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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ____________ to ____________ .
Commission file number 0-17111
PHOENIX TECHNOLOGIES LTD.
---------------------------
(Exact name of Registrant as specified in its charter)
Delaware 04-2685985
------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or organization)
2770 De La Cruz Boulevard, Santa Clara, California 95050
--------------------------------------------------------
(Address of principal executive offices, including zip code)
(408) 654-9000
--------------
(Registrant's telephone number, including area code)
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.
Common Stock, par value $.001 15,369,352
----------------------------- -------------------------------
Class Number of shares Outstanding at
July 31, 1996
Exhibit Index is on Page 12
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PHOENIX TECHNOLOGIES LTD.
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1996 and September 30, 1995...................3
Condensed Consolidated Income Statements
Three and Nine Months Ended June 30, 1996 and 1995.....4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1996 and 1995...............5
Notes to Condensed Consolidated Financial Statements...6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........8
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K.......................10
A. Exhibits..........................................10
B. Report on Form 8-K................................10
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
June 30, September 30,
1996 1995
----------- -------------
ASSETS (unaudited)
Current assets:
Cash and short-term investments $ 50,500 $ 32,944
Accounts receivable, net of allowances of
$481 at June 30, 1996 and $430 at
September 30, 1995 12,295 12,064
Other current assets 3,504 3,690
--------- ---------
Total current assets 66,299 48,698
Property and equipment, net 4,142 2,625
Computer software costs, net 4,064 3,823
Non-current deferred tax asset 2,195 2,195
Other assets 4,157 5,049
--------- ---------
Total assets $ 80,857 $ 62,390
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,726 $ 1,645
Payroll related liabilities 2,374 2,536
Other accrued liabilities 4,087 4,956
Income taxes payable 3,352 2,765
--------- ---------
Total current liabilities 11,539 11,902
Other liabilities 98 70
Stockholders' equity:
Preferred stock, $0.10 par value,
500,000 shares authorized, none issued --- ---
Common stock, $0.001 par value, 20,000,000
shares authorized, 15,366,352 issued and
outstanding at June 30, 1996 and
13,927,801 at September 30, 1995 15 14
Additional paid-in capital 66,952 53,710
Retained earnings (Accumulated deficit) 2,512 (3,232)
Accumulated translation adjustment (259) (74)
--------- ---------
Total stockholders' equity 69,220 50,418
--------- ---------
Total liabilities and stockholders'
equity $ 80,857 $ 62,390
--------- ---------
--------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
Revenues:
License fees $15,295 $11,658 $41,822 $31,889
Services 2,560 1,662 7,182 4,754
------- ------- ------- -------
Total revenue 17,855 13,320 49,004 36,643
Cost of revenues:
License fees 1,508 770 4,753 2,528
Services 1,986 1,671 5,604 4,352
------- ------- ------- -------
Total cost of revenue 3,494 2,441 10,357 6,880
------- ------- ------- -------
Gross margin 14,361 10,879 38,647 29,763
Operating expenses:
Research and development 4,936 2,646 12,100 8,005
Sales and marketing 3,765 3,665 10,461 10,645
General and administrative 2,394 2,178 7,228 5,001
------- ------- ------- -------
Total operating expenses 11,095 8,489 29,789 23,651
------- ------- ------- -------
Income from operations 3,266 2,390 8,858 6,112
Interest income, net 540 436 1,526 1,182
Other income (expense), net (13) 74 (230) 326
------- ------- ------- -------
Income before income taxes 3,793 2,900 10,154 7,620
Provision for income taxes 1,146 870 2,996 2,283
------- ------- ------- -------
Net income $ 2,647 $ 2,030 $ 7,158 $ 5,337
------- ------- ------- -------
------- ------- ------- -------
Net income per share $ 0.16 $ 0.13 $ 0.45 $ 0.36
------- ------- ------- -------
------- ------- ------- -------
Shares used in computation 16,844 15,103 16,016 14,925
------- ------- ------- -------
------- ------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
Page 4
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PHOENIX TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
June 30,
---------------------
1996 1995
-------- --------
Cash flows from operating activities:
Net income $ 7,158 $ 5,337
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 3,612 2,352
Provision for relocation -- (1,664)
Equity interest in subsidiary 170 (295)
Change in operating assets and
liabilities:
Accounts receivable (231) (1,504)
Other current assets and other
assets 230 2,637
Accounts payable 80 (2,098)
Payroll related liabilities (162) 1,283
Other accrued liabilities (1,025) (1,822)
Income taxes payable 587 (1,452)
Decrease in net liabilities
of discontinued operations -- (3,861)
-------- --------
Total adjustments 3,261 (6,424)
-------- --------
Net cash provided by (used in)
operating activities 10,419 (1,087)
Cash flows from investing activities:
Maturities of short-term investments 18,448 39,158
Purchases of short-term investments (34,870) (37,078)
Purchases of property and equipment (2,820) (995)
Additions to computer software costs (1,871) (1,346)
-------- --------
Net cash used in investing
activities (21,113) (261)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock
and warrant 10,422 --
Proceeds from exercise of common stock
options and issuance of stock under
employee stock purchase plan 3,410 2,340
Purchase of treasury stock (2,004) (2,222)
Repayment of loans and notes payable -- (12)
-------- --------
Net cash provided by
financing activities 11,828 106
-------- --------
Increase(decrease) in cash and cash equivalents 1,134 (1,242)
Cash and cash equivalents at beginning of period 25,797 29,519
-------- --------
Cash and cash equivalents at end of period $ 26,931 $ 28,277
-------- --------
-------- --------
Supplemental Cash Flow Information:
Cash paid for income taxes $ 2,571 $ 3,218
-------- --------
-------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
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PHOENIX TECHNOLOGIES LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Phoenix Technologies Ltd. (the "Company") designs and develops system-level
and application software products and markets them to PC and motherboard
manufacturers and integrators world-wide.
The accompanying condensed consolidated financial statements of Phoenix
Technologies Ltd. and its wholly owned subsidiaries have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The information included in this report should be read in
conjunction with the Company's audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
September 30, 1995.
In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) necessary to summarize fairly the Company's
financial position at June 30, 1996, and September 30, 1995, and the results of
operations for the three and nine month periods ended June 30, 1996 and 1995.
All significant intercompany accounts and transactions have been eliminated.
The operating results for the three and nine month periods ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending September 30, 1996 or for any other future period.
Certain amounts in the fiscal 1995 financial statements have been
reclassified to conform to the fiscal 1996 presentation. These
reclassifications had no effect on net income or earnings per share for 1995.
2. Cash and Short-term Investments
Cash and short-term investments consist of the following (in thousands):
June 30, September 30,
1996 1995
----------- -----------
Cash and cash equivalents $ 26,931 $ 25,797
Short-term investments 23,569 7,147
----------- -----------
$ 50,500 $ 32,944
----------- -----------
----------- -----------
Investments in certain highly liquid securities with maturities of less
than ninety days are considered cash equivalents. Investment securities consist
of U.S government and agency obligations, bankers' acceptances, and commercial
paper with original maturities generally ranging from three months to one year.
The Company classifies its investment securities as held-to-maturity because, as
provided in Statement No. 115, it has the ability and intent to hold them until
maturity. Such securities are reported at amortized cost.
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3. Net Income Per Share
Net income per share is computed using the weighted average number of
common and dilutive common stock equivalents outstanding. Dilutive common stock
equivalents include outstanding stock options and warrants using the treasury
stock method.
4. Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments with
high credit qualified financial institutions. The Company does not require
collateral for trade receivables, but related credit risk is limited due to the
Company's large number of customers and their geographic dispersion. As of June
30, 1996 one customer accounted for approximately 14% of total accounts
receivable. At September 30, 1995, no customer accounted for 10% or more of
accounts receivable.
5. Income Taxes
The Company uses the asset and liability method to account for income
taxes. Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
basis. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits of which future realization is
uncertain.
6. Stock Options
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" was issued in October 1995 and applies to fiscal years
beginning after December 15, 1995. While the Company is studying the impact of
the pronouncement, it continues to account for employee stock options under APB
Opinion No. 25, "Accounting for Stock Issued to Employees."
7. Subsequent Event
On July 17, 1996, the Company entered into a definitive agreement to acquire all
of the outstanding common stock of Virtual Chips, Inc., a leading supplier of
synthesizable cores for PC and computer industry standards in exchange for
approximately 1,390,000 shares of newly issued common stock. The transaction
will be accounted for as a pooling of interest. The agreement is subject to the
approval of Virtual Chips' stockholders. If the transaction is consummated, the
financial statements of the Company will be restated to reflect the results of
operation and financial position for Virtual Chips for all prior periods
presented.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
On July 17, 1996, the Company entered into a definitive agreement to acquire
all of the outstanding common stock of Virtual Chips, Inc., a leading
supplier of synthesizable cores for PC and computer industry standards in
exchange for approximately 1,390,000 shares of newly issued common stock. The
transaction will be accounted for as a pooling of interest. Such exchange
will be effected through a merger of a wholly-owned subsidiary of the Company
into Virtual Chips. The agreement is subject to the approval of Virtual
Chips' stockholders. This merger is expected to expand the Company's
business and contribute to growth in revenue in the area of interconnects for
microprocessor and peripherals.
REVENUE Revenue for the three and nine month periods ended June 30, 1996
increased by $4.5 million and $12.4 million (34%), respectively, from the same
periods a year ago. The increase resulted primarily from an increase in royalty
revenue from the Company's expanding customer base as well as additional sales
to existing customers. Revenue increased in all geographic areas. The
composition of revenues changed slightly, as there was a shift from License
revenues to service revenues of approximately 2% for the three and nine month
periods ended June 30, 1996 as compared to the same periods a year ago. For the
three and nine month periods ended June 30, 1996 one customer accounted for
approximately 16% and 11% of total revenues. For the three and nine month
periods ended June 30, 1995 no customer accounted for 10% or more of total
revenues.
GROSS MARGIN Gross margin as a percent of revenue for the three and nine month
periods ended June 30, 1996 decreased to 80% and 79% of net revenues,
respectively, as compared to 82% and 81% for the comparable periods a year ago
primarily due to increases in royalty expense and amortization of capitalized
computer software costs. License fees gross margin for the three and nine month
periods ended June 30, 1996 decreased to 90% and 89%, respectively, as compared
to 93% and 92% for the comparable periods a year ago whereas service gross
margin increased to 22% for the three and nine month periods ended June 30,
1996 as compared to no margin and 9% for the same periods a year ago. The
increase in service gross margin is attributable to a decrease in costs
associated with non recurring engineering fees.
RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses for the
three and nine month periods ended June 30, 1996 increased by $2.3 million (87%)
and $4.1 million (51%), respectively, from the same periods a year ago. The
increase in research and development expenses is primarily due to an increase in
the Company's engineering staff to continue development of system-level
software.
The Company capitalized approximately $0.7 million and $1.9 million of
internally developed software costs for the three and nine month periods ended
June 30, 1996, respectively, as compared to $0.5 million and $1.1 million for
the same periods a year ago. Such amounts were offset by amortization of
capitalized software costs of $0.6 million and $2 million for the three and nine
month periods ended June 30, 1996, respectively, as compared to $0.5 million and
$0.9 million for the same periods a year ago. The Company believes that
continued investment in new and evolving technologies is essential to meet
rapidly changing industry requirements.
SALES AND MARKETING EXPENSES Sales and marketing expenses for the three month
period increased only slightly by $0.1 million (3%) but decreased $0.2 million
(2%) for the nine month period ended June 30, 1996 from the same periods a year
ago. The decrease for the nine month period ended June 30, 1996 resulted
primarily from the discontinuance in fiscal 1996 of advertising expenses related
to products marketed through the retail channel. The Company discontinued
retail distribution in the second half of
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fiscal 1995. The decrease in advertising expenses from the prior year was
partially offset by additional commissions paid on increased revenue in the
current year.
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for the
three and nine month periods ended June 30, 1996 increased by $0.2 million (10%)
and $2.2 million (45%), respectively, from the same periods a year ago. The
increase resulted primarily from increased salaries and related benefits
associated with headcount growth and increased recruiting and relocation costs
associated primarily with increased engineering headcount.
PROVISION FOR INCOME TAXES The Company recorded income tax provisions of $1.1
million and $3 million for the three and nine months ended June 30, 1996,
respectively, as compared to $0.9 million and $2.3 million for the same periods
in the prior year. The fiscal 1996 provision reflects an estimated annualized
effective tax rate of 29%. The effective tax rate for fiscal year 1995 was
adjusted in the fourth quarter to 26% (before adjustment to the deferred tax
asset valuation allowance). The higher tax rate in fiscal 1996 is due to the
increase in net income and the utilization of certain tax credits.
LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company's primary sources
of liquidity included cash, cash equivalents and short-term investments of $50.5
million and available borrowings under a bank credit facility of $10 million.
There were no borrowings outstanding under the bank credit facility at June 30,
1996. The Company believes that its existing sources of liquidity will be
sufficient to satisfy the Company's cash requirements for at least the next
twelve months.
CHANGES IN FINANCIAL CONDITION Net cash generated from operating activities
during the nine month period ending June 30, 1996 was $10.4 million, resulting
primarily from cash provided by net income, adjusted for non-cash increases in
depreciation and amortization, equity interest in a subsidiary, an increase in
accounts payable, accrued income taxes and a decrease in other assets. This
increase was partially offset by increases in accounts receivable and decreases
in accrued payroll and other accrued liabilities. Net cash used in investing
activities during the nine month period ending June 30, 1996 was $21.1 million
which consisted primarily of purchases of short-term investments of $34.9
million, purchases of property and equipment of $2.8 million, and additions to
computer software costs of $1.9 million for use in the Company's operations and
was partially offset by maturities of short-term investments of $18.4 million.
Cash generated from financing activities during the nine month period ending
June 30, 1996 was $11.8 million resulting from the issuance of common stock and
a warrant to Intel Corporation for $10.4 million and the exercise of common
stock options and issuance of stock under the Company's employee stock purchase
plan of $3.4 million, partially offset by $2 million of purchases of treasury
stock.
The Company announced a major technology and license agreement with Intel
Corporation during the first fiscal quarter of 1996. In the second quarter of
1996, Intel purchased, for $10.4 million, 894,971 newly issued, unregistered
shares of Phoenix's common stock, representing 6% of post-transaction shares and
a warrant to buy 1,073,965 additional shares of Phoenix common stock which vests
with an escalating exercise price over four years.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K.
(a) EXHIBITS
See exhibit index beginning on page 12 hereof.
(b) REPORT ON FORM 8-K
No reports on Form 8-K were filed by the Company during
the quarter ended June 30, 1996.
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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.
PHOENIX TECHNOLOGIES LTD.
Date: August 13, 1996 By: /s/ Robert J. Riopel
----------------------
Robert J. Riopel
Vice President, Finance and
Chief Financial Officer
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EXHIBIT INDEX
-------------
Exhibit
- -------
2.1 Agreement and Plan of Reorganization by and among Phoenix
Technologies Ltd., Spud Acquisition Corporation and Virtual Chips,
Inc. dated as of July 16, 1996. (Due to a computer program conversion
error, the number of the paragraphs in the body of this document is
in "Roman numeral.Arabic numeral" format, rather than completely in
Arabic numerals (e.g., paragraph 2.2 is indicated as II.2). The
Roman numeral used is equivalent to the Arabic numeral which appears
in the actual signed agreement.)
4.3 Rights Agreement dated as of October 31, 1989 between the Company
and The First National Bank of Boston - filed as Exhibit 4.1 to the
October 31, 1989 Form 8-K, and incorporated herein by this reference.
10.1 1986 Incentive Stock Option Plan, as amended - filed as Exhibit 4.1
to the Company's Registration Statement on Form S-8, Registration
No. 33-30940, and incorporated herein by this reference.
10.2 Senior Management Stock Option Plan, as amended - filed as Exhibit
4.2 to the Company's Registration Statement on Form S-8,
Registration No. 33-26996 (the "February 1989 Form S-8"), and
incorporated herein by this reference.
10.3 Senior Management Nonqualified Stock Option Plan, as amended - filed
as Exhibit 4.3 to the February 1989 Form S-8 and incorporated herein
by this reference.
10.4 Employment agreement dated June 9, 1994 between the Registrant and
Jack Kay - filed as Exhibit 10.9 to the Company's Quarterly Report
on Form 10-Q filed on August 15, 1994 and incorporated herein by
this reference.
10.5 1992 Equity Incentive Plan - filed with the Company's preliminary
proxy materials filed on December 17, 1992 (the "1992 Equity
Incentive Plan") and incorporated herein by this reference.
10.6 Replication Agreement dated March 15, 1993 between the Company and
Microsoft Corporation and Amendments One, Two, Three and Four
thereto, filed as Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993 and
incorporated herein by this reference.
10.7 Purchase Agreement dated March 15, 1994 between the Company and
Softbank Corporation filed as Exhibit 10.18 to the Company's Form
10-Q filed May 16, 1994 and incorporated herein by this reference.
10.8 Amendment Number 1 to the 1992 Equity Incentive Plan filed as
Exhibit 10.19 to the Company's Form 10-Q filed May 16, 1994 and
incorporated herein by this reference.
10.9 Amendment No. 1 to Purchase Agreement by and between Phoenix
Technologies Ltd. and Softbank Corporation dated as of March 15,
1994 - filed as Exhibit 2.02 to the Company's Current Report on Form
8-K dated September 30, 1994 and incorporated herein by this
reference.
10.10 Asset Purchase Agreement made as of September 30, 1994 by and
between the Registrant and Xionics International Holdings, Inc. -
filed as Exhibit 2.01 to the Company's Current Report on Form 8-K
dated November 8, 1994 and incorporated herein by this reference.
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10.11 Lease dated as of May 3, 1994 between the Company and the Equitable
life Assurance Society of the United States - filed as Exhibit 10.24
to the Company's Report on Form 10-K for the fiscal year ended
September 30, 1994 - filed as Exhibit 10.16 to the Company's Report
on Form 10-K for the fiscal year ended September 30, 1995 (the "1995
10-K") and incorporated herein by this reference.
10.12 1994 Equity Incentive Plan, as amended by the Board of Directors
through September 28, 1995 and as approved by stockholders on
February 29, 1996 - filed as Exhibit 10.17 to the 1995 10-K and
incorporated herein by this reference.
10.13 1991 Employee Stock Purchase Plan, as amended by the Board of
Directors through December 6, 1995 and as approved by stockholders
on February 29, 1996 - filed as Exhibit 4.10 to the Company's
registration statement on Form S-8 filed with the Commission on May
2, 1996 and incorporated herein by this reference.
10.14 Employment offer letter between the Company and Gayn B. Winters -
filed as Exhibit 10.19 to the 1995 10-K and incorporated herein by
this reference.
10.15 Amended and Restated Lease Agreement dated March 15, 1995 between
The Prudential Insurance Company of America and the Company with
respect to certain facilities located at 846 University Avenue,
Norwood, MA -filed as Exhibit 10.23 to the 1995 10-K and
incorporated herein by this reference.
10.16 Agreement dated December 18, 1995 between Intel Corporation and the
Company filed as Exhibit 10.24 to the Company's Form 10-Q for the
quarter ended December 31, 1995 (the "December 1995 10-Q") and
incorporated herein by this reference. Portions have been omitted
and filed separately with the Commission pursuant to a request for
confidential treatment.
10.17 Common Stock and Warrant Purchase Agreement dated as of December 18,
1995 by and between the Company and Intel Corporation, filed as
Exhibit 10.25 to the December 1995 10-Q and incorporated herein by
this reference.
10.18 Warrant to Purchase Shares of Common Stock of the Company dated
February 15, 1996, filed as Exhibit 2 to the Schedule 13D of Intel
Corporation dated February 23, 1996 with respect to its purchase by
Intel of shares of the Company's common stock and of a warrant to
purchase shares of the Company's common stock (the "Intel Schedule
13D") and incorporated herein by this reference.
10.19 Investor Rights Agreement, dated December 18, 1995, between the
Company and Intel Corporation, filed as Exhibit 3 to the Intel
Schedule 13D and incorporated herein by this reference.
10.20 Standard Industrial Lease - Full Net between The Equitable Life
Assurance Society of the United States as Landlord and Phoenix
Technologies Ltd. as Tenant dated as of May 15, 1996.
27 Financial Data Schedule
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EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PHOENIX TECHNOLOGIES LTD.
SPUD ACQUISITION CORP.
AND
VIRTUAL CHIPS, INC.
DATED AS OF JULY 16, 1996
<PAGE>
INDEX OF EXHIBITS
Exhibit Description
- ------- -----------
Exhibit A Affiliate Shareholders
Exhibit B Form of Company Affiliate Agreement
Exhibit C Form of Parent Affiliate Agreement
Exhibit D Declaration of Registration Rights
Exhibit E Form of Voting Agreement
Exhibit F Form of Noncompetition Agreement
Exhibit G Form of Independent Contractor Agreement
Exhibit H Form of SGC Comsoft - Virtual Chips, Inc. Independent
Contractor Agreement
Exhibit I Form of Legal Opinion of Counsel to the Company
Exhibit J Form of Agreement of Merger
Exhibit K Form of Legal Opinion of Counsel to Parent
<PAGE>
INDEX OF SCHEDULES
Schedule Description
- -------- -----------
2.1 Organization of the Company
2.2(a) Shareholder List
2.2(b) Option List
2.4 Governmental and Third Party Consents
2.6 Undisclosed Liabilities
2.7 Changes
2.8 Tax Returns and Audits
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(a) Intellectual Property
2.11(b) Intellectual Property Licenses
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches
2.13 Interested Party Transactions
2.15 Litigation
2.19 Brokers/Finders Fees; Third Party Expenses
2.20(b) Employee Benefit Plans and Employee Agreements
2.20(g) Post Employment Obligations
2.20(h)(i) Effect of Transaction
2.21 Company Affiliates
3.7 Parent Affiliates
4.1 Conduct of the Business
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I - THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Articles of Incorporation; Bylaws. . . . . . . . . . . . . . . . . . 2
1.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Effect on Capital Stock. . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.8 Surrender of Certificates. . . . . . . . . . . . . . . . . . . . . . 6
1.9 No Further Ownership Rights in Company Common Stock. . . . . . . . . 8
1.10 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . 8
1.11 Tax and Accounting Consequences. . . . . . . . . . . . . . . . . . . 8
1.12 Taking of Necessary Action; Further Action . . . . . . . . . . . . . 8
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE
AFFILIATE SHAREHOLDERS AND THE COMPANY . . . . . . . . . . . . . . . . . . 9
2.1 Organization of the Company. . . . . . . . . . . . . . . . . . . . . 9
2.2 Company Capital Structure. . . . . . . . . . . . . . . . . . . . . . 9
-i-
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2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.4 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.5 Company Financial Statements . . . . . . . . . . . . . . . . . . . .11
2.6 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . .11
2.7 No Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2.8 Tax and Other Returns and Reports. . . . . . . . . . . . . . . . . .13
2.9 Restrictions on Business Activities. . . . . . . . . . . . . . . . .15
2.10 Title to Properties; Absence of Liens and Encumbrances . . . . . . .15
2.11 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . .15
2.12 Agreements, Contracts and Commitments. . . . . . . . . . . . . . . .17
2.13 Interested Party Transactions. . . . . . . . . . . . . . . . . . . .18
2.14 Compliance with Laws.. . . . . . . . . . . . . . . . . . . . . . . .18
2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
2.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
2.17 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
2.18 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . .19
2.19 Brokers' and Finders' Fees; Third Party Expenses . . . . . . . . . .20
2.20 Employee Matters and Benefit Plans . . . . . . . . . . . . . . . . .20
2.21 Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . . .23
2.22 Representations Complete . . . . . . . . . . . . . . . . . . . . . .23
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
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3.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . .24
3.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
3.3 Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . . .24
3.4 SEC Documents; Parent Financial Statements . . . . . . . . . . . . .25
3.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . .25
3.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
3.7 Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . . .25
ARTICLE IV - CONDUCT PRIOR TO THE EFFECTIVE TIME. . . . . . . . . . . . . .25
4.1 Conduct of Business of the Company . . . . . . . . . . . . . . . . .26
ARTICLE V - ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . .28
5.1 Securities Act Exemption . . . . . . . . . . . . . . . . . . . . . .28
5.2 Stock Restrictions . . . . . . . . . . . . . . . . . . . . . . . . .28
5.3 Shareholders' Representations Regarding Securities Law Matters . . .29
5.4 Registration on Form S-3 . . . . . . . . . . . . . . . . . . . . . .29
5.5 Access to Information. . . . . . . . . . . . . . . . . . . . . . . .29
5.6 Conversion of Outstanding Series A Preferred; Amendment of
Articles of Incorporation . . . . . . . . . . . . . . . . . . . . .30
5.7 Public Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . .30
5.8 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . .30
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5.9 Notification of Certain Matters. . . . . . . . . . . . . . . . . . .30
5.10 Pooling Accounting . . . . . . . . . . . . . . . . . . . . . . . . .30
5.11 Additional Documents and Further Assurances. . . . . . . . . . . . .31
5.12 Form S-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
5.13 Nasdaq National Market Listing . . . . . . . . . . . . . . . . . . .31
5.14 Voting Agreements. . . . . . . . . . . . . . . . . . . . . . . . . .31
5.15 Blue Sky Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . .31
5.16 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . .31
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ARTICLE VI - DOCUMENTS TO BE DELIVERED . . . . . . . . . . . . . . . . . .32
6.1 Documents to be Delivered by the Company Upon
Execution of This Agreement . . . . . . . . . . . . . . . . . . . .32
6.2 Documents to Be Delivered by the Company at Closing. . . . . . . . .32
6.3 Documents to be Delivered by the Parent and Merger Sub
Upon Execution of This Agreement. . . . . . . . . . . . . . . . . .33
6.4 Documents to be Delivered by the Parent and Merger Sub
at Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VII - CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . .33
7.1 Conditions to Obligations of Each Party to Effect the Merger . . . .33
7.2 Additional Conditions to Obligations of the Company. . . . . . . . .34
7.3 Additional Conditions to the Obligations of Parent
and Merger Sub. . . . . . . . . . . . . . . . . . . . . . . . . . .34
ARTICLE VIII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW . . . . .35
8.1 Survival of Representations and Warranties . . . . . . . . . . . . .35
8.2 Escrow Arrangements. . . . . . . . . . . . . . . . . . . . . . . . .37
ARTICLE IX - LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . . . .45
9.1 Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
9.2 Settlement and General Release . . . . . . . . . . . . . . . . . . .45
ARTICLE X - TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . .46
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10.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
10.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . .47
10.3 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
10.4 Extension; Waiver. . . . . . . . . . . . . . . . . . . . . . . . . .47
ARTICLE XI - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . .47
11.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
11.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
11.3 Representation of Company Only by Pillsbury Madison &
Sutro LLP and Waiver as to Future Representation
of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .49
11.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . .49
11.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
11.6 Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . .49
11.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
11.8 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . .50
11.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .50
11.10 Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . .50
11.11 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . .50
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of July 16, 1996 by and among Phoenix Technologies Ltd., a
Delaware corporation ("PARENT"); Spud Acquisition Corp., a California
corporation and a wholly-owned subsidiary of Parent ("MERGER SUB"); Virtual
Chips, Inc., a California corporation (the "COMPANY"); Rajan Raghavan as
Securityholder Agent; Chemical Trust Company of California as Escrow Agent;
for purposes of Article II, certain shareholders of the Company listed on
EXHIBIT A (the "Affiliate Shareholders"); and for purposes of Articles III,
Sections 5.1, 5.2, 5.3, 5.8, 5.11, 7.2 Articles VIII, IX, X and XI the
shareholders of the Company who are signatories hereto, including the
AFFILIATE SHAREHOLDERS (the "Shareholders").
RECITALS
A. The Boards of Directors of each of the Company, Parent and
Merger Sub believe it is in the best interests of each company and their
respective shareholders and stockholders that Parent acquire the Company
through the statutory merger of Merger Sub with and into the Company (the
"MERGER") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding
shares of capital stock of the Company ("COMPANY CAPITAL STOCK") and all
outstanding options, warrants and other rights to acquire or receive shares
of Company Capital Stock shall be converted into the right to receive shares
of Common Stock of Parent ("PARENT COMMON STOCK").
C. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and
conditions, all as set forth in Article VIII hereof.
D. The Company, Parent, Merger Sub, the Affiliate Shareholders and the
Shareholders desire to make certain representations and warranties and other
agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby the parties agree as
follows:
<PAGE>
ARTICLE I
THE MERGER
I.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California General Corporation Law ("California
Law"), Merger Sub shall be merged with and into the Company, the separate
corporate existence of Merger Sub shall cease and the Company shall continue
as the surviving corporation and as a wholly-owned subsidiary of Parent. The
Company as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "SURVIVING CORPORATION".
I.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated pursuant
to Section 10.1, the closing of the Merger (the "CLOSING") will take place
as promptly as practicable, but no later than five (5) business days,
following satisfaction or waiver of the conditions set forth in Article VII,
at the offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, California, unless another place or time is agreed to by Parent
and the Company. The date upon which the Closing actually occurs is herein
referred to as the "CLOSING DATE". On the Closing Date, the parties hereto
shall cause the Merger to be consummated by filing an Agreement of Merger (or
like instrument) with the Secretary of State of the State of California (the
"AGREEMENT OF MERGER"), in accordance with the relevant provisions of
applicable law (the time of acceptance by the Secretary of State of
California of such filing being referred to herein as the "EFFECTIVE TIME").
I.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of California Law.
Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger
Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
I.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Articles of Incorporation of Merger Sub
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Articles of Incorporation;
provided, however, that Article I of the Articles of Incorporation of the
Surviving Corporation shall be amended to read as follows: "The name of the
corporation is Virtual Chips, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
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I.5 DIRECTORS AND OFFICERS. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of
Merger Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, each to hold office in accordance with
the Bylaws of the Surviving Corporation.
I.6 EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of this
Agreement, as of the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, the Company or the holder of any shares of
the Company Capital Stock, the following shall occur:
(a) AGGREGATE SHARES OF PARENT COMMON STOCK. The aggregate number
of shares of Parent Common Stock to be issued in connection with the
transaction contemplated by this Agreement (the "Aggregate Shares of Parent
Common Stock") shall be 1,389,831, based upon a price of $17.70 per share of
Parent Common Stock (the "Parent Price Per Share").
(b) CONVERSION OF COMPANY COMMON STOCK. Each share of Common Stock
of the Company ("COMPANY COMMON STOCK"), including all shares of Common Stock
issued and outstanding as a result of the conversion of the Series A
Preferred Stock of the Company ("Series A Preferred") immediately prior to
the Effective Time as contemplated by Section 5.6 below, issued and
outstanding immediately prior to the Effective Time (other than any shares of
Company Capital Stock to be canceled pursuant to Section 1.6(c) and any
Dissenting Shares (as defined and to the extent provided in Section 1.7(a)),
will be canceled and extinguished and will be converted automatically into
the right to receive 0.13165 shares of Parent Common Stock, together with a
right to purchase (in respect of each whole share of Parent Common Stock)
1/100 of a share of Series A Junior Participating Preferred Stock of Parent
pursuant to the Rights Agreement dated October 31, 1989 between Parent and
The First National Bank of Boston (the "Common Exchange Ratio").
Of the total shares of Parent Common Stock issued pursuant to this Section
1.6(b), ten percent (10%) shall be subject to the Escrow pursuant to Article
VIII below (with fractional shares as to any Shareholder to be rounded down
to a whole share) (the "Escrow Amount").
(c) CANCELLATION OF PARENT-OWNED AND COMPANY-OWNED STOCK. Each
share of Company Capital Stock owned by Merger Sub, Parent, the Company or
any direct or indirect wholly-owned subsidiary of Parent or of the Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(d) STOCK OPTIONS. At the Effective Time, all options and stock
purchase rights to purchase Company Common Stock (each a "Company Option")
then outstanding under the Company's 1994 Stock Option Plan (the "OPTION
PLAN"), or otherwise, shall be assumed by Parent in accordance with
provisions described below.
