UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997 Commission file number 1-9700
THE CHARLES SCHWAB CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-3025021
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
101 Montgomery Street, San Francisco, CA 94104
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (415) 627-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
265,586,070* shares of $.01 par value Common Stock
Outstanding on October 23, 1997
* Reflects the three-for-two common stock split declared July 16, 1997,
distributed September 15, 1997.
<PAGE>
THE CHARLES SCHWAB CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 1997
Index
Page
----
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements:
Statement of Income 1
Balance Sheet 2
Statement of Cash Flows 3
Notes 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-17
Part II - Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
FORWARD-LOOKING STATEMENTS In addition to historical information, this interim
report contains forward-looking statements that reflect management's
expectations. These statements relate to, among other things, Company
contingencies, strategy, revenues, profit margin, sources of liquidity and
capital expenditures. Achievement of the expressed expectations is subject to
certain risks and uncertainties that could cause actual results to differ
materially from those expectations. See "Description of Business" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in this interim report for a discussion of important factors that may
cause such differences.
<PAGE>
<TABLE>
THE CHARLES SCHWAB CORPORATION
Part 1 - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<CAPTION>
<S> <C> <C> <C> <C>
Revenues
Commissions $ 322,679 $ 210,110 $ 858,994 $ 712,172
Mutual fund service fees 112,155 80,295 308,677 224,514
Principal transactions 61,252 57,403 193,985 192,156
Interest revenue, net of interest expense(1) 94,013 63,966 253,221 185,315
Other 21,740 18,265 63,400 54,446
- ----------------------------------------------------------------------------------------------------------------
Total 611,839 430,039 1,678,277 1,368,603
- ----------------------------------------------------------------------------------------------------------------
Expenses Excluding Interest
Compensation and benefits 255,104 171,656 700,061 567,845
Communications 45,790 40,170 137,002 127,470
Occupancy and equipment 39,279 33,177 113,183 96,270
Depreciation and amortization 34,948 24,231 92,407 72,335
Advertising and market development 29,303 16,464 91,092 56,511
Commissions, clearance and floor brokerage 26,290 18,695 70,951 60,001
Professional services 19,865 10,761 50,319 34,406
Other 34,320 18,388 80,259 58,899
- ----------------------------------------------------------------------------------------------------------------
Total 484,899 333,542 1,335,274 1,073,737
- ----------------------------------------------------------------------------------------------------------------
Income before taxes on income 126,940 96,497 343,003 294,866
Taxes on income 50,415 39,429 135,781 120,760
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 76,525 $ 57,068 $ 207,222 $ 174,106
================================================================================================================
Weighted-average number of common and
common equivalent shares outstanding(2, 3) 273,001 269,382 271,964 268,865
================================================================================================================
Primary/Fully Diluted Earnings Per Share(3) $ .28 $ .21 $ .76 $ .65
================================================================================================================
Dividends Declared Per Common Share(3) $ .033 $ .033 $ .099 $ .087
================================================================================================================
(1) Interest revenue is presented net of interest expense. Interest expense for the three months ended
September 30, 1997 and 1996 was $142,338 and $107,522, respectively. Interest expense for the nine months
ended September 30, 1997 and 1996 was $398,594 and $307,683, respectively.
(2) Amounts shown are used to calculate primary earnings per share.
(3) Reflects the three-for-two common stock split declared July 16, 1997, distributed September 15, 1997.
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
(Unaudited)
September 30, December 31,
1997 1996
---- ----
<CAPTION>
<S> <C> <C>
Assets
Cash and cash equivalents $ 857,551 $ 633,317
Cash and investments required to be segregated under Federal or other
regulations (including resale agreements of $4,694,086 in 1997
and $6,069,930 in 1996) 6,588,359 7,235,971
Receivable from brokers, dealers and clearing organizations 402,588 230,943
Receivable from customers - net 7,074,611 5,012,815
Securities owned - at market value 176,173 127,866
Equipment, office facilities and property - net 335,754 315,376
Intangible assets - net 57,961 68,922
Other assets 138,486 153,558
- ---------------------------------------------------------------------------------------------------------------
Total $ 15,631,483 $ 13,778,768
===============================================================================================================
Liabilities and Stockholders' Equity
Drafts payable $ 230,892 $ 225,136
Payable to brokers, dealers and clearing organizations 1,259,607 877,742
Payable to customers 12,288,316 11,176,836
Accrued expenses and other 454,719 360,683
Borrowings 319,980 283,816
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 14,553,514 12,924,213
- ---------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock - 9,940 shares authorized; $.01 par value
per share; none issued
Common stock - 500,000 shares authorized; $.01 par value per share;
267,689 issued in 1997 and 1996* 2,677 1,785
Additional paid-in capital 235,806 200,857
Retained earnings 903,033 723,085
Treasury stock - 2,306 shares in 1997 and 5,087 shares in 1996,
at cost* (43,826) (60,277)
Unearned ESOP shares (2,544) (5,517)
Unamortized restricted stock compensation (17,089) (8,658)
Foreign currency translation adjustment (88) 3,280
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,077,969 854,555
- ---------------------------------------------------------------------------------------------------------------
Total $ 15,631,483 $ 13,778,768
===============================================================================================================
* Reflects the three-for-two common stock split declared July 16, 1997, distributed September 15, 1997.
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
---- ----
<CAPTION>
<S> <C> <C>
Cash flows from operating activities
Net income $ 207,222 $ 174,106
Noncash items included in net income:
Depreciation and amortization 92,407 72,335
Stock compensation 21,843 15,999
Deferred income taxes (19,403) (2,425)
Other 2,711 3,704
Change in securities owned - at market value (48,303) (34,443)
Change in other assets 34,343 58,871
Change in accrued expenses and other 121,178 3,851
- -------------------------------------------------------------------------------------------------------
Net cash provided before change in customer-related balances 411,998 291,998
- -------------------------------------------------------------------------------------------------------
Change in customer-related balances:
Payable to customers 1,123,564 1,137,124
Receivable from customers (2,064,932) (550,237)
Drafts payable 6,776 (60,080)
Payable to brokers, dealers and clearing organizations 385,098 294,213
Receivable from brokers, dealers and clearing organizations (178,053) (27,352)
Cash and investments required to be segregated under
Federal or other regulations 638,761 (789,611)
- -------------------------------------------------------------------------------------------------------
Net change in customer-related balances (88,786) 4,057
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 323,212 296,055
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of equipment, office facilities and property - net (103,215) (110,642)
Cash payments for business acquired (3,709)
- -------------------------------------------------------------------------------------------------------
Net cash used by investing activities (103,215) (114,351)
- -------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from borrowings 61,000 64,000
Repayment of borrowings (24,685) (16,715)
Dividends paid (26,382) (22,740)
Purchase of treasury stock (16,230) (1,024)
Other 11,320 4,440
- -------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,023 27,961
- -------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (786) (76)
- -------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 224,234 209,589
Cash and cash equivalents at beginning of period 633,317 454,996
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 857,551 $ 664,585
=======================================================================================================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
THE CHARLES SCHWAB CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include The Charles Schwab Corporation (CSC) and its subsidiaries (collectively
referred to as the Company). CSC is a holding company engaged, through its
subsidiaries, in securities brokerage and related financial services. CSC's
principal subsidiary, Charles Schwab & Co., Inc. (Schwab), is a securities
broker-dealer with 262 branch offices in 47 states, the Commonwealth of Puerto
Rico and the United Kingdom, and four regional telephone service centers.
Another subsidiary, Mayer & Schweitzer, Inc. (M&S), is a market maker in Nasdaq
securities that provides trade execution services to broker-dealers, including
Schwab, and institutional customers. Other subsidiaries include Charles Schwab
Investment Management, Inc., the investment adviser for Schwab's proprietary
mutual funds, and ShareLink, a retail discount securities brokerage firm located
in the United Kingdom.
These financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and, in the opinion of
management, reflect all adjustments necessary to present fairly the financial
position, results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles. All adjustments were
of a normal recurring nature. All material intercompany balances and
transactions have been eliminated. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1996 Annual Report to Stockholders, which are
incorporated by reference in the Company's 1996 Annual Report on Form 10-K, and
the Company's Quarterly Reports on Form 10-Q for the periods ended March 31,
1997 and June 30, 1997.
Prior periods' financial statements have been reclassified to conform to
the 1997 presentation.
Stock Split
On July 16, 1997, the Board of Directors approved a three-for-two split of
the Company's common stock, effected in the form of a 50% stock dividend. The
stock dividend was distributed on September 15, 1997 to stockholders of record
on August 14, 1997. Share and per share data have been restated to reflect this
transaction.
New Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 125 -- Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, was adopted by the Company effective January 1, 1997, except for
certain financial assets for which the effective date has been delayed until
1998 by SFAS No. 127 -- Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125. SFAS No. 125 provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities. The adoption of this statement did not have an effect on the
Company's financial position, results of operations, earnings per share or cash
flows.
SFAS No. 128 -- Earnings per Share, was issued in February 1997. The
Company is required to adopt this statement at December 31, 1997. This statement
replaces current earnings per share (EPS) reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential reduction in EPS
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
If this statement had been in effect during the current and prior year
periods, basic EPS would have been $.29 and $.22 for the quarters ended
September 30, 1997 and 1996, respectively and $.79 and $.67 for the nine-month
periods ended September 30, 1997 and 1996, respectively. Diluted EPS would have
been the same as primary and fully diluted EPS currently reported for the
periods.
SFAS No. 129 -- Disclosure of Information about Capital Structure, was
issued in February 1997. The Company is required to adopt this statement at
December 31, 1997. This statement establishes standards for disclosing
information about the Company's capital structure. The adoption of this
statement will not have an effect on the Company's financial position, results
of operations, earnings per share or cash flows.
SFAS No. 130 -- Reporting Comprehensive Income, and SFAS No. 131 --
Disclosures about Segments of an Enterprise and Related Information, were issued
in June 1997 and are effective for fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income, which includes net income and changes in equity except
those resulting from investments by, or distributions to, stockholders. SFAS No.
131 establishes standards for disclosures related to business operating
segments. The adoption of these statements will not have an effect on the
Company's financial position, results of operations, earnings per share or cash
flows.
Commitments and Contingencies
In August 1997, the Company entered into a twenty-year noncancelable
operating lease for office space located in San Francisco, California. The lease
includes two ten-year extension options at then current market rates. Rental
payments commence in 1998. The future minimum rental commitment under this lease
is $6 million in 1998, $8 million per year for 1999 through 2001, and $131
million thereafter.
M&S has been named as one of thirty-eight defendant market-making firms in
a consolidated class action, In re: Nasdaq Market-Makers Antitrust Litigation,
which is pending in the United States District Court for the Southern District
of New York pursuant to an order of the Judicial Panel on Multidistrict
Litigation. On August 22, 1995, a second consolidated amended class action
complaint was filed purportedly on behalf of certain persons who purchased or
sold Nasdaq securities during the period May 1, 1989 through May 27, 1994. The
consolidated complaint generally alleges an illegal combination and conspiracy
among the defendant market makers to fix and maintain the spreads between the
bid and ask prices of certain Nasdaq securities. The consolidated complaint
seeks damages based upon joint and several liability, as well as injunctive and
declaratory relief and attorneys fees, but does not set forth any specific
amount of damages, although it requests that the actual damages be trebled where
permitted by statute. On November 26, 1996, a plaintiff class consisting of
retail investors was certified by the Court. On April 14, 1997, a plaintiff
class consisting of institutional investors was also certified. Pre-trial
discovery is ongoing. Between April 9, 1997 and August 7, 1997, plaintiffs
reached proposed settlements with six defendants and motions to approve those
settlements are pending before the Court.
Between August 12, 1993 and November 17, 1995, Schwab was named as a
defendant in eleven class action lawsuits in seven states. The class actions all
purport to be brought on behalf of customers of Schwab who purchased or sold
securities for which Schwab received payments from the market maker, stock
dealer or third party who executed the transaction. The complaints generally
allege that Schwab failed to disclose and remit such payments to members of the
class, and generally seek damages equal to the payments received by Schwab. One
of the actions was voluntarily dismissed and four have been resolved favorably
to Schwab on the grounds that the claims asserted are preempted by federal law.
The remaining six cases are still pending in state courts in Texas, Illinois,
California and Louisiana. The action in Texas has been stayed. The actions in
Illinois and California have been dismissed on the grounds that the claims
asserted are preempted by federal law. Plaintiffs have filed appeals in both
cases.
On June 30, 1995, the action in Civil District Court for the Parish of
Orleans in Louisiana was certified on behalf of a class of Louisiana residents
who purchased or sold securities through Schwab between February 1, 1985 and
February 1, 1995 for which Schwab received monetary payments from the market
maker or stock dealer who executed the transaction. The action is currently on
appeal, by order of the Louisiana Supreme Court, from the trial Court's denial
of Schwab's motion to dismiss on the grounds of federal preemption.
On August 16, 1995, the action in Civil District Court for the Parish of
Natchitoches in Louisiana was certified on behalf of a class of residents of all
states who purchased or sold securities through Schwab since 1985 for which
Schwab received monetary payments from the market maker or the third party who
executed the transaction. On August 26, 1997, the Natchitoches action was stayed
pending a determination of the preemption issue by the Louisiana Court of
Appeals.
The ultimate outcome of the legal proceedings described above and the
various other civil actions, arbitration proceedings, and claims pending against
the Company cannot be determined at this time, and the results of these legal
proceedings cannot be predicted with certainty. While a substantial judgment
could have a material adverse impact on the Company's financial condition and
results of operations, it is the opinion of management, after consultation with
outside legal counsel, that the ultimate outcome of these actions will not have
a material adverse impact on the financial condition of the Company; however,
there could be a material adverse impact on operating results in future periods,
depending in part on the results for such periods.
Regulatory Requirements
Schwab and M&S are subject to the Uniform Net Capital Rule under the
Securities Exchange Act of 1934 (the Rule) and each compute net capital under
the alternative method permitted by this Rule, which requires the maintenance of
minimum net capital, as defined, of the greater of 2% of aggregate debit
balances arising from customer transactions or a minimum dollar amount, which is
based on the type of business conducted by the broker-dealer. The minimum dollar
amount for both Schwab and M&S is $1 million. Under the alternative method, a
broker-dealer may not repay subordinated borrowings, pay cash dividends, or make
any unsecured advances or loans to its parent or employees if such payment would
result in net capital of less than 5% of aggregate debit balances or less than
120% of its minimum dollar amount requirement. At September 30, 1997, Schwab's
net capital was $742 million (10% of aggregate debit balances), which was $593
million in excess of its minimum required net capital and $370 million in excess
of 5% of aggregate debit balances. At September 30, 1997, M&S' net capital was
$10 million (573% of aggregate debit balances), which was $9 million in excess
of its minimum required net capital.
Schwab and ShareLink had portions of their cash and investments segregated
for the exclusive benefit of customers at September 30, 1997, in accordance with
applicable regulations. M&S had no such cash reserve requirement at September
30, 1997.
Cash Flow Information
Certain information affecting the cash flows of the Company follows (in
thousands):
Nine Months
Ended
September 30,
1997 1996
---- ----
Income taxes paid $ 112,338 $ 106,249
========== ==========
Interest paid:
Customer cash balances $ 349,912 $ 266,695
Stock-lending activities 27,086 17,046
Borrowings 18,602 16,733
Other 6,127 5,933
---------- ----------
Total interest paid $ 401,727 $ 306,407
========== ==========
Subsequent Event
On October 22, 1997, the Board of Directors increased the quarterly cash
dividend from $.033 per share to $.040 per share payable November 28, 1997 to
stockholders of record November 14, 1997.
<PAGE>
THE CHARLES SCHWAB CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Description of Business
The Charles Schwab Corporation (CSC) and its subsidiaries (collectively
referred to as the Company) provide securities brokerage and related financial
services for over 4.6 million active customer accounts(a). Customer assets
totaled $344.7 billion at September 30, 1997. CSC's principal subsidiary,
Charles Schwab & Co., Inc. (Schwab), is a securities broker-dealer with 262
branch offices in 47 states, the Commonwealth of Puerto Rico and the United
Kingdom. Another subsidiary, Mayer & Schweitzer, Inc. (M&S), a market maker in
Nasdaq securities, provides trade execution services to broker-dealers and
institutional customers. Other subsidiaries include Charles Schwab Investment
Management, Inc., the investment adviser for Schwab's proprietary mutual funds,
and ShareLink, a retail discount securities brokerage firm located in the United
Kingdom.
The Company's strategy is to attract and retain customer assets by
focusing on a number of areas within the financial services industry -- retail
brokerage, mutual funds, support services for independent investment managers,
equity securities market-making, electronic brokerage and 401(k) defined
contribution plans. To pursue its strategy and its objective of long-term
profitable growth, the Company plans to continue to leverage its competitive
advantages. These advantages include advertising and marketing programs that
have created a national brand, a broad range of products and services, diverse
delivery systems and an ongoing investment in technology.
The Company's nationwide advertising and marketing programs are designed
to distinguish the Schwab brand as well as its products and services. These
programs helped the Company open 294,000 new customer accounts and gather $16.4
billion in net new customer assets during the third quarter of 1997.
The Company offers a broad range of products and services to meet
customers' investment and financial needs at prices that management believes
represent superior value. The Company's branch office network assists investors
in developing asset allocation strategies and evaluating their investment
choices. Branch staff also refer investors who desire additional guidance to
independent fee-compensated investment managers through the Schwab AdvisorSource
(trademark) service. The Company is continuing to enhance and broaden the Mutual
Fund OneSource (registered trademark) service, which provides customers with the
ability to invest in approximately 800 mutual funds from 120 fund families
without incurring transaction fees. During the third quarter of 1997, Schwab
announced alliances with three investment banking firms to provide certain of
its customers access to initial and secondary public stock offerings managed by
these firms.
The Company invests in diverse delivery systems that support the Company's
customer service standards. During the third quarter of 1997, the Company opened
eight new branch offices. In addition to its branch office network, the Company
maintains four regional telephone service centers. The Company also offers
electronic brokerage channels that provide customers with online and telephonic
access. Online channels include PC-based services such as SchwabLink (registered
trademark) -- a service for investment managers, StreetSmart (registered
trademark) -- Schwab's desktop trading software, e.Schwab (trademark) -- an
online investing account, and SchwabNOW! (trademark) -- which provides
information and trading services through Schwab's World Wide Web site.
Telephonic channels include TeleBroker (registered trademark) -- Schwab's
touch-tone telephone trading service, and VoiceBroker (trademark) -- Schwab's
service that uses voice recognition technology to provide individual investors
with real-time quotes.
- -------------------
(a) Accounts with balances or activity within the preceding twelve months.
The Company's ongoing investment in technology is a key element in
providing fast and consistent customer service, and reducing processing costs.
The Company is a forerunner in placing technology in the hands of customers.
During the third quarter of 1997, Schwab introduced the SchwabLink Web
(trademark) site for independent fee-based investment managers, who can now use
the Internet to communicate directly with Schwab service teams, as well as
receive news and information tailored to their needs. In addition, the Company
launched a service that allows customers of its Cayman Islands and Hong Kong
subsidiaries to trade third party mutual funds online and obtain information on
mutual fund performance and fees, all through the Company's international web
site. Also during the third quarter of 1997, Schwab introduced a speech
recognition telephone trading service that enables customers to trade any of the
funds in the Mutual Fund Marketplace (registered trademark) using vocal
commands.
The Company faces significant competition from full commission and
discount brokerage firms, as well as mutual fund companies. Increasingly,
competition has come from banks, software development companies, insurance
companies and others as they expand their product lines. Some of these
competitors have significantly greater resources than the Company. A general
trend of consolidation in financial services has attracted new competitors and
strengthened existing ones. Another recent trend has been increased competition
on the basis of price, particularly in online investing services. These
competitive factors may negatively impact the Company's revenue growth and
profit margin.
The Company's business, like that of other securities brokerage firms, is
directly affected by the fluctuations in securities trading volumes and price
levels that occur in fundamentally cyclical financial markets. Since
transaction-based revenues continue to represent a majority of the Company's
revenues, the Company may experience significant variations in revenues from
period to period.
The Company adjusts its expenses in anticipation of and in response to
changes in financial market conditions and customer trading patterns. Certain of
the Company's expenses (including variable compensation, portions of
communications, and commissions, clearance and floor brokerage) vary directly
with changes in financial performance or customer trading activity. Expenses
relating to the level of temporary employees, contractors, overtime hours,
professional services, and advertising and market development are adjustable
over the short term to help the Company achieve its financial objectives.
Additionally, developmental spending (e.g., branch openings, product and service
rollouts, and technology enhancements) is discretionary and can be altered in
response to market conditions. However, a significant portion of the Company's
expenses such as salaries and wages, occupancy and equipment, and depreciation
and amortization do not vary directly, at least in the short term, with
fluctuations in revenues or securities trading volumes. Given the nature of the
Company's revenues and expenses, and the economic and competitive factors
discussed above, the Company's earnings and common stock price may be subject to
significant volatility from period to period. The Company's results for any
interim period are not necessarily indicative of results for a full year.
In addition to historical information, this interim report contains
forward-looking statements that reflect management's expectations. These
statements relate to, among other things, Company contingencies (see
"Commitments and Contingencies" note in the Notes to Condensed Consolidated
Financial Statements), strategy (see Description of Business), revenues (see
Principal Transactions), profit margin (see Principal Transactions), sources of
liquidity (see Liquidity and Capital Resources-Liquidity) and capital
expenditures (see Liquidity and Capital Resources-Cash Flows and Capital
Resources). Achievement of the expressed expectations is subject to certain
risks and uncertainties that could cause actual results to differ materially
from those expectations. Important factors that may cause such differences are
noted throughout this interim report and include, but are not limited to: the
effect of customer trading patterns on Company revenues and earnings; changes in
technology; computer system failures; the effects of competitors' pricing,
product and service decisions and intensified competition; evolving regulation
and changing industry customs and practices adversely affecting the Company;
adverse results of litigation; changes in revenues and profit margin due to
cyclical securities markets and interest rates; and a significant downturn in
the securities markets over a short period of time or a sustained decline in
securities prices and trading volumes.
Three Months Ended September 30, 1997
Compared To Three Months Ended
September 30, 1996
Financial Overview
Net income for the third quarter of 1997 totaled $77 million, up 34% from
third quarter 1996 net income of $57 million. Earnings per share for the third
quarter of 1997 increased 33% to $.28 per share from $.21 per share for the
third quarter of 1996. Share and per share data have been restated to reflect
the effects of the three-for-two common stock split declared on July 16, 1997
and distributed on September 15, 1997.
Third quarter 1997 revenues were $612 million, up 42% from $430 million
for the third quarter of 1996, primarily due to a 54% increase in commission
revenues, as well as a 40% increase in mutual fund service fees and a 47%
increase in interest revenue, net of interest expense (referred to as net
interest revenue). These increases mainly resulted from higher trading volume
and an increase in customer assets. During the third quarter of 1997, total
daily average trades, which include revenue trades and Mutual Fund OneSource
(registered trademark) trades, were 112,200, up 48% from 75,700 for the same
period last year. The Company's strategy of placing technology in the hands of
customers and providing diverse delivery systems has facilitated growth in
electronic trading at Schwab. A total of 46,100 daily average trades were
generated through online brokerage channels during the third quarter of 1997, up
132% from 19,900 for the same period last year. Additionally, a total of 15,000
daily average trades were generated through TeleBroker (registered trademark)
during the third quarter of 1997, up 30% from 11,500 for the same period last
year.
Assets in Schwab customer accounts totaled $344.7 billion at September 30,
1997, an increase of $113.1 billion, or 49%, from a year ago as shown in the
table below. This increase resulted from net new customer assets of $62.3
billion and net market gains of $50.8 billion.
- --------------------------------------------------------------------------------
Assets in Schwab
Customer Accounts September 30, Percent
(in billions) 1997 1996 Change
- --------------------------------------------------------------------------------
Cash and equivalents:
SchwabFunds (registered trademark) money
market funds $ 46.4 $ 36.1 29%
Schwab One (registered trademark) and other
cash equivalents 11.6 9.2 26
Net securities:
Mutual Fund Marketplace (registered trademark) (1):
Mutual Fund OneSource (registered trademark) 56.9 36.1 58
All other 48.1 33.1 45
- --------------------------------------------------------------------------------
Total Mutual Fund
Marketplace 105.0 69.2 52
Equity and other securities (1) 151.8 93.1 63
SchwabFunds equity and
bond funds 6.8 3.1 119
Fixed income securities 30.2 25.5 18
Margin loans outstanding (7.1) (4.6) 54
- --------------------------------------------------------------------------------
Total assets in Schwab
customer accounts $ 344.7 $ 231.6 49
================================================================================
(1) Excludes money market funds and all of Schwab's proprietary money market,
equity and bond funds.
Total operating expenses excluding interest during the third quarter of
1997 were $485 million, up 45% from $334 million for the third quarter of 1996,
primarily resulting from additional staff to support the Company's growth and
expansion, as well as an increase in advertising and market development
spending, higher depreciation and amortization expense, and higher other
expenses.
The after-tax profit margin for the third quarter of 1997 was 12.5%, down
from 13.3% for the third quarter of 1996. The annualized return on stockholders'
equity for the third quarter of 1997 was 30%, up from 29% for the third quarter
of 1996.
Commissions
Commission revenues for the Company were $323 million for the third
quarter of 1997, up $113 million, or 54%, from the third quarter of 1996. The
Company earns commissions when acting as an agent and principal transaction
revenues when acting as a principal or a market maker.
Commissions earned on customer revenue trades, excluding commissions on
trades with specialists, were $320 million for the third quarter of 1997,
compared to $209 million for the third quarter of 1996. Daily average revenue
trades were 77,400 in the third quarter of 1997, compared to 48,700 for the
comparable period in 1996. The Company's total revenue trades have increased as
its customer base has continued to grow. However, this increase was partially
offset by a decline in average commission per revenue trade. Average commission
per revenue trade declined due to a higher proportion of trades placed through
electronic brokerage channels, which provide additional commission discounts
from the Company's standard rates.
- -----------------------------------------------------------------
Three Months
Commissions Earned Ended
on Customer Revenue September 30, Percent
Trades 1997 1996 Change
- -----------------------------------------------------------------
Customer accounts that
traded during the quarter
(in thousands) 1,153 890 30%
Average customer
revenue trades
per account 4.30 3.51 23
Total revenue
trades (in thousands) 4,955 3,124 59
Average commission
per revenue trade $64.61 $66.88 (3)
Commissions earned
on customer revenue
trades (in millions) $ 320 $ 209 53
=================================================================
Attracting new customer accounts is important in generating commission
revenues. Schwab added 294,000 new customer accounts during the third quarter of
1997, an increase of 35% from the 217,000 new accounts added during the third
quarter of 1996.
Mutual Fund Service Fees
Mutual fund service fees were $112 million for the third quarter of 1997,
up $32 million, or 40%, from the comparable period in 1996. This increase was
primarily attributable to significant increases in customer assets in funds
purchased through Schwab's Mutual Fund OneSource (registered trademark) service,
and in customer assets in Schwab's proprietary funds, collectively referred to
as the SchwabFunds (registered trademark) (see Assets in Schwab Customer
Accounts table above). Fees are earned for record keeping and shareholder
services provided to funds in the Mutual Fund OneSource service, and for
transfer agent services, shareholder services, administration and investment
management provided to the SchwabFunds.
Principal Transactions
Principal transaction revenues were $61 million for the third quarter of
1997, up $4 million, or 7%, from the comparable period in 1996. This increase
was primarily due to higher revenues relating to Schwab's specialists
operations, as well as a slight increase in M&S trading revenue. M&S trading
revenue increased due to higher trading volume handled by M&S, substantially
offset by lower average revenue per principal transaction.
In August 1996, the Securities and Exchange Commission (SEC) adopted
certain new rules and rule amendments, known as the Order Handling Rules, which
have significantly altered the manner in which orders related to both Nasdaq and
listed securities are handled. These rules were implemented in phases between
January 20, 1997 and October 13, 1997.
Additionally, in June 1997, most major U.S. securities markets, including
Nasdaq and the New York Stock Exchange, Inc. began quoting and trading
securities in increments of one-sixteenth dollar per share instead of one-eighth
dollar per share for most securities, and these markets are currently
considering further changes to reduce the increments by which securities are
priced. Mainly as a result of these regulatory changes and changes in industry
customs and practices, average revenue per principal transaction declined during
the third quarter of 1997 as compared to the third quarter of 1996. These and
future regulatory changes and changes in industry customs and practices are
expected to continue to result in significant declines in average revenue per
principal transaction, and are expected to have a material adverse impact on
M&S' revenues and profit margin. In response to these changes, M&S is in the
process of instituting reductions in payments to broker-dealers who direct
securities orders to M&S.
See "Commitments and Contingencies" note in the Notes to Condensed
Consolidated Financial Statements regarding certain civil litigation relating to
various principal transaction activities.
Net Interest Revenue
Net interest revenue was $94 million for the third quarter of 1997, up $30
million, or 47%, from the comparable period in 1996 as shown in the following
table (in millions):
- ------------------------------------------------------------
Three Months
Ended
September 30,
1997 1996
- ------------------------------------------------------------
Interest Revenue
Margin loans to customers $ 129 $ 87
Investments, customer-related 99 76
Other 8 9
- ------------------------------------------------------------
Total 236 172
- ------------------------------------------------------------
Interest Expense
Customer cash balances 126 94
Stock-lending activities 10 6
Borrowings 5 5
Other 1 3
- ------------------------------------------------------------
Total 142 108
- ------------------------------------------------------------
Net Interest Revenue $ 94 $ 64
============================================================
Customer-related daily average balances, interest rates and average net
interest margin for the third quarters of 1997 and 1996 are summarized in the
following table (dollars in millions):
- ----------------------------------------------------------------------
Three Months Ended
September 30,
1997 1996
- ----------------------------------------------------------------------
Interest-Earning Assets (customer-related):
Investments:
Average balance outstanding $ 7,193 $ 5,693
Average interest rate 5.47% 5.30%
Margin loans to customers:
Average balance outstanding $ 6,614 $ 4,603
Average interest rate 7.73% 7.55%
Average yield on interest-earning assets 6.55% 6.30%
Funding Sources (customer-related
and other):
Interest-bearing customer cash balances:
Average balance outstanding $10,943 $ 8,493
Average interest rate 4.56% 4.39%
Other interest-bearing sources:
Average balance outstanding $ 1,185 $ 747
Average interest rate 4.40% 4.51%
Average noninterest-bearing portion $ 1,679 $ 1,056
Average interest rate on funding sources 3.99% 3.95%
Summary:
Average yield on interest-earning assets 6.55% 6.30%
Average interest rate on funding sources 3.99% 3.95%
- ----------------------------------------------------------------------
Average net interest margin 2.56% 2.35%
======================================================================
The increase in net interest revenue from the prior year's third quarter
was primarily due to higher levels of average earning assets.
Expenses Excluding Interest
Compensation and benefits expense was $255 million for the third quarter
of 1997, up $83 million, or 49%, from the prior year's third quarter primarily
due to an increase in salaries and wages resulting from a larger number of
employees, as well as higher variable compensation. During the third quarters of
1997 and 1996, variable compensation represented 27% and 24%, respectively, of
total compensation and benefits expense. At September 30, 1997, the Company had
full-time, part-time and temporary employees, and persons employed on a contract
basis that represented the equivalent of approximately 12,000 full-time
employees, compared to approximately 9,600 at September 30, 1996. Compensation
for temporary employees, contractors and overtime hours accounted for $34
million and $19 million of total compensation and benefits expense during the
third quarters of 1997 and 1996, respectively.
Depreciation and amortization expense was $35 million for the third
quarter of 1997, up $11 million, or 44%, from the prior year's third quarter
primarily due to newly acquired data processing and telecommunication equipment
which increased the Company's customer service capacity.
Advertising and market development expense was $29 million for the third
quarter of 1997, up $13 million, or 78%, from the prior year's third quarter
primarily due to increased media advertisements relating to campaigns covering
Mutual Fund OneSource (registered trademark) and online investing services, as
well as new product and service offerings. Higher print and direct mail
advertisements also contributed to the increase.
Other expenses were $34 million for the third quarter of 1997, up $16
million, or 87%, from the prior year's third quarter. This increase was
primarily due to a provision for litigation, as well as increases in travel and
entertainment and volume-related expenses reflecting the Company's continued
growth.
The Company's effective income tax rate for the third quarter of 1997 was
39.7% compared to 40.9% for the comparable period in 1996.
Nine Months Ended September 30, 1997
Compared To Nine Months Ended
September 30, 1996
Financial Overview
Net income for the first nine months of 1997 totaled $207 million, up $33
million, or 19%, from the first nine months of 1996. Earnings per share for the
first nine months of 1997 increased 17% to $.76 per share from $.65 per share
for the first nine months of 1996.
Revenues for the first nine months of 1997 were $1,678 million, up 23%
from $1,369 million for the first nine months of 1996, primarily due to a 21%
increase in commission revenues, as well as a 37% increase in both mutual fund
service fees and net interest revenue. During the first nine months of 1997,
total daily average trades, which include revenue trades and Mutual Fund
OneSource (registered trademark) trades, were 104,400, up 29% from 80,900 for
the same period last year. A total of 38,000 daily average trades were generated
through online brokerage channels during the first nine months of 1997, up 97%
from 19,300 for the same period last year. A total of 13,700 daily average
trades were generated through TeleBroker (registered trademark) during the first
nine months of 1997, up 4% from 13,200 for the same period last year.
Total operating expenses excluding interest during the first nine months
of 1997 were $1,335 million, up 24% from $1,074 million for the comparable
period in 1996, primarily resulting from additional staff to support the
Company's growth and expansion, as well as an increase in advertising and market
development spending.
The after-tax profit margin for the first nine months of 1997 was 12.3%,
down from 12.7% for the same period in 1996. The annualized return on
stockholders' equity for the first nine months of 1997 was 29%, down from 32%
for the first nine months of 1996, reflecting the Company's higher equity base
in the first nine months of 1997.
Commissions
Commission revenues for the Company were $859 million for the first nine
months of 1997, up $147 million, or 21%, from the comparable period in 1996.
Commissions earned on customer revenue trades, excluding commissions on trades
with specialists, were $853 million for the first nine months of 1997, compared
to $707 million for the first nine months of 1996. Daily average revenue trades
were 69,900 in the first nine months of 1997, compared to 53,300 for the
comparable period in 1996. The Company's total revenue trades have increased as
its customer base has continued to grow. However, this increase was partially
offset by a decline in average commission per revenue trade. Average commission
per revenue trade declined due to a higher proportion of trades placed through
electronic brokerage channels, which provide additional commission discounts
from the Company's standard rates.
- ------------------------------------------------------------------
Nine Months
Commissions Earned Ended
on Customer Revenue September 30, Percent
Trades 1997 1996 Change
- ------------------------------------------------------------------
Customer accounts that
traded during the period
(in thousands) 2,028 1,740 17%
Average customer
revenue trades
per account 6.51 5.82 12
Total revenue
trades (in thousands) 13,206 10,133 30
Average commission
per revenue trade $64.59 $69.81 (7)
Commissions earned
on customer revenue
trades (in millions) $ 853 $ 707 21
==================================================================
Schwab added a record 881,000 new customer accounts during the first nine
months of 1997, an increase of 21% from the 726,000 new accounts added during
the first nine months of 1996.
Mutual Fund Service Fees
Mutual fund service fees were $309 million for the first nine months of
1997, up $84 million, or 37%, from the comparable period in 1996. This increase
was attributable to the factors described in the comparison between the
three-month periods.
Principal Transactions
Principal transaction revenues were $194 million for the first nine months
of 1997, up $2 million, or 1%, from the comparable period in 1996. This increase
was primarily due to higher revenues relating to Schwab's specialists
operations, partially offset by a decrease in M&S trading revenue. M&S trading
revenue decreased due to lower average revenue per principal transaction (see
discussion in the comparison between the three-month periods), which was largely
offset by higher trading volume handled by M&S.
