<PAGE> 1
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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 JANUARY 1, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______.
COMMISSION FILE NUMBER 0-17781
- --------------------------------------------------------------------------------
SYMANTEC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0181864
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
10201 TORRE AVENUE, CUPERTINO, CALIFORNIA 95014-2132
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 253-9600
- --------------------------------------------------------------------------------
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 registrant's classes of
common stock, including 1,739,880 shares of Delrina exchangeable stock, as of
February 1, 1999
COMMON STOCK, PAR VALUE $0.01 PER SHARE 55,656,505 SHARES
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<PAGE> 2
SYMANTEC CORPORATION
FORM 10-Q
QUARTERLY PERIOD ENDED JANUARY 1, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
as of December 31, 1998 and March 31, 1998........................... 3
Consolidated Statements of Operations
for the three and nine month periods ended December 31,
1998 and 1997 ....................................................... 4
Consolidated Statements of Cash Flow
for the nine months ended December 31, 1998 and 1997................. 5
Notes to Consolidated Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............. 37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 38
Item 6. Exhibits and Reports on Form 8-K........................................ 38
Signatures. .................................................................... 39
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYMANTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
(In thousands) 1998 1998
------------ ---------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments $ 182,776 $ 225,883
Trade accounts receivable 61,586 65,158
Inventories 6,890 3,175
Deferred income taxes 23,852 19,677
Other 15,355 14,646
--------- ---------
Total current assets 290,459 328,539
Long-term investments 8,586 34,258
Restricted investments 68,877 59,370
Equipment and leasehold improvements 53,831 50,030
Purchased product rights and capitalized software 30,854 1,470
Goodwill 47,054 --
Other 5,655 2,793
--------- ---------
$ 505,316 $ 476,460
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,157 $ 34,171
Accrued compensation and benefits 20,622 21,332
Other accrued expenses 106,868 64,532
Income taxes payable 11,319 24,634
6% convertible senior subordinated notes 25,000 --
Current portion of 7.75% convertible subordinated debentures 8,333 8,333
--------- ---------
Total current liabilities 220,299 153,002
7.75% convertible subordinated debentures and other 5,951 5,951
Long-term obligations 1,455 --
--------- ---------
Total long-term liabilities 7,406 5,951
Commitments and contingencies
Stockholders' equity:
Preferred stock (authorized: 1,000; issued and outstanding: none) -- --
Common stock (authorized: 100,000; issued and outstanding: 55,509
and 57,109 shares) 555 571
Capital in excess of par value 292,936 310,949
Minority interest in Quarterdeck (8,136) --
Notes receivable from stockholders (144) (144)
Retained earnings 11,135 18,690
Accumulated other comprehensive loss (18,735) (12,559)
--------- ---------
Total stockholders' equity 277,611 317,507
--------- ---------
$ 505,316 $ 476,460
========= =========
</TABLE>
3
<PAGE> 4
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- --------------------------
(In thousands, except per share data; unaudited) 1998 1997 1998 1997
- ------------------------------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues $ 165,056 $ 148,240 $ 458,208 $ 422,269
Cost of revenues 26,637 22,591 68,454 65,900
---------- ---------- ---------- ----------
Gross margin 138,419 125,649 389,754 356,369
Operating expenses:
Research and development 24,407 21,907 75,143 67,079
Sales and marketing 71,883 68,161 212,287 191,095
General and administrative 9,745 9,505 29,198 27,563
In-process research and development 7,560 -- 41,850 --
Litigation judgment -- -- 5,825 --
Restructuring and other expenses -- -- 5,105 --
---------- ---------- ---------- ----------
Total operating expenses 113,595 99,573 369,408 285,737
---------- ---------- ---------- ----------
Operating income 24,824 26,076 20,346 70,632
Interest income 2,676 3,290 11,157 9,458
Interest expense (475) (318) (1,126) (897)
Other income, net 420 67 2,500 721
---------- ---------- ---------- ----------
Income before income taxes 27,445 29,115 32,877 79,914
Provision for income taxes 11,202 7,279 19,641 18,963
---------- ---------- ---------- ----------
Net income $ 16,243 $ 21,836 $ 13,236 $ 60,951
========== ========== ========== ==========
Net income per share - basic $ 0.29 $ 0.39 $ 0.23 $ 1.09
========== ========== ========== ==========
Net income per share - diluted $ 0.28 $ 0.37 $ 0.23 $ 1.02
========== ========== ========== ==========
Shares used to compute net income
per share - basic 55,531 56,277 56,675 55,891
========== ========== ========== ==========
Shares used to compute net income