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(i) Each Company Option so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Option Plan and/or as provided in the respective
option agreements governing such Company Option immediately prior to the
Effective Time, except that (A) such Company Option shall be exercisable for
that number of whole shares of Parent Common Stock equal to the product of
the number of shares of Company Common Stock that were issuable upon exercise
of such Company Option immediately prior to the Effective Time multiplied by
the Common Exchange Ratio, rounded down to the nearest whole number of shares
of Parent Common Stock and (B) the per share exercise price for the shares of
Parent Common Stock issuable upon exercise of such assumed Company Option
shall be equal to the quotient determined by dividing the exercise price per
share of Company Common Stock at which such Company Option was exercisable
immediately prior to the Effective Time by the Common Exchange Ratio, rounded
up to the nearest whole cent.
(ii) It is the intention of the parties that the Company
Options assumed by Parent qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), to the extent the Company Options qualified as
incentive stock options immediately prior to the Effective Time.
(iii) Promptly following the Effective Time, Parent will issue
to each holder of an outstanding Company Option a document evidencing the
foregoing assumption of such Company Option by Parent.
(iv) At the Effective Time, the Company shall assign to Parent
any and all rights of repurchase pertaining to shares of Company Common Stock
issued upon exercise of stock options, pursuant to stock purchase agreements,
or otherwise.
(e) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock of
Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of the
Surviving Corporation.
(f) ADJUSTMENTS TO EXCHANGE RATIOS. The Common Exchange Ratio shall
be adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Capital Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock or Company Capital Stock occurring after the date hereof and
prior to the Effective Time, other than the conversion of the Series A
Preferred into Company Common Stock prior to the Effective Time.
(g) FRACTIONAL SHARES. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof, each holder of shares of Company
Capital Stock who would otherwise be entitled to a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of
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Parent Common Stock to be received by such holder) shall be entitled to
receive from Parent an amount of cash (rounded to the nearest whole cent)
equal to the product of (i) such fraction, multiplied by (ii) the Parent
Price Per Share.
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I.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Capital Stock held by a holder who has demanded and
perfected dissenters' rights for such shares in accordance with California
Law and who, as of the Effective Time, has not effectively withdrawn or lost
such dissenters' rights ("DISSENTING SHARES"), shall not be converted into or
represent a right to receive Parent Common Stock pursuant to Section 1.6, but
the holder thereof shall only be entitled to such rights as are granted by
California Law.
(b) Notwithstanding the provisions of subsection (a), if any holder
of shares of Company Capital Stock who demands appraisal of such shares under
California Law shall effectively withdraw or lose (through failure to perfect
or otherwise) the right to appraisal, then, as of the later of the Effective
Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive
Parent Common Stock and fractional shares as provided in Section 1.6, without
interest thereon, upon surrender of the certificate representing such shares
of Company Capital Stock.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Capital Stock, withdrawals of
such demands, and any other instruments served pursuant to California Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under
California Law. The Company shall not, except with the prior written consent
of Parent, voluntarily make any payment with respect to any demands for
appraisal of Company Capital Stock or offer to settle or settle any such
demands.
I.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Parent shall act as exchange agent (the
"EXCHANGE AGENT") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I, the aggregate number of shares of Parent
Common Stock issued pursuant to Section 1.6 in exchange for outstanding
shares of Company Capital Stock; provided that, on behalf of the holders of
Company Capital Stock, Parent shall deposit into an escrow account a number
of shares of Parent Common Stock equal to the Escrow Amount out of the
aggregate number of shares of Parent Common Stock otherwise issuable pursuant
to Section 1.6. The portion of the Escrow Amount contributed on behalf of
each holder of Company Capital Stock shall be in proportion to the aggregate
number of shares of Parent Common Stock which such holder would otherwise be
entitled to receive under Section 1.6 by virtue of ownership of outstanding
shares of Company Capital Stock immediately prior to the Effective Time.
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(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "CERTIFICATES") which immediately prior to
the Effective Time represented outstanding shares of Company Capital Stock
whose shares were converted into the right to receive shares of Parent Common
Stock pursuant to Section 1.6, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of Parent Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holder
of such Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Common Stock
(less the number of shares of Parent Common Stock, if any, to be deposited in
the Escrow Fund (as defined in Section 8.2) on such holder's behalf pursuant
to Article VIII hereof), plus cash in lieu of fractional shares in accordance
with Section 1.6, to which such holder is entitled pursuant to Section 1.6,
and the Certificate so surrendered shall forthwith be canceled. As soon as
practicable after the Effective Time, and subject to and in accordance with
the provisions of Article VIII hereof, Parent shall cause to be distributed
to the Escrow Agent (as defined in Article VIII) a certificate or
certificates representing that number of shares of Parent Common Stock equal
to the Escrow Amount which shall be registered in the name of the Escrow
Agent. Such shares shall be beneficially owned by the holders on whose
behalf such shares were deposited in the Escrow Fund and shall be available
to compensate Parent as provided in Article VIII. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares
of Company Capital Stock will be deemed from and after the Effective Time,
for all corporate purposes, evidence the ownership of the number of full
shares of Parent Common Stock into which such shares of Company Capital Stock
shall have been so converted and the right to receive an amount in cash in
lieu of the issuance of any fractional share in accordance with Section 1.6.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions declared or made after the Effective Time with respect
to Parent Common Stock with a record date after the Effective Time will be
paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby until the holder of record
of such Certificate shall surrender such Certificate. Subject to applicable
law, following surrender of any such Certificate, there shall be paid to the
record holder of the certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares
of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the
certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the certificate so surrendered
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<PAGE>
will be properly endorsed and otherwise in proper form for transfer and that
the person requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the
issuance of a certificate for shares of Parent Common Stock in any name other
than that of the registered holder of the certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.8, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Capital Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
I.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
I.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
certificate evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such
lost, stolen or destroyed certificate, upon the making of an affidavit of
that fact by the holder thereof, such shares of Parent Common Stock and cash
for fractional share, if any, as may be required pursuant to Section 1.6;
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate to deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against Parent or the
Exchange Agent with respect to the certificate alleged to have been lost,
stolen or destroyed.
I.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall (i) constitute a reorganization within the
meaning of Section 368 of the Code and (ii) qualify for accounting treatment
as a pooling of interests.
I.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any such further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company and Merger Sub, the
officers and directors of the Company and Merger Sub are fully authorized in
the names of their respective corporations or otherwise to take, and will
take, all such lawful and necessary action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE AFFILIATE
SHAREHOLDERS AND THE COMPANY
The Affiliate Shareholders to their knowledge and the Company, jointly and
severally, hereby represent and warrant to Parent and Merger Sub, subject to
such exceptions as are clearly disclosed in the disclosure letter supplied by
the Company to Parent (the "Company Schedules") and dated as of the date
hereof and any update which has a Material Adverse Effect on the Company
which occurs after the date hereof and which is not otherwise due to a
violation of this Agreement by the Company, as follows:
II.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California. The Company has the corporate power to own its properties and
to carry on its business as now being conducted. The Company is duly
qualified to do business and in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a
material adverse effect on the assets (including intangible assets),
financial condition, results of operations, business or prospects of the
Company (hereinafter referred to as a "MATERIAL ADVERSE EFFECT"). The
Company has delivered a true and correct copy of its Articles of
Incorporation and Bylaws, each as amended to date, to Parent.
II.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of ,the Company consists of
20,000,000 shares of authorized Common Stock, no par value, of which
7,864,389 shares are issued and outstanding and 10,000,000 shares of
authorized Preferred Stock, no par value. The authorized Preferred Stock
consists of 2,500,000 shares designated as Series A Preferred Stock, of which
1,568,598 shares are issued and outstanding and 7,500,000 shares of
undesignated Preferred Stock, none of which are issued and outstanding. The
Company Capital Stock is held of record by the persons, with the addresses of
record and in the amounts set forth on Schedule 2.2(a). All outstanding
shares of Company Capital Stock are duly authorized, validly issued, fully
paid and non-assessable and not subject to preemptive rights created by
statute, the Articles of Incorporation or Bylaws of the Company or any
agreement to which the Company is a party or by which it is bound.
(b) The Company has reserved 2,000,000 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plan, of which
1,124,000 shares are subject to outstanding, unexercised options and 876,000
shares remain available for future grant. Schedule 2.2(b) sets forth for
each outstanding Company Option the name of the holder of such option, the
domicile address of such holder, the number of shares of Common Stock subject
to such option, the exercise price and the vesting schedule of such option,
including the extent vested to date and whether the exercisability of such
option will be accelerated and become exercisable by the
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transactions contemplated by this Agreement. Except as described in Schedule
2.2(b), there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party
or by which it is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of the Company. Except as
described in Schedule 2.2(b), there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the
Company is a party or by which it is bound obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or
enter into any such option, warrant, call, right, commitment or agreement.
The holders of Company Options or any other options or rights set forth in
Schedule 2.2(b) have been or will be given, or shall have properly waived,
any required notice prior to the Merger. As a result of the Merger, Parent
will be the record and sole beneficial owner of all Company Capital Stock and
rights to acquire or receive Company Capital Stock.
II.3 SUBSIDIARIES. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or
controlled, directly or indirectly, any other corporation, partnership,
association, joint venture or other business entity.
II.4 AUTHORITY. Subject only to the requisite approval of the Merger by
the Shareholders, the Company has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The vote required of the Shareholders to duly approve the Merger is
a majority of the outstanding shares of Company Common Stock and a majority
of the outstanding shares of Series A Preferred, each voting as a separate
class (in each case with each share of Series A Preferred being entitled to a
number of votes equal to the number of whole shares of Common Stock into
which such share of Series A Preferred could be converted on the record date
for the vote). The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
subject only to the approval of the Merger by the Shareholders. The
Company's Board of Directors has unanimously approved the Merger and this
Agreement. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, liquidation, moratorium or other similar laws
relating or affecting the rights of creditors generally and the effect or
availability of rules of law governing specific performance, injunctive
relief and other equitable remedies. Except as set forth on Schedule 2.4,
subject only to the approval of the Merger by the Shareholders, the execution
and delivery of this Agreement by the Company does not, and, as of the
Effective Time, the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the
Articles of Incorporation or Bylaws of the Company or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties
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or assets. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or
any third party (so as not to trigger any Conflict), is required by or with
respect to the Company in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the Agreement of Merger with the California Secretary
of State, (ii) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and (iii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 2.4.
II.5 COMPANY FINANCIAL STATEMENTS. Schedule 2.5 sets forth the Company's
audited balance sheet as of December 31, 1995 and the related audited
statements of operations and cash flows for the twelve-month period then
ended and the Company's unaudited balance sheet as of June 30, 1996 (the
"BALANCE SHEET") and the related unaudited statements of operations and cash
flows for the three-month period then ended (collectively, the "COMPANY
FINANCIALS"). The Company Financials are correct in all material respects
and have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a basis consistent throughout the periods
indicated and consistent with each other subject, in the case of the
unaudited Company Financials to normal year-end closing and audit adjustments
and the absence of footnotes related thereto (which are not material, either
individually or in the aggregate). The Company Financials present fairly the
financial condition and operating results of the Company as of the dates and
during the periods indicated therein, subject, in the case of the unaudited
financial statements, to normal year-end adjustments, which will not be
material in amount or significance.
II.6 NO UNDISCLOSED LIABILITIES. Except as set forth in Schedule 2.6,
the Company does not have any liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), which individually or in the aggregate, (i) has not
been reflected in the Balance Sheet, or (ii) has not arisen in the ordinary
course of the Company's business since June 30, 1996 consistent in nature
and amount with past practices.
II.7 NO CHANGES. Except as set forth in Schedule 2.7, since June 30,
1996, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
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(c) capital expenditure or commitment by the Company of $10,000 in
any individual case or $50,000 in the aggregate.
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets, including
without limitation, writing down the value of inventory or writing off notes
or accounts receivable other than in the ordinary course of business;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct
or indirect redemption, purchase or other acquisition by the Company of any
of its capital stock;
(i) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement;
(j) sale, lease, license or other disposition of any of the assets
or properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) transfer to any person or entity any rights to the Company
Intellectual Property Rights (as defined in Section 2.11 below);
(l) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(m) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
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(n) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(o) commencement or notice or threat of commencement of any lawsuit
or proceeding against or investigation of the Company or its affairs;
(p) notice of any claim of ownership by a third party of the
Company's Intellectual Property Rights or of infringement by the Company of
any third party's intellectual property rights;
(q) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
(r) change in pricing or royalties set or charged by the Company to
its customers or licensees or in pricing or royalties set or charged by
persons who have licensed intellectual property to the Company;
(s) any agreements pursuant to which any other party is granting
marketing, distribution or similar rights of any type or scope with respect
to any products of the Company;
(t) event or condition of any character that has or reasonably
would be expected to have a Material Adverse Effect on the Company; or
(u) agreement by the Company or any officer or employees thereof to
do any of the things described in the preceding clauses (a) through (r)
(other than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement).
II.8 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement, "TAX"
or, collectively, "TAXES", means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have prepared
and filed all required federal, state, local and foreign returns, estimates,
information statements and reports
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("RETURNS") relating to any and all Taxes concerning or attributable to the
Company or its operations and, such Returns have been completed in accordance
with applicable law.
(ii) The Company as of the Effective Time: (A) will have paid
or accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all federal and state income taxes,
FICA, FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed against
the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax.
(iv) No audit or other examination of any Return of the Company
is presently in progress, nor has the Company been notified of any request
for such an audit or other examination.
(v) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or
reserved against in accordance with GAAP on the Balance Sheet, whether
asserted or unasserted, contingent or otherwise, and the Company has no
knowledge of any basis for the assertion of any such liability attributable
to the Company, its assets or operations.
(vi) The Company has provided to Parent copies of all federal
and state income and all state sales and use Tax Returns for all periods
since the date of Company's incorporation.
(vii) There are (and as of immediately following the Closing
there will be) no liens, pledges, charges, claims, security interests or
other encumbrances of any sort ("LIENS") on the assets of the Company
relating to or attributable to Taxes, other than Liens for Taxes not yet due
and payable.
(viii) None of the Company's assets is treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(ix) As of the Effective Time, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions
of this Agreement, covering any employee or former employee of the Company
that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Section 280G or 162 of the
Code.
(x) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Company.
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(xi) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
(xii) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
II.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company which has or
reasonably would be expected to have the effect of prohibiting or impairing
any business practice of the Company, any acquisition of property (tangible
or intangible) by the Company or the conduct of business by the Company.
Without limiting the foregoing, the Company has not entered into any
agreement under which the Company is restricted from selling, licensing or
otherwise distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
II.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company owns no real property, nor has it ever owned any
real property. Schedule 2.10(a) sets forth a list of all real property
currently leased by the Company, the name of the lessor and the date of the
lease and each amendment thereto. All such current leases are in full force
and effect, are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any material existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a material default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Liens (as defined in Section
2.8(b)(vii)), except as reflected in the Company Financials or in Schedule
2.10(b) and except for liens for Taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use, of the property subject
thereto or affected thereby.
II.11 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed or otherwise possesses valid
rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, computer software programs or applications (in both
source code and object code form), and tangible or intangible proprietary
information or material that are used in the business of the Company as
currently conducted or as proposed to be conducted by the Company (the
"COMPANY INTELLECTUAL PROPERTY RIGHTS").
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(b) Schedule 2.11(a) sets forth a complete list of all patents,
registered and material unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefor, included in the
Company Intellectual Property Rights, and specifies, where applicable, the
jurisdictions in which each such Company Intellectual Property Right has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. Schedule 2.11(b)
sets forth a complete list of all licenses, sublicenses and other agreements
to which the Company is a party and pursuant to which the Company or any
other person is authorized to use any Company Intellectual Property Right
(excluding object code end-user licenses granted to end-users in the ordinary
course of business that permit use of software products without a right to
modify, distribute or sublicense the same ("END-USER LICENSES")) or trade
secret of the Company, and includes the identity of all parties thereto. The
execution and delivery of this Agreement by the Company, and the consummation
of the transactions contemplated hereby, will neither cause the Company to be
in violation or default under any such license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement. Except as set
forth in Schedules 2.11(a) or 2.11(b), the Company is the sole and exclusive
owner or licensee of, with all right, title and interest in and to (free and
clear of any liens or encumbrances), the Company Intellectual Property
Rights, and has sole and exclusive rights (and is not contractually obligated
to pay any compensation to any third party in respect thereof) to the use
thereof or the material covered thereby in connection with the services or
products in respect of which the Company Intellectual Property Rights are
being used.
(c) No claims with respect to the Company Intellectual Property
Rights have been asserted or are, to the Company's knowledge, threatened by
any person, nor are there any valid grounds for any bona fide claims (i) to
the effect that the manufacture, sale, licensing or use of any of the
products of the Company infringes on any copyright, patent, trademark,
service mark, trade secret or other proprietary right, (ii) against the use
by the Company of any trademarks, service marks, trade names, trade secrets,
copyrights, maskworks, patents, technology, know-how or computer software
programs and applications used in the Company's business as currently
conducted or as proposed to be conducted by the Company, or (iii) challenging
the ownership by the Company, validity or effectiveness of any of the Company
Intellectual Property Rights. All registered trademarks, service marks and
copyrights held by the Company are valid and subsisting. The business of the
Company as currently conducted or as proposed to be conducted by the Company
has not and does not infringe on any proprietary right of any third party.
To the Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property Rights by any
third party, including any employee or former employee of the Company. No
Company Intellectual Property Right or product of the Company or any of its
subsidiaries is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by the Company.
Each employee of and consultant to the Company has executed a proprietary
information and inventions agreement substantially in the Company's standard
form.
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II.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 2.12(a), the Company does not have, is not a party to nor is it
bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance pay
or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement with an employee or
individual consultant or salesperson or consulting or sales agreement, under
which a firm or other organization provides services to the Company, (v)
any agreement or plan, including, without limitation, any stock option plan,
stock appreciation rights plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually in
excess of $10,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement containing any covenant limiting the freedom of
the Company to engage in any line of business or to compete with any person,
(x) any agreement relating to capital expenditures and involving
future payments in excess of $10,000,
(xi) any agreement relating to the disposition or acquisition of
assets or any interest in any business enterprise outside the ordinary course
of the Company's business,
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof,
(xiii) any construction contracts,
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(xiv) any distribution, joint marketing or development agreement,
(xv) any agreement pursuant to which the Company has granted or may
grant in the future, to any party a source-code license or option or other
right to use or acquire source-code, or
(xvi) any other agreement that involves payment by the Company of
$10,000 or more or which is not cancelable without penalty within thirty (30)
days.
Except for such alleged material breaches, violations and defaults, and
events that would constitute a material breach, violation or default with the
lapse of time, giving of notice, or both, as are all noted in Schedule
2.12(b), the Company has not materially breached, violated or defaulted
under, or received notice that it has materially breached, violated or
defaulted under, any of the terms or conditions of any agreement, contract or
commitment required to be set forth on Schedule 2.11(b) or Schedule 2.12(a)
(any such agreement, contract or commitment, a "CONTRACT"). Each Contract is
in full force and effect and, except as otherwise disclosed in Schedule
2.12(b), is not subject to any default thereunder of which the Company has
knowledge by any party obligated to the Company pursuant thereto.
II.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule
2.13, to the Company's knowledge, no officer, director or affiliate (as
defined under Regulation C under the Securities Act of 1933, as amended) of
the Company (nor any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such
persons has or has had an economic interest), has or has had, directly or
indirectly, (i) an economic interest in any entity which furnished or sold,
or furnishes or sells, services or products that the Company furnishes or
sells, or proposes to furnish or sell, or (ii) an economic interest in any
entity that purchases from or sells or furnishes to, the Company, any goods
or services or (iii) a beneficial interest in any contract or agreement set
forth in Schedule 2.11(b) or Schedule 2.12(a); provided, that (x) ownership
of no more than one percent (1%) of the outstanding voting stock of a
publicly traded corporation and no more than ten percent (10%) of the
outstanding equity of any other entity shall not be deemed an "economic
interest in any entity" for purposes of this Section 2.13 and (y) this
provision shall only apply if the terms and conditions applicable to the
subject relationship are materially less favorable to the Company than the
terms and conditions that could be obtained in an arm's-length relationship.
II.14 COMPLIANCE WITH LAWS. The Company has complied with, is not in
violation of, and has not received any notices of violation with respect to,
any foreign, federal, state or local statute, law or regulation, except where
any such non-compliance or violation would not have a Material Adverse Effect
on the Company.
II.15 LITIGATION. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or to the Company's
knowledge threatened against the Company, its properties or any of its
officers or directors, in their respective capacities as such. Except as set
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forth in Schedule 2.15, to the Company's knowledge, there is no investigation
pending or threatened against the Company, its properties or any of its
officers or directors by or before any Governmental Entity. Schedule 2.15
sets forth, with respect to any pending or known threatened action, suit,
proceeding or investigation, the forum, the parties thereto, the subject
matter thereof and the amount of damages claimed or other remedy requested.
No Governmental Entity has at any time challenged or questioned the legal
right of the Company to manufacture, offer or sell any of its products in the
present manner or style thereof.
II.16 INSURANCE. With respect to the insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company, there is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have
been paid and the Company is otherwise in compliance with the terms of such
policies and bonds. The Company has no knowledge of any threatened
termination of, or premium increase with respect to, any of such policies.
II.17 MINUTE BOOKS. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain true
and correct copies of all resolutions adopted by the Company's Board of
Directors (or committees thereof) and shareholders since the time of
incorporation of the Company.
II.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any substance
that has been designated by any Governmental Entity or by applicable federal,
state or local law to be radioactive, toxic, hazardous or otherwise a danger
to health or the environment, including, without limitation, PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant to
said laws, (a "HAZARDOUS MATERIAL"), but excluding office and janitorial
supplies properly and safely maintained. No Hazardous Materials are present,
as a result of the deliberate actions of the Company, or, to the Company's
knowledge, as a result of any actions of any third party or otherwise, in, on
or under any property, including the land and the improvements, ground water
and surface water thereof, that the Company has at any time owned, operated,
occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not
transported, stored, used, manufac tured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law in
effect on the date hereof, nor has the Company disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (any or all
of the foregoing being
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collectively referred to as "HAZARDOUS MATERIALS ACTIVITIES") in violation of
any rule, regulation, treaty or statute promulgated by any Governmental
Entity in effect prior to or as of the date hereof to prohibit, regulate or
control Hazardous Materials or any Hazardous Material Activity.
(c) PERMITS. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and
businesses are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to
the Company's knowledge, threatened concerning any Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of the Company. The
Company is not aware of any fact or circumstance which could involve the
Company in any environmental litigation or impose upon the Company any
environmental liability.
II.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as set
forth on Schedule 2.19, the Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby. Schedule 2.19 sets forth the
Company's current reasonable estimate of all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties ("THIRD
PARTY EXPENSES") expected to be incurred by the Company in connection with
the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
II.20 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of
"Affiliate" set forth in Section 2.20(a)(i) below (which definition shall
only apply to this Section 2.20), for purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "COMPANY EMPLOYEE PLAN" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded,
including without limitation, each "employee benefit plan", within the
meaning of Section 3(3) of
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ERISA which is or has been maintained, contributed to, or required to be
contributed to, by the Company or any Affiliate for the benefit of any
"Employee" (as defined below), and pursuant to which the Company or any
Affiliate has or may have any material liability contingent or otherwise;
(iv) "EMPLOYEE" shall mean any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
(v) "EMPLOYEE AGREEMENT" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visa, work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan", as defined in Section 3(37)
of ERISA; and
(viii) "PENSION PLAN" shall refer to each Company Employee Plan
which is an "employee pension benefit plan", within the meaning of Section
3(2) of ERISA.
(b) SCHEDULE. Schedule 2.20(b) contains an accurate and complete
list of each Company Employee Plan and each Employee Agreement, together with
a schedule of all liabilities, whether or not accrued, under each such
Company Employee Plan or Employee Agreement. The Company does not have any
stated plan or commitment to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Company Employee Plan or Employee Agreement.
(c) DOCUMENTS. The Company has provided to Parent (i) correct and
complete copies of all documents embodying or relating to each Company
Employee Plan and each Employee Agreement including all amendments thereto
and written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the three
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each Company Employee
Plan or related trust; (iv) if the Company Employee Plan is funded, the most
recent annual and periodic accounting of Company Employee Plan assets; (v)
the most recent summary plan description together with the most recent
summary of material modifications, if any, required under ERISA with respect
to each Company Employee Plan; (vi) all IRS determination letters and rulings
relating to Company Employee Plans and copies of all applications and
correspondence to or from the IRS or the Department of Labor ("DOL") with
respect to any Company Employee Plan; (vii) all communications material to
any Employee or Employees relating to any Company Employee Plan and any
proposed Company Employee Plans, in
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each case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any material liability to the
Company; and (viii) all registration statements and prospectuses prepared in
connection with each Company Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule
2.20(d), (i) the Company has performed all obligations required to be
performed by it under each Company Employee Plan and each Company Employee
Plan has been established and maintained in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) no "prohibited
transaction", within the meaning of Section 4975 of the Code or Section 406
of ERISA, has occurred with respect to any Company Employee Plan; (iii) there
are no actions, suits or claims pending, or, to the knowledge of the Company,
threatened or anticipated (other than routine claims for benefits) against
any Company Employee Plan or against the assets of any Company Employee Plan;
and (iv) each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to the Company, Parent or any of its Affiliates (other than
ordinary administration expenses typically incurred in a termination event);
(v) there are no inquiries or proceedings pending or, to the knowledge of the
Company or any affiliates, threatened by the IRS or DOL with respect to any
Company Employee Plan; and (vi) neither the Company nor any Affiliate is
subject to any penalty or tax with respect to any Company Employee Plan under
Section 402(i) of ERISA or Section 4975 through 4980 of the Code.
(e) PENSION PLANS. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA,
Title IV of ERISA or Section 412 of the Code.
(f) MULTIEMPLOYER PLANS. At no time has the Company contributed to
or been requested to contribute to any Multiemployer Plan.
(g) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in
Schedule 2.20(g), no Company Employee Plan and no agreement with any employee
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any Employee upon his or her retirement or termination
of employment for any reason, except as may be required by statute, and the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a
group) that such Employee(s) would be provided with life insurance, medical
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by statute.
(h) EFFECT OF TRANSACTION.
(i) Except as provided in Section 1.6 of this Agreement or as
set forth on Schedule 2.20(h)(i), the execution of this Agreement and the
consummation of the transactions
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contemplated hereby will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in
any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) Except as set forth on Schedule 2.20(h)(ii), no payment or
benefit which will or may be made by the Company or Parent or any of their
respective affiliates with respect to any Employee will be characterized as
an "excess parachute payment", within the meaning of Section 280G(b)(1) of
the Code.
(i) EMPLOYMENT MATTERS. The Company (i) is in material compliance
with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, immigration or other
laws governing the employment of foreign nationals, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from
the wages, salaries and other payments to Employees; (iii) is not liable for
any arrears of wages or any taxes or any penalty for failure to comply with
any of the foregoing; and (iv) is not liable for any payment to any trust or
other fund or to any governmental or administrative authority, with respect
to unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(j) LABOR. No work stoppage or labor strike against the Company is
pending or, to the best knowledge of the Company, threatened. Except as set
forth in Schedule 2.20(j), the Company is not involved in or, to the
knowledge of the Company, threatened with, any labor dispute, grievance, or
litigation relating to labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in liability to the Company. The
Company has not engaged in any unfair labor practices within the meaning of
the National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly result in a liability to the Company.
Except as set forth in Schedule 2.20(j), the Company is not presently, nor
has it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by the Company.
II.21 AFFILIATE AGREEMENTS. Schedule 2.21 sets forth those persons who,
in the Company's reasonable judgment, are "affiliates" of the Company within
the meaning of Rule 145 (each such person an "Affiliate") promulgated under
the Securities Act ("Rule 145"). The Company has delivered to Parent,
concurrently with the execution of this Agreement, an executed Affiliate
Agreement from each of its Affiliates in the form attached hereto as EXHIBIT B.
II.22 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company (as modified by the Company Schedules), nor
any statement made in any schedule or
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certificate furnished by the Company pursuant to this Agreement, or furnished
in or in connection with documents mailed or delivered to the Shareholders in
connection with soliciting their consent to this Agreement and the Merger,
contains or will contain at the Effective Time, any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company and the
Shareholders as follows:
III.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. Merger Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of California. Each of
Parent and Merger Sub has the corporate power to own its properties and to
carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on the ability of Parent
and Merger Sub to consummate the transactions contemplated hereby.
III.2 AUTHORITY. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Parent
and Merger Sub. This Agreement has been duly executed and delivered by
Parent and Merger Sub and constitutes the valid and binding obligations of
Parent and Merger Sub, enforceable in accordance with its terms subject to
applicable bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws relating or affecting the rights of creditors generally
and the effect or availability of rules of law governing specific
performance, injunctive relief and other equitable remedies.
III.3 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 40,000,000 shares
of Common Stock, of which 15,366,352 shares were issued and outstanding as of
June 30, 1996 and 500,000 shares of Preferred Stock, none of which is issued
or outstanding as of June 30, 1996. The authorized capital stock of Merger
Sub consists of 1,000 shares of Common Stock, 1,000 shares of which, as of
the date hereof, are issued and outstanding and are held by Parent.
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(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, non-assessable.
III.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished
or made available to the Company true and complete copies of all reports
filed by it with the U.S. Securities and Exchange Commission (the "SEC")
under the Securities Exchange Act of 1934 (the "EXCHANGE ACT") for all
periods subsequent to October 1, 1994, all in the form so filed (all of the
foregoing being collectively referred to as the "SEC DOCUMENTS"). As of
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were
made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC. The financial statements of Parent,
including the notes thereto, included in the SEC Documents (the "PARENT
FINANCIAL STATEMENTS") comply as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles consistently applied (except as
may be indicated in the notes thereto) and present fairly the consolidated
financial position of Parent at the dates thereof and of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal audit adjustments). There has been no change in Parent
accounting policies except as described in the notes to the Parent Financial
Statements.
III.5 NO MATERIAL ADVERSE CHANGE. Since the date of the balance sheet
included in the Parent's most recently filed report on Form 10-Q or Form
10-K, Parent has conducted its business in the ordinary course and there has
not occurred: (a) any material adverse change in the financial condition,
liabilities, assets or business of Parent; (b) any amendment or change in the
Articles of Incorporation or Bylaws of Parent; or (c) any damage to,
destruction or loss of any assets of the Parent, (whether or not covered by
insurance) that materially and adversely affects the financial condition or
business of Parent.
III.6 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which Parent has received any
notice of assertion against Parent which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement.
III.7 AFFILIATE AGREEMENTS. Schedule 3.7 sets forth those persons who,
in Parent's reasonable judgment, are "affiliates" of Parent within the
meaning of Rule 145 (each such person an "Affiliate") promulgated under the
Securities Act ("Rule 145"). Parent has delivered to the Company,
concurrently with the execution of this Agreement, an executed Affiliate
Agreement from each of its Affiliates in the form attached hereto as EXHIBIT C.
ARTICLE IV
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CONDUCT PRIOR TO THE EFFECTIVE TIME
IV.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent
that Parent shall otherwise consent in writing) to carry on its business in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business,
to use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the
services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. The
Company shall promptly notify Parent of any event which materially adversely
effects the Company or its business. Except as expressly contemplated by
this Agreement or disclosed in Schedule 4.1, the Company shall not, without
the prior written consent of Parent:
(a) Enter into any commitment or transaction not in the ordinary
course of business.