Net Interest Revenue
Net interest revenue was $253 million for the first nine months of 1997,
up $68 million, or 37%, from the comparable period in 1996 as shown in the
following table (in millions):
- ------------------------------------------------------------
Nine Months
Ended
September 30,
1997 1996
- ------------------------------------------------------------
Interest Revenue
Margin loans to customers $ 339 $ 248
Investments, customer-related 290 225
Other 23 20
- ------------------------------------------------------------
Total 652 493
- ------------------------------------------------------------
Interest Expense
Customer cash balances 350 267
Stock-lending activities 28 18
Borrowings 14 14
Other 7 9
- ------------------------------------------------------------
Total 399 308
- ------------------------------------------------------------
Net Interest Revenue $ 253 $ 185
============================================================
Customer-related daily average balances, interest rates and average net
interest margin for the first nine months of 1997 and 1996 are summarized in the
following table (dollars in millions):
- ----------------------------------------------------------------------
Nine Months Ended
September 30,
1997 1996
- ----------------------------------------------------------------------
Interest-Earning Assets (customer-related):
Investments:
Average balance outstanding $ 7,205 $ 5,662
Average interest rate 5.37% 5.31%
Margin loans to customers:
Average balance outstanding $ 5,917 $ 4,371
Average interest rate 7.66% 7.58%
Average yield on interest-earning assets 6.40% 6.30%
Funding Sources (customer-related
and other):
Interest-bearing customer cash balances:
Average balance outstanding $10,486 $ 8,122
Average interest rate 4.47% 4.39%
Other interest-bearing sources:
Average balance outstanding $ 1,091 $ 725
Average interest rate 4.45% 4.42%
Average noninterest-bearing portion $ 1,545 $ 1,186
Average interest rate on funding sources 3.94% 3.87%
Summary:
Average yield on interest-earning assets 6.40% 6.30%
Average interest rate on funding sources 3.94% 3.87%
- ----------------------------------------------------------------------
Average net interest margin 2.46% 2.43%
======================================================================
The increase in net interest revenue from the prior year's first nine
months was primarily due to higher levels of average earning assets.
Expenses Excluding Interest
Compensation and benefits expense for the first nine months of 1997 was
$700 million, up $132 million, or 23%, from the comparable period in 1996
primarily due to an increase in salaries and wages resulting from a larger
number of employees, as well as higher variable compensation. During the first
nine months of 1997 and 1996, variable compensation represented 23% and 27%,
respectively, of total compensation and benefits expense. Compensation for
temporary employees, contractors and overtime hours accounted for $98 million
and $62 million of total compensation and benefits expense during the first nine
months of 1997 and 1996, respectively.
Advertising and market development expense for the first nine months of
1997 was $91 million, up $35 million, or 61%, from the prior year's first nine
months. In addition to the factors described in the comparison between the
three-month periods, advertisements related to the Company's role as the
official investment firm for the Professional Golf Association Tour contributed
to the increase.
The Company's effective income tax rate for the first nine months of 1997
was 39.6% compared to 41.0% for the comparable period in 1996.
Liquidity and Capital Resources
Liquidity
Schwab
Liquidity needs relating to customer trading and margin borrowing
activities are met primarily through cash balances in customer accounts, which
totaled $11.9 billion and $10.9 billion at September 30, 1997 and December 31,
1996, respectively. Earnings from Schwab's operations are the primary source of
liquidity for capital expenditures and investments in new services, marketing
and technology. Management believes that customer cash balances and operating
earnings will continue to be the primary sources of liquidity for Schwab in the
future.
To manage Schwab's regulatory capital position, CSC provides Schwab with a
$300 million subordinated revolving credit facility maturing in September 1999.
On October 29, 1997, the size of this facility was increased from $300 million
to $400 million. At September 30, 1997, $275 million was outstanding. At quarter
end, Schwab also had outstanding $25 million in fixed-rate subordinated term
loans from CSC maturing in 1999. Borrowings under these subordinated lending
arrangements qualify as regulatory capital for Schwab.
For use in its brokerage operations, Schwab maintained uncommitted,
unsecured bank credit lines totaling $595 million at September 30, 1997. Schwab
used such borrowings for ten days during the first nine months of 1997, with the
daily amounts borrowed averaging $91 million. These lines were unused at
September 30, 1997.
M&S
M&S' liquidity needs are generally met through earnings generated by its
operations. Most of M&S' assets are liquid, consisting primarily of receivables
from brokers, dealers and clearing organizations, marketable securities, and
cash and cash equivalents. M&S may borrow up to $35 million under a subordinated
lending arrangement with CSC. Borrowings under this arrangement qualify as
regulatory capital for M&S. This facility was unused at September 30, 1997.
CSC
CSC's liquidity needs are generally met through cash generated by its
subsidiaries, as well as cash provided by external financing. Schwab and M&S are
subject to regulatory requirements that are intended to ensure the general
financial soundness and liquidity of broker-dealers. These regulations would
prohibit Schwab and M&S from repaying subordinated borrowings to CSC, paying
cash dividends, or making any unsecured advances or loans to their parent or
employees if such payment would result in net capital of less than 5% of their
aggregate debit balances or less than 120% of their minimum dollar amount
requirement of $1 million. At September 30, 1997, Schwab had $742 million of net
capital (10% of aggregate debit balances), which was $593 million in excess of
its minimum required net capital. At September 30, 1997, M&S had $10 million of
net capital (573% of aggregate debit balances), which was $9 million in excess
of its minimum required net capital. Management believes that funds generated by
the operations of CSC's subsidiaries will continue to be the primary funding
source in meeting CSC's liquidity needs and maintaining Schwab's and M&S' net
capital.
CSC has individual liquidity needs that arise from its issued and
outstanding $319 million Senior Medium-Term Notes, Series A (Medium-Term Notes),
as well as from the funding of cash dividends, common stock repurchases and
acquisitions. The Medium-Term Notes have maturities ranging from 1997 to 2007
and fixed interest rates ranging from 5.32% to 7.72% with interest payable
semiannually. The Medium-Term Notes are rated A3 by Moody's Investors Service
and A- by Standard & Poor's Ratings Group. The rating by Standard & Poor's was
raised to A- from BBB+ on October 22, 1997.
As of September 30, 1997, CSC had a prospectus supplement on file with the
SEC enabling CSC to issue up to $196 million in Senior or Senior Subordinated
Medium-Term Notes, Series A. At September 30, 1997, $135 million of these notes
remained unissued.
CSC may borrow under its $350 million committed, unsecured credit facility
with a group of 11 banks through June 1998. The funds are available for general
corporate purposes for which CSC pays a commitment fee on the unused balance.
The terms of this facility require CSC to maintain a minimum level of
stockholders' equity and Schwab and M&S to maintain minimum levels of net
capital, as defined. This facility was not used in the first nine months of
1997.
See "Commitments and Contingencies" note in Part I - Financial
Information, Item 1., Notes to Condensed Consolidated Financial Statements.
Cash Flows and Capital Resources
Net income plus depreciation and amortization was $300 million for the
first nine months of 1997, up 22% from $246 million for the first nine months of
1996. Depreciation and amortization expense related to equipment, office
facilities and property totaled $80 million for the first nine months of 1997,
as compared to $63 million for the same period in the prior year. Amortization
expense related to intangible assets totaled $12 million and $9 million for the
first nine-month periods of 1997 and 1996, respectively.
During the first nine months of 1997, the Company's capital expenditures
totaled $103 million for equipment relating to continued enhancements of its
data processing and telecommunications systems, as well as leasehold
improvements and additional office facilities to support the Company's growth.
In addition, the Company opened 27 new branch offices during the first nine
months of 1997, compared to nine branch offices opened during the comparable
period in 1996. As has been the case recently, capital expenditures will vary
from period to period as business conditions change.
The Company issued $61 million and repaid $20 million in Medium-Term Notes
during the first nine months of 1997.
In September 1997, the Board of Directors authorized the repurchase of up
to an additional 3,750,000 shares of the Company's common stock. During the
first nine months of 1997, the Company repurchased and recorded as treasury
stock a total of 780,000 shares of its common stock for approximately $16
million. As of September 30, 1997, authorization granted by the Company's Board
of Directors allowed for future repurchases of 5,026,500 shares.
In July 1997, the Board of Directors approved a three-for-two split of the
Company's common stock, effected in the form of a 50% stock dividend. The stock
dividend was distributed on September 15, 1997 to stockholders of record on
August 14, 1997. Share and per share data have been restated to reflect this
transaction.
During the first nine months of 1997, the Company paid common stock cash
dividends totaling $26 million, up from $23 million paid during the first nine
months of 1996.
The Company monitors both the relative composition and absolute level of
its capital structure. The Company's stockholders' equity at September 30, 1997
totaled $1,078 million. In addition, the Company had borrowings of $320 million
that bear interest at a weighted-average rate of 6.60%. These borrowings,
together with the Company's equity, provided total financial capital of $1,398
million at September 30, 1997, up $259 million, or 23% from the December 31,
1996 level of $1,139 million.
Year 2000
The Company is currently modifying its computer systems in order to
process data and transactions incorporating year 2000 dates without material
errors or interruptions. The success of this effort depends in part on parallel
efforts being undertaken by other securities market participants with which the
Company's systems interact. These efforts may also be affected by regulatory
changes that would require other significant systems modifications, such as the
potential shift of securities pricing from fractions to decimals and proposed
order audit trail requirements. Costs incurred to modify the Company's computer
systems will be expensed as incurred in accordance with generally accepted
accounting principles, and are not expected to have a material impact on the
Company's results of operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The discussion of legal proceedings in Notes to Condensed Consolidated
Financial Statements, under "Commitments and Contingencies" in Part I -
Financial Information, Item 1., as well as in "Principal Transactions" in
Management's Discussion and Analysis in Part I, Item 2., is incorporated herein
by reference.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On July 16, 1997, George P. Schultz, former U.S. Secretary of State, was
elected to the Company's Board of Directors, expanding it to 11 members.
On September 29, 1997, Timothy F. McCarthy was named President and Chief
Operating Officer of Charles Schwab & Co., Inc.
As of October 29, 1997, the Company's Management Committee consists of
Charles R. Schwab, David S. Pottruck, Timothy F. McCarthy and the following
individuals:
Karen W. Chang General Investor
John Philip Coghlan Retirement Plan Services
Linnet F. Deily Services for Investment Managers
Lon Gorman Capital Markets and Trading
Daniel O. Leemon Chief Strategy Officer
Dawn Gould Lepore Chief Information Officer
Susanne D. Lyons Active Trader and Affluent
Customer
Gideon Sasson * Electronic Brokerage
Steven L. Scheid Chief Financial Officer
Tom Decker Seip International and Mutual Funds
Luis E. Valencia Chief Administrative Officer
*Effective November 1, 1997.
On October 27, 1997, Lawrence J. Stupski announced his retirement as Vice
Chairman and Director of the Company effective January 1, 1998.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this quarterly report on
Form 10-Q.
- --------------------------------------------------------------------------------
Exhibit
Number Exhibit
- --------------------------------------------------------------------------------
10.181 Commercial office lease of 211 Main Street
between Main Plaza, LLC and Charles Schwab &
Co., Inc. dated August 8, 1997.
10.182 The Charles Schwab Corporation Corporate
Executive Bonus Plan, amended and restated, effective January 1,
1996 (supersedes Exhibit 10.147 to the Registrant's Form 10-K for
the year ended December 31, 1994).
10.183 Fourth Amendment to the Revolving Subordinated Loan Agreement, as of
July 25, 1997, between the Registrant and Charles Schwab & Co., Inc.
10.184 Fifth Amendment to the Revolving Subordinated Loan Agreement, as of
October 29, 1997, between the Registrant and Charles Schwab & Co.,
Inc.
10.185 The Charles Schwab Corporation Senior Executive
Severance Policy, effective December 7, 1995.
11.1 Computation of Earnings Per Share.
12.1 Computation of Ratio of Earnings to Fixed
Charges.
27.1 Financial Data Schedule (electronic only).
-------------------------------------------------------------------------------
(b) Reports on Form 8-K
None.
<PAGE>
THE CHARLES SCHWAB CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHARLES SCHWAB CORPORATION
(Registrant)
Date: October 29, 1997 /s/ Steven L. Scheid
---------------- -----------------------------
Steven L. Scheid
Executive Vice President and
Chief Financial Officer
Exhibit 10.181
COMMERCIAL OFFICE
L E A S E
BETWEEN
MAIN PLAZA, LLC, LANDLORD
and
CHARLES SCHWAB & CO., INC., TENANT
Premises: 211 Main Street
San Francisco, CA 94105
Dated: August 8, 1997
19696-5
<PAGE>
COMMERCIAL OFFICE LEASE
BASIC LEASE INFORMATION
Lease Section
Introductory Date: August 8, 1997
Paragraph
Landlord: Main Plaza, LLC,
a California limited liability company
Tenant: Charles Schwab & Co., Inc.
a California corporation
Section 1 Premises: Those portions of the Building
described in Section 1(a) and
as set forth in Exhibit A attached
hereto
Building: 211 Main Street
San Francisco, California 94105
Project: Land and improvements generally
bounded by Main, Howard and Spear
Streets, San Francisco, California,
and consisting of the buildings
commonly known as 101 Howard
Street, 211 Main Street and 221
Main Street
Section 2 Commencement
Date: As set forth in Section 2(a)
Section 2 Term
Expiration: April 30, 2018, subject to earlier
termination or extension as provided in
the Lease
Section 2 Term: The period between the Commencement
Date and the Term Expiration.
Section 3(b) Base Rent: As set forth in Exhibit B,
subject to adjustment in accordance
with Section 3(b)(ii) and Section
3(b)(iii)
Section 3(c) Additional Charges Operating Expenses and Real Estate
Taxes as set forth in Section 3(c) and
Exhibit B
Section 33 Tenant's
Address for
Notices: 101 Montgomery Street
San Francisco, California 94104
Attention: Senior Vice President
Administrative Services
with copies to:
P. O. Box 881566
c/o Corporate Real Estate
Lease Administration
San Francisco, California 94188-1566
and
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, California 94104
Attention: Mary B. Templeton, Esq.
Senior Vice President and
General Counsel
and
Corbin Silverman & Sanseverino LLP
805 Third Avenue
New York, New York 10022
Attention: Raymond A. Sanseverino, Esq.
Section 33 Landlord's
Address for
Notices: Main Plaza, LLC
101 Howard Street, Suite 404
San Francisco, California 94105
Section 36 Extension Options As set forth in Section 36
Section 37 Right of First Offer As set forth in Section 37
Section 38 First Right of As set forth in Section 38
Purchase
The provisions of the Lease identified above in the margin are those provisions
where references to particular Basic Lease Information appear. Each such
reference shall incorporate the applicable Basic Lease Information.
19696-5
<PAGE>
TABLE OF CONTENTS
Page
1. Premises.................................................................1
(a) Lease of Premises.......................................1
(b) Garage..................................................1
2. Term; Completion Of Improvements.........................................2
(a) Term....................................................2
(b) Delivery of Premises....................................3
(c) Early Occupancy.........................................4
(d) Change of Order of Delivery of Premises.................5
(e) Commencement Date Agreement.............................5
(f) Damage Prior to Rent Commencement Date..................5
(g) Permitting Delay Caused by Failure to Complete
Landlord's Work........................6
3. Rental...................................................................6
(a) Definitions.............................................7
(b) Base Rent..............................................15
(c) Additional Charges.....................................17
(d) Rental Commencement....................................28
(e) No Deduction or Offset; Interest.......................29
(f) Calculation Requirements...............................30
4. Use.....................................................................31
5. Services................................................................33
(a) Services - General.....................................33
(b) Telecommunication Services..............................34
(c) Non-Liability..........................................34
(d) Excess Electricity and Water...........................35
(e) Right to Install Generator.............................36
(f) Abatement..............................................36
(g) Tenant's Right to Cure.................................37
(h) Alternative Suppliers of Utility Services..............38
(i) Replacement of Third Party Service Providers...........38
6. Taxes Payable By Tenant.................................................39
TABLE OF CONTENTS
(continued)
Page
7. Alterations, Additions Or Improvements..................................40
(a) General................................................40
(b) Permitted Alterations and Decorative Work..............41
(c) Removal................................................42
(d) Tenant's Property......................................42
(e) Regulatory Requirements................................42
(f) Construction of Alterations............................43
(g) Compliance by Landlord.................................43
(h) Field Changes to Alterations...........................44
(i) Additional Cooling Tower...............................45
(j) Increase in Live Load and Electrical Capacity..........45
(k) As-Builts..............................................46
8. Liens...................................................................46
9. Repairs.................................................................47
(a) Tenant.................................................47
(b) Landlord...............................................47
(c) Abatement..............................................48
(d) Tenant's Right to Cure.................................49
(e) Landlord to Minimize Interference......................50
10. Destruction Or Damage...................................................50
(a) Damage To Building.....................................50
(b) Damage To Tenant's Improvements And Property...........53
(c) Repair.................................................53
(d) Repairs Not Timely Completed...........................54
(e) Waiver.................................................55
(f) Costs of Repair........................................55
(g) Damage at End of Term..................................56
(h) No Extensions..........................................57
11. Insurance; Waiver Of Subrogation........................................57
(a) Tenant's Liability Insurance...........................57
(b) Tenant's Self-Insurance................................58
(c) Landlord's Property Insurance..........................59
(d) Landlord's Liability Insurance.........................59
(e) Deductibles............................................60
TABLE OF CONTENTS
(continued)
Page
(f) Waiver; Subrogation....................................60
12. Waiver; Indemnity.......................................................60
13. Compliance With Legal Requirements.....................................63
(a) General...............................................63
(b) Landlord's Compliance.................................64
(c) Environmental Matters.................................65
14. Assignment And Subletting..............................................69
(a) Assignment and Subletting.............................69
(b) Information; Landlord's Options.......................71
(c) Assignment or Subletting Conditions...................72
(d) Primary Liability.....................................73
(e) Attorneys' Fees.......................................74
(f) Conflicting Provisions................................74
(g) Brokerage.............................................74
(h) Use or Occupancy by Affiliates
and Business Partners...............................74
15. Rules...................................................................75
16. Entry By Landlord.......................................................75
17. Events Of Default.......................................................79
18. Landlord's Right To Terminate...........................................80
19. Continuation Notwithstanding Default....................................82
20. Additional Remedies.....................................................82
21. Landlord's Right To Cure Defaults.......................................82
TABLE OF CONTENTS
(continued)
Page
22. Litigation Expenses.....................................................83
23. Eminent Domain..........................................................83
24. Subordination...........................................................85
25. No Merger...............................................................87
26. Sale 87
27. Estoppel Certificate....................................................88
28. No Light, Air, Or View Easement.........................................89
29. Holding Over............................................................89
(a) General................................................89
(b) Single Floor or Contiguous Floors......................89
30. Abandonment.............................................................90
31. Surrender...............................................................90
32. Waiver..................................................................91
33. Notice..................................................................91
34. Complete Agreement......................................................92
35. Corporate Authority.....................................................92
36. Options to Extend.......................................................93
(a) First Extension Options................................93
TABLE OF CONTENTS
(continued)
Page
(b) Second Extension Options...............................94
(c) Conditions.............................................95
37. Right of First Offer...................................................100
38. First Right of Purchase................................................103
39. Building Security......................................................107
40. Signage................................................................108
41. Satellite Dish.........................................................110
42. Miscellaneous Provisions...............................................111
43. Exhibits...............................................................112
44. Brokerage..............................................................113
45. Limitation Of Liability................................................113
46. Lease Memorandum.......................................................113
47. Landlord's Failure to Pay the Tenant Improvement Allowance.............114
48. Building Directory.....................................................114
49. Quiet Enjoyment........................................................115
50. Conditions Precedent...................................................115
<PAGE>
TABLE OF DEFINITIONS
Defined Term Section Reference
221 Main Street 39(c)
ADA 13(a)
Additional Charges 3(b)
Administrative Fee Exhibit C
Affiliate 14(a)
Alterations 7(a)
Applicable Laws Exhibit C
Approved Plans Exhibit C
Available Retail Space 37(a)
Base Rent 3(a)(i)
Booth Family 3(b)(i)
Booth Family Transfer 3(b)(i)
Building 1(a)
Building Systems 7(a)
Business Partner 14(h)
Business Partners 14(h)
Commencement Date 2(a)
Comparable Tenants 36(c)(iv)
Contractor Exhibit C
Contractor's Option 10(a)
Crossover Space 2(c)
Decorative Work 7(b)
Drawings Exhibit C
Effective Rate 3(b)(i)
Election to Negotiate 38(a)
Entire Premises Extension Option 36(a)(i)
Environmental Activity 13(c)(i)
Environmental Requirements 13(c)(i)
Event of Default 17
Extension Period 36
First Extension Options 36(a)
First Right of Purchase 38(a)
Force Majeure 2(a)
GAAP 3(b)(i)
Garage 1(a)
Hazardous Material 13(c)(i)
HVAC System Exhibit C
Improvement Work Exhibit C
Landlord Introductory Paragraph
Landlord's Statement 3(b)(ii)(A)
Landlord's Work Exhibit C
Lease Exhibit C
Major Signage Rights 40(a)
Materially More Favorable 37(d)
Memorandum 46
Negotiation Period 38(b)
Net Present Value 37(d)
Official Records 46
Operating Expenses 3(b)(i)
Partial Premises Extension Option 36(a)(ii)
Permitted Alterations 7(b)
Permits Exhibit C
Personal Property Taxes 6(a)
Premises 1(a)
Prevailing Market Rent 36(b)(iv)
Project 1(a)
Real Estate Taxes 3(b)(i)
Rebuilding Period 10(a)
Reference Year 3(b)(i)
Rent Commencement Date 3
Rent Recommencement Date 10(a)
Requirements 13(a)
Retail Space 37(a)
Retail Space Offer Notice 37(a)
Retail Tenant 37(e)
Right of First Offer 37(a)
Right of Purchase Default Notice 38(e)
Right of Purchase Notice 38(a)
Second Extension Options 36(b)
Secure Areas 16(a)
SNDA 24
Standard Building Services 3(a)(ii)(A)
Standard Cost Per Premises Floor 3(a)(ii)(A)
Standard Cost Per Rentable Square Foot 3(a)(ii)(A)
Substantial Completion 2(b)
Substantial Completion Date 2(b)
Substantially Completed 2(b)
Target Commencement Date 3
Target Delivery Date 2(a)
Tenant Introductory Paragraph
Tenant Improvement Allowance Exhibit C
Tenant's Agents 12(a)
Tenant's Final Plans Exhibit C
Tenant's Initial Improvements Exhibit C
Tenant's Pro Rata Share 3(b)(i)
Tenant's Property 7(d)
Term Basic Lease Information
Term Expiration Basic Lease Information
Termination Notice 18
Third Party Buyer 38(c)
Transfer 3(b)(i)
Transfer Increase 3(b)(ii)(C)
Work Letter 2(b)
<PAGE>
TABLE OF EXHIBITS
Exhibit Title Section Reference
A Floor Plans Basic Lease Information, 1(a), 1(b), 2(c)
B Schedule of
Information re: Premises Basic Lease Information, 1(a), 2(a), 3,
3(b)(i), 3(b)(ii), 3(b)(ii)(A),
3(b)(ii)(B), 3(c)(vi)(A), 3(c)(vi)(B)
C Work Letter 2(b)
D Notice of Commencement Date 2(e)
E Standard Building Services 3(b)(ii)(A), 5(a)(vi)
F Examples of Base
Rent Adjustment 3(b)(ii)
G Categories of Landlord's
Statement 3(c)(ii)
H Confidentiality Agreement 3(c)(iv)
I Cleaning Schedule 5(a)(v)
J SNDA 24
K Garage Schedule - Entire
Premises Extension Option 36(a)(i)
L Garage/Crossover Space
Schedule - Partial 36(a)(ii), 36(b)(i)(B)
Premises Extension Option
M Short Form of Lease 46
N Termination of Lease 46
19696-5
<PAGE>
COMMERCIAL OFFICE LEASE
THIS LEASE, dated as of the date set forth in the Basic Lease
Information, which Basic Lease Information is attached hereto and hereby
incorporated herein by this reference, is made and entered into by and between
each of the persons or entities specified in the Basic Lease Information as
Landlord ("Landlord") and Tenant ("Tenant"), respectively.
1. PREMISES.
(a) Lease of Premises. Landlord hereby leases to Tenant,
and Tenant hereby leases from Landlord, the entire Crossover Space (as defined
in Section 2(c)), the entire second through seventeenth floors, the entire
Penthouse and a portion of the parking garage located beneath the ground floor
of the Building (the "Garage"), being the premises more particularly described
in the floor plans set forth in Exhibit A attached hereto (the "Premises"),
comprised of 396,107 rentable square feet, as more particularly described in
Exhibit B attached hereto, located within the Building as specified in the Basic
Lease Information (the "Building") for the Term and subject to the terms,
covenants, agreements and conditions hereinafter set forth, to each and all of
which Landlord and Tenant hereby mutually agree. The Building is located within
the Project as specified in the Basic Lease Information (the "Project").
(b) Garage. Landlord hereby grants to Tenant for the
Term (i) the right of ingress and egress in and over that portion of the Garage
which is not included in the Premises and which portion is more particularly
described in Exhibit A hereto, (ii) the right of ingress and egress in and over
the ramp from Spear Street to the Garage, and (iii) should Tenant exercise one
of the Extension Options (as hereinafter defined), the right of ingress and
egress in and over that portion of the Garage shown on Exhibit A hereto as shall
be necessary to enable Tenant to access the portion of the Garage included in
the Premises and to use the loading area and freight elevator. Tenant shall have
the right to park vehicles in that portion of the Garage included in the
Premises (whether by valet, which shall be at Tenant's sole cost, or otherwise)
and there shall be no change in the rental for the Garage by reason of valet
parking.
2. TERM; COMPLETION OF IMPROVEMENTS.
(a) Term. The Term of this Lease (excluding only
Tenant's obligation to pay Base Rent and Additional Charges, which obligation
shall commence as provided in Section 3 below) shall commence with respect to
each respective floor of the Premises upon the date that Landlord delivers
possession of such floor to Tenant in accordance with the terms of, and in the
condition required by, Section 2(b) below (the "Commencement Date"). For
purposes of this Section 2, the Garage is deemed to be a floor unless the
context requires otherwise. The respective target delivery date (the "Target
Delivery Date") for each floor of the Premises is set forth in Column A of
Exhibit B attached hereto. Unless sooner terminated or extended as hereinafter
provided, the Term of this Lease with respect to all floors shall end on the
Term Expiration date specified in the Basic Lease Information. Landlord shall
deliver possession of each floor of the Premises to Tenant on its respective
Target Delivery Date in the condition required by Section 2(b). If Landlord
cannot deliver possession of any portion of the Premises to Tenant on the Target
Delivery Date set forth for such portion of the Premises shown in Column A of
Exhibit B due to Force Majeure (as hereinafter defined), Landlord's obligation
to deliver such floor to Tenant shall be extended one day for each day of delay
due to Force Majeure. In such event, this Lease shall not be void or voidable,
the Term of this Lease shall not be extended by such delay, and Landlord shall
not be liable to Tenant for any loss or damage resulting therefrom. For purposes
of this Lease, "Force Majeure" shall mean any delay caused by strikes, lockouts,
labor disputes, shortages of material or labor, fire or other casualty, acts of
God or any other event beyond the reasonable control of Landlord, and shall not
include any inability of Landlord to make payments when due. If Landlord fails
to deliver possession of any portion of the Premises to Tenant in the condition
required by Section 2(b) within fifteen (15) days following the Target Delivery
Date set forth for such portion of the Premises shown in Column A of Exhibit B
(such fifteen (15) day period to be extended by one day for each day of delay
caused by Tenant or Force Majeure), Tenant shall receive a credit against Base
Rent and Additional Charges in an amount equal to Base Rent and Additional
Charges for Operating Expenses and Real Estate Taxes allocated to such portion
of the Premises for two (2) days for each day beyond the Target Delivery Date
such floor is not delivered to Tenant in the condition required by Section 2(b).
Notwithstanding anything to the contrary provided in this Lease, in the event
that Landlord fails to deliver possession of a floor to Tenant within one
hundred eighty (180) days after the Target Delivery Date for such floor, as such
number of days is extended by one day for each day of delay caused by Tenant or
Force Majeure, then Tenant shall have the right to terminate this Lease with
respect to such floor only by delivering written notice to Landlord after such
one hundred eightieth (180th) day but prior to Landlord's delivery of such floor
to Tenant, in which event neither Tenant nor Landlord shall have any further
obligations or liabilities to the other with respect to such floor.
(b) Delivery of Premises. Landlord shall deliver to
Tenant possession of each floor of the Premises with Landlord's Work (as defined
in the Work Letter attached hereto and incorporated herein as Exhibit C (the
"Work Letter")) Substantially Completed (as hereinafter defined), vacant, broom
clean, free of occupancies and ready for Tenant to begin construction of
Tenant's Initial Improvements (as defined in the Work Letter). "Substantially
Completed" or "Substantial Completion" shall, whenever used in this Lease with
respect to Landlord's Work, be deemed to mean that stage of completion of
Landlord's Work as shall enable Landlord and Tenant to agree, in good faith,
that Landlord's Work has been completed except for minor punchlist items, and
Tenant is able to have or obtain (i) all services to be provided to Tenant
pursuant to Section 5 hereof, except for chilled water and hot water for the air
conditioning and heating systems serving the Premises, which services shall be
provided on or before November 1, 1997, and (ii) access to the Premises to
commence Tenant's construction of Tenant's Initial Improvements without
interference by reason of the completion of unfinished details of Landlord's
Work (i.e., only minor punchlist items remain to be completed). "Substantial
Completion Date" shall mean the date that Landlord's Work shall be Substantially
Completed. Landlord shall give Tenant not less than seven (7) days' notice of
the Substantial Completion Date (the requirement of which notice being waived by
Tenant taking actual possession of the portion of the Premises which has been
Substantially Completed). Promptly after such notice shall have been given by
Landlord and prior to the Substantial Completion Date, Landlord's architect and
Tenant shall conduct a joint inspection of the Premises in order to jointly
determine whether Landlord's Work has been Substantially Completed and to
prepare a joint punchlist of items to be completed, which items shall be
completed promptly (but in no event beyond thirty (30) days after preparation of
the punchlist, subject to Force Majeure) by Landlord following delivery of such
punchlist to Tenant.
(c) Early Occupancy. If the floor of the Premises
described in Exhibit A as the Exit Crossover (the "Crossover Space") is ready
for occupancy prior to the Target Commencement Date (as hereinafter defined) for
such Crossover Space, Tenant shall have the right to take early occupancy of the
Crossover Space on such date (but in no event prior to January 1, 1998), and,
notwithstanding the provisions of Section 2(a) above, the Term of this Lease
with respect to the Crossover Space (excluding only the obligation to pay Base
Rent and Additional Charges) shall commence upon such occupancy and shall end on
the date specified in the Basic Lease Information as the Term Expiration.
(d) Change of Order of Delivery of Premises. With regard
to floors 10 through the Penthouse of the Building, Tenant shall have the right
to change the Target Delivery Date (with a corresponding change in the related
Target Commencement Date) for any or all of such floors, thereby changing the
order of Tenant's occupancy of such floors, provided that Landlord has
Substantially Completed, or will be able to have Substantially Completed, at no
incremental cost to Landlord and without requiring any modification to
Landlord's existing contract with its general contractor, Landlord's Work with
respect to each of such floors prior to the revised Target Delivery Date for
such floors.
(e) Commencement Date Agreement. Promptly following the
Commencement Date for each floor, Landlord will execute and deliver to Tenant a
notice in substantially the form attached hereto as Exhibit D identifying the
Commencement Date, a copy of which notice, if accurate, shall be executed by
Tenant and promptly returned to Landlord.
(f) Damage Prior to Rent Commencement Date.
Notwithstanding anything to the contrary contained in this Lease, if an event of
damage or destruction covered by Section 10 occurs after the Commencement Date
with respect to a floor, but prior to the Rent Commencement Date (as hereinafter
defined) for such floor, then Base Rent and Additional Charges for Real Estate
Taxes and Operating Expenses shall not be due on the Rent Commencement Date, but
shall commence on the Rent Recommencement Date (as hereinafter defined).
(g) Permitting Delay Caused by Failure to Complete
Landlord's Work. Notwithstanding anything to the contrary contained in this
Lease, if Tenant is delayed in obtaining "finalled" building permits for
Tenant's Initial Improvements on any floor of the Premises previously delivered
by Landlord to Tenant pursuant to Section 2(b) on account of Landlord's failure
to complete Landlord's Work, then (i) Landlord shall promptly, using reasonable
diligence, correct such failure (or cause such failure to be corrected) at its
cost, as soon as possible in order to minimize any delay in obtaining such
"finalled" building permits and (ii) the Rent Commencement Date for such floor
of the Premises shall be delayed by one day for each day of delay in obtaining
such "finalled" building permits caused by such failure by Landlord.
3. Rental.
Tenant shall pay to Landlord throughout the Term of this Lease
the following sums as rental for the Premises, commencing with respect to each
respective floor of the Premises, upon the date (the "Rent Commencement Date")
which is the earlier of (i) Tenant's occupancy of such floor for the conduct of
its business and (ii) the later of (A) the date which is the number of days
shown in Column C of Exhibit B for such floor after the actual date of delivery
of possession of such floor to Tenant in the condition required by Section 2(b)
or (B) the Target Commencement Date for such floor shown in Column B of Exhibit
B (the "Target Commencement Date"), as the same date may be revised pursuant to
Section 2(d) above. Notwithstanding the foregoing, Tenant's obligation to pay
rental for the Crossover Space shall commence upon the later of April 1, 1998 or
the actual date of delivery of possession of the Crossover Space to Tenant in
the condition required by Section 2(b).
(a) Definitions. For the purposes of this Lease, the
following terms shall have the meanings hereinafter set forth:
"Booth Family" shall mean Corwin and Caroline H.
Booth and any person related by blood or adoption to Corwin or Caroline H. Booth
and the spouse of each such person.
"Booth Family Transfer" means a transfer to a member
or members of the Booth Family or to any entity owned by any of the foregoing
members.
"Effective Rate" means the rate of interest per annum
publicly announced by Bank of America NT&SA in San Francisco, California from
time to time as its prime commercial lending (reference) rate, such rate to be
adjusted automatically (without notice) on the effective date of any change in
such publicly announced rate.
"Operating Expenses" means all actual costs and
expenses paid or incurred by Landlord in connection with the management,
operation, maintenance and repair of the Building, including, without
limitation: (i) the cost of electricity, natural gas, water, telephone and all
other utilities, (ii) the cost of maintenance and repairs and all labor and
material costs related thereto, including, without limitation, maintenance and
repair of Building Systems (as hereinafter defined), and the cost of general
maintenance, cleaning and service contracts and the cost of all supplies, tools
and equipment required in connection therewith, (iii) the cost incurred by
Landlord for all insurance carried on the Building or in connection with the use
and/or occupancy thereof, (iv) the cost incurred by Landlord for license, permit
and inspection fees for the Building, (v) wages, salaries, payroll taxes and
other labor costs and employee benefits, subject to the last unnumbered
paragraph of Section 3(c)(ii) below, (vi) management fees in an amount equal to
two percent (2%) of the amount of gross revenue of the Building (for the
purposes of such calculation, the gross revenue amount shall exclude such
management fees), (vii) fees, charges and other costs of all independent
contractors engaged by Landlord, (viii) reasonable accounting and legal
expenses, (ix) depreciation on personal property, determined in accordance with
GAAP (as hereinafter defined), provided that the cost of purchasing such
personal property was not previously included in Operating Expenses, (x) the
rental value of offices for the property manager and related management and
operations personnel, which value shall be calculated on not more than five
hundred (500) rentable square feet and shall be located in space comparable to
the Building, to the extent utilized for the management of the Building, (xi)
the cost of compliance with environmental laws (including the costs of
monitoring and tests), subject to clause (21) below, (xii) the cost of any
capital improvements made, upon mutual written agreement by Landlord and Tenant,
to the Building after completion of Landlord's Work, for the purpose of saving
labor and/or energy, such cost to be recovered over the shorter of (A) the
useful life of such capital improvements (such useful life for all purposes of
this Section 3(a) to be determined in accordance with generally accepted
accounting principles consistently applied ("GAAP")), amortized with interest
equal to Landlord's cost of funds (or, in the event that Landlord does not
borrow funds, the Effective Rate), or (B) the period of time required for the
total savings achieved to equal the cost of the capital improvement, with
interest equal to Landlord's cost of funds (or, in the event that Landlord does
not borrow funds, the Effective Rate), (xiii) the cost of any capital
improvements made to the Building after the date of this Lease that are required
under any governmental law or regulation that was not applicable to the Building
at the time that permits for the construction of Landlord's Work were obtained,
such cost to be amortized over the useful life of such capital improvements,
together with interest equal to Landlord's cost of funds (or, in the event that
Landlord does not borrow funds, the Effective Rate), (xiv) the cost of any
capital improvements made, upon mutual written agreement by Landlord and Tenant,
to the Building after completion of Landlord's Work to enhance the health and
safety of the public (including tenants), such cost to be amortized over the
useful life of such capital improvements, together with interest equal to
Landlord's cost of funds (or, in the event that Landlord does not borrow funds,
the Effective Rate), (xv) the cost of contesting the validity or applicability
of any governmental enactments which may affect Operating Expenses to the extent
Tenant would be required to pay under this Lease Additional Charges for
Operating Expenses, and (xvi) any other expenses of any kind whatsoever
reasonably incurred in connection with the management, operation, maintenance
and repair of the Building (other than Real Estate Taxes and any services for
which Landlord is separately and directly reimbursed by Tenant or other tenants
in the Building), provided that, in the event of a conflict or overlap between
any of clauses (xii), (xiii) and/or (xiv) above, clause (xiii) shall control.
