nor shall
Tenant be entitled to any compensation or diminution or abatement of rent.
Provided however, Landlord shall provide parking to reasonably accommodate the
operation of Tenant's business.
11.3 MAINTENANCE CHARGE. Tenant shall pay to Landlord, as additional
rent, in the manner provided in Section 3.2 a monthly maintenance charge to
defray the operating cost of the Common Areas and facilities. The amount of the
monthly Maintenance Charge shall be equal to 1/12 of Tenant's estimated pro rata
share of the operating costs for the calendar year, which share shall be
determined by multiplying such costs by a fraction, the numerator of which is
the total floor area of the leased Premises and the denominator of which is the
total gross leasable floor area of Mercer Park on the first day of such calendar
year. For purposes of this paragraph, the term "operating cost of the Common
Areas and facilities" means the total cost and expense incurred in operating,
accounting maintaining, administering and cleaning the Common Areas and
facilities, actually used or available for use by Tenant and the employees,
agents, servants, customers and invitees of Tenant, specifically including,
without limitation, gardening and landscaping, the cost of public liability and
property damage insurance, repairs, asphalt patching, line painting , minor
roof repairs, lighting, sanitary control, removal of snow, trash rubbish,
garbage and other refuse, machinery and equipment used in such
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maintenance, and the cost of personnel to implement such services, including the
policing of and traffic control on the Common Areas and facilities. Management
fees shall be limited to the lesser of fair market value or 5%.
12. ALTERATIONS
12.1 ACCEPTANCE OF LEASE PREMISES. Upon acceptance of the Premises by
Tenant, Tenant shall acknowledge to Landlord that Tenant has inspected the
leased Premises and accepts them in their present condition or else shall notify
Landlord of any deficiencies then apparent.
12.2 ALTERATIONS BY TENANT. Tenant shall not make any alterations,
additions or improvements in or to the leased Premises without the prior written
consent of Landlord, which consent may be reasonably subject to such conditions
as Landlord may deem appropriate. Any such alterations, additions or
improvements consented to by Landlord shall be made at Tenant's sole expense.
Tenant shall secure any and all governmental permits required in connection with
any such work, and shall hold Landlord harmless from any and all liability
(Including attorney's fees) and any and all liens resulting therefrom. All
alterations, additions and improvements (and expressly including all light
fixtures and floor coverings), except trade fixtures and appliances and
equipment which do not become a part of the leased Premises, excepting cabinets
and general equipment installed by Tenant may be removed provided Tenant repairs
all damage caused by removal, shall immediately become the properly of Landlord
without any obligation to pay therefor, and shall not be removed by Tenant. Upon
the expiration or sooner termination of the Term hereof, at Landlord's option
Tenant shall at Tenant's sole cost and expense, forthwith and with all due
diligence, remove any alterations, additions, or improvements made by Tenant,
which Landlord designates to be removed, and Tenant shall, forthwith and with
all due diligence, at its sole cost and expense, repair any damage to the
Premises caused by such removal.
13. ASSIGNMENT AND SUBLETTING
Tenant shall not assign, transfer, mortgage, pledge, hypothecate or
encumber this Lease or any interest therein, nor sublet the whole or any part of
the Premises, nor shall this Lease or any interest, hereunder be assignable or
transferable by operation of law or by any process or proceeding of any court,
or otherwise, without the prior written consent of Landlord which consent may be
reasonably subject to such conditions as Landlord may deem appropriate and which
consent may not be unreasonably withheld. Without in any way limiting Landlord's
right to refuse to give such consent for any other reason or reasons, Landlord
reserves the right to refuse to give such consent unless Tenant remains fully
liable during the unexpired Lease Term hereof and Landlord further reserves the
right to refuse to give such consent if in Landlord's reasonable business
judgment the quality of merchandising experience or the financial worth of the
proposed new Tenant is less than that of the Tenant executing this Lease or of
Tenant and Tenant's Guarantor as the case may be. Tenant agrees to reimburse
Landlord for Landlord's reasonable attorneys' fees incurred in conjunction with
the processing and documentation of any such requested transfer, assignment,
subletting, licensing or concession agreement, change of fee ownership or
hypothecation of this Lease or Tenant's interest in and to the Premises.
14. ACCESS BY LANDLORD
14.1 RIGHT OF ENTRY. Landlord or Landlord's employees, agents and/or
contractors shall have the right to enter the Premises at any time to examine
the same, and to show them to prospective purchasers or Tenants of the Building,
and to make such repairs, alterations, improvements or additions as Landlord may
deem reasonably necessary or desirable. If Tenant is not personally present to
permit entry and an entry is necessary, Landlord may in case of emergency
forcibly enter the same, without rendering Landlord liable therefor. Nothing
contained herein shall be construed to impose upon Landlord any duty of repair
of the Premises or Building of which the Premises are a part except as otherwise
specifically provided for herein.
14.2 EXCAVATION. If an excavation is made upon property adjacent to the
Premises, Tenant shall afford to the person causing or authorized to cause such
excavation, license to enter upon the Premises for the purpose of doing such
work as Landlord shall deem reasonably necessary to preserve the wall of the
building of which the Premises is a part from injury or damage and to support
the same by proper foundations, without any claim for damages or indemnification
against Landlord or diminution or abatement of rent.
15. DAMAGE OR DESTRUCTION
In the event the Premises are damaged to such an extent as to render the
same untenantable in whole or in a substantial part thereof, or are destroyed,
it shall be optional with the Landlord to repair or rebuild the same; and after
the happening of any such contingency, the Tenant shall give Landlord or
Landlord's agent immediate written notice thereof. Landlord shall have not more
than ninety (90) days after date of such notification to notify the Tenant in
writing of Landlord's intention to repair or rebuild said Premises, or the part
so damaged as aforesaid, and if Landlord elects to repair or rebuild said
Premises, Landlord shall prosecute the work of such repairing or rebuilding
without unnecessary delay, and during such period the rent of said Premises
shall be abated in the same ratio that that portion of the Premises rendered for
the time being unfit for occupancy shall bear to the whole of the leased
Premises. If the Landlord shall fail to give the notice aforesaid, Tenant shall
have the right to declare his Lease terminated by written notice upon the
Landlord or Landlord's agent. In the event the building in which the Premises
hereby leased are located shall be damaged (even though the Premises hereby
shall not be damaged thereby) to such an extent that in the opinion of Landlord
it shall not be practical to repair or rebuild, or is destroyed, then it shall
be optional with Landlord to terminate this Lease by written notice served on
Tenant within ninety (90) days after such damage or destruction.
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16. DEFAULT AND RE-ENTRY
If any rents reserved herein or any part thereof shall be and remain
unpaid (10) days after the date they shall become due, or if Tenant shall
violate or default in any of the covenants or agreements herein contained, then
the Landlord may elect to:
(a) terminate this Lease, in which event Tenant shall immediately
pay to Landlord all rent and other sums accrued to date plus the then present
value of the total rent and other sums reserved or due under the Lease for the
balance of the lease term. Tenant shall receive a credit against the amount due
pursuant to this subparagraph(s) equal to the reasonable rental value (which
Tenant proves by a preponderance of the evidence) of the Premises for the
balance of the lease term;
(b) without terminating this Lease relet all or any part of the
Premises for the account of Tenant upon such terms and conditions as Landlord
may deem advisable, in which event the rents received on such reletting shall be
applied first to the expenses of reletting and collection (including without
limitation, all necessary renovation, repair and alteration of the Premises,
reasonable attorney fees, real estate commissions and rental or other
concessions granted to a new tenant) and thereafter to payment of all sums due
or become due Landlord hereunder, and if a sufficient amount is not realized to
pay such sums and other charges Tenant shall pay monthly to Landlord any
deficiency and Landlord may bring, at any time, an action for the entire amount
of the deficiency which will accrue during the balance of the lease term; or
(c) pursue any other right or remedy Landlord may have under the
laws of the State of Washington.
No action of Landlord shall terminate this Lease unless Landlord
notifies Tenant in writing that Landlord elects to terminate this Lease.
Landlord shall in no way be responsible or liable for any failure to relet the
property or any part thereof, or for any failure to collect any rent due upon
reletting. No reentry by Landlord shall excuse or relieve Tenant of its
liability and obligations under this lease and such liability and obligations
shall survive any such action by Landlord. Any sums received by Landlord upon
reletting of the property in excess of the rent and other sums due by Tenant
hereunder shall be the sole property of Landlord and Landlord shall not be
required to pay over any such sum to Tenant. Tenant assumes full responsibility
to mitigate damages resulting from Tenant's breach of abandonment by obtaining a
subtenant or assignee reasonably acceptable to Landlord. Landlord shall have no
responsibility to mitigate damages resulting from Tenant's breach or abandonment
other than to not unreasonably withhold consent to Tenant's proposed subleases
and assignments. Tenant waives any defense or claim based on Landlord's failure
to mitigate damages except as provided in the preceding sentence. Not
withstanding the foregoing Washington State law shall prevail.
17. LATE CHARGES
Tenant hereby 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 trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Tenant shall not be received by
Landlord or Landlord's designee within ten (10) days after such amount shall be
due, Tenant shall pay to Landlord a late charge equal to five percent (5%) of
such overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder. A twenty-five dollar ($25.00) charge shall be paid to Landlord for
any returned check.
18. COSTS AND ATTORNEYS' FEES
In the event of an action (or any appeal thereof) between the parties
hereto to enforce any of the terms or provisions of this Lease, the successful
party shall be entitled to recover from the unsuccessful party, in addition to
any other award, a reasonable sum as attorney fees to be determined by the court
and included as a part of the judgment.
19. NON-WAIVER OF BREACH
The failure of the Landlord to insist upon strict performance of any of
the covenants and agreements of this Lease, or to exercise any option herein
conferred in any one or more instances, shall not be construed to be a waiver or
relinquishment of any such, or any other covenants or agreements, but the same
shall be and remain in full force and effect.
20. REMOVAL OF PROPERTY
In the event of any entry in, or taking possession of, the leased
Premises as aforesaid, the Landlord shall have the right, which right shall not
be exercised unreasonably, but not the obligation, to remove from the leased
Premises all personal property located therein, and may store the same in any
place selected by Landlord, including but not limited to a public warehouse, at
the expense and risk of the owners thereof, with the right to sell such stored
property, without notice to Tenant, after it has been stored for a period of
thirty (30) days or more, the proceeds of such sale to be applied first to the
cost of such sale, second to the payment of the charges for storage, if any, and
third to the payment of any other sums of money which may then be due from
Tenant to Landlord any of the terms hereof, the balance, if any, to be paid to
Tenant. Landlord shall not remove any property without reasonable advance notice
to Tenant.
21. HEIRS AND SUCCESSORS
Subject to the provisions hereof pertaining to Assignment and
Subletting, the covenants and agreements of this Lease shall be binding upon the
heirs, legal representatives, successors and assigns of any or all of the
parties hereto.
22. HOLD OVER
If the Tenant shall, with the written consent of Landlord, hold over
after the expiration of the Term of this Lease, such tenancy shall be for an
indefinite period of time on the month-to-month tenancy, which tenancy may be
terminated as
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provided by the laws of the State of Washington. During such tenancy, Tenant
agrees to pay to the Landlord the same rate of rental as set forth herein,
unless a different rate is agreed upon, and to be bound by all of the terms,
covenants, and conditions as herein specified, so far as applicable. If Tenant
shall, without the written consent of Landlord, hold over after the expiration
of the term of this Lease, such tenancy shall be month-to-month, on the same
terms and conditions as contained herein; provided, however, the rental rate
shall be one and one quarter that in effect during the last month of the lease
term.
23. SUBORDINATION QUIET ENJOYMENT
This Lease is subject to and is hereby subordinated to all present and
future mortgages, deeds of trust and other encumbrances affecting the leased
Premises or the property of which said Premises are a part. Tenant will, upon
demand by Landlord, execute such instruments as may be required at any time, and
from time to time, to subordinate the rights and interests of the Tenant under
this Lease to the lien of any mortgage or trust deed at any time placed on the
land of which the leased Premises are a part; provided, however, that such
subordination shall not affect Tenant's right to possession, use and occupancy
of the leased Premises so long as Tenant shall not be in default under any of
the terms or conditions of this Lease, Tenant further agrees:
That any such subordination agreement will contain a provision
satisfactory to Landlord's financing lender whereby Tenant will agree, in the
event of foreclosure of any such mortgage or trust deed to attorn to and
recognize as its Landlord under the terms of this Lease said lender or any
purchaser of the leased property at a foreclosure sale or their heirs,
successors, or assigns, and that it will execute and deliver to such lender an
Estoppel Certificate in form satisfactory to such lender.
24. PERSONAL PROPERTY AND TRADE FIXTURES
It is contemplated that certain furniture, fixtures and equipment to be
installed by Tenant in the leased Premises, are or may be either leased by
Tenant or purchased by Tenant from a lessor or conditional seller or otherwise
hypothecated to a third party. In this connection, it is agreed that all of such
furniture, fixtures and equipment installed by Tenant in the leased Premises
shall at all times be and remain personal property, regardless of the method in
which the same are affixed to the Premises, and shall remain the personal
property of Tenant and/or such third party. Landlord specifically agrees that
its rights, if any, in such furniture, fixtures and equipment shall at all times
be subject and subordinate to the rights of any such described third party.
Landlord agrees to execute, upon request, any documents reasonably required by
any such described third party in order to effectuate the purposes of this
paragraph, it being specifically agreed by Landlord herein that any such third
party shall have the right to remove the furniture, fixtures or equipment from
the leased Premises in the event of the default of Tenant in complying with its
agreements relating to such furniture, fixtures and equipment. Tenant agrees to
repair any damage caused by any such removal at its expense.
25. CONDEMNATION
If the Premises or any portion thereof are taken under the power of
eminent domain, or sold by Landlord under the threat of the exercise of said
power (all of which is referred to as "Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever occurs first. If more than ten percent (10%) of
the floor area of any buildings on the Premises, or more than twenty-five
percent (25%) of the land area of the Premises not covered with buildings, is
taken by Condemnation, either Landlord or Tenant may terminate this Lease as of
the date the condemning authority takes possession, by notice In writing of such
election within twenty (20) days after Landlord shall have notified Tenant of
the taking, or in the absence of such notice then within twenty (20) days after
the condemning authority shall have taken possession. If this Lease is not
terminated by either Landlord or Tenant then it shall remain in full force and
effect as to the portion of the Premises remaining, provided the rent shall be
reduced in the proportion that the floor area of the buildings taken within the
Premises bears to the total floor area of all buildings located on the Premises.
In the event this Lease is not so terminated then Landlord agrees, at Landlord's
sole cost, to restore the Premises to a complete unit of like quality and
character as existed prior to the condemnation as soon as reasonably possible.
All awards for the taking of any part of the Premises or any payment made under
the threat of the exercise of power of eminent domain shall be the property of
Landlord, whether made as compensation for diminution of value of a leasehold or
for the taking of the fee or as severance damages; provided, however, that
Tenant shall be entitled to any award for loss of or damage to Tenant's trade
fixtures and removable personal property. In the event that this Lease is not
terminated by reason of such Condemnation, Landlord shall, to the extent of
severance damages received by Landlord in connection with such Condemnation,
repair any damage to the Premises caused by such Condemnation except to the
extent that Tenant has been reimbursed therefor by the condemning authority.
26. NOTICES
Wherever under this Lease provision is made for any demand, notice or
declaration of any kind, or where it is deemed desirable or necessary by either
party to give or serve any such notice, demand or declaration to the other
party, it shall be in writing and served either personally or sent by United
States mail, postage prepaid, addressed to the address set forth herein below:
Landlord: Tenant:
The Evans Company Optiva Corporation
1457 130th Ave NE 13228 SE 30th St C-1
Bellevue WA 98005 Bellevue WA 98005
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27. CORPORATE AUTHORITY
If Tenant is a corporation, each individual executing this Lease on
behalf of said corporation represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation in accordance with
a duly adopted resolution of the Board of Directors of said corporation or in
accordance with the by-laws of said corporation, and that this Lease is binding
upon said corporation in accordance with its terms. If Tenant is a corporation
Tenant shall, within thirty (30) days after execution of this Lease, deliver to
Landlord a certified copy of a resolution of the Board of Directors of said
corporation substantially the same as or identical to Exhibit D authorizing or
ratifying the execution of this Lease.
28. MISCELLANEOUS
28.1 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale or
conveyance by Landlord of Landlord's interest in the Premises other than a
transfer for security purposes only, Landlord shall be relieved from, after the
date specified in such notice of transfer, all obligations and liabilities
accruing thereafter on the part of the Landlord, provided that any funds in the
hands of Landlord at the time of transfer in which Tenant has an interest, shall
be delivered to the successor of Landlord. This Lease shall not be affected by
any such sale and Tenant agrees to attorn to the purchaser or assignee, provided
all Landlord's obligations hereunder are assumed in writing by the transferee.
28.2 SEVERABILITY. If any term or provision of this Lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and be enforceable to the
fullest extent permitted by law.
28.3 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence of this
Lease and each and every provision hereof, except as to the conditions relating
to the delivery of possession of the Premises to Tenant. All the terms,
covenants and conditions contained in this Lease to be performed by either
party, if such party shall consist of more than one person or organization,
shall be deemed to be Joint and Several, and all rights and remedies of the
parties shall be cumulative and non-exclusive of any other remedy at law or in
equity.
28.4 MEMORANDUM OF LEASE. This Lease shall not be recorded, but upon
written request of Landlord or Tenant, a Memorandum of Lease describing the
Premises, giving the term of this Lease and the name and address of Landlord and
Tenant, referring to this Lease, and in form suitable under law as record
notice, shall be promptly executed, acknowledged and delivered by both parties;
such Memorandum of Lease may be recorded by either party.
29. HAZARDOUS AND TOXIC WASTE MATERIALS
Tenant shall be fully responsible for any release of any hazardous waste
or substance in or on or under the Premises or on any adjacent property during
the lease term by Tenant, Tenant's officers, directors, successors, assigns,
subleases, guests, invitees, visitors, employees, agents, contractors or any
other person or entity in or about the Premises. Tenant shall promptly comply
with all statutes, regulations and ordinances and with all orders, decrees or
judgments of governmental authorities or courts having jurisdiction relating to
the use, collection, treatment, disposal, storage, control, removal or cleanup
of hazardous waste or substances in, on or under the Premises or any adjacent
property or incorporated in any of the improvements, at Tenant's sole expense.
After notice to Tenant and a reasonable opportunity for Tenant to affect such
compliance, Landlord may, but shall not be obligated to, enter upon the Premises
and take such actions and incur such costs and expenses to affect such
compliance as it deems advisable to protect its interest in the Premises;
provided however, Landlord shall not be obligated to give Tenant notice and
opportunity to affect compliance if (i) such delay might result in material
adverse harm to Landlord or the Premises; (ii) Tenant has already had actual
knowledge of the situation and a reasonable opportunity to affect compliance; or
(iii) an emergency exists. Whether or not Tenant has actual knowledge of the
release of hazardous waste or substances on the Premises or any adjacent
property as a result of Tenant's use of the Premises, Tenant shall reimburse
Landlord for the full amount of all costs and expenses incurred by Landlord in
connection with such compliance activities, and such obligation shall survive
any termination of this Lease. Tenant shall notify Landlord immediately of any
release of any hazardous waste or substance on the Premises. Tenant shall
indemnify and hold Landlord harmless from any and all losses, liabilities,
suits, obligations, fines, damages, judgments, penalties, claims, charges,
cleanup costs, remedial actions, costs and expenses (including, without
limitation, attorneys fees and disbursements) which may be imposed on, incurred
or paid by, or asserted against Landlord or the Premises by reason of (i) any
misrepresentation, breach of warranty or other default by Tenant under this
Lease resulting in the release of any hazardous waste or substance or (ii) the
act or omissions of Tenant, Tenant's officers, directors, successors, assigns,
subleases, guests, invitees, visitors, employees, agents, contractors or any
other person whatsoever other than Landlord resulting in the release of any
hazardous waste or materials in, on or under the Premises or any adjacent
property. Landlord may perform any inspections, audits or surveys of the
Premises as Landlord deems necessary or advisable at any time during the term of
this Lease.