(b) Transfer to any person or entity any rights to the Company
Intellectual Property Rights, except licenses in the ordinary course of
business;
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or
scope with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements
set forth or described in the Company Schedules;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of its capital stock (or options, warrants or other rights exercisable
therefor), except upon termination of employment at cost;
(g) Except for the issuance of shares of Company Capital Stock upon
exercise or conversion of presently outstanding Company Options or Company
Preferred Stock, issue, grant,
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deliver or sell or authorize or propose the issuance, grant, delivery or sale
of, or purchase or propose the purchase of, any shares of Company Capital
Stock or securities convertible into, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities,
without the prior written consent of Parent;
(h) Cause or permit any amendments to its Articles of Incorporation
or Bylaws, except as contemplated herein;
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets in an amount in excess of $10,000 in the case of a single
transaction or in excess of $50,000 in the aggregate in any 30-day period;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof;
(m) Adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers, pay or agree to pay any
special bonus or special remuneration to any director or employee, or
increase the salaries or wage rates of its employees, without the prior
written consent of Parent;
(n) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $10,000
(in any one case) or $25,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the
Company Financial Statements (or the notes thereto) or that arose in the
ordinary course of business subsequent to March 31, 1996 or expenses
consistent with the provisions of this Agreement incurred in connection with
any transaction contemplated hereby;
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(p) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes; or
(q) Enter into any strategic alliance, joint development or joint
marketing agreement; or
(r) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (q) above, or any other action
that would prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
V.1 SECURITIES ACT EXEMPTION. The Parent Common Stock to be issued
pursuant to this Agreement initially will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on the
exemption set forth in Section 4(2) thereof. In connection with the
acquisition of Parent Common Stock, each of the Shareholders hereby
represents to the Company that (i) the Shareholder is acquiring the Parent
Common Stock for investment purposes only and not with a view to, or for
resale in connection with any "distribution" thereof as that term is used for
purposes of the Securities Act; (ii) the Shareholder is aware of the Parent's
business affairs and financial condition and has acquired sufficient
information about Parent to reach an informed and knowledgeable decision to
acquire the Parent Common Stock; and (iii) the Shareholder understands that
the Parent Common Stock has not been registered under the Securities Act in
reliance upon a specific exemption therefrom, which exemption depends upon,
among other things, the bona fide nature of the investment intent as
expressed herein.
V.2 STOCK RESTRICTIONS. In addition to any legend imposed by applicable
state securities laws or by any contract which continues in effect after the
Effective Time, the certificates representing the shares of Parent Common
Stock issued pursuant to this Agreement shall bear a restrictive legend (and
stop transfer orders shall be placed against the transfer thereof with
Parent's transfer agent), stating substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN
OPINION OF COUNSEL,
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REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION.
V.3 SHAREHOLDERS' REPRESENTATIONS REGARDING SECURITIES LAW MATTERS.
Except as may otherwise be required by the Affiliate's Agreement executed by
each person identified as an affiliate of the Company and by any additional
representation required of any Shareholder by Parent or the Company or their
respective counsel to ensure that the Merger is treated as a tax-free
reorganization under Section 368(a) of the Code, each Shareholder, by virtue
of the Merger and the conversion into Parent Common Stock of the Company
Capital Stock held by such Shareholder, shall be bound by the following
provisions:
(a) The Shareholder will not offer, sell or otherwise dispose of any
shares of Parent Common Stock except in compliance with the Securities Act
and the rules and regulations thereunder.
(b) The Shareholder will not sell, transfer or otherwise dispose of
any shares of Parent Common Stock unless (i) such sale, transfer or other
disposition is within the limitations of and in compliance with Rule 144
promulgated by the SEC under the Securities Act and the Shareholder furnishes
Parent with reasonable proof of compliance with such Rule, (ii) in the
opinion of counsel, reasonably satisfactory to Parent and its counsel, some
other exemption from registration under the Securities Act is available with
respect to any such proposed sale, transfer, or other disposition of Parent
Common Stock, or (iii) the offer and sale of Parent Common Stock is
registered under the Securities Act.
V.4 REGISTRATION ON FORM S-3. Parent shall use its reasonable best
efforts to file, within 90 days following the Closing, a registration
statement with the SEC covering the resale of such shares of Parent Common
Stock issued to the Shareholders in connection with the Merger. Any such
registration shall be subject to the terms and conditions set forth in the
Declaration of Registration Rights attached hereto as EXHIBIT D.
V.5 ACCESS TO INFORMATION. Subject to any applicable contractual
confidentiality obligations (which the Company shall use its best efforts to
cause to be waived) each party shall afford the other and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, agreements and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the other may reasonably
request. No information or knowledge obtained in any investigation pursuant
to this Section 5.5 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties
to consummate the Merger.
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V.6 CONVERSION OF OUTSTANDING SERIES A PREFERRED; AMENDMENT OF ARTICLES
OF INCORPORATION. The Company shall use its best efforts to secure the
approval of the holders of not less than a majority of outstanding shares of
Series A Preferred to the automatic conversion of the Series A Preferred to
Company Common Stock immediately prior to the Effective Time, in accordance
with Article III, C.3(b) of the Company's Amended and Restated Articles of
Incorporation. The Company shall also use its best efforts to secure the
requisite approval of the holders of the Company Capital Stock of an
amendment to the Company's Amended and Restated Articles of Incorporation to
shorten the notice period set forth in Article III, C.3(h) of such Amended
and Restated Articles of Incorporation to such minimum allowable period as
may be required to comply with California law.
V.7 PUBLIC DISCLOSURE. Unless otherwise required by law (including,
without limitation, securities laws) or, as to Parent, by the rules and
regulations of the Nasdaq National Market, prior to the Effective Time, no
disclosure (whether or not in response to an inquiry) of the subject matter
of this Agreement shall be made by any party hereto unless approved by Parent
and the Company prior to release, provided that such approval shall not be
unreasonably withheld.
V.8 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts
to take promptly, or cause to be taken, all actions, and to do promptly, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby to obtain all necessary waivers, consents and approvals
and to effect all necessary registrations and filings and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated
by this Agreement; provided that Parent shall not be required to agree to any
divestiture by Parent or the Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or of any business, assets or property
of Parent or its subsidiaries or affiliates or the Company or its
affiliates, or the imposition of any material limitation on the ability of
any of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
V.9 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company and to
the Shareholders, of (i) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which is likely to cause any representation
or warranty of the Company and Parent or Merger Sub, respectively, contained
in this Agreement to be untrue or inaccurate in any material respect at or
prior to the Effective Time except as contemplated by their Agreement
(including the Company Schedules) and (ii) any failure of the Company or
Parent, as the case may be, to comply with or satisfy in any material respect
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.9 shall not limit or otherwise affect any remedies available
to the party receiving such notice.
V.10 POOLING ACCOUNTING. Parent and the Company shall each use its
reasonable efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of
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interests. Each of Parent and the Company shall use its reasonable efforts
to cause its respective employees, directors, stockholders and affiliates not
to take any action that would adversely affect the ability of Parent to
account for the business combination to be effected by the Merger as a
pooling of interests. Neither Parent nor the Company shall take any action,
including the acceleration of vesting of any options, warrants, restricted
stock or other rights to acquire shares of the capital stock of the Company,
which reasonably would be expected to (i) interfere with Parent's ability to
account for the Merger as a pooling of interests or (ii) jeopardize the
tax-free nature of the reorganization hereunder, provided, however, that
nothing herein shall affect the acceleration of vesting on options and the
lapse of repurchase rights on restricted stock described in Sections 2.2(b)
or 2.4, pursuant to pre-existing contractual provisions.
V.11 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of this Agreement and
the transactions contemplated hereby.
V.12 FORM S-8. Parent shall file a registration statement on Form S-8
for the shares of Parent Common Stock issuable with respect to assumed
Company Options no later than fifteen (15) business days after the Closing
Date.
V.13 NASDAQ NATIONAL MARKET LISTING. Parent shall authorize for listing
on the Nasdaq National Market the shares of Parent Common Stock issuable, and
those required to be reserved for issuance, in connection with the Merger,
upon official notice of issuance.
V.14 VOTING AGREEMENTS. Concurrently with the execution of this
Agreement, the Affiliate Shareholders will execute Voting Agreements in the
form attached hereto as EXHIBIT E (the "VOTING AGREEMENTS"), agreeing, among
other things, to vote in favor of the Merger and against any competing
proposals.
V.15 BLUE SKY LAWS. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Company shall use its best efforts to assist Parent as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Parent Common Stock pursuant
hereto.
V.16 INDEMNIFICATION. Parent shall either (i) cause the Company to
continue to indemnify or (ii) directly indemnify each person who is currently
an officer or director of the Company substantially in accordance with the
Bylaws of the Company as they are currently in effect, and in accordance with
all applicable statutory and common laws, for action or inaction by such
person acting in such capacity prior to the Merger.
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ARTICLE VI
DOCUMENTS TO BE DELIVERED
VI.1 DOCUMENTS TO BE DELIVERED BY THE COMPANY UPON EXECUTION OF THIS
AGREEMENT. In addition to this Agreement and the exhibits and schedules
attached hereto, the Company has delivered, or caused to be delivered, the
following documents to Parent and Merger Sub:
(a) OPINION OF ACCOUNTANTS. A letter from Deloitte & Touche LLP
affirming its written concurrence with the Company management's conclusions
as to the appropriateness of pooling of interests accounting for the Merger
under Accounting Principles Board Opinion No. 16.
(b) NONCOMPETITION AGREEMENTS. From each of Rajan Raghavan, Thomas
Anderson, Martin Harding, Simon Davidmann and Thomas O'Connell, a
Noncompetition Agreement in substantially the form of EXHIBIT F.
(c) INDEPENDENT CONTRACTOR AGREEMENTS. From each of Thampy Thomas
and Joseph Rizzi, an Independent Contractor Agreement in substantially the
form of EXHIBIT G.
(d) SGC COMSOFT AGREEMENT. The Amended and Restated SGC Comsoft --
Virtual Chips, Inc. Independent Contractor Agreement in substantially the
form of EXHIBIT H.
VI.2 DOCUMENTS TO BE DELIVERED BY THE COMPANY AT CLOSING. At the
Closing, the Company shall deliver or shall cause to be delivered, the
following documents to Parent and Merger Sub:
(a) TAX OPINION. A written opinion from Pillsbury Madison & Sutro
LLP, counsel to the Company, addressed to the Company to the effect that the
Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code. The parties to this Agreement agree to make reasonable
representations as requested by such counsel for the purpose of rendering
such opinion.
(b) THIRD PARTY CONSENTS. Evidence satisfactory to Parent and
Merger Sub that the Company has obtained the consents, approvals and waivers
set forth in Schedule 2.4.
(c) LEGAL OPINION. A legal opinion from Pillsbury Madison & Sutro
LLP, counsel to the Company, in substantially the form attached hereto as
Exhibit I.
(d) AGREEMENT OF MERGER. An executed Agreement of Merger in the
form of EXHIBIT J.
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VI.3 DOCUMENTS TO BE DELIVERED BY THE PARENT AND MERGER SUB UPON
EXECUTION OF THIS AGREEMENT. In addition to this Agreement and the exhibits
and schedules attached hereto, on the date of execution of this Agreement,
Parent and Merger Sub have delivered the following documents to the Company
and the Shareholders:
(a) TAX OPINION. A written opinion from Wilson, Sonsini, Goodrich
& Rosati, Professional Corporation, counsel to Parent and Merger Sub,
addressed to Parent and Merger Sub, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
The parties to this Agreement agree to make reasonable representations as
requested by such counsel for the purpose of rendering such opinion.
(b) OPINION OF ACCOUNTANTS. A letter from Ernst & Young LLP
affirming its written concurrence with Parent management's conclusions as to
the appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16.
VI.4 DOCUMENTS TO BE DELIVERED BY THE PARENT AND MERGER SUB AT CLOSING.
At the Closing, the Parent and Merger Sub shall deliver or shall cause to be
delivered, the following documents to the Company and the Shareholders:
(a) NASDAQ LISTING. Written authorization for listing on the
Nasdaq National Market, subject to official notice of issuance, of the shares
of Parent Common Stock issuable to the Shareholders pursuant to this
Agreement and such other shares required to be reserved for issuance in
connection with the Merger.
(b) LEGAL OPINION. A legal opinion from general counsel to Parent,
in substantially the form attached hereto as EXHIBIT K.
ARTICLE VII
CONDITIONS TO THE MERGER
VII.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall
have been approved and adopted by the Shareholders by the requisite vote
under applicable law and the Company's Articles of Incorporation.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or
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other legal or regulatory restraint or prohibition preventing the
consummation of the Merger shall be in effect.
(c) NASDAQ LISTING. The shares of Parent Common Stock issuable to
Shareholders pursuant to this Agreement and such other shares required to be
reserved for issuance in connection with the Merger shall have been
authorized for listing on the Nasdaq National Market upon official notice of
issuance.
VII.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or
prior to the Closing of each of the following conditions, any of which may be
waived, in writing, exclusively by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, except
for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such date), with the same
force and effect as if made on and as of the Closing Date, except, in all
such cases, for such breaches, inaccuracies or omissions of such
representations and warranties which have neither had nor reasonably would be
expected to have a Material Adverse Effect on Parent; and the Company and the
Shareholders shall have received a certificate to such effect signed on
behalf of Parent by a duly authorized officer of Parent.
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied (which performance or compliance shall be subject to
Parent's or Merger Sub's ability to cure as provided in Section 10.1(e)
below) in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Effective Time, and the Company and the Shareholders shall have received a
certificate to such effect signed by a duly authorized officer of Parent.
(c) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, assets (including intangible
assets), financial condition or results of operations of Parent since March
31, 1996. For purposes of this condition, a reduction in the trading price
of Parent's Common Stock, whether occurring at any time or from time to time,
as reported by Nasdaq or any other automated quotation system or exchange
shall not constitute a material adverse change.
VII.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by Parent:
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(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement (including the Company Schedules) and
except for those representations and warranties which address matters only as
of a particular date (which shall remain true and correct as of such date),
with the same force and effect as if made on and as of the Closing Date,
except, in all such cases, for such breaches, inaccuracies or omissions of
such representations and warranties which have neither had nor reasonably
would be expected to have a Material Adverse Effect on the Company or Parent;
and Parent and Merger Sub shall have received a certificate to such effect
signed on behalf of the Company by a duly authorized officer of the Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied (which performance or compliance shall be subject to the Company's
ability to cure as provided in Section 10.1(d) below) in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date, and Parent
and Merger Sub shall have received a certificate to such effect signed by a
duly authorized officer of the Company;
(c) MATERIAL ADVERSE CHANGE. Except as disclosed in Article II as
of the date hereof, there shall not have occurred any material adverse change
in the business, assets (including intangible assets) financial condition or
results of operations of the Company since December 31, 1995.
(d) DISSENTERS' RIGHTS. Holders of not more than 10% of the
outstanding shares of Company Capital Stock shall have exercised, nor shall
they have any continued right to exercise, appraisal, dissenters' or similar
rights under applicable law with respect to their shares by virtue of the
Merger.
(e) SERIES A PREFERRED. The holders of not less than a majority
of the Series A Preferred shall have approved the automatic conversion of all
outstanding Series A Preferred into Company Common Stock immediately prior to
the Effective Time.
(f) AMENDMENT TO ARTICLES. The Company's Articles of
Incorporation shall have been amended as contemplated by Section 5.6 above.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
VIII.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties by the Company and the Shareholders in this
Agreement or in any instrument delivered at
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the Closing pursuant to this Agreement (each as modified by the Company
Schedules) and all the representations and warranties by Parent and Merger
Sub in this Agreement or in any instrument delivered at the Closing pursuant
to this Agreement shall survive the Merger and shall continue for the periods
following the Closing Date set forth in Section 8.2(a). No other
representations or warranties shall survive the Merger.
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VIII.2 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. At the Effective Time, the Shareholders will be
deemed to have received and deposited with the Escrow Agent (as defined
below) the Escrow Amount (plus any additional shares as may be issued upon
any stock split, stock dividend or recapitalization effected by Parent after
the Effective Time) without any act of any Shareholder. As soon as
practicable after the Effective Time, the Escrow Amount, without any act of
any Shareholder, will be deposited with Chemical Trust Company of California,
or other institution acceptable to Parent and the Securityholder Agent (as
defined in Section 8.2(g) below)) as Escrow Agent (the "ESCROW AGENT"), such
deposit to constitute an escrow fund (the "ESCROW FUND") to be governed by
the terms set forth herein and at Parent's cost and expense. The portion of
the Escrow Amount contributed on behalf of each Shareholder shall be in
proportion to the aggregate Parent Common Stock which such holder would
otherwise be entitled under Section 1.6(b). Any shares of Parent Common
Stock contributed to the Escrow Fund shall (to the extent feasible at the
Effective Time) not be subject to any right of repurchase in favor of the
Surviving Corporation. The Escrow Fund shall be available to compensate the
Parent and its affiliates (including the Surviving Corporation) for any
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses and expenses of
investigation and defense incurred by Parent, its officers, directors or
affiliates (including the Surviving Corporation) directly or indirectly as a
result of any inaccuracy or breach of a representation or warranty of the
Company or of any Shareholder contained herein, or in any certificate,
instrument, schedule or document delivered by the Company at the Closing in
connection with this Agreement or the Merger, or any failure by the Company
prior to the Closing to perform or comply with any covenant contained herein
(hereinafter individually a "Loss" and collectively "Losses"), provided that
claims arising out of an inaccuracy or breach of a representation or warranty
made in Sections 2.1, 2.2(a), 2.3, 2.5, 2.6, 2.7(b) - (c), 2.7(o) - (r),
2.8(a), 2.8(b)(i)-(iv), 2.8(b)(vi)-(xii), 2.10, 2.12(ii)-(iii), 2.12(v),
2.12(viii), 2.12(xi), and 2.12(xiii) of this Agreement must be asserted on or
before 5:00 p.m., California time on the date of the auditor's report for the
first audit of the Parent's financial statements after the Closing Date, and
claims arising out of an inaccuracy or breach of all other representations
and warranties and any covenant of the Company and the Affiliate Shareholders
contained in this Agreement and in any certificate, instrument, schedule or
document delivered by the Company at the Closing in connection with this
Agreement or the Merger must be asserted on or before 5:00 p.m. California
time on the date that is one year following the Closing Date. No portion of
the Escrow Amount shall be contributed in respect of any Company Options.
Parent may not receive any shares from the Escrow Fund unless and until
Officer's Certificates (as defined in paragraph (d) below) identifying
Losses, the aggregate amount of which exceed $50,000, have been delivered to
the Escrow Agent as provided in paragraph (d) and either there is no
objection thereto or any objection has been resolved in accordance with the
provisions of this Article VIII; in such case, Parent may recover from the
Escrow Fund all Losses in excess of such $50,000 deductible so identified in
accordance with the provisions of this Section 8.2.
(b) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW
PERIOD. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective
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Time and shall terminate at 5:00 p.m., California time on the date that is
one year following the Closing Date, both such dates to be certified to the
Escrow Agent in an Officer's Certificate (the "ESCROW PERIOD"). Such amount
(or some portion thereof) that is necessary in the reasonable judgment of
Parent, subject to the objection of the Securityholder Agent and the
subsequent arbitration of the matter in the manner provided in Section 8.2(f)
hereof, to satisfy any unsatisfied claims concerning facts and circumstances
existing prior to the termination of such Escrow Period as are specified in
any Officer's Certificate delivered to the Escrow Agent prior to termination
of such Escrow Period, may be retained in the Escrow Fund after termination
of the Escrow Period. As soon as all such claims have been resolved as
evidenced by the written memorandum of the Securityholder Agent and Parent,
the Escrow Agent shall deliver to the Shareholders the remaining portion of
the Escrow Fund that is not required to satisfy such claims. If no Officer's
Certificate pertaining to unsatisfied claims is delivered to the Escrow Agent
prior to the termination of the Escrow Period, upon termination of the Escrow
Period, the Escrow Agent, without further authorization or instruction, shall
distribute the remainder of the Escrow Fund to the Shareholders in accordance
with the provisions of this Section 8.2(b). Deliveries of Escrow Amounts to
the Shareholders pursuant to this Section 8.2(b) shall be made in proportion
to their respective original contributions to the Escrow Fund (as set forth
in Schedule I delivered to the Escrow Agent immediately upon the formation of
the Escrow Fund).
(c) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the
terms hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a
stock split) ("NEW SHARES") in respect of Parent Common Stock in the Escrow
Fund which have not been released from the Escrow Fund shall be deposited
with the Escrow Agent and added to the Escrow Fund and become a part thereof.
New Shares issued in respect of shares of Parent Common Stock which have
been released from the Escrow Fund shall not be added to the Escrow Fund but
shall be distributed to the recordholders thereof. Cash dividends on Parent
Common Stock held in the Escrow Fund shall not be added to the Escrow Fund
but shall be distributed to the recordholders thereof.
(iii) Each Shareholder shall have voting rights with respect
to the shares of Parent Common Stock contributed to the Escrow Fund by such
Shareholder (and on any voting securities added to the Escrow Fund in respect
of such shares of Parent Common Stock).
(d) CLAIMS UPON ESCROW FUND.
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(i) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any
officer of Parent (an "OFFICER'S CERTIFICATE"): (A) stating that Parent has
paid or properly accrued or reasonably anticipates that it will have to pay
or accrue Losses, and (B) specifying in reasonable detail the individual
items of Losses included in the \amount so stated, the date each such item
was paid or properly accrued, or the basis for such anticipated liability,
and the nature of the misrepresentation, breach of warranty or covenant to
which such item is related, the Escrow Agent shall, subject to the provisions
of Section 8.2(e) hereof, deliver to Parent out of the Escrow Fund, as
promptly as practicable, shares of Parent Common Stock held in the Escrow
Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant
to Section 8.2(d)(i) hereof, the shares of Parent Common Stock shall be
valued at the Parent Price Per Share.
(e) OBJECTIONS TO CLAIMS. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such
certificate shall be delivered to the Securityholder Agent and for a period
of thirty (30) days after receipt of such Officer's Certificate, the Escrow
Agent shall make no delivery to Parent of any Escrow Amounts pursuant to
Section 8.2(d) hereof unless the Escrow Agent shall have received written
authorization from the Securityholder Agent to make such delivery. After the
expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of shares of Parent Common Stock from the Escrow Fund in accordance
with Section 8.2(d) hereof, provided that no such payment or delivery may be
made if the Securityholder Agent shall object in a written statement to the
claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Securityholder Agent shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and Parent shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Securityholder Agent and Parent should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and distribute shares of Parent Common Stock from the
Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Securityholder Agent may demand arbitration
of the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by
arbitration conducted by three arbitrators. Parent and the Securityholder
Agent shall each select one arbitrator, and the two arbitrators so selected
shall select a third arbitrator, each of which arbitrators shall be
independent and have at least ten years relevant
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experience. The arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing
the parties an opportunity, adequate in the sole judgment of the arbitrators,
to discover relevant information from the opposing parties about the subject
matter of the dispute. The arbitrators shall rule upon motions to compel or
limit discovery and shall have the authority to impose sanctions, including
attorneys fees and costs, to the same extent as a court of competent law or
equity, should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to
without substantial justification. The decision of a majority of the three
arbitrators as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this
Agreement, and notwithstanding anything in Section 8.2(e) hereof, the Escrow
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Escrow Fund in accordance therewith. Such
decision shall be written and shall be supported by written findings of fact
and conclusions which shall set forth the award, judgment, decree or order
awarded by the arbitrators.
(iii) Any such arbitration shall be held in Santa Clara
County, California and shall be conducted by, and under the rules then in
effect, of the Judicial Arbitration and Mediation Services, Inc. For
purposes of this Section 8.2(f), in any arbitration hereunder in which any
claim or the amount is at issue, Parent shall be deemed to be the
Non-Prevailing Party in the event that the arbitrators award Parent less than
the sum of one-half (1/2) of the disputed amount plus any amounts not in
dispute; otherwise, the Shareholders as represented by the Securityholder
Agent shall be deemed to be the Non-Prevailing Party. The Non-Prevailing
Party to an arbitration shall pay its own expenses, the fees of each
arbitrator, the administrative costs of the arbitration, and the expenses,
including without limitation, reasonable attorneys' fees and costs, incurred
by the other party to the arbitration. Judgment upon any award rendered by
the arbitrators may be entered in any court having jurisdiction; provided,
however, that in no event will the Non-Prevailing Party be required to pay
any legal fees and costs of the Prevailing Party in an amount in excess of
one-third (a) of the disputed amount. The Securityholder Agent may pay such
amounts (including without limitation unreimbursed expenses of counsel for
the Shareholders and Parent, arbitrator fees and administrative costs) by
distributing shares of Parent Common Stock from the Escrow Fund with respect
to which Parent has not made a claim; provided, however, that no shares of
Parent Common Stock may be distributed from the Escrow Fund prior to the
termination of the Escrow Period and such shares may be distributed only to
the extent that such shares are not required to satisfy any claim for Losses.
(g) SECURITYHOLDER AGENT OF THE SHAREHOLDERS; POWER OF ATTORNEY.
(i) In the event that the Merger is approved, effective upon
such vote, and without further act of any Shareholder, Rajan Raghavan shall
be appointed as agent and attorney-in-fact (the "SECURITYHOLDER AGENT") for
each Shareholder (except such Shareholders, if any, as shall have perfected
their appraisal or dissenters' rights under California Law), for and on
behalf of Shareholders, to give and receive notices and communications, to
authorize delivery to Parent of shares of Parent Common Stock from the Escrow
Fund in satisfaction of claims by Parent, to object
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to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of Securityholder Agent for the
accomplishment of the foregoing. Such agency may be changed by the
Shareholders from time to time upon not less than thirty (30) days prior
written notice to Parent and Escrow Agent; provided that the Securityholder
Agent may not be removed unless holders of a two-thirds interest of the
Escrow Fund agree to such removal and to the identity of the substituted
agent. Any vacancy in the position of Securityholder Agent may be filled by
approval of the holders of a majority in interest of the Escrow Fund. No
bond shall be required of the Securityholder Agent, and the Securityholder
Agent shall not receive compensation for his or her services. Notices or
communications to or from the Securityholder Agent shall constitute notice to
or from each of the Shareholders.
(ii) The Securityholder Agent shall not be liable for any act
done or omitted hereunder as Securityholder Agent while acting in good faith
and in a manner that is not grossly negligent.
(h) ACTIONS OF THE SECURITYHOLDER AGENT. A decision, act,
consent or instruction of the Securityholder Agent shall constitute a
decision of all the Shareholders for whom a portion of the Escrow Amount
otherwise issuable to them is deposited in the Escrow Fund and shall be
final, binding and conclusive upon each of such Shareholders, and the Escrow
Agent and Parent may rely upon any such decision, act, consent or instruction
of the Securityholder Agent as being the decision, act, consent or
instruction of each and every such Shareholder of the Company. The Escrow
Agent and Parent are hereby relieved from any liability to any person for any
acts done by them in accordance with such decision, act, consent or
instruction of the Securityholder Agent.
(i) THIRD-PARTY CLAIMS. In the event Parent becomes aware of a
third-party claim, which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Securityholder Agent of such claim, and
the Securityholder Agent, as representative for the Shareholders, shall be
entitled, at the expense of the Shareholders, to participate in any defense
of such claim. Parent shall have the right in its sole discretion to settle
any such claim; provided, however, that except with the consent of the
Securityholder Agent, no settlement of any such claim with third-party
claimants shall alone be determinative of the amount of any claim against the
Escrow Fund. In the event that the Securityholder Agent has consented to any
such settlement and acknowledged that the claim is a valid claim against the
Escrow Fund, the Securityholder Agent shall have no power or authority to
object under any provision of this Article VIII to the amount of any claim by
Parent against the Escrow Fund with respect to such settlement amount.
(j) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth in this Article
VIII, and as set forth in any additional written escrow instructions which
the Escrow Agent may receive after the date of this Agreement which are signed
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by an officer of Parent and the Securityholder Agent and approved by the
Escrow Agent, and may rely and shall be protected in relying or refraining
from acting on any Officer's Certificate, memorandum, instruction or other
instrument reasonably believed to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be
liable for any act done or omitted hereunder as Escrow Agent while acting in
good faith and in the exercise of reasonable judgment, and any act done or
omitted pursuant to the advice of counsel shall be conclusive evidence of
such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is
hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case the Escrow Agent obeys or complies with any
such order, judgment or decree of any court, the Escrow Agent shall not be
liable to any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to this Agreement
or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent. The Escrow Agent shall not incur any such liability for (A) any act
or failure to act made or omitted in good faith, or (B) any action taken or
omitted in reliance upon any instrument, including any written statement or
affidavit provided for in this Agreement that the Escrow Agent shall in good
faith believe to be genuine, nor will the Escrow Agent be liable or
responsible for forgeries, fraud, impersonations, or determining the scope of
any representative authority. In addition, the Escrow Agent may consult with
legal counsel in connection with Escrow Agent's duties under this Agreement
and shall be fully protected in any act taken, suffered, or permitted by
him/her in good faith in accordance with the advice of counsel. The Escrow
Agent is not responsible for determining and verifying the authority of any
person acting or purporting to act on behalf of any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow
Agent may hold all documents and shares of Parent Common Stock and may wait
for
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settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, may be required, despite
what may be set forth elsewhere in this Agreement. In such event, the Escrow
Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an
action of interpleader requiring the parties to answer and litigate any
claims and rights among themselves. The Escrow Agent is authorized to
deposit with the clerk of the court all documents and shares of Parent Common
Stock held in escrow, except all costs, expenses, charges and reasonable
attorney fees incurred by the Escrow Agent due to the interpleader. The
parties jointly and severally agree to immediately pay the Escrow Agent, to
the extent not previously reimbursed, such amounts so incurred by the Escrow
Agent upon the Escrow Agent's demand therefor, which demand may be made at
any time before or after completion of such action of interpleader. Upon
initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of
this Agreement.
(vii) Parent and the Surviving Corporation agree jointly and
severally to indemnify and hold the Escrow Agent harmless against any and all
losses, claims, damages, liabilities, and expenses, including reasonable
costs of investigation, counsel fees, and disbursements that may be imposed
on Escrow Agent or incurred by Escrow Agent in connection with the
performance of his/her duties under this Agreement, including but not limited
to any litigation arising from this Agreement or involving its subject
matter; provided, however, that in the event the Escrow Agent shall be the
Prevailing Party in connection with any claim or action initiated by a
Shareholder or Shareholders, then such Shareholder or Shareholders shall be
responsible for the indemnification of the Escrow Agent to the full extent
provided by this paragraph.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to Parent and the Securityholder Agent;
provided, however, that no such resignation shall become effective until the
appointment of a successor escrow agent which shall be accomplished as
follows: Parent and the Securityholder Agent shall use their best efforts to
mutually agree on a successor escrow agent within thirty (30) days after
receiving such notice. If Parent and the Securityholder Agent fail to agree
upon a successor escrow agent within such time, the Escrow Agent shall have
the right to appoint a successor escrow agent authorized to do business in
the state of California. The successor escrow agent shall execute and
deliver an instrument accepting such appointment and it shall, without
further acts, be vested with all the estates, properties, rights, powers, and
duties of the predecessor escrow agent as if originally named as escrow
agent. Thereafter, the predecessor escrow agent shall be discharged from any
further duties and liability under this Agreement.
(k) FEES. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be
considered compensation for ordinary services as contemplated by this
Agreement. In the event that the conditions of this Agreement are not
promptly fulfilled, or if the
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Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes
in, any litigation pertaining to this escrow or its subject matter, the
Escrow Agent shall be reasonably compensated for such extraordinary services
and reimbursed for all costs, attorney's fees, and expenses occasioned
thereby. Parent promises to pay these sums upon demand.
(l) CONSEQUENTIAL DAMAGES. In no event shall the Escrow Agent be
liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Escrow
Agent has been advised of the likelihood of such loss or damage and
regardless of the form of action.
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ARTICLE IX
LIMITATION OF LIABILITY
IX.1 LIMITATION. The maximum liability of the Shareholders for Losses
incurred by Parent and/or the Surviving Corporation shall be limited to the
Escrow Fund (the "Maximum Liability for Losses"). Any claim by Parent or the
Surviving Corporation against any or all of the Shareholders must be made on
or before the first anniversary of the Closing and may only be made pursuant
to the procedures set forth in Article VIII. The maximum liability of each
Shareholder for any Losses incurred by Parent and/or the Surviving
Corporation shall be an amount equal to the product obtained by multiplying
(x) the lesser of the Maximum Liability for Losses or the amount of such
Losses actually incurred by Parent or the Surviving Corporation by (y) the
ratio of (a) the total number of shares of Parent Common Stock received by
such person at the Closing to (b) the Aggregate Shares of Parent Common Stock
and shall only be payable out of the Escrow Fund in shares. Parent agrees to
present any claims for Losses solely against the Escrow Fund established
under Article VIII.