Notwithstanding any of the foregoing, but without limiting its generality, and
subject to Section 7, Landlord and Tenant agree that Tenant shall in no event be
charged, directly or indirectly (through Operating Expenses or otherwise), for
the replacement of the boilers and cooling towers for the Building, HVAC pumps,
domestic water pumps and sprinkler pumps, electrical switch gear and bus ducts
and HVAC air handling units and related motors, unless such replacement is
necessitated as a result of the negligence or wrongful act or omission of Tenant
or any of Tenant's Agents (as defined in Section 12(a) below). None of the
foregoing, however, shall preclude Landlord from including in Operating Expenses
the cost of Landlord's HVAC service contract, which contract shall be subject to
Tenant's approval, which shall not be unreasonably withheld or delayed, and
which may provide for air handling unit motor replacement, and that portion, if
any, of the cost of such service contract that is attributable to such motor
replacement shall be includible as Operating Expenses. If such motor replacement
is not included in the service contract, or if any motor replacement results in
one-time charges under such contract, Landlord will pay for the cost of such
replacements. Notwithstanding anything to the contrary contained in the
definition of Operating Expenses, Operating Expenses shall not include, or shall
have deducted from them, as the case may be, expenses for: (1) Real Estate
Taxes; (2) legal, accounting or other professional fees incurred in connection
with negotiating, preparing or enforcing leases or lease terms, amendments of
leases, terminations of leases or extensions of leases, proceedings against any
tenant (including Tenant) relating to the collection of rent or other sums due
Landlord from such tenant or any other disputes with any tenant (including
Tenant); (3) depreciation, except as expressly set forth in clause (ix) above;
(4) except as a component of amortization as set forth in clauses (xii), (xiii)
or (xiv) above, interest, including interest on debt, debt service or
amortization payments on any mortgage encumbering the Building (or any portion
thereof) and any financing and refinancing costs with respect thereto; (5)
capital repairs, capital improvements and capital replacements, except as set
forth in clauses (xii), (xiii) or (xiv) above; (6) the cost of the design,
construction, renovation, redecorating or other preparation of tenant
improvements for Tenant or other tenants or prospective tenants of the Building
(including design fees for space planning and all third party fees and charges,
permit license and inspection fees), and moving expenses to move in or out, or
relocate, Tenant or other tenants to or from the Building or within the
Building, and allowances for any of the foregoing; (7) real estate brokerage and
leasing commissions and fees; (8) advertising and promotional expenses incurred
for the purpose of marketing space in the Building or promoting patronage of the
Building by invitees or for any other purpose; (9) wages, salaries, reimbursable
expenses, benefits and other compensation of any personnel above the grade of
the building manager of the Building; (10) legal costs incurred in connection
with Landlord's Work, the initial development, construction, alteration or
improvement of the Building; (11) any rental under any ground or underlying
lease; (12) repairs and improvements paid for from the proceeds of insurance (or
which would have been paid from the proceeds of insurance required to be carried
by Landlord under this Lease if Landlord has failed to carry such insurance),
and repairs and improvements paid for directly by Tenant, any other tenants of
the Building, or any third party, and repairs or improvements made for the
benefit solely of individual tenants of the Building other than Tenant as
opposed to being for the benefit of the Building; (13) the cost to repair any
damage or destruction to the Building arising from a casualty, to the extent the
same constitute a capital improvement; (14) amounts received by Landlord through
proceeds of insurance to the extent they are compensation for sums previously
included in Operating Expenses; (15) Landlord's income taxes and franchise,
gross receipts or estate taxes imposed upon the income of Landlord; (16) costs
with respect to the creation of a mortgage or a superior lease or in connection
with a sale of the Building, including survey, legal fees and disbursements,
transfer taxes and appraisals, engineering and inspection reports associated
with the contemplated sale; (17) payment of damages, attorneys' fees and any
other amounts to any person seeking recovery for bodily injury, death or
property damage due to Landlord's or its agents' negligence or other tortious
acts committed by Landlord or its agents (including any tort claims relating to
asbestos); (18) costs incurred due to violations by Landlord or by any tenant in
the Building (including Tenant) of the terms and conditions of any lease, and
penalties and interest for late payment of any obligation of Landlord; (19) any
tenant improvement allowance given to any tenant (including Tenant), whether
given by contribution or credit against rent or otherwise, and any abatements or
credits to base rent or additional charges or additional rent; (20) any rental
concessions to, or lease buy-outs of, Tenant or any other tenant in the
Building; (21) costs incurred by Landlord to cure any violation of its
obligations with respect to Hazardous Materials under Section 13(c) below or
with respect to asbestos removal under Section 7(g) below or to otherwise abate
any asbestos or asbestos containing materials in the Building other than (A) in
the normal course of Landlord's operation and maintenance of the Building, (B)
as provided under clause (xiii) or (xiv) above or (C) as necessitated by any act
or omission of Tenant or any of Tenant's Agents; (22) the costs, expenses and
fees of any asset manager or investment advisor representing Landlord or any
partner or any other constituent member of Landlord (except that nothing in this
clause (22) is intended to preclude such manager, advisor, partner or member
from sharing a portion of the property management fees received by the property
manager); (23) Landlord's internal overhead expenses, including the cost of
internal accounting (as opposed to Building accounting) and the cost of
preparation of Landlord's income tax or information returns; (24) overhead and
profit increment paid to Affiliates of Landlord for services on or to the
Building (other than any property management fees in an amount not to exceed
that set forth in clause (25) below), or for supplies or other materials, to the
extent that such increment or the cost of such supplies or materials exceed the
cost incurred by Landlord therefor; (25) property management fees in excess of
two percent (2%) of the gross revenues (excluding such management fees) received
from or with respect to the Building; (26) any costs (including compensation
paid to clerks, attendants or other persons) incurred for concessions (such as a
newspaper stand or flower stand) or specialty use (such as a fitness center)
operated by Landlord with the intent to make a profit; (27) damages and repairs
necessitated by the negligence or willful misconduct of Landlord or Landlord's
employees, contractors, agents or visitors; (28) the cost of Landlord's Work;
(29) any costs or expenses expressly excluded as Operating Expenses under any
other provisions of this Lease; (30) costs arising from Landlord's charitable or
political contributions; (31) any expense for which Landlord is entitled to be
reimbursed by any tenant as an additional charge in excess of base rent and such
tenant's share of Operating Expenses; (32) the cost of any repairs, alterations,
additions, improvements or replacements made to rectify, remedy or correct any
structural or other defect in the original design, construction materials,
installations or workmanship of the Building or of Landlord's Work; (33) real
estate association dues; (34) such expenses, costs and disbursements paid or
incurred by Landlord in the operation, maintenance and management of the
Building if such expenses are not considered expenses under GAAP (unless
otherwise specifically set forth in this Lease); (35) rentals (excluding
temporary rentals) for items which if purchased, rather than rented, would
constitute a capital improvement which is specifically excluded in clause (5)
above; (36) services provided, taxes attributable to, and costs incurred in
connection with the operation of any retail operations in the Building; (37) the
cost of electricity supplied to the Retail Space (as hereinafter defined) as
shown on the meters Landlord shall install as part of Landlord's Work to measure
electrical consumption in such space, except to the extent that any Retail Space
is leased by Tenant; (38) the cost of supplying HVAC to the Retail Space, except
to the extent that any Retail Space is leased by Tenant; and (39) costs of, and
costs to maintain, the intra-building network cabling in the Building. Operating
Expenses shall be "net" so that they are reduced by the amount of all
recoupments, discounts, credits, reductions, allowances or the like actually
received by Landlord from third parties, on account of Operating Expenses,
except that Landlord may include in Operating Expenses the actual costs and
expenses, if any, incurred by Landlord in obtaining such recoupments, discounts,
credits, reductions, allowances or the like.
"Real Estate Taxes" means, except as provided or
limited below, all taxes, assessments and charges levied upon or with respect to
the Building, any improvements (including Tenant's Initial Improvements and
other leasehold improvements) located therein, or any personal property of
Landlord used in the operation thereof and located therein, or Landlord's
interest in the Building or such personal property. Real Estate Taxes shall
include, without limitation, all general real property taxes and general and
special assessments, charges, fees, or assessments for transit, housing, police,
fire, or other governmental services or purported benefits to the Building or
the occupants thereof, service payments in lieu of taxes, business taxes and
gross receipts taxes, that are now or hereafter levied or assessed against
Landlord by the United States of America, the State of California, or any
political subdivision thereof, public corporation, district, or any other
political or public entity, and shall also include any other tax, fee or other
excise, however described, that may be levied or assessed as a substitute for,
or as an addition to, in whole or in part, any other Real Estate Taxes, whether
or not now customary or in the contemplation of the parties on the date of this
Lease. Real Estate Taxes shall not include franchise, inheritance, or capital
stock taxes or income taxes measured by the net income of Landlord from all
sources unless, due to a change in the method of taxation, any of such taxes is
levied or assessed against Landlord as a substitute for, or as an addition to,
in whole or in part, any other tax that would otherwise constitute a Real Estate
Tax, but any such tax shall be computed as if Landlord's sole asset were the
Building and the land upon which it is situated. Real Estate Taxes shall also
include reasonable legal fees, costs, and disbursements incurred by Landlord in
connection with proceedings to contest, determine, or reduce Real Estate Taxes
to the extent Tenant would be required to pay under this Lease Additional
Charges for Real Estate Taxes. Notwithstanding the foregoing, Real Estate Taxes
shall not include, or shall have deducted therefrom, as appropriate, the
following: (i) any excess profits taxes, franchise taxes, gift taxes, capital
stock taxes, inheritance and succession taxes, estate taxes, federal and state
income taxes, and other taxes to the extent applicable to Landlord's general or
net income (as opposed to rents or receipts), (ii) except as provided in Section
3(b)(x), interest and penalties incurred as a result of Landlord's failure to
make payments of, and/or to file any tax or informational returns with respect
to, any Real Estate Taxes, when due, (iii) any sales taxes or value added taxes
on any item the cost of which would not be includible under this Lease as part
of Operating Expenses, and (iv) transfer taxes in the nature of documentary
stamp taxes on a conveyance of the Building or of the land upon which the
Building is located or an interest of Landlord in the Building or such land.
Real Estate Taxes shall also exclude any tax for which Tenant is responsible
under Section 6 of this Lease.
"Reference Year" means each twelve (12) consecutive
month period commencing January 1st of each year during the Term of this Lease,
including any partial year during which the Term of the Lease commences.
"Tenant's Pro Rata Share" means as defined in Section
3(c)(vi).
"Transfer" means a sale, transfer or other event
constituting a change of ownership for California property tax purposes of the
Building or any interest therein, which Transfer results in an increase in Real
Estate Taxes.
(b) Base Rent.
(i) Landlord and Tenant have established for calendar
year 1998 an initial annual base rent ("Base Rent") equal to Twenty-One Dollars
($21.00) per rentable square foot, which for each floor of the Premises
(excluding the Garage and Crossover Space) totals to the figure set forth in
Column E of Exhibit B, which Base Rent shall be payable in equal monthly
installments commencing on the Rent Commencement Date for each floor and ending
on December 31, 1998, which monthly installments shall be as specified with
respect to each floor of the Premises in Column F of Exhibit B, subject to the
further provisions hereof.
(ii) Base Rent as set forth in Column E of Exhibit B
for each floor (excluding the Garage and Crossover Space) shall be adjusted one
time, subject to Section 3(b)(iii) below, which adjustment shall occur following
the end of calendar year 1998 in accordance with the following provisions:
(A) With reasonable promptness following the
end of calendar year 1998, Landlord shall deliver to Tenant a Landlord's
Statement (as hereinafter defined) setting forth Landlord's determination of the
actual component costs during the 1998 calendar year for each item of the
services set forth on Exhibit E (the "Standard Building Services"). Landlord
shall then determine the cost attributable to each floor of the Premises (the
"Standard Cost Per Premises Floor") for the provision of such Standard Building
Services, which determination shall include an allocation of such costs in
accordance with Section 3(c)(vi) below. Landlord shall then determine the cost
attributable per rentable square foot (the "Standard Cost Per Rentable Square
Foot") for each of the floors two through the Penthouse of the Premises for the
provision of such Standard Building Services, by dividing the Standard Cost Per
Premises Floor for each floor by the number of rentable square feet comprising
such floor as set forth in Column D of Exhibit B. Landlord's determination of
the actual component costs during 1998, the adjustments to Base Rent referred to
in clause (B) following, and in Section 3(b)(iii) shall be subject to review and
audit by Tenant in accordance with Section 3(c)(iv).
(B) The Base Rent shall be adjusted with
respect to each floor of the Premises (excluding the Garage and Crossover
Space), effective from the Rent Commencement Date for such floor through the end
of the Term of this Lease with respect to such floor, to be equal to the product
of (I) Thirty-One Dollars ($31.00) less the Standard Cost Per Rentable Square
Foot for such floor multiplied by (II) the number of rentable square feet
contained in such floor (as specified in Column D of Exhibit B). The Base Rent
as so adjusted shall be payable in equal calendar monthly installments. In the
event that, based on such adjustment of Base Rent, Tenant has underpaid Base
Rent for the period preceding such adjustment, Tenant shall pay to Landlord the
amount of such shortfall within thirty (30) days of receiving written
notification from Landlord of such adjustment of Base Rent, which notification
shall include a Landlord's Statement and reasonable documentation setting forth
the basis of such determination. In the event that, based on such adjustment of
Base Rent, Tenant has overpaid Base Rent for the period preceding the adjustment
of Base Rent, Landlord shall credit the amount of such overpayment to Base Rent
next becoming due. Until such adjustment is made by Landlord and Landlord
notifies Tenant thereof, Tenant shall continue to pay Landlord the amount of the
initial monthly Base Rent as set forth in Section 3(b)(i) above. Annexed as
Exhibit F are examples of the application of the adjustments described in this
Section 3(b)(ii) and in Section 3(b)(iii).
(iii) The Base Rent as adjusted pursuant to Section
3(b)(ii) above shall constitute the Base Rent for the balance of the Term of
this Lease, subject to further adjustment based on receipt of information
received after the adjustment date with respect to any increase in Real Estate
Taxes assessed on the basis of Landlord's Work and Tenant's Initial Improvements
(up to the amount of the Tenant Improvement Allowance (as defined in the Work
Letter).
(c) Additional Charges. In addition to Base Rent, Tenant
shall pay to Landlord as additional charges ("Additional Charges") the amounts
set forth in this Section 3(c). All monetary obligations of Tenant under this
Lease other than Base Rent shall constitute "Additional Charges" and, in the
event of nonpayment thereof, Landlord shall have all of the rights and remedies
provided hereunder and by law as provided for the nonpayment of rent as if such
Additional Charges constituted rent under applicable law.
(i) Landlord and Tenant agree that, commencing on the
Rent Commencement Date with respect to each respective floor of the Premises
(excluding the Garage and the Crossover Space), and continuing through December
31, 1998, Tenant shall pay as Additional Charges an estimated amount of Tenant's
Pro Rata Share of Real Estate Taxes and Operating Expenses for Reference Year
1998 which amount shall be deemed to be Ten Dollars ($10.00) per rentable square
foot for floors two through the Penthouse of the Building, to be paid monthly,
in advance, on or before the first day of each month during such Reference Year.
Upon adjustment of the Base Rent pursuant to Sections 3(b)(ii) and 3(b)(iii),
Landlord shall determine Tenant's actual Pro Rata Share of Real Estate Taxes and
Operating Expenses for Reference Year 1998. In the event that, based on such
determination, Tenant has underpaid Additional Charges for the period preceding
such adjustment, Tenant shall pay to Landlord the amount of such shortfall
within thirty (30) days of receiving written notification from Landlord of such
determination, which notification shall include a Landlord's Statement and
reasonable documentation setting forth the basis of such determination. In the
event that, based on such determination, Tenant has overpaid Additional Charges
for the period preceding such determination, Landlord shall credit the amount of
such overpayment to Additional Charges next becoming due. Each of Landlord and
Tenant hereby agrees that it shall not take any action to reduce or increase
Operating Expenses in 1998 which would artificially or unfairly increase or
reduce the Base Rent adjustment, respectively.
(ii) Commencing January 1, 1999, Tenant shall pay to
Landlord as Additional Charges one twelfth (1/12) of Tenant's Pro Rata Share of
the Real Estate Taxes and Operating Expenses for each Reference Year or portion
thereof during the Term, determined in accordance with Section 3(c)(vi) below,
in advance, on or before the first day of each month during such Reference Year,
in an amount, in the case of Operating Expenses, reasonably estimated by
Landlord in a writing delivered to Tenant explaining in reasonable detail the
basis of such Additional Charges, provided that such estimate of Operating
Expenses for any Reference Year shall not be in an amount in excess of five
percent (5%) higher than the amount of Operating Expenses actually incurred
during the immediately preceding Reference Year unless Tenant approves such
estimate, which approval shall not be unreasonably withheld, conditioned or
delayed. Landlord may revise such estimates from time to time subject to the
five percent (5%) limitation in the immediately preceding sentence with respect
to each such revision (but in no event shall Landlord increase the estimate more
than twice during any Reference Year) and Tenant will thereafter make payments
on the basis of such revised estimates. Landlord agrees that the intent of this
Section 3(c)(ii) is solely to enable Landlord to pay over the course of the
Reference Year Operating Expenses incurred by Landlord and not to permit
Landlord to make an unreasonably high estimate so as to use Tenant's monies
beyond what is necessary to pay Operating Expenses over the course of the
Reference Year.
With reasonable promptness after the expiration of each Reference Year,
including the Reference Year during which this Lease expires, Landlord will
furnish Tenant with a statement audited by an independent certified public
accountant (herein called "Landlord's Statement") setting forth in reasonable
detail the amount of Real Estate Taxes and Operating Expenses for the Building
for such Reference Year and Tenant's Pro Rata Share thereof, which statement
shall be broken down into at least the categories described on Exhibit G
attached hereto. Each Landlord's Statement shall be prepared by Landlord to
reflect the terms of Section 3 of this Lease.
If Landlord fails to render a Landlord's Statement with respect to a
Reference Year within nine (9) months after the end of such Reference Year,
Landlord shall have no right thereafter to deliver to Tenant any Landlord's
Statement for such Reference Year or to otherwise charge Tenant for amounts
which would have otherwise appeared on such Landlord's Statement. Additionally,
Landlord shall not have the right to include in Operating Expenses for a
Reference Year any cost or expense the bill for which is received by Landlord
earlier than the Reference Year immediately preceding such Reference Year.
In the event that in any Reference Year the Building is less than
ninety-five percent (95%) occupied, Operating Expenses which are of a variable
nature shall be appropriately and reasonably adjusted to reflect a ninety-five
percent (95%) occupancy level for the Building throughout such Reference Year
and, in such event, Landlord shall set forth the basis for its calculations and
estimations of such Operating Expenses in reasonable detail. In connection with
conducting an audit pursuant to Section 3(c)(iv), Tenant may contest such
calculations and estimations applicable to the Reference Year with respect to
which such audit is being conducted. Landlord shall not recover through
Operating Expenses any item of cost or expense more than once.
If Landlord shall use personnel who provide services in one or more
buildings in addition to the Building, then for purposes of including the costs
of such personnel in Operating Expenses, Landlord shall allocate the costs of
such personnel based on the time devoted by such personnel to the Building and
to other buildings based on records to be maintained by Landlord for such
purpose.
(iii) If Tenant's Pro Rata Share of the actual Real
Estate Taxes and Operating Expenses for a Reference Year exceeds the estimated
Real Estate Taxes and Operating Expenses paid by Tenant for such Reference Year,
Tenant shall pay to Landlord (whether or not this Lease has terminated, but
subject to the limitation contained in Section 3(c)(ii)) the difference between
the amount paid by Tenant and Tenant's Pro Rata Share of the actual Real Estate
Taxes and Operating Expenses within thirty (30) days after the receipt of
Landlord's Statement; and if the total amount of estimated Real Estate Taxes and
Operating Expenses paid by Tenant for such Reference Year exceeds Tenant's Pro
Rata Share of the actual Real Estate Taxes and Operating Expenses for such
Reference Year, such excess shall be credited against the next installment of
Base Rent and Additional Charges due from Tenant hereunder, or, if this Lease
has terminated and no amounts are due or to become due to Landlord from Tenant
hereunder, any excess shall be paid to Tenant by check within thirty (30) days
after such final determination of the actual Real Estate Taxes and Operating
Expenses.
(iv) Within eleven (11) months after receipt of each
Landlord's Statement, including the Landlord's Statement issued pursuant to
Section 3(b)(ii) and Section 3(b)(iii) setting forth the Base Rent adjustment,
Tenant shall have the right to notify Landlord that Tenant wishes to have
Landlord's accounts and records relating to the calculation of Additional
Charges for Operating Expenses and Real Estate Taxes audited. If Tenant so
notifies Landlord, Tenant shall have the right, at its sole expense (unless
otherwise provided below), to have Landlord's accounts and records relating to
the calculation of Additional Charges audited by any designated representative
at reasonable hours during the business day at Landlord's offices in San
Francisco, California. If Tenant fails so to notify Landlord within such eleven
(11) month period, Landlord's Statement shall be conclusive and binding upon
Tenant except as provided in the final two sentences of this Section 3(c)(iv).
Landlord agrees to provide to Tenant reasonable, unfettered and relatively
continuous access to such books and records to enable Tenant to conduct such
audit. Tenant shall have the right, at its sole cost and expense, and in its
reasonable discretion, to make copies of portions of such books and records,
provided that in no event shall Tenant have the right to remove such books and
records from Landlord's offices. Any exercise by Tenant of its audit rights
pursuant to this Section 3(c)(iv) is subject to Tenant's delivery to Landlord of
a confidentiality agreement substantially in the form attached hereto as Exhibit
H. Under no circumstances shall Tenant engage any person to conduct such audit
whose compensation is determined, in whole or in part, on any contingency basis.
If such audit reflects that Tenant has overpaid either Operating Expenses for
such Reference Year or Real Estate Taxes for such Reference Year by more than
four percent (4%) calculated separately, and Landlord concurs with such
determination (or in the absence of such concurrence, such overpayment is
established by arbitration conducted pursuant to Section 3(c)(viii) below), then
Landlord shall reimburse Tenant for the reasonable cost of such audit within
thirty (30) days after written demand therefor (together with reasonably
detailed supporting documentation). In the event that it is determined that
there has been an underpayment of Operating Expenses and Real Estate Taxes by
Tenant for such Reference Year, Tenant shall pay to Landlord, within thirty (30)
days after such determination is made, the amount of such underpayment, and, in
the event that it is determined that there has been an overpayment of Operating
Expenses and Real Estate Taxes by Tenant for such Reference Year, Landlord shall
credit the excess to the next succeeding installment(s) of Base Rent and
Additional Charges due under this Lease or, if this Lease has expired or been
terminated and no amounts are due or to become due to Landlord from Tenant
hereunder, any overpayment shall be paid to Tenant by check within thirty (30)
days after such determination is made. In the event that Tenant exercises such
right to conduct such an audit and Tenant's audit results in a variance from
Landlord's Statement, Landlord and Tenant will endeavor in good faith to reach a
mutually agreeable resolution regarding such variance between Landlord and
Tenant's respective audits. If the parties are unable to reach such a mutually
agreeable resolution within thirty (30) days after arising, the parties shall
resolve such dispute pursuant to Section 3(c)(viii) below, to the extent
applicable; provided that, prior to any proceeding by Tenant under the
arbitration provisions of Section 3(c)(viii), if Tenant has not previously done
so, Tenant shall be required to retain the services of an independent certified
public accountant for the purposes of reevaluating Tenant's prior audit. Under
no circumstances shall Tenant engage any accountant whose compensation is
determined, in whole or in part, on any contingency basis. Notwithstanding the
foregoing, if in the course of an audit, Tenant determines that any cost was
improperly included as Operating Expenses (as opposed to a mathematical error)
and Landlord concurs with such determination (or in the absence of such
concurrence, such improper inclusion is established by arbitration conducted
pursuant to Section 3(c)(viii) below), then Tenant may audit the two Reference
Years preceding the Reference Year in question solely in order to determine if
such improper inclusion occurred in either of such two preceding Reference Years
(unless Tenant has previously audited such years). If such improper inclusion
incurred in either of such two preceding Reference Years, then Landlord shall
promptly refund to Tenant the amount of overpayment of Operating Expenses
resulting from such inclusion.
(v) Notwithstanding any provision in this Lease to
the contrary, in the event that either (x) a Transfer occurs during the first
ten (10) years of the Term of this Lease, and such Transfer does not constitute
a Booth Family Transfer or (y) a Transfer occurs during the first five (5) years
of the Term of this Lease, and such Transfer does constitute a Booth Family
Transfer, Tenant shall be liable for Tenant's Pro Rata Share of the increase in
Real Estate Taxes attributable to such Transfer (determined in accordance with
Section 3(c)(vi) below) in accordance with the following schedule:
(A) For the first twelve (12) months after
such Transfer, Tenant shall have no obligation for payment of any portion of the
Transfer Increase (as hereinafter defined).
(B) For months thirteen (13) through
twenty-four (24), after such Transfer, Tenant shall pay 33-1/3% of Tenant's Pro
Rata Share of the Transfer Increase.
(C) For months twenty-five (25) through
thirty-six (36), after such Transfer, Tenant shall pay 66-2/3% of Tenant's Pro
Rata Share of the Transfer Increase.
(D) For the period following thirty-six (36)
months after such Transfer and continuing until the expiration of the Term,
Tenant shall pay the entire amount of Tenant's share of the Transfer Increase.
In the event of any other Transfer, Tenant shall pay Tenant's Pro Rata Share of
the Transfer Increase in accordance with the terms of this Section 3(c). In the
event of any Transfer, Landlord shall provide to Tenant reasonably detailed
information showing the calculation by the tax assessor of the increase in Real
Estate Taxes attributable to such Transfer ("Transfer Increase"), including the
supplemental assessment pursuant to which such assessor determined such
increase, and, in the case of a Booth Family Transfer, evidence that the
Transfer constituted a Booth Family Transfer.
(vi) Landlord and Tenant hereby agree that all Real
Estate Taxes and Operating Expenses relating to Landlord's operation of the
Building shall be allocated to and payable by Tenant as follows:
(A) Except as otherwise provided in clauses
(C) and (D) below, any and all Real Estate Taxes and Operating Expenses incurred
for insurance and security provided by Landlord for the Building shall be
allocated pro rata to floors two through the Penthouse of the Building, the
Retail Space and the mezzanine area of the Building as more particularly set
forth in Column G of Exhibit B;
(B) Any and all Operating Expenses other
than those referred to in clause (A) above shall be allocated pro rata to floors
two through the Penthouse of the Building as more particularly set forth in
Column H of Exhibit B;
(C) Any Real Estate Taxes attributable to
the cost of Tenant's Initial Improvements in excess of the amount of the Tenant
Improvement Allowance; and
(D) Any and all Real Estate Taxes
attributable to the construction of any Alterations (as defined in Section 7
below).
Tenant's obligations on account of Real Estate Taxes and Operating
Expenses as set forth in this Section 3(c)(vi) shall be deemed to constitute
"Tenant's Pro Rata Share" thereof for all purposes of this Lease. Nothing in
this Section 3(c)(vi) shall be construed to require Tenant to pay more than one
hundred percent (100%) of taxes otherwise payable by Tenant pursuant to Section
6.
(vii) If the Rent Commencement Date or Term
Expiration date of this Lease shall occur on a date other than the first or last
day, respectively, of a Reference Year, Tenant's Pro Rata Share of Real Estate
Taxes and Operating Expenses for such Reference Year shall be prorated based on
a 365-day year, but subject to the limitation contained in Section 3(c)(ii),
shall remain subject to adjustment based on receipt of information after the
Term Expiration date.
(viii) Any dispute regarding either the cost of
Operating Expenses or any increases in Real Estate Taxes, up to the amount of
Three Hundred and Fifty Thousand Dollars ($350,000), shall be settled by
arbitration conducted and determined in the City and County of San Francisco, in
accordance with this Section 3(c)(viii) and the applicable rules of the American
Arbitration Association. Any disputes regarding either the cost of Operating
Expenses or any increases in Real Estate Taxes exceeding such limit shall not be
subject to arbitration. In the event that Landlord delivers written notice to
Tenant demanding arbitration in accordance with the provisions of this Section
3, Landlord shall, together with such notice, provide to Tenant the name of one
of the "Big Six" accounting firms identified in Section 38(d) below or a
successor thereof to act as the arbitrator hereunder, which firm shall be
subject to Tenant's reasonable approval. In the event that Tenant delivers
written notice of arbitration to Landlord, Landlord shall, within fifteen (15)
business days after its receipt of Tenant's notice, provide to Tenant the name
of one of the aforementioned "Big Six" accounting firms or a successor thereof
to act as the arbitrator hereunder, which firm shall be subject to Tenant's
reasonable approval. The parties shall have a right to submit to the arbitrator
such information as they deem relevant, and the arbitrator shall be instructed
to make a determination within forty-five (45) days after the date of his or her
selection. The determination of the arbitrator shall be conclusive, final and
binding on the parties hereto, and the judgment or award rendered in any such
arbitration may be entered in any court having jurisdiction.
(ix) Tenant shall have the right, at its sole cost
and expense, to institute tax reduction proceedings to contest Real Estate Taxes
at any time and from time to time assessed during the Term, whether or not such
contest occurs during or after the Term. Notwithstanding the foregoing, all
decisions by either Tenant or Landlord to institute or to settle tax reduction
proceedings contesting Real Estate Taxes assessed during the Term shall be
subject to the approval of the other party hereto, which approval shall not be
unreasonably withheld, conditioned or delayed, and such other party shall
cooperate reasonably with the contesting party in prosecuting such contest,
executing such documents and instruments as may be reasonably necessary or
appropriate for such contesting party to pursue such contest, including delivery
by Landlord to Tenant of an income and expense statement for the Building and
making available to Tenant any material and information in Landlord's possession
or control relating to the cost of the Building, Landlord's Work and any other
improvements to the Building and any other facts that Tenant may reasonably
require. If Tenant determines to contest any such Real Estate Taxes and receives
Landlord's approval, Tenant may prosecute such contest in Tenant's name, or in
Landlord's name if required by applicable law. Landlord's cooperation hereunder
shall, however, be without cost or expense to Landlord, and Tenant shall bear
all costs and expense of any contest initiated and conducted by Tenant
hereunder, including, without limitation, any and all penalties and fees
incurred as a result thereof. If Real Estate Taxes shall be reduced by reason of
appropriate administrative or legal proceedings or otherwise instituted by
Tenant after payment of all or part of Real Estate Taxes for the applicable
Reference Year, all reasonable costs, expenses and fees (including reasonable
experts' and attorneys' fees) incurred by Tenant in obtaining said reduction of
Real Estate Taxes, shall first be deducted from the amount of any refund and
paid to Tenant to reimburse it for such costs, expenses and fees and then Tenant
shall receive Tenant's Pro Rata Share of the balance of such refund. If Real
Estate Taxes (or the assessed valuation of the Land and/or Building) shall be
reduced as a result of appropriate administrative or legal proceedings or
otherwise instituted by Tenant prior to the payment of Real Estate Taxes for the
applicable Reference Year, Landlord shall pay to Tenant all reasonable costs,
expenses and fees (including reasonable experts' and attorneys' fees) incurred
by Tenant in obtaining said Real Estate Tax (or assessment) reduction, less
Tenant's Pro Rata Share of such costs, expenses and fees.
(x) In the event of the imposition by any taxing
authority of any interest or penalties as a result of the nonpayment by Landlord
of any amount of Real Estate Taxes payable by Landlord with respect to the
Building or the land upon which it is situated, including any such interest or
penalties incurred as a result of any Transfer, Tenant shall pay to Landlord the
amount of such interest and penalties within ten (10) business days of receiving
a written demand from Landlord therefor, if such interest and penalties are
incurred as a result of Tenant's failure to make any payment when due to
Landlord of Real Estate Taxes required to be paid by Tenant hereunder, provided
that Landlord shall have billed Tenant for such amount of Real Estate Taxes due
from Tenant. Except as provided in the immediately foregoing sentence, Tenant
shall not be responsible to pay any interest or penalties assessed as a result
of the nonpayment by Landlord of any amount of Real Estate Taxes payable with
respect to the Building or the land upon which it is situated.
(d) Rental Commencement. Base Rent and Additional Charges
shall be paid by Tenant to Landlord with respect to each calendar month of the
Term for which rent is payable, on or before the first day of each such calendar
month. If the obligation to pay Base Rent or Additional Charges commences on
other than the first day of a calendar month or ends on other than the last day
of a calendar month, the first and last installments of Base Rent or Additional
Charges shall be pro-rated for the partial months involved based on the actual
number of days in such month.
(e) No Deduction or Offset; Interest. All Base Rent and
Additional Charges shall be paid to Landlord, without abatement (except as
otherwise provided in this Lease), deduction or offset, in lawful money of the
United States at Landlord's address for notices or to such other person or at
such other place as Landlord, from time to time, may designate in writing.
Tenant acknowledges that late payment by Tenant to Landlord of Base Rent or
Additional Charges will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Landlord by the
terms of any encumbrance and note secured by any encumbrance covering the
Building and/or the Premises. Therefore, if any installment of Base Rent or
Additional Charges due and payable by Tenant to Landlord is not paid to Landlord
within five (5) days after written notice from Landlord to Tenant of the failure
of Tenant to pay such sum when due (or, if Landlord has notified Tenant in
writing on three occasions during the twelve (12) months preceding the due date
that Tenant has failed to pay Base Rent or Additional Charges on the due date
thereof, then, if Tenant fails to pay Base Rent or Additional Charges on the due
date thereof), Tenant shall pay to Landlord an additional sum of two percent
(2%) of the overdue amount as a late charge. The parties agree that this late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of late payment by Tenant. In addition, if any installment of
Base Rent or Additional Charges due and payable by Tenant to Landlord is not
paid to and received by Landlord within thirty (30) days after the due date
thereof, then such sums due and payable shall bear interest from the date due
until paid at the highest rate legally permitted by applicable law.
Acceptance of any late charge or interest shall not constitute a waiver
of Tenant's default on the overdue amount, or prevent Landlord from exercising
any of the other rights and remedies available to Landlord.
(f) Calculation Requirements. Landlord agrees that since one
of the purposes of Operating Expenses and the gross up provision set forth in
Section 3(c)(ii) is to allow Landlord to require Tenant to pay for the costs
attributable to its Premises, (i) Landlord will not collect or be entitled to
collect from Tenant with respect to Operating Expenses, an amount greater than
Tenant's Pro Rata Share of the Operating Expenses actually paid by Landlord in
connection with the operation of the Building, grossed up to 95% occupancy in
accordance with Section 3(c)(ii), (ii) Landlord shall make no profit from
Landlord's collections of Operating Expenses (exclusive of the management fee),
(iii) all assessments and premiums which are not specifically charged to Tenant
because of what Tenant has done, which can be paid by Landlord in installments,
shall be paid by Landlord in the maximum number of installments permitted by law
and not included as Operating Expenses except in the Reference Year in which the
assessment or premium installment is actually paid and (iv) Landlord shall
reduce the amount of Operating Expenses by any refund or discount Landlord
receives in connection with any costs or expenditures previously included in
Operating Expenses.