30. SPECIAL ARTICLES
The following numbered sections are made a part hereof, N/A, and appear
below on Addendum(s) N/A attached hereto. The following Exhibit(s) not
referenced in the lease above are also made a part hereof, D.E , and are
attached hereto.
In Witness Whereof, the Landlord and Tenant have executed this Lease the
date and year first above written.
Landlord: Tenant:
By: By:
/s/ Scott Evans /s/ David Giuliani PRES/CEO
------------------------------ ------------------------------
Vice President Optiva Corp
------------------------------ ------------------------------
Page 9 of 11
Landlord's Initials SE
Tenant's Initials DG
<PAGE> 13
LANDLORD
Corporate
STATE OF WASHINGTON )
ss.
COUNTY OF KING )
On this 11 day of October, in the year 1995, before me Edward T. Babbitt, the
undersigned Notary Public, personally appeared Scott Evans, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person who
executed the within instrument as Vice President on behalf of The Evans Company,
the corporation therein named, and acknowledged to me that the corporation
executed it.
/s/ Edward T. Babbitt Residing At Redmond
- ---------------------------- ----------------------
Notary's Signature
================================================================================
Partnership
STATE OF WASHINGTON )
ss.
COUNTY OF KING )
On this ____ day of _____________, in the year 19___, before me
____________________________, the undersigned Notary Public, personally appeared
_____________________________________, personally known to me to be the person
who executed the within instrument on behalf of the partnership and acknowledged
to me that the partnership executed it.
_____________________________________ Residing At_________________________
Notary's Signature
TENANT
Corporate
STATE OF WASHINGTON )
ss.
COUNTY OF KING )
On this ____ day of _____________, in the year 19___, before me
____________________________, the undersigned Notary Public, personally appeared
_________________________________, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person who executed the within
instrument as ___________________________ on behalf of ________________________,
the corporation therein named, and acknowledged to me that the corporation
executed it.
_____________________________________ Residing At_________________________
Notary's Signature
================================================================================
Partnership
STATE OF WASHINGTON )
ss.
COUNTY OF KING )
On this ____ day of _____________, in the year 19___, before me
____________________________, the undersigned Notary Public, personally appeared
_________________________________, personally known to me to be the person who
executed the within instrument on behalf of the partnership and acknowledged to
me that the partnership executed it.
_____________________________________ Residing At_________________________
Notary's Signature
Page 10 of 11
Landlord's Initials SE
Tenant's Initials DG
<PAGE> 14
================================================================================
Individual
STATE OF WASHINGTON )
ss.
COUNTY OF KING )
On this ____ day of _____________, in the year 19___, before me
____________________________, personally appeared ____________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is(are) subscribed to this instrument, and
acknowledged that he(she/they) executed it. WITNESS my hand and official seal.
_____________________________________ Residing At_________________________
Notary's Signature
Page 11 of 11
Landlord's Initials SE
Tenant's Initials DG
<PAGE> 1
CONFIDENTIAL
AMENDED AND RESTATED LEASE
BY AND BETWEEN
KAMBER PARK ASSOCIATES, LANDLORD
AND
OPTIVA CORPORATION, TENANT
THIS AMENDED AND RESTATED LEASE (herein called the "Lease"), dated the 19 day of
May, 1995, is made by and between KAMBER PARK ASSOCIATES (herein called
"Landlord") and OPTIVA CORPORATION (herein called "Tenant"), and, effective as
of the date hereof, amends and restates that certain Lease dated February 17,
1995 by and between Landlord and Tenant.
For and in consideration of the mutual covenants and undertakings hereinafter
set forth, the parties hereto agree as follows:
1. PREMISES
(a) Current Premises. Landlord leases to Tenant and Tenant leases from
Landlord Suites K and L, consisting of approximately 11,032 sq. ft., as shown on
the site plan attached hereto as Exhibit "A" (hereinafter referred to as the
"Premises"), in KAMBER PARK which is located at 13221 SE 26th Street, Bellevue,
WA 98005 and is legally described in Exhibit "B" attached hereto and
incorporated herein by this reference (the "Project"). In addition, Suite D of
the Project, consisting of approximately 13,892 square feet, shall be added to
this Lease effective as of the date the Landlord's lease with Mechatronics is
terminated.
(b) Expansion Space. So long as Tenant is not then in default under
the terms of this Lease, Tenant and Landlord agree to the following with respect
to the other Suites in the Project:
(1) Suite M. Landlord has reached an agreement with Gymnastics
East ("GE") to relocate GE from Suite M to Suite C in the Project. Tenant shall
reimburse Landlord, as additional rent, for the difference between the monthly
rental rate to be paid by GE for Suite C and the fair rental value of Suite C,
to a maximum of One Thousand Dollars ($1,000.00) per month. Landlord shall,
within seven (7) days after the earlier to occur of (i) the date an agreement
was reached with GE or (ii) May 15, 1995, provide the required termination
notice to U.S. West to vacate Suite C on or before 90 days from the date of
Landlord's notice to U.S. West. Tenant shall occupy Suite M immediately upon its
availability.
DB DG
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LANDLORD TENANT
-1-
<PAGE> 2
CONFIDENTIAL
The agreement with GE shall require GE to relocate to Suite C
within thirty (30) days of vacation by U.S. West. The agreement with GE shall
also provide that, once GE has occupied Suite C, Landlord will use good faith
efforts to find alternative space suitable to GE outside of the Project. If such
alternative space can be found, then the Landlord shall allow for early
termination of GE's lease of Suite C so long as Tenant agrees to lease Suite C
at the rental rates then in effect for Suite M, with a commencement date
effective as of the date GE vacates Suite C.
(2) Suites C and N. In the event an agreement with Gymnastics
East, Inc. cannot be reached by May 15, 1995, despite Landlord's reasonable best
efforts, then Tenant agrees to lease Suite C commencing upon its availability
for occupancy by Tenant. Landlord agrees to lease to Tenant, and Tenant agrees
to lease from Landlord, Suite N commencing November 1, 1995, at the rental rate
then in effect for Suite N.
(3) Other Suites: First Option to Lease. In addition to the
Expansion Space described in Subparagraphs 1(b)(1) and 1(b)(2) above, the Tenant
shall have a first option to lease Suites A, B-1, B-2, E, F and M (if Suite M
has not been already been leased by Tenant under Subparagraph 1(b)(1) above) in
the Project upon the earlier to occur of any of the following (individually
called a "Triggering Event"):
(i) Landlord receives notice that a tenant of any of the
above Suites intends to vacate that Suite or not
renew its lease;
(ii) A tenant of any of the above Suites fails to timely
exercise its right to extend or renew the term of its
lease;
(iii) A tenant, who has no right to extend or renew under
its lease, requests an extension or renewal of its
lease;
(iv) A tenant has defaulted on its lease with respect to
any of the above Suites, and has no defenses or right
to cure, or does not thereafter file a petition for
protection under the U.S. bankruptcy laws; or
(v) Any other circumstance resulting in any of the above
Suites becoming available prior to the expiration of
an existing lease term.
Upon learning of the occurrence of a Triggering Event, the Landlord shall
promptly notify the Tenant in writing of such occurrence, specifying the type of
Triggering Event, the date of the occurrence, the date that Landlord anticipates
the applicable Suite to become available for occupancy, and any other
information that Landlord deems relevant. Tenant shall have thirty (30) days
following receipt of Landlord's notice within which to notify Landlord in
writing that Tenant elects to exercise its option to lease the applicable
DB DG
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LANDLORD TENANT
-2-
<PAGE> 3
CONFIDENTIAL
Suite commencing on the date Landlord projects the Suite will be available for
occupancy. If Tenant fails to so notify Landlord within the thirty (30) day
period, Tenant shall be deemed to have elected NOT to have exercised its option,
and Landlord may lease the Suite to another party. With respect to Triggering
Event (iii) only, Landlord shall not respond to the tenant's request for an
extension or renewal until Tenant has elected not to exercise its option with
respect to that Suite, either affirmatively or by failing to respond in a timely
manner.
(c) Once Tenant has exercised its option with respect to a particular
Suite and it is available for occupancy by Tenant, said Suite shall be deemed
included in the definition of "Premises" under this Lease, and shall be subject
to all of the terms and conditions hereof.
(d) Landlord shall not agree to extend any lease, or modify any lease
to allow an extension, without Tenant's prior written consent, which consent
shall not be unreasonably withheld or delayed, unless such lease currently
allows the tenant under it to extend.
(e) The table below is a description of all of the Suites of the
Project, and the approximate square footage and type of space in each Suite.
This table shall be used in calculating the rent payable for each Suite,
regardless of the actual square footage of the Suite, except, however, for the
Suites constituting the Expansion Space described in Paragraph 1(b)(3) herein,
Tenant shall have thirty (30) days from the date of initial occupancy to notify
Landlord of any variation is square footage from the numbers shown on the table
and, subject to Landlord's verification of Tenant's numbers, the rent shall then
be based on the actual square footage and determined in accordance with Section
34 herein.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SUITE SQ. FEET OFFICE WAREHOUSE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A 18,203 4,866 13,337
- -------------------------------------------------------------------------------
B1 1,310 1,100 210
- -------------------------------------------------------------------------------
B2 1,240 1,240 0
- -------------------------------------------------------------------------------
C 8,620 2,190 6,430
- -------------------------------------------------------------------------------
D 13,892 1,910 11,982
- -------------------------------------------------------------------------------
E 7,705 1,125 6,580
- -------------------------------------------------------------------------------
F 1,584 0 1,584
- -------------------------------------------------------------------------------
</TABLE>
DB DG
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Landlord Tenant
-3-
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CONFIDENTIAL
<TABLE>
<S> <C> <C> <C>
K&L 11,032 6,046 4,986
- -------------------------------------------------------------------------------
M 6,940 940 6,000
- -------------------------------------------------------------------------------
N 7,872 1,390 6,482
- -------------------------------------------------------------------------------
M (Reis Group) 675 675 0
- -------------------------------------------------------------------------------
</TABLE>
2. USE
Tenant shall use the Premises exclusively for general office and
warehouse purposes, in addition to a research and development lab in Suite L,
and shall not use or permit the Premises to be used for any other purpose
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld. Landlord represents that the Project is currently zoned
L1 as is Tenant's current facility and to the best of Landlord's knowledge, the
Tenant's proposed use is permitted by the current zoning. Tenant is responsible
for confirming that its intended use of the Premises is allowable under this
current zoning.
3. MINIMUM RENT
Tenant agrees to pay to Landlord as Minimum Rent the monthly sums set
forth below, in advance, without notice, on or before the first day of each and
every successive calendar month during the term hereof, except the first month's
rent shall be paid upon the execution hereof. Rent for any period which is for
less than one (1) month shall be a prorated portion of the monthly installment
herein based upon a thirty (30) day month. Said rental shall be paid to
Landlord, without deduction or offset, in lawful money of the United States of
America and at such place as Landlord may from time to time designate in
writing.
(a) Current Premises. For the Current Premises described in Paragraph
1(a) above, the monthly rent is as follows:
<TABLE>
<S> <C>
Commencement Date through July 31, 1995 (including Suite D): $16,040.68/mo.
August 1, 1995 through July 31, 1996 (including Suite D): $16,179.60/mo.
August 1, 1996 through July 31, 1997 (including Suite D): $16,318.52/mo
August 1, 1997 through July 31, 1998 (including Suite D): $1.03/sq. ft./mo. for office
$ .515/sq. ft./mo. for warehouse
</TABLE>
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LANDLORD TENANT
-4-
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CONFIDENTIAL
<TABLE>
<S> <C>
August 1, 1998 through July 31, 1999 (including Suite D): $1.06/sq. ft./mo. for office
$ .53/sq. ft./mo. for warehouse
August 1, 1999 through April 30, 2000 (including Suite D): $1.09/sq. ft./mo. for office
$ .545/sq. ft./mo. for warehouse
</TABLE>
(b) Paragraphs 1(b)(1) and 1(b)(2) Expansion Space. For the
Expansion Space described in Paragraphs 1(b)(1) and 1(b)(2) above, the monthly
rent is as follows:
<TABLE>
<CAPTION>
<S> <C>
Commencement Date through October 31, 1996 $1.00/sq. ft./mo. for office
$ .50/sq. ft./mo. for warehouse
November 1, 1996 through October 31, 1997 $1.03/sq. ft./mo. for office
$ .515/sq. ft./mo. for warehouse
November 1, 1997 through October 31, 1998 $1.06/sq. ft./mo. for office
$ .53/sq. ft./mo. for warehouse
November 1, 1998 through October 31, 1999 $1.09/sq. ft./mo. for office
$ .545/sq. ft./mo. for warehouse
November 1, 1999 through April 30, 2000 $1.12/sq. ft./mo. for office
$ .56/sq. ft./mo. for warehouse
</TABLE>
(c) Paragraph 1(b)(3) Expansion Space. For the Expansion Space
described in Paragraph 1(b)(3) above, Tenant agrees to pay to Landlord the fair
market rent of the applicable Suite at the time said Suite is made available for
Tenant's occupancy. The rental shall commence as of the date said Suite is made
available for Tenant's occupancy.
(d) Rent Table. A table showing the monthly rent for each Suite, based
on the square footage of each Suite, is attached hereto as Exhibit "D" and
incorporated herein by this reference.
4. TERM
4.1 The lease term shall be that period specified below. The parties
hereto acknowledge that certain obligations under various articles hereof may
commence prior to the lease term (i.e., construction, hold harmless, liability
insurance, etc.) and the parties agree to be bound by these articles prior to
commencement of the lease term.
(a) Current Premises: March 1, 1995 through April 30, 2000.
DB DG
- -------- ------
LANDLORD TENANT
-5-
<PAGE> 6
CONFIDENTIAL
(b) Paragraphs 1(b)(1) and 1(b)(2) Expansion Space: Commencing on the
date the applicable Suite Is made available for occupancy by Tenant through
April 30, 2000.
(c) Paragraph 1(b)(3) Expansion Space: Commencing on the date the
applicable Suite is made available for occupancy by Tenant for a minimum term of
two (2) years (or longer upon mutual agreement).
4.2 Early Termination. Tenant shall have the option to terminate this
Lease upon at least nine (9) months' prior notice, which notice may be given at
any time after August 1, 1997. To be effective, the notice must be in writing,
specify the date of termination, and enclose $10,000 of the early termination
fee described in the schedule set forth below, with the balance of the fee to be
paid three (3) months before the early termination date:
<TABLE>
<CAPTION>
Termination Date Between: Fee:
<S> <C>
May 1, 1998 and October 31, 1998: 6 months' rent
November 1, 1998 and April 30, 1999: 5 months' rent
May 1, 1999 and October 31, 1999: 2 months' rent
November 1, 1999 and April 30, 2000: none
</TABLE>
Provided, however, with respect to any of the Expansion Space leased by Tenant
in accordance with Paragraph 1(b)(3) above, Tenant agrees: (i) not to terminate
this Lease so that the term expires during the months of October, November,
December and January; and (ii) not to terminate this Lease as to more than
one-third of such Expansion Space leased at the end of the required term and a
maximum of an additional one-third of such Expansion Space released at the end
of successive three (3) month periods, such that the total space will be
released to Landlord over six (6) months. Landlord and Tenant agree that should
the termination date occur on or after May 1, 1999, then the early termination
fee with respect to such Expansion Space shall be reduced by the base rental
payments made during the staged termination described in the preceding clause
4.2(ii).
5. SECURITY DEPOSIT
[INTENTIONALLY OMITTED]
6. ADDITIONAL CHARGES
DB DG
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LANDLORD TENANT
-6-
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CONFIDENTIAL
(a) Adjustments
(1) It is the intent of the Landlord and Tenant that the Lease be
"triple net". Accordingly, in addition to the Minimum Rent provided in Paragraph
3, and commencing at the same time as the minimum rental commences hereunder,
Tenant shall pay to Landlord the following items, hereinafter referred to as
"Additional Rent". Tenant shall either pay the expenses hereinafter set forth
directly, if they are separately metered or otherwise directly identified with
and charged to the Premises, or shall pay to Landlord Tenant's allocable share
of such expenses not specifically identified to the Premises. Tenant's allocable
share of expenses not specifically identified to the Premises shall be
determined as that percent of the total cost of the following items (which are
not specifically identified to the Premises) as Tenant's total floor area bears
to the total rentable floor area of the project determined as of the first day
of each calendar quarter; provided, however, that if any tenant in the project
pays any of the following items directly, such tenant's square footage shall not
be deemed a part of the total rentable floor area of the project for purposes of
determining Tenant's allocable share of such item.
(a) All real estate taxes and insurance premiums on the
Premises during the lease term, including land, building, and improvements
thereon. Said real estate taxes shall include all real estate taxes and
assessments that are levied upon and/or assessed against the Premises, including
any taxes which may be levied on rent. Said insurance shall include all
insurance premiums for fire, extended coverage, liability and any other
insurance that Landlord deems necessary on the Premises.
(b) All costs to maintain, repair, and replace common areas
and other areas used in common by the tenants of the project.
(c) All costs to supervise and administer said common areas,
sidewalks, and other areas used in common by the tenants or occupants of the
Project. Such costs shall include such fees as may be paid to a third party in
connection with same and shall in any event include a fee to Landlord to
supervise and administer the common areas. This shall also include property
management costs ordinary to the course of collection of rents, payments of
expenses, related accounting duties, and administration of all maintenance
contracts and services provided to the project.
(d) Any parking charges, utilities surcharges, or any other
costs levied, assessed, or imposed by any governmental authority in connection
with the use or occupancy of the Premises of the parking facilities serving the
Premises.
(2) Upon commencement of rental Landlord shall submit to tenant a
budget of the anticipated monthly additional rent for the period between such
commencement and the following December 31, and Tenant shall pay these
adjustments on a monthly basis concurrently with the payment of the Minimum
Rent. Tenant shall
DB DG
- -------- ------
LANDLORD TENANT
-7-
<PAGE> 8
CONFIDENTIAL
continue to make said monthly payments until notified by Landlord of a change
thereof. By March 31 of each year, Landlord shall endeavor to give Tenant a
statement showing the total costs which constitute additional rental items for
the Project for the prior calendar year. If the amount paid by the Tenant during
the previous year turns out to be less than the Tenant's actual share of such
additional rent items, then Tenant shall pay the difference in a lump sum within
twenty (20) days after receipt of such statement of the Landlord. Any
overpayment by Tenant shall immediately be credited towards the monthly
additional rent next coming due. Even though the term has expired and Tenant has
vacated the Premises, when the final determination is made of Tenant's share of
additional rent for the year in which this lease terminates, Tenant shall
immediately pay any increase due over the estimated adjustments previously paid
and, conversely, any overpayment made shall be immediately repaid by Landlord to
Tenant. Failure of Landlord to submit written statements as called for herein
shall not be deemed to be a waiver of Tenant's obligations to pay sums as herein
provided.
7. RISK TO PROPERTY
(a) Permitted Use--See Section 2 above.
(b) Not Permitted
Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which is not within the permitted
use of the Premises which will in any way increase the existing rate of or
affect any fire or other insurance upon the Project or any of its contents, or
cause a cancellation of any insurance upon the Project or any of its contents,
or cause a cancellation of any insurance policy covering said building or any
part thereof or any of its contents. If Tenants activities do have increased
insurance costs, Tenant may engage in such activities provided such activities
are lawful, and tenant shall pay for the increased premiums. Tenant shall not do
or permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
building or cause injury or use or allow the Premises to be used for any
improper, immoral, unlawful, or objectionable purpose; nor shall Tenant cause,
maintain, or permit any nuisance in, on or about the Premises. Tenant shall not
commit or allow to be committed any waste in or upon the Premises.
8. COMPLIANCE WITH LAW
Tenant shall, at its sole cost and expense, promptly comply with all
laws, statutes, ordinances, and governmental rules, regulations or requirements
now in force or which may hereafter be in formed and with the requirements of
any board of fire underwriters or other similar bodies now or hereafter
constituted relating to or affecting the condition, use, or occupancy of the
premises, excluding structural changes materially or
DB DG
- -------- ------
LANDLORD TENANT
-8-
<PAGE> 9
CONFIDENTIAL
substantially related to or affected by Tenant's improvements or acts. The
judgment of any court of competent jurisdiction or the admission of Tenant in
any action against Tenant, whether Landlord be a party thereto or not, that
Tenant has violated any law, suite, ordinance or governmental rule, regulation,
or requirement shall be conclusive of the fact as between the Landlord and
Tenant.