IX.2 SETTLEMENT AND GENERAL RELEASE.
(a) From and after the Closing, Parent and the Company and their
respective affiliates, successors and assigns, waive, release and discharge
each of the Shareholders and their successors and permitted assigns from any
and all claims, causes of action, suits, debts, demands, costs, expenses,
attorneys' fees, liabilities and obligations, contingent or fixed, known or
unknown, against any such person, excluding therefrom (i) any claim for
Losses payable from the Escrow, as contemplated by Article VIII hereof; (ii)
any obligation or liability of any Shareholder pursuant to any
confidentiality or nondisclosure agreement, assignment of inventions
agreement, stock option or stock purchase agreement, written employment or
consulting agreement, voting agreement, affiliate's agreement or any other
written agreement (other than this Agreement) currently in effect between
such Shareholder and the Company; and (iii) any other obligation or liability
of the Shareholders as contemplated by this Agreement.
(b) Parent and the Company acknowledge that this waiver, release
and discharge extends to all claims of every nature and kind, known or
unknown, past, present or future, with the exception of the exclusions
identified in Section 9.2(a) above, and any and all rights granted to Parent
and the Company under Section 1542 of the California Civil Code or any
analogous state law or federal law or regulation are hereby expressly waived.
Said Section 1542 of the California Civil Code reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
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ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
X.1 TERMINATION. Except as provided in Section 10.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred by August 15, 1996 (provided that the right to terminate this
Agreement under this clause 10.1(b)(i) shall not be available to any party
whose willful failure to fulfill any obligation hereunder has been the cause
of, or resulted in, the failure of the Effective Time to occur on or before
such date); (ii) there shall be a final nonappealable order of a federal or
state court in effect preventing consummation of the Merger; or (iii) there
shall be any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any Governmental Entity that
would make consummation of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable
to the Merger, by any Governmental Entity, which would: (i) prohibit
Parent's or the Company's ownership or operation of any portion of the
business of the Company or (ii) compel Parent or the Company to dispose of or
hold separate, as a result of the Merger, any portion of the business or
assets of the Company or Parent; in either case, the unavailability of which
assets or business would have a Material Adverse Effect on Parent or would
reasonably be expected to have a Material Adverse Effect on Parent's ability
to realize the benefits expected from the Merger.
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
the Company and as a result of such breach the conditions set forth in
Section 7.3(a) or 7.3(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by the Company within
thirty (30) days through the exercise of its reasonable best efforts, then
for so long as the Company continues to exercise such reasonable best efforts
Parent may not terminate this Agreement under this Section 10.1(d) unless
such breach is not cured within thirty (30) days (but no cure period shall be
required for a breach which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement
on the part of Parent or Merger Sub and as a result of such breach the
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<PAGE>
conditions set forth in Section 7.2(a) or 7.2(b), as the case may be, would
not then be satisfied; provided, however, that if such breach is curable by
Parent or Merger Sub within thirty (30) days through the exercise of its
reasonable best efforts, then for so long as Parent or Merger Sub continues
to exercise such reasonable best efforts the Company may not terminate this
Agreement under this Section 10.1(e) unless such breach is not cured within
thirty (30) days (but no cure period shall be required for a breach which by
its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to Section
10.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
X.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 10.1, this Agreement shall forthwith become void and,
there shall be no liability or obligation on the part of Parent, Merger Sub
or the Company, or their respective officers, directors or shareholders,
provided that the provisions of this Article X shall remain in full force and
effect and survive any termination of this Agreement.
X.3 AMENDMENT. Except as is otherwise required by applicable law, prior
to the Closing, this Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed by Parent, the Company
and the holders of a majority of the outstanding Company Capital Stock.
Except as is otherwise required by applicable law, after the Closing, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed by Parent and by Shareholders who receive more
than 65% of the Parent Common Stock issued or to be issued pursuant to
Section 1.6, or by all of the Shareholders in the case of an amendment to
Articles VIII or IX.
X.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of
the agreements or conditions for the benefit of such party contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party.
ARTICLE XI
GENERAL PROVISIONS
XI.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by
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registered or certified mail (return receipt requested) or sent via facsimile
(with acknowledgment of complete transmission) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or Merger Sub, to:
Phoenix Technologies Ltd.
2770 De La Cruz
Santa Clara, California 95050
Attention: General Counsel
Telephone No.: (408) 654-9000
Facsimile No.: (408) 452-1985
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Douglas H. Collom, Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
(b) if to the Company, to:
Virtual Chips, Inc.
2107 N. First Street, Suite 100
San Jose, California 95131
Attention: Chief Executive Officer
Telephone No.: (408) 452-1600
Facsimile No.: (408) 452-0952
with a copy to:
Pillsbury Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, California 94025
Attention: Jorge A. del Calvo
Telephone No.: (415) 233-4537
Facsimile No.: (415) 233-4545
(c) if to the Securityholder Agent:
Rajan Raghavan
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<PAGE>
(d) if to the Escrow Agent:
Chemical Trust Company of California
XI.2 EXPENSES. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without
limitation, all legal, accounting, financial advisory, consulting and all
other fees and expenses of third parties ("THIRD PARTY EXPENSES") incurred by
a party in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby, shall
be the obligation of the respective party incurring such fees and expenses;
provided, however, that Parent shall pay the reasonable fees of Pillsbury
Madison & Sutro LLP incurred by the Company in connection with the
transactions contemplated by this Agreement.
XI.3 REPRESENTATION OF COMPANY ONLY BY PILLSBURY MADISON & SUTRO LLP AND
WAIVER AS TO FUTURE REPRESENTATION OF SHAREHOLDERS. Pillsbury Madison &
Sutro LLP has represented only the Company in connection with the
transactions contemplated by this Agreement. The Shareholders have not been
represented by Pillsbury Madison & Sutro LLP and are encouraged to hire their
own counsel to represent them in connection with the transactions
contemplated by this Agreement. The Company waives any future conflict of
interest that may arise from, and hereby consents to, Pillsbury Madison &
Sutro LLP's representation of some or all of the Shareholders in any dispute
with Parent or the Company arising from the transactions contemplated by this
Agreement.
XI.4 INTERPRETATION. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The word "agreement" when used herein shall be deemed
in each case to mean any contract, commitment or other agreement, whether
oral or written, that is legally binding. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
XI.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
XI.6 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the schedules and
exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof; (b) are not intended to confer
upon any other person any rights or remedies hereunder; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
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<PAGE>
XI.7 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
XI.8 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will
not preclude the exercise of any other remedy.
XI.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto agrees that process may be served upon
them in any manner authorized by the laws of the State of California for such
persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction and such process.
XI.10 RULES OF CONSTRUCTION. The Company and Parent hereto agree that
they have been represented by counsel during the negotiation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
XI.11 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage will occur in the event that any of the provisions of this Agreement
are not performed in accordance with their specific terms or are otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
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<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Securityholder
Agent, the Escrow Agent, the Affiliate Shareholders and the Shareholders have
caused this Agreement to be signed as of the date first written above.
VIRTUAL CHIPS, INC. PHOENIX TECHNOLOGIES LTD.
By /s/ Rajan Raghavan By /s/ Jack Kay
Rajan Raghavan Jack Kay
President and Chief President and Chief
Executive Officer Executive Officer
SECURITYHOLDER AGENT: SPUD ACQUISITION CORP.
(as to the provisions of
Article VIII only)
By /s/ Rajan Raghavan By /s/ Scott C. Neely
Rajan Raghavan Scott C. Neely
President and Chief President and Chief
Executive Officer Executive Officer
ESCROW AGENT
(as to the provisions of
Article VIII only)
Chemical Trust Company of California
By /s/ R.T. Maravilla
Name: R.T. Maravilla
Title: Assistant Vice President
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<PAGE>
AFFILIATE SHAREHOLDERS:
(for purposes of the provisions
contained in Articles II and III, Sections 5.1,
5.2, 5.3, 5.8, 5.11, 7.2, and Articles VIII, IX, X and XI)
/s/ Rajan Raghavan
________________________________
Rajan Raghavan
/s/ Thomas Anderson
________________________________
Thomas Anderson
/s/ Martin Harding
________________________________
Martin Harding
/s/ Joseph D. Rizzi
________________________________
Joseph D. Rizzi
/s/ A. Thampy Thomas
________________________________
A. Thampy Thomas
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<PAGE>
SHAREHOLDERS:
(for purposes of the provisions
contained in Article III, Sections 5.1,
5.2, 5.3, 5.8, 5.11, 7.2 and Articles VIII,
IX, X and XI)
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
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<PAGE>
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
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<PAGE>
EXHIBIT 10.20
STANDARD INDUSTRIAL LEASE - FULL NET
between
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
as Landlord
and
PHOENIX TECHNOLOGIES LTD.
as Tenant
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<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Lease of Premises . . . . . . . . . . . . . . . . . . 1
2. Term. . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Definitions . . . . . . . . . . . . . . . . . . . . . 2
4. Tenant Improvements/Early Entry . . . . . . . . . . . 4
A. Construction of Tenant Improvements . . . . . 4
B. Early Entry . . . . . . . . . . . . . . . . . 5
5. Rent. . . . . . . . . . . . . . . . . . . . . . . . . 5
A. Basic Rent. . . . . . . . . . . . . . . . . . 5
B. Additional Rent . . . . . . . . . . . . . . . 6
C. Late Charge . . . . . . . . . . . . . . . . . 6
D. Prepaid Rent. . . . . . . . . . . . . . . . . 6
E. Payment of Rent . . . . . . . . . . . . . . . 6
F. Security Deposit. . . . . . . . . . . . . . . 6
6. [Intentionally omitted] . . . . . . . . . . . . . . . 7
7. Use . . . . . . . . . . . . . . . . . . . . . . . . . 7
A. Permitted Use . . . . . . . . . . . . . . . . 7
B. Prohibited Uses . . . . . . . . . . . . . . . 7
C. Insurance Requirements. . . . . . . . . . . . 8
D. Common Areas. . . . . . . . . . . . . . . . . 8
E. Rules and Regulations . . . . . . . . . . . . 8
F. Parking . . . . . . . . . . . . . . . . . . . 8
8. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . 9
9. Taxes . . . . . . . . . . . . . . . . . . . . . . . .10
A. Real Property Taxes Defined . . . . . . . . .10
B. Tenant's Obligation to Reimburse. . . . . . .11
C. Taxes on Tenant's Property. . . . . . . . . .11
10. Utilities . . . . . . . . . . . . . . . . . . . . . .11
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
11. Insurance . . . . . . . . . . . . . . . . . . . . . .11
A. Tenant's Insurance. . . . . . . . . . . . . .11
B. Landlord's Insurance. . . . . . . . . . . . .13
C. Tenant's Obligation to Reimburse. . . . . . .13
D. Release and Waiver of Subrogation . . . . . .14
12. Landlord's Right to Perform Tenant's Covenants. . . .14
13. Maintenance and Repair. . . . . . . . . . . . . . . .15
A. Condition on Delivery . . . . . . . . . . . .15
B. Tenant's Obligations. . . . . . . . . . . . .15
C. Landlord's Obligation to Maintain . . . . . .17
D. Tenant's Early Occupancy Date or the
Obligation to Reimburse. . . . . . . . . . .18
E. Common Operating Expenses Defined . . . . . .19
F. Audit . . . . . . . . . . . . . . . . . . . .20
G. Control of Common Areas . . . . . . . . . . .21
14. Surrender of Premises . . . . . . . . . . . . . . . .21
15. Compliance With Laws. . . . . . . . . . . . . . . . .22
A. Landlord's Obligations. . . . . . . . . . . .22
B. Tenant's Obligations. . . . . . . . . . . . .23
16. Hazardous Materials . . . . . . . . . . . . . . . . .23
A. Tenant's Obligations. . . . . . . . . . . . .23
B. Tenant's Indemnity. . . . . . . . . . . . . .24
C. Notices . . . . . . . . . . . . . . . . . . .24
D. Testing . . . . . . . . . . . . . . . . . . .24
E. Survival. . . . . . . . . . . . . . . . . . .24
17. Alterations . . . . . . . . . . . . . . . . . . . . .25
A. Consent Required. . . . . . . . . . . . . . .25
B. Conditions. . . . . . . . . . . . . . . . . .26
C. Property of Tenant. . . . . . . . . . . . . .26
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
18. Damage or Destruction . . . . . . . . . . . . . . . .26
A. Landlord's Duty to Restore. . . . . . . . . .26
B. Landlord's Right to Terminate . . . . . . . .27
C. Tenant's Right to Terminate . . . . . . . . .28
D. Payment of Deductibles. . . . . . . . . . . .29
E. Abatement of Rent . . . . . . . . . . . . . .29
F. Waiver. . . . . . . . . . . . . . . . . . . .29
19. Condemnation. . . . . . . . . . . . . . . . . . . . .30
A. Tenant's Right of Termination . . . . . . . .30
B. Condemnation Award. . . . . . . . . . . . . .30
C. Restoration . . . . . . . . . . . . . . . . .30
20. Mechanic's Liens. . . . . . . . . . . . . . . . . . .30
21. Financial Statements. . . . . . . . . . . . . . . . .31
22. Landlord's Entry. . . . . . . . . . . . . . . . . . .31
23. Assignment and Subletting . . . . . . . . . . . . . .31
24. Subordination . . . . . . . . . . . . . . . . . . . .34
25. Attornment. . . . . . . . . . . . . . . . . . . . . .34
26. Indemnification . . . . . . . . . . . . . . . . . . .35
27. Attorneys' Fees . . . . . . . . . . . . . . . . . . .35
28. No Representations. . . . . . . . . . . . . . . . . .35
29. Default . . . . . . . . . . . . . . . . . . . . . . .35
A. Events of Default . . . . . . . . . . . . . .35
B. Landlord's Remedies . . . . . . . . . . . . .36
C. Cumulative Remedies . . . . . . . . . . . . .37
D. No Waivers. . . . . . . . . . . . . . . . . .37
E. Application of Tenant Deposits. . . . . . . .37
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
F. Landlord's Default. . . . . . . . . . . . . .37
30. Holding Over. . . . . . . . . . . . . . . . . . . . .38
31. Notices . . . . . . . . . . . . . . . . . . . . . . .38
32. Limitation of Landlord's Liability. . . . . . . . . .38
A. Upon Sale or Transfer . . . . . . . . . . . .38
B. Limitation of Recourse. . . . . . . . . . . .39
33. Estoppel Certificates . . . . . . . . . . . . . . . .39
34. Brokerage . . . . . . . . . . . . . . . . . . . . . .39
35. Signage . . . . . . . . . . . . . . . . . . . . . . .40
36. Option to Extend. . . . . . . . . . . . . . . . . . .40
37. [Intentionally Omitted.] . . . . . . . . . . . . . .41
38. Miscellaneous . . . . . . . . . . . . . . . . . . . .41
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TABLE OF CONTENTS
(CONTINUED)
PAGE
----
SCHEDULE OF EXHIBITS
Exhibit A - Map of Parcel E
Exhibit A-1 - Legal Description of Project
Exhibit A-2 Diagram of Reduced Premises Area
Exhibit B - Site Plan
Exhibit C - Improvement Agreement
Exhibit D - Form of Acceptance Agreement
Exhibit E - Hazardous Materials Questionnaire
Exhibit F Parcel E Environmental Reports
-v-
<PAGE>
STANDARD INDUSTRIAL LEASE - FULL NET
THIS LEASE, dated as of May 15, 1996, for reference purposes only,
is made by and between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED
STATES, a New York corporation ("Landlord"), and PHOENIX TECHNOLOGIES LTD., a
Delaware corporation ("Tenant"), upon the following terms and conditions.
1. LEASE OF PREMISES. Landlord hereby leases to Tenant, and
Tenant hereby leases from Landlord, for the Lease Term and upon the terms and
conditions hereinafter set forth, that certain building structure commonly
known as 411 East Plumeria Drive, Building "E" of the Montague Industrial
Park, San Jose, California, as shown on EXHIBIT "A" attached hereto,
containing approximately 86,602 square feet of Gross Leasable Area
(interchangeably referred to herein as the "Premises" or "Building"),
together with (i) the exclusive right to use no more than the number of
Tenant's Allocated Parking Stalls (subject to the terms and conditions set
forth in subparagraph 7(F), below), and (ii) the non-exclusive right to use
the Common Areas for vehicular and pedestrian ingress to and egress from the
Premises. Notwithstanding the foregoing to the contrary, during that period
of time commencing on the Commencement Date and continuing thereafter until
the first anniversary thereof (which period of time shall be referred to
herein as the "First Lease Year"), Tenant shall have the right to occupy only
that approximately fifty-five thousand (55,000) square feet of the Premises
as shown on EXHIBIT "A-2" attached hereto (which area shall be referred to
herein as the "Reduced Premises Area") together with the use of the parking
areas and Common Areas described in clauses (i) and (ii) above of this
Paragraph 1. During the First Lease Year, Landlord shall have the right to
lease all or any portion of the Reduced Premises Area so long as the term of
any such lease expires on or before the expiration of the First Lease Year.
If Landlord does not elect to lease the Reduced Premises Area, Tenant shall
be responsible for all of the obligations and liabilities under this as they
relate to the entire Premises including, without limitation, the following:
(i) the obligation to pay Common Operating Expenses, insurance and Real
Property Taxes as they relate to the entire Premises, (ii) the obligation to
keep in good order condition and repair the entire Premises, (iii) the
obligation to maintain insurance covering the entire Premises, and (iv)
indemnifications obligations with respect to the entire Premises. If
Landlord elects to lease all or a portion of the Reduced Premises Area, then,
with respect to those obligations and liabilities that vary with the size of
the Premises including, without limitation, the obligations and liabilities
set forth in clauses (i) through (iv) above, Tenant shall only be responsible
for such obligations and liabilities to the extent that they are fairly
allocable to the Premises and to this end, Landlord and Tenant shall execute
an amendment to this Lease to implement the intent of the parties. During
the First Lease Year, Landlord shall have the right, without Tenant's
consent, to enter and use the Reduced Premises Area at any time and for any
purpose. Tenant's lease of the Premises and use of the Common Areas shall be
subject to any and all existing encumbrances, easements, conditions,
covenants, and restrictions ("CC&R's"), and rights-of-way now recorded as an
interest affecting the Project, and such other matters as may be disclosed by
inspection or survey.
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2. TERM. The term of this Lease shall commence on the
Commencement Date (as hereinafter defined) and terminate on the last day of
the eighty-fourth (84th) full calendar month following the Commencement Date
(the "Expiration Date"), unless sooner terminated pursuant to the provisions
hereof.
3. DEFINITIONS. As used herein, the following terms shall have
the following meanings:
A. The term "Agent" shall mean, with respect to either
Landlord or Tenant, its respective agents, employees, contractors (and their
subcontractors) and invitees (and the employees of such contractors,
subcontractors and invitees). In the case of Tenant, the term "Agent" shall
also mean and include its subtenants and the Agents of such subtenants. In
the case of Landlord, the term "Agent" shall not mean nor include the tenants
(and their subtenants) of other buildings within the Project or other
properties in the vicinity of the Project owned by Landlord.
B. The term "Alterations" shall mean all improvements,
additions, alterations and fixtures installed in the Premises by Tenant at
its expense which are not Trade Fixtures.
C. The term "Building Areas" shall mean those areas of
the Project on which buildings are constructed from time to time, intended
for the exclusive use of the occupants thereof (excluding any outside areas
such as the parking lot and driveways), which areas as now configured are so
labeled and shown on the attached Site Plan. It is expressly understood that
Landlord shall have the right at any time, and from time to time, to change
or reconfigure the Building Areas (except for the Premises), and to add
additional buildings to or delete buildings from the Project.
D. The term "Commencement Date" shall mean the later
of (i) November 1, 1996 and (ii) that date by which all of the following have
occurred: (a) Landlord has substantially completed the Tenant Improvements
in accordance with subparagraph 2.C of the Improvement Agreement; and (b)
Landlord has delivered possession of the Premises to Tenant. The
Commencement Date shall be advanced one (1) day for each day of delay in
construction or completion of the Tenant Improvements caused by "Tenant
Delay", as provided in paragraph 7 of the Improvement Agreement. Landlord
shall use reasonable efforts to notify Tenant of Landlord's estimation of the
earliest date on which the Commencement Date will occur at least fifteen (15)
days prior to such estimated date. Landlord's estimation shall be based upon
information available to Landlord at the time in question.
E. The term "Common Areas" shall mean all areas of the
Project other than Building Areas, including parking areas, access road and
driveways, landscaped areas, loading areas, pedestrian sidewalks and plazas,
which Common Areas are shown on the attached Site Plan. It is understood
that Landlord shall have the right at any time, and from time to time, to add
property to or remove property from the Common Areas, or to reconfigure same,
provided that (i) there is at all times parking available within the Project
satisfying the requirements of applicable Law, (ii) any such
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changes do not materially interfere with access to the Premises and (iii) any
such changes do not reduce the number of parking spaces granted to Tenant
under subparagraph 7(F) of this Lease.
F. The term "Default Interest Rate" shall mean an
annual rate equal to four percent (4%) over the annual prime rate of interest
announced publicly by Citibank, N.A. in New York, New York from time to time
or the maximum interest rate permitted by any applicable usury law, whichever
is less.
G. The term "Effective Date" shall mean the date this
Lease is executed by the last signatory hereto whose execution of this Lease
is required to make it legally binding on both Landlord and Tenant.
H. The term "Gross Leasable Area" shall mean the area
within the Building, and each building located on the Project, measured from
the exterior faces of exterior walls, including the inset area at each
entryway and the inset area for glazing, but excluding truck dock areas, roof
overhangs, atriums, courtyards and outside decks.
I. The term "Hazardous Materials" shall mean any
substances, materials, and wastes that are or become regulated as hazardous
or toxic substances under any applicable local, state or federal law,
regulation or order.
J. The term "Law" shall mean any judicial decision,
statute, constitution, ordinance, resolution, regulation, rule,
administrative order, or other requirement of any municipal, county, state,
federal or other governmental agency or authority having jurisdiction over
the parties to this Lease or the Premises.
K. The term "Lease Term" shall mean the term of this
Lease as described in paragraph 2 hereof and, upon exercise of an option to
extend, as provided in paragraph 36 hereof, shall include the Option Term
resulting from such exercise.
L. The term "Lender" shall mean the holder of any
mortgage or deed of trust encumbering, or ground leasehold interest in, the
Premises.
M. The term "Parcel E" shall mean that certain real
property upon which the Premises is located and shown as Parcel "E" on
EXHIBIT "A" attached hereto.
N. The term "Premises Gross Leasable Area" shall mean
the Gross Leasable Area of the Building. For purposes of this Lease, the
Gross Leasable Area of the Building as now configured shall be deemed to be
86,602 square feet. Even if the Gross Leasable Area of the Building is
actually determined to be otherwise, Landlord and Tenant agree that Basic
Rent, Additional Rent and Tenant's Prorata Share shall be as provided in this
Lease and shall not be adjusted.
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O. The term "Project" shall mean all of the property
shown on the attached Site Plan, and all buildings and other improvements
located thereon from time to time, commonly known as Montague Industrial
Park, and more particularly described in attached EXHIBIT "A-1".
P. The term "Project Gross Leasable Area" shall mean
the total aggregate Gross Leasable Area of all buildings constructed from
time to time within the Project. It is acknowledged and agreed that the
current Gross Leasable Area of all buildings now constructed within the
Project is approximately 417,532 square feet. If Landlord at any time
hereafter changes the composition of the Project by removing or adding
buildings thereto, the "Project Gross Leasable Area" shall be appropriately
adjusted. Landlord represents and warrants that the method of measurement of
the Project Gross Leasable Area is the same as the method of measurement of
the Premises Gross Leasable Area.
Q. The term "Site Plan" shall mean that certain Site
Plan attached hereto as EXHIBIT "B", showing the Premises and depicting the
existing location and configuration of all Building Areas and the Common
Areas of the Project.
R. The term "Tenant Improvements" shall mean those
improvements to be constructed by Landlord as provided in the Improvement
Agreement, EXHIBIT "C" hereto.
S. The term "Tenant's Allocated Parking Stalls" shall
mean Three Hundred Twenty-Nine (329) parking stalls contained within Parcel E
for the use of Tenant, its employees and invitees, as provided in
subparagraph 7(F), below.
T. The term "Tenant's Prorata Share" shall mean twenty
and seventy-four one-hundredths percent (20.74%).
U. The term "Trade Fixtures" shall mean anything
installed in or affixed to the Premises by Tenant at its expense for purposes
of trade, manufacture, ornament or use (except replacement of similar work or
material originally installed by Landlord) which can be removed without
injury to the Premises (E.G., demountable partitions, business and production
equipment and systems, furniture and furnishings) unless such thing has, by
the manner in which it is affixed, become an integral part of the Premises.
4. TENANT IMPROVEMENTS/EARLY ENTRY.
A. CONSTRUCTION OF TENANT IMPROVEMENTS. Landlord
shall construct or cause to be constructed the Tenant Improvements pursuant
to the Improvement Agreement attached hereto as EXHIBIT "C", and shall cause
such work to be completed as soon after the Effective Date as reasonably
practicable.
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B. EARLY ENTRY. If, before November 1, 1996, the
Tenant Improvements are substantially completed and Tenant has obtained all
governmental approvals and permits required for the legal occupancy of the
Premises for Tenant's intended use, then Tenant shall have the right to
occupy the Premises at such time that the foregoing events have occurred (the
"Early Occupancy Date"). If Tenant elects to take early occupancy of the
Premises, then during the period commencing on the Early Occupancy Date and
continuing until the Commencement Date, any entry by Tenant onto the Premises
shall be subject to all of the terms and conditions of this Lease other than
payment of Basic Rent.
5. RENT. Tenant shall pay rent during the Lease Term in
accordance with the terms of this paragraph 5, as follows:
A. BASIC RENT. During the Lease Term, Tenant shall
pay a fixed monthly net rental (the "Basic Rent") in accordance with the
following:
(1) Basic Rent for the period commencing on the
Commencement Date and continuing until the first (1st) day of the thirteenth
(13th) month of the Lease Term shall be Fifty-Seven Thousand Seven Hundred
Fifty Dollars ($57,750.00).
(2) Basic Rent for the period commencing on the
first day of the thirteenth (13th) full calendar month of the Lease Term and
continuing until the first (1st) day of the twenty-fifth (25th) full calendar
month of the Lease Term shall be Ninety-Nine Thousand Five Hundred Ninety-Two
Dollars ($99,592.00).
(3) Basic Rent for the period commencing on the
first (1st) day of the twenty-fifth (25th) full calendar month of the Lease
Term and continuing until the first (1st) day of the thirty-seventh (37th)
full calendar month of the Lease Term shall be One Hundred Three Thousand
Nine Hundred Twenty-Two Dollars ($103,922.00).
(4) Basic Rent for the period commencing on the
first (1st) day of the thirty-seventh (37th) full calendar month of the Lease
Term and continuing until the first (1st) day of the forty-ninth (49th) full
calendar month of the Lease Term shall be One Hundred Eight Thousand Two
Hundred Fifty-Two Dollars ($108,252.00).
(5) Basic Rent for the period commencing on the
first (1st) day of the forty-ninth (49th) full calendar month of the Lease
Term and continuing until the first (1st) day of the sixty-first(61st) full
calendar month of the Lease Term shall be One Hundred Twelve Thousand Five
Hundred Eighty-Two Dollars ($112,582.00).
(6) Basic Rent for the period commencing on the
first (1st) day of the sixty-first (61st) full calendar month of the Lease
Term and continuing until the first (1st) day of the
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seventy-third (73rd) full calendar month of the Lease Term shall be One
Hundred Sixteen Thousand Nine Hundred Twelve Dollars ($116,912.00).
(7) Basic Rent for the period commencing on the
first (1st) day of the seventy-third (73rd) full calendar month of the Lease
Term and continuing until the Expiration Date shall be One Hundred Twenty-One
Thousand Two Hundred Forty-Two Dollars ($121,242.00).
B. ADDITIONAL RENT. Commencing on the Commencement
Date and continuing throughout the Lease Term, Tenant shall be obligated to
pay Real Property Taxes (as provided in paragraph 9 hereof), insurance
premiums (as provided in paragraph 11 hereof), and all other sums required to
be paid by Tenant under this Lease. All Real Property Taxes, insurance
premiums, late charges, costs and expenses which Tenant is required to pay
hereunder, together with all interest and penalties that may accrue thereon
in the event of Tenant's failure to pay such amounts, shall be deemed to be
additional rent ("Additional Rent"), and shall be paid in addition to the
Basic Rent. In the event of Tenant's nonpayment of Additional Rent, Landlord
shall have all of the rights and remedies with respect thereto as Landlord
has for the nonpayment of Basic Rent.
C. LATE CHARGE. If any installment of rent or any
other sum due from Tenant shall not be received by Landlord when due, and if
such amount remains unpaid at the end of ten (10) business days after such
sum is due, Tenant shall pay to Landlord a late charge equal to five percent
(5%) of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant based upon the circumstances existing as of
the date of this Lease.
D. PREPAID RENT. On or before the Effective Date,
Tenant shall pay to Landlord Fifty-Seven Thousand Seven Hundred Fifty Dollars
($57,750) as prepayment of Basic Rent for credit against the first
install-ment of Basic Rent due pursuant to this Lease.
E. PAYMENT OF RENT. All rent required to be paid in
monthly installments pursuant to this Lease shall be paid in advance on the
first day of each calendar month during the Lease Term. All rent shall be
paid in lawful money of the United States, without any abatement, deduction
or offset whatsoever (except as otherwise specifically provided in this
Lease), and without any prior demand therefor. Rent shall be paid to
Landlord at such place or address as Landlord may designate in writing from
time to time. Tenant's obligation to pay Basic Rent and Additional Rent
shall be prorated at the commencement and expiration of the Lease Term.
F. SECURITY DEPOSIT. On or before the Effective Date,
Tenant shall deposit with Landlord in cash Ninety-Nine Thousand Five Hundred
Ninety-Two Dollars ($99,592) which amount shall be held by Landlord as
security for the performance by Tenant of its obligations under this Lease
and not as prepayment of rent (the "Security Deposit"). Landlord may from
time to time apply or draw upon such Security Deposit as is reasonably
necessary for the following purposes: (i) to remedy
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any default by Tenant in the payment of rent; (ii) to repair damages to the
Premises caused by Tenant; (iii) to clean the Premises upon termination of
the Lease; and (iv) to remedy any other default of Tenant under this Lease to
the extent permitted by Law, and, in this regard, Tenant hereby waives any
restriction on the uses to which the Security Deposit may be put contained in
California Civil Code Section 1950.7. In the event the Security Deposit or
any portion thereof is so used or drawn upon, Tenant agrees to pay to
Landlord promptly upon demand an amount in cash in an amount sufficient to
restore the Security Deposit to the full original amount. Landlord shall not
be deemed a trustee of the Security Deposit, may use the Security Deposit in
its business, and shall not be required to segregate it from its general
accounts. Tenant shall not be entitled to any interest on the Security
Deposit. If Landlord transfers the Premises during the Lease Term, Landlord
may transfer any Security Deposit to any transferee of Landlord's interest in
conformity with provisions of California Civil Code Section 1950.7 and any
successor statute, in which event Landlord will be released from all
liability for the return of any such cash Security Deposit.
6. [Intentionally omitted]
7. USE.
A. PERMITTED USE. The Premises may be used and
occupied only for general administrative offices, testing, research and
development, manufacturing and storage of computer technology, related
marketing and sales activity, and any other related use conforming to Law and
all existing recorded covenants, conditions, and restrictions affecting the
Premises which related use has been approved by Landlord.