4. Use.
The Premises shall be used for general office, garage and
storage purposes and the following other ancillary uses and for no others:
computer service offices, trading floors, a cafeteria and lunchrooms for the use
of Tenant's employees and visitors only, classrooms for Tenant's employees and
visitors only, recreational facilities for Tenant's employees and visitors only,
securities brokerage services for Tenant's employees only, photocopy services
related to Tenant's general office use, a generator, which may be installed only
in the Garage in accordance with Section 5(e), and an uninterrupted power supply
system. Notwithstanding the preceding sentence, if Tenant shall lease any Retail
Space pursuant to Section 37 of this Lease, Tenant may use such Retail Space for
any retail use which is consistent with the image of the Building and permitted
by law and approved by Landlord in its reasonable discretion. The reference to
Tenant's employees in this Section 4 shall be deemed to include the employees of
Tenant's Affiliates (as hereinafter defined) and the employees of Tenant's
Business Partners (as hereinafter defined) who are permitted occupants of the
Premises. Tenant shall neither do nor permit to be done in or about the
Premises, the Building, or the Project, nor bring or permit to be brought or
kept therein, anything which is prohibited by or will in any way conflict with
any law, statute, ordinance or governmental rule or regulation now in force or
which may hereafter be enacted or promulgated, or which now or hereafter is
prohibited by any insurance policy carried by Landlord or will cause a
cancellation of any insurance policy covering any part of the Building or the
Project. Tenant, in its own respect and in respect of Tenant's Agents, shall
neither do nor permit anything to be done in or about the Premises, the Building
or the Project which in any way will obstruct or unreasonably interfere with the
rights of any other tenants of the Project (including any noise audible or any
odor or vibrations observable from outside the Premises), or injure or annoy
them, or use or allow the Premises, the Building or the Project to be used for
any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about any of the same, or commit or suffer to be committed any waste
or damage in or about any of the same. Tenant shall not permit any materials to
be placed or stored in the common areas of the Building or the Project and shall
not permit debris to be placed therein, except in appropriate receptacles
provided therefor. Tenant and Tenant's Agents shall have the right on a 24 hour
per day - seven (7) day per week basis during the Term, subject to compliance
with the reasonable security procedures for the Building, to the (a)
non-exclusive use of the outside common areas of the Project, (b) the exclusive
use of the entrance lobby of the Building (provided that such use shall be
non-exclusive during any period for which Tenant leases a portion, but not all,
of the Premises), (c) the exclusive use of the Building passenger and freight
elevators (provided that such use shall be non-exclusive during any period for
which Tenant leases a portion, but not all, of the Premises), and (d) the
exclusive use of the Premises. Tenant shall not use any portion of the Building
(including, without limitation, the Building roof or portions of the Building
leased to other tenants) other than the Premises, excepting only as set forth in
this Section 4, in Section 41, and such other portions of the Building and
outside common areas of the Project as are necessary for fire and other
emergency ingress and egress purposes in accordance with applicable law. Tenant
shall not place any equipment in or otherwise utilize the Premises in a manner
that would exceed one hundred (100) pounds per square foot (including live and
dead loads), the floor load for which each floor was designed to carry, provided
that, notwithstanding the foregoing, Landlord shall not unreasonably withhold,
condition or delay its consent to Tenant, at Tenant's sole cost and expense,
reinforcing the floor of any portion of the Premises pursuant to plans and
specifications reasonably approved by Landlord, and otherwise in compliance with
Section 7. Landlord, in its reasonable discretion, shall have the right to
prescribe the weight, size and position of all safes and other heavy property
brought into the Building, and also the manner of moving the same in and out of
the Building. Landlord will not be responsible for loss of or damage to any such
safe or property from any cause, and all damage done to the Building by moving
or maintaining any such safe or property shall be repaired at the expense of
Tenant.
5. Services.
(a) Services - General. Landlord (subject to the further
provisions of this Section 5) shall furnish to the Premises:
(i) at such hours as Tenant shall require (with
changes to those hours requiring at least four (4) business hours' notice to
Landlord), or such shorter hours as may be prescribed by any applicable
mandatory regulations adopted by any utility or governmental agency, with an
HVAC System (as hereinafter defined) designed to (A) maintain within the
Premises and other common areas, an inside dry bulb condition in the range of 72
to 74 degrees Fahrenheit when (I) an outside condition not lower than 38 degrees
Fahrenheit nor higher than 84 degrees Fahrenheit dry bulb and 63 degrees
Fahrenheit wet bulb, exists and (II) lighting and office equipment demand loads
do not exceed two and one-half (2.5) watts per rentable square foot, (B) be
capable of supplying 24,000 CFM at a supply air temperature of 55 degrees
Fahrenheit, (C) provide outside air ventilation at a rate of .15 CFM per square
foot or greater on each floor, (D) operate in general conformance with ASHRAE
Standard 62-1989 and (E) maintain equipment noise levels at less than or equal
to the values in the 1995 ASHRAE Applications Handbook Chapter 43 Table 2.
(ii) an amount of water not to exceed the current
capacity of the systems serving the Premises;
(iii) electricity for lighting and the operation of
office machines and any equipment, in an amount not to exceed the current
capacity of the systems serving the Premises;
(iv) an electrical system capable of supplying to the
Premises an average of eight and five-tenths watts per usable square foot of the
Premises of demand load excluding the base building heating, air conditioning
and ventilating systems;
(v) non-attended passenger and freight elevator
service through eight (8) passenger elevators and one (1) freight elevator;
(vi) daily (one shift) janitor service from 7:00 a.m.
to 6:00 p.m., Monday through Friday (except holidays), which shall be provided
by Landlord in the manner that such service is customarily furnished in
comparable office buildings in the area in accordance with the cleaning schedule
annexed as Exhibit I; and
(vii) security for the Building as reasonably
requested by Tenant.
(b) Telecommunication Services. Tenant shall provide its own
telecommunications services to the Premises and shall not have any right to use
the intra-building network cabling in the Building. Tenant shall have the right
to connect its telecommunications services to the minimum point of entry to the
Building and to run wires and cabling from such point to appropriate locations
throughout the Premises.
(c) Non-Liability. Except as otherwise provided in Section
5(f) and Section 12 below, Landlord shall not be in default hereunder or be
liable for any damage directly or indirectly resulting from, nor shall Base Rent
or Additional Charges herein reserved be abated by reason of, (i) interruption,
failure to furnish or delay in furnishing any services as provided in this
Section 5 when due to causes other than Landlord's gross negligence or willful
misconduct, or (ii) the mandatory limitation, curtailment, rationing or
restrictions imposed by law on use of or the failure of the supply by the
relevant utility to Tenant of, water, electricity, gas, or any other form of
utility services serving the Premises or the Building. Except as otherwise
provided in Section 5(f) below, Tenant expressly acknowledges that all utility
services are provided by the relevant utility involved, and Landlord is to have
no responsibility for the amount or quality of utility services provided by the
utility to the Building, including without limitation, the improper operation of
Tenant's equipment utilizing the same, but Landlord shall be responsible as
hereinafter set forth in this Section 5(c) if its wires, pipes or other
facilities and equipment distributing such service throughout the Building shall
fail to meet the specifications therefor or where there is no specification,
shall fail to function as such system normally functions in comparable office
buildings in the area. Landlord shall promptly remedy any failure or
interruption in the furnishing of such service, except that if Tenant's use of,
or access to, the Premises, or a portion thereof, is impaired due to any such
failure or interruption, Landlord shall employ such measures (including the use
of premium time) in order to cure such failure or interruption at the earliest
feasible time, and the cost of such measures shall be included in Operating
Expenses to the extent permitted by Section 3(c).
(d) Excess Electricity and Water. Tenant shall not use any
apparatus or device in the Premises which alone or collectively uses,
electricity and/or water in excess of the current capacity of the systems
serving the Premises. If Tenant shall require electric current in excess of the
capacity of the systems serving the Premises, Tenant shall first obtain
Landlord's consent to the installation of such increased capacity in accordance
with Section 7(j). If Tenant shall require water in excess of the capacity of
the systems serving the Premises, Tenant shall first obtain Landlord's consent,
which shall not be unreasonably withheld or delayed.
(e) Right to Install Generator. Notwithstanding anything to
the contrary contained herein, Tenant shall have the right to install in the
portion of the Premises located in the Garage, at its sole cost and expense, a
generator to support Tenant's electrical requirements for the Premises and
Tenant's UPS System. Tenant shall have the right, subject to Landlord's prior
written approval (not to be unreasonably withheld, delayed or conditioned), to
run wires between the generator and the Premises in appropriate locations and
through conduits in the Building. Tenant hereby indemnifies, defends and holds
Landlord harmless from any and all costs, damages, liabilities and losses
hereof) incurred by Landlord in connection with such generator, including,
without limitation, in connection with the use, maintenance, installation and
removal thereof (except to the extent any such costs, damages, liabilities or
losses are caused by Landlord, its agents, contractors or employees).
(f) Abatement. If Tenant, as a result of any default by
Landlord in performing any of its obligations under this Section 5, is not
reasonably capable of conducting its business in the Premises or a portion
thereof for a period of more than two (2) consecutive business days (subject to
extension on a day-by-day basis as a result of Force Majeure) and in fact fails
to occupy the Premises or such portion for more than two (2) consecutive
business days (subject to extension on a day-by-day basis as a result of Force
Majeure), Tenant shall, commencing on the third (3rd) consecutive business day
(or the next business day following such extension period, if later), be
entitled to an abatement of Base Rent and Additional Charges for Real Estate
Taxes and Operating Expenses, which abatement shall be based on the portion of
the Premises to which Landlord fails to provide services required under this
Section 5 (which portion shall not include any other portion of the Premises
indirectly affected by any of such failure), and which portion Tenant is unable
to use for Tenant's business purposes, and which abatement shall continue until
the earlier of the date on which Tenant is reasonably capable of conducting its
business in the Premises (or such portion thereof) or the date on which Tenant
actually conducts business in the Premises or such portion thereof.
(g) Tenant's Right to Cure. If Landlord shall default in the
performance of any of its obligations under this Section 5, which default
affects Tenant's ability to use and enjoy the Premises in the manner
contemplated by this Lease in any material respect, and in the event that
Landlord fails to cure such default within ten (10) days after Landlord's
receipt of written notice from Tenant describing in reasonable detail the nature
of such default (or such longer period of time as may reasonably be required to
cure such default in the event that Landlord commences to cure such default
within such ten (10) day period and diligently pursues the cure of such default
thereafter to completion), then, upon the giving of an additional three (3)
business days' prior written notice of its election to do so (which notice shall
state in capital letters at the top of such notice: "IN THE EVENT THAT LANDLORD
FAILS TO CURE THE BELOW DESCRIBED DEFAULT WITHIN THREE (3) BUSINESS DAYS AFTER
LANDLORD RECEIVES THIS NOTICE, TENANT INTENDS TO CURE SUCH DEFAULT AT LANDLORD'S
EXPENSE"), and if Landlord fails to cure such default within such three (3)
business day period (or such longer period of time as reasonably may be required
to cure such default in the event Landlord commences to cure such default within
such three (3) business day period and diligently pursues the cure of such
default thereafter to completion), Tenant may at any time thereafter and prior
to Landlord's cure thereof remedy such default for Landlord's account and at
Landlord's expense without thereby waiving such default or any rights or
remedies of Tenant on account of such default. Landlord shall pay to Tenant
within thirty (30) days after demand all reasonable sums expended by Tenant, or
other costs, damages, expenses or liabilities reasonably incurred by Tenant,
including, without limitation, reasonable attorneys' fees and costs, in
remedying or attempting to remedy such default, and interest on all such sums at
the Effective Rate, which obligation shall survive the termination of this
Lease.
(h) Alternative Suppliers of Utility Services. At Tenant's
sole cost and expense, Tenant shall have the right to pursue and apply for lower
cost alternatives to any utilities furnished to the Premises. Upon Tenant's
written request to obtain an alternative supplier, Landlord shall, if such
supplier is approved by Landlord, such approval not to be unreasonably withheld,
conditioned or delayed, enter into an arrangement with such alternative supplier
to obtain such alternative utility through Landlord's facilities and equipment,
and all payments in connection therewith shall be billed by such supplier to
Landlord and be charged to Tenant by Landlord as Operating Expenses at the same
rate as charged to Landlord by such alternative supplier.
(i) Replacement of Third Party Service Providers. In the event
that Tenant shall be dissatisfied with any independent vendor supplying any
service to the Premises on behalf of Landlord, Tenant shall have the right to
provide Landlord with a written notice specifying the nature of Tenant's
dissatisfaction with such vendor, which notice shall provide Landlord with
forty-five (45) days to cause such vendor to remedy the condition specified in
such notice causing Tenant's dissatisfaction. In the event that such vendor
fails to remedy such condition within such forty-five (45) day period, Tenant
shall have the right to deliver to Landlord a second written notice, which
notice shall identify such vendor and the condition giving rise to Tenant's
dissatisfaction and shall state in capital letters at the top of such notice:
"LANDLORD'S AGREEMENT TO REPLACE THE UTILITY SUPPLIER SPECIFIED BELOW SHALL BE
DEEMED TO BE GIVEN IF SUCH SUPPLIER FAILS TO REMEDY THE CONDITION STATED IN THIS
NOTICE WITHIN THIRTY (30) DAYS AFTER LANDLORD RECEIVES THIS NOTICE." If vendor
shall fail to remedy such condition within such additional thirty (30) day
period, Landlord shall replace such vendor with an alternative vendor selected
by Tenant and subject to Landlord's approval, which shall not be unreasonably
withheld, conditioned or delayed.
6. Taxes Payable By Tenant.
(a) In addition to the Base Rent and Additional Charges
payable by Tenant hereunder, Tenant shall reimburse Landlord within thirty (30)
days after demand for any and all taxes payable by Landlord whether or not now
customary or within the contemplation of the parties hereto which are upon,
measured by, or reasonably attributable to the cost or value of Tenant's
equipment, furniture, fixtures, and other personal property located in the
Premises, which taxes are now or hereafter levied or assessed against Landlord
by the United States of America, the State of California, or any political
subdivision thereof, public corporation, district, or any other political or
public entity, and shall also include any other tax, fee or other excise,
however described, that may be levied or assessed as a substitute for, or as an
addition to, in whole or in part, any such taxes, whether or not now customary
or in the contemplation of the parties on the date of this Lease (collectively,
the "Personal Property Taxes").
(b) Tenant shall have the right, upon the terms and conditions
of this Section 6, to contest any Personal Property Taxes payable by Tenant
under this Lease. If Tenant determines to contest any such Personal Property
Taxes, Tenant shall so notify Landlord and either make payment of such Personal
Property Taxes under protest directly to the levying authority prior to the due
date therefor, and in all events in a manner that will prevent foreclosure of
any tax lien on any portion of the Project, or, if such Personal Property Taxes
are included in the tax bill to Landlord and paid by Tenant to Landlord pursuant
to this Section 6, require that Landlord make payment of such Personal Property
Taxes under protest. Tenant may prosecute such contest in Tenant's name, or in
Landlord's name if required by applicable law, and Landlord shall cooperate
reasonably with Tenant in prosecuting such contest, executing, furnishing and
making available to Tenant such documents, instruments and information as may be
reasonably necessary or appropriate for Tenant to pursue such contest.
Landlord's cooperation hereunder shall, however, be without cost or expense to
Landlord and Tenant shall bear all costs and expense of any contest initiated
and conducted by Tenant hereunder, including, without limitation, any and all
penalties and fees incurred as a result thereof.
7. Alterations, Additions Or Improvements.
(a) General. Except for Landlord's Work and Tenant's Initial
Improvements, which shall be governed by the provisions of the Work Letter, and
Decorative Work (as hereinafter defined), Tenant shall not make or suffer to be
made any alterations, additions, or improvements to or of the Premises or any
part thereof, or attach any fixtures or equipment thereto (collectively,
"Alterations"), without Landlord's prior written consent, which may be withheld
in Landlord's sole and absolute discretion. Notwithstanding any of the
foregoing, Landlord shall not unreasonably withhold, delay or condition its
consent to Alterations in the Premises, which (i) are not of a structural
nature, (ii) except as otherwise provided in Section 5(d), do not adversely
affect the base building mechanical, electrical, sanitary, heating, air
conditioning, ventilating, elevator, plumbing, life-safety or any other service
systems of the Building (collectively, the "Building Systems") and (iii) except
as otherwise provided in Section 40 and Section 41, do not change the Building
exterior. In addition, Landlord shall not unreasonably withhold, condition or
delay its consent to Alterations in the Premises which (A) entail the
construction of any internal stairway, core drilling (not to exceed three inches
in diameter) or horizontal beam penetrations in the Premises or (B) increase the
live load or electrical capacity of any floor of the Premises in accordance with
Section 7(j). Landlord shall approve or refuse to approve (and in the case of
refusal, Landlord shall specify Landlord's reason therefor) any Alterations
proposed to be undertaken by Tenant hereunder and requiring Landlord's approval
within fifteen (15) business days with respect to Alterations that affect
Building Systems or are structural in nature and within ten (10) business days
for all other Alterations, in each case after Tenant's delivery of plans and
specifications therefor, and any other information concerning the proposed
Alterations reasonably required by Landlord, together with a written notice
requesting approval thereof.
(b) Permitted Alterations and Decorative Work. Notwithstanding
anything to the contrary provided herein, Tenant shall have the right, upon at
least five (5) days prior written notice to Landlord, but without the necessity
of obtaining Landlord's consent, to make Alterations in the Premises consisting
of any of the following (collectively, the "Permitted Alterations"): the
installation, alteration or removal, as the case may be, of electrical outlets,
partitions, doors, HVAC zones, light fixtures, hung ceilings, wall plugs,
sprinklers and data and communications wiring and cabling, provided that each
such Alteration (i) does not adversely affect the Building Systems and (ii) does
not cost in excess of $75,000; provided further that the cost of data and
communications wiring and cabling shall not be included in the calculation of
the cost of each such Alteration. Further, Tenant may make decorative or
cosmetic improvements or Alterations ("Decorative Work") in the Premises (such
as hanging pictures, touch up painting, carpeting, wall covering, rearrangement
of movable work stations, modular units or similar items) without first
obtaining Landlord's consent and without giving Landlord notice and without
obligation to provide "as-built" plans and specifications.
(c) Removal. All such Alterations shall become Landlord's
property immediately and, at the end of the Term hereof, shall remain on the
Premises without compensation to Tenant, unless Landlord elects by notice to
Tenant to have Tenant remove the same, in which event Tenant shall promptly
remove such Alterations, repair any damage to the Premises, and restore the area
of the Premises affected by such removal to its condition immediately prior to
the installation of such Alterations. Notwithstanding the foregoing, Landlord
shall not require Tenant to restore or remove any Alterations for which Tenant
is required to obtain Landlord's approval and which Landlord has previously
approved unless Landlord notifies Tenant at the time of granting Landlord's
approval for such Alterations that Landlord shall require such restoration or
removal upon the expiration or earlier termination of this Lease because the
Alterations (i) are materially inconsistent with typical office use or (ii)
affect the structure of the Building.
(d) Tenant's Property. All furniture, furnishings, trade
fixtures, equipment and articles of movable personal property installed in the
Premises by or for the account of Tenant and which can be removed without
structural or other material damage to the Building (all of which are herein
called "Tenant's Property") shall be and remain the property of Tenant and may
be removed by it at any time during the Term. Upon the Term Expiration date or
the termination of this Lease, Tenant shall remove from the Premises all of
Tenant's Property.
(e) Regulatory Requirements. Tenant at its expense shall
obtain any and all permits and consents of applicable governmental authorities
in respect of such Alterations and shall comply with the requirements of all
governmental authorities in connection therewith, including all building codes.
In addition, Tenant shall be liable to Landlord and shall reimburse Landlord for
the reasonable costs of any improvements to the Building (whether or not within
the Premises) which may be required by governmental authority as a consequence
of Tenant's Alterations, which reimbursement shall not constitute Operating
Expenses and shall be paid by Tenant to Landlord within thirty (30) days after
Landlord's delivery to Tenant of a written invoice therefor with supporting
documentation therefor.
(f) Construction of Alterations. All Alterations made by
Tenant with the prior written consent of Landlord shall be effected through the
use of contractors approved by Landlord, which approval shall not be
unreasonably withheld, conditioned or delayed, provided that such contractors
shall maintain a commercial general liability policy of insurance of not less
than $1,000,000 with a carrier having a rating of A minus VIII or better in
Best's Insurance Guide and shall provide Landlord with a certificate of
insurance evidencing the same. Landlord shall approve or refuse to approve (and
in the case of refusal, Landlord shall specify Landlord's reason therefor) any
contractor proposed by Tenant within ten (10) days after Tenant's delivery of
such contractors' name, address and trade, together with a written notice
requesting approval thereof. With respect to any and all Alterations, Tenant
shall pay to Landlord an administrative fee equal to Landlord's actual and
reasonable out-of-pocket costs incurred in connection with the review of
Tenant's plans and the coordination with Tenant and its contractors for the
construction of such Alterations. Tenant will not be required to use any
Building standard or Building stocked materials.
(g) Compliance by Landlord. If Tenant is delayed in making
Alterations on account of Landlord's failure to comply with, or cause compliance
with, requirements pursuant to Section 13(b) below, then Landlord shall
promptly, using reasonable diligence, correct such failure (or cause such
failure to be corrected) as soon as reasonably possible in order to minimize any
delay in the making by Tenant of such Alterations. If Tenant is delayed in
making Alterations on account of Landlord's failure to have removed from the
Premises any asbestos which is specifically required to be removed as a part of
Landlord's Work, then Landlord shall promptly, using reasonable diligence,
correct such failure (or cause such failure to be corrected) at its cost, as
soon as possible in order to minimize any delay in the making by Tenant of such
Alterations.
(h) Field Changes to Alterations. Tenant may make changes in
the field to Alterations previously approved by Landlord without first obtaining
Landlord's prior consent so long as such field change (A) is not of a structural
nature, (B) does not adversely affect the Building Systems, (C) does not change
the exterior of the Building, (D) is necessitated by field conditions as
encountered during the construction of the Alterations and is required to be
made in order to conform the Alterations to such condition, (E) is consistent
with the purpose and intent of plans and specifications for the Alterations
approved by Landlord, and (F) does not cost in excess of Fifteen Thousand
Dollars ($15,000.00) for a single field change, or Forty-Five Thousand Dollars
($45,000.00) in the aggregate for all field changes, with respect to the
Alterations under construction; provided that the cost of data and
communications wiring and cabling shall not be included in the calculation of
the cost of each such field change. Tenant shall use reasonable efforts to
provide Landlord notice in accordance with Section 33 prior to making any field
change for which Landlord's consent is not required hereunder, and in the event
that Tenant is unable to provide such prior written notice, Tenant in all events
shall provide to Landlord written notice of such field change as promptly as
reasonably possible. Such written notice shall set forth Tenant's reasonable
estimate of both the cost of the particular field change being made, as well as
the aggregate cost of all field changes made to such date with respect to the
Alterations under construction.
(i) Additional Cooling Tower. Landlord agrees to consider in
its reasonable judgment any reasonable request by Tenant to permit Tenant to
install, at Tenant's sole cost and expense, an additional cooling tower in a
location approved by Landlord on the roof of the Building or in the mechanical
space in the Building to supply additional chilled or condenser water to the
Premises. In the event that Landlord consents to such request, the parties shall
enter into a Lease amendment memorializing the terms and conditions under which
Tenant may install such additional cooling tower.
(j) Increase in Live Load and Electrical Capacity. Subject to
the terms and conditions of this Section 7, Tenant shall have the right, at
Tenant's sole expense at any time during the Term, (I) to increase the live load
capacity for each floor in the Premises, provided that any such increase shall
not in any way diminish the live load capacity for any other floor of the
Building, which floor does not comprise a part of the Premises, and provided
further that upon the expiration or earlier termination of the Term of this
Lease with respect to any floor of the Premises for which Tenant has increased,
or caused a decrease in, the live load capacity, Tenant shall restore the live
load capacity of such floor to the live load capacity existing on the
Commencement Date for such floor; (II) to increase the electrical capacity of
one or more floors in the Premises by the installation of additional panels, bus
taps, wiring, risers and/or transformers, provided that any such increase shall
not in any way diminish the electrical capacity for any other floor of the
Building, which floor does not comprise a part of the Premises, and provided
further that upon the expiration or earlier termination of the Term of this
Lease with respect to any floor of the Premises for which Tenant has increased,
or caused a decrease in, the electrical capacity, Tenant shall restore the
electrical capacity to the electrical capacity existing on the Commencement Date
for such floor; (III) to install raised flooring in the Premises; (IV) to
install a supplemental air conditioning system in the Premises; (V) to install
executive bathrooms in the Premises, and (VI) to remove steel braces or columns
in the Crossover Space that are not components of the structural design of the
Building. Notwithstanding any provision contained in this Lease to the contrary,
Tenant shall have no obligation to restore or replace any such steel braces or
columns removed by Tenant in accordance with clause (VI) of the sentence
immediately preceding.
(k) As-Builts. Tenant shall provide "as-built" plans and
specifications to Landlord for any and all of the work performed by Tenant
pursuant to this Section 7, as the same may be modified from time to time by
field changes specifically permitted pursuant to this Section 7, as well as any
and all building permits and "finalled" permits required in connection with such
work, as the same may be modified from time to time. Notwithstanding the
foregoing, Tenant shall not be required to provide "as-built" plans and
specifications in connection with performing any Decorative Work, Permitted
Alterations or individual field changes specifically permitted herein without
Landlord's consent; however, throughout the Term of this Lease, as the same may
be extended pursuant to the terms hereof, Tenant shall be required to maintain
"as-built" plans and specifications covering the Premises, including any and all
Permitted Alterations and field changes made thereto prior to such date, and
Tenant shall provide to Landlord copies of the same upon Landlord's request
therefor.
8. Liens.
Tenant shall keep the Premises and the Building free and clear
of and from, and shall promptly remove if asserted, any and all mechanics',
materialmen's and other liens for work or labor done, services performed and for
materials used or furnished in or about the Premises by or on behalf of Tenant
(other than work performed by or materials furnished by Landlord). Tenant shall
save, defend, indemnify and hold Landlord, the Premises and the Building free
and harmless of and from any and all such liens or claims of liens or suits or
other proceedings pertaining thereto.
9. Repairs.
(a) Tenant. By taking possession of a portion of the Premises,
Tenant accepts such portion as being in the condition in which Landlord is
obligated to deliver the Premises, subject only to the joint punchlist items as
contemplated by Section 2(b) hereof and except for any latent defects, which
Landlord shall promptly repair. Tenant, at all times during the Term hereof and
at Tenant's sole cost and expense, shall keep the Premises and every part
thereof in good condition and repair, excepting damage due to casualty with
respect to which the provisions of Sections 10 and 12 shall apply and repairs to
be performed by Landlord pursuant to Section 9(b) below. Except to the extent
provided in Section 9(d) below, Tenant hereby waives all right to make repairs
at the expense of Landlord or in lieu thereof to vacate the Premises as provided
by California Civil Code Section 1941 and 1942 or any other law, statute or
ordinance now or hereafter in effect. Landlord has no obligation and has made no
promise to alter, remodel, improve, repair, decorate, or paint the Premises or
any part thereof except as specifically set forth in this Lease and in the Work
Letter. Except as specifically set forth in this Lease and the Exhibits,
Landlord has not made any representations respecting the condition of the
Premises to Tenant.
(b) Landlord. Landlord shall manage and operate the Building
consistent with the management and operation of a first class office building
located in San Francisco, California. Landlord will repair and maintain in good
working order and condition consistent with the condition of a first class
office building the structural portions of the Building, the Building Systems,
the exterior windows, the exterior walls and Building roof, the common areas,
and, to the extent that Landlord is required by the City and County of San
Francisco to maintain the sidewalks abutting the Building, such sidewalks,
provided that Tenant shall be obligated to reimburse Landlord for any repair or
maintenance if necessitated or occasioned by the wrongful acts or negligence of
or breach of this Lease by Tenant or any of Tenant's Agents.
(c) Abatement. If Tenant, as a result of any default by
Landlord in performing any of its obligations under Section 9(b), is not
reasonably capable of conducting its business in the Premises or a portion
thereof for a period of more than two (2) consecutive business days (subject to
extension on a day-by-day basis as a result of Force Majeure) and in fact fails
to occupy the Premises or such portion for more than two (2) consecutive
business days (subject to extension on a day-by-day basis as a result of Force
Majeure), Tenant shall, commencing on the third (3rd) consecutive business day
(or the next business day following such extension period, if later), be
entitled to an abatement of Base Rent and Additional Charges for Real Estate
Taxes and Operating Expenses, which abatement shall be based on the portion of
the Premises with respect to which Landlord has failed to perform repairs
required under Section 9(b) (which portion shall not include any other portion
of the Premises indirectly affected by any of such failure), and which portion
Tenant is unable to use for Tenant's business purposes, and which abatement
shall continue until the earlier of the date on which Tenant is reasonably
capable of conducting its business in the Premises (or such portion thereof) or
the date on which Tenant actually conducts business in the Premises or such
portion thereof.
(d) Tenant's Right to Cure. If Landlord shall default in the
performance of any of its obligations under Section 9(b), which default affects
Tenant's ability to use and enjoy the Premises in the manner contemplated by
this Lease in any material respect, and in the event that Landlord fails to cure
such default within ten (10) days after Landlord's receipt of written notice
from Tenant describing in reasonable detail the nature of such default (or such
longer period of time as may reasonably be required to cure such default in the
event that Landlord commences to cure such default within such ten (10) day
period and diligently pursues the cure of such default thereafter to
completion), then, upon the giving of an additional three (3) business days'
prior written notice of its election to do so (which notice shall state in
capital letters at the top of such notice: "IN THE EVENT THAT LANDLORD FAILS TO
CURE THE BELOW DESCRIBED DEFAULT WITHIN THREE (3) BUSINESS DAYS AFTER LANDLORD
RECEIVES THIS NOTICE, TENANT INTENDS TO CURE SUCH DEFAULT AT LANDLORD'S
EXPENSE"), and if Landlord fails to cure such default within such three (3)
business day period (or such longer period of time as reasonably may be required
to cure such default in the event Landlord commences to cure such default within
such three (3) business day period and diligently pursues the cure of such
default thereafter to completion), Tenant may at any time thereafter and prior
to Landlord's cure thereof remedy such default for Landlord's account and at
Landlord's expense without thereby waiving such default or any rights or
remedies of Tenant on account of such default. Landlord shall pay to Tenant
within thirty (30) days after demand all reasonable sums expended by Tenant, or
other costs, damages, expenses or liabilities reasonably incurred by Tenant,
including, without limitation, reasonable attorneys' fees and costs, in
remedying or attempting to remedy such default, and interest on all such sums at
the Effective Rate, which obligation shall survive the termination of this
Lease.
(e) Landlord to Minimize Interference. Landlord shall use
reasonable diligence to minimize interference with Tenant's use and occupancy of
the Premises in making any repairs; provided, however, that Landlord shall have
no obligation to employ contractors or labor at so-called overtime or other
premium pay rates or to incur any other overtime costs in connection with such
repairs unless same shall adversely affect the health or safety of occupants of
the Premises or impair Tenant's use of or access to the Premises in more than a
de minimis amount, in which event Landlord shall perform such repairs as
expeditiously as possible, including the use of overtime or premium pay rates if
necessary to perform such work during hours other than Tenant's normal business
hours. Notwithstanding the foregoing, if Tenant shall so request in writing,
Landlord shall use reasonable efforts to employ contractors or labor at
so-called overtime or other premium pay rates or incur other overtime costs in
making any repairs requested by Tenant, and Tenant shall pay to Landlord, within
thirty (30) days after demand therefor, which demand shall be accompanied by
supporting documentation, an amount equal to the excess costs incurred by
Landlord to comply with Tenant's request.
10. Destruction Or Damage.
(a) Damage To Building. If the Premises and/or other portion
of the Building are damaged by fire, earthquake, act of God, the elements or
other casualty, Landlord shall forthwith repair the same, excluding any tenant
improvements contained therein, subject to the provisions of this Section
hereinafter set forth, provided that Landlord actually receives sufficient
insurance proceeds to cover the cost thereof, unless the reason Landlord did not
receive sufficient proceeds is due to Landlord's failure to carry insurance
required under this Lease, and, provided further, that in the written opinion of
a reputable independent contractor retained by Landlord (the "Contractor's
Opinion"), such repairs can be completed within eighteen (18) months after the
date of such damage (the "Rebuilding Period") under the laws and regulations of
the federal, state and local governmental authorities having jurisdiction
thereof. Landlord shall use commercially reasonable efforts to apply for and
obtain all insurance proceeds promptly after the occurrence of any casualty.
Within sixty (60) days after the date of such damage, Landlord shall deliver a
copy of the Contractor's Opinion to Tenant which opinion shall state how long,
in the opinion of such independent contractor, it will take to make such repairs
after the date of such damage, and such opinion shall be binding on Tenant and
Landlord. If the repairs can be completed within the Rebuilding Period, this
Lease shall remain in full force and effect, except that if Tenant shall not
have been able to occupy the Premises or any portion thereof for the conduct of
its business, Tenant shall be entitled to a proportional abatement of Base Rent
and Additional Charges for Operating Expenses and Real Estate Taxes (based upon
rentable square footage) for such part of the Premises as shall be rendered
unusable by Tenant in the conduct of its business as a result of (i) damage
sustained to such part as a result of such casualty, (ii) lack of access to such
part as a result of such casualty or (iii) failure by Landlord to supply
services required to be supplied by Landlord pursuant to Section 5 to such part
as a result of such casualty, which abatement shall commence upon the date of
such damage and continue until the Rent Recommencement Date (as hereinafter
defined). As used herein, the term "Rent Recommencement Date" shall mean the
earliest to occur of (A) the date that is one hundred twenty (120) days after
the date that Landlord has completed any and all repairs required under this
Section 10 and redelivered to Tenant the portion of the Premises that was
damaged in a condition such that Tenant is then able to commence restoration and
repair of the Tenant's Initial Improvements and any other improvements in such
portion of the Premises without interference of more than an insignificant
amount, (B) the date on which Tenant first reoccupies such portion of the
Premises for its business purposes, or (C) the date on which Tenant would have
been able to reoccupy such portion of the Premises had Tenant used reasonably
diligent efforts to restore and repair the Tenant's Initial Improvements and any
other improvements in such portion of the Premises constructed by or on the
behalf of Tenant following the redelivery of such portion of the Premises by
Landlord to Tenant in the condition described in clause (A) above. For purposes
of this Section 10, "repair" or "repairs" shall include all repair and
restorative work Landlord in Landlord's good faith but nevertheless sole
discretion deems advisable to restore the Building to the condition it was in on
the Commencement Date, including without limitation, all work and improvements
Landlord deems advisable to improve the condition and quality of the Building,
whether in the form of government mandated building code upgrades or otherwise,
but excluding any obligation of Landlord to demolish, repair or restore Tenant's
Initial Improvements or Alterations. Notwithstanding anything to the contrary in
this Section 10, in the event that a casualty shall occur at any time prior to
April 1, 2013, this Lease shall continue in full force and effect (except that
Base Rent and Additional Charges for Operating Expenses and Real Estate Taxes
shall be abated as hereinabove provided) and Landlord shall repair and restore
the casualty damage with reasonable diligence, provided that (I) Landlord
actually receives sufficient insurance proceeds to cover the cost thereof,
unless the reason Landlord did not receive sufficient proceeds is due to
Landlord's failure to carry insurance required under this Lease, (II) the
Contractor's Opinion indicates that repairs can be completed within twenty-four
(24) months after the date of such damage and (III) Tenant shall deliver to
Landlord written notice, given within thirty (30) days after Tenant's receipt of
the Contractor's Opinion, that Tenant elects to require Landlord to repair or
restore such damage pursuant to this Section 10(a), and such notice by Tenant
shall be deemed to be Tenant's agreement that any abatement of Base Rent and
Additional Charges for Operating Expenses and Real Estate Taxes will terminate
at the end of the eighteenth (18th) month following the date of such damage, and
commencing upon the nineteenth (19th) month and continuing through the
twenty-fourth (24th) month following the date of such damage, Tenant shall pay
to Landlord Base Rent and Additional Charges for Operating Expenses and Real
Estate Taxes as such amounts become due pursuant to the terms of this Lease, as
if such casualty had not occurred.
(b) Damage To Tenant's Improvements And Property. If the
Premises are damaged by fire, earthquake, act of God, the elements or other
casualty, Tenant shall forthwith repair or replace Tenant's Initial
Improvements, Tenant's Alterations, Tenant's trade fixtures, Tenant's personal
property and any other tenant improvements in the Premises, to the extent
damaged by such casualty, after Landlord shall have completed its repairs to the
Building as required by Section 10(a), provided that, subject to compliance by
Tenant with the provisions of Section 7 hereof, Tenant may make such other or
additional or new Alterations to the Premises as Tenant may deem appropriate for
its occupancy, and nothing in this Section shall be deemed to require Tenant to
reinstall Tenant's Initial Improvements.