9. ALTERATIONS AND ADDITIONS
Tenant shall not make or allow to be made any alterations, additions,
or improvements to or of the Premises or any part thereof without first
obtaining the written consent of Landlord and any alterations, additions, or
improvements to or of said Premises including, but not limited to, wall
covering, paneling, and built-in cabinet work, but excepting movable furniture
and trade fixtures, shall at once become a part of the realty and belong to the
Landlord and shall be surrendered with the Premises. In the event Landlord
consents to the making of any alterations, additions, or improvements to the
Premises by Tenant, the same shall be made by Tenant at Tenant's sole cost and
expense. Upon the expiration or sooner termination of the term hereof, Tenant
shall upon written demand by Landlord, given at least thirty (30) days prior to
the end of the term, at Tenant's sole cost and expense, forthwith and with all
due diligence, remove any alterations, additions, or improvements made by
Tenant, designated by Landlord to be removed, and Tenant shall, forthwith and
with all due diligence, at its sole cost and expense, repair any damage to the
premises caused by such removal. Landlord agrees to reasonably cooperate with
Tenant's efforts to obtain the necessary permits, at Tenant's sole cost and
expense, to construct a footbridge across the creek at the south end of the
Project. Landlord grants Tenant permission to connect a data and telephone cable
to the building at Tenant's sole expense.
10. REPAIRS
(a) Upon commencement of possession hereunder, Tenant shall be deemed
to have accepted the Premises as being in good, sanitary order, condition, and
repair in an "as-is" condition; provided, however, that, with respect to
Expansion Space, Tenant shall not be liable for damage caused by a previous
occupant of said Space and the Space shall be delivered in broom clean
condition. Tenant shall, at Tenant's sole cost and expense, keep the Premises
and every part thereof in good condition and (except as hereinafter provided
with respect to Landlord's obligations) including, without limitation, the
maintenance, replacement, and repair of any storefront, doors, window casements,
glazing, interior plumbing, pipes, electrical wiring and conduits,
air-conditioning system, if any, and heating system. Tenant shall, upon the
expiration or sooner termination of this lease hereof, surrender the Premises to
the Landlord in good condition, broom clean, ordinary wear and tear and damage
from causes beyond the reasonable control of tenant excepted. Any damage to
adjacent premises caused by Tenant's use of the Premises shall be repaired at
the sole cost and expense of Tenant. If any of the above items shall fail as
DB DG
- -------- ------
LANDLORD TENANT
-9-
<PAGE> 10
CONFIDENTIAL
a result of defective workmanship or equipment, Landlord shall be responsible
for the repair of said items. Landlord shall obtain a service contract for the
maintenance of the HVAC equipment servicing Tenant's Premises, the cost of said
contract shall be paid by the Tenant as provided under Paragraph 6, Additional
Charges, of the Lease.
(b) Notwithstanding the provisions of Paragraph 10 (a), Landlord shall
repair and maintain the structural portions of the building in which the
Premises are situated, consisting of the foundation, exterior walls and roof,
unless such maintenance and repairs are required in part or in whole by the act,
neglect, fault, or omission of any duty by the Tenant, its agents, servants,
employees, invitees, or any damage caused by breaking and entering, in which
case Tenant shall pay to Landlord the actual cost of such maintenance and
repairs. Landlord shall not be liable for any failure to make such repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time but in no event later than thirty (30) days after written notice of the
need of such repairs or maintenance is given to Landlord by Tenant.
Notwithstanding the foregoing, in the event of a roof leak that impairs Tenant's
business, if Landlord does not commence repairs within three (3) days of Tenant
issuing notice, Tenant may, at its option, have repairs made sufficient to stop
the leak and deduct the cost of repairs from its rent, with the deduction not to
exceed 50% of the rent due in any succeeding month. Except as provided in herein
there shall be no abatement of rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business arising from the making of
any repairs, alterations, or improvements in or to any portion of the building
or the Premises or in or to fixtures, appurtenances and equipment therein unless
due to Landlord negligence.
11. LIENS
Tenant shall keep the Premises and any building of which the Premises
are a part free from any liens arising out of work performed, materials
furnished or obligations incurred by Tenant and shall indemnify, hold harmless
and defend Landlord from any liens and encumbrances arising out of any work
performed or materials furnished by or at the direction of Tenant.
Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or which Landlord shall
deem proper, for the protection of Landlord and the Premises, and any other
party having and interest therein, from mechanics' and materialmen's liens and
Tenants shall give to Landlord at least ten (10) business days prior written
notice of the expected date of commencement of any work relating to alterations
or additions to the Premises. With respect to the Current Premises only,
Landlord shall waive the requirement for Tenant to give Landlord ten (10)
business days prior notice of its expected date of commencement of any work
relating to alterations or additions to the Current Premises for Tenant's
initial tenant improvements. This waiver shall not affect the ten (10) business
days' notice and approval requirements
DB DG
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LANDLORD TENANT
-10-
<PAGE> 11
CONFIDENTIAL
set forth above for any alterations or additions to any Expansion Space
described in this Lease.
12. ASSIGNMENT AND SUBLETTING
Tenant shall not either voluntarily, or by operation of law, assign,
transfer, mortgage, pledge, hypothecate, or encumber this Lease or any interest
thereof, or any right or privilege appurtenant thereto, or allow any other
person (the employees, agents, servants, and invites of Tenant excepted) to
occupy or use the said Premises, or any portion thereof, without first obtaining
the written consent of Landlord, which consent shall not be unreasonably
withheld. A consent to one assignment, subletting, occupation, or use by any
other person shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation, or use by another person. Consent to any such assignment
or subletting shall in no way relieve Tenant of any liability under this Lease.
Any such assignment or subletting without such consent shall be void and shall,
at the option of the Landlord, constitute a default under the terms hereunder,
Tenant shall pay Landlord reasonable fees, not to exceed Five hundred and no/100
Dollars ($500.00) incurred in connection with the processing of documents for
the giving of such consent.
13. HOLD HARMLESS
Tenant shall indemnify and hold harmless Landlord against and from any
and all claims arising from Tenant's use of the premises or from the conduct of
its business or from any activity, work, or other things done, permitted, or
suffered by the Tenant in our about the Premises, and shall further indemnify
and hold harmless Landlord against and from any and all claims arising from any
breach or default in the performance of any obligation on Tenant's part to be
performed under the terms of this lease or arising from any act or negligence of
the Tenant or any officer, agent, employee, guest, or invites of Tenant, and
from all costs, attorney's fees, and liabilities incurred to defend against any
such claim or any action or proceeding brought thereon; and if any action or
proceeding shall be threatened or brought against landlord by reason of such
claim Tenant upon notice from Landlord shall defend the same at Tenant's expense
by Tenants legal counsel reasonably satisfactory to Landlord. Tenant, as a
material part of the consideration to Landlord, hereby assumes all risk of
damage to property or injury to persons in, upon, or about the Premises, from
any cause other than Landlord's negligence; and Tenant hereby waives all claims
in respect thereof against Landlord. Tenant shall give prompt notice to Landlord
in case of casualty or accidents in the Premises. Landlord or its agents shall
not be liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water, or rain which may
leak from any part of the building or from the pipes, appliance, or plumbing
works therein or from the roof, street, or subsurface or from any other place
resulting from dampness or any other cause whatsoever, unless caused by or due
to the negligence of Landlord, its agents, servants, or
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employees. Landlord or its agents shall not be liable for interference with the
light or air, or for any latent defect in the Premises.
14. HAZARDOUS SUBSTANCES
The Term "hazardous substances" as used in this lease shall include,
without limitation, flammable, explosives, radioactive materials, asbestos,
polychlorinated biphenyls (PCB's), chemicals known to cause cancer or to
reproductive toxicity, pollutants, contaminants, hazardous waste, toxic
substances or related materials, petroleum and petroleum products, and
substances declared to be hazardous or toxic under any laws or relation now or
hereafter enacted or promulgated by any governmental authority.
14.1. Tenant shall not cause or permit to occur:
(a) Any violation of any federal, state, or local law, ordinance, or
regulation now or hereafter enacted, related to environmental conditions, on,
under, or about the Premises, or arising from Tenant's use or occupancy of the
Premises, including, but not limited to soil and ground water conditions; or
(b) The use, generation, release, manufacture, refining, production,
processing, storage, or disposal of any Hazardous Substance on, under, or about
the Premises, or the transportation to or from the Premises of any Hazardous
Substance, except in the ordinary course of business and in strict compliance
with all applicable environmental laws.
14.2. Tenant shall, at Tenant's own expense, comply with all laws
regulating the use, generation, storage, transportation, or disposal of
Hazardous Substances ("Laws").
(a) Tenant shall, at Tenant's own expense, make all submissions to,
provide all information required by, and comply with all requirements of all
governmental authorities (the "Authorities") under the Laws.
(b) Should any Authority or any third party demand that a cleanup plan
be prepared and that a clean-up be undertaken because of any deposit, spill,
discharge, or other release of Hazardous Substances that occurs during the term
of this Lease, at or from the Premises, or which arises at any time from
Tenant's use or occupancy of the Premises, then Tenant shall, at Tenant's own
expense, prepare and submit the required plans and all related bonds and other
financial assurances; and Tenant shall carry out all such clean-up plans.
(c) Tenant shall promptly provide all information regarding the use,
generation, storage, transportation or disposal of Hazardous Substances that is
requested by Landlord. If Tenant fails to fulfill any duty imposed under this
Paragraph within a reasonable time,
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Landlord may do so; and in such case, Tenant shall cooperate with Landlord in
order to prepare all documents Landlord deems necessary or appropriate to
determine the applicability of the Laws to the Premises and Tenant's use
thereof, and for compliance therewith, and Tenant shall execute all documents
promptly upon Landlord's request. No such action by Landlord and no attempt made
by Landlord to mitigate damages under any law shall constitute a waiver of any
of Tenant's obligations under this paragraph.
14.3. Tenant shall indemnify, defend, and hold harmless Landlord, and
manager of the property, and their respective officers, directors,
beneficiaries, shareholders, partners, agents, and employees, from all fines,
suits, procedures, claims, and actions of every kind, and all costs associated
therewith (including attorneys' and consultants' fees) arising out of or in any
way connected with any deposit, spill, discharge, or other release of Hazardous
Substances that occurs during the term of this Lease (except as such deposits,
spills, discharges, or other releases may be caused by Landlord or Landlord's
agents, employees or contractors), at or from the Premises, or which arises at
any time from Tenant's use or occupancy of the Premises, or from Tenant's
failure to provide all information, make all submissions, and take all steps
required by all Authorities under the Laws and other environmental laws.
14.4 Tenant's obligations and liabilities under this Paragraph 14
shall survive the expiration of this Lease.
15. SUBORDINATION
As long as their respective insurers so permit, Landlord and Tenant
hereby mutually waive their respective rights of recovery against each other for
any loss insured by fire, extended coverage, and other property insurance
policies existing for the benefit of the respective parties. Each party shall
apply to their insurers to obtain said waivers. Each party shall obtain any
special endorsements, if required by their insurer, to evidence compliance with
such waiver.
16. LIABILITY INSURANCE
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 any liability arising out of the ownership, use,
occupancy, or maintenance of the Premises and all areas appurtenant thereto, and
against liability for property damage, in combined single limits of at least one
million and no/100 ($1,000,000). The limits of any such insurance shall not,
however, limit the liability of the Tenant hereunder. Tenant may provide this
insurance under a blanket policy, provided that said insurance shall have a
Landlord's protective liability endorsement attached thereto. If Tenant shall
fail to procure and maintain said insurance, Landlord may, but shall not be
required to, procure and maintain same, but at the expense of Tenant. Insurance
required hereunder shall be
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in companies acceptable to Landlord. Tenant shall deliver to Landlord, prior to
the right of entry, copies of policies of liability insurance required herein or
certificates evidencing the existence of amounts of such insurance with loss
payable clauses satisfactory to Landlord. No policy shall be cancelable or
subject to reduction of coverage without thirty (30) days prior written notice
to Landlord. All such policies shall be written as primary policies not
contributing with and not in excess of coverage which Landlord may carry. Tenant
shall be allowed to self insure for the amounts and types of insurance covered
by this paragraph.
17. UTILITIES
Tenant shall pay for all water, gas, heat, light, power, sewer
charges, garbage, telephone service, and all other services and utilities
supplied to the Premises, together with any taxes thereon. If any such services
are not separately metered to Tenant, Tenant shall pay a reasonable proportion
of such expenses to be determined by Landlord in accordance with Paragraph 6.
18. PERSONAL PROPERTY TAXES
Tenant shall pay before delinquency any and all taxes levied or
assessed and which become payable during the term hereof upon all Tenant's
leasehold improvements, equipment, furniture, fixtures, and any other personal
property located in the premises. If any or all of Tenant's leasehold
improvements, equipment, furniture, fixtures, and any other personal property
shall be assessed and taxes with the real property, Tenant shall pay to Landlord
its share of such taxes within ten (10) days after delivery to Tenant by
Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's property.
19. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the rules and
regulations that Landlord shall from time to time promulgate and/or modify. The
rules and regulations shall be binding upon the Tenant upon delivery of a copy
of them to Tenant. Landlord shall not be responsible to the Tenant for
noncompliance with any said rules and regulations by any other tenants or
occupants.
20. HOLDING OVER
If Tenant remains in possession of the Premises or any part thereof
after the expiration of the term hereof with the express written consent of
Landlord, such occupancy shall be a tenancy from month-to-month at a rental rate
in the amount of the last monthly Minimum Rent and Additional Rent which would
be payable hereunder during such period following the expiration of the term
hereof if the lease were still in
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effect. All the terms hereof not inconsistent with a month-to-month tenancy
shall apply to such tenancy.
21. ENTRY BY LANDLORD
Landlord reserves the right to enter the Premises to inspect the same,
to submit said Premises to prospective purchasers or tenants, to post notices of
non-responsibility, or to repair the Premises and any portion of the building of
which the Premises are a part that Landlord may deem necessary or desirable, and
during the last ninety (90) days of the term hereof or immediately following
notice of termination to Tenant in accordance with the terms hereof, to show the
Premises to prospective purchasers or tenant, all without abatement of rent. For
purposes of repair, Landlord may erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, always providing that the entrance to the Premises shall not be
unreasonably blocked thereby, and further providing that the business of the
Tenant shall not be interfered with unreasonably. Tenant hereby waives any claim
for damages or for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby unless due to Landlords negligence. For each of
the foregoing purposes, Landlord shall at all times have and retain a key with
which to unlock all of the doors in, upon, and about the Premises, excluding
Tenant's vaults, safes, and files, and Landlord shall have the right to use any
and all means which Landlord may deem proper to open such doors in an emergency,
in order to obtain entry to the Premises without liability to Tenant except for
any failure to exercise due care for Tenant's property. Damaged occasions by
such entry shall be repaired by landlord at Landlord's expense. Any entry to the
Premises obtained by Landlord by any means shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a detainer of,
the Premises, or an eviction of the Tenant from the Premises or any portion
thereof.
22. TENANT'S DEFAULT
The occurrence of any one or more of the following events shall
constitute a default and breach of the Lease by Tenant.
(a) The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when due, where such
failure shall continue for a period of ten days after written notice thereof by
Landlord to Tenant.
(b) The failure by Tenant to observe or perform any of the covenants,
conditions, or provisions of this lease to be observed or performed by the
Tenant, other than those set forth in Paragraph 22(b), where such failure shall
continue for a period of thirty (30) days are reasonably required for its cure,
then Tenant shall not be deemed to
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be in default if Tenant commences such cure within said thirty (30) day period
and thereafter diligently prosecutes such cure to completion.
(c) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petitioning to have Tenant adjudged bankrupt, or a petition or reorganization
or arrangement under any law relating to bankruptcy unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days; or
the appointment of a trustee or a receiver to take possession of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution, or other judicial seizure of substantially all of
Tenant's assets located as the Premises or of Tenant's interest in this lease,
where such seizure is not discharged within thirty (30) days.
23. REMEDIES IN DEFAULT
If Tenant fails to pay rent as herein required or to perform any other
covenant of this Lease, Landlord may re-enter and take possession of the
Premises and shall have all the rights of a Landlord under the Laws of the state
of Washington. Notwithstanding such retaking of possession by Landlord, Tenant
shall remain liable for the rental for the balance of the term. Upon re-entering
and taking possession of the Premises, the Landlord has several alternative
options. The Landlord may elect:
1. To terminate/cancel the Lease, in which event the unpaid rent
for the balance of the rental period if it is greater than the
present reasonable rental value of the Premises in the market
place shall be due and owing to the Landlord by the Tenant, or;
2. The Landlord may re-lease the Premises without terminating the
Lease. The Landlord has the option to re-lease all or any part
of the Premises that the Landlord is able to re-lease and which
is deemed advisable in the opinion of the Landlord to re-lease.
Upon any re-leasing of the property any and all rents received
shall be accounted to for the Tenant. The Tenant shall be
responsible for any differences between any rental amount
collected by the Landlord on re-leasing the Premises and the
rental rate of the Tenant under the Lease in determining the
amount due. The Landlord may deduct from any rental amount the
following associated expenses in releasing the Premises.
(a) Any necessary renovations and alterations of the
Premises;
(b) Reasonable attorney's fees incurred in re-leasing the
Premises;
(c) Any real estate leasing commissions paid on re-leasing
the space.
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The Tenant shall be responsible for payment to the Landlord monthly, any
deficiency between the net amount received by the Landlord for the re-lease and
the original lease amount agreed upon by the Tenant.
In the event of re-entry or taking possession of the Premises,
Landlord shall have the right but not the obligation to remove therefrom all
property located therein and may store the same in any place selected by
Landlord, including but not limited to a public warehouse at the expense and
risk of Tenant thereof with the right to sell such property without notice to
Tenant after it has been stored for a period of thirty (30) days. The proceeds
of such sale shall be applied first to the cost of sale, second to the payment
of storage charges, and third to the payment of any other sums which may then be
due to Landlord from Tenant, with any balance to be paid to Tenant.
24. DEFAULT BY LANDLORD
Landlord shall not be in default unless Landlord fails to perform
obligations required of Landlord within a reasonable time, but in no event later
than thirty (30) days after written notice by Tenant to Landlord and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address shall have theretofore been furnished to Tenant in writing,
specifying wherein Landlord has failed to perform such obligation; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion. In no event shall
Tenant have the right to terminate this Lease as a result of Landlord's default,
and Tenant's remedies shall be limited to damages and/or an injunctive relief.
25. RECONSTRUCTION
In the event the Premises are damaged by fire or other perils covered
by extended coverage insurance, Landlord agrees to forthwith repair same, and
this Lease shall remain in full force and effect, except that Tenant shall be
entitled to a proportionate reduction of the Minimum Rent from the date of
damage and while such repairs are being made, such proportionate reduction to be
based upon the square footage of the devised premises which is rendered
unsuitable for occupancy by Tenant the extent to which the damage and making of
such repairs shall interfere with the business carried on by the Tenant in the
Premises. In the event the destruction of the Premises is to an extent of ten
percent (10%) or more of the full replacement cost, then Landlord shall have the
option to (1) repair or restore such damage, this Lease continuing in full force
and effect, but the Minimum Rent to be proportionately reduced as herein above
in this Article provided; or (2) give notice to Tenant at any time within sixty
(60) days after such damage, terminating this lease as of the date specified in
such notice, which date shall be not more than thirty (30) days after the giving
of such notice. In the event of giving of such notice,
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this Lease shall expire and all interest of the Tenant in the Premises shall
terminate on the date so specified in such notice and the Minimum Rent, reduced
by a proportionate reduction, based upon the square footage of the devised
Premises which is rendered unsuitable for occupancy by Tenant. The extent, if
any, to which such damage interfered with the business carried on by the Tenant
in the Premises, shall be paid up to date of said termination.
26. EMINENT DOMAIN
If more than twenty-five percent (25%) of the Premises shall be taken
or appropriated by any public or quasi-public authority under the power of
eminent domain, either party hereto shall have the right, at his option, within
sixty (60) days after said taking, to terminate this Lease upon thirty (30) days
written notice. If any portion of the Project other than the Premises may be so
taken or appropriated, Landlord shall within sixty (60) days of said taking have
the right at its option to terminate this lease upon written notice to Tenant.