B. PROHIBITED USES. Tenant shall not do or permit
anything to be done in or about the Premises or Common Areas which will
interfere with the rights of other occupants of the Project, cause damage to
the structure, roof or other parts of the Premises. Tenant shall not operate
any equipment within the Premises which will (i) injure, vibrate or shake the
Premises, (ii) overload existing electrical systems or other mechanical
equipment servicing the Premises, or (iii) impair the efficient operation of
the fire sprinkler system or the heating, ventilating or air conditioning
("HVAC") equipment servicing the Premises, or (iv) damage, overload or
corrode the sanitary sewer system. Tenant shall not attach, hang or suspend
anything from the ceiling, roof, walls or columns of the Premises or set any
load on the floor in excess of approved structural limits as defined by
Landlord's architect. Any dust, fumes, or waste products generated by
Tenant's use of the Premises shall be contained and disposed of in a manner
that does not create a fire or health hazard, damage the Premises, or
interfere with the businesses of other occupants of the Project. All noise
or odors generated by Tenant shall be contained or muffled so that they do
not interfere with the businesses of other occupants of the Project. Tenant
shall not commit nor permit to be committed any waste in or about the
Premises, and Tenant shall not create or permit at the Premises any
objectionable noises, odors, dust or nuisances which may disturb the quiet
enjoyment of other occupants of the Project.
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C. INSURANCE REQUIREMENTS. Tenant shall not use or
permit Tenant's Agents to use the Premises or Common Areas in any manner
which will cause a cancellation of any insurance policy covering the
Premises. Tenant shall not sell, or permit to be kept, used, or sold in or
about the Premises any article which may be prohibited by Lessor's standard
form of fire and property damage insurance policy. Tenant shall comply with
all reasonable requirements of any insurance company, insurance underwriter,
or Board of Fire Underwriters which directly relate to use of the Premises
and which are necessary to maintain, at reasonable rates, the insurance
coverage carried by Landlord pursuant to this Lease.
D. COMMON AREAS. No materials, supplies, storage
tanks or containers, equipment, finished products or semi-finished products,
raw materials, inoperable vehicles or articles of any nature shall be stored
upon or permitted to remain outside of the Premises, except in enclosed areas
specifically designed for exterior storage designated or otherwise approved
by Landlord for such use. All entrances to such outside trash enclosures, if
any, shall be kept closed, and waste shall be stored in such manner as not to
be visible from the exterior of such outside enclosures.
E. RULES AND REGULATIONS. Landlord may from time to
time promulgate reasonable rules and regulations applicable to all occupants
of the Project for the care and orderly management of the Project and the
safety of its tenants and invitees, provided (i) the Common Operating
Expenses and other costs payable by Tenant hereunder are not thereby
materially increased, (ii) such rules and regulations do not materially
increase the obligations or decrease the rights of Tenant under this Lease,
and (iii) such rules and regulations are nondiscriminatory among the
occupants of the Project. Such rules and regulations shall be binding upon
Tenant upon delivery of a copy thereof to Tenant, and Tenant agrees to abide
by such rules and regulations. If there is a conflict between the rules and
regulations and any of the provisions of this Lease, the provisions of this
Lease shall prevail. Landlord shall not be responsible for the violation of
such rules and regulations by any other occupants of the Project, but
Landlord shall use commercially reasonable efforts to enforce compliance with
such rules and regulations by all occupants of the Project.
F. PARKING. Tenant is hereby allocated, and shall
with its Agents have the exclusive right to use, without charge in addition
to the Basic Rent, no more than the number of Tenant's Allocated Parking
Stalls within that portion of the Common Areas of the Project hereinafter
designated, subject to the following terms and conditions:
(1) Tenant and its Agents shall be permitted to
park only within those parking spaces located on Parcel E shown cross-hatched
on EXHIBIT "A" attached hereto.
(2) Landlord shall have no obligation to police
or otherwise enforce Tenant's exclusive parking rights hereunder against any
other occupants or users of the Project, but shall, upon written request by
Tenant, notify other occupants of the Project of Tenant's exclusive
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parking rights and request that such other occupants, their employees and
invitees, park in those portions of the Common Areas not designated for
Tenant's exclusive use.
(3) Tenant shall not at any time use or permit
its employees or invitees to use more parking spaces within the Common Areas
than the number of Tenant's Allocated Parking Stalls or to park or permit the
parking of its vehicles or the vehicles of others in any portion of the
Project not designated by Landlord as Tenant's parking area.
(4) Tenant shall furnish Landlord, within ten
(10) business days after written request from Landlord, with a list of its
employees' vehicle license numbers and Tenant shall thereafter notify
Landlord of any change in such list within five (5) days after each such
change occurs. Tenant shall have the right, at Tenant's option, to provide
its employees with stickers or other identification markers or tags to be
placed in or on the employees' automobiles or other vehicles, evidencing the
right of such employees to use the parking areas. Such stickers shall be
subject to prior review and approval by Landlord. Tenant shall furnish to
Landlord a list of identifying numbers for the stickers distributed from time
to time by Tenant to its employees. If Tenant elects to use such stickers as
provided herein, Tenant shall not be obligated to furnish Landlord with a
list of vehicle license numbers for its employees, for as long as Tenant
maintains in effect such sticker system of identification. Landlord reserves
the right to have any vehicles owned by Tenant or its Agents utilizing
parking spaces in excess of Tenant's Allocated Parking Stalls, to be towed
away at Tenant's cost.
(5) All trucks and delivery vehicles shall be
(i) parked only within those specific areas designated as loading zones, and
(ii) loaded and unloaded in a manner which does not unreasonably interfere
with the businesses of other occupants of the Project. Landlord has advised
Tenant that the parking areas, driveways and sidewalks within the Common Area
have been improved with two different strengths of paving, one of which is
designated for heavy truck traffic, the location of which pavement is shown
as the "Truck Circulation Area" on EXHIBIT "B" attached hereto. Tenant shall
cause all trucks brought onto the Project by Tenant, its agents, employees,
contractors and invitees to be operated and parked only within such Truck
Circulation Area to minimize damage to the other paved areas of the Common
Area.
(6) In the event Landlord is required by any
Law to limit or control parking on the Property, whether by validation of
parking tickets or any other method of assessment, Tenant agrees to
participate in such validation or assessment program under such reasonable
rules and regulations as are from time to time established by Landlord.
8. QUIET ENJOYMENT. Provided Tenant performs its obligations
hereunder, Tenant may lawfully and quietly occupy the Premises during the
Lease Term without hindrance or molestation by Landlord, subject, however, to
the matters herein set forth, and neither Landlord, nor any party claiming
under or through Landlord, shall disturb Tenant's use or occupancy of the
Premises.
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9. TAXES.
A. REAL PROPERTY TAXES DEFINED.
(1) INCLUDED IN DEFINITION. The term "Real
Property Taxes" as used herein shall mean (i) all taxes, assessments, levies,
and other charges of any kind or nature whatsoever, general and special,
foreseen and unforseen (including all installments of principal and interest
required to pay any existing or future general or special assessments for
public improvements, services or benefits, and any increases resulting from
reassessments or resulting from a change in ownership or any other cause),
now or hereafter imposed by any governmental or quasi-governmental authority
or special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the
value, occupancy or use of, all or any portion of Parcel E (as now
constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein, the fixtures, equipment
and other property of Landlord, real or personal, that are an integral part
of and located on Parcel E, the gross receipts, income or rentals from Parcel
E, or the use of parking areas, public utilities, or energy within Parcel E;
(ii) all charges, levies or fees imposed by reason of environmental
regulation or other governmental control of Parcel E (but not including any
tax on Hazardous Materials which is expressly excluded from the definition of
Real Property Taxes under the provisions of subparagraph 9(A)(2)(vii),
below); and (iii) all costs and fees (including reasonable attorneys' fees)
incurred by Landlord in contesting any Real Property Tax and in negotiating
with public authorities as to any Real Property Tax. If at any time during
the Lease Term the method of taxation or assessment of Parcel E prevailing as
of the Effective Date shall be altered so that in lieu of or in addition to
any Real Property Tax described above there shall be levied, assessed or
imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate
or additional tax or charge (i) on the value, use or occupancy of Parcel E,
(ii) on or measured by the gross receipts, income or rentals from Parcel E,
(iii) on Landlord's business of leasing Parcel E, or (iv) computed in any
manner with respect to the operation of Parcel E, then any such tax or
charge, however, designated, shall be included within the meaning of the term
"Real Property Taxes" for purposes of this Lease. If any Real Property Tax
is based upon property or rents unrelated to Parcel E, then only that part of
such Real Property Tax that is fairly allocable to Parcel E shall be included
within the meaning of the term "Real Property Taxes".
(2) EXCLUDED FROM DEFINITION. Notwithstanding
the foregoing, the following shall not constitute Real Property Taxes for the
purpose of this Lease, and nothing herein shall be deemed to require Tenant
to pay any of the following: (i) any state, local, federal, personal or
corporate income tax measured by the net income of Landlord from all sources;
(ii) any estate or inheritance taxes; (iii) any franchise, succession or city
or county transfer taxes; (iv) interest on taxes or penalties resulting from
Landlord's failure to pay taxes (unless due to Tenant's failure to pay to
Landlord Real Property Taxes as provided herein); and (v) any tax imposed on
the Premises due to
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the presence, use or release of Hazardous Materials thereon unless based on
Tenant's storage, disposal or use of Hazardous Materials on the Premises.
B. TENANT'S OBLIGATION TO REIMBURSE. As Additional
Rent, Tenant shall pay to Landlord all Real Property Taxes which become due
after the Commencement Date and continuing throughout the remainder of the
Lease Term to the extent that such Real Property Taxes are fairly allocable
to the Lease Term. Tenant shall pay Real Property Taxes (i) within thirty
(30) days after Tenant's receipt of Landlord's written billing therefor
(which billing shall include a copy of Landlord's applicable tax bills or
other evidence reasonably available to Landlord substantiating the amount
billed to Tenant), or (ii) no later than twenty (20) days before such Real
Property Tax becomes delinquent, whichever last occurs. Tenant may not
withhold payment of such bill pending receipt and/or review of such evidence.
If any Lender requires Landlord to impound Real Property Taxes on a periodic
basis during the Lease Term, then Tenant, on notice from Landlord indicating
this requirement, shall pay a sum of money toward its liability under this
paragraph to Landlord on the same periodic basis as required by Tenant's
Lender, if any, but no more frequently than once a month. If any assessments
are levied against Parcel E, Landlord may elect either to pay the assessment
in full or to allow the assessment to go to bond. If Landlord pays the
assessment in full, Tenant shall pay to Landlord each time payment of Real
Property Taxes is made a sum equal to that which would have been payable (as
both principal and interest) had Landlord allowed the assessment to go to
bond with the maximum payment period allowed thereunder.
C. TAXES ON TENANT'S PROPERTY. Tenant shall pay
before delinquency any and all taxes, assessments, license fees and public
charges levied, assessed or imposed against Tenant or Tenant's estate in this
Lease or the property of Tenant situated within the Premises which become due
during the Lease Term. Tenant shall furnish Landlord with satisfactory
evidence of these payments within thirty (30) days after receipt of written
request therefor from Landlord, but no more than once each year.
10. UTILITIES. Tenant shall pay all utility deposits and fees,
and all monthly service charges for heat, water, gas, electricity, sewer
service, elevator (if there be any) and cleaning service, telephone service,
and any other utilities whatsoever furnished to the Premises during the
period commencing on the earlier to occur of the Commencement Date or the
date Tenant occupies any portion of the Premises pursuant to subparagraph
4(B) and continuing throughout the remainder of the Lease Term.
11. INSURANCE.
A. TENANT'S INSURANCE. Tenant shall maintain
insurance complying with all of the following:
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(1) Tenant shall procure, pay for and keep in
full force and effect the following:
a. Commercial general liability
insurance, including property damage, against liability for personal injury,
bodily injury, death and damage to property occurring in or about, or
resulting from an occurrence in or about, the Premises with combined single
limit coverage of not less than Two Million Dollars ($2,000,000), which
insurance shall contain a "contractual liability" endorsement insuring
Tenant's performance of Tenant's obligation to indemnify Landlord contained
in paragraph 26 hereof;
b. Fire and property damage insurance
in so-called "all risk" form insuring Tenant's Trade Fixtures and Tenant's
Alterations for the full replacement cost thereof;
c. Such other insurance that is
reasonably required by Landlord or Landlord's Lender and customarily required
by landlords of similar properties in Santa Clara County, or lenders who do
business in Santa Clara County, and available at commercially reasonable
rates.
(2) Where applicable and required by Landlord,
each policy of insurance required to be carried by Tenant pursuant to this
paragraph 11: (i) shall name as additional insureds Landlord and, if
requested by Landlord, Landlord's Lender, property manager and/or directors;
(ii) shall be primary insurance which provides that the insurer shall be
liable for the full amount of the loss up to and including the total amount
of liability set forth on the declaration page of each such policy without
the right of contribution from any other insurance coverage of Landlord;
(iii) shall be carried with companies licensed to do business in California
and which have a general policy holders rating of at least "A" and a
financial rating of at least "VIII" as set forth in the most current issue of
Best's Insurance Guide; (iv) shall contain a provision whereby the insurer
will endeavor to provide Landlord with thirty (30) days' prior written notice
of any proposed cancellation, lapse or change of any policy; (v) shall not
have a "deductible" in excess of Twenty-Five Thousand Dollars ($25,000)
without Landlord's consent; (vi) shall contain a "cross liability"
endorsement; and (vii) shall contain a "severability of interest" clause. If
Tenant has in full force and effect a blanket policy of liability insurance
with the same coverage for the Premises as described above, as well as other
coverage of other premises and properties of Tenant, or in which Tenant has
some interest, such blanket insurance shall satisfy the requirements of this
subparagraph 11.A.
(3) Evidence of insurance certifying that the
insurance to be carried by Tenant pursuant to this subparagraph 11.A is in
effect, shall be delivered to Landlord prior to the time Tenant or any of its
Agents takes possession of, or commences any construction activities at, the
Premises and upon renewal of such policies, but not less than ten (10) days
prior to the expiration of the term of such coverage. If any Lender or
Landlord's insurance advisor reasonably determines at any time that the
amount of coverage required for any policy of insurance Tenant is to obtain
pursuant to this subparagraph 11.A is not adequate, then Tenant shall
increase such coverage for such
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insurance to such amount as such Lender or insurance advisor reasonably deems
adequate, not to exceed the level of coverage for such insurance as is
reasonable and customarily required of tenants occupying similar properties
in Santa Clara County owned by life insurance companies and other
institutional investors.
B. LANDLORD'S INSURANCE. Landlord shall have the
following obligations and options regarding insurance:
(1) Landlord shall maintain a policy or
policies of fire and property damage insurance in so-called "all risk" form
(on an "occurrence" basis) insuring Landlord (and such others as Landlord may
designate) against loss of rents for a period of not more than twelve (12)
months and from physical damage to the Premises and, if Landlord so elects,
to the improvements within the Common Areas, with coverage of not less than
the full replacement cost thereof (which insurance is hereinafter referred to
as "Landlord's Property Insurance"). Landlord may so insure the Premises
separately, or may insure the Premises with other property owned by Landlord
which Landlord elects to insure together under the same policy or policies,
provided that the amount of insurance and the type of coverage required to be
provided hereunder is not thereby diminished, changed or adversely affected.
Landlord's Property Insurance may be endorsed to cover loss caused by such
additional perils against which Landlord may elect to insure, including
earthquake and/or flood, and to provide such additional coverage as Landlord
reasonably requires. Landlord shall not be required to cause such insurance
to cover any Trade Fixtures or Alterations of Tenant.
(2) Landlord shall maintain a policy or
policies of commercial general liability insurance (on an "occurrence" basis)
insuring Landlord (and such others as are designated by Landlord) against
liability for personal injury, bodily injury, death and damage to property
occurring or resulting from an occurrence in, on or about the Premises, with
combined single limit coverage in the amount of Two Million Dollars
($2,000,000); provided, however, if any Lender or Landlord's insurance
advisor reasonably determines that the coverage limits of such policy are
inadequate, then Landlord may increase such coverage to such amount as such
Lender or insurance advisor reasonably deems adequate, not to exceed the
level of coverage for such insurance customarily carried by owners of
comparable properties similarly situated. If Landlord has in full force and
effect a blanket policy of liability insurance with the same coverage for the
Premises as described above, as well as other coverage of other premises and
properties of Landlord, or in which Landlord has some interest, such blanket
insurance shall satisfy the requirements of this subparagraph 11.B.
C. TENANT'S OBLIGATION TO REIMBURSE. Tenant shall
reimburse Landlord for the full amount of the cost of the insurance described
in paragraph 2.B(1) and Tenant's Prorata Share of the cost of the insurance
described in paragraph 2.B(2) which, if billed separate and apart from Common
Operating Expenses, shall be paid within thirty (30) days of Tenant's receipt
of Landlord's billing therefor. Landlord shall provide Tenant with evidence
reasonably available to Landlord substantiating the cost of such insurance.
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D. RELEASE AND WAIVER OF SUBROGATION. Any other
provision of this Lease to the contrary notwithstanding, the parties hereto
release each other, and their respective agents and employees, from any
liability for injury to any person or damage to property that is caused by or
results from any risk to the extent insured against under any valid and
collectible insurance policy carried by either of the parties, subject to the
following limitations: (i) the foregoing provision shall not apply to the
commercial general liability insurance described by subparagraphs 11.A(1)(a)
and 11.B(2); (ii) such release shall apply to liability resulting from any
risk insured against by Tenant in satisfaction of the requirements of
subparagraph 11.A(1)(b) and by Landlord in satisfaction of the requirements
of subparagraph 11.B(1) of the Lease; and (iii) neither Landlord nor Tenant
shall be released from any such liability to the extent any damages resulting
from such injury or damage are not part of the recovery obtained by the other
from such insurance, but only if the insurance in question permits such
partial release in connection with obtaining a waiver of subrogation from the
insurer. Notwithstanding the preceding sentence, the release set forth in
this subparagraph 11.D shall apply to the extent any sums are payable under
the policy in question, whether or not recovery is actually obtained by the
releasing party. Tenant's obligations to pay any deductible amounts under
insurance policies carried by Landlord pursuant to paragraph 11.B shall be
limited by the express provisions of paragraph 18.D. This release shall be
in effect only so long as the applicable insurance policy contains a clause
to the effect that this release shall not affect the right of the insured to
recover under such policy. Each party shall cause its property insurance
policy to provide that the insurer waives all right of recovery by way of
subrogation against the other party and its Agents in connection with any
injury or damage covered by such policy; provided, however, if any such
insurance policy cannot be obtained with such a waiver of subrogation, or
such waiver of subrogation is only available at rates which are not
commercially reasonable, then the party obtaining such insurance shall notify
the other party of that fact and thereupon shall be relieved of the
obligation to obtain such waiver of subrogation rights from the insurer with
respect to the particular insurance involved. Each party represents to the
other that, as of the Commencement Date of this Lease, a waiver of
subrogation rights as described herein is in effect, and each party shall
provide the other with a minimum of thirty (30) days' written notice before
any such waiver with respect to that party's insurance coverage ceases to be
in effect.
12. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. Tenant
agrees that, if Tenant shall at any time fail to pay within the grace period
herein provided any mechanics lien, taxes or other fees and charges the
non-payment of which may place in jeopardy Landlord's interest in the Project
or any portion thereof, or if Tenant shall at any time fail to perform any
other act to be made or performed by it under this Lease within the grace
period provided therefor, Landlord may, but shall not be obligated to, make
such payment or perform such other act to the extent Landlord may reasonably
deem such action necessary for the protection of the Premises or the Project,
and without waiving or releasing Tenant from any obligation under this Lease.
All sums so paid by Landlord and all reasonable expenses paid in connection
therewith, together with interest thereon at the Default Interest Rate from
the date of such payment until repaid by Tenant, shall be paid by Tenant to
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Landlord on demand. Landlord shall provide Tenant with evidence reasonably
available to Landlord as to such sums and expenses paid by Landlord.
13. MAINTENANCE AND REPAIR.
A. CONDITION ON DELIVERY. Tenant shall accept the
Premises in the condition existing as of the Effective Date, "as-is", subject
to performance by Landlord of its obligations under the Improvement Agreement
and except that Landlord shall, at its sole expense, cause the following
building systems and equipment to be in good working order as of the
Commencement Date and during the seven (7) months thereafter (the "Specified
Systems"): HVAC, electrical and lighting, plumbing, mechanical, fixtures
existing on the Premises on the Commencement Date, the roof (including the
roof membrane), the structural elements of the Building, the fire protection
system and all exterior landscaping, walkways, paved areas and driveways.
Landlord, at Landlord's sole cost, shall make any repair or replacement
required to be made to the mechanical, electrical, plumbing and/or HVAC
systems of which Landlord is notified in writing on or before the two hundred
tenth (210th) day following the Commencement Date; provided, however, that
Landlord shall not be responsible for any such repair or replacement
necessitated as a result of the actions or omissions of Tenant or its Agents.
B. TENANT'S OBLIGATIONS. Except as otherwise provided
in subparagraphs 13.A and 13.C, Tenant shall be responsible, at its sole
expense, for the following during the period beginning on the earlier to
occur of the Commencement Date or the date Tenant enters into occupancy of
any portion of the Premises pursuant to subparagraph 4.B and continuing
throughout the remainder of the Lease Term:
(1) Tenant shall clean and maintain in good
order, condition, and repair and replace (subject, however, to the
limitations of subparagraph 13.B(5), below) when necessary the interior,
non-structural portions of the Building, through regular inspections and
servicing, including, but not limited to: (i) all plumbing and sewage
facilities inside the Building (including all sinks, toilets, faucets and
drains), and all ducts, pipes, vents or other parts of the HVAC or plumbing
system as provided in subparagraph 13.B(2), below; (ii) all fixtures,
interior walls, floors, carpets and ceilings; (iii) all windows, doors,
entrances, plate glass, showcases and skylights (including cleaning both
interior and exterior surfaces); (iv) all electrical facilities and all
equipment (including all lighting fixtures, lamps, bulbs, tubes, fans, vents,
exhaust equipment and systems) as provided in subparagraph 13.B(2) below; and
(v) any automatic fire extinguisher equipment in the Premises. However, in
no event shall Tenant's obligation to repair under this paragraph extend to
(i) damage and repairs covered by any insurance policy carried by Landlord in
connection with the Premises for which Landlord receives proceeds; (ii)
damage caused in whole or in part by the negligence or willful misconduct of
Landlord or Landlord's Agents; (iii) repairs covered under Common Operating
Expenses; (iv) damage by fire and other casualties, or acts of governmental
authorities, or acts of God and the elements, (v) repairs and or alterations
required by Law, except as otherwise provided in
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paragraph 15 of this Lease, and (vi) damage and repairs the cost for which
Landlord is reimbursed by others. Notwithstanding anything to the contrary
contained in this subparagraph 13.B, Tenant's obligations and liabilities in
connection with the presence of Hazardous Materials on the Premises shall be
limited to the express provisions of paragraph 16 of this Lease. Landlord
shall identify and, upon request of Tenant, assign to Tenant, any and all
warranties in existence with respect to items to be maintained or repaired by
Tenant hereunder and shall assist Tenant as reasonably necessary to enforce
any such warranties.
(2) With respect to utility facilities serving
the Premises (including electrical wiring and conduits, gas lines, water
pipes, and plumbing and sewage fixtures and pipes), Tenant shall be
responsible for the maintenance and repair of any such facilities which are
within the Premises. For the purpose of this subparagraph 13.B(1) and
paragraph 13.C(1), the term "within the Premises" shall mean from the point
that the element of the utility facility in question (E.G. the conduit, line,
pipe) exits from the foundation, second floor deck or interior wall of the
Building, as applicable, and into the Premises. Tenant shall replace any
damaged or broken glass in the Premises (including all interior and exterior
doors and windows) with glass of the same kind, size and quality. Tenant
shall repair any damage to the Premises (including exterior doors and
windows) caused by vandalism or any unauthorized entry, but not including
cosmetic damage to the exterior of the Building, which shall be repaired by
Landlord and charged as a Common Operating Expense as provided in
subparagraph 13.E, below.
(3) Except as otherwise provided in
subparagraph 13.A, Tenant shall (i) maintain, repair and replace (subject,
however, to the limitations set forth in subparagraph 13.B(5), below) when
necessary all HVAC equipment and elevators (if any) which serve the Premises,
and shall keep the same in good condition through regular inspection and
servicing, and (ii) maintain continuously throughout the Lease Term service
contracts for the maintenance of all such HVAC equipment and elevators (if
any) with licensed repair and maintenance contractors approved by Landlord,
which contracts shall provide for the periodic inspection and servicing of
the HVAC equipment and elevators (if any) at intervals not less frequent than
those recommended by the manufacturer of the equipment which is the subject
of such contract. All such service contracts shall include terms and
conditions which are usual and customary for similar services provided in the
vicinity of the Project. On Landlord's request, Tenant shall furnish Landlord
with copies of all such service contracts and shall thereafter provide
Landlord with copies of any amendments thereto or replacement contracts. All
such service contracts shall provide that they may not be canceled or changed
without at least thirty (30) days prior written notice to Landlord.
(4) All repairs and replacements required of
Tenant shall be promptly made with materials of a kind and quality
substantially similar to Landlord's building standard at that time. If the
work affects the structural parts of the Building, then Tenant shall first
obtain Landlord's approval of the scope of work, plans therefor, materials to
be used, and the contractor selected by Tenant to perform such work.
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(5) If the aggregate replacements or
restorations required of Tenant pursuant to this subparagraph 13.B would
cause Tenant to make payments constituting capital expenditures in excess of
Fifty Thousand Dollars ($50,000) per year (applying generally accepted
accounting principles), then the amount of such capital expenditure in excess
of such amount each year shall be paid by Landlord. The amount so paid by
Landlord shall be amortized over the useful life of the improvement or
equipment in question with interest on the unamortized balance at the then
prevailing market rate Landlord would pay if it borrowed funds on a
non-secured basis to construct such improvements from an institutional
lender, and Tenant shall pay monthly amortization payments and interest on
account thereof for the remainder of the Lease Term. Landlord shall inform
Tenant of the monthly amortization and interest payment required to so
amortize such cost, and shall also provide Tenant with the information (in
reasonable detail) upon which Landlord made such determination.
C. LANDLORD'S OBLIGATION TO MAINTAIN.
(1) BUILDING. Landlord, at its cost without
right of reimbursement from Tenant, shall be responsible for the maintenance,
repair and replacement of (i) the structural portions of the Building,
including the foundation, exterior and interior load-bearing walls, ground
floor slab and second floor deck (if any), and structural roof system (but
excluding roof membrane); and (ii) any damage to the Premises caused by the
negligence or willful misconduct of Landlord or Landlord's Agents. In
addition, Landlord shall maintain, clean, repair and replace as necessary,
subject to reimbursement from Tenant as part of Common Operating Expenses,
(i) paint on the exterior of the Building; (ii) gutters, downspouts and
exterior doors of the Building; (iii) the roof membranes of the Building; and
(iv) all portions of any utility facilities serving the Premises and other
buildings within the Project (including electrical wiring and conduits, gas
lines, water pipes, and plumbing and sewage fixture and pipes) which are not
the responsibility of Tenant pursuant to subparagraph 13.B(2), above. Tenant
shall reimburse Landlord for any damage to the portions of the Premises
described in this subparagraph 13.C which is caused by the negligence or
willful misconduct of Tenant or Tenant's Agents and which is not covered by
Landlord's insurance. Tenant may give Landlord notice of any repairs that
are required of Landlord under the terms of this Lease and Landlord shall
proceed to complete such repairs with reasonable diligence, but in no event
later than thirty (30) days of receipt of such notice, or such additional
period as may be reasonably required to complete such repairs provided that
such repair work has commenced within said thirty (30) day period and is
thereafter prosecuted to completion with diligence and continuity. In the
event of an emergency, Tenant shall be empowered to undertake immediate
repairs of such nature as would be Landlord's responsibility and notify
Landlord promptly after such repairs have been undertaken. If Landlord fails
to complete any repairs or maintenance required of it hereunder within the
thirty (30) days following receipt of Tenant's written notice as provided
hereunder (which 30-day period may be extended as provided above), or if
Tenant undertakes emergency repairs as above stated, Tenant may, in addition
to any other remedies it may have at law or in equity, perform the repairs or
maintenance and bill Landlord
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for the cost thereof, in which event Landlord shall reimburse Tenant for such
cost within thirty (30) days of the date of such billing.
(2) COMMON AREAS. Landlord shall repair,
maintain, operate and replace when necessary the Common Areas in order to
keep them in good, clean and safe condition, with such right of reimbursement
from Tenant as is specified in subparagraphs 13.D and E, below. Landlord
shall not be responsible for repairs required by an accident, fire or other
peril except as otherwise required by paragraph 18 hereof, or for damage
caused to any part of the Project by any act, negligence or omission of
Tenant or its Agents, except to the extent covered by Landlord's insurance.
Landlord may engage contractors of its choice to perform the obliga-tions
required of it by this paragraph, and the necessity of any expenditure to
perform such obligations shall be at the sole discretion of Landlord.
D. TENANT'S EARLY OCCUPANCY DATE OR THE OBLIGATION TO
REIMBURSE. As Additional Rent, commencing on the Early Occupancy Date or the
Commencement Date, as applicable, and continuing throughout the remainder of
the Lease Term, Tenant shall pay a share of all Common Operating Expenses
fairly allocable to the Premises including (i) all Common Operating Expenses
paid with respect to the maintenance, repair, replacement and use of the
Premises, and (ii) Tenant's Prorata Share of all Common Operating Expenses
which relate to the Project in general and are not fairly allocable to any
one building on the Project. As used herein, expenses which are "fairly
allocable to the Premises" or "fairly allocable to any one building on the
Project" shall mean those expenses of maintenance, repair, replacement or use
which benefit the Premises or such single building only, such as (by way of
illustration, but not limitation) exterior repainting of the Premises or
other building. Landlord agrees that it shall not recover from all occupants
of the Project more than one hundred percent (100%) of the actual Common
Operating Expenses incurred by Landlord for the period in question. Any
Common Operating Expenses charged to Landlord by any of its affiliates for
goods and services provided to the Common Areas shall not exceed the
prevailing cost thereof that would be charged to Landlord by non-affiliated
parties. All Common Operating Expenses shall be directly attributable to the
operations, maintenance, management and repair of the Project. Payment shall
be made by whichever of the following methods is from time to time designated
by Landlord, and Landlord may change the method of payment at any time so
long as (i) Landlord gives Tenant at least sixty (60) days prior written
notice, and (ii) the method is not changed more than once in any calendar
year. Tenant shall pay such share of the actual Common Operating Expenses
incurred or paid by Landlord but not theretofore billed to Tenant within
thirty (30) days after receipt of a written bill therefor from Landlord, on
such periodic basis as Landlord shall designate, but in no event more
frequently than once a month. Alternatively, (i) Landlord shall deliver to
Tenant Landlord's reasonable estimate of the Common Operating Expenses it
anticipates will be paid or incurred for the calendar year in question, (ii)
during such calendar year, Tenant shall pay Tenant's Prorata Share of the
estimated Common Operating Expenses in advance in monthly installments as
required by Landlord due with each installment of Basic Rent, and (iii)
within ninety (90) days after the end of each calendar year, Landlord shall
furnish to Tenant a statement in reasonable detail, certified by an
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officer of Landlord, of the actual Common Operating Expenses paid or incurred
by Landlord during the calendar year just ended and thereupon there shall be
an adjustment between Landlord and Tenant, with payment to Landlord or credit
by Landlord against the next installment of Basic Rent, as the case may
require, within thirty (30) day after delivery by Landlord to Tenant of said
statement, so that Landlord shall receive the entire amount of Tenant's
Prorata Share of all Common Operating Expenses for such calendar year and no
more.