per share - diluted 57,633 60,100 58,462 59,991
========== ========== ========== ==========
</TABLE>
4
<PAGE> 5
SYMANTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
-----------------------------
(In thousands; unaudited) 1998 1997
- ------------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Operating Activities:
Net income $ 13,236 $ 60,951
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of equipment and leasehold improvements 19,145 19,075
Amortization and write-off of purchased product rights and
capitalized software 4,294 1,137
Amortization of goodwill 1,484 --
Write-off of in-process research and development 41,850 --
Write-off of equipment and leasehold improvements 298 1,382
Deferred income taxes (4,314) 65
Net change in assets and liabilities, excluding effects of
acquisitions:
Trade accounts receivable 11,095 (18,955)
Inventories (3,328) 388
Other current assets 2,317 (4,909)
Capitalized software development costs -- 26
Other assets 490 (398)
Accounts payable 1,951 4,875
Accrued compensation and benefits (2,771) 3,257
Other accrued expenses 13,584 9,875
Income taxes payable (13,472) 10,696
---------- ----------
Net cash provided by operating activities 85,859 87,465
---------- ----------
Investing Activities:
Capital expenditures (19,177) (20,148)
Purchased intangibles (3,901) (554)
Purchase of IBM's anti-virus business (8,000) --
Purchase of Binary Research Limited's operations (27,500) --
Purchase of majority interest in Quarterdeck Corporation (30,278) --
Purchase of Intel's anti-virus business (11,889) --
Purchases of marketable securities (128,633) (176,927)
Proceeds from sales of marketable securities 212,018 129,526
Purchases of long-term, restricted investments (9,507) (7,626)
---------- ----------
Net cash used in investing activities (26,867) (75,729)
---------- ----------
Financing Activities:
Repurchase of common stock (56,341) (21,346)
Net proceeds from sales of common stock and other 16,739 23,707
---------- ----------
Net cash provided by (used in) financing activities (39,602) 2,361
---------- ----------
Effect of exchange rate fluctuations on cash and cash equivalents (8,252) (3,130)
Increase in cash and cash equivalents 11,138 10,967
Beginning cash and cash equivalents 139,013 95,758
---------- ----------
Ending cash and cash equivalents $ 150,151 $ 106,725
========== ==========
</TABLE>
5
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements of Symantec Corporation ("Symantec" or the
"Company") as of December 31, 1998 and for the three and nine month periods
ended December 31, 1998 and 1997 are unaudited and, in the opinion of
management, contain all adjustments, consisting of only normal recurring items,
necessary for the fair presentation of the financial position and results of
operations for the interim periods. These consolidated financial statements
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included in Symantec's Annual Report on Form 10-K for the year
ended March 31, 1998. The results of operations for the three and nine month
periods ended December 31, 1998 are not necessarily indicative of the results to
be expected for the entire year. All significant intercompany accounts and
transactions have been eliminated. Certain previously reported amounts have been
reclassified to conform to the current presentation format.
During the December 1998 quarter, the Company acquired a 63% interest in
Quarterdeck Corporation ("Quarterdeck"). Under purchase accounting rules,
Symantec's operations have been combined with Quarterdeck's from the point the
equity interest was acquired. Symantec's equity section of the balance sheet
includes a minority interest line, which represents 37% of Quarterdeck's net
deficit. (See Note 8 of Notes to Consolidated Financial Statements in this Form
10-Q). During the September 1998 quarter, the Company acquired Intel
Corporation's ("Intel") anti-virus business (See Note 8 of Notes to Consolidated
Financial Statements in this Form 10-Q). During the June 1998 quarter, the
Company acquired International Business Machine's ("IBM") anti-virus business
and Binary Research Limited's ("Binary") operations (See Note 8 of Notes to
Consolidated Financial Statements in this Form 10-Q). Each of these acquisitions
was accounted for as a purchase and, accordingly, their operating results have
been included in the Company's consolidated financial statements since the date
of acquisition.
On January 6, 1999, the Company received a comment letter from the Securities
and Exchange Commission with respect to its Form 10-K for the fiscal year ended
March 31, 1998 and Form 10-Q for the quarter ended October 2, 1998. The comment
letter contained questions related to accounting for certain acquisitions,
including questions relating to the write-off of associated in-process research
and development costs. The Company is in the process of re-evaluating the Binary
and IBM transactions and the related in-process research and development costs
as well as the other questions raised in the comment letter. As a result, final
operating results for the quarters ended June, September and December, 1998 and
the related year-to-date amounts may be restated.