In the event of any taking or appropriation whatsoever, Landlord shall be
entitled to any and all awards and/or settlements which may be given, other than
any amount specifically allocated to the value of Tenant's leasehold interest.
27. PARKING AND COMMON AREAS
Prior to the date of Tenant's opening for business in the Premises,
Landlord shall cause said common and parking area or areas to be graded,
surfaced, marked, and landscaped at no expense to the Tenant.
(a) The Landlord shall keep said automobile parking and common areas
in a neat, clean, and orderly condition, and shall repair any damage to the
facilities thereof, but all expenses in connection with said automobile parking
and common areas shall be charged and prorated in the manner as set forth in
Paragraph 6 hereof.
(b) Tenant, for the use and benefit of Tenant, its agents, employees,
customers, licensees and subtenants, shall have the exclusive use of 62 parking
spaces, and the exclusive use of an additional 37 parking spaces upon its
occupancy of Suites M and N as described in Paragraph 1(b)(1) and 1(b)(2) above,
with the location of said 99 parking spaces being highlighted in yellow on
Exhibit "C" attached hereto and incorporated herein, during the entire term of
this Lease or any extension thereof, for ingress and egress, and automobile
parking. In addition, as Tenant adds Paragraph (1)(b)(3) Expansion Space
pursuant to the terms of this Lease, additional exclusive parking shall be
granted to Tenant according to Schedule "1" attached to Exhibit "C" and
incorporated herein.
(c) The Tenant, in the use of said common and parking areas, agrees to
comply with such reasonable rules, and regulations, and charges for parking as
the Landlord may
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adopt from time to time for the orderly and proper operation of said common and
parking areas. Such rules may include but shall not be limited to the following:
(1) the restricting of employee parking to a limited, designated area or areas;
and (2) the regulation of the removal, storage, and disposal of Tenant's refuse
and other rubbish at the sole cost and expense of Tenant, or as provided in
Paragraph 6. Landlord shall not be responsible to the Tenant for noncompliance
with any said rules and regulations by any other tenants or occupants.
28. SIGNS
The Tenant may affix to the Premises only such signs, advertising
placards, names insignia, trademarks, and descriptive material as shall have
first received the written approval of the Landlord as to type, size, color,
location, copy nature, and display qualities. Anything to the contrary in the
lease notwithstanding, Tenant shall not affix any sign to the roof. Tenant may,
however, erect one sign on the front of the premises not later than the date
Tenant opens for business, in accordance with a design to be prepared by the
Tenant and approved in writing by the Landlord. Consent of Landlord shall not be
unreasonably withheld.
29. DISPLAYS
The Tenant may not display or sell merchandise within the control of
Tenant outside the defined exterior walls and permanent doorways of the
Premises. Tenant further agrees not to install any exterior lighting,
amplifiers, or similar devices or use in or about the premises an advertising
medium which may be heard or seen outside the Premises, such as flashing lights,
searchlights, loudspeakers, phonographs, or radio broadcasts.
30. AUCTIONS
Tenant shall not conduct or permit to be conducted any sale by auction
in, upon, or from the Premises whether said auction be voluntary, involuntary,
pursuant to any assignment for the payment or creditors, or pursuant to any
bankruptcy or other inclemency proceeding.
31. GENERAL PROVISIONS
(a) Plats and Riders. Exhibits, clauses, plats, riders, and addenda,
if any, affixed to this Lease are a part hereof, and specifically incorporated
by this reference as if fully set forth herein.
(b) Waiver. The waiver by Landlord 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.
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The subsequent acceptance of rent hereunder by Landlord shall not be deemed to
be a waiver of any preceding default by Tenant of any term, covenant, or
condition of this Lease, other than the failure of the Tenant to pay the
particular rental so accepted, regardless of Landlord's knowledge of such
preceding default at the time of the acceptance of such rent.
(c) Joint Obligation. If there be more than one Tenant, the
obligations hereunder imposed shall be joint and several.
(d) Marginal Headings. The marginal headings and article titles to the
articles of this Lease are not a part of the Lease and shall have no effect upon
the construction or interpretation of any part hereof.
(e) Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(f) Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators, and assigns of the parties hereto.
(g) Recordation. Neither Landlord nor Tenant shall record this Lease,
but a short-form memorandum hereof may be recorded at the request of Landlord or
Tenant.
(h) Quiet Possession. Upon Tenant paying the rent reserved hereunder
and observing and performing all of the covenants, conditions, and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
(i) Late Charge. Tenant hereby acknowledges that late payment by
Tenant to Landlord of rent or 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 upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any sum due from Tenant shall not be
received by Landlord or Landlord's designed within ten (10) days after that said
amount is past due, the Tenant shall pay to Landlord a late charge equal to the
maximum amount permitted by law (and in absence of any governing law, ten
percent (10%) of such overdue amount), plus any attorney's fees incurred by
Landlord by reason of Tenant's failure to apply rent and/or other charges when
due hereunder. The parties hereby agree that such late charges represent a fair
and reasonable estimate of the cost that landlord will incur by reason of the
late payment by Tenant. Acceptance of such late charges by the Landlord shall in
no event constitute a waiver of Tenant's default with
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respect to such overdue amount, nor prevent Landlord from exercising any of the
other rights and remedies granted hereunder.
(j) Prior Agreements. This Lease contains all of the agreement of the
parties hereto with respect to any matter covered or mentioned in this lease,
and no prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this lease may be amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This interest shall not be effective or
binding on any party until fully executed by both parties hereto.
(k) Inability to Perform. This Lease and the obligations of the Tenant
hereunder shall not be affected or impaired because the Landlord is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, acts of God,
or any other cause beyond the reasonable control of the Landlord.
(l) Partial Invalidity. Any provision of this Lease which shall prove
to be invalid, void, or illegal shall in no way affect, impair, or invalidate an
other provision hereof and such other provision shall remain in full force and
effect.
(m) Cumulative Remedies. No remedy hereunder shall be deemed exclusive
but shall, wherever possible, be cumulative with all other remedies at law or in
equity.
(n) Choice of Law. This Lease shall be governed by the laws of the
State of Washington. Venue for any action hereunder may be properly laid in King
County.
(o) Attorney's Fees. In the event of any action or proceeding brought
by either party against the other under this Lease, the prevailing party shall
be entitled to recover for the fees of its attorneys in such action or
proceeding, including costs of appeal, if any, in such amount as the court may
adjudge reasonable as attorney's fees. In addition, should it be necessary for
Landlord to employ legal counsel to enforce any of the provisions herein
contained, Tenant agrees to pay all attorney's fees and court costs reasonably
incurred.
(p) Sale of Premises by Landlord. In the event of any sale of the
Premises by Landlord, Landlord shall be and is hereby entirely freed and
relieved of all liability under any and all of its covenants and obligations
contained in or derived from this Lease arising out of any act, occurrence, or
omission occurring after the consummation of such sale; and the purchaser, at
such sale or any subsequent sale of the Premises, shall be deemed, without any
further agreement between the parties or their successors in interest or between
the parties and any such purchaser, to have assumed and agreed to carry out any
and all of the covenants and obligations of the Landlord hereunder.
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(q) Subordination, Attornment. Upon request of the Landlord, Tenant
will in writing subordinate its rights hereunder to the lien of any mortgage or
deed of trust, to any bank, insurance company, or other lending institution, now
or hereafter in force against the Premises, and do all advances made or
hereafter to be made upon the security thereof. In the event any proceedings are
brought for foreclosure, or in the event of the exercise of the power of sale
under any mortgage or deed of trust made by the Landlord covering the premises,
the Tenant shall attorn to the purchaser upon any such foreclosure or sale and
recognize such purchaser as the Landlord under this Lease. The provisions of
this paragraph to the contrary notwithstanding, and so long as Tenant is not in
default hereunder, this Lease shall remain in full force and effect for the full
term hereof.
(r) Notices. All notices and demands which are required or permitted
to be given by either party on the other hereunder shall be in writing. All
notices and demands by the Landlord to the Tenant shall be sent by United States
Mail, postage prepaid, addressed to the Tenant at the address set forth herein,
or to such other place as Tenant may from time to time designate in a notice to
the Landlord. All notices and demands by the Tenant to the Landlord shall be
sent by United States Mail, postage prepaid, addressed to the Landlord at the
address set forth herein, and to such other person or place as the Landlord may
from time to time designate in a notice to the Tenant.
To Landlord at: KAMBER PARK ASSOCIATES
c/o The REIS Group
13221 SE 26th Street, Suite M
Bellevue, WA 98005
To Tenant at: OPTIVA CORPORATION
13222 SE 30th Street
Bellevue, WA 98005
(s) Tenant's Statement. Tenant shall at any time and from time to
time, upon not less than seven (7) days prior written notice from Landlord,
execute, acknowledge, and deliver to Landlord a statement in writing (1)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modifications and certifying that this
Lease as so modified is in full force and effect), and the date to which the
rental 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 the
Landlord hereunder, or specifying such defaults if any are claimed; and (3)
setting forth the date of commencement of rents and expiration of the term
hereof. Any such statement may be relied upon by the prospective purchaser or
encumbrancer of all or any portion of the real property of which the Premises
are a part.
(t) Authority of Tenant. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized
DB DG
- -------- ------
LANDLORD TENANT
-22-
<PAGE> 23
CONFIDENTIAL
to execute and deliver this Lease on behalf of said corporation, in accordance
with the bylaws of said corporation, and that this Lease is binding upon said
corporation and Tenant shall provide Landlord with a Certified Corporate
Resolution authorizing Tenant to enter into this Lease. The parties hereto
acknowledge and agree that they have each been represented in the negotiations
and preparation of this Lease by independent counsel of their choice, and that
they have read this Lease, have had its contents fully explained to them by such
counsel, and are aware of the contents hereof and of its legal effect. No
representation or recommendation is made by the Landlord, real estate broker, or
its agents or employees. In the event it should be determined that any provision
of this Agreement is uncertain or ambiguous, the language in all parts of this
Agreement shall be in all cases construed as a whole according to its fair
meaning and not strictly construed for nor against any party.
(u) Unavoidable Circumstances. No party hereto shall be deemed to be
in breach or in violation of this Agreement if the party is prevented from
performing any of its obligations hereunder for any reason beyond its reasonable
control including and without limitation acts of God, riots, strikes, fires,
storms, public disturbances, or any regulation of any federal, state or local
government or any agency thereof. Without limiting the generality of the
foregoing, Landlord shall not be liable if any such unavoidable circumstances
prevent it from delivering Expansion Space to Tenant in a timely manner.
32. BROKERS
Tenant warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiation of this lease excepting only
The REIS Group, Inc., Property Investments Incorporated and Business Space
Resources Ltd.; it knows of no other real estate broker or agent who is entitled
to a commission in connection with this lease.
33. ARBITRATION OF ALL CONTROVERSIES AMERICAN ARBITRATION ASSOCIATION
Any disagreements between the parties with respect to the
interpretation or application of the lease or the obligations of the parties
hereunder may be determined by arbitration. Such arbitration may be conducted
only upon the request of the Landlord and the Tenant before one arbitrator
designated by the American Arbitration Association and in accordance with the
rules of such Association. The arbitrator designated and acting under this Lease
shall make his award in strict conformity with such rules and provisions
thereof. The expenses of arbitration together with reasonable attorneys' fees
and costs incurred shall be the responsibility of the losing party, all as
determined by the arbitrator and notwithstanding any contrary provisions in the
rules of the American Arbitration
DB DG
- -------- ------
LANDLORD TENANT
-23-
<PAGE> 24
CONFIDENTIAL
Association. All arbitration proceedings shall be conducted in the City of
Seattle, or any other location designated at the sole option of the Landlord.
34. FAIR RENTAL VALUE.
Whenever the provisions of this Lease require a determination of the
fair rental value of a Suite in the Project, said fair rental value shall be
determined in accordance with the procedure set forth in this Section 34.
As used in this Lease, the "fair rental value" shall mean the annual
rate of base monthly rent per rentable square foot being quoted by owners to
prospective tenants of comparable status and financial condition and comparable
use or, to the extent applicable, to existing tenants, at such point in time
(i) for space in the Project and for space in other
office/warehouse buildings in the same general area that
are comparable to the Project in age, class and quality,
which space in comparable in size, location and
configuration with respect to which such rate is to
apply; and
(ii) for a lease term of substantially the same duration and
commencement date as the term for the applicable Suite.
The parties shall have thirty (30) days after a Triggering Event in
which to agree on the fair rental value of the applicable Suite. If Landlord and
Tenant are unable to agree on the fair rental value for the applicable Suite by
that time, then the fair rental value shall be arbitrated in the following
manner: Landlord and Tenant shall each, within five (5) days thereafter, select
an arbitrator who shall be a disinterested person with reasonable knowledge and
experience relative to the subject to be arbitrated. The two arbitrators thus
selected shall immediately thereafter select a third arbitrator who shall
likewise be a disinterested person having reasonable knowledge and experience
relative to the subject to be arbitrated. The three arbitrators so chosen shall
meet promptly after the appointment of the third arbitrator and shall act as a
committee to determine the fair rental value of the affected premises, subject
to the definition of "fair rental value" set forth above and the limitations set
forth below. The expenses of the individual arbitrators shall be borne by the
appointing parties, and the expense of the third arbitrator shall be borne
equally by Landlord and Tenant. In no event shall the fair rental value of a
Suite as determined by negotiation between Landlord and Tenant or as determined
by arbitration be less than the then current monthly rental for that particular
Suite as set forth in Section 3(b) above.
35. CONSTRUCTION OF LEASE.
This Lease is intended to supersede and replace the Lease between
Landlord and Tenant dated February 17, 1995, except with respect to the lease of
the Current Premises
DB DG
- -------- ------
LANDLORD TENANT
-24-
<PAGE> 25
CONFIDENTIAL
until the effective date of this Lease. Without limiting the generality of the
foregoing, Landlord shall have no obligation to provide tenant improvements to
Tenant for the Current Premises or Expansion Space.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
duly executed as of the date and year first above written.
DB DG
- -------- ------
LANDLORD TENANT
-25-
<PAGE> 26
CONFIDENTIAL
LANDLORD: TENANT:
KAMBER PARK ASSOCIATES OPTIVA CORPORATION
By: /s/ David K. Bromel By: /s/ David Giuliani
------------------------------ ------------------------------
Its: General Partner Its: President/CEO
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that DAVID K.
BROMEL is the person who appeared before me, and that person acknowledged
signing this instrument, on oath stated his authority to execute the instrument
and acknowledged it as the authorized agent of the party on behalf of KAMBER
PARK ASSOCIATES to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument.
SUBSCRIBED and SWORN to before me this 16th day of May, 1995.
/s/ Candace Bustanoby
-----------------------------------
(printed name): Candace Bustanoby
NOTARY PUBLIC in and for the State
of Washington, residing at Bellevue
My Commission expires: 3-4-97
[Seal]
DB DG
- -------- ------
LANDLORD TENANT
-26-
<PAGE> 27
CONFIDENTIAL
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that DAVID
GIULIANI is the person who appeared before me, and that person acknowledged
signing this instrument, on oath stated his authority to execute the instrument
and acknowledged it as the authorized agent of OPTIVA CORPORATION to be the free
and voluntary act of such party for the uses and purposes mentioned in the
instrument.
SUBSCRIBED and SWORN to before me this 15th day of May, 1995.
/s/ DEBBIE J. MCGILLIVRAY
-----------------------------------
(printed name):
NOTARY PUBLIC in and for the State
of Washington, residing at Kirkland
My Commission expires:
[Seal]
DB DG
- -------- ------
LANDLORD TENANT
-27-
<PAGE> 28
CONFIDENTIAL
OPTIVA RENT AT KAMBER PARK
5/2/95
<TABLE>
<CAPTION>
Sq. Ft. Rate/ Sq. Ft. Rate/ Rate for Total Date
Suite Sq. Ft. Office sq ft/mo Warehouse sq ft/mo the Suite Rent/mo. Rent/mo. Effective
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
K&L 11,032 6,046 $1.00 4,986 $0.50 $8,539.00 $8,539.00 Mar-95
D 13,892 1,910 11,982 $0.54 7,501.68 $16,040.68 Jun-95
M 6,940 940 $1.00 6,000 $0.50 3,940.00 $19,980.68 est Aug-95
D Rate Increase $0.55 7,640.60 $20,119.60 Aug-95
N 7,872 1,390 $1.00 6,482 $.050 4,631.00 $24,750.60 Nov-95
D Rate increase $0.56 7,779.52 $24,889.52 Aug-96
M&N Rate increase $1.03 $0.515 8,828.13 $25,146.65 Nov-96
D, K & L Rate increase $1.03 $0.515 16,933.20 $25,761.33 Aug-97
M&N Rate increase $1.06 $0.53 9,085.26 $26,018.46 Nov-97
D, K & L Rate increase $1.06 $.053 17,426.40 $26,511.66 Aug-98
M&N Rate increase $1.09 $0.545 9,342.39 $26,768.79 Nov-98
D, K & L Rate increase $1.09 $0.545 17,919.60 $27,261.99 Aug-99
M&N Rate increase $1.12 $0.56 9,599.52 $27,519.12 Nov-99
</TABLE>
Note: The rents shown are the minimum rents per the lease.
<PAGE> 29
CONFIDENTIAL
OPTIVA RENT AT KAMBER PARK
5/2/95
<TABLE>
<CAPTION>
Sq. Ft. Rate/ Sq. Ft. Rate/ Rate for Total Date
Suite Sq. Ft. Office sq ft/mo Warehouse sq ft/mo the Suite Rent/mo. Rent/mo. Effective
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
K&L 11,032 6,046 $1.00 4,986 $0.50 $8,539.00 $8,539.00 Mar-95
D 13,892 1,910 11,982 $0.54 7,501.68 $16,040.68 Jun-95
M 6,940 940 $1.00 6,000 $0.50 3,940.00 $19,980.68 est Aug-95
D Rate Increase $0.55 7,640.60 $20,119.60 Aug-95
N 7,872 1,390 $1.00 6,482 $.050 4,631.00 $24,750.60 Nov-95
D Rate increase $0.56 7,779.52 $24,889.52 Aug-96
M&N Rate increase $1.03 $0.515 8,828.13 $25,146.65 Nov-96
D, K & L Rate increase $1.03 $0.515 16,933.20 $25,761.33 Aug-97
M&N Rate increase $1.06 $0.53 9,085.26 $26,018.46 Nov-97
D, K & L Rate increase $1.06 $.053 17,426.40 $26,511.66 Aug-98
M&N Rate increase $1.09 $0.545 9,342.39 $26,768.79 Nov-98
D, K & L Rate increase $1.09 $0.545 17,919.60 $27,261.99 Aug-99
M&N Rate increase $1.12 $0.56 9,599.52 $27,519.12 Nov-99
</TABLE>
Note: The rents shown are the minimum rents per the lease
<PAGE> 30
CONFIDENTIAL
May 12, 1995
Ms. Jan Wanzer
Gymnastics East, Inc.
12730 Possession Lane
Edmonds, WA 98020
Dear Ms. Wanzer,
Optiva Corp. appreciates you cooperation in helping provide
additional expansions space. Pursuant to our agreement and your amended lease
with Kamber Park Associates I am enclosing an $8,000 check to help defray
certain costs for Gymnastics East to move into Suite C. Optiva will provide an
additional $8,000 upon Gymnastics East occupying Suite C.
Please acknowledge by signing in the space provided below, returning
the original to me in the enclosed envelope.
Sincerely,
/s/
Michael D. Stull
Finance Director
Acknowledged by:
/s/ JAN M. WANZER
- -----------------------------------
Ms. Jan Wanzer
Gymnastics East, Inc.
cc: Dave Bromel
Paul Suzman
-36-
<PAGE> 31
CONFIDENTIAL
AMENDMENT TO LEASE
This is an amendment to that certain Lease (the "Lease") dated
February 11, 1993, by and between Kamber Park Associates, Landlord, and
Gymnastics East, Inc., Tenant.
Landlord hereby gives its consent to Tenant, and Tenant hereby agrees,
to move from Tenant's current location at Kamber Park, Suite M, to Suite C. Said
move shall occur upon the vacation of Suite C by its current occupant, US West.