E. COMMON OPERATING EXPENSES DEFINED. The term
"Common Operating Expenses" shall mean the sum of the following:
(1) All costs and expenses reasonably paid or
incurred by Landlord in doing the following (including payments to
independent contractors providing services related to the performance of the
following): (i) maintaining, cleaning, and repairing the exterior surfaces
(including repainting of exterior surfaces of buildings as reasonably
necessary) of all buildings located on the Project; (ii) maintenance of
Landlord's insurance required under the provisions of paragraph 11 (including
the prepayment of premiums for coverage of up to one year); (iii)
maintaining, repairing, operating and replacing when necessary utility
facilities and other equipment serving all buildings within the Project
and/or the Common Areas; (iv) providing utilities to the Common Areas
(including lighting, trash removal and water for landscaping irrigation); (v)
complying with all applicable Laws (subject to subparagraph 13.E(2)); (vi)
operating, maintaining, repairing, cleaning, painting, restriping and
resurfacing the Common Areas; (vii) maintaining, repairing, operating and
replacing when necessary those items described in the second sentence of
subparagraph 13.C(1);(viii) replacement or installation of lighting fixtures,
directional or other signs and signals, irrigation systems, trees, shrubs,
ground cover and other plant materials, and all landscaping in the Common
Areas; and (ix) rental paid for maintenance and operating machinery and
equipment (if rented).
(2) All additional costs and expenses
reasonably incurred by Landlord with respect to the operation, protection,
maintenance, repair and replacement of the Project which pursuant to
generally accepted accounting principles would be considered a current
expense and not a capital expenditure; provided, however, any cost and
expenses incurred by the Landlord with respect to the operation, protection,
maintenance, repair and replacement of the Project which, according to
generally accepted accounting principles, would be a capital expenditure,
shall be amortized over the useful life of the equipment or improvement which
is the subject of such expenditure, and there shall be included in "Common
Operating Expenses" only that portion of such amortization as is fairly
allocable to the calendar year in question. Any such capital expenditure
shall be amortized over the useful life of the capital improvement or
equipment in question with interest on the unamor-tized balance at the then
prevailing market rate Landlord would pay if it borrowed funds on a
non-secured basis to construct such improvements from an institutional lender.
(3) That portion of all compensation (including
benefits and premiums for workers' compensation and other insurance) paid to
or on behalf of employees of Landlord but only
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to the extent they are involved in the performance of the work described by
subparagraphs 1 and 2 above and that is fairly allocable to the Project.
(4) An administrative fee payable to Landlord
or, if maintenance and operation of the Common Areas is managed by an
independent property management service engaged by Landlord, to such property
management service, in an amount not greater than ten percent (10%) of the
sum of Tenant's per annum obligation to pay (i) Common Operating Expenses
(less the administrative fee described in this subparagraph 13.E(4)), and
(ii) Real Property Taxes.
(5) Notwithstanding anything contained herein,
the term "Common Operating Expenses" shall not include any of the following:
(i) mortgage principal payments; (ii) ground rent and other payments made
pursuant to any ground lease or any financing secured by real estate within
the Project; (iii) the cost of refinancing any loan secured by the Project;
(iv) interest and penalties imposed against Landlord for late payments by
Landlord (except to the extent resulting from a default by Tenant hereunder);
(v) legal fees incurred by Landlord in connection with the negotiation or
enforcement of, or litigation in connection with, any lease affecting the
Project or, except as otherwise expressly provided in any other paragraph of
this Lease, in connection with any other dispute with any other tenant in the
Project; (vi) any costs reimbursed to Landlord by insurance or other third
party payments that are not reimbursements by occupants of the Project for
their share of Common Operating Expenses; (vii) brokerage commissions or
other costs related to the leasing of space within the Project; (viii) the
cost of any tenant improvements installed for the exclusive use of any other
occupant of the Project or any services that are supplied for the exclusive
benefit of any other occupant of the Project; (ix) alterations, additions,
improvements or replacements made to rectify or correct any defect in the
design, materials or workmanship of the Common Areas or Project; (x) repairs
necessitated by the negligence or willful misconduct of Landlord or
Landlord's Agents; (xi) Landlord's general overhead expenses; (xii)
depreciation, (xiii) any costs which are not fairly allocable to the Lease
Term, and (xiv) any costs in connection with the maintenance, repair or
replacement of the structural portions of the Building which are Landlord's
obligations pursuant to subparagraph 13.C(1) of this Lease. Notwithstanding
anything to the contrary contained in this subparagraph 13.E, Tenant's
obligations and liabilities arising from or in connection with the presence
of Hazardous Materials on the Premises shall be limited to the express
provisions of paragraph 16 of this Lease.
F. AUDIT. Landlord shall keep for a period of at
least two (2) years after the expiration of each calendar year, full and
accurate books, records and supporting documents in connection with Real
Property Taxes and Common Operating Expenses incurred by Landlord. Tenant
shall have the right to challenge the accuracy of Real Property Taxes and
Common Operating Expenses for any given calendar year only by giving Landlord
written notice of such challenge by the date which is one hundred eighty
(180) days following the date that Tenant receives Landlord's statement of
Real Property Taxes and Common Operating Expenses. If Tenant does not give
Landlord such notice by such date, Tenant shall be deemed to have waived any
further right to
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challenge the accuracy of Real Property Taxes and Common Operating Expenses
for the calendar year most recently ended. If Tenant timely challenges any
Real Property Taxes and Common Operating Expenses, Landlord shall, upon not
less than five (5) business days prior written notice from Tenant, make
available to Tenant Landlord's books and supporting materials, and Tenant may
audit the same. The Real Property Taxes and Common Operating Expenses shall
be appropriately adjusted on the basis of such audit. Tenant shall pay the
cost and expense of such audit, unless such audit shows that Real Property
Taxes and Common Operating Expenses for the period covered by such audit have
been overstated by more than ten percent (10%), in which event Landlord shall
pay the reasonable costs and expenses of such audit.
G. CONTROL OF COMMON AREAS. Landlord shall at all
times have exclusive control of the Common Areas. Landlord shall have the
right, at Landlord's sole cost and expense, without benefit of reimbursement
from Tenant as a Common Operating Expense (except as otherwise expressly
provided below), without the same constituting an actual or constructive
eviction and without entitling Tenant to any abatement of rent, to: (i)
close any part of the Common Areas to whatever extent required in the opinion
of Landlord's counsel to prevent a dedication thereof or the accrual of any
prescriptive rights therein; (ii) temporarily close the Common Areas to
perform maintenance or for any other reason reasonably deemed sufficient by
Landlord; (iii) change the shape, size, location and extent of the Common
Areas (the costs of which may not be charged as Common Operating Expenses);
(iv) make changes to the Common Areas including, without limitation, changes
in the location of driveways, entrances, passageways, doors and doorways,
elevators, stairs, restrooms, exits, parking spaces, parking areas, sidewalks
or the direction of the flow of traffic and the site of the Common Areas,
subject, however, to the restrictions and limitations set forth in
subparagraph 3.E hereof; (v) remove unauthorized persons or vehicles from the
Common Areas; and/or (vi) change the name of the Project and/or Building.
Landlord may not change the address of the Building without the prior written
consent of Tenant. Tenant shall keep the Common Areas clear of all
obstructions created or permitted by Tenant. If in the opinion of Landlord
unauthorized persons are using any of the Common Areas by reason of the
presence of Tenant in the Building, Tenant, upon demand of Landlord, shall
restrain such unauthorized use by appropriate proceedings. In exercising any
such rights regarding the Common Areas, Landlord shall make a reasonable
effort to minimize any disruption to Tenant's business or interfere with
Tenant's access to the Premises. Tenant assumes all responsibility for the
protection of Tenant and Tenant's Agents from acts of third parties except to
the extent of damage caused by the gross negligence of Landlord or Landlord's
employees, agents or contractors.
14. SURRENDER OF PREMISES. Upon expiration or any sooner
termination of this Lease (hereinafter "Lease Termination"), Tenant shall
surrender to Landlord the entire Premises, together with all Alterations
which Tenant is not allowed to remove pursuant to the terms of this Lease, in
the same condition as when received or installed, ordinary wear and tear and
damage due to casualty or other event outside the control of Tenant excepted,
and clean and free of debris and free of any liens created or suffered to be
created by Tenant. As to any Alterations made to the Premises after
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completion of the initial Tenant Improvements, Landlord shall inform Tenant
when Landlord consents to an Alteration whether or not such Alteration must
be removed by Tenant at Lease Termination. If simultaneously with its
consent to the Alteration, Landlord requests Tenant to remove any Alteration
at Lease Termination, Tenant shall remove the same prior to Lease Termination
and shall at its expense restore the Premises to the condition existing
before the Alteration was made. In addition, Tenant shall remove prior to
Lease Termination all Alterations made without Landlord's consent and shall,
at Tenant's expense, restore the Premises to the condition existing before
such Alterations were made. Any Alterations, changes or additions not
required to be removed by Tenant and not actually removed by Tenant prior to
Lease Termination (if Tenant has the right to remove such Alterations
pursuant to subparagraph 17.C of this Lease) shall immediately upon Lease
Termination become Landlord's property. Landlord may, at Tenant's expense,
dispose of in any manner permitted by Law any Trade Fixtures or personal
property of Tenant that Tenant does not remove from the Premises upon
expiration or termination of the Lease Term.
15. COMPLIANCE WITH LAWS.
A. LANDLORD'S OBLIGATIONS.
(1) Landlord represents and warrants that as of
the execution of this Lease, to Landlord's knowledge, no action, proceeding
or claim is pending or threatened with respect to the Premises concerning a
violation of any Law applicable to the condition of the Premises.
(2) Landlord shall, at Landlord's sole cost and
expense (which cost and expense shall not be included in the Allowance or
Additional Allowance, as such terms are defined in the Improvement Agreement)
construct any alterations or improvements to the Premises (both interior and
exterior) required by Law as a condition to the issuance of all required
permits and approvals from the appropriate governmental authorities for the
construction of the Tenant Improvements and legal occupancy of the Premises
by Tenant (which work shall be referred to herein as the "Initial Compliance
Work"). Notwithstanding the foregoing to the contrary, the following shall
apply:
(i) Tenant shall be responsible for
the cost of any Initial Compliance Work in excess of One Hundred Thousand
Dollars ($100,000) (which excess cost may be paid by Tenant out of the
Allowance and Additional Allowance).
(ii) Landlord shall not be responsible
for any work described in subparagraph 15.A(2) if required as a result of the
construction of Tenant's special purpose improvements, if any. The cost of
such work, however, may be paid out of the Allowance and Additional
Allowance. For the purpose of this subparagraph 15.A(2), the term "special
purpose improvements" shall mean improvements that are not of general utility
to the Building (such as wall, window, and floor covering, walls, doors and
lighting fixtures), which special purpose improvements
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include, without limitation, clean rooms, wet and dry labs, raised computer
floors, auditoriums, cafeterias, atmosphere controlled areas (including,
without limitation, increased HVAC capacity), command modules, satellite
transmission dishes and interior stairwells. Notwithstanding the foregoing,
Landlord shall be responsible for work described in subparagraph 15.A(2) to
be made to the cafeteria so long as such work is not required as a result of
special improvements made by Tenant to the cafeteria.
(3) Except to the extent provided to the
contrary in the preceding subparagraphs of this paragraph 15.A or in
paragraph 15.B which follows, if any Law requires any alteration, repair,
replacement or addition to the interior of the Building ("Law Compliance
Work"), the cost of which, according to generally accepted accounting
principles, would be a capital expenditure, Landlord shall cause such Law
Compliance Work to be completed and the cost thereof shall be amortized over
the useful life of the improvement or equipment so constructed with interest
on the unamortized balance at the then prevailing market rate Landlord would
pay if it borrowed funds on a non-secured basis to construct such
improvements or equipment from an institutional lender. Landlord shall
furnish to Tenant verification of all costs so incurred and details of the
amortization thereof. Tenant shall pay as Additional Rent each month during
the remainder of the Lease Term following completion of the Law Compliance
Work in question, on the due date of each installment of Basic Rent, that
portion of amortization of cost of such Law Compliance Work and interest as
is applicable to such month."
B. TENANT'S OBLIGATIONS. Except to the extent
provided to the contrary in paragraph 15.A, Tenant shall, at its sole
expense, comply promptly with all Laws applicable on account of Tenant's use
of the Premises. Additionally, and notwithstanding anything to the contrary
in subparagraph 15.A(3), Tenant shall be solely responsible for compliance
with any Law applicable to the Premises, where such compliance is required
because of Tenant's particular use of the Premises or because of or as a
condition to the issuance of any governmental approval required by reason of
Alterations constructed and installed by Tenant.
16. HAZARDOUS MATERIALS.
A. TENANT'S OBLIGATIONS. Tenant has completed and
duly executed, and there is attached hereto as EXHIBIT "E", a copy of a
questionnaire pertaining to Tenant's use of Hazardous Materials (the
"Hazardous Materials Questionnaire"). Tenant represents and warrants to
Landlord that all information set forth in the Hazardous Materials
Questionnaire is true and correct as of the Effective Date. Tenant shall not
cause or permit any of Tenant's Agents to cause the use, generation, storage,
disposal, transportation or release of any Hazardous Materials on, under, in,
above, to, or from the Project except that which is (i) fully described in
the Hazardous Materials Questionnaire, (ii) incidental to Tenant's use and
operation of the Premises, and (iii) in compliance with all applicable Laws.
Tenant may not use at the Premises Hazardous Materials other than those
specified in the Hazardous Materials Questionnaire, or in quantities
different from those specified in the Hazardous
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Materials Questionnaire, unless Tenant obtains Landlord's prior written
consent to such new use (which consent shall not be withheld unless Landlord
reasonably determines that the manner of use of such Hazardous Materials
poses an unreasonable risk of contamination of the Property) and submits a
new Hazardous Materials Questionnaire that accurately describes the new use.
B. TENANT'S INDEMNITY. Tenant shall indemnify,
defend, protect and hold Landlord harmless from and reimburse Landlord for
any claims, liabilities, damages, costs, and expenses (including, without
limitation, attorneys' fees, court costs, and investigation and remediation
expenses) arising from or related to any breach of Tenant's obligations
contained in this paragraph 16 or the use, generation, storage,
transportation, disposal, or release of Hazardous Materials by Tenant or its
Agents on the Project, including all of the following which may result
therefrom: (i) any loss, cost, expense, claim, or liability arising out of
any investigation, reporting, monitoring, clean-up, containment, removal,
storage, or restoration work required by any applicable Law, governmental
agency, or political subdivision or prudent standards of real estate
ownership and management;(ii) any claims of third parties for loss, injury,
expense, or damage; and (iii) any loss of rents or income and/or diminution
in the value of the Property.
C. NOTICES. Landlord and Tenant shall each give
written notice to the other as soon as reasonably practicable of (i) any
communication received from any governmental agency concerning Hazardous
Materials which relates to the Project or Premises, and (ii) any
contamination of the Project by Hazardous Materials which constitutes or
could become a violation of applicable Law or subject the Project to an
investigation or remediation requirement imposed by Law.
D. TESTING. Landlord may conduct tests of soils and
groundwater beneath the Premises and in any other location on the Project,
including installation of groundwater monitoring wells, to detect the
presence of Hazardous Materials. Any such tests or well installation shall
be done at Landlord's cost in a manner which reasonably minimizes
interference with Tenant's use and enjoyment of the Premises; provided,
however, that Tenant shall pay for the costs of any such tests which disclose
the presence of Hazardous Materials released by Tenant or Tenant's Agents.
Landlord shall notify Tenant before Landlord installs any monitoring or
extraction wells or before it commences any groundwater or soil sampling. No
testing or sampling of the soil or groundwater of the Project may be done by
Tenant without Landlord's prior consent.
E. SURVIVAL. The obligations of Landlord and Tenant
set forth in paragraph 16 shall survive the expiration or earlier termination
of the Lease. Tenant's obligations and liabilities with respect to the
presence of Hazardous Materials on the Project are limited to the express
provisions of this paragraph 16.
F. LANDLORD'S REPRESENTATIONS: Landlord hereby makes
the following representations and warranties to Tenant, each of which is made
to the actual knowledge of
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Landlord's Designated Individuals (hereinafter defined) as of the Effective
Date, without having made any investigation to verify the accuracy thereof.
(1) Landlord has provided to Tenant prior to
the Effective Date copies of all reports in Landlord's possession concerning
the environmental condition of Parcel E and the soil and groundwater in, on,
and about Parcel E, which reports are described in attached EXHIBIT "F" and
are hereinafter collectively referred to as the "Parcel E Environmental
Reports".
(2) Except as otherwise stated in the Parcel E
Environmental Reports, Parcel E, (including the soil and groundwater on or
under Parcel E) does not contain Hazardous Materials in material amounts.
(3) Except as otherwise stated in the Parcel E
Environmental Reports, during the time that Landlord has directly held fee
title to Parcel E or held an interest in an entity which held fee title to
Parcel E, Landlord (or such entity in which Landlord held an interest) has
received no written notice of (i) any violation, or alleged violation, of any
Law pertaining to Hazardous Materials with respect to Parcel E, (ii) any
pending claims relating to the presence of Hazardous Materials on Parcel E,
or (iii) any pending investigation by any governmental agency concerning
Parcel E relating to Hazardous Materials.
(4) There are no underground storage tanks
presently existing under Parcel E.
(5) As used above, "Landlord's Designated
Individuals" shall mean the following people: (i) James Piane and (ii) Paul
Radich.
G. LANDLORD'S OBLIGATIONS: Landlord and Tenant
acknowledge that the Parcel E Environmental Reports discloses that there
exists asbestos in the roof sealant of the Building. If and when the roof
needs repair or replacement, Landlord shall be solely responsible for any
costs in connection with such repair or replacement to the extent solely
attributable to the existence of such asbestos and Landlord shall not have a
right of reimbursement from Tenant for such costs.
17. ALTERATIONS.
A. CONSENT REQUIRED. Except for interior,
non-structural Alterations costing less than Ten Thousand Dollars ($10,000)
for each integrated or related work of improvement (not to exceed Thirty
Thousand Dollars ($30,000) during any twelve (12)-month period) , Tenant
shall not alter the Premises without the prior written consent of Landlord.
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B. CONDITIONS. All work done by or for Tenant in or
about the Premises (hereinafter called the "Work") shall be done in all cases
subject to the following conditions, each of which Tenant covenants to
observe and perform:
(1) No Work involving any structural change and
no Work involving any Alteration, restoration, or rebuilding costing more
than Ten Thousand Dollars ($10,000) for each integrated or related work of
improvement (not to exceed Thirty Thousand Dollars ($30,000) in the aggregate
during any twelve (12)-month period) shall be undertaken until detailed plans
and specifications have first been submitted to and approved in writing by
Landlord, which approval shall not be unreasonably withheld or delayed. The
foregoing notwithstanding, if plans and specifications are required in order
to obtain a building permit for any such Work, Tenant shall furnish a copy
thereof to Landlord prior to commencement of such Work.
(2) No Work involving a cost, as reasonably
estimated by Tenant, of more than Fifty Thousand Dollars ($50,000) for each
integrated or related work of improvement shall be undertaken except under
the supervision of an architect or engineer approved in writing by Landlord,
which approval shall not be unreasonably withheld or delayed (unless such
requirement is waived by Landlord in writing, which waiver shall not be
unreasonably withheld).
(3) All Work shall be (i) commenced only after
providing to Landlord not less than five (5) business days prior written
notice, to allow Landlord sufficient time to post notices of
non-responsibility, and only after all required governmental permits and
authorizations have been obtained, (ii) done in a good and workmanlike
manner, (iii) performed in compliance with all applicable Laws and in
accordance with the reasonable recommendations of any insurer under any
policies required by this Lease, and (iv) completed promptly and free of
liens.
C. PROPERTY OF TENANT. Except as otherwise provided
herein, all Alterations, Trade Fixtures and personal property made or
installed at the Premises by Tenant at its expense shall immediately upon
completion of installation thereof be and remain the property of Tenant and
Tenant shall be entitled to all depreciation, amortization and other tax
benefits with respect thereto. Except for Alterations which cannot be
removed without structural injury to the Premises, Tenant may at any time
during the Lease Term remove such Alterations, Trade Fixtures and personal
property from the Premises, provided Tenant repairs all damage caused by such
removal.
18. DAMAGE OR DESTRUCTION.
A. LANDLORD'S DUTY TO RESTORE. If the Premises are
damaged by any peril after the Effective Date, Landlord shall restore the
Premises and Common Areas unless the Lease is terminated by Landlord pursuant
to subparagraph 18.B or by Tenant pursuant to subparagraph 18.C. All
insurance proceeds available from the fire and property damage insurance
carried by Landlord pursuant to subparagraph 11(B) shall be paid to and
become the property of Landlord. If this Lease
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is not so terminated, then upon receipt of the insurance proceeds (if the
loss is covered by insurance) and the issuance of all necessary governmental
permits, Landlord shall immediately commence and diligently prosecute to
completion the restoration of the Premises to their pre-existing condition,
to the extent then allowed by Law. Landlord shall act diligently to obtain
such permits and insurance proceeds as quickly as possible. Landlord's
obligation to restore the Premises shall be limited to the Premises and
Tenant Improvements constructed by Landlord as they existed as of the
Commencement Date, excluding any of Tenant's Alterations, Trade Fixtures
and/or personal property constructed or installed by Tenant in the Premises.
B. LANDLORD'S RIGHT TO TERMINATE. Landlord shall have
the right to terminate this Lease in the event any of the following occurs,
which right may be exercised only by delivery to Tenant of a written notice
of election to terminate within thirty (30) days after the date of such
damage:
(1) The Building is damaged by an Insured Peril
to such an extent that the estimated cost to restore exceeds eighty percent
(80%) of the then actual replacement cost thereof and, at the time of such
damage, less than three (3) years remains on the Lease Term; provided,
however, Landlord may not terminate this Lease pursuant to this subparagraph
if Tenant, at the time of such damage, has a then valid express written
option to extend the Lease Term and Tenant exercises such option to extend
the Lease Term within thirty (30) days following receipt of Landlord's notice
of election to terminate the Lease. If Landlord elects to terminate this
Lease pursuant to the provisions of the subparagraph 18.B(1), Landlord shall
deliver to Tenant together with Landlord's termination notice a written
estimate of the time Landlord reasonably believes will be required for
restoration of the Premises and the amount of the deductible portion of the
loss for which Tenant will be responsible.
(2) The Building is damaged by an Uninsured
Peril to such an extent that the estimated cost to restore exceeds five
percent (5%) of the then actual replacement cost thereof; provided, however,
Landlord may not terminate this Lease pursuant to this subparagraph if within
thirty (30) days after Landlord has notified Tenant of its election to
terminate this Lease Tenant (i) pays to Landlord in cash the full amount of
such excess, or (ii) delivers to Landlord written notice of its agreement to
pay such excess in monthly progress payments, as costs are incurred during
the work of restoration, which obligation shall be secured by a letter of
credit delivered to Landlord at the time of such notice, which letter of
credit shall be in the amount of such excess and payable to Landlord on sight
(and shall be in a form and drawn on a bank reasonably satisfactory to
Landlord).
(3) The Building is damaged by any peril within
twelve (12) months of the last day of the Lease Term to such an extent that
the estimated cost to restore equals or exceeds an amount equal to six (6)
times the Basic Rent then payable; provided, however, that Landlord may not
terminate this Lease pursuant to this subparagraph if Tenant, at the time of
such damage, has a then
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valid express written option to extend the Lease Term and Tenant exercises
such option to extend the Lease Term within fifteen (15) days following
Tenant's receipt of Landlord's termination notice.
(4) The Building is damaged by any peril and,
because of the Laws then in force, the Building cannot be used for the same
use being made thereof before such damage if restored as required by this
paragraph.
As used herein, the following terms used in this paragraph 18 shall have the
following meanings: (i) the term "Insured Peril" shall mean a peril actually
insured against for which the insurance proceeds actually received by
Landlord are sufficient (except for any "deductible" amount specified by such
insurance) to restore the Building under then-existing building codes to the
condition existing immediately prior to the damage or would have been insured
had Landlord complied with its obligations under subparagraph 11.B, above;
and (ii) the term "Uninsured Peril" shall mean any peril which is not an
Insured Peril. Notwithstanding the foregoing, if the "deductible" for any
insurance carried by Landlord exceeds five percent (5%) of the replacement
cost of the property insured, the peril covered by such insurance shall be
deemed to be an "Uninsured Peril".
C. TENANT'S RIGHT TO TERMINATE. If the Premises are
damaged by any peril and Landlord does not elect to terminate this Lease or
is not entitled to terminate this Lease pursuant to the provisions of
subparagraphs 18(B)(1), (2) (3) or (4), above, then, as soon as reasonably
practicable, but not later than forty-five (45) days following the date of
damage or destruction, the parties and their respective architects or
construction consultants shall meet and attempt to reach agreement on an
estimate of the time period necessary for Landlord to complete restoration of
the Premises (which estimated time period is referred to herein as the
"Estimated Restoration Period"). If within said 45-day period the parties
are unable to agree on the Estimated Restoration Period, then within ten (10)
days following the end of said 45-day period Landlord shall select a licensed
contractor experienced in the construction of buildings similar to the
Premises for the purpose of establishing the Estimated Restoration Period.
Tenant shall have the right to approve such contractor. Upon mutual approval
of such contractor, Landlord and Tenant shall immediately furnish to such
contractor plans and specifications for the Building and such other
information as is necessary for such contractor to determine the Estimated
Restoration Period. Within fifteen (15) days following receipt of plans and
specifications for the Building and such other relevant information as has
been provided by the parties, such contractor shall determine the Estimated
Restoration Period and give written notice thereof to the parties. The
Estimated Restoration Period as so determined by such contractor shall be
conclusive and binding upon the parties. Tenant shall have the right to
terminate this Lease under any of the following circumstances:
(1) The Premises are damaged by any peril and
the Estimated Restoration Period extends beyond the two hundred seventieth
(270th) day after the date of such damage, and Tenant gives written notice of
termination within seven (7) days following receipt of notice of the
Estimated Restoration Period.
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(2) The Premises are damaged by any peril
within twelve (12) months of the last day of the Lease Term, and (i) the
Estimated Restoration Period extends beyond the thirtieth (30th) day after
the date of such damage, (ii) such damage renders unusable more than twenty
percent (20%) of the Premises, and (iii) Tenant gives written notice of
termination within seven (7) days following receipt of notice of the
Estimated Restoration Period.
D. PAYMENT OF DEDUCTIBLES. If following an event of
damage or destruction the Lease is not terminated and Landlord proceeds with
restoration of the Premises, Tenant shall have the following obligations with
respect to payment of deductibles under Landlord's Property Insurance:
(1) If the Premises are damaged by fire or
other casualty typically covered under a standard "all risk" policy of
property insurance, Tenant shall be obligated to pay one hundred percent
(100%) of the deductible.
(2) If the Premises are damaged by earthquake
or flood which is covered by earthquake or flood insurance, Tenant shall pay
to Landlord within thirty (30) days following commencement of the restoration
work an amount equal to the lesser of (i) one month of Basic Rent at the rate
then payable hereunder, or (ii) twenty percent (20%) of the deductible
payable in connection with such casualty, which amount shall be applied
toward repair of the damage or destruction. The balance of such deductible,
up to a maximum of ten percent (10%) of the full replacement cost of the
Building (less the amount payable by Tenant pursuant to (i), above) shall be
amortized over the useful life of the improvements to be restored with
interest on the unamortized balance at the then prevailing market rate
Landlord would pay if it borrowed funds on a non-secured basis to construct
such improvements from an institutional lender, and Tenant shall pay to
Landlord each month as Additional Rent that portion of such amortized amount
as is applicable to such month.
E. ABATEMENT OF RENT. In the event of damage to the
Premises which does not result in the termination of this Lease, the Basic
Rent and the Additional Rent shall be temporarily abated during the period of
restoration in proportion to the degree to which Tenant's use of the Premises
is impaired by such damage. Tenant shall not be entitled to any compensation
or damages from Landlord for loss of Tenant's business or property or for any
inconvenience or annoyance caused by such damage or restoration.
F. WAIVER. Tenant hereby waives California Civil Code
Sections 1932, 1933, 1941 and 1942, and the provisions of any other law now
or hereafter in effect that would give Tenant the right to terminate this
Lease or relieve Tenant of its obligation to pay rent under this Lease,
except to the extent expressly provided herein.
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19. CONDEMNATION.
A. TENANT'S RIGHT OF TERMINATION. If the Premises or
any portion thereof are taken under the power of eminent domain (hereinafter
referred to as "Condemnation"), this Lease shall terminate as to the part so
taken as of the date the condemning authority takes title or possession,
whichever occurs first. If more than twenty percent (20%) of the Gross
Leasable Area of the Building is taken by Condemnation, or there is a taking
affecting the Common Area and, as a result of such taking, Landlord cannot
provide parking spaces within the Project equal in number to at least ninety
percent (90%) of Tenant's Allocated Parking Stalls, as specified in
subparagraph 3(S), above, and as a result thereof the Premises are unsuitable
for Tenant's use (in Tenant's reasonable opinion), then at Tenant's option,
exercisable only in writing and within thirty (30) days after Landlord shall
have given Tenant written notice of such taking (or, in the absence of such
notice, within thirty (30) days after the condemning authority shall have
taken possession), Tenant may terminate this Lease as of the date the
condemning authority takes possession. If Tenant does not terminate this
Lease in accordance with the foregoing, this Lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the Basic
Rent shall be reduced as follows: (i) if only a portion of the Building, and
no portion of the Common Areas, is taken, the Basic Rent shall be reduced in
the proportion that the Gross Leasable Area of the portions of the Building
so taken bears to the total Gross Leasable Area of the Building; or (ii) if
only portions of the Common Areas are taken, or if both portions of the
Common Areas and Building are taken, the Basic Rent shall be reduced in
proportion to the reduction in fair rental value of the Premises following
such condemnation. If the parties are unable to agree as to the amount of
abatement, within forty-five (45) days after the condemnation, the matter
shall be submitted to binding arbitration under the rules of the American
Arbitration Association.
B. CONDEMNATION AWARD. Landlord shall be entitled to
any award paid if the Premises are wholly or partially condemned, except that
Tenant shall be entitled to receive from either the condemning authority or
Landlord, as applicable, the following: (i) the then unamortized cost of any
Alterations or Tenant Improvements paid for by Tenant; (ii) the value of
Tenant's Trade Fixtures; (iii) Tenant's loss of goodwill; (iv) Tenant's
relocation costs; and (v) Tenant's loss of business and business interruption.
C. RESTORATION. If less than the entire Premises
shall be taken by Condemnation, and this Lease is not terminated pursuant to
subparagraph A above, Landlord shall promptly restore that portion of the
Building and Common Areas not so taken to a complete architectural unit to
the extent of condemnation proceeds received by Landlord to which Landlord is
entitled pursuant to the terms hereof.
20. MECHANIC'S LIENS. Tenant shall not suffer or permit any
mechanics' or other liens (or claims thereof) to be filed against the
Premises or Tenant's leasehold interest therein or hereunder by reason of
work, labor, services, or materials supplied or claimed to have been supplied
to Tenant or
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anyone holding the Premises or any part thereof through or under Tenant.
Landlord shall have the right at all reasonable times to post and keep posted
on the Premises any notices that Landlord may deem necessary or advisable for
the protection of Landlord and the Premises from mechanics' liens. If any
such liens (or claims thereof) shall at any time be filed against the
Premises, Tenant shall cause the same to be discharged of record within
forty-five (45) days after the date of filing.
21. FINANCIAL STATEMENTS. Upon the request of Landlord, Tenant
shall provide to Landlord from time to time (but no more than twice in any
calendar year), at no expense to Landlord, copies of all financial statements
filed by Tenant with the United States Securities and Exchange Commission
(the "SEC") during such calendar year or the preceding calendar year or, if
Tenant is not obligated to file financial statements with the SEC, copies of
fiscal quarterly and annual balance sheets and income statements prepared by
or for Tenant which financial statements shall be either audited or certified
by Tenant's chief financial officer.