(c) Repair. If Landlord does not actually receive sufficient
insurance proceeds to cover the cost of such repairs (where such failure is not
the result of Landlord's failure to maintain insurance required under this
Lease), or if such repairs cannot be made within the Rebuilding Period, as
determined in Section 10(a), Landlord shall elect, by notice to Tenant given
within thirty (30) days after the receipt of the Contractor's Opinion of
Landlord's intention: (i) to repair or restore such damage, in which event
(subject to Tenant's right to terminate set forth in the immediately following
sentence) this Lease shall continue in full force and effect (except that Base
Rent and Additional Charges for Operating Expenses and Real Estate Taxes shall
be partially abated as hereinabove provided) and Landlord shall repair and
restore such damage with reasonable diligence, or (ii) to terminate this Lease
as of a date specified in such notice, which date shall be not less than sixty
(60) nor more than one hundred twenty (120) days after notice is given (or, if
earlier, the last day of the Term), provided that, as a condition of such
termination, Landlord shall have concurrently terminated any other leases
covering any of floors two (2) through seventeen (17) or the Penthouse of the
Building, with respect to which leases Landlord has a comparable termination
right, it being the intent of the parties that Landlord not be able to use the
provisions of this Section 10 to terminate "below market" leases. If such
repairs cannot be completed within eighteen (18) months from the date of such
damage, Tenant shall have the option to terminate this Lease by delivering
written notice of termination to Landlord within thirty (30) days after
Landlord's notice to Tenant of Landlord's determination set forth in the
preceding sentence shall have been given, which termination shall be effective
as of the date set forth in such notice of termination, which date shall be not
less than sixty (60) nor more than one hundred twenty (120) days after notice is
given (or, if earlier, the last day of the Term). In the event that such notice
to terminate is given by Landlord or Tenant as provided above, this Lease shall
terminate on the date specified in such notice. Landlord agrees to refund to
Tenant any Base Rent and Additional Charges for Real Estate Taxes and Operating
Expenses previously paid for any period of time subsequent to such date of
termination. Tenant agrees to pay to Landlord any Base Rent and Additional
Charges accrued and unpaid as of such date of termination.
(d) Repairs Not Timely Completed. If neither Landlord nor
Tenant shall have exercised its option to terminate pursuant to this Section 10,
but Landlord shall not have, within one hundred and twenty (120) days after the
date by which the Contractor's Opinion indicated repairs could be made,
completed the repair of the Building and redelivered to Tenant the portion of
the Premises that was damaged in the condition required by Section 10(a), then
Tenant may notify Landlord (with a copy of such notice to be concurrently
delivered by Tenant to Landlord's Lender (as hereinafter defined), provided
Landlord shall have provided to Tenant written notice of the name and address of
Landlord's Lender) that unless Landlord or Landlord's Lender shall cause the
delivery to Tenant of such portion of the Premises in the condition required
above within fifteen (15) days following the giving of such notice by Tenant,
this Lease shall terminate upon the expiration of such fifteen (15) day period.
If this Lease shall be terminated pursuant to this Section 10, Landlord shall
promptly refund to Tenant any Base Rent and Additional Charges for Operating
Expenses and Real Estate Taxes paid by Tenant with respect to any period after
the effective date of termination less any sums due and owing Landlord by Tenant
under this Lease.
(e) Waiver. Tenant waives California Civil Code Sections
1932(2) and 1933(4) providing for termination of hiring upon destruction of the
thing hired in lieu of the provisions of this Section 10 which shall govern.
(f) Costs of Repair. If the Premises are to be repaired under
this Section 10, Landlord shall pay the cost of any injury or damage to the
Building itself, excluding any tenant improvements contained therein, and
Landlord's proportionate share of the cost of any injury or damage to tenant
improvements in the Premises paid for by Landlord hereunder, which proportionate
share shall be based on the ratio of (i) the amount of the Tenant Improvement
Allowance actually expended by Landlord to (ii) the aggregate cost (including
hard and soft costs) of Tenant's Initial Improvements and Alterations. Upon any
event of casualty causing injury or damage to tenant improvements in the
Premises for which Tenant seeks contribution from Landlord for the cost of
repair, Tenant shall promptly provide Landlord with the information set forth in
the immediately preceding clause (ii), together with reasonably detailed
supporting documentation. Tenant shall pay the cost of repairing Tenant's
Alterations, Tenant's improvements (subject only to the two immediately
preceding sentences), Tenant's trade fixtures, Tenant's personal property and
any other tenant improvements in the Premises and shall be responsible for
carrying such casualty insurance as it deems appropriate with respect to such
other tenant improvements.
(g) Damage at End of Term. Notwithstanding the foregoing
provisions of this Section 10, if any event of casualty occurs during the last
twelve (12) months of the Term of this Lease, as the same may have been extended
pursuant to Section 36, which event of casualty shall cause such damage or
destruction to the Building that Landlord determines, in its sole and absolute
discretion, that the cost of repairing any floor of the Premises damaged by such
event to the condition required by Section 10(a) shall cost at least the
equivalent of three (3) month's Base Rent and Additional Charges for Operating
Expenses and Real Estate Taxes for such floor, then either Landlord or Tenant
shall have the right to terminate this Lease with respect to such floor of the
Premises upon written notice to the other within thirty (30) days following the
event of damage or destruction. In the event that such notice to terminate this
Lease with respect to any floor of the Premises is given by Landlord or Tenant
as provided above, this Lease shall terminate on the date specified in such
notice, which date shall be not less than sixty (60) nor more than one hundred
twenty (120) days after notice is given (or, if earlier, the last day of the
Term). Landlord agrees to refund to Tenant any Base Rent and Additional Charges
for Real Estate Taxes and Operating Expenses previously paid for any period of
time subsequent to such date of termination. Tenant agrees to pay to Landlord
any Base Rent and Additional Charges accrued and unpaid as of such date of
termination.
(h) No Extensions. None of the time periods contained in this
Section 10 shall be extended by reason of Force Majeure.
11. Insurance; Waiver Of Subrogation.
(a) Tenant's Liability Insurance. Tenant, at Tenant's expense,
shall maintain in full force during the Term hereof a policy or policies of
commercial general liability insurance insuring against claims and liability for
personal injury, death and property damage arising in or about the Premises, the
Building and adjoining areas or ways, with a carrier or carriers reasonably
acceptable to Landlord and Landlord's Lender. Landlord agrees that any carrier
or carriers having a rating of not less than A minus VIII or better by Best's
Insurance Guide is reasonably acceptable to Landlord. The liability under such
insurance shall not be less than $10,000,000 combined single limit and with a
deductible amount reasonably acceptable to Landlord and Landlord's Lender,
provided that any deductible within the self insurance limits provided in
Section 11(b) below shall be deemed reasonably acceptable. Such policy or
policies of insurance shall (i) name Landlord and Landlord's Lender as
additional insureds, provided Landlord shall have given Tenant written notice of
the name and address of Landlord's Lender, (ii) be non-assessable, primary and
non-contributory with any policies carried by Landlord, (iii) provide that the
same may not be canceled or materially amended except upon thirty (30) days
prior written notice to Landlord and (iv) be issued on an occurrence basis. Such
coverage may be provided by a combination of commercial general liability and
excess umbrella policies. Any insurance policy may be maintained by a "blanket
policy" insuring other parties and other locations so long as the amount and
coverage required to be provided hereunder is not thereby diminished. Tenant at
all times shall maintain with Landlord a current certificate or certificates of
said policy or policies. The amount of insurance coverage provided for in this
Section 11 shall be increased from time to time during the Term hereof, but not
more frequently than every five (5) years, upon thirty (30) days' prior notice
from Landlord to the extent reasonably required by circumstances then existing
if and when Landlord reasonably determines that such increase is required to
adequately protect the parties named as insureds and the limits of liability for
tenants leasing comparable amounts of space in comparable office buildings in
downtown San Francisco are at such amounts or if Landlord is required to
implement such increase by Landlord's Lender.
(b) Tenant's Self-Insurance. Tenant (but not any successor or
assignee of Tenant, without Landlord's prior written consent, which consent
Landlord may withhold in its sole and absolute discretion) shall have the right
to self-insure for up to a maximum amount of $1,000,000, including the
deductible, any of the insurance required to be carried by Tenant under this
Section 11 if and so long as (i) the net worth of Tenant is not less than Two
Hundred Million Dollars ($200,000,000), and (ii) the current assets of Tenant
are not less than Fifty Million Dollars ($50,000,000), as shown by Tenant's
separate, unconsolidated audited financial statements delivered to Landlord
within thirty (30) days after written request from time to time while such
self-insurance is in effect (which audited financial statements shall have been
issued not more than fifteen (15) months prior to the applicable date). Whenever
Tenant elects to self-insure pursuant to this Section 11(b), Tenant shall, for
all purposes of this Lease (including Section 11(a) above), be deemed to be
carrying the insurance required to be carried by Tenant under this Section 11.
Tenant shall notify Landlord in writing when Tenant elects to self-insure
pursuant to this Section 11(b) and, if Tenant shall have made such election,
Tenant shall notify Landlord when Tenant is not self-insuring at any time
thereafter. In addition, during any time that Tenant elects to self-insure as
permitted hereunder with respect to the liability insurance required to be
carried pursuant to Section 11(a) of this Lease, a third party claims
administrator shall perform the claims management and loss adjustment of all
claims within the scope of such coverage but for self-insurance.
(c) Landlord's Property Insurance. Landlord shall maintain, or
cause to be maintained, at its cost and expense but subject to reimbursement as
Additional Charges for Operating Expenses throughout the Term, a policy or
policies of All Risk or Special Form property insurance insuring the full
replacement cost of the Building (exclusive of foundations and excavations). If
available, Landlord shall carry earthquake insurance on the Building, and the
amount of such insurance policy shall be the greater of (i) Thirteen Million
Dollars ($13,000,000.00) or (ii) based on a probable maximum loss as determined
from time to time by a reputable structural engineer with experience in
evaluating seismic risks of high use office building structures and as selected
by Landlord and reasonably satisfactory to Tenant (which probable maximum loss
shall in no event be less than 18%) with not less than a five percent (5%)
deductible based on the full replacement cost of the Building.
(d) Landlord's Liability Insurance. Landlord, with respect to
the Premises, at its cost and expense but subject to reimbursement as Additional
Charges for Operating Expenses, shall maintain or cause to be maintained,
throughout the Term, a policy or policies of commercial general liability
insurance with limits of liability not less than Ten Million Dollars
($10,000,000.00) combined single limit. Such coverage (i) may be provided by a
combination of commercial general liability and excess umbrella policies; (ii)
shall be issued on an occurrence basis; (iii) all insurance required by this
Section 11 shall be issued by companies having a rating of A minus VIII or
better by Best's Insurance Guide; and (iv) may be maintained under a "blanket
policy", insuring other parties and other locations, so long as the amount and
coverage required to be provided hereunder is not thereby diminished. Landlord
shall provide to Tenant certificates of insurance certifying that the policies
contain the provisions required hereunder. Landlord's insurance shall provide
that the insurer agrees not to cancel or materially amend the policy without at
least thirty (30) days prior written notice to all additional insureds or loss
payees.
(e) Deductibles. All deductibles under policies of insurance
required to be carried by either party under this Section 11 shall be
commercially reasonable under the circumstances, subject to any deductibles
specifically set forth in this Section 11.
(f) Waiver; Subrogation. To the extent lawful and without
adversely affecting any insurance carried by such party, Landlord and Tenant
each releases and waives any right to recover against the other party for any
liability for any loss or damage to property and any other loss or damage to the
extent of coverage under any "All Risk" or "Special Form" policy of insurance
maintained by such party, irrespective of any negligent act or omission of such
other party which may have caused such loss or damage in whole or in part. Each
party shall obtain, for the benefit of the other party, from the relevant
insurer, if available, a waiver of any right of subrogation which the insurer of
such party may acquire against the other party by reason of the payment of any
such loss covered by such insurance.
12. Waiver; Indemnity.
(a) Except to the extent due to the negligence or willful
misconduct of Landlord and except to the extent otherwise provided in this
Lease, Landlord shall not be liable to Tenant or Tenant's agents, employees,
contractors and invitees (collectively, "Tenant's Agents") for, and Tenant
waives as against and releases Landlord and Landlord's Lender from, all claims
for loss or damage to any property or injury, illness or death of any person in,
upon or about the Premises and/or any other portion of the Building and the
Project, arising at any time and from any cause whatsoever, including such
claims caused in whole or in part by the act, omission, or neglect of other
tenants, contractors, invitees or other occupants of the Building or Project or
their agents or employees. The foregoing waiver and release extends to
Landlord's officers, directors, partners, members, employees and agents.
(b) Except to the extent due to the negligence or willful
misconduct of Landlord and subject to Section 11(f), Tenant shall indemnify,
defend, protect and hold Landlord harmless of and from any and all loss, liens,
liability, claims, causes of action, damage, injury, cost or expense arising out
of or in connection with, or related to injury to or death of persons or damage
to property occurring or resulting directly or indirectly from (i) the use or
occupancy of, or any occurrence in or the conduct of business in, the Premises,
and/or (ii) the negligent acts or omissions of Tenant or any of Tenant's Agents
in or about any portion of the Project. Tenant's indemnity obligation includes
reasonable attorneys' fees and costs, reasonable investigation costs and all
other reasonable costs and expenses incurred by Landlord. Landlord shall have
the right of reasonable approval of legal counsel proposed by Tenant for defense
of any claim indemnified against hereunder or under any other provision of this
Lease, except that if such counsel is appointed by an insurance company
providing a defense to Landlord and/or Tenant, then such counsel shall be deemed
approved by Landlord. The foregoing indemnification shall extend to Landlord's
officers, directors, partners and members.
(c) Except to the extent due to the negligence or willful
misconduct of Tenant and subject to Section 11(f), Landlord shall indemnify,
defend, protect and hold Tenant harmless of and from any and all loss, liens,
liability, claims, causes of action, damage, injury, cost or expense arising out
of or in connection with, or related to injury to or death of persons or damage
to property occurring or resulting directly or indirectly from (i) the negligent
acts or omissions of Landlord, its agents, employees, contractors and invitees,
in or about the Premises or any other portion of the Project and (ii) the use,
generation, storage, handling, release, transport or disposal by Landlord or
Landlord's agents, employees and contractors of any Hazardous Materials in or
about the Premises or any other portion of the Project. Landlord's indemnity
obligation includes reasonable attorneys' fees and costs, reasonable
investigation costs and all other reasonable costs and expenses incurred by
Tenant. Tenant shall have the right of reasonable approval of legal counsel
proposed by Landlord for defense of any claim indemnified against hereunder or
under any other provision of this Lease, except that if such counsel is
appointed by an insurance company providing a defense to Landlord and/or Tenant,
then such counsel shall be deemed approved by Tenant. The foregoing
indemnification shall extend to Tenant's directors, officers, partners,
shareholders, members, employees and agents.
(d) Notwithstanding any other provisions in this Lease to the
contrary, including without limitation Section 5(g), Section 9(d) and this
Section 12, Landlord in no event shall be liable for any consequential or
incidental damages, lost profits, lost business or other economic loss, except
to the extent due to Landlord's gross negligence or willful misconduct.
(e) The provisions of this Section 12 shall survive the
termination of this Lease with respect to any indemnified obligations occurring
prior to such termination. The insurance policy or policies required pursuant to
the provisions of Section 11 by their terms shall cover the indemnity
obligations of the parties under this Section 12.
(f) As used in this Lease, "Landlord's Lender" at any time
shall mean any unaffiliated holder of a mortgage or deed of trust on all or a
portion of the Building or any interest therein at such time.
13. Compliance With Legal Requirements.
(a) General. During the Term of this Lease, Tenant, with
respect to the Premises, at its sole cost and expense, shall comply promptly
with (i) all laws, statutes, regulations, ordinances, building codes,
governmental rules, or requirements now in force or which may hereafter and
during the Term be in force, (ii) the requirements of any board of fire
underwriters or other similar body now or hereafter constituted, and (iii) any
direction or occupancy certificate issued pursuant to any law by any public
officer or officers (collectively, "Requirements"), insofar as any of clauses
(i) through (iii) relate to or affect the condition, use or occupancy of the
Premises, excluding changes, alterations or improvements not necessitated by
Alterations made by or for Tenant pursuant to Section 7. Any such mandated
changes, alterations or improvements or other work not necessitated by
Alterations made by or for Tenant shall be performed and paid for by Landlord,
and the cost thereof shall be subject to inclusion as on Operating Expense to
the extent permitted under clause (xiii) of the definition of Operating Expense
in Section 3(a) of this Lease. Notwithstanding the foregoing, Tenant agrees and
acknowledges that, during the Term, except with respect to Landlord's Work and
Tenant's Initial Improvements, for which Landlord shall be responsible to cause
compliance with respect only to the elevator lobbies and restrooms located in
the Premises, Tenant shall be responsible, at its sole cost and expense, to
ensure compliance of the Premises with the Americans with Disabilities Act (the
"ADA") and with any and all other codes, rules and regulations, including,
without limitation, those relating to life safety issues. The judgment of any
court of competent jurisdiction or the admission by Tenant in any action or
proceeding against Tenant (whether Landlord be a party thereto or not) that
Tenant has violated any law, statute or governmental rule, regulation, or
requirement, shall be conclusive of such violation as between Landlord and
Tenant.
(b) Landlord's Compliance. Notwithstanding anything to the
contrary provided in Section 13(a) above, Landlord shall, at its sole cost and
expense, perform all work to the Building (excluding the Premises) and to the
elevator lobbies and restrooms located in the Premises required by Requirements
(including the ADA and those relating to life safety issues) as a result of
Tenant's Initial Improvements or Landlord's Work, and Landlord shall not pass
such costs to Tenant as Operating Expenses or otherwise. Additionally, and
except to the extent required of Tenant in Section 7 and Section 13(a), Landlord
shall comply with all Requirements relating to the Building (excluding the
Premises) at the time such compliance is required to be performed to the extent
that such non-compliance would adversely affect Tenant's use and occupancy of
the Premises or preclude Tenant from installing Tenant's Initial Improvements or
from installing any other Alterations; and if Landlord has failed to effect such
compliance at the time Tenant wishes to perform, or obtain a permit to perform,
any Alterations, Landlord shall, at its expense, promptly cause the Building to
comply with such Requirements. Any costs expended by Landlord pursuant to this
Section 13(b) shall be subject to inclusion as an Operating Expense to the
extent permitted by the terms of Section 3(a). In complying with the ADA or any
other applicable building codes during the Term, Landlord shall not reduce the
number of toilet or lavatory fixtures existing on any floor comprising a portion
of the Premises as of the Term Commencement, provided that Landlord shall have
the right in such circumstance to enlarge any restroom area to the extent
reasonably necessary to do so.
(c) Environmental Matters.
(i) As used herein, the following items shall have
the following meanings:
"Environmental Activity" means any actual,
proposed or threatened use, storage, treatment, existence, release, emission,
discharge, generation, manufacture, disposal or transportation of any Hazardous
Materials from, into, on, under or about the Project, or any other activity or
occurrence that causes or would cause any such event to exist.
"Environmental Requirements" means all
present and future federal, state, regional or local laws relating to the use,
storage, treatment, existence, release, emission, discharge, generation,
manufacture, disposal or transportation of any Hazardous Materials.
"Hazardous Material" means at any time any
substances or materials which at such time are classified or considered to be
hazardous or toxic under any Environmental Requirement.
(ii) Tenant shall not engage in nor knowingly permit
the occurrence of any Environmental Activity except in the ordinary course of
Tenant's business or the use of customary cleaning or office materials and only
in compliance with all Environmental Requirements and prudent industry
practices. Tenant shall, at its own expense, procure, maintain in effect and
comply with all conditions of any and all permits, licenses, and other
governmental and regulatory approvals required under any Environmental
Requirements for any Environmental Activity by Tenant, including, without
limitation, the discharge of (appropriately treated) materials or wastes into or
through any sanitary sewer serving the Premises, and upon termination of this
Lease shall cause all of its Hazardous Materials to be removed from the Premises
in accordance with and in compliance with all applicable Environmental
Requirements.
(iii) Upon having actual knowledge thereof, Tenant
shall notify Landlord in writing:
(A) promptly of any regulatory action that
has been instituted, or threatened by any governmental agency or court with
respect to Tenant that relates to any Environmental Activity;
(B) promptly of any claim relating to any
Environmental Activity by Tenant; or
(C) immediately of any actual or threatened
material release on, under or about the Project of any Hazardous Material,
except any Hazardous Material whose discharge or emission is authorized by and
in compliance with a permit issued by a federal, state, regional or local
governmental agency pursuant to Environmental Requirements.
(iv) Tenant shall provide Landlord with copies of any
communications with federal, state, regional or local governments, agencies or
courts with respect to any Environmental Activity or Environmental Requirement
relating to the Premises and any communications with any third party relating to
any claim made or threatened with respect to any Environmental Activity by
Tenant in, on or about the Premises.
(v) Tenant shall indemnify, defend, protect, and hold
Landlord, Landlord's Lender and each of Landlord's members, partners, employees
and agents, free and harmless from and against any and all claims, liabilities,
penalties, forfeitures, losses or expenses (including reasonable attorneys'
fees) arising from or caused in whole or in part, directly or indirectly, by (A)
an Environmental Activity by Tenant; or (B) Tenant's failure to comply with any
Environmental Requirement applicable to Tenant or the Premises. Landlord shall
have the right of reasonable approval of legal counsel proposed by Tenant for
defense of any claim indemnified against hereunder or under any other provision
of this Lease, except that if such counsel is appointed by an insurance company
providing a defense to Tenant and/or Landlord, then such counsel shall be deemed
approved by Landlord. Tenant's obligations under this Section 13(c) shall
include, without limitation, all costs of any repair or cleanup, removal or
remediation action, or detoxification or decontamination of the Building or
Premises, or the preparation and implementation of any closure, remedial action
or other plans in connection therewith that are required as a result of any
Environmental Activity by Tenant, and shall survive the expiration or earlier
termination of the Term of this Lease.
(vi) Landlord shall not engage in any Environmental
Activity in the Building (other than an Environmental Activity that is
customarily undertaken by owners of office buildings similar to the Building and
that are undertaken in accordance with Environmental Requirements) nor shall
Landlord authorize or knowingly permit any tenant in or other occupant of the
Building or any other person to engage in any Environmental Activity other than
in compliance with Environmental Requirements. Landlord shall, as an Operating
Expense, procure, maintain in effect and comply with all conditions of any and
all permits, licenses, and other governmental and regulatory approvals required
under any Environmental Requirements for any Environmental Activity by Landlord,
including, without limitation, the discharge of (appropriately treated)
materials or wastes into or through any sanitary sewer serving the Building.
(A) Upon having actual knowledge thereof,
Landlord shall notify Tenant in writing:
(B) promptly of any regulatory action that
has been instituted, or threatened by any governmental agency or court with
respect to Landlord that relates to any Environmental Activity relating to the
Building;
(C) promptly of any claim relating to any
Environmental Activity by Landlord in, on or about the Building; or
(vii) immediately of any actual or threatened material
release on, under or about the Building of any Hazardous Material, except any
Hazardous Material whose discharge or emission is authorized by and in
compliance with a permit issued by a federal, state, regional or local
governmental agency pursuant to Environmental Requirements.
(viii) Landlord shall provide Tenant with copies of
any communications with federal, state, regional or local governments, agencies
or courts with respect to any Environmental Activity or Environmental
Requirement relating to the Building and any communications with any third party
relating to any claim made or threatened with respect to any Environmental
Activity by Landlord in, on or about the Building.
(ix) Landlord shall indemnify, defend, protect, and
hold Tenant and each of Tenant's partners, employees and agents free and
harmless from and against any and all claims, liabilities, penalties,
forfeitures, losses or expenses (including reasonable attorneys' fees) to the
extent arising from or caused in whole or in part, directly or indirectly, by
(A) an Environmental Activity by Landlord or (B) Landlord's failure to comply
with any Environmental Requirement applicable to Landlord in respect to the
Project. Tenant shall have the right of reasonable approval of legal counsel
proposed by Landlord for defense of any claim indemnified against hereunder or
under any other provision of this Lease, except that if such counsel is
appointed by an insurance company providing a defense to Landlord and/or Tenant,
then such counsel shall be deemed approved by Tenant. Landlord's obligations
under this Section 13(c) shall include, without limitation, all costs of any
repair or cleanup, removal or remediation action, or detoxification or
decontamination of the Building or Premises, or the preparation and
implementation of any closure, remedial action or other plans in connection
therewith that are required as a result of any Environmental Activity by
Landlord, and shall survive the expiration or earlier termination of the Term of
this Lease.
14. Assignment And Subletting.
(a) Assignment and Subletting. Except as expressly permitted
pursuant to this Section, Tenant shall not, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed, assign this Lease or any interest herein (by operation of law or
otherwise), or sublet the Premises or any part thereof, or permit the use or
occupancy of the Premises (or any right or privilege appurtenant thereto) by any
party other than Tenant. Landlord shall consent or refuse to consent (and in the
case of refusal, Landlord shall specify Landlord's reason therefor) to any
proposed assignment or sublease within fifteen (15) business days after Tenant's
delivery of a written notice requesting approval thereof, together with the
information required under Section 14(b) below. If Landlord fails to respond to
any proposed assignment or sublease within such fifteen (15) business day
period, Tenant shall have the right to deliver to Landlord a notice, which
notice shall state in capital letters at the top of such notice: "LANDLORD'S
APPROVAL SHALL BE DEEMED TO BE GIVEN IF LANDLORD DOES NOT REFUSE APPROVAL WITHIN
FOUR (4) BUSINESS DAYS AFTER LANDLORD RECEIVES THIS NOTICE", and Landlord's
failure to consent or to consent within said additional four (4) business day
period from Landlord's receipt of such notice shall be deemed Landlord's
approval thereof. For purposes hereof, where Tenant is (i) a partnership, a
limited liability company or a limited liability partnership, "assignment" shall
include a transfer of more than fifty percent (50%) of the equity interest
therein or (ii) a corporation "assignment" shall include any (A) merger,
consolidation or other reorganization of Tenant, (B) liquidation, dissolution or
disposition of all or substantially all of the assets of Tenant or (C) change in
ownership of more than fifty percent (50%) of the equity interest therein
(except with respect to a corporation whose stock is publicly owned or whose
stock will be issued, transferred or sold as part of public offering of stock).
Any of the foregoing acts without the consent of Landlord, except as provided
below, shall be void and, at the option of Landlord, shall give Landlord the
right to terminate this Lease unless such act shall be cured. Notwithstanding
any provision of this Lease to the contrary, (I) the merger, consolidation or
other reorganization of Tenant and any assignment of this Lease in connection
with a sale of all or substantially all of Tenant's assets shall not be deemed
to be an assignment of this Lease requiring Landlord's consent, provided that,
in each of the foregoing instances, Tenant shall notify Landlord of the
occurrence of any event referred to in the preceding sentence, and Tenant, or in
the case of a sale of Tenant's assets, Tenant's assignee, continues as an
existing entity with substantially the same net worth as the net worth of Tenant
immediately prior to such transfer, assignment or subletting, and (II) the sale
or transfer of stock of Tenant shall not be considered an assignment of this
Lease.
Notwithstanding any provision of this Lease to the contrary, Tenant
shall be permitted, without the consent of, but with written notice to,
Landlord, to assign or sublet all or any part of the Premises to any entity
controlling, controlled by, or under common control with, Tenant (each, an
"Affiliate").
Without limiting the other instances in which it may be reasonable for
Landlord to withhold its consent to an assignment or subletting, Landlord and
Tenant acknowledge that it shall be reasonable for Landlord to withhold its
consent to a proposed assignment or subletting in the following instances:
(i) in Landlord's reasonable judgment, the use of the
Premises by the proposed assignee or sublessee would violate Section 4 of this
Lease;
(ii) in Landlord's reasonable judgment, in the case
of an assignment, the proposed assignee does not have a net worth of at least
Seventy-Five Million Dollars ($75,000,000.00), and, in the case of a sublease,
the financial condition of the proposed subtenant is such that it cannot meet
its obligations as they come due under the proposed sublease;
(iii) Landlord has reasonably demonstrated to Tenant
that the proposed assignee or sublessee has an unfavorable reputation as a
tenant of property;
(iv) Landlord or another landlord has experienced
previous lease defaults by, or is then in litigation as a landlord and as an
adverse party against, the proposed assignee or sublessee, and such proposed
assignee or sublessee is a tenant in such litigation; and
(v) if the use of the Premises by the proposed
assignee or subtenant will violate any applicable law, ordinance or regulation,
or any use permit issued for the use and occupancy of the Premises.
(b) Information; Landlord's Options. If at any time, or from
time to time, during the Term, Tenant desires to assign this Lease or sublet or
permit the occupancy or use by another of all or any part of the Premises,
except where otherwise permitted without Landlord's consent, Tenant shall give
notice to Landlord setting forth the following: (i) the name, address, and type
of entity of the proposed assignee, sublessee, occupier or user; (ii) the nature
of the business proposed to be carried on in the Premises; (iii) a copy of the
proposed assignment or sublease agreement; and (iv) any other documentation or
information reasonably requested by Landlord, including financial information
covering the proposed assignee, sublessee, occupier or user with respect to such
proposed subletting. All such information may be considered by Landlord in
making Landlord's permitted determinations hereunder, including the granting or
withholding of consent in respect of a proposed assignment or subletting.
(c) Assignment or Subletting Conditions. Subject to the other
provisions of this Section 14, Tenant may assign this Lease or sublet such space
to any third party on the following conditions:
(i) In the case of a sublease, the same shall be
subject and subordinate to all of the provisions, terms and conditions of this
Lease,
(ii) No assignment or sublease shall be valid and no
assignee or sublessee shall take possession of the Premises assigned or
subleased until an executed counterpart of such assignment or sublease, in form
and substance satisfactory to Landlord, shall have been delivered to Landlord,
and Landlord shall have expressly consented thereto in writing,
(iii) No assignee or sublessee shall have a further
right to assign or sublet, except with Landlord's prior written consent which
shall not be unreasonably withheld, conditioned or delayed, as provided in this
Section 14,
(iv) An amount equal to fifty percent (50%) of all
sums or other economic consideration actually received by Tenant as a result of
such assignment or subletting to any entity which is not (A) an Affiliate, (B) a
successor by merger, consolidation, other reorganization or an assignment to a
person to which Tenant has sold all or substantially all of Tenant's assets, or
(C) a Business Partner (as hereinafter defined), however denominated (whether as
consideration for the assignment, rentals under a sublease, or otherwise), which
exceed in the aggregate the total sums which Tenant is obligated to pay Landlord
under this Lease, after deducting Tenant's actual out-of-pocket costs of such
assignment or subletting, including without limitation, Tenant's reasonable
architectural, engineering and legal fees, brokerage commissions, free rent or
other economic concessions, construction costs and cost of rent for any actual
construction period not exceeding sixty (60) days, and attorney's fees of
Landlord payable pursuant to Section 14(e), and which total costs shall be
deducted by Tenant and fully recovered before sharing the same with Landlord,
prorated to reflect obligations allocable to that portion of the Premises
subject to such assignment or sublease, shall be payable to Landlord as
Additional Charges under this Lease without affecting or reducing any other
obligations of Tenant hereunder.
(d) Primary Liability. Regardless of Landlord's consent, no
subletting or assignment shall release Tenant of Tenant's obligation or alter
the primary liability of Tenant to pay the rental and to perform all other
obligations to be performed by Tenant hereunder. The acceptance of rental by
Landlord from any other person shall not be deemed to be a waiver by Landlord of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignees of Tenant or any successor in interest of Tenant in the
performance of any of the terms hereof, Landlord may proceed directly against
Tenant without the necessity of exhausting remedies against such assignee or
successor. Landlord may consent to subsequent assignments of this Lease or
sublettings or amendments to this Lease with assignees of Tenant, without
notifying Tenant, or any successor of Tenant, and without obtaining its or their
consent thereto, and such action shall not relieve Tenant of liability under
this Lease, provided that Tenant's liability under this Lease shall be no
greater than it would have been but for such amendment.
(e) Attorneys' Fees. If Tenant shall request the consent of
Landlord to any assignment or subletting, then Tenant shall pay Landlord's
actual out-of-pocket and reasonable attorneys' fees incurred in connection with
the review of the assignment or sublease instrument.
(f) Conflicting Provisions. The provisions of this Section
shall prevail and govern over any conflicting provision in any assignment or
subletting to which Landlord gives written consent. Any modification of the
terms of this Lease as between Tenant and Sublessee will not be binding on
Landlord.
(g) Brokerage. Tenant shall save, indemnify and hold Landlord
harmless from any and all claims for real estate brokerage of persons claiming
by or through Tenant arising from any assignment or subletting.
(h) Use or Occupancy by Affiliates and Business Partners.
Notwithstanding any provision of this Lease to the contrary, Tenant shall be
permitted from time to time to allow its Affiliates to use or occupy all or any
portion of the Premises without obtaining Landlord's consent and without notice
to Landlord. In addition, Tenant shall be permitted from time to time to allow
entities with whom Tenant has an ongoing contractual relationship with regard to
the conduct by such entity of a portion of Tenant's financial services business
(each, a "Business Partner", and collectively, "Business Partners"), to use or
occupy one or more portions of the Premises, provided that, (i) the aggregate
amount of space in the Premises to be occupied by all such Business Partners
shall be less than 22,116 rentable square feet, (ii) such occupancies shall be
for a period of time less than one (1) year in duration and (iii) Tenant
notifies Landlord in advance of each such occupancy, which notice shall include
the identity of such Business Partner, the number of rentable square feet and
location of the portion of Premises to be occupied by such Business Partner and
the commencement and duration of such occupancy. In the event that any Affiliate
and/or Business Partner shall use or occupy any portion of the Premises, each
such Affiliate and/or Business Partner shall be subject to all terms and
conditions of this Lease, including, without limitation, Section 4 hereof.
15. Rules.
Landlord shall have the right to implement reasonable rules
and regulations for the Building and/or the Project at any time during which
Tenant shall not be the sole office tenant in the Building. In addition,
Landlord shall have the right to implement reasonable rules and regulations for
the Building and/or the Project upon Tenant's subletting of any portion of the
Premises, provided that any such rules and regulations shall be subject to
Tenant's approval, which shall not be unreasonably withheld, conditioned or
delayed. Tenant shall faithfully observe and comply with such rules and
regulations and all reasonable modifications thereof and reasonable additions
thereto from time to time promulgated in writing by Landlord, after notice
thereof given in accordance with Section 33 of this Lease. Landlord shall not be
responsible to Tenant for the nonperformance by any other tenant or occupant of
the Building of any of said rules and regulations, provided that Landlord shall
apply, enact and enforce the rules and regulations in its good faith discretion
and a non-discriminating fashion. If there shall be any conflict or
inconsistency between the provisions of this Lease or any of the rules and
regulations, the provisions of this Lease shall prevail.
16. Entry By Landlord.
(a) Landlord may enter the Premises (other than areas
reasonably designated by Tenant in a notice to Landlord as constituting "Secure
Areas") and common areas as to which Tenant has exclusive use pursuant to
Section 4, at reasonable hours during normal business hours on at least
twenty-four (24) hours' prior notice to Tenant (except as otherwise specifically
provided in clause (iv) below or in emergencies, in which case Landlord shall
give Tenant such notice, if any, as shall be reasonable under the
circumstances), to (i) inspect the same (other than Secure Areas), (ii) exhibit
the same (other than Secure Areas) to prospective purchasers or lenders of the
Building or Project, or during the last eighteen (18) months of the Term, to
prospective tenants, (iii) determine whether Tenant is complying with all its
obligations hereunder, (iv) with no prior notice, supply janitor service and
with notice for any other service required or permitted to be provided by
Landlord to Tenant hereunder, (v) post notices of non-responsibility where
Tenant has notified Landlord that, or Landlord otherwise is aware that, Tenant
will perform work (vi) to the extent permitted or required by this Lease, make
repairs in the Premises (vii) make repairs and improvements to any Building
Systems, including the installation of pipes and conduits in the plenum and
(viii) where it is impractical to do so without entering the Premises, make
repairs, alterations or improvements to any portion of the Building other than
the Premises, provided that (A) the entrances to the Premises shall not be
blocked thereby or access impaired, (B) Tenant's ability to conduct its business
in the Premises is not unreasonably impaired or interfered with, and (C) Tenant
shall have the right to have a representative accompany Landlord during any such
entry, except in case of emergency, where notice to Tenant is not reasonable
under the circumstances, or in case of clause (iv) above. In addition to the
foregoing, Landlord and third parties leasing space on the roof of Building (and
their respective contractors) shall have the right to enter the common areas of
the Building during Tenant's normal business hours (except in case of emergency
in which case such entry may be made at any time) and upon compliance with
Tenant's reasonable security procedures for purposes of access to the roof in
order to install, test, maintain and remove equipment located on the roof.