As soon as practicable following mutual execution of this Amendment, Landlord
shall give US West the requisite ninety (90) day written notice to vacate Suite
C. Tenant's occupancy of Suite C shall commence immediately upon vacation by US
West. Landlord shall not be liable should US West fail to vacate Suite C in a
timely manner.
Tenant's new Premises (Suite C) shall encompass an area, including
warehouse and some office space, totaling approximately 8,620 square feet. Based
on rates of $.50/square foot for warehouse space, and $1.00/square foot for
office space, the monthly NNN rent payable through the balance of Tenant's term
will be $5,405.00. Rent shall be paid at these amounts regardless of the actual
square footage of the new or current Premises.
Optiva Corporation, by virtue of a separate agreement with Landlord,
has agreed to contribute $1,000.00 per month of Tenant's rent, through direct
payments to Landlord. Tenant's net monthly rent will therefore be $4,505.00. In
consideration of certain expenses associated with Tenant's move to Suite C,
Optiva Corporation has also agreed to pay directly to Tenant the amount of
$8,000.00 payable on mutual execution and acknowledgment of this Amendment, and
an additional $8,000.00 when Tenant takes occupancy of Suite C. Except as set
forth in this paragraph, the move described herein shall be at Tenant's cost and
expense.
Tenant, for the use and benefit of Tenant, its agents, employees,
customers, licensees and subtenants, shall have the exclusive use of sixteen
(16) parking spaces, with the location of said parking spaces being highlighted
in yellow on Exhibit "A" attached hereto and incorporated herein, during the
entire term of this Lease or any extension thereof, for ingress and egress, and
for automobile parking.
Tenant is hereby given the option to terminate the Lease at any time
during the term thereof upon sixty (60) days' prior written notice to Landlord.
-1-
<PAGE> 32
CONFIDENTIAL
ALL OTHER TERMS AND CONDITIONS OF THE ORIGINAL LEASE SHALL REMAIN IN
FULL FORCE AND EFFECT.
LANDLORD: TENANT:
KAMBER PARK ASSOCIATES GYMNASTICS EAST, INC.
/s/ DAVID K. BROMEL /s/ JAN WANZER
- ---------------------------- ----------------------------
By: David Bromel By: Jan Wanzer
Date: 5/16/95 Date: 5/18/95
----------------------- -----------------------
-2-
<PAGE> 1
LEASE AGREEMENT
1. Parties. This Lease, dated for reference purposes only, July
28, 1995 is made by and between S.E. 30th Company, a Joint Venture (herein
called "Landlord"), and Optiva Corporation, a Washington Corporation [herein
called "Tenant").
2. Premises. Landlord hereby leases to Tenant and Tenant leases from
Landlord for the term, at the rental, and upon all of the conditions set forth
herein, that certain real property situated in the City of Bellevue, County of
King, State of Washington, commonly known as 29,380 square feet of office and
warehouse space located at 13312 S.E. 30th Street, Bellevue, Washington and
described as see Legal Description attached as Exhibit "A". Said real property,
including the land and all improvements thereon, is herein called the
"Premises". A map showing the Premises outlined in red is attached hereto as
Exhibit "B" and is by this reference made a part hereof.
3. Term.
3.1 Term. The term of this Lease shall be for sixty (60)
months commencing on November 1, 1995 and ending on October 31, 2000 unless
sooner terminated pursuant to any provisions hereof.
3.2 Delay in Commencement. Notwithstanding said 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 therefore,
nor shall such failure affect the validity of this Lease or the obligations of
Tenant hereunder or extend the term hereof, but in such case Tenant shall not be
obligated to pay rent until possession of the Premises is tendered to Tenant. If
the actual term commencement date be a date other than the scheduled term
commencement date, all dates set forth in this Lease Agreement shall be adjusted
accordingly. However, if Landlord shall not have delivered possession of the
Premises within ninety (90) days from said commencement date, Tenant may, at
Tenant's option, by notice in writing to Landlord within ten (10) days
thereafter, cancel this lease. If either party cancels as herein provided,
Landlord shall return any money previously deposited by Tenant and the parties
shall be discharged from all obligations hereunder.
3.3 Early Possession. In the event that Landlord shall permit
Tenant to occupy the Premises prior to the commencement date of the term, such
occupancy shall be subject to all of the provisions of this Lease. Said early
possession shall not advance the termination date of this Lease.
3.4 Delivery of Possession. Tenant shall be deemed to have
taken possession of the Premises when the Premises has been vacated by the
current tenant.
4. Rent. Tenant shall, without notice or demand, pay to Landlord
as rent for the Premises equal monthly installments of Sixteen Thousand & No/100
Dollars ($16,000.00) for the period November 1, 1995 through October 31, 1998,
increasing to Seventeen Thousand & No/100 Dollars ($17,000.00) for the period
November 1, 1998 through October 31, 2000, in advance, on the first day of each
month of the term hereof. Tenant shall pay Landlord prior to occupancy the sum
of Sixteen Thousand & No/100 Dollars ($16.000.00) representing the first month's
rent. Rent for any period during the term hereof which is for less than one (1)
month shall be a pro rata portion of the monthly installment. Rent shall be
payable without notice or demand and without any deduction, offset, or
abatement, in lawful money of the United States of America to Landlord at the
address stated herein or to such other persons or at such places as Landlord may
designate in writing.
5. Security Deposit. Tenant shall deposit with Landlord upon
execution hereof the sum of Seventeen Thousand & No/100 Dollars ($17,000.00) as
security for Tenant's faithful performance of Tenant's obligations hereunder. If
Tenant fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Landlord may use, apply or retain
all or any portion of said deposit for the payment of any rent
<PAGE> 2
or other charge in default or for the payment of any other sum to which Landlord
may become obligated by reason of Tenant's default, or to compensate Landlord
for any loss or damage which Landlord may suffer thereby. If Landlord so uses or
applies all or any portion of said deposit, Tenant shall within ten (10) days
after written demand therefore deposit cash with Landlord in an amount
sufficient to restore said deposit to the full amount hereinabove stated, and
Tenant's failure to do so shall be a breach of this Lease and Landlord may at
its option terminate this Lease. Landlord shall not be required to keep said
deposit separate from its general accounts. If Tenant performs all of Tenant's
obligations hereunder, said deposit or so much thereof as has not theretofore
been applied to Landlord, shall be returned, without payment of interest or
other increment for its use, to Tenant (or, at Landlord's option, to the last
assignee, if any, of Tenant's interest hereunder) within fifteen (15) days after
the expiration of the term hereof, or after Tenant has vacated the Premises,
whichever is later.
6. Use.
6.1 Use. The Premises shall be used and occupied only for
office administration, research and development, production, warehousing of
non-durable goods and for no other purpose without prior written consent of
Landlord, which consent may be withheld or conditioned as Landlord may deem
appropriate within the exercise of its sole discretion.
6.2 CompIiance with Law. Tenant shall, at Tenant's expense,
comply promptly with all laws, rules, orders, ordinances, directions,
regulations, and requirements of federal, state, county and municipal
authorities, including without limitation, those relating to persons with
disabilities (ADA) now in force or which may hereafter be in force, which shall
impose any duty upon Landlord or Tenant with respect to the use, occupation or
alteration of the Premises. Tenant shall not use or permit the use of the
Premises in any manner that will tend to create waste or a nuisance, or, if
there shall be more than one tenant of the building containing the Premises,
which shall tend to unreasonably disturb such other tenants.
6.3 Condition of Premises. Tenant hereby accepts the Premises
in their condition existing as of the date of the possession hereunder, subject
to all applicable zoning, municipal, county and state laws, ordinances and
regulations governing and regulating the use of the Premises, and accepts this
Lease subject thereto and to all matters disclosed thereby and by any exhibits
attached hereto. Tenant acknowledges that neither Landlord nor Landlord's agent
has made any representation or warranty as to the suitability of the Premises
for the conduct of Tenant's business.
6.4 Insurance Cancellation. Notwithstanding the provisions of
Article 6.1 hereinabove, no use shall be made or permitted to be made of the
Premises nor acts done which will cause the cancellation of any insurance policy
covering said Premises or any building of which the Premises may be a part, and
if Tenant's use of the Premises causes an increase in said insurance rates,
Tenant shall pay any such increase.
7. Maintenance, Repairs and Alterations.
7.1 Landlord's Obligations. Subject to the provisions of
Article 9, and except for damage caused by any negligent or intentional act or
omission of Tenant, Tenant's agents, employees, or invitees, Landlord, at
Landlord's expense, shall keep in good order, condition and repair the
foundations and exterior walls of the Premises. Landlord shall not however, be
obligated to paint such exterior, nor shall Landlord be required to maintain the
interior surface of exterior walls, windows, doors or plate glass. Landlord
shall have no obligations to make repairs under this Article 7.1 until a
reasonable time after receipt of written notice of the need for such repairs.
Tenant expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford Tenant the right to make repairs at Landlord's
expense or to terminate this Lease because of Landlord's failure to keep the
Premises in good order, condition and repair.
-2-
<PAGE> 3
7.2 Tenant's Obligations. Subject to the provisions of Article
7.1 and Article 9. Tenant, at Tenant's expense, shall keep in good order,
condition and repair the Premises and every part thereof (regardless of whether
the damaged portion of the Premises or the means of repairing the same are
accessible to Tenant) including, without limiting the generality of the
foregoing, all plumbing, heating, air conditioning, ventilating, electrical and
lighting facilities and equipment, fixtures, interior walls, ceilings, roof,
windows, doors, plate glass, and skylights, tenant identification signs and
fences surrounding the Premises including but not limited to damage due to
break-ins, theft or vandalism. If the Premises include a fire sprinkler system
Tenant shall be responsible for all repairs and maintenance including performing
an annual inspection of said system and providing Landlord with a copy of the
inspection report. If the system is monitored by a central monitoring station
Tenant shall be responsible for all costs. Roof repairs up to $5,000 per year
shall be at the expense of Tenant while costs exceeding $5,000 shall be mutually
agreed upon and borne by the Landlord. During the term of this Lease, Tenant
shall contract for preventative maintenance and a minimum of four (4) filter
changes per year on the heating, ventilating and air conditioning (HVAC)
systems. Annually Tenant shall provide Landlord with evidence that a maintenance
contract exists. Tenant shall be directly responsible for any repairs to the
HVAC System serving the Premises. Tenant is responsible for maintenance
(including periodic cleaning) of the catch basins serving the parking lot areas.
Tenant shall reimburse Landlord for all damage done to the Premises, normal wear
and tear excepted, occasioned by any act or omission of Tenant or Tenant's
officers, contractors, agents, invitees, licensees, or employees, including, but
not limited to, cracking or breaking of glass.
7.3 Surrender. On the last day of the term hereof, or on any
sooner termination, Tenant shall surrender the Premises to Landlord in good
condition, broom clean, ordinary wear and tear and damage by an insured peril
excepted. Tenant shall repair any damage to the Premises occasioned by its use
thereof, or by the removal of Tenant's trade fixtures, signs, furnishings and
equipment pursuant to Article 7.5, which repair shall include the patching and
filling of holes and repair of structural damage.
7.4 Landlord's Rights. If Tenant fails to perform Tenant's
obligations under this Article 7, Landlord may, at its option (but shall not be
required to) enter upon the Premises, after ten (10) days prior written notice
to Tenant or with no prior written notice if an emergency, and put the same in
good order, condition and repair, and the cost thereof together with interest
thereon at the rate of sixteen percent (16%) per annum, shall become due and
payable as additional rent to Landlord together with Tenant's next rental
installment.
7.5 Alterations and Additions.
(a) Tenant shall not, without Landlord's prior
written consent, make any alterations, improvements, or additions in, on, or
about the Premises, except for non structural alterations not exceeding Five
Thousand Dollars ($5,000) in cost. As a condition to giving such consent,
Landlord may require that Tenant remove any such alterations, improvements,
additions or utility installations at the expiration of the term, and to restore
the Premises to their prior condition.
(b) Before commencing any work relating to
alterations, additions and improvements affecting the Premises (none of which
are required or requested by Landlord, nor any obligation of Tenant under this
Lease), Tenant shall notify Landlord in writing of the expected date of
commencement thereof. Landlord shall then have the right at any time and from
time to time to post and maintain on the Premises such notices as Landlord
reasonably deems necessary to protect the Premises and Landlord from mechanic's
liens, materialmen's liens, or any other liens. In any event, Tenant shall pay,
when due, all claims for labor or materials furnished to or for Tenant or for
use in the Premises. Tenant shall not permit any mechanic's or materialmen's
liens to be levied against the Premises for any labor or material furnished to
Tenant or claimed to have been furnished to Tenant or to Tenant's agents or
contractors in connection with work of any character performed or claimed to
have been performed on the Premises by or at the direction of Tenant.
(c) Unless Landlord requires their removal, as
set forth in Article 7.5(a), all alterations, improvements, or additions which
may be made on the Premises shall become the property of Landlord and
-3-
<PAGE> 4
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this Article 7.5(c). Tenant's machinery,
equipment and trade fixtures, other than that which is affixed to the Premises
so that it cannot be removed without material damage to the Premises, shall
remain the property of Tenant and may be removed by Tenant subject to the
provisions of Article 7.3.
8. Insurance Indemnity.
8.1 Insuring Party. With reference to insurance described in
Articles 8.2 and 8.3 the term "insuring party" shall mean the Tenant and
Landlord respectively. Tenant shall reimburse Landlord for the cost of the
insurance stated in Article 8.3, as additional rent, upon fifteen (15) days
advance written notice.
8.2 Liability Insurance. Tenant shall, at its sole expense,
obtain and keep in force during the term of this Lease a policy of comprehensive
public liability insurance insuring Landlord and Tenant against all liability
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be in an amount of not less
than One Million Dollars ($1,000,000) for injury or death of any person in any
one accident or occurrence. Such insurance shall further insure Landlord and
Tenant against liability for property damage of at least Five Hundred Thousand
Dollars ($500,000). The limits of said insurance shall not, however, limit the
liability of Tenant hereunder. In the event that the Premises constitute a part
of a larger property said insurance shall have a Landlord's Protective Liability
endorsement attached thereto. If Tenant shall fail to procure and maintain said
insurance Landlord may, but shall not be required to, procure and maintain the
same, but at the expense of Tenant.
8.3 Property Insurance. The 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, in the amount of the full replacement value
thereof, or as required by any lender, providing protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk to included earthquake and
flood) and sprinkler leakage. Said policy may include a deductible, the cost of
said deductible shall be borne in accordance with Articles 7.1 and 7.2. In
addition thereto, the Landlord shall maintain (i) full coverage plate glass
insurance on the Premises, (ii) air conditioning equipment, and other pressure
vessels systems located in, on, or about the Premises with limits of not less
than One Hundred Thousand Dollars ($100,000) per occurrence and (iii) rent loss
insurance in favor of Landlord insuring Landlord against any loss of rental from
damage or destruction of the premises for a period of least twelve (12) months
from the date of such damage or destruction. Said insurance shall provide for
payment for loss thereunder to Landlord or to the holder of a first mortgage or
deed of trust on the Premises. If the Landlord fails to procure and maintain
said insurance, the Tenant may, but shall not be required to, procure and
maintain the same at its expense.
8.4 Insurance Policies. Insurance required hereunder shall be
in companies rated A1, AAA or better in "Best Insurance Guide." The insuring
party shall deliver prior to possession, to the other party, copies of policies
of such insurance or certificates evidencing the existence and amounts of such
insurance with loss payable clauses satisfactory to Landlord. No such policy
shall be cancelable or subject to reduction of coverage or other modification
except after ten (10) days prior written notice to Landlord. If Tenant is the
insuring party, Tenant shall, within ten (10) days prior to the expiration of
such policies, furnish Landlord with renewals thereof, or Landlord may order
such insurance and charge the cost thereof to Tenant, which amount shall be
payable by Tenant upon demand. Tenant shall not do or permit to be done anything
which shall invalidate the insurance policies referred to in Article 8.3. Tenant
shall forthwith, upon Landlord's demand, reimburse Landlord for any additional
premiums attributable to any act or omission or operation of Tenant causing such
increase in the cost of insurance. If Landlord is the insuring party, and if the
insurance policies maintained hereunder cover other improvements in addition to
the Premises, Landlord shall deliver to Tenant a written statement seeing forth
the amount of any such cost increase and showing in reasonable detail the manner
in which it has been computed.
8.5 Waiver of Subrogation. Tenant and Landlord each waive any
and all rights of recovery against the other, or against the officers,
employees, agents and representatives of the other, for loss of or damage to
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such waiving party or its property or the property of others under its control,
where such loss or damage is insured against under any insurance policy in force
at the time of such loss or damage provided that this waiver of subrogation
shall not in any manner absolve Tenant of its obligations to make repairs
pursuant to Article 7.2 or its obligation to indemnify Landlord pursuant to
Article 8.6. Tenant and Landlord shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carriers that the foregoing
mutual waiver of subrogation is contained in this Lease.
8.6 Hold Harmless. Tenant shall indemnify, defend and hold
Landlord harmless from any and all claims arising from Tenant's use of the
Premises or from the conduct of its business or from any activity, work or
things which may be permitted or suffered by Tenant in or about the Premises and
shall further indemnify, defend and hold Landlord harmless from and against any
and all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under the provisions of this Lease
or arising from any negligence of Tenant or any of its agents, contractors,
employees or invitees and from any and all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or action or proceeding
brought thereon. Tenant hereby assumes all risk of damage to property or injury
to persons in or about the Premises from any cause, and Tenant hereby waives all
claims in respect thereof against Landlord, excepting where said damage arises
out of negligence of Landlord.
8.7 Exemption of Landlord from Liability. Except to the extent
of Landlord's negligence or breach of express provisions of this Lease, Tenant
hereby agrees that Landlord shall not be liable for injury to Tenant's business
or any loss of income therefrom or from damage to the goods, wares, merchandise
or other property of Tenant, or about the Premises, nor shall Landlord be liable
for injury to the person of Tenant, Tenant's employees, agents, contractors and
invitees, 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 of which the Premises are a part, 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 Landlord or Tenant. Landlord
shall not be liable for any damages arising from any act or neglect of any other
tenant, if any, of the building in which the Premises are located.
9. Damage or Destruction. Partial damage is defined as not
greater than forty percent (40%) of the total rentable square feet improved
building area within the Tenant space.
9.1 Partial Damage Insured. Subject to the provisions of
Article 7.1, if the Premises are damaged and such damage was caused by a
casualty covered under an insurance policy required to be maintained pursuant to
Article 8.3, Landlord shall, at Landlord's expense, repair such damage as soon
as reasonably possible, and this Lease shall continue in full force and effect.
9.2 Damage - Uninsured. In the event the Premises may be
damaged or destroyed by a casualty which is not covered by fire and extended
coverage insurance carried by Landlord, the Landlord shall restore same,
provided that if the damage or destruction is to an extent greater than ten
percent (10%) of the then replacement cost of improvements on the Premises
(exclusive of Tenant's trade fixtures and equipment and exclusive of
foundations) then Landlord may elect not to restore and to terminate this Lease.
Landlord must give Tenant written notice of its election not to restore within
thirty (30) days from the date Landlord received notice of such damage and, if
not given, Landlord shall be deemed to have elected to restore and in such event
shall repair any damage as soon as reasonably possible. In the event Landlord
elects to give such notice of Landlord's intention to cancel and terminate this
Lease, Tenant shall have the right within ten (10) days after receipt of such
notice to give written notice to Landlord of Tenant's intention to repair such
damage at Tenant's expense, without reimbursement from Landlord, in which event
this Lease shall continue in full force and effect and Tenant shall proceed to
make such repairs as soon as reasonably possible. If Tenant does not give such
notice within such ten (10) day period, this Lease shall be canceled and
terminated as of the date of the occurrence of such damage.
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9.3 Total Destruction. If at any time during the term hereof
the Premises are totally destroyed to an extent greater than forty percent (40%)
of rentable square feet from any cause whether or not covered by the insurance
required to be maintained by the insuring party pursuant to Article 8.3
(including total destruction required by any authorized public authority), this
Lease shall automatically terminate as of the date of such total destruction,
unless Landlord elects to repair per Paragraph 9.1.