22. LANDLORD'S ENTRY. Tenant agrees to permit Landlord and its
Agents to enter the Premises upon written notice reasonably in advance
(except in case of emergency where no prior notice shall be required) with
reasonable frequency during usual business hours, or at any other time in
case of emergency, (i) to inspect the Premises and, if Landlord so desires,
but without implying any obligation of Landlord to do so, to make any repairs
deemed necessary or desirable by Landlord and to perform any work in the
Premises deemed necessary by Landlord to comply with any Laws or the
recommendations of any insurer, and (ii) during the final nine (9) months of
the Lease Term, for the purpose of showing the Premises to prospective
tenants. Landlord may display on the Premises usual "For Lease" and/or "For
Sale" signs during the final six (6) months of the Lease Term, provided that
no such signs block visibility of Tenant's signs. By exercising the
foregoing rights, Landlord shall not unreasonably interfere with Tenant's use
of the Premises and shall use reasonable efforts to minimize any necessary
interference.
23. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not, without the prior consent of
Landlord, which consent shall not be unreasonably withheld or delayed by
Landlord, transfer, assign or hypothecate this Lease or any interest herein,
sublet the Premises or any part thereof, or permit the use of the Premises by
any party other than Tenant. This Lease shall not, nor shall any interest
herein, be assignable as to the interest of Tenant by operation of law
without the consent of Landlord, which consent shall not be unreasonably
withheld. Any of the foregoing acts without such consent shall be void and
shall, at the option of Landlord, terminate this Lease.
B. If the Tenant is a privately held corporation, or
is an unincorporated association or partnership, the transfer (except
pursuant to a public offering), assignment, or hypothecation of any stock or
interest in such corporation, association, or partnership resulting in one
entity or a group of affiliated entities obtaining in excess of fifty percent
(50%) (in the aggregate) of
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the voting shares of stock or interest in such corporation, association or
partnership ("Stock Transfer") shall be deemed an assignment or transfer
within the meaning and provisions of this paragraph. Notwithstanding
anything to the contrary in this subparagraph 23.B, in no event shall the
public offering or trading of stock in Tenant over a public exchange
(including the transfer of fifty percent (50%) or more of the outstanding
stock in Tenant) be deemed an assignment or transfer within the meaning of
this paragraph.
C. Without limiting the other instances in which it
may be reasonable for Landlord to withhold its consent to an assignment or
subletting, Landlord and Tenant acknowledge that it shall be reasonable for
Landlord to withhold its consent in the following instances:
(1) if at the time consent is requested or at
any time prior to the granting of consent, Tenant is in material default
under this Lease or would be in default under this Lease but for the pendency
of any grace or cure period specified in this Lease;
(2) if the proposed assignee or sublessee is a
governmental agency;
(3) if, in Landlord's reasonable judgment, the
use of the Premises by the proposed assignee or sublessee would involve
occupancy in violation of this Lease; or
(4) if, in Landlord's reasonable judgment, the
financial worth of the proposed assignee or sublessee does not meet the
current credit standards applied by Landlord or its investment advisors for a
new tenant of the Premises.
D. Tenant shall give Landlord at least fifteen (15)
days prior written notice of any proposed assignment or sublease
("Transfer"), which notice shall be accompanied by the following information
and documentation: (i) the name and legal composition of the proposed
transferee; (ii) a current financial statement of the transferee, financial
statements of the transferee covering the preceding three (3) years if the
same exist, and (if available) an audited financial statement of the
transferee for a period ending not more than one year prior to the proposed
effective date of the Transfer; (iii) the nature of the proposed transferee's
business to be conducted in the Premises; (iv) all consideration to be given
on account of the Transfer; (v) a current financial statement of Tenant
(subject, however, to the limitations of paragraph 21 hereof); (vi) the form
of sublease or assignment and all other agreements evidencing the transfer;
(vii) an environmental questionnaire in the form attached as EXHIBIT "E",
completed and signed by the proposed transferee; and (viii) such other
informa-tion as may be reasonably requested by Landlord. Tenant's notice
shall not be deemed to have been served or given until such time as Tenant
has provided Landlord with all information reasonably requested by Landlord
pursuant to this subparagraph D. Tenant shall immediately notify Landlord of
any modification to the proposed terms of such Transfer. Within five (5)
business days following receipt of Tenant's written request for approval of a
Transfer, Landlord shall notify Tenant in writing if the documentation
accompanying such request does not satisfy all of the requirements of this
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paragraph, and Landlord's failure to do so shall be deemed its acceptance as
complete the notification of Transfer and documentation provided by Tenant.
Within ten (10) business days following receipt of Tenant's request and
complete documentation satisfying the requirements of this paragraph,
Landlord shall notify Tenant in writing of its approval or disapproval of the
proposed Transfer. If Landlord disapproves the proposed Transfer, Landlord
shall specify in its notice its reasons for disapproval. If Landlord
approves such Transfer, or fails to respond within said ten (10) business day
period, Tenant shall be free for a period of one hundred twenty (120) days
after the end of said ten (10) business day period to assign its entire
interest in this Lease or to sublet such space to the entity specified in
Tenant's original request upon the terms set forth therein.
E. Notwithstanding the provisions of subparagraphs
23.A and B, above, and provided that Tenant is not in material breach of the
Lease and no uncured default of Tenant under the Lease then exists, Tenant
may, with prior notice to Landlord but without Landlord's prior consent,
assign this Lease or sublet the Premises to any corporation which controls,
is controlled by or is under common control with Tenant by means of an
ownership of one hundred percent (100%) of the outstanding voting shares of
stock. In the case of any such assignment or sublease not requiring
Landlord's prior consent, Tenant shall nevertheless notify Landlord in
writing, not less than ten (10) days prior to the effective date of such
assignment or sublease, of the nature and purpose of such assignment or
sublease and the identity of the proposed assignee or subtenant and the
address and telephone number of its principal office. As to any assignment
or sublease described above, Tenant shall provide Landlord, upon request,
with such additional information pertaining to the business purpose and
nature of such assignment or sublease as Landlord may reasonably require to
verify compliance with the terms of this Lease, and Tenant shall cooperate in
good faith with Landlord in addressing and/or answering any reasonable
questions or concerns Landlord may have pertaining to the proposed assignment
or sublease.
F. Except to the extent provided to the contrary
pursuant to subparagraph 23.F hereof, no sublessee shall have a right further
to sublet without Landlord's prior consent, and any assignment by a sublessee
of its sublease shall be subject to Landlord's prior consent in the same
manner as if Tenant were entering into a new sublease. No sublease, once
consented to by Landlord, shall be modified or terminated by Tenant without
Landlord's prior consent, which consent shall not be unreasonably withheld.
G. In the event of any assignment or sublease, Tenant
shall pay to Landlord, within ten (10) days following receipt by Tenant,
fifty percent (50%) of any rent or other consideration received by Tenant
from an assignee or subtenant after first deducting out for Tenant's account:
(i) all sums payable by Tenant under this Lease (ii) broker's commissions
payable by Tenant with regard to the transfer; (iii) reasonable legal fees;
and (iv) the cost of improvements made to the portion of the Premises subject
to the transfer by Tenant at Tenant's expense for the purpose of the transfer.
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H. 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 rent and to perform all other obligations to
be performed by Tenant hereunder. The acceptance of rent by Landlord from
any other person shall not be deemed to be a waiver by Landlord of any
provision hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of default
by any assignee of Tenant or any successor of Tenant in the performance of
any of the terms hereof, Landlord may proceed directly against Tenant without
the necessity of exhausting remedies against such assignee or successor.
Landlord may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees of Tenant, with
Tenant's prior written consent thereto, and such action shall not relieve
Tenant of liability under this Lease.
24. SUBORDINATION. At Landlord's option, this Lease shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Premises and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements, and extensions thereof (a
"Security Instrument"). Notwithstanding the foregoing, the effective
subordination of this Lease to any existing or future Security Instrument
shall be subject to the fulfillment of the condition precedent that the
holder of such Security Instrument shall first have agreed in writing that:
(i) so long as Tenant is not in default, the Lease shall not be terminated by
foreclosure or sale pursuant to the terms of such Security Instrument, and
(ii) such subordination shall not restrict or otherwise limit the rights or
increase the obligations of Tenant; provided, however, that in the event of a
foreclosure on such Security Instrument, or upon a sale of the Premises
pursuant to the trustee's power of sale contained therein, or upon a transfer
of the Premises by conveyance in lieu of foreclosure, the holder of the
beneficial interest in the Security Interest, or any purchaser at a trustee's
or sheriff's sale or any successor owner of the Premises (collectively, a
"Successor Owner") shall not be: (i) liable for any act or omission of a
prior landlord (including Landlord); (ii) bound by any rent or additional
rent which Tenant may have paid in advance to any prior landlord (including
Landlord) for a period in excess of one month (unless such amount was
delivered to the Successor Owner) or by any security deposit, cleaning
deposit or other prepaid charge which Tenant might have paid in advance to
any prior landlord (including Landlord) (unless such amount was delivered to
the Successor Owner). If the holder of any Security Instrument shall elect to
have this Lease prior to such Security Instrument, and shall give written
notice thereof to Tenant, this Lease shall be deemed prior to such Security
Instrument, whether this Lease is dated prior or subsequent to the date of
such Security Instrument or the date of the recording thereof. Landlord
represents and warrants to Tenant that as of the Effective Date, there are no
mortgages, deeds of trust or other liens against Landlord's interest in the
Premises which could through foreclosure lead to the termination of Tenant's
leasehold interest in the Premises.
25. ATTORNMENT. In the event any proceedings are brought for
the foreclosure of, or in the event of exercise of the power of sale under,
any Security Instrument now or hereafter on the Premises or any part thereof,
Tenant shall, if so requested by the purchaser upon such foreclosure or sale
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or the grantee under a deed in lieu of foreclosure, attorn to such purchaser
or grantee and recognize such purchaser or grantee as the Landlord under this
Lease provided such purchaser or grantee agrees in writing (i) to assume all
of Landlord's obligations arising after the date title is so acquired by such
purchaser or grantee, and (ii) to recognize all of Tenant's rights hereunder
so long as it is not in material default under this Lease.
26. INDEMNIFICATION. Except to the extent caused by the gross
negligence or willful misconduct of Landlord or Landlord's employees, agents
or contractors, Tenant shall indemnify, defend, protect and hold Landlord and
its officers and employees harmless from and against any liabilities, loss,
cost, damage, injury or expense (including reasonable attorneys' fees and
court costs) arising out of or related to, Tenant's or Tenant's Agents' use,
occupancy, maintenance or repair of the Premises or any sidewalk, parking
area, street or curb adjoining the Premises. Tenant's obligation to
indemnify under this paragraph 26 shall survive the expiration or termination
of this Lease with respect to any claims or liability occurring prior to such
expiration or termination.
27. ATTORNEYS' FEES. If any action arising out of this Lease is
brought by either party hereto against the other, then and in that event the
unsuccessful party to such action shall pay to the prevailing party all costs
and expenses, including reasonable attorneys' fees, incurred by such
prevailing party, and if the prevailing party shall recover judgment in such
action, such costs, expenses and attorneys fees shall be included in and as
part of such judgment.
28. NO REPRESENTATIONS. Except as otherwise expressly provided
to the contrary herein, Landlord has made no representations of any nature
whatsoever in connection with the condition of the Premises or any part
thereof, and Landlord shall not be liable for any defects therein.
29. DEFAULT.
A. EVENTS OF DEFAULT. The following events shall be
deemed to be events of default by Tenant under this Lease:
(1) The failure of Tenant to pay any
installments of Basic Rent or Additional Rent when due, where such failure
shall continue for a period of five (5) days after written notice of such
failure becomes effective in accordance with the requirements of paragraph
31, below.
(2) (i) The application by Tenant for consent
to the appointment of a receiver, trustee, or liquidator of Tenant or of all
or a substantial part of Tenant's assets; (ii) Tenant's insolvency or
admission in writing of its inability to pay its debts as they come due;
(iii) the making by Tenant of any general arrangement or assignment for the
benefit of creditors; (iv) Tenant becomes a "debtor" as defined in 11 U.S.C.
Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
(v) the appointment of a trustee or receiver to take possession of all or
substantially all of Tenant's assets located at the
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Premises or of Tenant's interest in this Lease (unless possession is restored
to Tenant within thirty (30) days); (vi) the attachment, execution, or other
judicial seizure of all or substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease (unless such seizure is
discharged within thirty (30) days; or (vii) any transfer of Tenant's assets
in fraud of its creditors.
(3) Tenant shall fail to comply with any other
term, provision, or covenant of this Lease where such failure shall continue
for a period of thirty (30) days after written notice thereof to Tenant,
provided, however, that if such failure cannot reasonably be cured within
thirty (30) days, Tenant shall not be deemed in default with respect to such
failure if Tenant commences to cure such default within said thirty (30) day
period and thereafter diligently and continuously prosecutes such cure to a
prompt completion.
B. LANDLORD'S REMEDIES. Upon the occurrence of any
event of default by Tenant, Landlord may, at its option and without any
further notice or demand, except as provided below (in addition to any other
rights and remedies under this Lease, at law or in equity) do any of the
following:
(1) Landlord shall have the right, so long as
such default continues, to give written notice of termination to Tenant. On
the date specified in such notice (which shall not be less than three (3)
days after the giving of such notice) this Lease shall terminate.
(2) In the event of any such termination of
this Lease, Landlord may then or at any time thereafter, but only in strict
compliance with legal requirements, re-enter the Premises and remove
therefrom all persons and property and again repossess and enjoy the
Premises, without prejudice to any other remedies that Landlord may have by
reason of Tenant's default or of such termination.
(3) The amount of damages that Landlord may
recover in the event of such termination shall include, without limitation,
damages in an amount as set forth in California Civil Code Section 1951.2 as
in effect on the Effective Date of this Lease. For purposes of computing
damages pursuant to Civil Code Sec-tion 1951.2, (i) an interest rate equal to
the Default Interest Rate shall be used where permitted, and (ii) the term
"rent" includes Basic Rent and Additional Rent. Such damages shall include,
without limitation: (i) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided, 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%); and (ii) any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the ordinary course of things would
be likely to result therefrom.
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(4) Following the termination of this Lease (or
upon Tenant's failure to remove its personal property from the Premises after
the expiration of the term of this Lease), Landlord may remove any and all
personal property located in the Premises and sell or place such property in
a public or private warehouse or elsewhere at the sole cost and expense or
Tenant in accordance with applicable law. Tenant waives all claims for
damages that may be caused by Landlord's removing, storing, or selling the
property as herein provided.
(5) Landlord shall have the remedy described in
California Civil Code Section 1951.4 (e.g. Landlord may continue this Lease
in effect and recover rent as it becomes due, because Tenant has the right to
sublet or assign, subject only to reasonable limitations). Even though
Tenant has breached this Lease and abandoned the Premises, this Lease shall
continue in effect for so long as Landlord does not terminate Tenant's right
to possession, and Landlord may enforce all its rights and remedies under
this Lease, including the right to recover rent in periodic actions as it
becomes due under this Lease.
C. CUMULATIVE REMEDIES. The specified remedies to
which Landlord may resort under the terms of this Lease are cumulative and
are not intended to be exclusive of any other remedies or means of redress to
which Landlord may be entitled, either at law or in equity, in case of any
breach or threatened breach by Tenant of any covenant, agreement, or
condition of this Lease.
D. NO WAIVERS. The failure of Landlord to insist in
any one or more instances upon the strict performance or observance of any of
the covenants, agreements, or conditions of this Lease or to exercise any
option herein contained shall not be construed as a waiver or a
relinquishment of future performance or observance of such covenant,
agreement, or condition or exercise of such option.
E. APPLICATION OF TENANT DEPOSITS. In the event of
any default by Tenant under this Lease, Landlord may, at its option, apply on
account of such default any monies (and the proceeds of any and all other
security) deposited by or for the account of Tenant under any provision of
this Lease. Tenant shall not be entitled to interest on any monies so
deposited.
F. LANDLORD'S DEFAULT: Landlord shall not be deemed
in default under this Lease unless Landlord fails, within a reasonable period
of time, to perform an obligation required to be performed by Landlord
hereunder. For purposes of this subparagraph 29.F, a reasonable period of
time shall not be greater than thirty (30) days after receipt by Landlord of
a written notice specifying the nature of the obligation that Landlord has
not performed; provided, however, that if the nature of Landlord's obligation
is such that more than thirty (30) days, after receipt of written notice, is
reasonably necessary for its performance, then Landlord shall not be in
default under this Lease if performance of such obligation is commenced
within such thirty (30) - day period and thereafter diligently pursued to
completion. If Landlord is in default under any of the terms or conditions
of this Lease, then Tenant shall have the following remedies:
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(1) Tenant may proceed at law or in equity to
compel Landlord to perform its obligations and/or to recover damages
proximately caused by such failure to perform (except to the extent Tenant
has waived its right to damages resulting from injury to person or damage to
property as provided herein).
(2) Tenant may cure any default of Landlord at
Landlord's cost. If Tenant at any time by reason of Landlord's default
reasonably pays any sum or does any act that requires the payment of any sum,
the sum paid by Tenant shall be immediately due from Landlord to Tenant at
the time the sum is paid.
30. HOLDING OVER. Tenant covenants that it will vacate the
Premises immediately upon the expiration or sooner termination of this Lease.
If, with Landlord's consent, which may be granted or withheld in Landlord's
sole and absolute discretion, Tenant retains possession of the Premises or
any part thereof after the expiration or termination hereof, Tenant shall pay
Landlord rent equal to one hundred fifty percent (150%) of the Basic Rent
specified in paragraph 5 for the time Tenant thus remains in possession. The
provisions of this paragraph do not exclude Landlord's rights of re-entry or
any other right hereunder, including without limitation the right to refuse
to accept one hundred fifty percent (150%) of the Basic Rent and instead to
remove Tenant through summary proceedings for holding over beyond the
expiration of the term of this Lease.
31. NOTICES. All notices, demands, and requests that may or are
required to be given by either party to the other shall be in writing and
shall be deemed given when sent by personal delivery, by nationally
recognized overnight delivery service, or United States Certified Mail,
postage prepaid, (a) if for Tenant, addressed to Tenant at the Premises,
Attention: Facilities, with a copy to the attention of the Legal Department,
or at such other place as Tenant may from time to time designate by written
notice to Landlord; or (b) if for Landlord, addressed to Landlord, c/o
Equitable Real Estate Investment Management, Inc., Attention: Asset Manager,
at One Bush Street, 12th Floor, San Francisco, California 94104 or at such
other places as Landlord may from time to time designate by written notice to
Tenant. Any notice, demand or request given as aforesaid shall be effective:
(i) when delivered, in the case of personal deliveries; (ii) on the business
day following deposit, cost prepaid, with a nationally recognized overnight
delivery service; or (iii) in the case of delivery by United States Mail,
Certified, postage prepaid, on the date of receipt specified on the return
receipt; and (iv) in all other cases when actually received. Either party
may change its address by giving notice of the same in accor-dance with this
paragraph. The term "business day" shall mean a day on which the carrier
used (United States Postal Service or private delivery service) delivers,
whether by special request or in the ordinary course of operations.
32. LIMITATION OF LANDLORD'S LIABILITY.
A. UPON SALE OR TRANSFER. In the event of a sale or
transfer by Landlord of its interest in the Premises or this Lease, such sale
or transfer shall operate to release the transferor from
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all liability for the performance of the obligations of Landlord hereunder,
expressed or implied, solely for matters accruing from and after the date of
such transfer, and Tenant agrees thereafter to look solely to the successor
in interest of Landlord in and to this Lease for the performance thereafter
of Landlord's obligations hereunder, to the extent only that the cause of
action accrues after the date of such sale or transfer. Landlord shall
transfer to its successor in interest the Security Deposit (and all other
forms of security) given by or for Tenant to Landlord and thereupon Landlord
shall be discharged from any further liability with respect thereto.
B. LIMITATION OF RECOURSE. The obligations of
Landlord shall not constitute personal obligations of the officers,
directors, trustees, partners, joint venturers, members, owners,
stockholders, or other principals or representatives of such business entity,
and if, as a consequence of a default by Landlord hereunder, Tenant recovers
a money judgment against Landlord, such judgment shall be satisfied only out
of the proceeds of sale received upon execution of such judgment levied
against the right, title and interest of Landlord in the Project and out of
rent or other income from such property received by Landlord or out of
consideration received by Landlord from the sale or other disposition of all
or any part of Landlord's right, title or interest in the Project, and
neither Landlord nor its officers, directors, trustees, partners, joint
venturers, members, owners, stockholders, or other principals or
representatives shall be liable for any deficiency.
33. ESTOPPEL CERTIFICATES. At any time and from time to time
upon not less than ten (10) business days' prior request by either party, the
non-requesting party agrees to execute, acknowledge, and deliver to the
requesting party a statement in writing certifying (i) that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and identifying the
modifications); (ii) the dates to which Basic Rent, additional rent, and
other charges have been paid; and (iii) whether there is then existing any
claim by the non-requesting party of default hereunder by the requesting
party and, if so, specifying the nature thereof. It is intended that any
such statement may be relied upon by any person proposing to acquire interest
of the requesting party in this Lease or any prospective mortgagee of, or the
assignee of any mortgage upon, such interest.
34. BROKERAGE. Landlord and Tenant represent and warrant each
to the other that they have dealt with no broker, agent, or other person in
connection with this transaction and that no other broker, agent, or other
person brought about this transaction, other than Colliers Parrish
International, Inc., representing Landlord, and Cooper Brady Corporate Real
Estate Services, representing Tenant (collectively, the "Brokers"), and each
party agrees to indemnify, defend, protect and hold the other harmless from
and to reimburse the other party for any and all claims by or liabilities to
any broker, agent, or person claiming a commission or other form of
compensation by virtue of having dealt with the indemnifying party with
respect to this Lease transaction. In addition, Landlord shall indemnify,
defend, protect and hold Tenant harmless from any claim by or liability to
the Brokers for any fee or other compensation by virtue of having dealt with
Landlord and/or Tenant with respect to this Lease transaction. The
provisions of this paragraph shall survive the termination
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of this Lease. Landlord agrees that it will, on the Commencement Date, pay
to Colliers Parrish International, Inc. a commission conforming to the
requirements of the existing marketing agreement between Landlord and said
broker pertaining to Montague Industrial Park, which commission shall be
divided between the Brokers as they may agree.
35. SIGNAGE. Tenant shall have the right, at its sole expense,
to construct and install (i) one monument-style sign on the landscaping berm
located on Plumeria Drive and (ii) one sign attached to the Building. Each
such sign shall conform to Law including, without limitation, restrictions
and limitations imposed by the City of San Jose's zoning regulations and sign
ordinance. The size of such signs shall be based on a reasonable square
footage, as determined in good faith by Landlord. Prior to installation of
any such signs, dimensioned elevations, showing colors and materials, shall
be submitted to Landlord for approval, which approval shall not be
unreasonably withheld. Except for the foregoing, Tenant shall not place or
permit on the exterior or roof of the Building, or at any other location on
the property comprising the Premises, any sign, advertisement, illumination,
projection, or similar thing (a "Sign"), unless (x) Landlord has given its
prior written consent thereto, which shall not be unreasonably withheld, and
(y) such Sign complies with applicable Law.
36. OPTION TO EXTEND.
A. Tenant shall have two (2) options to extend the
Lease Term, for a period of three (3) years each (each, an "Option Term",
collectively, the "Option Terms"). Notwithstanding any contrary provision of
paragraph 31 hereof, the option may be exercised only by written notice
delivered to Landlord by United States Certified Mail (return receipt
requested) not later than nine (9) months prior to the expiration of the then
existing Lease Term. Tenant may not exercise either option at any time that
there exists a default of which Landlord has provided Tenant written notice
and which has not been cured by Tenant. In all respects, the terms,
covenants and conditions of this Lease shall remain unchanged during each
Option Term, except that the Basic Rent payable during each Option Term shall
be adjusted in accordance with subparagraph 36.B.
B. The Basic Rent payable during each Option Term
shall be the "Fair Market Rent for the Premises" (as defined in subparagraph
36.C, below) as of the first day of the Option Term in question. Promptly
following exercise of each option, the parties shall meet and endeavor to
agree upon the Fair Market Rent for the Premises. If within fifteen (15)
days after exercise of each such option, the parties cannot agree upon the
Fair Market Rent for the Premises as of the first day of the Option Term in
question, the parties shall submit the matter to binding appraisal in
accordance with the following procedure except that in any event neither
party shall be obligated to start such procedure sooner than eight (8) months
before the expiration of the Lease Term. Within thirty (30) days after
exercise of the option in question (but not sooner than eight (8) months
before the expiration of the Lease Term), the parties shall either (i)
jointly appoint an appraiser for this purpose or (ii) failing this joint
action, separately designate a disinterested appraiser. No person shall be
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appointed or designated an appraiser unless such person has at least five (5)
years experience in appraising major commercial property in Santa Clara
County and is a member of a recognized society of real estate appraisers. If
within thirty (30) days after the appointment the two appraisers reach
agreement on the Fair Market Rent for the Premises as of the first day of the
Option Term in question, that value shall be binding and conclusive upon the
parties. If the two appraisers thus appointed cannot reach agreement on the
Fair Market Rent for the Premises as of the first day of the Option Term in
question within thirty (30) days after their appointment, then the appraisers
thus appointed shall appoint a third disinterested appraiser having like
qualifications. If within thirty (30) days after the appointment of the
third appraiser a majority of the appraisers agree on the Fair Market Rent of
the Premises as of the first day of the Option Term in question, that value
shall be binding and conclusive upon the parties. If within thirty (30) days
after the appointment of the third appraiser a majority of the appraisers
cannot reach agreement on the Fair Market Rent for the Premises as of the
first day of the Option Term in question, then the three appraisers shall
each simultaneously submit their independent appraisal to the parties, the
appraisal farthest from the median of the three appraisals shall be
disregarded, and the mean average of the remaining two appraisals shall be
deemed to be the Fair Market Rent of the Premises as of the first day of the
Option Term in question and shall be binding and conclusive upon the parties.
Each party shall pay the fees and expenses of the appraiser appointed by it
and shall share equally the fees and expenses of the third appraiser. If the
two appraisers appointed by the parties cannot agree on the appointment of
the third appraiser, they or either of them shall give notice of such failure
to agree to the parties and if the parties fail to agree upon the selection
of such third appraiser within ten (10) days after the appraisers appointed
by the parties give such notice, then either of the parties, upon notice to
the other party, may request such appointment by the American Arbitration
Association or, on its failure, refusal or inability to act, may apply for
such appointment to the presiding judge of the Superior Court of Santa Clara
County, California.
C. For purposes of this paragraph, the term "Fair
Market Rent for the Premises" shall mean the fair market rental value of the
Premises and any adjustment or adjustments to such rental at such time(s) and
in such amount or using such formula as is prevailing at the time of the
commencement of the Option Term, based upon comparable buildings located
within a five (5) mile radius of the Premises, taking into account the uses
permitted by this Lease and the value of all improvements in the Premises for
a tenant proposing to sign a lease for a similar term.
37. [Intentionally Omitted.]
38. MISCELLANEOUS.
A. This Lease constitutes the entire agreement between
the parties, and there are no binding agreements or representations between
the parties except as expressed herein. Tenant acknowledges that neither
Landlord nor Landlord's Agents has made any legally binding representation of
warranty as to any matter except as to those expressly set forth herein.
There are
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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. This instrument shall not be legally binding until it is executed by
both Landlord and Tenant. This Lease may nor be modified or amended except
by agreement in writing signed by the party against whom, or against whose
successors and assigns, enforcement of the change is sought.
B. Any prevention, delay or stoppage due to strikes,
lock-outs, inclement weather, labor disputes, inability to obtain labor,
materials, fuels or reasonable substitutes therefor, despite a commercially
reasonable and good faith search therefor, governmental restrictions,
regulations, controls, action or inaction, civil commotion, fire or other
Acts of God, and other causes beyond the reasonable control of the party
obligated to perform (except financial inability) shall excuse the
performance, for a period equal to the period of any said prevention, delay
or stoppage, of any obligation hereunder except the obligation of Tenant to
pay rent or any other sums due hereunder.
C. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger as to any
existing subtenancies and shall, at the option of Landlord, terminate any and
all such existing subtenancies or, at Landlord's option, operate as an
assignment to it of any and all such subtenancies.
D. The words "Landlord" and "Tenant" as used herein
shall include the plural as well as the singular. If there is more than one
tenant, the obligations hereunder imposed upon the Tenant shall be joint and
several.
E. Time is of the essence of this Lease and each and
all of its provisions.
F. This Lease shall be construed and enforced in
accordance with the laws of the State in which the Premises are situated.
The parties each acknowledge that they have been represented by experienced
legal counsel throughout the course of negotiations leading to the signing of
this Lease, and it is agreed that the provisions of this Lease shall be
construed according to their common meaning and not in favor of either party.
G. Any amount due from either party to the other party
if not paid when first due, shall bear interest at the Default Interest Rate
from the date due until paid.
H. If any covenant, agreement, or condition of this
Lease or the application thereof to any person, firm, corporation, or
circumstance is or becomes to any extent invalid or unenforceable, the
remainder of this Lease, or the application of such covenant, agreement, or
condition to persons, firms, corporations, or circumstances other than those
as to which it is invalid or
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<PAGE>
unenforceable, shall not be affected thereby, and in lieu of each clause or
provision of this Lease that is illegal, invalid, or unenforceable, there
shall be added as a part of this Lease a clause or provision as similar in
terms to such clause or provision as is possible and as may be legal, valid,
and enforceable.
I. Landlord's acceptance of a partial rent payment
shall not constitute a waiver of any rights of Tenant or Landlord, including,
without limitation, any right Landlord may have to recover possession of the
Premises, in unlawful detainer, or otherwise.
J. The parties agree that the covenants and agreements
herein contained shall bind and inure to the benefit of Landlord and its
successors and assigns, and shall bind and inure to the benefit of Tenant and
its successors and assigns, subject to the provisions of paragraph 23, and
provided that any consent required to any assignment hereof shall be had and
obtained as specified in this Lease.
K. Except where otherwise expressly provided herein,
wherever the Lease requires a party to give an approval, consent,
designation, selection, determination or judgment, such approval, consent,
designation, selection, determination or judgment shall not be unreasonably
withheld or delayed.
Exhibits A, A-1, A-2, B, C, D, E and F are attached hereto
and become part of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Lease as of the day and year first above written.
LANDLORD: TENANT:
- --------- -------
THE EQUITABLE LIFE PHOENIX TECHNOLOGIES LTD.,
ASSURANCE SOCIETY a Delaware corporation
OF THE UNITED STATES,
a New York corporation
By: /s/ James Piane By: /s/ Robert J. Riopel
----------------------------------- ---------------------------------
Printed Printed
Name: James Piane Name: Robert J. Riopel
--------------------------------- -------------------------------
Title: Investment Officer Title: VP Finance
-------------------------------- ------------------------------
Date: 7-17-96 Date: July 15, 1996
--------------------------------- -------------------------------
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<PAGE>
EXHIBIT "A"
MAP OF PARCEL E
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<PAGE>
EXHIBIT "A-1"
LEGAL DESCRIPTION OF PROJECT
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<PAGE>
EXHIBIT "A-2"
DIAGRAM OF REDUCED PREMISES AREA
-46-
<PAGE>
EXHIBIT "B"
SITE PLAN
-47-
<PAGE>
EXHIBIT "C"
IMPROVEMENT AGREEMENT
This Agreement ("Agreement") is made part of that Lease dated May 15,
1996 (the "Lease") by and between the Equitable Life Assurance Society of the
United States ("Landlord"), and Phoenix Technologies Ltd., a Delaware
corporation ("Tenant"). Landlord and Tenant agree that the following terms
are part of the Lease:
1. PURPOSE OF AGREEMENT: The purpose of this Agreement is to set
forth the rights and obligations of Landlord and Tenant with respect to the
construction of the Tenant Improvements (defined below) within the Premises
prior to the Commencement Date.
2. DEFINITIONS: As used in this Agreement, the following terms shall
have the following meanings, and terms which are not defined below, but which
are defined in the Lease and which are used in this Agreement, shall have the
meanings ascribed to them by the Lease:
A. TENANT IMPROVEMENTS: The term "Tenant Improvements" shall
mean all improvements to be constructed by Landlord in accordance with this
Agreement.