(b) Without limiting the foregoing, Landlord may, at any time
or from time to time during the Term and subject to the provisions of this
Section 16, perform substantial renovation work in and to the Building or the
Building Systems (which work may include, but need not be limited to, the repair
or replacement of the Building's exterior facade, exterior window glass,
elevators, electrical systems, air conditioning and ventilating systems,
plumbing system, telecommunications system, common hallways, or lobby), any of
which work may require access to the same from within the Premises. If Landlord
needs to shut down a Building System, Landlord shall give Tenant at least thirty
(30) days' notice (other than in the event of an emergency, in which case
Landlord shall give Tenant such notice, if any, as shall be reasonable under the
circumstances), which notice shall also set forth the estimated duration of such
shutdown. Tenant agrees that (i) Landlord shall have access to the Premises
(except Secure Areas) at all reasonable times during business hours, upon not
less than twenty-four (24) hours' prior notice, and otherwise subject to the
provisions of this Section 16(b), for the purpose of performing such work, and
(ii) except as otherwise provided in this Lease, Landlord shall incur no
liability to Tenant, nor shall Tenant be entitled to any abatement of rent on
account of any noise, vibration, or other disturbance to Tenant's business at
the Premises (provided that (A) the entrances to the Premises shall not be
blocked thereby or access impaired, and (B) Tenant's ability to conduct its
business in the Premises is not unreasonably impaired or interfered with, and
(C) Tenant shall have the right to have a representative accompany Landlord
during any such entry) which shall arise out of said access by Landlord or by
the performance by Landlord of the aforesaid renovations at the Building.
Landlord shall use reasonable efforts (which may include an obligation to employ
labor at overtime rates) to avoid disruption to Tenant's business during any
such entry upon the Premises by Landlord. Landlord shall promptly repair any
damage caused by its entry in the Premises and restore the same to the condition
existing immediately preceding Landlord's entry.
(c) Subject to Landlord's compliance with the provisions of
Sections 16(a) and (b), Tenant hereby waives any claim for damages for any
injury or inconvenience to or interference with Tenant's business, any loss of
occupancy of the Premises or any other loss occasioned by any such entry or
entries made by Landlord pursuant to any of the foregoing. Landlord shall at all
times have and retain keys with which to unlock all of the doors in, on or about
the Premises, excluding Tenant's vaults, safes and Secure Areas. Alternatively,
Tenant may use a card key system on all locks for all of the doors in, upon or
about the Premises, provided that Landlord shall be provided by Tenant with a
reasonable number of card keys for access consistent with the preceding
sentence. Landlord shall have the right to use any and all means which Landlord
may deem proper to open any doors in an emergency in order to obtain entry to
the Premises, and any entry to the Premises obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into or a detainer of the Premises or an
eviction, actual or constructive, of Tenant from the Premises, or any portion
thereof, provided that Landlord shall use reasonable care in entering the
Premises. Keys and card keys retained by Landlord hereunder shall be used solely
for access to the Premises for any purpose permitted under this Section 16 and
for access to the Premises in cases of an emergency, including entry by
Landlord's security personnel. Landlord shall establish, and use commercially
reasonable efforts to enforce, procedures to ensure that any such keys are
maintained in the exclusive possession and control of Landlord and its
designated representatives and are not lost or copied. When not in use, keys
retained by Landlord hereunder shall be kept in the office of the chief engineer
of the Building, janitorial supervisor's office and/or fire control center.
(d) Any work performed or installations made pursuant to this
Section 16 shall be made with reasonable diligence and otherwise pursuant to
Sections 9(b) and (e).
17. Events Of Default.
The occurrence of any one or more of the following events (an
"Event of Default") shall constitute a breach of this Lease by Tenant: (a) if
Tenant shall fail to pay any installment of Base Rent or Additional Charges on
account of Real Estate Taxes and Operating Expenses when and as the same becomes
due and payable, and such failure shall continue for more than five (5) business
days following notice from Landlord to Tenant of such failure (except that if
Landlord has notified Tenant in writing on two occasions during the twelve (12)
months immediately preceding the due date that Tenant has failed to pay any
installment of Base Rent or Additional Charges on account of Real Estate Taxes
and Operating Expenses on the due date, then the failure to pay such Base Rent
or Additional Charges on account of Real Estate Taxes and Operating Expenses on
the due date shall constitute an Event of Default); or (b) if Tenant shall fail
to pay any other Additional Charges when and as the same becomes due and payable
and such failure shall continue for more than ten (10) days after Landlord shall
have given Tenant written notice of such default; or (c) if Tenant shall default
in the performance or observance of any other term hereof, and within thirty
(30) days following written notice from Landlord to Tenant of such default,
Tenant shall have failed to cure such default, or if the nature of such default
is such that it cannot reasonably be cured within such 30 day period, Tenant
shall not within such 30 day period have commenced with prompt diligence the
curing of such default, or, having so commenced, shall thereafter have failed to
prosecute with prompt diligence the curing of such default; or (d) if Tenant
shall make a general assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts as they become due, or shall file a
petition in bankruptcy, or shall be adjudicated a bankrupt or as insolvent, or
shall file a petition in any proceeding seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under any
present or future statute, law, or regulation, or shall file an answer
admitting, or fail to protest timely the material allegations of a petition
filed against it in any such proceeding, or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver, or liquidator of Tenant
or any material part of its properties; or (e) if within sixty (60) days after
the commencement of any proceeding against Tenant seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any present or future statute, law, or regulation, such proceeding
shall not have been dismissed, or if, within sixty (60) days after the
appointment without the consent or acquiescence of Tenant, of any trustee,
receiver, or liquidator of Tenant or of a substantial part of its properties,
such appointment shall not have been vacated; or (f) if this Lease or any estate
of Tenant hereunder shall be levied upon under any attachment or execution and
such attachment or execution is not vacated within sixty (60) days; or (g) if
Tenant shall abandon the Premises or be dispossessed by process of law or
otherwise.
18. Landlord's Right To Terminate.
If an Event of Default shall occur, then, in addition to any
notice required to be given by Landlord pursuant to Section 17, Landlord at any
time thereafter may give a written termination notice to Tenant (the
"Termination Notice"), and on the date specified in such notice (which shall be
not less than ten (10) days after the giving of such notice, which notice shall
constitute the notice required for all statutory purposes) Tenant's right to
possession shall terminate, unless on or before such date all delinquent rent
and all other sums payable by Tenant under this Lease and all costs and expenses
incurred by or on behalf of Landlord hereunder shall have been paid by Tenant
and all other breaches of this Lease by Tenant at the time existing shall have
been fully remedied to the satisfaction of Landlord. Landlord may remove all
persons and property located therein and hold, administer and dispose of any or
all of such properties in accordance with applicable California law, including
California Civil Code Section 1980 et seq. and California Code of Civil
Procedure Section 1174. Landlord may do all things Landlord deems necessary in
order to relet the Premises, including, without limitation any alterations,
repair and/or restoration of the Premises. Upon such termination, Landlord may
recover from Tenant: (a) the worth at the time of award of the unpaid rental
which had been earned at the time of termination; (b) the worth at the time of
award of the amount by which the unpaid rental which would have been earned
after termination until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided; (c) the worth at the time
of award of the amount by which the unpaid rental for the balance of the Term of
this Lease after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; and (d) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's failure
to perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom. The "worth at the time of award" of
the amounts referred to in clauses (a) and (b) above is computed by allowing
interest at the highest rate legally permitted under applicable law. The "worth
at the time of award" of the amount referred to in clause (c) above is computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%). Notwithstanding any
other provisions hereof, any efforts by Landlord to mitigate damages caused by
Tenant's breach of this Lease shall not constitute a waiver of Landlord's right
to recover damages hereunder and shall not affect the right of Landlord to
indemnification pursuant to the provisions of Section 12 hereof.
19. Continuation Notwithstanding Default.
In the event that Tenant breaches this Lease and abandons the
Premises, this Lease shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession, and Landlord may enforce all its rights
and remedies under this Lease, including the right to recover the rental as it
becomes due under this Lease. Landlord's remedies shall include, without
limitation, the remedy described in California Civil Code Section 1951.4
(Landlord may continue the Lease in effect after Tenant's breach and abandonment
and recover rent as it becomes due, if Tenant has the right to sublet or assign,
subject only to reasonable limitations). Acts of maintenance or preservation or
efforts to relet the Premises or the appointment of a receiver upon the
initiative of Landlord to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession.
20. Additional Remedies.
The remedies provided for in this Lease are in addition to any
other remedies available to Landlord at law or in equity by statute or
otherwise.
21. Landlord's Right To Cure Defaults.
Except as otherwise provided under this Lease, all agreements
and provisions to be performed by Tenant under any of the terms of this Lease
shall be at its sole cost and expense and without any abatement of rental. If
Tenant shall fail to pay any sum of money required to be paid by it hereunder,
other than Base Rent and Additional Charges for Real Estate Taxes and Operating
Expenses, or shall fail to perform any other act on its part to be performed
hereunder and such failure shall continue for a period of ten (10) days after
notice thereof by Landlord (except in the event of a default which Landlord
reasonably determines to pose a risk of imminent harm to person or property, in
which event Landlord shall have the right to act immediately), Landlord may, but
shall not be obligated to do so, and without waiving or releasing Tenant from
any obligations of Tenant, make any such payment or perform any such other act
on Tenant's part to be made or performed as in this Lease provided. All sums so
paid by Landlord and all necessary incidental costs shall be deemed Additional
Charges hereunder and shall be payable to Landlord within thirty (30) days
following Landlord's demand therefor, and Landlord shall have (in addition to
any other right or remedy of Landlord) the same rights and remedies in the event
of the nonpayment thereof by Tenant as in the case of default by Tenant in the
payment of Base Rent.
22. Litigation Expenses.
If either party brings any legal action or proceeding against
the other (including any cross-complaint, counterclaim or third party claim) to
enforce or interpret this Lease or otherwise arising out of this Lease, the
prevailing party in such action or proceeding shall be entitled to its costs and
expenses of suit and enforcing the judgment awarded to it, including reasonable
attorneys' fees.
23. Eminent Domain.
If any part of the Premises shall be taken as a result of the
exercise of the power of eminent domain, this Lease shall terminate as to the
part of the Premises so taken as of the date of taking, and either Landlord or
Tenant shall have the right to terminate this Lease as to the balance of the
Premises remaining after a partial taking by written notice to the other within
sixty (60) days after such date, provided, however, that a condition to the
exercise by Tenant of such right to terminate shall be that such partial taking
shall be to such extent and nature as to substantially and permanently handicap,
impede, or impair the conduct of Tenant's business therein. If all of the
Premises are taken as a result of the exercise of the power of eminent domain,
this Lease shall terminate upon the date of taking. If any part of the Building
(other than the Premises) shall be taken as a result of the exercise of the
power of eminent domain, which renders the operation of the remaining portion of
the Building economically infeasible, as determined by Landlord in its
reasonable discretion, Landlord shall have the right to terminate this Lease by
written notice to Tenant within thirty (30) days from the date of such taking;
in the event that Landlord does not so elect, this Lease shall continue in full
force and effect, provided that Tenant is afforded continuous access to the
Premises. Landlord agrees to refund to Tenant any Base Rent and Additional
Charges for Real Estate Taxes and Operating Expenses previously paid for any
period of time subsequent to such date of termination. Tenant agrees to pay to
Landlord any Base Rent and Additional Charges accrued and unpaid as of such date
of termination.
Landlord shall be entitled to any and all compensation, damages,
income, rent, awards, or any interest therein whatsoever which may be paid or
made in connection with any exercise of the power of eminent domain, and Tenant
shall have no claim against Landlord for the value of any unexpired term of this
Lease or otherwise, except that Tenant shall be entitled to any separate award
made in favor of Tenant covering Tenant's trade fixtures and relocation
expenses. In the event of a partial taking of the Premises which does not result
in a termination of this Lease, the Base Rent and Additional Charges for
Operating Expenses and Real Estate Taxes thereafter to be paid shall abate in
proportion to that portion of the Premises that is taken as a result of the
exercise of the power of eminent domain, and Landlord, at Landlord's expense,
shall undertake such improvements in and about the Premises so as to make any
affected portion of the Premises a self-contained unit.
It is understood and agreed that the foregoing provisions of this
Section are intended to and do fully define and set forth the respective rights
and obligations of the parties in the event of a taking of the Premises or a
part thereof, including without limitation the circumstances under which this
Lease shall or may be terminated, and the disposition of any proceeds of any
insurance or award, and Landlord and Tenant each expressly waives the benefit
and effect of any rights and/or obligations whether purporting to arise by law,
by governmental order, under any insurance contract, or otherwise (including the
provisions of the California Code of Civil Procedure ss.1265.130), which are
inconsistent with the rights and obligations set forth herein.
For purposes hereof the "date of taking" shall be deemed to be the date
that physical possession of the property taken is delivered to the condemning
authority.
24. Subordination.
Concurrent with the execution of this Lease, Landlord and
Tenant shall execute, acknowledge and deliver a subordination, non-disturbance
and attornment agreement in the form attached hereto as Exhibit J (the "SNDA"),
and, in the event that Landlord's Lender has not executed and delivered the SNDA
on or before such date, Landlord shall use its reasonable efforts to obtain from
Landlord's Lender as soon as possible thereafter the SNDA executed and
acknowledged by Landlord's Lender. In the event Landlord fails to deliver to
Tenant an original counterpart of the SNDA executed and acknowledged by
Landlord's Lender within fifteen (15) days after the date of this Lease, Tenant
shall have the option to terminate this Lease by and effective upon five (5)
business days' written notice delivered to Landlord, provided that if Landlord
delivers to Tenant such SNDA executed and acknowledged by Landlord's Lender
prior to the expiration of such five (5) business day period, such notice of
termination shall be void and of no further force or effect and this Lease shall
continue in effect, subject to the terms and conditions hereof.
Subject to the foregoing, this Lease shall be subject and subordinate
at all times to (i) all ground or underlying leases which may hereafter be
executed affecting the Building and (ii) the liens of all mortgages and deeds of
trust hereafter placed on or against the Building or on or against Landlord's
interest or estate therein or on or against all such ground or underlying
leases, all without the necessity of having further instruments executed on the
part of Tenant to effect such subordination; provided, however, that any such
future subordination of this Lease shall be conditioned upon concurrent delivery
to Tenant of a subordination, non-disturbance and attornment agreement on such
future lender's or ground lessor's standard form, which Tenant hereby covenants
to execute as long as such agreement contains terms consistent with the
provisions of the SNDA and is otherwise consistent with then customary industry
and commercially reasonable practices of institutional encumbrancers.
Notwithstanding the foregoing, any such lender or ground lessor shall have the
right by written notice to Tenant, to subordinate its deed of trust, mortgage or
ground lease, as applicable, to this Lease, and upon such notice, this Lease
shall be deemed prior to such deed of trust, mortgage or ground lease. Tenant
agrees to execute and deliver upon demand such further instruments evidencing
such subordination of this Lease to such ground or underlying leases, and to the
liens of any such mortgages or deeds of trust, as may be requested by Landlord
and/or in such form as is reasonably required by such future lessor or lender,
respectively (including provisions waiving as against lender claims of, and
giving to lender notice of and the right to cure, Landlord defaults under the
Lease).
Landlord authorizes Tenant to comply with any notice from Landlord's
Lender directing Tenant to forward all future rents and other sums payable by
Tenant under the Lease to such address specified in any such notice from
Landlord's Lender. In no event shall Tenant be charged by Landlord for, or be
required by Landlord to incur any costs for, or in connection with, the
execution or delivery of any SNDA (except for Tenant's own legal expenses), and
Landlord shall not pass through as an Operating Expense any cost paid or
incurred by Landlord in connection therewith.
Landlord warrants and represents that as of the date hereof, there
exist no liens or encumbrances on the Building, the Project or the Premises
superior to this Lease (other than liens for Real Estate Taxes) and the lien of
a deed of trust in favor of Universal American Mortgage Company of California,
which if enforced or foreclosed would result in the termination of this Lease.
25. No Merger.
The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not work a merger, and, at the option of
Landlord, either shall operate (a) to terminate all or any existing subleases or
subtenancies under the Lease or (b) as an assignment to Landlord of any or all
such subleases and subtenancies.
26. Sale.
If the original Landlord hereunder, or any successor owner of
the Building, shall sell or convey the Building, all liabilities and obligations
on the part of the original Landlord, or such successor owner, under this Lease
accruing thereafter shall terminate, provided that the transferee shall have
assumed all liabilities and obligations thereafter accruing, and thereupon all
such liabilities and obligations shall be binding upon the new owner. Tenant
agrees to attorn to such new owner.
27. Estoppel Certificates.
(a) Tenant shall execute, acknowledge and deliver to Landlord,
within ten (10) business days following request by Landlord, a certificate
certifying (i) that this Lease is unmodified and in full force and effect (or if
there have been modifications, that this Lease is in full force and effect as
modified and stating the date and nature of each modification), (ii) the date,
if any, to which rental and other sums payable hereunder have been paid, (iii)
that no notice has been received by Tenant of any default which has not been
cured, except as to defaults specified in said certificate and (iv) such other
matters as may be reasonably requested by Landlord or Landlord's Lender. Any
such certificate may be relied upon by any prospective purchaser, mortgagee, or
beneficiary under any deed of trust on the Building or any part thereof.
(b) Landlord shall execute, acknowledge and deliver to Tenant,
within ten (10) business days following request by Tenant a certificate
certifying (i) that this Lease is unmodified and in full force and effect (or if
there have been modifications, that this Lease is in full force and effect as
modified and stating the date and nature of each modification), (ii) the date,
if any, to which rental and other sums payable hereunder have been paid, (iii)
that no notice has been received by Landlord of any default which has not been
cured, except as to defaults specified in said certificate and (iv) such other
matters as may be reasonably requested by Tenant or Tenant's assignee or
sublessee. Any such certificate may be relied upon by any prospective assignee
of this Lease or sublessee of all or a portion of the Premises.
28. No Light, Air, Or View Easement.
Any diminution or shutting off of light air or view by any
structure which may be erected on lands adjacent to the Building shall in no way
affect this Lease or impose any liability on Landlord, provided that Landlord
shall not cause the construction of any building in the Project which will shut
off light or air to, or view from, the Building.
29. Holding Over.
(a) General. If, without objection by Landlord, Tenant holds
possession of any portion of the Premises after expiration of the Term of this
Lease, Tenant shall become a tenant from month to month upon the terms,
conditions and provisions herein specified but at a monthly rental equivalent to
one hundred and twenty-five percent (125%) of the then prevailing fair market
month-to-month rental for the Premises as reasonably determined by Landlord but
in no event less than the Base Rent and Additional Charges for Operating
Expenses and Real Estate Taxes being paid by Tenant in the last month of the
Term of this Lease, payable in advance on or before the first day of each month.
(b) Single Floor or Contiguous Floors. Notwithstanding Section
29(a) above, in the event that Tenant shall hold possession of (i) all or any
portion of a single floor of the Premises or (ii) all or any portion of a number
of contiguous floors of the Premises, then Tenant shall become a tenant from
month to month, with respect only to such single floor or contiguous floors of
the Premises (and not the entire Premises), as the case may be, on the terms,
conditions and provisions herein specified but at a monthly rental equivalent to
one hundred and twenty-five percent (125%) of the then prevailing fair market
month-to-month rental for such floor or contiguous floors, as the case may be,
of the Premises as reasonably determined by Landlord but in no event less than
the Base Rent and Additional Charges for Operating Expenses and Real Estate
Taxes being paid by Tenant in the last month of the Term of this Lease for such
floor or contiguous floors of the Premises, as the case may be, payable in
advance on or before the first day of each month. Each party shall give the
other notice at least one month prior to the date of termination of such monthly
tenancy of its intention to terminate such tenancy.
30. Abandonment.
If Tenant shall vacate, abandon, or surrender the Premises, or
be dispossessed by process of law or otherwise, any personal property belonging
to Tenant and left on the Premises shall be deemed to be abandoned, at the
option of Landlord, except such property as may be mortgaged to Landlord.
31. Surrender.
Tenant shall at the end of the Term hereof surrender to
Landlord the Premises and all alterations, additions and improvements thereto in
good order and condition, ordinary wear and tear and damage by fire, earthquake,
other casualty, act of God, or the elements excepted. Subject to Landlord's
right to require removal pursuant to Section 7 hereto, all improvements
installed in the Premises by Tenant, shall, without compensation to Tenant, then
become Landlord's property free and clear of all claims to or against them by
Tenant or any third person claiming through Tenant, and Tenant shall defend and
indemnify Landlord against all liability and loss arising from such claims.
In the event that Tenant at any time shall lease a portion, but not
all, of the Premises for any reason, including, without limitation, pursuant to
Section 2(a), Section 10(g), Section 23, Section 29 or Section 36, Tenant agrees
to execute, within ten (10) business days of the expiration or other termination
of the Lease with respect to any floor or floors of the Premises, an amendment
to this Lease in a form reasonably satisfactory to Landlord and Tenant
relinquishing Tenant's exclusive access to any common areas of the Building,
including, without limitation, elevators, as well as Tenant's rights to install
and maintain Building security systems pursuant to Section 39 (other than in the
Premises).
32. Waiver.
The waiver by either party of any term, agreement, condition,
or provision herein contained shall not be deemed to be a waiver of any
subsequent breach of the same or any other term, agreement, condition, or
provision herein contained, nor shall any custom or practice which may grow
between the parties in the administration of the terms hereof be construed to
waive or to lessen the right of such party to insist upon the performance by the
other party in strict accordance with said terms. The subsequent acceptance of
Base Rent or Additional Charges hereunder by Landlord shall not be deemed to be
a waiver of any preceding breach by Tenant of any term, agreement, condition, or
provision of this Lease, other than the failure of Tenant to pay the particular
Base Rent or Additional Charges so accepted, regardless of Landlord's knowledge
of such preceding breach at the time of acceptance of such Base Rent or
Additional Charges.
33. Notice.
All notices and demands provided in this Lease to be given or
made or sent, or which may be given or made or sent by one party to another
party, and all other writings to be given or made or which may be given or made
by one party to the other, shall be given by hand delivery, reputable overnight
courier or United States mail, registered or certified, postage prepaid, return
receipt required, and addressed to such party at the address specified in the
Basic Lease Information, or to such other place as such party may from time to
time designate in a notice to the other party or parties. Any notice given in
accordance with this Section 33 shall be deemed to have been given (a) on the
date of hand delivery if sent by hand delivery or (b) on the date of actual
delivery (or refusal thereof), as shown on the return receipt or other delivery
record if sent by any other means permitted hereunder. Landlord shall have the
right to serve any and all dispossessory or distraint proceedings and notices in
any manner permitted by law.
34. Complete Agreement.
There are no oral agreements between Landlord and Tenant
affecting this Lease, and this Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, agreements, and understandings, if any,
between Landlord and Tenant or displayed by Landlord to Tenant with respect to
the subject matter of this Lease. There are no representations between Landlord
and Tenant other than those contained in this Lease, and all reliance with
respect to any representations is solely upon such representations.
35. Corporate Authority.
(a) If Tenant signs as a corporation, each of the persons
executing this Lease on behalf of Tenant does hereby covenant and warrant that
Tenant is a duly authorized and existing corporation, that Tenant has and is
qualified to do business in California, that the corporation has full right and
authority to enter into this Lease, and that the person(s) signing on behalf of
the corporation were authorized to do so. Upon Landlord's request, Tenant shall
provide Landlord with evidence reasonably satisfactory to Landlord confirming
the foregoing covenants and warranties.
(b) Each person executing this Lease on behalf of Landlord
does hereby covenant and warrant that Landlord is a duly authorized and existing
limited liability company, that Landlord has and is qualified to do business in
California, that Landlord has full right and authority to enter into this Lease,
and that such person signing on behalf of Landlord is authorized to do so. Upon
Tenant's request, Landlord shall provide Tenant with evidence reasonably
satisfactory to Tenant confirming the foregoing covenants and warranties.
36. Options to Extend.
Tenant shall have the option to extend this Lease with respect
to all or a portion of the Premises for two additional consecutive terms (each,
an "Extension Period"), in accordance with the terms of this Section 36.
(a) First Extension Options. Upon the expiration of the
initial Term of this Lease, Tenant shall have the right to exercise either of
the following extension options (collectively, the "First Extension Options"):
(i) Tenant shall have the option to extend this Lease
with respect the entire Premises, for a term commencing May 1, 2018 and ending
(A) with respect to floors three through
seven of the Building and that designated portion of the Garage being shown as
"Area A" on Exhibit K, on April 30, 2023;
(B) with respect to floors eight through
twelve of the Building and that designated portion of the Garage being shown as
"Area B" on Exhibit K, on April 30, 2024;
(C) with respect to floors two and thirteen
through the Penthouse of the Building, the Crossover Space and that designated
portion of the Garage being shown as "Area C" on Exhibit K, on April 30, 2025;
and otherwise upon the same terms and conditions as this Lease except for Base
Rent (the "Entire Premises Extension Option"); or
(ii) Tenant shall have the option to extend this
Lease with respect to either (A) floors two through eight of the Building or (B)
floors two through nine of the Building, in either case for a term commencing
May 1, 2018 and ending on April 30, 2025, and otherwise upon the same terms and
conditions as this Lease except for Base Rent (the "Partial Premises Extension
Option"). In the event that Tenant exercises the Partial Premises Extension
Option, Tenant shall have the additional option to extend this Lease with
respect to those portions of the Garage and/or Crossover Space being shown as
the "Garage Premises" and "Crossover Premises", respectively, on Exhibit L, for
a term commencing May 1, 2018 and ending on April 30, 2025, and otherwise upon
the same terms and conditions as this Lease except for Base Rent.
(b) Second Extension Options. Provided that Tenant shall have
exercised either of the First Extension Options, upon the expiration of the
first Extension Period, Tenant shall have the right to exercise either of the
following additional extension options (collectively, the "Second Extension
Options"):
(i) If Tenant shall have previously exercised the
Entire Premises Extension Option, then Tenant shall have the right:
(A) to further extend this Lease with
respect to the entire Premises for a Term commencing, as to each respective
floor of the Premises, on the date immediately following the final day of the
first Extension Period with respect to such floor, and ending on the date seven
(7) years from such date, and otherwise upon the same terms and conditions as
this Lease except for Base Rent; or
(B) to further extend this Lease with
respect to either (I) floors two through eight of the Building or (II) floors
two through nine of the Building, in either case for a Term commencing, as to
each respective floor of the Premises, on the date immediately following the
final day of the first Extension Period with respect to such floor, and ending
on April 30, 2032, and otherwise upon the same terms and conditions as this
Lease except for Base Rent. In the event that Tenant further extends this Lease
as set forth in this Section 36(b)(i)(B), Tenant shall have the additional
option to extend this Lease with respect to those portions of the Garage and/or
Crossover Space being shown as the "Garage Premises" and "Crossover Premises",
respectively, on Exhibit L, for a term coterminous with the term of the Second
Extension Option being exercised pursuant to this Section 36(b)(i)(B), and
otherwise upon the same terms and conditions as this Lease except for Base Rent.
(ii) If Tenant shall have previously exercised the
Partial Premises Extension Option, then Tenant shall have the right to further
extend this Lease with respect to the same such floors of the Building with
respect to which Tenant shall have previously exercised the Partial Premises
Extension Option, for a term commencing May 1, 2025 and ending on April 30,
2032, and otherwise upon the same terms and conditions as this Lease except for
Base Rent. In addition, in the event that Tenant shall have previously exercised
its option to extend this Lease with respect to a portion of the Garage and/or
to a portion of the Crossover Space in connection with its exercise of the
Partial Premises Extension Option, then Tenant shall have the right to further
extend this Lease with respect to the same such portion or portions, as the case
may be, of the Premises for a term commencing May 1, 2025 and ending on April
30, 2032, and otherwise upon the same terms and conditions as this Lease except
for Base Rent.
(c) Conditions. Notwithstanding any of the foregoing, Tenant's
right to exercise any of the Extension Options shall be subject to the following
conditions:
(i) At the time of exercising each such Extension
Option, Tenant shall occupy, and shall not have assigned or sublet more than
one-half of the aggregate rentable area then constituting the Premises.
(ii) Each Extension Option shall be exercised, if at
all, by written notice of exercise given to Landlord by Tenant not more than
thirty-six (36) months nor less than eighteen (18) months prior to the
expiration date of this Lease, as extended, if applicable. Such notice, once so
given, shall not be withdrawn or rescinded by Tenant. Tenant hereby expressly
acknowledges and agrees that time is of the essence for purposes of notice of
exercise of such option and that Tenant's failure to do so within the time
period set forth above will relieve Landlord of any obligation under this
Section 36.
(iii) Anything herein to the contrary
notwithstanding, if, on the date Tenant exercises the Extension Option, (a) an
Event of Default shall have occurred and be continuing under this Lease, (b) any
monetary default not constituting an Event of Default exists under the Lease, or
(c) Tenant shall have made a general assignment for the benefit of creditors,
shall have admitted in writing its inability to pay its debts as they become
due, shall have filed a petition in bankruptcy, or been adjudicated a bankrupt
or as insolvent, shall have filed or had filed against it a petition in any
proceeding seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future statute,
law, or regulation, or shall have sought or suffered the appointment of any
trustee, receiver, or liquidator of Tenant or any material part of its
properties, or this Lease or any estate of Tenant hereunder shall have been
levied upon under any attachment or execution, then Landlord shall have, in
addition to all of Landlord's other rights and remedies provided in this Lease,
the right to terminate such Extension Option upon notice to Tenant and this
Lease shall thereafter terminate in accordance with its terms as if such
Extension Option were never exercised, provided, that, in the event that a
monetary default not constituting an Event of Default by Tenant exists under the
Lease at the time Tenant exercises the Extension Option, Landlord shall so
notify Tenant within ten (10) days of receiving Tenant's notice of exercise of
such Extension Option that Landlord is terminating such Extension Option. If
Landlord fails to so notify Tenant, then Tenant's Extension Option shall be
valid and effective notwithstanding that Tenant was in monetary default not
constituting an Event of Default on the date of exercising the Extension Option.
Nothing in this Section 36(c)(iii) shall preclude Tenant from exercising its
Extension Option after Tenant cures a default under clause (b) of the first
sentence hereof if the conditions set forth in Section 36(c)(ii) are satisfied.
(iv) The Base Rent payable during any Extension
Period shall be an amount equal to the greater of the Base Rent payable for the
last month of the Term of the Lease immediately preceding the commencement of
such Extension Period or one hundred percent (100%) of the Prevailing Market
Rent (as hereinafter defined), which greater amount shall be prorated on a
rentable square foot basis as necessary in the event that the Extension Option
shall be exercised with respect to a portion, but not all, of the Premises.
"Prevailing Market Rent" shall mean such net rents as constitute the prevailing
net rents agreed to be paid generally by new and renewing tenants, which tenants
are strong credit tenants which occupy a minimum of 100,000 square feet in other
comparable buildings in the south of Market Street, San Francisco financial
district (collectively, "Comparable Tenants"), for comparable space and for
comparable terms pursuant to new leases entered into by such other tenants on or
about the commencement of the relevant Extension Period. Determination of
Prevailing Market Rent shall take into consideration all relevant lease terms,
effective rental rates, the Additional Charges for Real Estate and Operating
Expenses being paid by Tenant at the commencement of the relevant Extension
Period, building identification and signage, any tenant concessions (any such
concessions to include, without limitation, free rent, tenant improvement
allowances, construction time, leasing commissions paid to tenants' brokers,
lease assumptions and relocation allowances), location of floors within the
Building in the case of a partial exercise, and other economic factors being
obtained by such other Comparable Tenants. In the event that the prevailing
market for leases to Comparable Tenants includes any tenant concessions,
Landlord shall either make comparable concessions to Tenant or reduce Tenant's
Base Rent by the amount required to fully amortize the aggregate amount of such
concessions over the term of the relevant Extension Period at Landlord's then
cost of funds (or, in the event that Landlord does not borrow funds, the
Effective Rate).
(v) The parties shall attempt in good faith to
mutually determine Prevailing Market Rent for the purposes of determining the
Base Rent payable during an Extension Period. If they do so, such rental as so
determined shall be the rental for such Extension Period. If they are unable to
do so within thirty (30) days after Landlord's receipt of Tenant's notice of
exercise of any Extension Option, either party hereto shall have the right to
elect to arbitrate the determination of Prevailing Market Rent in accordance
with the terms set forth in this Section 36. To the extent that arbitration has
not been completed prior to the expiration of any preceding period for which
Base Rent has been determined, Tenant shall continue to pay Base Rent at the
rate in effect immediately prior to such expiration, with an appropriate
adjustment being made once Prevailing Market Rent is ultimately determined by
arbitration.
(vi) In the event of arbitration, the judgment or the
award rendered in any such arbitration may be entered in any court having
jurisdiction and shall be final and binding between the parties. The arbitration
shall be conducted and determined in the City and County of San Francisco in
accordance with the then prevailing rules of the American Arbitration
Association or its successor for arbitration of commercial disputes except to
the extent that the procedures mandated by said rules shall be modified herein.
(vii) The party making demand for arbitration shall
do so in writing, specifying in such demand the name and address of the person
to act as the arbitrator on its behalf. The arbitrator shall be qualified as a
real estate appraiser familiar with the Prevailing Market Rent of first-class
commercial office space in the south of Market Street, San Francisco financial
district area who would qualify as an expert witness over objection to give
opinion testimony addressed to the issue in a court of competent jurisdiction.
Within fifteen (15) days after the service of the demand for arbitration, the
non-demanding party shall give notice to such demanding party, specifying the
name and address of the person designated by the non-demanding party to act as
arbitrator on its behalf who shall be similarly qualified. If the non-demanding
party shall fail to notify the demanding party of the appointment of its
arbitrator, within or by the time above specified, then the arbitrator appointed
by the demanding party shall be the arbitrator to determine the issue.
(viii) In the event that two arbitrators are chosen
as set forth above, the arbitrators so chosen shall, within fifteen (15) days
after the second arbitrator is appointed appoint a third arbitrator, who shall
be a competent and impartial person with qualifications similar to those
required of the first two arbitrators. In the event they are unable to agree
upon such appointment within seven (7) days after expiration of said fifteen
(15) day period, the third arbitrator shall be selected by the then Presiding
Judge of the Superior Court of the State of California, having jurisdiction over
the City and County of San Francisco.
(ix) The issue shall be resolved by the three
arbitrators within fifteen (15) days of the appointment of the third arbitrator
in accordance with the following procedure. The arbitrator selected by each of
the parties shall state in writing his or her determination of the Prevailing
Market Rent supported by the reasons therefor with counterpart copies to each
party. The arbitrators shall arrange for a simultaneous exchange of such
proposed resolutions. The role of the third arbitrator shall be to select which
of the two proposed resolutions more closely approximates his or her
determination of Prevailing Market Rent. The third arbitrator shall have no
right to propose a middle ground or any modification of either of the two
proposed resolutions. The resolution such third arbitrator chooses as more
closely approximating his or her determination shall constitute the decision of
the arbitrators and be final and binding upon the parties.
(x) In the event of a failure, refusal or inability
of any arbitrator to act, such arbitrator's successor shall be appointed in the
same manner as provided for the initial appointment of such arbitrator. Each
party shall pay the fee and expenses of its respective arbitrator and both shall
share the fee and expenses of the third arbitrator, and the attorneys' fees and
expenses of counsel for the respective parties and of witnesses shall be paid by
the respective party engaging such counsel or calling such witnesses.
(xi) Landlord and Tenant shall execute an amendment
to this Lease, setting forth the lease terms to apply during the relevant
Extension Period, within fifteen (15) business days of the final determination
of Prevailing Market Rent with respect to such Extension Period.
37. Right of First Offer.
(a) Landlord hereby grants to Tenant, on the terms and
conditions hereinafter set forth, the continuing right of first offer (the
"Right of First Offer") to lease any retail space located in the Building (the
"Retail Space"), as any such Retail Space shall become available for lease from
time to time both before Landlord shall lease it to third parties and after the
initial leasing of the Retail Space. Landlord shall deliver to Tenant written
notice (the "Retail Space Offer Notice"), upon learning of the upcoming
availability of any Retail Space for lease (the "Available Retail Space"), which
Retail Space Offer Notice shall set forth the following information with respect
to such Available Retail Space: the rentable area, the location, the date of
availability and the terms upon which Landlord is willing to lease the Available
Retail Space. Tenant shall have the right, within ten (10) business days after
receipt of such Retail Space Offer Notice, to deliver to Landlord written notice
that Tenant either (i) elects to lease the Available Retail Space upon such
terms included in the Retail Space Offer Notice or (ii) rejects the Right of
First Offer. In the event that Tenant shall have rejected the Right of First
Offer or shall fail to timely exercise such Right of First Offer within such ten
(10) business days, Tenant shall be deemed to have rejected the Right of First
Offer, and Landlord shall be free to lease the Available Retail Space to any
other prospective tenant, within a period of nine (9) months from Tenant's
receipt of the Retail Space Offer Notice, on terms not Materially More Favorable
(as hereinafter defined) than those offered to Tenant in the Retail Space Offer
Notice. In the event that either Landlord desires to enter a lease with a
prospective tenant upon terms Materially More Favorable than those set forth in
the Retail Space Offer Notice or Landlord does not enter into a binding
commitment to lease the Available Retail Space within nine (9) months from
Tenant's receipt of the Retail Space Offer Notice, then, prior to leasing the
Available Retail Space to any prospective tenant, Landlord shall deliver to
Tenant an updated Retail Space Offer Notice containing the terms Landlord is
willing to accept from the prospective tenant, or if there is no prospective
tenant, upon such revised terms Landlord would like to propose, and the rights
and obligations of Landlord and Tenant with respect to such updated Retail Space
Offer Notice shall be the same as for the initial Retail Space Offer Notice.