9.4 Damage Near End of Term. If the Premises are partially
destroyed or damaged during the last twelve (12) months of the term of this
Lease, Landlord may, at Landlord's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Tenant of
Landlord's election to do so within thirty (30) days after Landlord receives
notice of occurrence of such damage.
9.5 Abatement of Rent.
(a) If the Premises are partially destroyed or
damaged and Landlord or Tenant repairs or restores them pursuant to the
provisions of this Article 9, the rent payable hereunder for the period during
which such damage, repair or restoration continues shall be abated in proportion
to the degree to which Tenant's reasonable use of the Premises is substantially
impaired. Except for abatement of rent, if any, Tenant shall have no claim
against Landlord for any damage suffered by reason of any such damage,
destruction, repair or restoration.
(b) If Landlord shall be obligated to repair or
restore the Premises under the provisions of this Article 9 and shall not
commence such repair or restoration within ninety (90) days after such
obligations shall accrue, Tenant may, at Tenant's option, cancel and terminate
this Lease by giving Landlord written notice of Tenant's election to do so at
any time prior to the commencement of such repair or restoration. In such event
this Lease shall terminate as of the date of such notice. Any abatement in rent
shall be computed as provided in Article 9.5(a).
10. Real Property Taxes.
10.1 Payment of Taxes. Tenant shall pay all real property
taxes, as additional rent, upon fifteen (15) days advance written notice,
applicable to the Premises during the term of this Lease including reasonable
costs for attorneys or tax experts secured by Landlord in seeking reduction of
the taxes assessed on the Premises. If any such taxes shall cover any period of
the time prior to or after expiration of the term hereof, Tenant's share of such
taxes shall be equitably prorated to cover only the period of time within the
tax fiscal year during which this Lease shall be in effect.
10.2 Definition of "Real Property Taxes". As used herein, the
term "Real property tax" shall include any form of assessment, license fee, tax
on rent, levy, penalty, or tax (other than income taxes, inheritance or estate
taxes) imposed by any authority having the direct or indirect power to tax,
including city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement district thereof, as
against any legal or equitable interest of Landlord in the Premises or in the
real property of which the Premises are a part, as against Landlord's right to
rent or other income therefrom, or as against Landlord's business of leasing the
Premises, and Tenant shall pay any and all charges and fees which may be imposed
by the EPA or other similar governmental regulations or authorities.
10.3 Personal Property Taxes.
(a) Tenant shall pay prior to delinquency all taxes
assessed against and levied upon leasehold improvements, fixtures, furnishings,
equipment and all other personal property of Tenant contained in the Premises or
elsewhere. Tenant shall cause said leasehold improvements, trade fixtures,
furnishings, equipment and all other personal property to be assessed and billed
separately from the real property of Landlord.
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(b) If any of Tenant's 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
setting forth the taxes applicable to Tenant's property.
11. Exterior Parking and Landscape Areas. During the term of this
Lease, Tenant shall manage and maintain the exterior parking lot areas,
sidewalks and landscape areas so that they are clean and free from accumulation
of debris, filth, rubbish and garbage. Landscape maintenance shall include
pruning, fertilization, maintenance of the irrigation system (if any) and/or
watering, weeding and rebarking of the landscaped areas.
12. Utilities. Tenant shall pay for all water, gas, heat, light,
power, telephone and other utilities and services supplied to the Premises,
together with any taxes thereon.
13. Assignment and Subletting.
13.1 Landlord's Consent Required. Tenant shall not voluntarily
or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer
or encumber all or any part of Tenant's interest in this Lease or in the
Premises without Landlord's prior written consent, which Landlord shall not
unreasonably withhold. Any attempted assignment, transfer mortgage, encumbrance,
or subletting without consent shall be void and shall constitute a breach of
this Lease. Any transfer of Tenant's interest in this Lease or in the Premises
from Tenant by merger, consolidation, or liquidation, or by any subsequent
change in the ownership of fifty percent (50%) or more of the capital stock of
Tenant or fifty percent (50%) or more partnership interest of Tenant shall be
deemed a prohibited assignment within the meaning of this Article 13. No option
to extend, if any, may be assigned by Tenant and no subtenant shall have any
right to exercise any such option.
13.2 No Release of Tenant. Regardless of Landlord's consent,
no subletting or assignment shall release Tenant of Tenant's obligation to pay
the rent and to perform all other obligations to be performed by Tenant
hereunder for the term of this Lease. The acceptance of rent by Landlord from
any other person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting, shall not be deemed consent to
any subsequent assignment or subletting.
13.3 Assignment Fee. In the event that Landlord shall consent
to a sublease or assignment under Article 13.1, Tenant shall pay to Landlord
reasonable fees not to exceed Five Hundred Dollars ($500) incurred in connection
with giving such consent.
All rent received by Tenant from its subtenants in excess of
the rent payable by Tenant to Landlord under this Lease shall be paid to
Landlord, or any sums to be paid by an assignee to Tenant in consideration of
the assignment of this Lease shall be paid to Landlord.
13.4 Assignment by Landlord. Landlord shall be permitted
freely to assign all of its rights and obligations hereunder, and upon such
assignment of its obligations, Landlord shall no longer be liable under this
Lease. Tenant hereby agrees to attorn to any assignee of Landlord's interest
hereunder, whether such assignment is voluntary or by operation of law.
13.5 Reasonable Consent. In aid to the Landlord's
determination whether to consent to any assignment, transfer or subletting but
without limiting reasons for which such consent may be withheld, Tenant, at
Landlord's request, shall submit in writing to Landlord: (1) the name and legal
composition of the proposed subtenant, assignee or transferees, and the nature
of the transaction contemplated and purposes of it; (2) the nature of the
proposed subtenant's business to be carried on in the Premises; (3) the terms
and provisions of the proposed sublease, assignment or transfer; and (4) current
financial statements of the subtenant or assignee and such other reasonable
financial information as Landlord may request concerning the proposed
transaction and the proposed subtenant, assignee or transferee without limiting
the authority of the Landlord to withhold reasonably its consent, Landlord may
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require any assignee or subtenant to assume all of the obligations of the Tenant
with respect to this Lease, but such assumption shall not release the Tenant.
14. Defaults; Remedies.
14.1 Defaults. The occurrence of any one or more of the
following events shall constitute a default and breach of this Lease by Tenant:
(a) The vacation or abandonment of the Premises
by Tenant for a period of thirty (30) days or more.
(b) The failure by Tenant to make any payment of
rent or any other payment required to be made by Tenant hereunder, as and when
due, where such failure shall continue for a period of ten (10) days.
(c) The failure by Tenant to observe or perform
any of the covenants, conditions, or provisions of this Lease to be observed or
performed by Tenant, other than described in Paragraph (b) above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Landlord to Tenant provided, however, that if the nature of
Tenant's default is such that more than thirty (30) days are reasonably required
for its cure, then Tenant shall not be deemed to be in default if Tenant
commenced such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(d) (i) The making by Tenant of any general
assignment, or general assignment for the benefit of creditors; (ii) the filing
by or against Tenant of a petition to have Tenant adjudged a bankrupt or
petition for reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against Tenant, the same is dismissed
within sixty (60) days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within thirty (30) days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Tenant's assets located at the Premises of
Tenant's interest in this Lease where such seizure is not discharged within
thirty (30) days.
14.2 Remedies in Default. In the event of any such default
or breach by Tenant, Landlord may at any time thereafter, with or without notice
or demand and without limiting Landlord in the exercise of any right or remedy
which Landlord may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of
the Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. In
such event Landlord shall be entitled to recover from tenant all damages
incurred by Landlord by reason of Tenant's default, including but not limited
to: (i) the cost of recovering possession of the Premises; and (ii) expenses of
reletting, including necessary renovation and alteration of the Premises; and
(iii) reasonable attorney's fees, and any real estate commission actually paid
applicable to the unexpired term of this Lease; and liv) the worth at the time
of award determined by the court having jurisdiction thereof, of the unpaid rent
that had been earned at the time of termination of this Lease; and (v) any other
amount, and court costs necessary to compensate Landlord for all detriment
proximately caused by Tenant's default. In the event Tenant shall have abandoned
the Premises, Landlord shall have the option of (1) retaking possession of the
Premises, taking possession of all personal property remaining in the Premises
and recovering from Tenant the amount specified in this Article 14.2(a) and
14.2(d), or (2) proceeding under Article 14.2(b). As used in this Paragraph, the
term "the worth at the time of award" is to be computed by discounting the total
rent payable by the amount of the discount rate of the Federal Reserve Bank of
San Francisco at the time of the award, plus one percent (1%).
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(b) Maintain Tenant's right to possession, in
which case this Lease shall continue in effect whether or not Tenant shall have
abandoned the Premises. In such event, Landlord shall be entitled to all of
Landlord's rights and remedies under this Lease including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter
available to Landlord under the laws or judicial decisions of the state in which
the Premises are located.
(d) Any rent or other charge that is not paid
when due shall bear interest from the date due until paid at the rate of sixteen
(16%) per annum; provided, however, that in no event shall such rate to be
charged Tenant exceed the rate otherwise permitted by law.
14.3 Default by Landlord. Landlord shall not be in default
unless Landlord fails to perform obligations required of Landlord within a
reasonable time, but in no event later than thirty (30) days after written
notice by Tenant to Landlord and to the holder of any first mortgage or deed of
trust covering the Premises, where name and address shall have theretofore been
furnished to Tenant in writing, specifying wherein Landlord has failed to
perform such obligation; provided, however, that the nature of the Landlord's
obligation is such that more than thirty (30) days are required for performance,
then Landlord shall not be in default if Landlord commences performances within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion.
14.4 Late Charges. Tenant hereby 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 term of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sums due from
Tenant shall not be received by Landlord or Landlord's designee within ten (10)
days after said amount is due then Tenant shall pay to Landlord a late charge of
ten percent (10%) of such overdue amount, per each monthly period, but not any
interest thereon. In no event shall any late charge be required in violation of
any law. Further, the parties agree that a Twenty-Five Dollar ($25.00) charge
shall be paid by Tenant to Landlord for any returned check.
The parties hereby agree that such late charge represents a
fair and reasonable estimate of the cost Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder.
14.5 Cure by Landlord. Landlord, at any time after Tenant
commits a default, may cure the default at Tenant's cost. If Landlord at any
time by reason of Tenant's default, pays any sum or does any act that requires
the payment of any sum, the sum paid by Landlord at the time the sum is paid
shall be due from Tenant to Landlord, and if paid at a later date shall bear
interest at the rate of sixteen percent (16%) per annum from the date the sum is
paid by Landlord until Landlord is reimbursed by Tenant. The sum, together with
interest shall be deemed additional rent hereunder.
15. Condemnation. If the Premises or any portion thereof are taken
under the power of eminent domain, or sold by Landlord under the threat of the
exercise of said power (all of which is herein referred to as "condemnation"),
this Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession; whichever occurs first. If more than
twenty-five percent (25%) of the floor area of any building on the Premises, or
more than twenty-five percent (25%) of the land area of the Premises not covered
with buildings, is taken by condemnation, either Landlord or Tenant may
terminate this Lease as of the date the condemning authority takes possession by
notice in writing of such election within twenty (20) days after Landlord shall
have notified Tenant of the taking, or, in the absence of such notice, then
within twenty (20) days after the condemning authority shall have taken
possession.
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If this Lease is not terminated by either Landlord or Tenant, then
it shall remain in full force and effect as to the portion of the Premises
remaining, provided the rental shall be reduced in proportion to the floor area
of the buildings taken within the Premises as bears to the total floor area of
all buildings located on the Premises. In the event this Lease is not so
terminated, then Landlord agrees, at Landlord's sole costs, as soon as
reasonably possible, to restore the Premises to a complete unit of like quality
and character as existed prior to the condemnation. All awards for the taking of
any part of the Premises or any payment made under the threat of the exercise of
power of eminent domain shall be the property of Landlord, whether made as
compensation for diminution of value of the leasehold or for the taking of the
fees or as severance damages; provided, however, that Tenant shall be entitled
to any award for loss of or damage to Tenant's trade fixtures and removable
personal property.
16. General Provisions.
16.1 Estoppel Certificate.
(a) Tenant shall, at any time, upon not less
than ten (10) days prior written notice from Landlord, execute, acknowledge and
deliver to Landlord a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the rent, security deposit, and other
charges are paid in advance, if any, and (ii) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or specifying such defaults, if any, which are claimed. Any such statement may
be conclusively relied upon by any prospective purchaser or encumbrances of the
Premises.
(b) Tenant's failure to deliver such statement
within such time period shall be conclusive upon Tenant that (i) this Lease is
in full force and effect, without modification except as may be represented by
Landlord, (ii) there are not uncured defaults in Landlord's performance, and
(iii) not more than one (1) month's rent has been paid in advance.
(c) If Landlord desires to finance or refinance
the Premises, or any part thereof, Tenant hereby agrees to deliver (no more than
2x per year) to any lender designated by Landlord such financial statements of
Tenant as may be reasonably required by such lender. Such statements shall
include the past three (3) years' financial statements of Tenant. All such
financial statements shall be received by Landlord in confidence and shall be
used only for the purposes herein set forth. Tenant shall execute any estoppel
certificate, subordination agreement, and/or attornment agreement submitted to
Tenant by Landlord for purposes of said financing; provided however, that Tenant
shall be allowed the quiet use and enjoyment of the Premises as long as Tenant
is not in default under the terms of this Lease.
16.2 Landlord's Interest. The term "Landlord" as used
herein shall mean only the owner or owners at the time in question of the fee
title, vendee's interest under a real estate contract, or a tenant's interest in
a ground lease of the Premises. In the event of any transfer of such title or
interest, Landlord herein named (and in case of any subsequent transfers, the
then grantor) shall be relieved from and after the date of such transfer of all
liability as respects Landlord's obligations 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 delivered to the
grantee. The obligations contained in this Lease to be performed by Landlord
shall, subject to aforesaid, be binding upon Landlord's successors and assigns,
only during their respective periods of ownership.
16.3 Severability. The invalidity of any provision of this
Lease, as determined by a court of competent jurisdiction, shall in no way
affect the validity of any other provision hereof.
16.4 Interest on Past Due Obligations. Except as expressly
herein provided, any amount due to Landlord not paid when due shall bear
interest at sixteen percent (16%) per annum from the due date. Payment of such
interest shall not excuse or cure any default by Tenant under this Lease.
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16.5 Time of Essence. Time is of the essence.
16.6 Captions. Article and Paragraph captions are not a
part hereof.
16.7 Incorporation of Prior Agreement; Amendments. This
Lease contains all agreements of the parties with respect to any matter
mentioned herein. No prior agreement or understanding pertaining to any such
matter shall be effective. This lease may be modified in writing only, signed by
the parties in interest at the time of modification.
16.8 Waivers. No waiver by Landlord of any provision
hereof shall be deemed a waiver of any other provision hereof or of any
subsequent breach by Tenant of the same or any other provision. Landlord's
consent to or approval of any act shall not be deemed to render unnecessary the
obtaining of Landlord's consent to or approval of any subsequent act by Tenant.
The acceptance of rent hereunder by Landlord shall not be a waiver of any
preceding breach by Tenant of any provision hereof, other than the failure of
Tenant to pay the particular rent so accepted regardless of Landlord's knowledge
of such preceding breach at the time of acceptance of such rent.
16.9 Recording. Tenant shall not record this Lease
without Landlord's prior written consent, and such recordation shall, at the
option of Landlord, constitute a noncurable default of Tenant hereunder. Either
party shall, upon request of the other, execute, acknowledge and deliver to the
other a "short form" memorandum of this Lease for recording purposes.
16.10 Holding Over. If Tenant remains in possession of the
Premises or any part thereof after the expiration of the term hereof without the
express written consent of Landlord, such occupancy shall be a tenancy from
month to month at a rental in the amount of 125% of the last monthly rental plus
all other charges payable hereunder, and upon the terms hereof applicable to
month to month tenancy.
16.11 Cumulative Remedies. No remedy or election hereunder
shall be deemed exclusive, but shall wherever possible, be cumulative with all
other remedies at law or in equity.
16.12 Covenants and Conditions. Each provision of this
Lease performable by Tenant shall be deemed both a covenant and a condition.
16.13 Binding Effect; Choice of Law; Proration. Subject to
any provisions hereof restricting assignment or subletting by Tenant and subject
to the provision of Article 13.2, this Lease shall bind the parties, their
representatives, successors and assigns. This Lease shall be governed by the
laws of the state where the Premises are located. All prorations shall be on the
basis of a thirty (30) day month.
16.14 Subordination.
(a) This Lease, at Landlord's option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any hypothecation
for security now or hereafter placed upon the real property of which the
Premises are a part and to any and all advances made on the security thereof and
to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Tenant's right to quiet possession
of the Premises shall not be disturbed if Tenant is not in default and so long
as Tenant shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease prior to
the lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Tenant, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease, or the date of
recording thereof.
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(b) Tenant agrees to execute and deliver any
documents reasonably required to effectuate such subordination or to make this
Lease prior to the lien of any mortgage, deed of trust or ground lease, as the
case may be, and failing to do so within ten (10) days after written demand,
does hereby make, constitute and irrevocably appoint Landlord as Tenant's
attorney-in-fact and in Tenant's name, place and stead, to do so.
(c) Tenant shall have the right to request a
non-disturbance agreement from the existing lender. However, Landlord will not
warrant that lender will agree to such request.
16.15 Attorneys' Fees. If either party named herein brings
an action to enforce the terms hereof or declare rights hereunder the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
16.16 Landlord's Access. Landlord and Landlord's agents
shall have the right to enter the Premises at reasonable times upon 24 hours
notice or in the case of emergencies access shall be immediate for the purpose
of inspecting the same, showing the same to prospective tenants, purchasers or
lenders, and making such alterations or improvements as may be necessary to
maintain the structural integrity of the building, repairs, to the Premises or
to the building of which they are a part as Landlord may deem necessary or
desirable. Landlord may at any time place on or about the Premises any ordinary
"For Sale" or "For Lease" signs, and Landlord may at any time during the last
one hundred twenty (120) days of the term hereof place on or about the Premises
any ordinary signs all without rebate or rent or liability to Tenant.
16.17 Signs. Tenant shall not place any sign upon the
Premises without Landlord's prior written consent. All signs installed by Tenant
shall be removed upon termination of this Lease with the sign location restored
to its former state.
16.18 Merger. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and
shall, at the option of Landlord, terminate all or any existing subtenancies, or
may, at the option of Landlord, operate as an assignment to Landlord of any or
all of such subtenancies.
16.19 Corporate Authority. If Tenant is a corporation,
each individual executing this Lease on behalf of said corporation represents
and warrants that he is duly authorized to execute and deliver this Lease on
behalf of said corporation in accordance with a duly adopted resolution of the
Board of Directors of said corporation or in accordance with the bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms.
16.20 Landlord's Liability. If Landlord is a joint
venture or limited partnership, the liability of the partners of Landlord
pursuant to this Lease shall be limited to assets of the partnership, and
Tenant, its successors and assigns, hereby waive all rights to proceed against
any of the partners, or the officers, shareholders, or directors of any
corporate partner of Landlord, except to the extent of their interest in the
partnership. As used in this Article, the term "Landlord" shall mean only the
owner or owners at the time in question of the fee title, vendee's interest
under a real estate contract, or its interest in a ground lease of the Premises,
and in the event of any transfer of such title or interest, Landlord herein
named (and in case of any subsequent transfers the then grantor) shall be
relieved from and after the date of such transfer, and any funds in the hands of
Landlord or the obligations thereafter to be performed; provided that nay funds
in the hands of Landlord or the then grantor at the time of such transfer, in
which Tenant has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Landlord shall, subject as aforesaid,
be binding on Landlord's successors and assigns only during the respective
period of ownership.
16.21 Financing. Tenant shall not execute any document
purporting to affect the Premises or any other property of which the Premises
are a part, including, without limitation; any financing statement, without
prior written consent of Landlord, which may be withheld or conditioned in
Landlord's sole discretion.
-12-
<PAGE> 13
16.22 Inability to Perform. This Lease and the obligations
of the Tenant hereunder shall not be effected or impaired because the Landlord
is unable to fulfill any of its obligations hereunder or is delayed in doing so,
if such inability or delay is caused by reason of strike, labor troubles, force
majeure, weather and acts of God, or any other cause beyond the reasonable
control of the Landlord, and Landlord shall not be liable for any such delay.