B. IMPROVEMENT COSTS: The term "Improvement Costs" shall mean
the following: (i) the total amount due pursuant to the general construction
contract entered into by Landlord to construct the Tenant Improvements and
any other amounts authorized by Tenant in connection therewith and pursuant
to the terms hereof; (ii) the cost of all governmental approvals required as
a condition to the construction of the Tenant Improvements (including all
construction taxes imposed by the city and/or county where the Premises are
located) in connection with the issuance of a building permit for the Tenant
Improvements; (iii) all utility connection or use fees; (iv) fees of
architects, consultants or engineers for services rendered in connection with
the design and construction of the Tenant Improvements; (v) the cost of
payment and performance bonds obtained by Landlord or the general contractor
to assure completion of the Tenant Improvements as may be reasonably required
by Landlord; (vi) a management fee equal to three percent (3%) of the
Improvement Costs for Landlord's supervision of the construction of the
Tenant Improvements; (vii) costs for installing a building security and
cardlock system; and (viii) costs for installing computer network and
telephone cabling. Each of the categories of costs referenced in
subparagraphs (iv), (vii) and (viii) inclusive will be costs reasonably
incurred by Tenant and subject to reimbursement by Landlord, which
reimbursement will be made within no more than fifteen (15) days after
presentation by Tenant of invoices or other reasonably satisfactory evidence
of the cost of the item in question.
C. SUBSTANTIAL COMPLETION AND SUBSTANTIALLY COMPLETE: The terms
"Substantial Completion" and "Substantially Complete" shall each mean the
date when all of the following have occurred with respect to the Tenant
Improvements in question: (i) the construction of the Tenant Improvements in
question has been substantially completed in accordance with the requirements
of this Lease except for punchlist items which do not materially interfere
with Tenant's use of the Premises;
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<PAGE>
(ii) the architect responsible for preparing the plans shall have executed a
certificate or statement representing that the Tenant Improvements in
question have been substantially completed in accordance with the plans and
specifications therefor; and (iii) Landlord shall have obtained all approvals
from governmental entities which must be obtained before Tenant may legally
occupy the Premises. All documents required to be obtained by Landlord
pursuant to this subparagraph 2.C shall be delivered to Tenant on or before
the Commencement Date; provided however, that Landlord's failure to do so
shall not delay the Commencement Date unless such failure is on account of
Landlord's failure to obtain such documents.
3. SCHEDULE OF PERFORMANCE: Set forth in this paragraph is a schedule
of certain critical dates relating to Landlord's and Tenant's respective
obligations regarding the construction of the Tenant Improvements (the
"Schedule of Performance"). Landlord and Tenant shall each be obligated to
use reasonable efforts to perform their respective obligations within the
time periods set forth in the Schedule of Performance and elsewhere in this
Improvement Agreement. The Schedule of Performance is as follows:
<TABLE>
<CAPTION>
Action Responsible
Items Due Date Party
-------------- -------------- --------
<C> <S> <C> <C>
A. Delivery to Landlord of Preliminary August 13, 1996 Tenant
Improvement Plans
B. Approval by Landlord of Preliminary Three (3) business days after Landlord
Plans Landlord receives Preliminary Plans
C. Delivery to Landlord of Final Plans September 3, 1996 Tenant
D. Approval by Landlord of Final Plans Within three (3) business days after Landlord
Landlord receives Final Plans
E. Application for Building Permit Within three (3) business days after Landlord
Landlord approves Final Plans
F. Commencement of Construction of Within three (3) business days after Landlord
Tenant Improvements issuance of necessary governmental
approvals or within three (3)
business days after the existing
tenant in the Premises, Viking
Freight Systems, vacates the
Premises, whichever is later.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Action Responsible
Items Due Date Party
-------------- -------------- --------
<C> <S> <C> <C>
G. Tenant's Right of Entry Date Five (5) business days prior to the
estimated date of Substantial
Completion of the Tenant Improvements
H. Substantial Completion of Tenant Within sixty (60) days after Landlord
Improvements commencement of construction.
</TABLE>
4. CONSTRUCTION OF IMPROVEMENTS: Landlord shall construct the Tenant
Improvements in accordance with the following:
A. DEVELOPMENT AND APPROVAL OF PRELIMINARY PLANS: Tenant has
selected Workspace Management Service as its space planner and DES as its
architect (collectively, "Tenant's Architect") to design the Tenant
Improvements. On or before the due date specified in the Schedule of
Performance, Tenant shall prepare and deliver to Landlord for its review and
approval preliminary plans for the Tenant Improvements (the "Preliminary
Plans"). On or before the due date specified in the Schedule of Performance,
Landlord shall either approve such plans or notify Tenant in writing of its
specific objections to the Preliminary Plans. If Landlord so objects, Tenant
shall revise the Preliminary Plans to address such objections and shall
resubmit such revised Preliminary Plans as soon as reasonably practicable to
Landlord for its approval. When such revised Preliminary Plans are
resubmitted to Landlord, it shall either approve such plans or notify Tenant
of any further objections in writing within five (5) business days after
receipt thereof. If Landlord has further objections to the revised
Preliminary Plans, the parties shall meet and confer to develop Preliminary
Plans that are acceptable to both Landlord and Tenant within five (5)
business days after Landlord has notified Tenant of its second set of
objections. In the event Tenant and Landlord do not resolve all of Tenant's
objections within such five (5) business day period, Landlord and Tenant
shall immediately cause Landlord's architect to meet and confer with Tenant's
Architect or consultant, who shall apply the standards set forth in this
Improvement Agreement to resolve Landlord's objections and incorporate such
resolution into the Preliminary Plans, which process Landlord and Tenant
shall cause to be completed within five (5) business days after the
conclusion of the five (5) business day period referred to in the immediately
preceding sentence.
B. DEVELOPMENT AND APPROVAL OF FINAL PLANS: Tenant shall cause
Tenant's Architect to develop final working drawings for the Tenant
Improvements. Tenant shall submit final working drawings to Landlord for its
approval by the due date specified in the Schedule of Performance. Landlord
shall approve the final plans for the Tenant Improvements or notify Tenant in
writing of its specific objections by the due date specified in the Schedule
of Performance. If Landlord so objects, the parties shall confer and reach
agreement upon final working drawings for the Tenant Improvements within five
(5) business days after Landlord has notified Tenant of its objections. In
the event Tenant and Landlord
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<PAGE>
do not resolve all of Landlord's objections within such five (5) business day
period, Landlord and Tenant shall immediately cause Landlord's architect to
meet and confer with Tenant's Architect, who shall apply the standards set
forth in this Agreement to resolve Landlord's objections and incorporate such
resolution into the Final Plans, which process Landlord and Tenant shall
cause to be completed within five (5) business days after the conclusion of
the five (5) business day period referred to in the immediately preceding
sentence. The final working drawings so approved by Landlord and Tenant
(including all changes made to resolve Landlord's objections approved by
Landlord's architect and Tenant's Architect) are referred to herein as the
"Final Plans".
C. BUILDING PERMIT: As soon as the Final Plans have been
approved by Landlord and Tenant, Landlord shall apply for a building permit
for the Tenant Improvements, and shall diligently prosecute to completion
such approval process.
D. CONSTRUCTION CONTRACT: Landlord and Tenant shall cooperate to
cause the Tenant Improvements to be constructed by a general contractor who
is engaged by Landlord in accordance with subparagraph 4.D(1).
(1) The job of constructing the Tenant Improvements shall be
offered for competitive bid, on a fixed price basis, to at least three (3)
but no more than five (5) general contractors selected by Landlord and
approved by Tenant. The construction contract shall be awarded to the bidder
submitting the lowest bid for the job. Landlord shall submit to Tenant a
list of general contractors acceptable to Landlord to whom the job may be
bid, and Tenant shall notify Landlord within three (3) business days after
receipt of such list of its objection to any proposed contractor. Tenant's
failure to object within such period of time shall be deemed to be its
approval of all bidders on the list so submitted by Landlord. If the lowest
bid resulting from such competitive bidding process indicates that the
Improvement Costs will exceed Six Hundred Ninety-Two Thousand Eight Hundred
Sixteen Dollars ($692,816), Landlord shall promptly notify Tenant, in
writing, to that effect, and Tenant shall have the right to propose
modifications to the Final Plans within five (5) business days after Tenant's
receipt of Landlord's notice, subject to Landlord's approval of such changes,
for the purpose of reducing the Improvement Costs. Such revision of the
Final Plans shall be completed as expeditiously as possible; provided,
however, that (i) the job shall nonetheless be awarded to the low bidder
whose price shall be adjusted based upon the changes requested by Tenant and
approved by Landlord made to the Final Plans; and (ii) if Tenant should
choose to exercise its right to modify the Final Plans for the purpose of
reducing the Improvement Costs, any delay resulting from the failure by
Tenant to timely exercise its right to do so shall be a delay caused by
Tenant for purposes of paragraph 7 hereof.
(2) Landlord and Tenant shall use their reasonable efforts to
approve the subcontractors so that the construction contract may be executed
as soon as possible. After the general construction contract is awarded,
Landlord shall use reasonable efforts to enforce it in accordance with its
terms as approved by Tenant.
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<PAGE>
E. COMMENCEMENT OF IMPROVEMENTS: On or before the due date
specified in the Schedule of Performance, Landlord shall commence
construction of the Tenant Improvements and shall diligently prosecute such
construction to completion, using all reasonable efforts to achieve
Substantial Completion of the Tenant Improvements by the due date specified
in the Schedule of Performance.
5. PAYMENT OF IMPROVEMENT COSTS: Landlord and Tenant shall have the
following obligations with respect to the payment of Improvement Costs:
A. Landlord shall be obligated to pay an amount equal to Four
Hundred Thirty-Three Thousand Ten Dollars ($433,010) for the payment of
Improvement Costs (the "Allowance").
B. In the event that the Improvement Costs exceed the Allowance,
then Landlord shall increase the Allowance by no more than Two Hundred
Fifty-Nine Thousand Eight Hundred Six Dollars ($259,806) (the "Additional
Allowance") up to a maximum of Six Hundred Ninety-Two Thousand Eight Hundred
Sixteen Dollars ($692,816) and Tenant shall pay as additional rent each month
during the Lease Term (but not during any Option Term) commencing on the
Commencement Date an amount equal to $.01765 per square foot per month (based
on an area within the Premises of 86,602 square feet) for every dollar per
square foot spent by Landlord in excess of the Allowance. By way of example
only, if Landlord is required to increase the Allowance by the maximum amount
of Two Hundred Fifty-Nine Thousand Eight Hundred Six Dollars ($259,806) then
Tenant shall pay, in addition to the Basic Rent set forth in paragraph 5 of
the Lease, an additional amount equal to Four Thousand Five Hundred
Eighty-Five Dollars and Fifty-Eight Cents ($4,585.58) per month for each
month during the term of the Lease.
C. If the total of Improvement Costs exceeds the amount of the
Allowance and the Additional Allowance, Tenant shall be obligated to pay the
entire amount of such excess. If Tenant becomes obligated to contribute
toward paying Improvement Costs pursuant to this subparagraph 5.C, then
Landlord shall estimate the amount of such excess prior to commencing
construction of the Tenant Improvements and Tenant shall pay to Landlord upon
demand the amount of such excess in cash prior to the commencement of
construction. Any delay by Tenant in making such payment shall be deemed to
be delays caused by Tenant for the purposes of paragraph 7 hereof. At the
time the final accounting is rendered by Landlord pursuant to subparagraph
5.D hereof, there shall be an adjustment between Landlord and Tenant such
that each shall only be required to contribute to the payment of Improvement
Costs in accordance with the obligations set forth in this subparagraph 5.C,
which adjustment shall be made within five (5) days after Landlord notifies
Tenant of the required adjustment. If Tenant is required to make a payment
to Landlord, Tenant shall make such payment even if Tenant elects to audit
the statement submitted by Landlord pursuant to subparagraph 5.E. In the
event Tenant's audit discloses that an overpayment or underpayment was made
by Tenant, there shall be an adjustment between Landlord and Tenant as soon
as reasonably practicable such that each shall only be required to contribute
to the payment of costs in accordance with the obligations set forth in this
paragraph 5.
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<PAGE>
D. If Tenant fails to pay any amount when due pursuant to this
paragraph 5, then (i) Landlord may (but without the obligation to do so)
advance such funds on Tenant's behalf, and Tenant shall be obligated to
reimburse Landlord for the amount of funds so advanced on its behalf, and
(ii) such failure shall be deemed to be a default under the Lease and Tenant
shall be liable for the payment of a late charge and interest in the same
manner as if Tenant had failed to pay Basic Rent when due as described in
paragraphs 5 and 38 of the Lease, respectively. Any amounts paid to Landlord
by Tenant pursuant to this subparagraph shall be held by Landlord as Tenant's
agent, for disbursal to the general contractor in payment for work costing in
excess of Landlord's required contribution.
E. When the Tenant Improvements are Substantially Completed,
Landlord shall submit to Tenant a final and detailed accounting of all
Improvement Costs paid by Landlord, certified as true and correct by
Landlord's financial officers. Tenant shall have the right to audit the
books, records, and supporting documents of Landlord to the extent necessary
to determine the accuracy of such accounting during normal business hours
after giving Landlord at least two (2) business days' prior written notice.
Any such audit must be conducted, if at all, within ninety (90) days after
Landlord delivers such accounting to Tenant.
6. CHANGES TO APPROVED PLANS: Once the Final Plans have been approved
by Landlord and Tenant, neither shall have the right to order extra work or
change orders with respect to the construction of the Tenant Improvements
without the prior written consent of the other. Landlord and Tenant shall be
required to approve change orders necessary to address errors and omissions
of the architect or any other design professionals, changes required to
comply with Laws, and changes required because of unanticipated conditions
encountered in the field. All extra work or change orders requested by
either Landlord or Tenant shall be made in writing, shall specify any added
or reduced cost and/or construction time resulting therefrom, and shall
become effective and a part of the Final Plans once approved in writing by
both parties. If a change order requested by Tenant results in a net
increase in the cost of constructing the Tenant Improvements, Tenant shall
pay the amount of such increase caused by the change order requested by
Tenant at the time the change order is approved by both Landlord and Tenant
if and to the extent such change order causes the Improvement Costs to exceed
the Allowance and the Additional Allowance. If a change order results in an
increase in the amount of construction time needed by Landlord to complete
the Tenant Improvements, paragraph 7 hereof shall apply.
7. DELAY IN COMPLETION CAUSED BY TENANT: The parties hereto
acknowledge that the Commencement Date may be delayed because of (i) Tenant's
failure to submit necessary information to Landlord when required, (ii)
Tenant's failure to promptly review and approve the plans for the Tenant
Improvements in accordance with paragraph 4.B herein, (iii) any act by Tenant
which interferes with or delays the completion of the plans for the Tenant
Improvements or Landlord's construction work (including labor disputes or
work stoppages resulting from Tenant's use of non-union labor in connection
with its occupancy of any part of the Premises pursuant to paragraph 10
hereof), (iv) change orders requested by tenant and approved by Landlord, or
(v) special materials or equipment ordered or specified by tenant that cannot
be obtained by Landlord at normal cost within a reasonable period of time
because
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<PAGE>
of limited availability (collectively, "Tenant Delays"). It is the intent of
the parties hereto that the commencement of Tenant's obligation to pay Basic
Rent and Additional Rent not be delayed by any of such causes or by any other
act of Tenant, and in the event it is so delayed, Tenant's obligation to pay
the Basic Rent and Additional Rent shall commence as of the date it would
otherwise have commenced absent delay caused by Tenant, provided that as soon
as reasonably practicable after learning of the occurrence of the cause of
any such delay, Landlord notifies Tenant in writing of the fact that such
delay has occurred and the known or anticipated extent of any such delay.
8. DELIVERY OF POSSESSION, PUNCH LIST, AND ACCEPTANCE AGREEMENT: As
soon as the Tenant Improvements are Substantially Completed, Landlord and
Tenant shall together walk through the Premises and inspect all Tenant
Improvements so completed, using reasonable efforts to discover all
uncompleted or defective construction in the Tenant Improvements. After such
inspection has been completed, each party shall sign an acceptance agreement
in the form attached to the Lease as EXHIBIT "D", which shall (i) include a
list of all "punch list" items which the parties agree are to be corrected by
Landlord, and (ii) shall state the Commencement Date. As soon as such
inspection has been completed and such acceptance agreement executed,
Landlord shall deliver possession of the Premises to Tenant. Tenant's
acceptance of the Premises pursuant to this paragraph 8 shall not be deemed a
waiver of Tenant's right to require Landlord to repair any latent defects
existing on the Premises pursuant to paragraph 9 of this Agreement. Landlord
shall use reasonable efforts to complete and/or repair such "punch list"
items as soon as practicable, provided that Landlord shall commence to cause
such "punch list" items to be completed or repaired on or before fifteen (15)
days after the day that the parties execute the Acceptance Agreement.
Landlord shall have no obligation to deliver possession of the Premises to
Tenant until such procedures regarding the preparation of a punch list and
the execution of the acceptance agreement have been completed. Tenant's
taking possession of any part of the Premises shall be deemed to be an
acceptance by Tenant of Landlord's work of improvement in such part as
complete and in accordance with the terms of the Lease except for the punch
list items so noted; provided, however, that any entry by Tenant pursuant to
paragraph 10 hereof shall not be deemed to be taking of possession for
purposes of this sentence. Notwithstanding anything contained herein,
Tenant's obligation to pay Basic Rent and Additional Rent shall commence as
provided in the Lease, regardless of whether Tenant completes such inspection
or executes such acceptance agreement.
9. STANDARD OF CONSTRUCTION AND WARRANTY: Landlord hereby warrants
that the Tenant Improvements shall be constructed substantially in accordance
with the Final Plans (as modified by change orders approved by Landlord and
Tenant), in a good and workmanlike manner, and all materials and equipment
furnished shall conform to such final plans and shall be new and otherwise of
good quality. The foregoing warranty shall be subject to, and limited by,
the following:
A. Once Landlord is notified in writing of any breach of the
above-described warranty, Landlord shall promptly commence the cure of such
breach and complete such cure with diligence at Landlord's sole cost and
expense.
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<PAGE>
B. Landlord's liability pursuant to such warranty shall be
limited to the cost of correcting the defect or other matter in question. In
no event shall Landlord be liable to Tenant for any losses or liabilities
incurred by Tenant as a result of such defect or resulting from any loss of
business by Tenant or other consequential damages.
C. Notwithstanding anything contained herein, Landlord shall not
be liable for any defect in construction or equipment furnished which is
discovered or of which Landlord receives written notice from Tenant after the
first (1st) anniversary of the recordation of a notice of completion for the
work of improvement affected by the defect.
D. With respect to defects for which Landlord is not responsible
pursuant to subparagraph 9.C, Tenant shall have the benefit of any
construction or equipment warranties existing in favor of Landlord that would
assist Tenant in correcting such defect and in discharging its obligations
regarding the repair and maintenance of the Premises. Upon request by
Tenant, Landlord shall inform Tenant of all written construction and
equipment warranties existing in favor of Landlord that may be necessary to
enforce liability with regard to any defect for which Landlord is not
responsible pursuant to this paragraph so long as Tenant pays all costs
reasonably incurred by Landlord in so acting. Additionally, during the
period of time during which Landlord is soliciting bids from general
contractors, Tenant shall have the right to request that Landlord provide to
Tenant a list of the general contractor bids that Landlord is considering and
the warranties that each such contractor is willing to make. Tenant shall
have the right to submit to Landlord written comments on and suggested
changes to such warranties which comments and changes Landlord shall consider.
E. Landlord makes no other express or implied representations or
warranties with respect to the construction or operation of the Tenant
Improvements except as set forth in this paragraph. Landlord makes no
express or implied representations or warranties with respect to the design
of the Tenant Improvements or whether such design complies with applicable
law since Tenant has engaged its own architect to design the Final Plans.
Landlord's consent to the Final Plans shall in no way be construed as an
acknowledgment or representation by Landlord that the Final Plans are
designed in accordance with applicable law or suitable for their intended
purposes.
10. TENANT'S RIGHT TO INSTALL TRADE FIXTURES: When the construction of
the Tenant Improvements has proceeded to the point where Tenant's work of
installing its fixtures and equipment in the Premises can be commenced in
accordance with good construction practices, Landlord also shall notify
Tenant to that effect and shall permit Tenant, and its authorized
representatives and contractors, to have access to the Premises for the
purpose of installing Tenant's trade fixtures and equipment. Any such
installation work by Tenant, or its authorized representatives and
contractors, shall be undertaken at their sole risk, free from rent, and upon
the following conditions:
A. If the entry into the Premises by Tenant, or its
representatives or contractors, interferes with or delays Landlord's
construction work, after twenty-four (24) hours notice of such fact
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<PAGE>
to Tenant (i) Tenant shall cause the party responsible for such interference
or delay to leave the Premises, or (ii) Tenant shall cause to be taken such
steps as may be reasonably necessary in the opinion of the general contractor
to alleviate such interference or delay;
B. Any contractor used by Tenant in connection with such entry
and installation shall be subject to Landlord's approval, which approval
shall not be unreasonably withheld;
C. If Tenant's entry or installation causes any strike or other
labor dispute which materially and adversely affects construction of the
Premises, upon Landlord's demand Tenant shall withdraw its contractors and
representatives from the Premises or take such other steps as Landlord shall
deem appropriate to remedy the situation; and
D. Tenant's access to the Premises shall be subject to all of the
terms and conditions of the Lease except for the obligation to pay Basic Rent
and additional rent.
11. TENANT'S REPRESENTATIVE; LANDLORD'S REPRESENTATIVE: Tenant hereby
appoints Sloan Wood ("Tenant's Representative") as its sole representative
for the purposes of administering this Agreement. Landlord hereby appoints
Paul Radich ("Landlord's Representative") as its sole representative for the
purposes of administering this Agreement. Until replaced by written notice
to the other party, Tenant's Representative and Landlord's Representative
shall have the full authority and responsibility to act on behalf of its
Tenant and Landlord, respectively, as required in this Agreement.
12. APPROVALS: Except where otherwise expressly provided herein,
wherever this Agreement requires a party to give an approval, consent,
designation, selection, determination or judgment, such approval, consent,
designation, selection, determination or judgment shall not be unreasonably
withheld or delayed.
13. CONDITION TO LANDLORD'S PERFORMANCE: Landlord's obligations under
the Lease are subject to the satisfaction or waiver of the condition that
Landlord be able to obtain all building permits and other governmental
approvals required in order to commence construction of the Tenant
Improvements. If such condition is not satisfied or waived, Landlord and
Tenant shall have the option of terminating the Lease; provided, however,
that Landlord shall have the option to extend the time period for the
satisfaction of such condition for a period of up to sixty (60) days
following the date on which Landlord is first notified that such permits and
approvals have been denied to enable Landlord to continue its efforts to
cause such condition to be satisfied. If Landlord exercises such option to
extend, Tenant's election to terminate the Lease shall be automatically void
and of no force or effect. If Landlord exercises such option to extend and
is unable to obtain all building permits and other governmental approvals
required in order to commence construction of the Tenant Improvements on or
before the expiration of such sixty (60) - day period, then Tenant shall have
the additional option to terminate this Lease. If any such option to extend
the time for satisfaction of this condition is exercised, (i) Landlord shall
continue to use reasonable efforts to cause the condition to be satisfied;
(ii) all other time periods contained in the
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Schedule of Performance which are impacted by such extension shall be
appropriately adjusted; and (iii) such extension shall not constitute a delay
caused by Tenant pursuant to paragraph 7 hereof, nor shall Landlord in any
way be penalized for exercising such option to obtain additional time to
cause the condition to be satisfied. If Landlord or Tenant becomes entitled
to and elects to so terminate the Lease, the Lease shall terminate on the
date notice is so given to the other party. Landlord shall be under an
obligation of good faith to use all reasonable efforts to cause the condition
to be satisfied.
14. EFFECT OF AGREEMENT: In the event of any inconsistency between
this Agreement and the Lease, the terms of this Agreement shall prevail.
LANDLORD: TENANT:
THE EQUITABLE LIFE PHOENIX TECHNOLOGIES LTD.,
ASSURANCE SOCIETY a Delaware corporation
OF THE UNITED STATES,
a New York corporation
By:_______________________________ By:_______________________________
Printed Printed
Name:_____________________________ Name:_____________________________
Title:____________________________ Title:____________________________
Date:_____________________________ Date:_____________________________
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EXHIBIT "D"
ACCEPTANCE AGREEMENT
THIS ACCEPTANCE AGREEMENT, is made as of _____________, 199__, by
and between the parties hereto with regard to that Lease dated May 15, 1996,
by and between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a
New York corporation ("Landlord"), and PHOENIX TECHNOLOGIES LTD., a Delaware
corporation ("Tenant"), affecting those premises commonly known as 411 East
Plumeria Drive, San Jose, California. The parties hereto agree as follows:
1. All Tenant Improvements required to be constructed pursuant
to the Improvement Agreement have been completed in accordance with the terms
of the Lease, subject to the completion of punchlist items identified on
EXHIBIT "A" attached hereto.
2. Possession of the Premises has been delivered to Tenant and
Tenant has accepted and taken possession of the Premises.
3. The Commencement Date of the Lease Term is ___________,
199__, and the Lease Term shall expire on ____________, 200__, unless sooner
terminated according to the terms of the Lease.
4. The Lease is in full force and effect, neither party is in
default of its obligations under the Lease, and Tenant has no setoffs,
claims, or defenses to the enforcement of the Lease.
LANDLORD: TENANT:
- --------- -------
THE EQUITABLE LIFE PHOENIX TECHNOLOGIES LTD.,
ASSURANCE SOCIETY a Delaware corporation
OF THE UNITED STATES,
a New York corporation
By:_________________________________ By:_______________________________
Printed Printed
Name:_______________________________ Name:_____________________________
Title:______________________________ Title:____________________________
Date:_______________________________ Date:_____________________________
<PAGE>
EXHIBIT "E"
HAZARDOUS MATERIALS QUESTIONNAIRE
411 East Plumeria Drive
Address of Site: San Jose, CA (the "Subject Property")
-----------------------------------------
Proposed Use of Site:
------------------------------------
GENERAL INSTRUCTIONS: Please provide information as it relates to your past
uses and proposed use of Hazardous Materials at the Subject Property. If
there is insufficient space, please attach a separate page as needed. We
appreciate your assistance.
List the person who completed this questionnaire and will be available
for questions concerning this questionnaire.
Name: _____________________________
Position: _________________________
Company Name: PHOENIX TECHNOLOGIES LTD., a Delaware corporation
-------------------------------------------------
Address: ___________________________
Telephone #: _______________________
Date: ______________________________
- -------------------------------------------------------------------
1. GENERAL DESCRIPTION OF OPERATIONS:
1.1 Please describe on Schedule 1 (attached) the general nature of
the business and specific activities that will be conducted at
the Subject Property.
1.2 Please identify the person responsible for environmental
compliance and the length of time the person has held the
position.
2. HAZARDOUS MATERIALS PRODUCTION AND USAGE:
<PAGE>
2.1 Will your company use, store or manufacture Hazardous
Materials at the Subject Property? Hazardous Materials
means any substance or any material containing such a
substance that could be considered toxic or hazardous under
federal or state law including solvents, petroleum,
pesticides, paints, asbestos containing materials, lead
based batteries, radioactive materials and PCB containing
transformers.
Yes __________ No ___________
2.2 If the answer to 2.1 was yes, please list on attached
Schedule 1 all Hazardous Materials that will be used, stored
or manufactured at the Subject Property and the quantities
of each.
3. HAZARDOUS MATERIALS STORAGE:
3.1 Will Hazardous Materials be stored at the Subject Property?
Yes __________ No ___________
3.2 If the answer to 3.1 was yes, please indicate the proposed
location of each storage area within the Subject Property by
attaching a floor plan.
3.3 Please identify the proposed locations within the Subject
Property of any storage lockers, underground tanks, sumps,
storage cabinets, etc.
4. WASTES AND EMISSIONS:
4.1 Has the company at any previous location ever discharged
waste to any body of water or stream or to any sanitation
system or otherwise been required to obtain a NPDES Permit
or any other permit or approval from a Governmental Agency
concerning waste water discharges?
Yes __________ No ___________
4.2 Has the company at any previous location ever emitted any
air contaminant (including, but not limited to, reactive
hydrocarbons, sulfur oxides, carbon monoxide, nitrogen
oxides, lead, particulate matter, beryllium, mercury,
asbestos, vinyl chloride, benzene, and radionuclides) or
have you ever been required to obtain an air emissions
permit or other permit or approval from a
-2-
<PAGE>
Governmental Agency concerning air emissions in order to
conduct its business?
Yes __________ No ___________
4.3 Has the company in the past transported waste off-site for
disposal?
Yes __________ No ___________
If the answer is yes, please describe the circumstances of
the disposal and the site to which the waste was taken.
Please also indicate whether a permit was required in order
to dispose of the waste or if further remediation was
necessary before the waste was disposed of.
4.4 Has the company in the past transported waste off-site for
recycling?
Yes __________ No ___________
4.5 Does the company currently possess any permits or approvals
from a Governmental Agency with respect to its Hazardous
Materials activities?
Yes __________ No ___________
If the answer is yes, please indicate the permits you
currently possess.
4.6 Does the company require any permit or approval not
presently in full force and effect from any Governmental
Agency in order to conduct its Hazardous Materials
activities?
Yes __________ No ___________
5. REPORTING REQUIREMENTS:
5.1 Has the company received notice that any of its operations
or facilities are subject to the Air Toxics Hot Spot Act or
any other law?
Yes __________ No ___________
-3-
<PAGE>
5.2 Has any of the company's previous operations fallen within
the reporting requirements for emissions, discharges or
inventory pursuant to Title III of SARA or any other law?
Yes __________ No ___________
5.3 Has the company filed a Hazardous Materials Management Plan?
If so, please attach a copy of the plan to this
questionnaire.
Yes __________ No ___________
5.4 Has the company ever notified employees of the presence of
Hazardous Materials at the work place? If so, please attach
a copy of the notice.
Yes __________ No ___________
The above information is accurate and current as of the below referenced date.
Company Name: PHOENIX TECHNOLOGIES LTD.
By: _____________________________________
(Signature)
_____________________________________
(Type/Print Name)
_____________________________________
(Title)
Date: ______________________________________
-4-
<PAGE>
SCHEDULE 1
DESCRIPTION OF ACTIVITIES
Facility: Phoenix Technologies Ltd.
411 East Plumeria Drive
Address: San Jose, CA
1. GENERAL DESCRIPTION OF OPERATIONS:
A. THE ACTIVITIES THAT WILL BE CONDUCTED AT THE SUBJECT PROPERTY
WILL BE:
B. THE PRODUCTS THAT WILL BE PRODUCED OR ASSEMBLED AT THE SUBJECT
PROPERTY ARE:
BRIEFLY DESCRIBE ASSEMBLY OR
PRODUCT DESCRIPTION MANUFACTURING PROCESS
- --------------------------------------------------------------------------
2. HAZARDOUS MATERIALS THAT WILL BE USED, STORED OR MANUFACTURED
AT THE SUBJECT PROPERTY ARE:
3. FLOOR PLAN OF THE SUBJECT PROPERTY AND PROPOSED HAZARDOUS
MATERIALS STORAGE AREAS:
<PAGE>
4. WASTE STREAMS:
AIR EMISSIONS: SOURCE(S) VOLUME EMITTED CONTROL DEVICES
-------------- --------- -------------- ---------------
WATER DISCHARGE: SOURCE(S) CONSTITUENTS PRETREATMENT
---------------- --------- -------------------------
SOLID WASTE: SOURCE(S) CONSTITUENTS DISPOSAL METHOD
------------ --------- ----------------------------
<PAGE>
EXHIBIT "F"
PARCEL E ENVIRONMENTAL REPORTS
Environmental Site Assessment
Montague Park Development
441 Plumeria Drive
San Jose, California
Prepared for: Equitable Real Estate Management, Inc.
Prepared by: Hygienetics, Inc.
Dated: December 20, 1991
-3-
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