(b) In the event that Tenant shall timely exercise the Right
of First Offer with respect to any Available Retail Space in accordance with the
terms hereof, Landlord and Tenant shall execute an amendment to this Lease with
respect to such Available Retail Space upon the terms set forth in the Retail
Space Offer Notice within fifteen (15) business days of such exercise by Tenant,
but the parties' failure so to execute such agreement shall not affect the
validity or enforceability of Tenant's exercise.
(c) Anything herein to the contrary notwithstanding, Tenant
shall have no Right of First Offer with respect to any Available Retail Space in
the event that an Event of Default shall have occurred and be continuing under
this Lease at the time such Retail Space becomes available for lease.
(d) As used herein, "Materially More Favorable" shall mean
terms having a Net Present Value (as hereinafter defined) that is less than the
Net Present Value of the terms set forth in the Retail Space Offer Notice by ten
(10) percent or more. The "Net Present Value" of a proposed lease shall mean the
present value (using a discount factor of nine percent (9%) per annum) of the
net rental payable under such proposed lease less the present value of all lease
concessions granted thereunder (including, without limitation, tenant
improvement allowances, lease buy-out payments, move-in allowances and similar
concessions other than free rent).
(e) Tenant's Right of First Offer with respect to any of the
Retail Space is subject to all existing rights of tenants of such Retail Space
during the Term of this Lease. So long as Tenant leases all of the office space
in the Building under this Lease, in the event that any tenant in any of the
Retail Space whose lease contains an option to extend (each, a "Retail Tenant")
negotiates an extension of its lease on terms other than those specifically set
forth in its option to extend contained in its lease, Landlord shall deliver to
Tenant written notice of the terms offered by such Retail Tenant. Tenant shall
have the right, within ten (10) business days after receipt of such notice from
Landlord, to deliver to Landlord written notice that Tenant elects to lease such
Retail Space upon the same terms offered by the Retail Tenant. If Tenant shall
not timely deliver such notice of election, Landlord shall be free thereafter to
lease such Retail Space to the Retail Tenant.
38. First Right of Purchase.
(a) Landlord hereby grants to Tenant, on the terms and
conditions hereinafter set forth, a one-time first right of purchase (the "First
Right of Purchase") with respect to the Building or any interest therein.
Landlord shall deliver to Tenant written notice (the "Right of Purchase Notice")
of any intention by Landlord to sell the Building or any interest therein
(except in connection with a Booth Family Transfer), which Right of Purchase
Notice shall set forth the price and material terms upon which Landlord is
willing to sell the Building or such interest. Tenant shall have the right,
within fifteen (15) business days after such delivery, to deliver to Landlord
written notice that Tenant elects to negotiate for the purchase of the Building
or such other interest offered by Landlord (the "Election to Negotiate"). If
Tenant shall have rejected the First Right of Purchase or in the event that
Tenant shall fail to timely deliver the Election to Negotiate within such
fifteen (15) business days, Tenant shall be deemed to have elected not to
negotiate for the purchase of the Building or such other interest, and Landlord
shall be free thereafter to sell the Building or such interest therein described
in the Right of Purchase Notice upon any terms and conditions acceptable to
Landlord.
(b) In the event that Tenant shall timely deliver the Election
to Negotiate in accordance with the terms hereof, Tenant shall submit a written
counter-proposal to Landlord within thirty (30) business days of delivering the
Election to Negotiate, which counter-proposal shall set forth the terms upon
which Tenant is willing to purchase the Building or such interest therein
described in the Right of Purchase Notice. Upon the timely delivery of such
counter-proposal to Landlord, Tenant shall have the exclusive right, for a
period of one hundred and twenty (120) days from Tenant's receipt of the Right
of Purchase Notice (the "Negotiation Period"), to negotiate and execute a
purchase and sale agreement with Landlord for the purchase of the Building or
such interest therein described in the Right of Purchase Notice. Landlord and
Tenant hereby agree to negotiate in good faith during such Negotiation Period,
unless the parties shall mutually agree to earlier terminate such negotiations.
(c) In the event that Landlord and Tenant fail to execute a
purchase and sale agreement within the Negotiation Period, Landlord shall be
free thereafter to sell the Building or such interest therein described in the
Right of Purchase Notice upon any terms and conditions acceptable to Landlord;
provided, however, that in the event that, following the expiration of the
Negotiation Period, Landlord desires to accept a third party bona fide offer to
purchase the Building, then prior to accepting such offer, Landlord shall
deliver to Tenant written notice of the terms offered by such third party (the
"Third Party Buyer"). If Landlord shall notify Tenant that the Third Party Buyer
has offered to purchase the Building for a price more than seven percent (7%)
below the lowest price offered by Landlord to Tenant during the Negotiation
Period, as determined on a cash-equivalent basis, then Tenant shall have the
right, within fifteen (15) business days of such notice from Landlord, to
deliver to Landlord written notice that it elects to purchase the Building on
the exact terms proposed by such Third Party Buyer, in which case, Tenant and
Landlord shall execute a mutually binding purchase and sale agreement evidencing
such terms within thirty (30) days of Landlord's receipt of such election by
Tenant, and Landlord and Tenant shall consummate such purchase and sale
transaction in accordance with the terms of such agreement. If Tenant shall not
timely deliver such notice of election, Landlord shall be free thereafter to
sell the Building to such Third Party Buyer.
(d) In the event of any dispute with regard to the
determination of whether any offer by the Third Party Buyer falls more than
seven percent (7%) below the lowest offer made by Landlord to Tenant during the
Negotiation Period (each such offer being determined on a cash-equivalent
basis), Landlord and Tenant mutually shall designate one of the following
so-called "Big Six" accounting firms, which firm shall not then be, or have been
previously at any time during the immediately preceding five (5) year period,
engaged by either party in any capacity, to make such evaluation, which
evaluation shall be final and binding upon Landlord and Tenant: Price
Waterhouse, Ernst & Young, Coopers & Lybrand, Arthur Andersen LLP, Deloitte &
Touche and KPMG Peat Marwick LLP. If none of the foregoing firms shall be duly
qualified, or if Landlord and Tenant shall fail to agree on a firm within three
(3) business days of written notification by the contesting party of the subject
dispute, the dispute shall be resolved by such independent certified public
accounting firm of national reputation as selected by the then presiding
President of the Bar Association of San Francisco, upon the written request of
either party. The accounting firm selected pursuant to the terms hereof shall
make its final determination within ten (10) business days of its retention.
(e) Anything herein to the contrary notwithstanding, subject
only to the immediately following sentence, at Landlord's sole option, any
exercise of the First Right of Purchase shall not be effective in the event that
either (i) an Event of Default shall have occurred and be continuing under this
Lease on the date Landlord would have delivered the Right of Purchase Notice,
but for the existence such Event of Default, or (ii) an Event of Default shall
occur at any time after the date Landlord delivers the Right of Purchase Notice.
In either of such events, at Landlord's sole option, Landlord shall have the
right to sell the Building or any interest therein on any terms and conditions
acceptable to Landlord, provided that, in the event of clause (i) only, Landlord
shall have provided Tenant with written notice (A) stating that such Event of
Default has occurred and is continuing, (B) containing such information as set
forth in a Right of Purchase Notice and (C) providing that Tenant's First Right
of Purchase shall thereafter terminate unless Tenant shall cure such outstanding
Event of Default within ten (10) days (the "Right of Purchase Default Notice").
In the event that Tenant fails to cure such Event of Default within such ten
(10) day period, Tenant's First Right of Purchase shall terminate, and Landlord
shall be free thereafter to sell the Building or such interest therein described
in the Right of Purchase Notice upon any terms and conditions acceptable to
Landlord. In the event that Tenant shall cure such Event of Default within such
ten (10) day period, Tenant shall have until the fifteenth (15th) business day
from the date of the Right of Purchase Default Notice to deliver to Landlord the
Election to Negotiate in accordance with the terms of Section 38(a). If Tenant
shall reject the Right of Purchase Default Notice or shall fail to timely
deliver the Election to Negotiate within the relevant fifteen (15) business day
period, Tenant shall be deemed to have elected not to negotiate for the purchase
of the Building or such other interest, and Landlord shall be free thereafter to
sell the Building or such interest therein described in the Right of Purchase
Notice upon any terms and conditions acceptable to Landlord. Notwithstanding any
of the foregoing, Tenant shall have no First Right of Purchase pursuant to this
Section 38(e), and Landlord shall have no obligation to deliver a Right of
Purchase Default Notice, in the event that pursuant to the occurrence of an
Event of Default Landlord shall have given Tenant a Termination Notice in
accordance with Section 18 hereof.
(f) Except as specifically set forth herein, Tenant's First
Right of Purchase hereunder shall be a one-time right.
(g) Notwithstanding any of the foregoing, Tenant's First Right
of Purchase hereunder shall not arise upon, and Tenant shall have no right to
exercise the First Right of Purchase with respect to, (i) any Booth Family
Transfer, (ii) any transfer of the Premises to the Landlord's Lender or to any
affiliate of Landlord's Lender through foreclosure proceedings or deed-in-lieu
of foreclosure and (iii) any transfer of the Premises to a third party
immediately succeeding a transfer described in the immediately preceding clause
(ii).
(h) Notwithstanding any of the foregoing, Tenant's First Right
of Purchase hereunder shall apply only in the event of a disposition involving
solely all or a portion of the Building or any interest therein, and Tenant's
First Right of Purchase hereunder shall not arise, and Tenant shall have no
right to exercise the First Right of Purchase, in the event that any interest in
any other building owned by Landlord is included together with the interest in
the Building in a single sale to a single purchaser.
39. Building Security.
(a) Tenant shall be permitted to install, maintain and
operate, so long as Tenant occupies the entirety of the Premises as tenant under
this Lease, at its sole cost and expense, card readers, turnstiles, closed
circuit television or other security devices and wiring related thereto in the
main lobby of the Building to control entry to and exit from the Premises, all
without charge by Landlord. In addition, Tenant may, at its own expense,
install, maintain and operate its own card key, closed circuit television and
other security systems and wiring related thereto in the Premises and in the
elevators serving the Premises, all without charge by Landlord. Landlord shall
not be responsible for monitoring any such systems. At all times that Landlord
and its other permitted users shall park in the Garage or use the maintenance
shop in the Garage during the Term, Landlord shall comply and cause its
permitted users to comply with Tenant's reasonable security arrangements.
Notwithstanding the foregoing, Landlord and its permitted users shall have
reasonable access to the portion of the Garage not included in the Premises
seven (7) days per week, twenty-four (24) hours per day, subject to Tenant's
reasonable security requirements.
(b) Each party and its security personnel shall cooperate with
the other party and its security personnel in implementing the parties'
respective security requirements within or about the Building. Landlord's and
Tenant's security personnel shall communicate from time to time with respect to
security issues and give each to the other such notices as may be necessary or
appropriate from time to time, or at any time, under the circumstances with
respect to emergencies and other security-related matters as soon as possible
after the occurrence thereof.
(c) If at any time during the Term, the Building and the
building known by the address 221 Main Street ("221 Main Street") are not both
owned or managed by an entity controlled by any member or members of the Booth
Family, then Tenant may at any time lock or seal the doorway between the
Building and 221 Main Street.
40. Signage.
(a) Landlord agrees that Tenant's signage rights (the "Major
Signage Rights") shall include the following: exclusive signage rights in the
main lobby of the Building, as well as exclusive monument signage in the plaza
adjacent to the Building and within the property line of the Building, with the
exact location and type of signage to be mutually and reasonably agreed to by
the parties hereto. In addition, Tenant shall have the exclusive right, at its
option, to name the Building "The Schwab Building" or another similar name,
using prominent exterior building signage on the faces of the Building and on
the roof thereof and to install an electro-lux (lighted stock market ticker) in
the main lobby of the Building. Tenant's foregoing signage rights shall be
subject only to compliance with all applicable laws, regulations, ordinances,
rules or requirements now in force or which may hereafter be in force,
including, without limitation, obtaining all necessary permits and approvals
from the City and County of San Francisco. Landlord shall cooperate reasonably
with and assist Tenant in securing any and all such necessary permits and
approvals. All costs incurred with respect to Tenant's signage, including,
without limitation, all costs of design, fabrication, installation and removal
thereof, and of obtaining approval therefor, shall be paid solely by Tenant, and
Tenant hereby indemnifies, defends and holds Landlord, harmless from any and all
costs, damages, liabilities and losses incurred in connection with such signage,
including, without limitation, in connection with the use, maintenance,
installation and removal thereof. Tenant shall not be charged any rent or
additional fee by Landlord for the signage rights provided herein, provided that
the market value of Tenant's signage shall be considered in determining the
Prevailing Market Rent for the Premises applicable during any Extension Period.
If Tenant changes its trade name to a name other than Charles Schwab, or if
Tenant shall assign this Lease, Tenant may change the Building signs and any
other signs installed by Tenant to reflect its name, and if Tenant determines to
change the type-face and style of such sign (in addition to the name), such
change in typeface and style shall be subject to Landlord's approval (which
shall not be unreasonably withheld, conditioned or delayed).
(b) In the event that Tenant exercises any Extension Option
with respect to either floors two through eight of the Building or floors two
through nine of the Building, Tenant shall retain the Major Signage Rights
during the relevant Extension Period.
(c) Tenant shall, at its sole cost and expense, remove all of
its signage upon the expiration or earlier termination of this Lease and repair
any and all damage caused by such removal.
(d) Except as otherwise set forth in this Section 40, no sign,
placard, picture, advertisement, name or notice shall be inscribed, displayed,
printed or affixed on or to any part of the outside or inside (if visible from
the outside) of the Building without the written consent of Landlord first had
and obtained, and Landlord shall have the right to remove any such sign,
placard, picture, advertisement, name or notice, without notice to and at the
expense of Tenant, if Tenant fails to promptly remove such sign or the like upon
notice from Landlord to do so.
41. Satellite Dish.
Landlord shall permit Tenant to install one or more
communications satellite dishes in an area of approximately one hundred (100)
square feet located on the roof of the Penthouse of the Building in such
location as (a) shall be available for such installation at the time of
Landlord's receipt of a written request from Tenant for the designation of such
area, (b) shall be designated by Landlord, subject to Tenant's reasonable
approval, and (c) shall not interfere with the transmission of any other
communications devices located prior thereto on the roof of the Building by
Landlord or any third parties leasing space from Landlord. No rent or Additional
Charges shall be payable by Tenant or charged by Landlord for the placement or
use of the dish or dishes. Tenant shall be granted reasonable access to the roof
of the Building to the extent reasonably necessary to enable Tenant to install,
maintain, repair and operate the dish or dishes, and Tenant shall have the
right, subject to Landlord's prior written approval (not to be unreasonably
withheld, delayed or conditioned), to run wires between the roof and the
Premises in appropriate locations and through conduits in the Building. The
physical specifications and manner of installation of any such satellite dishes
shall be subject to Landlord's prior written approval, which shall not be
unreasonably withheld, conditioned or delayed. Tenant hereby indemnifies,
defends and holds Landlord harmless from any and all costs, damages, liabilities
and losses incurred in connection with any such satellite dishes, including,
without limitation, in connection with the use, maintenance, installation and
removal thereof and access thereto.
42. Miscellaneous Provisions.
(a) The words "Landlord" and "Tenant" as used herein, shall
include the plural as well as the singular.
(b) If there be more than one Tenant, the obligations
hereunder imposed upon Tenant shall be joint and several.
(c) Time is of the essence of this Lease and each and all of
its provisions.
(d) Submission of this instrument for examination or signature
by Tenant does not constitute a reservation of or option for lease, and it is
not effective as a lease or otherwise until execution and delivery by both
Landlord and Tenant.
(e) The agreements, conditions and provisions herein contained
shall, subject to the provisions as to assignment, apply to and bind the heirs,
executors, administrators, successors and assigns of the parties hereto.
(f) The term "business day" as used herein means a day of the
week, other than a Saturday or Sunday, during which banks in the State of
California, are required to be open for business.
(g) Tenant shall have the right to install vending machines in
the Premises for food, snacks and beverages.
(h) If any provision of this Lease shall be determined to be
illegal or unenforceable, such determination shall not affect any other
provision of this Lease and all such other provisions shall remain in full force
and effect.
(i) This Lease shall be governed by and construed pursuant to
the laws of the State of California.
(j) All remedies hereinbefore and hereafter conferred upon
Landlord or Tenant shall be deemed cumulative and no one shall be exclusive of
the other, or shall in any way limit the availability to Landlord or Tenant of
any other remedy conferred by law, whether or not specifically conferred by the
provisions of this Lease.
(k) All indemnities of Tenant contained in this Lease shall
survive the expiration or other termination hereof with respect to any act,
condition or event which is the subject matter of such indemnity and which
occurs prior to such expiration or other termination. (l) The parties
acknowledge and agree that each party has reviewed and revised, and has been
provided the opportunity of its respective counsel to review and revise, this
Lease, and no rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall be employed in the interpretation or
construction of this Lease, or any amendments or exhibits thereto, or any other
document executed and delivered by either party in connection therewith.
43. Exhibits.
The exhibit(s) and addendum, if any, specified in any of the
Sections of this Lease are attached to this Lease and by this reference made a
part hereof.
44. Brokerage.
Each party warrants and represents to the other that such
party has not retained the services of any real estate broker, finder or any
other person whose services would form the basis for any claim for any
commission or fee in connection with this Lease or the transactions contemplated
hereby except for real estate brokerage services rendered by Colliers Damner
Pike to Tenant and by The CAC Group, Inc. to Landlord, the commissions earned
with respect to which Landlord shall pay to such brokers pursuant to a separate
agreement. Each party agrees to save, defend, indemnify and hold the other party
free and harmless from any breach of its warranty and representation as set
forth in the preceding sentence, including the other party's reasonable
attorneys' fees.
45. Limitation Of Liability.
With the exception of actions arising from Landlord's fraud,
bad faith or willful misconduct, any liability of Landlord under this Lease
shall be limited to Landlord's interest in the Building and the parcel of real
property on which the Building is located, any appurtenant rights thereto and
the proceeds thereof. Notwithstanding the foregoing, in the event that Landlord
defaults in its obligation to disburse any portion of the Tenant Improvement
Allowance in accordance with the terms of the Work Letter, the limitation of
liability contained in this Section 45 shall not apply to the extent that any
such undisbursed amounts exceed such limitation of liability.
46. Lease Memorandum.
The parties acknowledge and agree that this Lease shall not be
recorded, but rather each party hereto shall execute and acknowledge, upon
fulfillment of the condition precedent specified in Section 50, a Short Form of
Lease in the form attached hereto as Exhibit M (the "Memorandum"). The parties
further agree that the Memorandum shall be recorded in the Official Records of
the City and County of San Francisco, California (the "Official Records"). Upon
the expiration or termination of this Lease for any reason, Tenant hereby agrees
and covenants to deliver to Landlord a termination of lease in the form attached
hereto as Exhibit N to be recorded in the Official Records.
47. Landlord's Failure to Pay the Tenant Improvement Allowance.
If Landlord shall fail to pay the Tenant Improvement
Allowance, or any installment thereof, on or before the date the same is due and
payable in accordance with the terms of the Work Letter or if Landlord shall
fail to pay Tenant on or before the date the same is due and payable any other
sums due Tenant from Landlord under this Lease, such unpaid amounts shall bear
interest from the date due until paid at the highest rate legally permitted by
law, if, but only if, Tenant shall have first given Landlord notice that
Landlord's payment is past due and Landlord fails to pay same within five (5)
business days after Tenant's notice is given, and that Tenant's notice states in
capital letters at the top of such notice: "IF LANDLORD DOES NOT PAY THE SUM
THAT IS PAST DUE AND REFERRED TO IN THIS LETTER WITHIN FIVE (5) BUSINESS DAYS
AFTER THIS NOTICE IS GIVEN, INTEREST WILL ACCRUE FROM THE DATE SUCH SUM WAS
DUE". Payment of interest shall not excuse or cure any default hereunder by
Landlord.
48. Building Directory.
Landlord shall reserve on the Building directory, or in any
computerized Building directory, Tenant's Pro Rata Share (as set forth in Column
H of Exhibit B) of the total Building directory spaces then on the Building
directory for purposes of identifying Tenant's name, divisions and/or principal
employees. All costs for the initial strip or inputting of names shall be borne
by Landlord and all reasonable costs for replacement of such strips or inputting
shall be borne by Tenant.
49. Quiet Enjoyment.
Upon paying the Base Rent and Additional Charges and
performing all its obligations under this Lease, Tenant may peacefully and
quietly enjoy the Premises during the Term as against all persons or entities
claiming by or through Landlord, subject, however, to the provisions of this
Lease and any encumbrances as specified in Section 24.
50. Conditions Precedent.
(a) This Lease and Landlord's obligations hereunder are
subject to the express condition precedent of approval by Landlord's Lender. If
Landlord's Lender does not approve this Lease on or before 5:00 p.m. Pacific
Daylight Time on August 15, 1997, either Landlord or Tenant may terminate this
Lease on notice to the other without further liability.
(b) This Lease and Tenant's obligations hereunder are subject
to the express condition precedent of approval by the Board of Directors of The
Charles Schwab Corporation. If such Board shall not approve this Lease on or
before 5:00 p.m. Pacific Daylight Time on August 15, 1997, either Landlord or
Tenant may terminate this Lease on notice to the other without further
liability.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
set forth in the Basic Lease Information.
LANDLORD: TENANT:
MAIN PLAZA, LLC, CHARLES SCHWAB & CO., INC.,
a California limited liability company a California corporation
By /s/ Corwin Booth By /s/ Steven L. Scheid
- ------------------------ ------------------------------
Corwin Booth Steven L. Scheid
Manager Executive Vice President and
Chief Financial Officer
<PAGE>
Exhibit A
Floor Plans
<PAGE>
Exhibit B
Schedule of Information re: Premises
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G) (H)
Floor Target Target # of Rentable Annual Monthly Base Tentant's Pro Tenant's Pro
Delivery Commencement Days Area Base Rent Rent (1) Rata Share Rata Share
Date Date from (Taxes, (All Other
(A) to (B) Insurance, Expenses)
Security)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Garage 01/01/98 01/01/98 0 21,072 $ 240,000.00 $ 20,000.00
Crossover 01/01/98 04/01/98 90 16,947 $ 246,294.00 $ 20,525.00
Space
2 10/01/97 02/09/98 131 22,188 $ 465,948.00 $ 38,829.00 5.93% 6.17%
3 10/01/97 02/09/98 131 22,131 $ 464,751.00 $ 38,729.00 5.92% 6.16%
4 10/01/97 02/09/98 131 22,131 $ 464,751.00 $ 38,729.00 5.92% 6.16%
5 10/01/97 02/09/98 131 22,131 $ 464,751.00 $ 38,729.00 5.92% 6.16%
6 11/01/97 02/23/98 114 22,200 $ 466,200.00 $ 38,850.00 5.94% 6.18%
7 11/01/97 03/02/98 121 22,200 $ 466,200.00 $ 38,850.00 5.94% 6.18%
8 12/01/97 03/16/98 105 22,200 $ 466,200.00 $ 38,850.00 5.94% 6.18%
9 12/01/97 03/23/98 112 22,197 $ 466,137.00 $ 38,845.00 5.93% 6.18%
10 01/01/98 04/06/98 95 22,150 $ 465,150.00 $ 38,763.00 5.92% 6.16%
11 01/01/98 04/13/98 102 21,956 $ 461,076.00 $ 38,423.00 5.87% 6.11%
12 02/01/98 05/11/98 99 22,442 $ 471,282.00 $ 39,274.00 6.00% 6.24%
13 02/01/98 05/18/98 106 22,442 $ 471,282.00 $ 39,274.00 6.00% 6.24%
14 03/01/98 06/08/98 99 22,442 $ 471,282.00 $ 39,274.00 6.00% 6.24%
15 03/01/98 06/15/98 106 22,442 $ 471,282.00 $ 39,274.00 6.00% 6.24%
16 04/01/98 06/24/98 84 22,442 $ 471,282.00 $ 39,274.00 6.00% 6.24%
17 04/01/98 06/24/98 84 22,824 $ 479,304.00 $ 39,942.00 6.10% 6.35%
Penthouse 04/01/98 06/24/98 84 2,911 $ 61,131.00 $ 5,094.00 0.78% 0.81%
---------------------------------------------------------------------------
Total 397,448 $8,034,303.00 $ 669,528.00 96.1% 100.0%
- ---------------------------
(1) Subject to adjustment pursuant to Section 3 (b)(ii) and Section 3(b)(iii) of the Lease.
</TABLE>
<PAGE>
Exhibit C
Schedule of Information re: Premises
<PAGE>
Exhibit D
Notice of Commencement Date
<PAGE>
Exhibit E
Standard Building Services
<PAGE>
Exhibit F
Examples of Base Rent Adjustment
<PAGE>
Exhibit G
Categories of Landlord's Statement
<PAGE>
Exhibit H
Confidentiality Agreement
<PAGE>
Exhibit I
Cleaning Schedule
<PAGE>
Exhibit J
SNDA
<PAGE>
Exhibit K
Garage Schedule - Entire Premises Extension Option
<PAGE>
Exhibit L
Garage/Crossover Space Schedule - Partial Premises Extension Option
<PAGE>
EXHIBIT M
WHEN RECORDED RETURN TO:
CORBIN SILVERMAN & SANSEVERINO LLP
805 THIRD AVENUE
NEW YORK, NEW YORK 10022
ATTENTION: RAYMOND A. SANSEVERINO, ESQ.
- --------------------------------------------------------------------------------
SHORT FORM OF LEASE
THIS SHORT FORM OF LEASE (this "Agreement") is made and entered into
this 8th day of August 1997 by and between MAIN PLAZA, LLC, a California limited
liability company ("Landlord"), and CHARLES SCHWAB & CO., INC., a California
corporation ("Tenant").
This Agreement is made and entered into based on the following facts,
understandings and intentions of Landlord and Tenant:
A. Landlord and Tenant have entered into a written lease dated as of
August 8, 1997, (the "Lease"), pursuant to which Landlord leased to Tenant
certain space (the "Premises") in a building commonly known as and by the street
address 211 Main Street (the "Building") on a parcel of real property described
in Exhibit A attached hereto, in the City and County of San Francisco, State of
California. Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Lease.
B. Landlord and Tenant desire to enter into and record this Agreement
in the Official Records of San Francisco County, so that third parties may have
constructive notice of the Lease.
NOW THEREFORE, Landlord and Tenant acknowledge and agree as follows:
1. Initial Term. Landlord leases to Tenant and Tenant leases from
Landlord the Premises on the terms and conditions contained in the Lease. The
initial term of the Lease shall commence with respect to each respective floor
of the Premises upon the date that Landlord delivers possession of such floor to
Tenant in accordance with the terms of, and in the condition required by,
Section 2(b) of the Lease, and shall expire on April 30, 2018, subject to
earlier termination or extension as provided for in the Lease.
2. Extension Options. Subject to the requirements and conditions set
forth in Section 36 of the Lease, Tenant shall have the option to extend the
Lease with respect to all or a portion of the Premises for two additional
consecutive terms of a maximum of seven (7) years each in accordance with the
terms of Section 36 of the Lease
3. Right of First Offer. Subject to the requirements and conditions set
forth in Section 37 of the Lease, Landlord hereby grants to Tenant the
continuing right of first offer to lease any Retail Space, as such Retail Space
shall become available for lease from time to time both before Landlord shall
lease it to third parties and after the initial leasing of the Retail Space
4. First Right Of Purchase. Subject to the requirements and conditions
set forth in Section 38 of the Lease, Landlord hereby grants to Tenant a first
right of purchase with respect to the Building or any interest therein.
5. Addresses. The addresses of Landlord and Tenant are as follows:
TENANT: 101 Montgomery Street
San Francisco, California 94104
Attention: Senior Vice President
Administrative Services
with copies to:
P. O. Box 881566
c/o Corporate Real Estate Lease Administration
San Francisco, California 94188-1566
and
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, California 94104
Attn: Mary Templeton, Esq.
Senior Vice President and General Counsel
and
Corbin Silverman & Sanseverino LLP
805 Third Avenue
New York, New York 10022
Attn: Raymond A. Sanseverino, Esq.
LANDLORD: Main Plaza, LLC
101 Howard Street, Suite 404
San Francisco, California 94105
6. Purpose of Agreement; Conflict. This Agreement is entered into and
recorded only for the purpose of imparting notice of the Lease to third parties.
In the event of any conflict between the terms of this Agreement and those of
the Lease, the terms of the Lease shall prevail.
7. Effect Of Agreement; Incorporation Of Lease Terms. This Agreement
does not alter, amend or in any way modify the Lease and further incorporates by
reference all of the terms and provisions of the Lease.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
LANDLORD:
MAIN PLAZA, LLC, a California
limited liability company
By: /s/ Corwin Booth
-------------------------
Corwin Booth
Manager
TENANT:
CHARLES SCHWAB & CO., INC., a
California corporation
By: /s/ Steven L. Scheid
-------------------------
Steven L. Scheid
Executive Vice President and
Chief Financial Officer
<PAGE>
Attachment
Notary Public Form
<PAGE>
Exhibit N
Termination of Lease
Exhibit 10.182
The Charles Schwab Corporation
Corporate Executive Bonus Plan
(Amended and Restated, effective January 1, 1996)
I. Purposes
The purposes of this Corporate Executive Bonus Plan (the "Plan") are:
(a) to provide greater incentive for key executives continually to
exert their best efforts on behalf of The Charles Schwab Corporation
(the "Company") by rewarding them for services rendered with
compensation that is in addition to their regular salaries; (b) to
attract and to retain in the employ of the Company persons of
outstanding competence; and (c) to further the identity of interests of
such employees with those of the Company's shareholders through a
strong performance-based reward system.
II. Form of Awards
1. Incentive compensation awards under this Plan shall be granted in
cash, less any applicable withholding taxes.
III. Determination of Awards
1. Incentive awards for participants other than the President shall
be determined quarterly according to a Corporate Performance
Payout Matrix that shall be adopted at the beginning of each year
by the Compensation Committee of the Board of Directors (the
"Committee"). The Management Committee Corporate Performance
Payout Matrix shall use net revenue growth and consolidated
pretax profit margin as the financial performance criteria to
determine awards. Awards shall be defined by reference to a
target percentage of base salary determined, from time to time,
by the Committee. Payouts described in this subsection shall be
calculated and paid on a quarterly basis, based on year-to-date
performance compared with the comparable period in the preceding
year.
2. With respect to payments made pursuant to Section III.1, the
amount of base salary included in the computation of incentive
awards shall not exceed 250% of the base salary in effect for the
officer holding the same or substantially similar position on
March 31, 1995. In addition, the maximum target incentive
percentage shall be 100% of base salary for the Vice Chairman and
50% of base salary for the remaining participants (other than the
President), and the maximum award for such individuals shall be
300% of the individual's target award.
3. Incentive awards for the President shall be determined in
accordance with a Corporate Performance Payout Matrix that shall
be adopted at the beginning of each year by the Committee. The
Committee shall determine the President's award each year, up to
the maximum amount defined by the matrix for a given level of
performance. This matrix may, if the Committee deems appropriate,
differ from that described in Subsection III.1. However, the
performance criteria shall be the same as referred to above.
Payouts for the President shall be made on an annual basis, based
on the Company's results for the full year.
4. The maximum award payable for the President under this plan shall
be no more than 500% of his target incentive award. The target
incentive amount shall be determined each year by the Committee,
but may not exceed 300% of base salary. The amount of base salary
taken into account for purposes of computing the target incentive
award may not exceed 250% of the President's base salary as of
March 31, 1995.
5. Notwithstanding anything to the contrary contained in this Plan,
the Committee shall have the power, in its sole discretion, to
reduce the amount payable to any Participant (or to determine
that no amount shall be payable to such Participant) with respect
to any award prior to the time the amount otherwise would have
become payable hereunder. In the event of such a reduction, the
amount of such reduction shall not increase the amounts payable
to other participants under the Plan.
IV. Administration
1. Except as otherwise specifically provided, the Plan shall be
administered by the Committee. The Committee members shall be
appointed pursuant to the Bylaws of the Company, and the members
thereof shall be ineligible for awards under this Plan for
services performed while serving on said Committee.
2. The decision of the Committee with respect to any questions
arising as to interpretation of the Plan, including the
severability of any and all of the provisions thereof, shall be,
in its sole and absolute discretion, final, conclusive and
binding.
V. Eligibility for Awards
1. Awards under the Plan may be granted by the Committee to those
employees who have contributed the most in a general way to the
Company's success by their ability, efficiency, and loyalty,
consideration being given to ability to succeed in more important
managerial responsibility in the Company. This is intended to
include the President and Chief Operating Officer, Vice Chairman,
Executive Vice Presidents, and from time to time, certain other
officers having comparable positions.
No award may be granted to a member of the Company's Board of
Directors except for services performed as an employee of the
Company.
2. Except in the event of retirement, death, or disability, to be
eligible for an award an employee shall be employed by the
Company as of the date awards are calculated and approved by the
Committee under this Plan.
3. For purposes of this Plan, the term "employee" shall include an
employee of a corporation or other business entity in which this
Company shall directly or indirectly own 50% or more of the
outstanding voting stock or other ownership interest.
VI. Awards
1. The Committee shall determine each year the payments, if any, to
be made under the Plan. Awards for any calendar year shall be
granted not later than the end of the first quarter of the
calendar year, and payments pursuant to the Plan shall be made as
soon as practicable after the close of each calendar quarter (or,
in the case of the President, as soon as practicable after the
close of each calendar year).
2. Upon the granting of awards under this Plan, each participant
shall be informed of his or her award by his or her direct
manager and that such award is subject to the applicable
provisions of this Plan.
VII. Deferral of Awards
1. A participant in this Plan who is also eligible to participate in
The Charles Schwab Corporation Deferred Compensation Plan may
elect to defer payments pursuant to the terms of that plan.
VIII. Recommendations and Granting of Awards
1. Recommendations for awards shall be made to the Committee by the
Chief Executive Officer and, with respect to participants other
than the President and Vice Chairman, the President.
2. Any award shall be made in the sole discretion of the Committee,
which shall take final action on any such award. No person shall
have a right to an award under this Plan until final action has
been taken granting such award.
IX. Amendments and Expiration Date
While it is the present intention of the Company to grant awards
annually, the Committee reserves the right to modify this Plan from
time to time or to repeal the Plan entirely, or to direct the
discontinuance of granting awards either temporarily or permanently;
provided, however, that no modification of this plan shall operate to
annul, without the consent of the beneficiary, an award already granted
hereunder; provided, also, that no modification without approval of the
stockholders shall increase the maximum amount which may be awarded as
hereinabove provided.
X. Miscellaneous
All expenses and costs in connection with the operation of this Plan
shall be borne by the Company and no part thereof shall be charged
against the awards anticipated by the Plan. Nothing contained herein
shall be construed as a guarantee of continued employment of any
participant hereunder. This Plan shall be construed and governed in
accordance with the laws of the State of California.
Exhibit 10.183
FOURTH AMENDMENT TO
REVOLVING SUBORDINATED LOAN AGREEMENT
This Fourth Amendment to Revolving Subordinated Loan Agreement ("this Fourth
Amendment") is made and entered into by and between The Charles Schwab
Corporation (the "Lender") and Charles Schwab & Co., Inc. (the "Organization")
as of this 25th day of July, 1997. Unless otherwise specified herein, all
capitalized terms herein shall have the meanings ascribed to them in the
Revolving Subordinated Loan Agreement dated as of September 29, 1988, as amended
by a First Amendment thereto dated as of April 18, 1990, a Second Amendment
dated as of November 1, 1991, and a Third Amendment thereto dated as of December
12, 1995, each between the Lender and the Organization (collectively, the
"Agreement").
WHEREAS, the Organization and the Lender desire to amend the Agreement to
increase the permissible aggregate principal amount of loans outstanding at any
one time from $250,000,000 to $300,000,000.
NOW, THEREFORE, the Organization and the Lender hereby amend the Agreement as
follows:
1. The figure "$300,000,000" shall be and hereby is substituted in
place of the figure "$250,000,000" in the second paragraph of paragraph
"1." of the Agreement.