17. Completion Bond. At any time, Tenant either desires to or is
required to make any repairs, alterations, additions, improvements or utility
installations thereon, pursuant to Articles 7.5 or 9.2 herein or otherwise which
exceed $5,000. Landlord may at its sole option, require Tenant, at Tenant's sole
cost and expense, to obtain and provide to Landlord a lien and completion bond
in an amount equal to one and one-half (1-1/2) times the estimated cost of such
improvements, to insure Landlord against any liability for mechanic's and
materialmen's liens and to insure completion of the work.
18. Notices. Wherever under this Lease provision is made for any
demand, notice or declaration of any kind, or where it is deemed desirable or
necessary by either party to give or serve any such notice, demand or
declaration to the other party, it shall be in writing and served either
personally or sent by United States mail, postage prepaid, addressed to the
address set forth herein below:
To Landlord: S.E. 30th Company
c/o Kidder, Mathews & Segner, Inc.
Attn: Diane M. Decker
12886 Interurban Avenue South
Seattle, WA 98168
To Tenant: Optiva Corporation
13222 S.E. 30th Street
Bellevue, WA 98005
Notices will be deemed given when personally delivered, or three (3)
days after mailing as set forth in this Section 18.
19. Hazardous and Toxic Waste Materials. Tenant shall be
responsible for all expenses, damages, liabilities, including reasonable
attorneys' fees, occurring as a result of Tenant's use or release of any
hazardous and toxic waste materials as they may affect the leased premises.
"Release" means any spill, visible leak, pumping, pouring, explosion, emission,
discharge, injection, escape, dumping, disposing or other entering into the
environment of any substance, chemical, material, pollutant or contaminant at,
in, by, from or related to the leased premises. Tenant's obligations in this
regard shall survive and extend beyond the termination date of this lease
Whereby the statute of limitation for any indemnification action shall not begin
to run until Landlord has sustained damage. Landlord is entitled to indemnity
under the terms of this Agreement.
20. Special Articles. The following numbered articles are made a
part hereof, 21,22 & 23 and appear below as well as the attached Exhibit(s) A &
B.
21. Early Termination Option. Tenant shall have the opportunity to
terminate this lease any time after the 36th month by giving Landlord nine (9)
months advance written notice and upon such notice paying the Landlord a Lease
Termination Fee equal to the unamortized Lease Commission through the date
Tenant vacates the Premises.
22. Early Occupancy. Landlord understands that Tenant is interested
in occupying the Premises as soon as possible. The existing tenant's, Software
Productions, lease runs through October 31, 1995. In the event that Software
Productions vacates the Premises earlier, Landlord will provide Tenant with
thirty (30) days notice of the date on which Tenant may occupy the Premises. All
provisions of the lease, including base rent, shall apply during this early
occupancy period.
-13-
<PAGE> 14
23. Communication Cabling. Landlord hereby grants its approval to
allow Tenant to install cabling connected to Tenant's existing facility. The
location and installation shall be approved by the Landlord prior to
installation.
The parties hereto have executed this Lease at the place and on the
dates specified immediately adjacent to their respective signatures.
Dated this _______ day of ___________________, 19__,
at_________________________________________________.
"Landlord": S.E. 30th Company
a Joint Venture
By /s/ Jerome E. Matthews
------------------------------------
Jerome E. Matthews, President
Puget Pacific, Inc., Venturer
Dated this _______ day of ___________________, 19__,
at_________________________________________________.
"Tenant": OPTIVA CORPORATION
a Washington Corporation
By /s/ David Guiliani
------------------------------------
David Guiliani
Title: President & CEO
-14-
<PAGE> 15
CORPORATE
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 7th day of August A.D. 1995, before me personally appeared
David Giuliani to me known to be the President/CEO of Optiva Corp. the
corporation that executed the within and foregoing instrument and acknowledged
the same instrument to be the free and voluntary act and deed of said
corporation for the uses and purposes therein mentioned, and on oath stated that
they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, the day and year first above written.
/s/ Debbie J. McGillivray
-----------------------------------------
Notary Public in and for the State of
Washington, residing at Kirkland
CORPORATE
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 8th day of August A.D. 1995, before me personally appeared
Jerome E. Mathews to me known to be the President and ____________ to me known
to be the _______________ of Puget Pacific, Inc. the corporation that executed
the within and foregoing instrument, and acknowledged the same instrument to be
the free and voluntary act and deed of said corporation, for the uses and
purposes therein mentioned, and on oath stated that they were authorized to
execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, the day and year first above written.
/s/ Nancy M. Krill
----------------------------------------
Notary Public in and for the State of
Washington, residing at Vashon.
<PAGE> 16
INDIVIDUAL
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
This is to certify that on this ______________ day of _________________
A.D. 19___, before me the undersigned, a Notary Public in and for the State of
Washington, duly commissioned and qualified, personally appeared
________________________________________________________________________________
________________________________________________________________________________
to me known to be the individual described in and who executed the within and
foregoing instrument, and acknowledged to me that ___________________ signed and
sealed the same as ___________________ free and voluntary act and deed, for the
purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, the day and year first above written.
_________________________________________
Notary Public in and for the State of
Washington, residing at
_______________________________________.
INDIVIDUAL
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
This is to certify that on this ______________ day of _________________
A.D. 19___, before me the undersigned, a Notary Public in and for the State of
________________________, duly commissioned and qualified, personally appeared
________________________________________________________________________________
________________________________________________________________________________
to me known to be the individual described in and who executed the within and
foregoing instrument, and acknowledged to me that ___________________ signed and
sealed the same as ___________________ free and voluntary act and deed, for the
uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, the day and year first above written.
_________________________________________
Notary Public in and for the State of
________________________________________,
residing at_____________________________.
-2-
<PAGE> 1
LEASE AGREEMENT--COMMERCIAL PREMISES
THIS LEASE made this 19th day of August, 1996, by and between (Names &
Addresses): Stead Building Partnership, 13200 S.E. 30th St., Bellevue, WA 98005,
(hereinafter called Lessor), and Optiva Corporation, 13222 S.E. 30th St.,
Bellevue, WA 98005 (hereinafter called Lessee):
WITNESSETH:
1. PREMISES: Lessor does hereby lease to Lessee, those certain premises commonly
known as The Stead Building including thirty parking spaces and building space.
as shown on Exhibit B attached hereto, (hereinafter called "premises"), being
situated upon land described in Exhibit A attached hereto.
2. TERM: The term of this Lease shall be for thirty-six months, commencing the
1st day of October 1996, and shall terminate on the 30th day of September,
1999.
3. RENT: Lessee covenants and agrees to pay Lessor, at the offices of Lessor,
Stead Building Partnership, 13200 S.E. 30th St., Bellevue, WA 98005 or to such
other party or at such other place as Lessor may hereafter designate, monthly
base rent in the amount of eight thousand six hundred ninety Dollars ($ 8,690.),
in advance, on the first day of each month of the lease term. Lessor hereby
acknowledges receipt of eleven thousand three hundred eighty Dollars
($ 11,380.), for the first and second months rent. If Lessee is in possession of
the premises for a portion of a month, the monthly rent shall be prorated for
the number of days of Lessee's possession during that month. Any rental payments
received eleven or more days after the beginning date of each rental period will
be subject to a service charge of $100.00 Lessee has deposited the sum of $ none
Dollars ($ none ), receipt of which is hereby acknowledged, which sum is
security for Lessee's full performance of the obligations hereunder and those
pursuant to Chapter 59 Revised Code of Washington, or as such may be
subsequently amended.
The above base monthly rental rate plus changes, if any, provided in Paragraph
5, "Taxes", shall be adjusted annually in the following manner: The monthly
rental rate shall be adjusted at each yearly anniversary date by using the
revised Consumer Price Index (CPI) for All Urban Consumers as published by the
United States Department of Labor for the Seattle-Tacoma Metropolitan area. The
indexes used shall be those published for the nearest period preceding the month
in which the initial lease year begins and the same period preceding the
anniversary date. The percentage of change from the earlier index to the later
index shall be multiplied by the rent rate at the beginning of each lease year
and the rent added to that beginning rate to arrive at the adjusted rate which
will apply to each of the twelve months of the succeeding lease year, except in
the event shall rent rate be less than the original monthly rate. When, this
paragraph becomes effective upon renewal, the first two (2) subparagraphs of
Paragraph 5, "Taxes", do not further apply for the reason that taxes are
included in the Consumer Price Index calculations.
In addition to the base rent noted above, Lessee shall pay, as part of the rent
due to Landlord, such portion of the common costs and expenses of the building
and grounds as Lessee's rented square footage and assigned space bears to the
entire rentable square footage and space of the building and grounds. Lessor
shall estimate the Lessee's share of common costs and expenses in advance each
year based upon annual historical costs and projected increases therefrom for
the coming year, divide such by twelve, and advise Lessee of the monthly sum due
in addition to base rent. Lessee shall pay such sum on the same date as base
rent is due each month during the term of this lease (or any extension or
holdover thereof) or upon occupancy, whichever occurs first. If Lessee is
occupying the premises for less than a full month, the common costs and expenses
shall be prorated by Lessor and paid by Lessee on a per diem basis based on a
thirty day month.
Annual historical costs shall be based on a calendar year and the first year for
use of actual costs and expenses comparison and future projection therefrom
shall be the year immediately preceding Lessee's occupancy or term, whichever
occurs first. Each new calendar year during the term of this lease or any
extension or holdover thereof, the Lessor is entitled to adjust the estimated
common costs and expenses and advise the Lessee of the new amount due. Lessor
shall furnish Lessee, at Lessee's request, with a statement showing the actual
common costs and expenses of the prior calendar year and projections for the
current year which form the basis for the amount due from Lessee. At the end of
each calendar year and when the actual common costs and
<PAGE> 2
expenses have been determined, Lessor shall assess any additional sums due from
Lessee above the estimated amount previously charged, or credit Lessee with any
overpayment, and Lessee shall pay the sums due or receive credit for the
overpayment against future sums due and if none, the Lessee shall be refunded
the proper amount. Lessee shall have thirty days from the date Lessor delivers
the annual adjustment to Lessee to review and contest the accuracy of such. If
contested, the parties shall review and resolve any issues in good faith and
with reasonable interpretation and/or negotiation and/or solution. Failure by
Lessee to object within such thirty day period shall conclusively establish the
reasonableness of the adjustment and supporting data and Lessee may not
thereafter contest such adjustment and charges without Lessor's written consent.
This lease is what is commonly known as a triple net (net-net-net)/lease.
"Common costs and expenses" mean and include all real and personal property
taxes, charges and assessments, and all other taxes whether denominated "excise"
or any other category imposed upon the premises or the use or occupancy thereof.
It does not include any taxes related to Lessor's income from the premises or
from this lease. Common costs and expenses also includes but is not limited to
all operating costs incurred by Lessor in maintaining, insuring, operating,
managing, cleaning and painting the premises, utilities (other than specific
utilities supplied to Lessee's premises and paid directly by Lessee to the
supplier), supplies of independent contractors, and services supplied for the
premises, and includes any costs and expenses of the Lessor related to an owners
or tenants' association, if any.
Except as provided herein, Lessee shall, at Lessee's sole expense, clean,
maintain, repair and protect throughout the term of this lease or any extension
or holdover thereof the entire portion of the premises leased to Lessee,
including but not limited to windows, doors, signs, electrical and lighting,
fixtures, plumbing and heating and air conditioning, and other equipment.
Lessee may be assessed and billed for, and Lessee agrees to pay for, any charges
for unusual and/or excessive utilities, garbage, security and safety, or other
services supplied to the premises and caused by Lessee's use or negligence,
unless otherwise specifically identified in this lease and which cost and/or
expense has been specifically acknowledged and agreed to be paid in all events
by Lessor.
4. UTILITIES AND FEES: Lessee agrees to pay all charges for light, heat, water,
sewer, garbage, drainage, metro and all other utilities and services to the
premises during the full term of this lease. Above items, if any, included in
the rent payment are none. All other items, including all license fees and
other governmental charges levied on the operation of Lessee's business on the
premises will be paid directly by Lessee. In the event the leased premises are a
part of a building or larger premises to which such charges are charged as a
whole, with the consent of the Lessor, then Lessee agrees to pay, upon demand, a
proper and fair share of said charges.
5. TAXES: In addition to the rent provided in paragraph 3, Lessee agrees to pay
any increase over base year 1996 in the portion of the real estate taxes and
assessments applicable to the premises which are due and payable during the term
of this Lease or any extension hereof. Lessee shall pay its portion of the
increase of the taxes on the building equal to the percentage of the total net
rentable area in the building leased to Lessee, plus the portion of the taxes
applicable to the land described in Exhibit A which is equal to the ratio of the
square feet of the premises to the total square feet of net rentable area of
buildings on said land.
Lessor shall submit to Lessee a copy of the actual statements received from the
taxing authority as they become due and shall invoice Lessee for its portion
according to the provisions of this paragraph. Lessee shall pay such invoice
within fifteen (15) days.
If the term of this Lease commences and terminates on dates other than January 1
and December 31, respectively, taxes payable shall be prorated in the first and
last calendar years of the term of the Lease.
-2-
<PAGE> 3
Should there presently be in effect or should there be enacted during the term
of this Lease any law, statute or ordinance levying any tax (other than Federal
or State income taxes) upon rents, Lessee shall pay such tax or shall reimburse
Lessor on demand for any such taxes paid by Lessor.
6. COMMON AREAS: If the premises are part of a building occupied by other
tenants, Lessee agrees to conform to Lessor's rules and regulations pertaining
to the parts of the building that are in common use by tenants.
7. REPAIRS AND MAINTENANCE: Premises have been inspected and are accepted by
Lessee in their present condition. Lessee shall, at its own expense and at all
times, keep the premises neat, clean and in a sanitary condition, and keep and
use the premises in accordance with applicable laws, ordinances, rules,
regulations and requirements of governmental authorities. Lessee shall permit no
waste, damage or injury to the premises, keep all drain pipes free and open;
protect water, heating, gas and other pipes to prevent freezing or clogging;
repair all leaks and damage caused by leaks; replace all glass in windows and
doors of the premises which may become cracked or broken; and remove ice and
snow from sidewalks adjoining the premises. Except for the roof, exterior walls
and foundation, which are the responsibility of the Lessor, Lessee shall make
such repairs as necessary to maintain the premises in as good condition as they
now are, reasonable use and wear and damage by fire and other casualty excepted.
8. SIGNS: All signs or symbols placed by Lessee in the windows and doors of the
premises, or upon any exterior part of the building, shall be subject to
Lessor's prior written approval. Lessor may demand the removal of signs which
are not so approved, and Lessee's failure to comply with said request within
forty-eight (48) hours will constitute a breach of this paragraph and will
entitle Lessor to terminate this Lease or, in lieu thereof, to cause the sign to
be removed and the building repaired at the sole expense of the Lessee. At the
termination of this Lease, Lessee will remove all signs placed by it upon the
premises, and will repair any damage caused by such removal. All signs must
comply with sign ordinances and be placed in accordance with required permits.
9. ALTERATIONS: After prior written consent of Lessor, Lessee may make
alterations, additions and improvements in said premises, at Lessee's sole cost
and expense. In the performance of such work, Lessee agrees to comply with all
laws, ordinances, rules and regulations of any proper public authority, and to
save Lessor harmless from damage, loss or expense. Upon termination of this
Lease and upon Lessor's request, or Lessor's approval, Lessee shall remove such
improvements and restore the premises to its original condition not later than
the termination date, at Lessee's sole cost and expense. Any improvements not so
removed shall be removed at Lessee's expense provided that Lessee shall pay for
any damage caused by such removal.
10. CONDEMNATION: In the event a substantial part of the premises is taken or
damaged by the right of eminent domain, or purchased by the condemner, in lieu
thereof, so as to render the remaining premises economically untenantable, then
this Lease shall be cancelled as of the time of taking at the option of either
party. In the event of a partial taking which does not render the premises
economically untenantable, the rent shall be reduced in direct proportion to the
leased property taken. Lessee shall have no claim to any portion of the
compensation for the taking or damaging of the land or building. Nothing herein
contained shall prevent the Lessee from his entitlement to negotiate for his own
moving cost and his leasehold improvements.
11. PARKING: Lessee understands that parking is apportioned in conformity with
controlling zoning ordinances and that Lessor shall have the right to make such
regulations as Lessor deems desirable for the control of parking automobiles on
the real property described in Exhibit "A" or property under Lessor's control,
including the right to designate certain areas for parking of the Lessee,
employees of Lessee, his customers and other Lessees of said buildings.
12. LIENS AND INSOLVENCY: Lessee shall keep the premises free from any liens
arising out of any work performed for, materials furnished to or obligations
incurred by Lessee and shall hold Lessor harmless against the same. In the event
Lessee becomes insolvent, bankrupt, or if receiver, assignee or other
liquidating officer is appointed for the business of Lessee, Lessor may cancel
this Lease at its option.
-3-
<PAGE> 4
13. SUBLETTING OR ASSIGNMENT: Lessee shall not sublet the whole or any part of
the premises, nor assign this Lease without the written consent of Lessor, which
will not be unreasonably withheld. This Lease shall not be assignable by
operation of law.
14. ACCESS: Lessor shall have the right to enter the premises at all reasonable
times for the purpose of inspection or of making repairs, additions or
alterations, and to show the premises to prospective tenants for sixty (60) days
prior to the expiration of the Lease term.
15. POSSESSION: If for any reason Lessor is unable to deliver possession of the
premises at the commencement of the term of the Lease, Lessee may give Lessor
written notice of its intention to cancel this Lease if possession is not
delivered within thirty (30) days after receipt of such notice by Lessor. Lessor
shall not be liable for any damages caused by delay, and Lessee shall not be
liable for any rent until such times as Lessor delivers possession. A delay of
possession shall not extend the term of the termination date. If Lessor offers
possession of the premises prior to the commencement date of the term of this
Lease, and if Lessee accepts such early possession, then both parties shall be
bound by all of the covenants and terms contained herein, including the payment
of rent during such period of early possession.
16. DAMAGE OR DESTRUCTION: In the event the premises are rendered untenantable
in whole or in part by fire, the elements, or other casualty, Lessor may elect,
at its option, not to restore or rebuild the premises and shall so notify
Lessee, in which event Lessee shall vacate the premises and this Lease shall be
terminated; or, in the alternative, Lessor shall notify Lessee, within thirty
(30) days after such casualty, that Lessor will undertake to rebuild or restore
the premises, and that such work can be completed within one hundred eighty
(180) days from date of such notice of intent. If Lessor is unable to restore or
rebuild the premises within the said one hundred eight (180) days, then the
Lease may be terminated at Lessee's option by written ten (10) day notice to
Lessor. During the period of untenantability, rent shall abate in the same ratio
as the portion of the premises rendered untenantable bears to the whole of the
premises.
17. ACCIDENTS AND LIABILITY: Lessor or its agent shall not be liable for any
injury or damage to persons or property sustained by Lessee or other, in and
about the premises. Lessee agrees to defend and hold Lessor and its agents
harmless from any claim, action and/or judgment for damages to property or
injury to persons suffered or alleged to be suffered on the premises by any
person, firm or corporation, unless caused by Lessor's negligence.
Lessee agrees to maintain public liability insurance on the premises in the
minimum aggregate limit of $1,000,000.00 for property damage and bodily injuries
and death, and shall name Lessor as an additional insured. Lessee shall furnish
Lessor a certificate indicating that the insurance policy is in full force and
effect, the Lessor has been named as an additional insured, and that the policy
may not be cancelled unless thirty (30) days prior written notice of the
proposed cancellation has been given to Lessor.
18. HAZARDOUS WASTE: Lessee agrees that Lessee has sufficiently inspected and
accepts the land, buildings, improvements, environmental condition, and all
other aspects of the premises in their present condition, and has asked and had
all questions about such answered to Lessee's satisfaction or has waived such
inquiry. Lessee accepts the said premises AS IS, including any latent defects,
without representation or warranties, express of implied, by anyone.