2. Contemporaneously with the execution hereof, the Organization shall
execute and deliver to the Lender a new promissory note in the form
attached hereto as Exhibit A (the "new Revolving Note"), which new
Revolving Note shall replace and supersede the Revolving Note dated
December 12, 1995 made and delivered by the Organization to the Lender.
3. Contemporaneously with the execution hereof, the Lender and the
Organization shall execute a Roll-Over Attachment in the form attached
hereto as Exhibit B (the "Roll-Over Attachment"), pursuant to which the
Lender and the Organization agree that the Commitment Termination Date
and the Scheduled Maturity Date shall in each year, without further
action by either the Lender or the Organization, be extended to
September 29 of the following year, unless on or before the day
thirteen months preceding the Scheduled Maturity Date then in effect,
the Lender shall notify the Organization in writing, with a written
copy to the New York Stock Exchange, Inc., that the Commitment
Termination Date and the Scheduled Maturity Date then in effect shall
not be extended. The Roll-Over Attachment shall become apart of the
Agreement as amended by this Fourth Amendment.
4. Except for the amendment expressly specified above, all other
provisions of the Agreement remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, this Fourth Amendment is executed as of July 25, 1997 at San
Francisco, California.
THE ORGANIZATION:
CHARLES SCHWAB & CO., INC.
By: /s/Christopher V. Dodds
---------------------------------------
Christopher V. Dodds
Its Senior Vice President and Treasurer
-----------------------------------
THE LENDER:
THE CHARLES SCHWAB CORPORATION
By: /s/ Steven L. Scheid
---------------------------------------
Steven L. Scheid
Its Executive Vice President and Chief Financial Officer
----------------------------------------------------
<PAGE>
Exhibit A
REVOLVING NOTE
$300,000,000 Date: July 25, 1997
For value received, the undersigned Charles Schwab & Co., Inc.
("Organization") hereby promises to pay to the order of The Charles Schwab
Corporation ("Lender") the principal amount of each advance made by the Lender
to the Organization under the terms of a Revolving Subordinated Loan Agreement
between the Organization and the Lender dated as of September 29, 1988, as
amended by a First Amendment thereto between the Organization and the Lender
dated as of April 18, 1990, a Second Amendment thereto between the Organization
and the Lender dated as of November 1, 1991, a Third Amendment thereto between
the Organization and the Lender dated as of December 12, 1995 and a Fourth
Amendment thereto between the Organization and the Lender dated as of July 25,
1997 (collectively, the "Agreement"), as shown in the schedule attached hereto
and any continuation thereof, payable at such times as are specified in the
Agreement. The undersigned also promises to pay interest on the unpaid principal
amount of each advance from the date of such advance until such principal is
paid, at the rates per annum, and payable at such times, as are specified in the
Agreement. The Note shall be subject to the Agreement, and all principal and
interest payable hereunder shall be due and payable in accordance with the terms
of the Agreement. Terms defined in the Agreement are used herein with the same
meanings.
The maturity date of this Revolving Note shall be September 29, 1998.
The maturity date shall in each year, without further action by either the
Lender or the Organization, be extended to September 29 of the following year,
unless on or before the day thirteen months preceding the maturity date then in
effect, the Lender shall notify the Organization in writing, with a written copy
to the New York Stock Exchange, Inc., that such maturity date shall not be
extended.
This Revolving Note replaces and supersedes the Revolving Note dated
December 12, 1995 in the maximum principal amount of $250,000,000, delivered by
the Organization to the Lender.
IN WITNESS WHEREOF, the undersigned has caused this Revolving Note to
be executed by its officer thereunto duly authorized and directed by appropriate
corporate authority.
Charles Schwab & Co., Inc.
By: /s/Christopher V. Dodds
---------------------------------
Christopher V. Dodds
Senior Vice President and Treasurer
<PAGE>
Exhibit B
ROLL-OVER ATTACHMENT
Additional provision for Revolving Subordinated Loan Agreement, as amended,
between The Charles Schwab Corporation ("Lender") and Charles Schwab & Co., Inc.
("Organization").
Principal Amount: $ 300,000,000
Date of Agreement: September 29, 1988
Date of First Amendment to Agreement: April 18, 1990
Date of Second Amendment to Agreement: November 1, 1991
Date of Third Amendment to Agreement: December 12, 1995
Date of Fourth Amendment to Agreement: July 25, 1997
Pursuant to the roll-over provisions of the Agreement as amended, the Commitment
Termination Date in Paragraph 1 of the Agreement is September 29, 1997, and the
Scheduled Maturity Date in Paragraph 1 of the Agreement is September 29, 1998.
The Commitment Termination Date and the Scheduled Maturity Date shall in each
year, without further action by either the Lender or the Organization, be
extended to September 29 of the following year, unless on or before the day
thirteen months preceding the Scheduled Maturity Date then in effect, the Lender
shall notify the Organization, in writing, with a written copy to the New York
Stock Exchange, Inc., that the Commitment Termination Date and the Scheduled
Maturity Date then in effect shall not be extended.
THE ORGANIZATION:
CHARLES SCHWAB & CO., INC.
By: /s/Christopher V. Dodds
---------------------------------------
Christopher V. Dodds
Its Senior Vice President and Treasurer
-----------------------------------
THE LENDER:
THE CHARLES SCHWAB CORPORATION
By: /s/Steven L. Scheid
---------------------------------------
Steven L. Scheid
Its Executive Vice President and Chief Financial Officer
----------------------------------------------------
Exhibit 10.184
FIFTH AMENDMENT TO
REVOLVING SUBORDINATED LOAN AGREEMENT
This Fifth Amendment to Revolving Subordinated Loan Agreement ("this Fifth
Amendment") is made and entered into by and between The Charles Schwab
Corporation (the "Lender") and Charles Schwab & Co., Inc. (the "Organization")
as of this 29th day of October, 1997. Unless otherwise specified herein, all
capitalized terms herein shall have the meanings ascribed to them in the
Revolving Subordinated Loan Agreement dated as of September 29, 1988, as amended
by a First Amendment thereto dated as of April 18, 1990, a Second Amendment
thereto dated as of November 1, 1991, a Third Amendment thereto dated as of
December 12, 1995 and a Fourth Amendment thereto dated as of July 25, 1997, each
between the Lender and the Organization (collectively, the "Agreement").
WHEREAS, the Organization and the Lender desire to amend the Agreement to
increase the permissible aggregate principal amount of loans outstanding at any
one time from $300,000,000 to $400,000,000.
NOW, THEREFORE, the Organization and the Lender hereby amend the Agreement as
follows:
1. The figure "$400,000,000" shall be and hereby is substituted in
place of the figure "$300,000,000" in the second paragraph of paragraph
"1." of the Agreement.
2. Contemporaneously with the execution hereof, the Organization shall
execute and deliver to the Lender a new promissory note in the form
attached hereto as Exhibit A (the "new Revolving Note"), which new
Revolving Note shall replace and supersede the Revolving Note dated
July 25, 1997 made and delivered by the Organization to the Lender.
3. Contemporaneously with the execution hereof, the Lender and the
Organization shall execute a Roll-Over Attachment in the form attached
hereto as Exhibit B (the "Roll-Over Attachment"), pursuant to which the
Lender and the Organization agree that the Commitment Termination Date
and the Scheduled Maturity Date shall in each year, without further
action by either the Lender or the Organization, be extended to
September 29 of the following year, unless on or before the day
thirteen months preceding the Scheduled Maturity Date then in effect,
the Lender shall notify the Organization in writing, with a written
copy to the New York Stock Exchange, Inc., that the Commitment
Termination Date and the Scheduled Maturity Date then in effect shall
not be extended. The Roll-Over Attachment shall become apart of the
Agreement as amended by this Fifth Amendment.
4. Except for the amendment expressly specified above, all other
provisions of the Agreement remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, this Fifth Amendment is executed as of October 29, 1997 at
San Francisco, California.
THE ORGANIZATION:
CHARLES SCHWAB & CO., INC.
By: /s/Christopher V. Dodds
--------------------------------
Christopher V. Dodds
Its Senior Vice President and Treasurer
-----------------------------------
THE LENDER:
THE CHARLES SCHWAB CORPORATION
By: /s/ Steven L. Scheid
--------------------------------
Steven L. Scheid
Its Executive Vice President and Chief Financial Officer
----------------------------------------------------
<PAGE>
Exhibit A
REVOLVING NOTE
$400,000,000 Date: October 29, 1997
For value received, the undersigned Charles Schwab & Co., Inc.
("Organization") hereby promises to pay to the order of The Charles Schwab
Corporation ("Lender") the principal amount of each advance made by the Lender
to the Organization under the terms of a Revolving Subordinated Loan Agreement
between the Organization and the Lender dated as of September 29, 1988, as
amended by a First Amendment thereto between the Organization and the Lender
dated as of April 18, 1990, a Second Amendment thereto between the Organization
and the Lender dated as of November 1, 1991, a Third Amendment thereto between
the Organization and the Lender dated as of December 12, 1995, a Fourth
Amendment thereto between the Organization and the Lender dated as of July 25,
1997 and a Fifth Amendment thereto between the Organization and the Lender dated
as of October 29, 1997 (collectively, the "Agreement"), as shown in the schedule
attached hereto and any continuation thereof, payable at such times as are
specified in the Agreement. The undersigned also promises to pay interest on the
unpaid principal amount of each advance from the date of such advance until such
principal is paid, at the rates per annum, and payable at such times, as are
specified in the Agreement. The Note shall be subject to the Agreement, and all
principal and interest payable hereunder shall be due and payable in accordance
with the terms of the Agreement. Terms defined in the Agreement are used herein
with the same meanings.
The maturity date of this Revolving Note shall be September 29, 1999.
The maturity date shall in each year, without further action by either the
Lender or the Organization, be extended to September 29 of the following year,
unless on or before the day thirteen months preceding the maturity date then in
effect, the Lender shall notify the Organization in writing, with a written copy
to the New York Stock Exchange, Inc., that such maturity date shall not be
extended.
This Revolving Note replaces and supersedes the Revolving Note dated
July 25, 1997 in the maximum principal amount of $300,000,000, delivered by the
Organization to the Lender.
IN WITNESS WHEREOF, the undersigned has caused this Revolving Note to
be executed by its officer thereunto duly authorized and directed by appropriate
corporate authority.
Charles Schwab & Co., Inc.
By: /s/ Christopher V. Dodds
--------------------------------
Christopher V. Dodds
Senior Vice President and Treasurer
<PAGE>
Exhibit B
ROLL-OVER ATTACHMENT
Additional provision for Revolving Subordinated Loan Agreement, as amended,
between The Charles Schwab Corporation ("Lender") and Charles Schwab & Co., Inc.
("Organization").
Principal Amount: $ 400,000,000
Date of Agreement: September 29, 1988
Date of First Amendment to Agreement: April 18, 1990
Date of Second Amendment to Agreement: November 1, 1991
Date of Third Amendment to Agreement: December 12, 1995
Date of Fourth Amendment to Agreement: July 25, 1997
Date of Fifth Amendment to Agreement: October 29, 1997
Pursuant to the roll-over provisions of the Agreement as amended, the Commitment
Termination Date in Paragraph 1 of the Agreement is September 29, 1998, and the
Scheduled Maturity Date in Paragraph 1 of the Agreement is September 29, 1999.
The Commitment Termination Date and the Scheduled Maturity Date shall in each
year, without further action by either the Lender or the Organization, be
extended to September 29 of the following year, unless on or before the day
thirteen months preceding the Scheduled Maturity Date then in effect, the Lender
shall notify the Organization, in writing, with a written copy to the New York
Stock Exchange, Inc., that the Commitment Termination Date and the Scheduled
Maturity Date then in effect shall not be extended.
THE ORGANIZATION:
CHARLES SCHWAB & CO., INC.
By: /s/ Christopher V. Dodds
--------------------------------
Christopher V. Dodds
Its Senior Vice President and Treasurer
-----------------------------------
THE LENDER:
THE CHARLES SCHWAB CORPORATION
By: /s/ Steven L. Scheid
--------------------------------
Steven L. Scheid
Its Executive Vice President and Chief Financial Officer
----------------------------------------------------
Exhibit 10.185
THE CHARLES SCHWAB CORPORATION
SENIOR EXECUTIVE SEVERANCE POLICY
Introduction
The Board considers the avoidance of loss and distraction of
employees as a result of an actual or contemplated Change of Control to be
essential to protecting and enhancing the best interests of the Corporation and
its shareholders. The Board also believes that during the pendency of a Change
of Control and the transition period thereafter, the Board should be able to
receive and rely on disinterested service from employees regarding the best
interests of the Corporation and its shareholders without concern that employees
might be distracted or concerned by personal uncertainties and risks.
Accordingly, the Board has determined that appropriate steps
should be taken to assure the Corporation of the continued employment and
attention and dedication to duty of its employees and to seek to ensure the
availability of their continued service, notwithstanding a Change of Control.
Therefore, in order to fulfill the above purposes, the
following plan has been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date, the Corporation hereby establishes a
separation compensation plan known as the The Charles Schwab Corporation Senior
Executive Severance Policy, as set forth in this document.
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the
following respective meanings unless the context clearly indicates otherwise.
(a) Annual Incentive Award. The Participant's target bonus
under the Corporation's annual incentive plans for the year in which the Change
of Control occurs.
(b) Annual Compensation. The sum of a Participant's Annual
Salary and Annual Incentive Award.
(c) Annual Salary. The Participant's regular annual base
salary immediately prior to his or her termination of employment, or if higher,
immediately prior to the Change of Control.
(d) Board. The Board of Directors of The Charles Schwab
Corporation.
(e) Change of Control. Any of the following events:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of the
Corporation (the "Outstanding Corporation Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the "Outstanding
Corporation Voting Securities"); provided, however, that for purposes of this
paragraph (1), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Corporation, (ii) any acquisition
by the Corporation, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Corporation or any corporation
controlled by the Corporation or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
paragraph (3) hereof; or
(2) Individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the Effective Date whose election, or nomination for
election by the Corporation's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(3) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Corporation (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Corporation Common Stock and Outstanding Corporation Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns the
Corporation or all or substantially all of the Corporation's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination,
of the Outstanding Corporation Common Stock and Outstanding Corporation Voting
Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Corporation or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(4) Approval by the shareholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
Notwithstanding the foregoing, no acquisition by (i) Charles
Schwab and/or his spouse or any or his lineal descendants or (ii) any trust
created by or for the benefit of Charles Schwab and/or his spouse or any of his
lineal descendants or (iii) the Schwab Family Foundation shall constitute a
Change of Control.
(f) Code. The Internal Revenue Code of 1986, as amended from
time to time.
(g) Committee. The Compensation Committee of the Board.
(h) Corporation. The Charles Schwab Corporation.
(i) Date of Termination. The date a Participant's employment
is actually terminated.
(j) Effective Date. December 7, 1995.
(k) Employer. The Corporation or a Subsidiary which has
adopted the Plan pursuant to Article V hereof.
(l) Participant. Any executive vice president or senior vice
president of the corporation at the time of a Change of Control.
(m) Plan. The Charles Schwab Corporation Senior Executive
Severance Policy.
(n) Protection Period. The period beginning on the date of a
Change of Control and ending on the second anniversary thereof.
(o) Subsidiary. Any corporation in which the Corporation,
directly or indirectly, holds a majority of the voting power of such
corporation's outstanding shares of capital stock.
(p) Tier 1 Participant. Any Participant who holds the title of
executive vice president of the Corporation at the time of the Change
of Control.
(q) Tier 2 Participant. Any Participant who holds the title of
senior vice president of the Corporation at the time of the Change of
Control.
ARTICLE III
ELIGIBILITY
3.1 Duration of Participation. A Participant shall only cease
to be a Participant in the Plan as a result of an amendment or termination of
the Plan complying with Article VII of the Plan, or when he ceases to be an
executive vice president or senior vice president of the Corporation, unless, at
the time he ceases to be such, such Participant is entitled to payment of a
Separation Benefit as provided in the Plan or there has been an event or
occurrence described in Section 4.2(a) which would enable the Participant to
terminate his employment and receive a Separation Benefit. A Participant
entitled to payment of a Separation Benefit or any other amounts under the Plan
shall remain a Participant in the Plan until the full amount of the Separation
Benefit and any other amounts payable under the Plan have been paid to the
Participant.
ARTICLE IV
SEPARATION BENEFITS
4.1 Right to Separation Benefit. A Participant shall be
entitled to receive from his Employer separation benefits in accordance with
Section 4.3 ("Separation Benefits") if the Participant's employment by an
Employer shall terminate in any circumstance specified in Section 4.2(a),
whether the termination is voluntary or involuntary; provided, that under no
circumstances shall a Participant be entitled to Separation Benefits under this
Plan if the Participant remains employed by any entity which is an Employer.
4.2 Termination of Employment.
(a) Terminations Which Give Rise to Separation
Benefits Under This Plan.
(i) Except as set forth in subsection (b)
below, any termination of employment with an Employer by action of the Employer
or any of its affiliates (excluding any transfer to another Employer), at any
time during the Protection Period, shall entitle a Participant to a Separation
Benefit in accordance with Section 4.3.
(ii) If, at any time during the Protection
Period, a Participant terminates employment for Good Reason, the Participant
shall be entitled to the Separation Benefits in accordance with Section 4.3. For
purposes of the Plan, "Good Reason" means any of the following:
(A) the assignment to the Participant of any duties
inconsistent in any respect with the Participant's position
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities
immediately prior to a Change of Control, or any other
action by the Corporation which results in a diminution in
such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is
remedied by the Corporation promptly after receipt of notice
thereof given by the Participant;
(B) any diminution in the employee benefits provided to
the Participant, including retirement, welfare, stock
incentive, annual incentive, fringe benefits and other
benefits as compared to those provided to the Participant
immediately prior to the Change of Control, other than an
isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the
Corporation after receipt of notice thereof given by the
Participant;
(C) the Corporation's requiring the Participant to be
based at any office or location other than that where the
Participant was based immediately prior to the Change of
Control or the Corporation's requiring the Participant to
travel on Corporation business to a substantially greater
extent than required immediately prior to the Change of
Control;
(D) any purported termination by the Corporation of the
Participant's employment otherwise than as expressly
permitted by this Plan; or
(E) any failure by the Corporation to comply with and
satisfy Article VI of the Plan.
For purposes of the Plan, any good faith determination of "Good Reason" made by
the Participant shall be conclusive. Anything in this Plan to the contrary
notwithstanding, a termination by the Participant for any reason during the
30-day period immediately following the first anniversary of the Change of
Control shall be deemed to be a termination for Good Reason for all purposes of
this Plan.
(b) Terminations Which Do Not Give Rise to Separation
Benefits Under This Plan. If a Participant's employment is terminated for Cause,
disability, death or retirement, or voluntarily by the Participant in the
absence of an event described in subsection (a) of this Section 4.2, the
Participant shall not be entitled to Separation Benefits under the Plan.
(i) A termination for disability shall have
occurred where a Participant is terminated because illness or injury has
prevented him from performing his duties (as they existed immediately prior to
the illness or injury) on a full time basis for 180 consecutive business days.
(ii) A termination by retirement shall have
occurred where a Participant's termination is due to his voluntary normal or
early retirement under a qualified retirement plan sponsored by his Employer or
its affiliates, as defined in such plan.
(iii) A termination for Cause shall have
occurred where a Participant is terminated because of:
(A) the willful and continued failure of the
Participant to perform substantially the Participant's
duties with the Corporation or one of its affiliates (other
than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for
substantial performance is delivered to the Participant by
the Board or a Board elected officer of the Corporation
which specifically identifies the manner in which the Board
or the elected officer believes that the Participant has not
substantially performed the Participant's duties, or
(B) the willful engaging by the Participant in illegal
conduct or gross misconduct which is materially and
demonstrably injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the part of the
Participant, shall be considered "willful" unless it is done, or omitted to be
done, by the Participant in bad faith or without reasonable belief that the
Participant's action or omission was in the best interests of the Corporation.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer of the Corporation or based upon the advice of counsel for the
Corporation shall be conclusively presumed to be done, or omitted to be done, by
the Participant in good faith and in the best interests of the Corporation. The
cessation of employment of the Participant shall not be deemed to be for Cause
unless and until there shall have been delivered to the Participant a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Participant and the
Participant is given an opportunity, together with counsel, to be heard before
the Board), finding that, in the good faith opinion of the Board, the
Participant is guilty of the conduct described in subparagraph (A) or (B) above,
and specifying the particulars thereof in detail.
4.3 Separation Benefits.
(a) If a Participant's employment is terminated in
circumstances entitling him or her to a Separation Benefit as provided in
Section 4.2(a), the Participant's Employer or the Corporation shall pay such
Participant, within ten days of the Date of Termination, a cash lump sum as set
forth in subsection (b) below and the continued benefits set forth in subsection
(c) below.
(b) The cash lump sum referred to in Section 4.3(a)
shall equal the aggregate of the following amounts:
(i) the sum of (1) the Participant's Annual Salary
through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the Annual
Incentive Award and (y) a fraction, the numerator of which
is the number of days in the such year through the Date of
Termination, and the denominator of which is 365, and (3)
any earned and unused vacation pay, in each case to the
extent not theretofore paid (collectively, "Accrued
Obligations"); and
(ii) an amount equal to the product of (x) three, in
the case of Tier 1 Participants, and two, in the case of
Tier 2 Participants, and (y) the Participant's Annual
Compensation.
(c) For three years, in the case of Tier 1
Participants, and for two years, in the case of Tier 2 Participants following a
Participant's termination of employment (in each case, the "Continuation
Period"), the Participant and his or her family shall be provided with medical,
dental and life insurance benefits as if the Participant's employment had not
been terminated; provided, however, that if the Participant becomes reemployed
with another employer and is eligible to receive medical or other welfare
benefits under another employer-provided plan, the medical and other welfare
benefits described herein shall be secondary to those provided under such other
plan during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Participant
for retiree medical benefits, if any, under the Corporation's plans, practices,
programs and policies, the Participant shall be considered to have remained
employed during the Continuation Period and to have retired on the last day of
such period.
(d) The Participant shall be entitled to outplacement
services at the Corporation's cost selected by the Participant, which cost shall
not exceed 25% of the Particpant's Annual Base Salary. The Participant shall
also be entitled to any unused portion of payments under the Corporation's
financial counseling assistance program for the year in which the Date of
Termination occurs.
4.4 Other Benefits Payable. The cash lump sum and continuing
benefits described in Section 4.3 above shall be payable in addition to, and not
in lieu of, all other accrued or vested or earned but deferred compensation,
rights, options or other benefits which may be owed to a Participant upon or
following termination, including but not limited to earned but unused vacation,
amounts or benefits payable under any bonus or other compensation plan, stock
option plan, stock ownership plan, stock purchase plan, life insurance plan,
health plan, disability plan or similar or successor plan (collectively, "Other
Benefits"); provided, that the foregoing shall not apply to any severance pay or
pay in lieu of notice required to be paid to such Participant under applicable
law.
4.5 Death, Disability; for Cause.
(a) Death. If the Participant's employment is terminated by
reason of the Participant's death during the Protection Period, the
Participant's legal representatives shall have no rights under this Plan, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Participant's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the
Participant's date of termination of employment. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 4.5(a)
shall include, without limitation, and the Participant's estate and/or
beneficiaries shall be entitled to receive, benefits at least equal to the most
favorable benefits provided by the Corporation and affiliated companies to the
estates and beneficiaries of peer executives of the Corporation and such
affiliated companies under such plans, programs, practices and policies relating
to death benefits, if any, as in effect with respect to other peer executives
and their beneficiaries at any time during the 120-day period immediately
preceding the Change of Control or, if more favorable to the Participant's
estate and/or the Participant's beneficiaries, as in effect on the date of the
Participant's death with respect to other peer executives of the Corporation and
its affiliated companies and their beneficiaries.
(b) Disability. If the Participant's employment is terminated
by reason of the Participant's Disability during the Protection Period, the
Participant shall have no further rights under this Plan, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Participant in a lump sum in cash
within 30 days of the Participant's date of termination. With respect to the
provision of Other Benefits, the term Other Benefits as utilized in this Section
4.5(b) shall include, and the Participant shall be entitled after the effective
date of the Participant's Disability to receive, disability and other benefits
at least equal to the most favorable of those generally provided by the
Corporation and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding the date of the Change of Controlor, if more favorable to
the Participant and/or the Participant's family, as in effect at any time
thereafter generally with respect to other peer executives of the Corporation
and its affiliated companies and their families.
(c) Cause; Other than for Good Reason. If the Participant's
employment shall be terminated for Cause during the Protection Period, the
Corporation shall have no further obligations to the Participant under this
Plan, other than the obligation to pay to the Participant (x) his or her Annual
Base Salary through the date of termination of employment, (y) the amount of any
compensation previously deferred by the Participant, and (z) Other Benefits, in
each case to the extent theretofore unpaid. If the Participant voluntarily
terminates employment during the Protection Period, excluding a termination for
Good Reason, the Corporation shall have no further obligations to the
Participant hereunder, other than for Accrued Obligations and the timely payment
or provision of Other Benefits. In such case, all Accrued Obligations shall be
paid to the Participant in a lump sum in cash within 30 days of the date of
termination of employment.
4.6 Certain Additional Payments by the Corporation.
(a) Anything in this Plan to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Corporation to or for the benefit of the Participant (whether paid or payable or
distributed or distributable pursuant to the terms of this Plan or otherwise,
but determined without regard to any additional payments required under this
Section 4.6) (a "Payment") would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the Participant
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Participant shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by the Participant
of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, the Participant retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions
of this Section 4.6, if it shall be determined that the Participant is entitled
to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount (the "Reduced Amount") that could be paid to the Participant such that
the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Participant and the Payments, in the aggregate,
shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 4.6(c), all
determinations required to be made under this Section 4.6, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by the Corporation's outside auditing firm or such other certified public
accounting firm as may be designated by the Participant (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Corporation and
the Participant within 15 business days of the receipt of notice from the
Participant that there has been a Payment, or such earlier time as is requested
by the Corporation. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control, the Participant shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Corporation. Any
Gross-Up Payment, as determined pursuant to this Section 4.6, shall be paid by
the Corporation to the Participant within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Corporation and the Participant. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Corporation should have
been made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Corporation exhausts its remedies pursuant to
Section 4.6(c) and the Participant thereafter is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Corporation to or for the benefit of the Participant.
(c) The Participant shall notify the Corporation in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Corporation of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Participant is informed in writing of such claim and shall apprise the
Corporation of the nature of such claim and the date on which such claim is
requested to be paid. The Participant shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to the Corporation (or such shorter period ending on the date that any payment
of taxes with respect to such claim is due). If the Corporation notifies the
Participant in writing prior to the expiration of such period that it desires to
contest such claim, the Participant shall:
(i) give the Corporation any information reasonably
requested by the Corporation relating to such claim,
(ii) take such action in connection with contesting
such claim as the Corporation shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by
an attorney reasonably selected by the Corporation,
(iii) cooperate with the Corporation in good faith in
order effectively to contest such claim, and
(iv) permit the Corporation to participate in any
proceedings relating to such claim;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Participant
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 4.6(c), the Corporation shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Participant to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Participant
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Corporation shall determine; provided, however, that if the
Corporation directs the Participant to pay such claim and sue for a refund, the
Corporation shall advance the amount of such payment to the Participant, on an
interest-free basis and shall indemnify and hold the Participant harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Participant with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Corporation's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Participant shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Participant of an amount
advanced by the Corporation pursuant to Section 4.6(c), the Participant becomes
entitled to receive any refund with respect to such claim, the Participant shall
(subject to the Corporation's complying with the requirements of Section 4.6(c))
promptly pay to the Corporation the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Participant of an amount advanced by the Corporation pursuant to
Section 4.6(c), a determination is made that the Participant shall not be
entitled to any refund with respect to such claim and the Corporation does not
notify the Participant in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
4.7 Payment Obligations Absolute.
Subject to Section 4.6, the obligations of the Corporation and
the Employers to pay the Separation Benefits described in Section 4.3 shall be
absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Corporation or any of its Subsidiaries may have against
any Participant. In no event shall a Participant be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to a Participant under any of the provisions of this Plan, nor shall the amount
of any payment hereunder be reduced by any compensation earned by a Participant
as a result of employment by another employer, except as specifically provided
in Section 4.3(c).
ARTICLE V
PARTICIPATING EMPLOYERS
This Plan may be adopted by any Subsidiary of the Corporation
if the Board of Directors of the Corporation approves such adoption. Upon such
adoption, the Subsidiary shall become an Employer hereunder and the provisions
of the Plan shall be fully applicable to the Employees of that Subsidiary who
are Participants.
ARTICLE VI
SUCCESSOR TO CORPORATION
This Plan shall bind any successor of the Corporation,
substantially all its assets or substantially all its businesses (whether direct
or indirect, by purchase, merger, consolidation or otherwise), in the same
manner and to the same extent that the Corporation would be obligated under this
Plan if no succession had taken place. In the case of any transaction in which a
successor would not by the foregoing provision or by operation of law be bound
by this Plan, the Corporation shall require such successor expressly and
unconditionally to assume and agree to perform the Corporation's obligations
under this Plan, in the same manner and to the same extent that the Corporation
would be required to perform if no such succession had taken place. The term
"Corporation," as used in this Plan, shall mean the Corporation as hereinbefore
defined and any successor or assignee to the business or assets which by reason
hereof becomes bound by this Plan.
ARTICLE VII
DURATION, AMENDMENT AND TERMINATION
7.1 Duration. If a Change of Control has not occurred, this
Plan shall expire five years from the Effective Date, unless extended for an
additional period or periods by resolution adopted by the Board.
If a Change of Control occurs, this Plan shall continue in
full force and effect and shall not terminate or expire until after all
Participants who become entitled to any payments hereunder shall have received
such payments in full and all adjustments required to be made pursuant to
Section 4.6 have been made.
7.2 Termination and Amendment. The Plan shall be subject to
amendment, change, substitution, deletion, revocation or termination
(collectively, "Amendment") by the Board of Directors of the Corporation at any
time prior to a Change of Control other than at the request of a third party who
has taken steps reasonably calculated to effect a Change of Control. After a
Change of Control, the Plan shall not be subject to Amendment in any respect
which adversely affects the rights of a Participant without the consent of that
Participant.
7.3 Form of Amendment. The form of any amendment of the Plan
shall be a written instrument signed by the Chief Executive Officer of the
Corporation. An amendment of the Plan in accordance with the terms hereof shall
automatically effect a corresponding amendment to all Participants' rights
hereunder.
ARTICLE VIII
MISCELLANEOUS
8.1 Indemnification. If after a Change of Control a
Participant institutes any legal action in seeking to obtain or enforce, or is
required to defend in any legal action the validity or enforceability of, any
right or benefit provided by this Plan, the Corporation or the Employer will pay
for all actual legal fees and expenses reasonably incurred (as incurred) by such
Participant, regardless of the outcome of such action. 8.2 Employment Status.
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change or not change the status of the
Participant's employment, or to change the Corporation's policies or those of
its Subsidiaries regarding termination of employment. 8.3 Claim Procedure. If a
Participant or former Participant makes a written request alleging a right to
receive benefits under this Plan or alleging a right to receive an adjustment in
benefits being paid under the Plan, the Corporation shall treat it as a claim
for benefit. All claims for benefit under the Plan shall be sent to the Human
Resources Department of the Corporation and must be received within 30 days
after termination of employment. If the Corporation determines that any
individual who has claimed a right to receive benefits, or different benefits,
under the Plan is not entitled to receive all or any part of the benefits
claimed, it will inform the claimant in writing of its determination and the
reasons therefor in terms calculated to be understood by the claimant. The
notice will be sent within 90 days of the claim unless the Corporation
determines additional time, not exceeding 90 days, is needed. The notice shall
make specific reference to the pertinent Plan provisions on which the denial is
based, and describe any additional material or information that is necessary.
Such notice shall, in addition, inform the claimant what procedure the claimant
should follow to take advantage of the review procedures set forth below in the
event the claimant desires to contest the denial of the claim. The claimant may
within 90 days thereafter submit in writing to the Corporation a notice that the
claimant contests the denial of his or her claim by the Corporation and desires
a further review. The Corporation shall within 60 days thereafter review the
claim and authorize the claimant to appear personally and review pertinent
documents and submit issues and comments relating to the claim to the persons
responsible for making the determination on behalf of the Corporation. The
Corporation will render its final decision with specific reasons therefor in
writing and will transmit it to the claimant within 60 days of the written
request for review, unless the Corporation determines additional time, not
exceeding 60 days, is needed. The Corporation shall be the named fiduciary with
respect to the Plan.
8.4 Validity and Severability. The invalidity or
unenforceability of any provision of the Plan shall not affect the validity or
enforceability of any other provision of the Plan, which shall remain in full
force and effect, and any prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
8.5 Governing Law. The validity, interpretation, construction
and performance of the Plan shall in all respects be governed by the laws of
Delaware, without reference to principles of conflict of law.
8.6 Gender; Plurals. Unless the context otherwise specifically
requires, the masculine shall include the feminine and the singular the plural
and vice versa.
<TABLE>
EXHIBIT 11.1
THE CHARLES SCHWAB CORPORATION
Computation of Earnings Per Share
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<CAPTION>
<S> <C> <C> <C> <C>
Net Income $ 76,525 $ 57,068 $ 207,222 $ 174,106
===============================================================================================================
Shares*
Primary:
Weighted-average number of common shares outstanding 264,295 261,453 263,503 260,737
Common stock equivalent shares related to option plans 8,706 7,929 8,461 8,128
- ---------------------------------------------------------------------------------------------------------------
Weighted-average number of common and
common equivalent shares outstanding 273,001 269,382 271,964 268,865
===============================================================================================================
Fully Diluted:
Weighted-average number of common shares outstanding 264,295 261,453 263,503 260,737
Common stock equivalent shares related to option plans 9,329 7,929 8,793 8,248
- ---------------------------------------------------------------------------------------------------------------
Weighted-average number of common and
common equivalent shares outstanding 273,624 269,382 272,296 268,985
===============================================================================================================
Primary/Fully Diluted Earnings Per Share* $ .28 $ .21 $ .76 $ .65
===============================================================================================================
* Reflects the three-for-two common stock split declared July 16, 1997, distributed September 15, 1997.
</TABLE>
EXHIBIT 12.1
<TABLE>
THE CHARLES SCHWAB CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<CAPTION>
<S> <C> <C> <C> <C>
Earnings before taxes on income $ 126,940 $ 96,497 $ 343,003 $ 294,866
- -----------------------------------------------------------------------------------------------------------------
Fixed charges
Interest expense - customer 125,665 93,818 350,474 267,024
Interest expense - other 16,673 13,704 48,120 40,659
Interest portion of rental expense 6,657 5,784 19,405 17,045
- -----------------------------------------------------------------------------------------------------------------
Total fixed charges (A) 148,995 113,306 417,999 324,728
- -----------------------------------------------------------------------------------------------------------------
Earnings before taxes on income and fixed charges (B) $ 275,935 $ 209,803 $ 761,002 $ 619,594
=================================================================================================================
Ratio of earnings to fixed charges (B) divided by (A)* 1.9 1.9 1.8 1.9
=================================================================================================================
Ratio of earnings to fixed charges as adjusted** 6.4 6.0 6.1 6.1
=================================================================================================================
* The ratio of earnings to fixed charges is calculated in a manner consistent with SEC requirements.
For such purposes, "earnings" consist of earnings before taxes on income and fixed charges.
"Fixed charges" consist of interest expense incurred on payables to customers, borrowings
and one-third of rental expense, which is estimated to be representative of the interest factor.
** Because interest expense incurred in connection with payables to customers is completely offset by
interest revenue on related investments and margin loans, the Company considers such interest to be
an operating expense. Accordingly, the ratio of earnings to fixed charges excluding customer interest
expense reflects the elimination of such interest expense as a fixed charge.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Income and Condensed Consolidated Balance
Sheet of the Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1997, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,751,824
<RECEIVABLES> 7,477,199
<SECURITIES-RESALE> 4,694,086
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 176,173
<PP&E> 335,754
<TOTAL-ASSETS> 15,631,483
<SHORT-TERM> 230,892
<PAYABLES> 13,547,923
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 319,980
0
0
<COMMON> 2,677
<OTHER-SE> 1,075,292
<TOTAL-LIABILITY-AND-EQUITY> 15,631,483
<TRADING-REVENUE> 193,985
<INTEREST-DIVIDENDS> 651,815
<COMMISSIONS> 858,994
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 308,677
<INTEREST-EXPENSE> 398,594
<COMPENSATION> 700,061
<INCOME-PRETAX> 343,003
<INCOME-PRE-EXTRAORDINARY> 207,222
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 207,222
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