Lessee shall not store, spill, release, dispose of, generate, or keep or allow
to be kept, any hazardous substances or materials (whether dominated sewage,
toxic, pollutant, oxidizing, or any other description or substance) on or about
the premises without the prior written consent of Lessor and containing a
precise description of the substance consented to. In the event of Lessor's
written consent, Lessee shall comply with all federal, state, local and other
laws, regulations and directives regarding the use, safety, keeping and
transport of such substances.
Lessee shall indemnify and hold harmless and defend Lessor from any and all
claims, demands, losses, expenses, damages, clean-up costs, attorney's fees and
all related costs and expenses, including court costs, and other expenses
arising out of or in any way related to the use, storage, safety, transport, or
disposal (or as otherwise provided herein)
-4-
<PAGE> 5
of such substances by Lessee or by any of Lessee's agents, employees,
representatives or assigns, including subtenants.
The provisions of this paragraph 18 shall survive the expiration of this lease
and any extension or holdover thereof as to any conduct or occurrences or events
occurring prior to such expiration or extension of holdover termination.
19. SUBROGATION WAIVER: Lessor and Lessee each herewith and hereby releases and
relieves the other and waives its entire right of recovery against the other for
loss or damage arising out of or incident to the perils described in standard
fire insurance policies and all perils described in the "Extended Coverage"
insurance endorsement approved for use in the state where the premises are
located, which occurs in, on or about the Premises, unless due to the gross
negligence of either party, their agents, employees or otherwise.
20. DEFAULT AND RE-ENTRY: If Lessee shall fail to keep and perform any of the
covenants and agreements herein contained, other than the payment of rent, and
such failure continues for thirty (30) days after written notice from Lessor,
unless appropriate action has been taken by Lessee in good faith to cure such
failure, Lessor may terminate the Lease and re-enter the premises, or Lessor
may, without terminating this Lease, re-enter said premises, and sublet the
whole or any part thereof for the account of the Lessee upon as favorable terms
and conditions as the market will allow for the balance of the term of this
Lease, and Lessee covenants and agrees to pay to Lessor any deficiency arising
from a re-letting of the premises at a lesser amount than herein agreed to.
Lessee shall pay such deficiency each month as the amount thereof is ascertained
by Lessor. However, the ability of Lessor to re-enter and sublet shall not
impose upon Lessor the obligation to do so.
21. REMOVAL OF PROPERTY: In the event Lessor lawfully re-enters the premises as
provided herein, Lessor shall have the right, but not the obligation, to remove
all the personal property located therein and to place such property in storage
at the expense and risk of Lessee.
22. COST AND ATTORNEY'S FEES: If, by reason of any default or breach on the
party of either party in the performance of any of the provisions of this Lease,
a legal action is instituted, the losing party agrees to pay all reasonable
costs and attorney's fees in connection therewith. It is agreed that the venue
of any legal action brought under the terms of this Lease may be in the county
in which premises are situated.
23. SUBORDINATION: Lessee agrees that this Lease shall be subordinate to any
mortgages or deeds of trust, placed on the property described in Exhibit A,
provided, that in the event of foreclosure, if Lessee is not then in default and
agrees to attorn to the mortgagee or beneficiary under deed of trust, such
mortgagee or beneficiary shall recognize Lessee's right of possession for the
term of this Lease.
24. NO WAIVER OF COVENANTS: Any waiver by either party of any breach hereof by
the other shall not be considered a waiver of any future similar breach. This
Lease contains all the agreements between the parties; and there shall be no
modification of the agreements contained herein except by written instrument.
25. SURRENDER OF PREMISES: Lessee agrees, upon termination of this Lease, to
peacefully quit and surrender the premises without notice, leave the premises
neat and clean and to deliver all keys to the premises to Lessor.
26. HOLDING OVER: If Lessee, with the implied or express consent of Lessor,
shall hold over after the expiration of the term of this Lease, Lessee shall
remain bound by all the covenants and agreements herein, except that the tenancy
shall be from month to month.
27. BINDING ON HEIRS, SUCCESSORS AND ASSIGNS: The covenants and agreements of
this Lease shall be binding upon the heirs, executors, administrators,
successors and assigns of both parties hereto, except as hereinabove provided.
-5-
<PAGE> 6
28. USE: Lessee shall use the premises for the purposes of office, light
manufacturing, warehousing and distribution and for no other purposes, without
written consent of Lessor. In the event Lessee's use of the premises increases
the fire and extended coverage or liability insurance rates on the building of
which the premises are a part, Lessee agrees to pay for such increase.
29. NOTICE: Any notice required to be given by either party to the other shall
be deposited in the United States mail, postage prepaid, addressed to the Lessor
at 13200 S.E. 30th St., Bellevue, WA 98005 or to the Lessee at 13222 S.E. 30th
Street, Bellevue, WA 98005 or at such other address as either party may
designate to the other in writing from time to time.
30. RIDERS: Riders, if any, attached hereto, are made a part of this lease by
reference and are described as follows:
Attachment A -- LEASE AMENDMENT
31. TIME IS OF THE ESSENCE OF THIS LEASE.
32. If Lessee is a corporation, each individual executing this Lease on behalf
of said corporation represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation in accordance with
a duly adopted resolution of the Board of Directors of said corporation or in
accordance with the By-laws of said corporation, and that this Lease is binding
upon said corporation in accordance with its terms. If Lessee is a corporation,
Lessee shall, within thirty (30) days after execution of this Lease, deliver to
Lessor a certified copy of a resolution of the Board of Directors of said
corporation authorizing or ratifying the execution of this Lease.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the date first above written.
LESSOR: STEAD BUILDING PARTNERSHIP
----------------------------------
/s/ Ivan W. Stead
----------------------------------
By: Ivan W. Stead, General Partner
(206) 644-1700 (206) 641-9290
--------------- ------------------
Telephone Emergency
LESSEE(S): OPTIVA CORPORATION
----------------------------------
/s/ David Giuliani DAVID GIULIANI
------------------------------------
Pres/CEO
--------------- ------------------
Telephone Emergency
STATE OF WASHINGTON }
} ss, (INDIVIDUAL ACKNOWLEDGEMENT)
COUNTY OF KING }
On this day personally appeared before me Ivan W. Stead to me known to be the
individual described in and who executed the within and foregoing instrument,
and acknowledged that HE signed the same as noted above free and voluntary act
and deed, for the uses and purposes therein mentioned. GIVEN Under My Hand and
Official Seal, this 19th day of August, 1996.
/s/ Patricia A. Chitty
----------------------------------
Patricia A. Chitty
----------------------------------
Print Name
Notary Public in and for the
State of Washington
residing at Bellevue, Washington
-6-
<PAGE> 7
STATE OF }
} ss, (CORPORATE ACKNOWLEDGEMENT)
COUNTY OF }
On this ______________ day of ____________________ , 19___, personally appeared
before me to me known to be ________________________________ of the corporation
that executed the within and foregoing instrument, and acknowledged said
instrument to be free and voluntary act and deed of said corporation, for the
uses and purposes therein mentioned, and on oath stated that __he ______________
authorized to execute said instrument and that the seal affixed, if any, is the
corporate seal of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and affixed my official
seal the day and year first above written.
_______________________________________
_______________________________________
Print Name
Notary Public in and for the State of
_______________________________________
residing at ___________ in said County.
-7-
<PAGE> 8
ATTACHMENT "A" - LEASE AMENDMENT
The following terms and conditions are made part of this Lease Agreement.
ITEM #3
The Lessor has granted the Lessee a deduction of $6,000.00 from the first
month's rent as a moving allowance. Rent is payable without offset or
deductions.
The Lessor's estimate for common costs, which are payable monthly in addition
to the base rent, is $660.00 per month. Sixty-six (66%) of the total common
costs are allocated to the Lessee.
ITEM #7 - REPAIRS AND MAINTENANCE Add the following:
Lessor agrees to clean carpet and perform any painting or repairs deemed
necessary by Lessee to insure office area is ready for occupancy. Lessor
agrees to clean warehouse area and to remove all modifications made by the
current tenant, CMS, except those modifications which Lessee requests not be
removed. Lessor warrants that all building systems are in good working order
and that the building conforms to the City of Bellevue occupancy requirements.
Lessee agrees they have identified any modifications made by CMS, which are to
be removed as part of this Agreement and confirms the intended use of the
building, including their connection of voice and data cable and security
system, is not in conflict with the City of Bellevue's use classification.
ITEM #13 - SUBLETTING OR ASSIGNMENT Add the following:
As part of this Agreement, Lessee shall have the right to assign the Lease
without written consent of the Lessor to a person or entity controlling,
controlled or under common control of Lessee, or to a person or entity
acquiring control of Lessee or substantially all of Lessee's assets; provided
the rights and obligations under this Lease are not altered.
ITEM #14 - ACCESS Add the following:
Lessor agrees to provide reasonable advance notice before entering the premises
of the Lessee, except for emergency situations.
ITEM #18 - HAZARDOUS WASTE Add the following:
The Lessor warrants the building is free of hazardous material as a condition
to Lessee's acceptance of other terms of this item. Lessor's warranty is based
upon available construction data and inspections. Should any hazardous material
be discovered, the Lessor's sole responsibility shall be to take appropriate
action.
ITEM #31 - OPTION TO RENEW LEASE New Paragraph
The Lessor hereby grants the Lessee an option to renew this Lease for a three
year period at fair market value. Lessee shall, for the purpose of exercising
this option, notify the Lessor in writing not less than six (6) months prior to
the expiration date of this Agreement. A period of sixty (60) days from this
notice shall be allowed to agree to the fair market value and sign the renewal
agreement.
LESSOR: /s/ Ivan W. Stead LESSEE: /s/ David Giuliani PRES/CEO
------------------------------ ------------------------------
DATE: 8/19/96 8/14/96
-------------------------------- ------------------------------
CONFIDENTIAL
<PAGE> 1
AGREEMENT
AGREEMENT made by and between TEAM TECHNOLOGIES, INC. ("Team") and
OPTIVA CORPORATION ("Optiva").
WHEREAS, Team is to manufacture certain brushes for Optiva, and
WHEREAS, Optiva desires the option, under certain circumstances, to
purchase the machinery used to manufacture said products;
IT IS, THEREFORE, AGREED:
1. Team hereby grants to Optiva a security interest in Team's
equipment and machinery specified in paragraph 2 below.
2. Upon the occurrence of any of the events listed in paragraph 3
below, Optiva shall have the exclusive option to purchase from Team Team's
interest in any or all of the equipment and machinery used by Team to
manufacture brushes for Optiva, including the following:
(a) ZT-2000 integrated system.
(b) TC-40 end-rounding equipment.
(c) Zaboransky Z1E and/or ZT1 equipment.
(d) All accessories, control and support systems related to
those items listed in paragraphs (a), (b) and (c) above.
Team acknowledges that the equipment and components listed in Exhibit A
attached hereto are already, and continue to be, the property of Optiva.
3. Optiva shall have the option to purchase said equipment and
machinery only upon the occurrence of one of the following events:
(a) Major financial difficulties at Team which cause Team to be
unable to continue normal operations in connection with its manufacture of
products for Optiva.
(b) Sale of all, or substantially all, of the assets of Team. For
purposes of this subparagraph (b), the equipment and machinery identified in
paragraph 2 shall not be considered.
<PAGE> 2
(c) Significant and continuous operational difficulties or
quality problems that seriously threaten Optiva's production processes or
product reputation. If Optiva claims that such difficulty or problem exists, it
shall give Team written notice of the difficulty or problem. The event set forth
in this paragraph (c) shall grant Optiva the option to purchase only if Team is
unable to correct the difficulty or problem with a reasonable time after receipt
of written notice.
(d) Mutual agreement between Team and Optiva to sell said
equipment and machinery to Optiva.
(e) Change in ownership or control of Team, which shall be deemed
to occur if greater than thirty percent (30%) of the capital stock of Team is
acquired by one or more third parties within any twelve (12) consecutive month
period.
If Optiva and Team are unable to agree as to whether any of the
above-described events has occurred, the issue may be submitted by either party
to binding arbitration pursuant to the Commercial Arbitration Rules of the
American Arbitration Association, for decision by one arbitrator. Either party
may demand expedited arbitration, in which case the arbitration hearing shall
occur within thirty (30) days after demand, the arbitration hearing shall be
limited to five (5) days, and the arbitrator shall render his/her decision
within ten (10) days after the conclusion of the hearing. Any arbitration
pursuant to this provision shall take place in Tennessee.
4. Upon the occurrence of any of the events in paragraphs 3 above,
Optiva shall have the option, for forty-five (45) days after the occurrence of
said event, to purchase any or all of the equipment and machinery listed in
paragraph 2 above. This option shall be exercised as follows:
(a) Within said forty-five (45) day period Optiva shall give
written notice of its exercise of the option to Team by registered or certified
mail, return receipt requested.
(b) Optiva shall pay the purchase price in full to Team within
fifteen (15) days after the exercise of the option, and Team shall concurrently
execute a bill of sale and deliver possession of the equipment and machinery to
Optiva. At either party's option, an escrow agent may be used to effectuate the
transaction described herein, and at either party's option, said escrow agent
may be directed to pay any tax or trade creditors of Team from the purchase
price.
(c) Any equipment and machinery purchased by Optiva from Team
pursuant to this Agreement shall be conveyed by Team to Optiva free of all liens
and claims, and with a warranty by Team to Optiva to said effect. Team agrees to
-2-
<PAGE> 3
indemnify and hold Optiva harmless from any claims made by any of Team's
creditors in connection with any of Team's debts.
5. If Optiva exercises the option to purchase, the purchase price
shall be the fair market value (to be determined by appraisal if the parties
cannot agree) at the time of sale to Optiva.
6. After the purchase of said equipment and machinery by Optiva,
Team shall if requested by Optiva provide to Optiva on-site training in
operation and maintenance and assist in the installation of the equipment and
machinery. Optiva shall pay Team reasonable compensation for these services as
the parties at such time shall agree.
7. Notices under this Agreement shall be sent to the parties at the
following addresses:
Team Technologies, Inc.
Attention: Steve Henrikson
5949 Commerce Boulevard
Morristown, TN 37814
Optiva Corporation
Attention: Gerald Brewer
13222 S.E. 30th Street
Bellevue, WA 98005
8. This Agreement shall be construed in accordance with the laws of
the State of Tennessee. This Agreement contains the entire understanding between
the parties and can only be changed by a written document signed by both
parties. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns.
WITNESS our hands the 18th day of November, 1997.
TEAM TECHNOLOGIES, INC. OPTIVA CORP.
By: /S/ Steve Henrikson By: /S/ David Giuliani
---------------------------- -----------------------------
Print name: Steve Henrikson Print name: David Giuliani
------------------- ---------------------
Its President Its Pres/CEO
--------------------------- -----------------------------
-3-
<PAGE> 4
EXHIBIT A
DEBTOR: Team Technologies Inc.
SECURED PARTY: Optiva Corporation
Optiva Corporation ("Optiva") files this financing statement pursuant to
the Uniform Commercial Code as adopted in Washington to advise third parties of
Optiva's absolute ownership of its property (the "Property") consisting of: (1)
all component parts for the Sonicare(R) toothbrush shipped by or on behalf of
Secured Party to Debtor, previously or in the future, (2) custom equipment of
the Zaboransky TC-40 end-rounding equipment including, without limitation, all
accretions, accessions and related equipment of the Zaboransky TC-40
end-rounding equipment and the custom equipment listed below, (3) custom
equipment of the Zaboransky ZT-2000 bristling, end-rounding, and trimming
machine, including, without limitation, all accretions, accessions and related
equipment of the Zaboransky ZT-2000 and the custom equipment listed below, (4)
all Zaboransky equipment purchased by owner that is furnished to Debtor, and
accretions, accessions, and related equipment, and (5) all Optiva molds, Optiva
tooling or Optiva equipment, previously or in the future, purchased by or
furnished to, Debtor, including, without limitation, the items described
generally below. However, the filing of this financing statement is not intended
to convert the transaction under which Optiva supplies the Property into a
security interest, but instead to give notice to all interested parties of
Optiva's absolute ownership of the Property. Out of an abundance of caution,
Debtor has granted Optiva a security interest in the Property in the event a
court of proper jurisdiction should determine the transaction under which Optiva
supplied the Property transferred any rights (beyond bare possession) in the
Property to Debtor.
<TABLE>
<CAPTION>
GENERAL DESCRIPTION OPTIVA ASSET #
- ------------------- --------------
<S> <C>
Brush Trimmer, Short Bristle 1017
Brush Trimmer, Profile 1016
OLI Nubbin Installer 1085
</TABLE>
Custom equipment of the Zaboransky TC-40 trimming and end-rounding
machine as detailed:
1. Universal clamping holders.
2. Quadruplicate stationary sidewise spreading system for perfect
end-rounding in five levels.
3. Sensor system for work holders for positive head/handle
positioning.
-4-
<PAGE> 5
4. The 7 additional complete belt sanding units beyond the original
3, which are part of the basic machine.
5. Five custom trimming units for the Sonicare 5 level trim.
6. Modified high efficiency brush head/handle cleaning station.
7. Waste and dust exhaust system including efficient motor blower
filter.
8. Complete ionizing unit (anti-static device) for improved brush
cleaning.
Custom equipment of the Zaboransky ZT-2000 bristling, end-rounding and
trimming machine as detailed:
1. Vibratory bowl feeder.
2. Zero degree stapling option.
3. KO-6 wild strand removal.
4. KO-8 quality control system for end-rounding inspection.
5. CNC controlled tufting (pattern control).
6. CNC controlled triple-color filament and filament bundle feeding
and unwrapping.
7. Fully automatic brush handle feeding system.
8. TC-40 Special Version, for Optiva Brush.
9. 40 work holders.
10. 5 trimming units.
11. 10 rounding units.
12. Universal clamping holders.
13. Quadruplicate stationary spreading system - 5 levels.
14. High efficiency brush head and handle cleaning system.
15. Ionizing unit for improved brush cleaning.
16. Z1E special fixtures and feeds for Optiva brush.
-5-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports dated
February 6, 1998 (except Note 14, as to which the date is May , 1998) in the
Registration Statement (Form S-1) and related Prospectus of Optiva Corporation
dated May 11, 1998 for the Registration of 5,060,000 shares of its Common Stock.
ERNST & YOUNG LLP
Seattle, Washington
May , 1998
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the approval
of the stock dividend and the increase in the number of authorized shares by the
shareholders described in Note 14 to the Consolidated Financial Statements.
ERNST & YOUNG LLP
Seattle, Washington
May 11, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS unaudited 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-1-1998 JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1998 DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 15,073 10,667 2,709 1,760
<SECURITIES> 0 0 0 0
<RECEIVABLES> 17,281 17,504 13,654 9,249
<ALLOWANCES> 1,172 810 460 819
<INVENTORY> 10,144 10,105 7,825 3,007
<CURRENT-ASSETS> 44,022 40,694 27,129 14,299
<PP&E> 11,192 9,872 6,393 3,195
<DEPRECIATION> 4,544 4,069 2,212 783
<TOTAL-ASSETS> 50,760 46,575 31,320 16,723
<CURRENT-LIABILITIES> 17,591 16,685 13,799 6,215
<BONDS> 1,583 1,210 839 281
0 0 0 0
0 0 0 0
<COMMON> 167 166 160 156
<OTHER-SE> 31,081 28,444 16,392 10,034
<TOTAL-LIABILITY-AND-EQUITY> 50,760 46,575 31,320 16,723
<SALES> 30,609 102,968 72,695 48,701
<TOTAL-REVENUES> 30,609 102,968 72,695 48,701
<CGS> 10,770 37,049 25,440 16,779
<TOTAL-COSTS> 10,770 37,049 25,440 16,779
<OTHER-EXPENSES> 15,918 48,130 38,353 26,513
<LOSS-PROVISION> 362 513 27 697
<INTEREST-EXPENSE> 54 178 55 26
<INCOME-PRETAX> 4,037 17,698 9,467 4,950
<INCOME-TAX> 1,454 6,350 3,599 1,922
<INCOME-CONTINUING> 2,583 11,348 5,868 3,028
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 2,583 11,348 5,868 3,028
<EPS-PRIMARY> 0.16 0.69 0.37 0.20
<EPS-DILUTED> 0.14 0.64 0.35 0.19
</TABLE>