In October 1997 and March 1998, the Accounting Standards Executive Committee
("AcSEC") issued Statements of Position ("SOP") 97-2, "Software Revenue
Recognition," and SOP 98-4, "Deferral of the Effective Date of a Provision of
SOP 97-2, Software Revenue Recognition," respectively, which provide guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions and were effective for Symantec beginning with the June
30, 1998 quarter. In December 1998, AcSEC issued SOP 98-9, which amends certain
provisions of SOP 97-2 and extends the deferral of the application of certain
passages of SOP 97-2 provided by SOP 98-4 until the beginning of Symantec's
fiscal year 2000. Symantec plans early adoption of SOP 98-9 on its financial
statements and related disclosures beginning in the March 1999 quarter. This
early adoption is not expected to have a material impact on its financial
condition or results of operations.
Symantec has a 52/53-week fiscal accounting year. Accordingly, all references as
of and for the periods ended December 31, 1998, March 31, 1998 and December 31,
1997 reflect amounts as of and for the periods ended January 1, 1999, April 3,
1998 and January 2, 1998, respectively. The nine months ended December 31, 1998
comprised 39 weeks of revenue and expense activity, while the comparable prior
year period comprised 40 weeks.
6
<PAGE> 7
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 2. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
December 31, March 31,
(In thousands) 1998 1998
- ---------------------------------------------------------- ------------ ----------
(unaudited)
<S> <C> <C>
Cash, cash equivalents and short-term investments:
Cash $ 52,886 $ 28,236
Cash equivalents 97,265 110,777
Short-term investments 32,625 86,870
---------- ----------
$ 182,776 $ 225,883
========== ==========
Trade accounts receivable:
Receivables $ 67,414 $ 69,574
Less: allowance for doubtful accounts (5,828) (4,416)
---------- ----------
$ 61,586 $ 65,158
========== ==========
Inventories:
Raw materials $ 2,043 $ 1,091
Finished goods 4,847 2,084
---------- ----------
$ 6,890 $ 3,175
========== ==========
Equipment and leasehold improvements:
Computer hardware and software $ 130,110 $ 107,724
Office furniture and equipment 33,225 29,407
Leasehold improvements 24,376 21,038
---------- ----------
187,711 158,169
Less: accumulated depreciation and amortization (133,880) (108,139)
---------- ----------
$ 53,831 $ 50,030
========== ==========
Purchased product rights and capitalized software:
Purchased product rights and technologies $ 40,085 $ 1,358
Capitalized software development costs 2,363 2,414
Less: accumulated amortization of purchased product
rights and technologies (9,391) (563)
Less: accumulated amortization of capitalized software
development costs (2,203) (1,739)
---------- ----------
$ 30,854 $ 1,470
========== ==========
Other accrued expenses:
Deferred revenue $ 46,090 $ 25,537
Marketing development funds 10,545 12,815
Current obligations related to the purchase of
Quarterdeck 9,000 --
Current obligations related to the purchase of IBM
anti-virus business 8,000 --
Other 33,233 26,180
---------- ----------
$ 106,868 $ 64,532
========== ==========
Accumulated other comprehensive income loss:
Unrealized gain (loss) on available-for-sale investments $ (625) $ 157
Cumulative translation adjustment (18,110) (12,716)
---------- ----------
$ (18,735) $ (12,559)
========== ==========
</TABLE>
7
<PAGE> 8
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 3. NET INCOME PER SHARE
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," which was required to be adopted by Symantec for the
fiscal period ending December 31, 1997. The following table sets forth the
calculations underlying Symantec's basic and diluted net income per share for
the periods presented.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ----------------------
(In thousands, except per share data; unaudited) 1998 1997 1998 1997
- ------------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE
Net income $ 16,243 $ 21,836 $ 13,236 $ 60,951
======== ======== ======== ========
Weighted average number of common
shares outstanding during the period 55,531 56,277 56,675 55,891
======== ======== ======== ========
Basic net income per share $ 0.29 $ 0.39 $ 0.23 $ 1.09
======== ======== ======== ========
DILUTED NET INCOME PER SHARE
Net income $ 16,243 $ 21,836 $ 13,236 $ 60,951
Interest on convertible subordinated
debentures, net of income tax effect 169 169 -- 523
-------- -------- -------- --------
Net income, as adjusted $ 16,412 $ 22,005 $ 13,236 $ 61,474
======== ======== ======== ========
Weighted average number of common
shares outstanding during the period 55,531 56,277 56,675 55,891
Shares issuable from assumed exercise
of options 912 2,633 1,787 2,870
Shares issuable from assumed conversion
of convertible subordinated debentures 1,190 1,190 -- 1,230
-------- -------- -------- --------
Total shares for purpose of calculating
diluted net income per share 57,633 60,100 58,462 59,991
======== ======== ======== ========
Diluted net income per share $ 0.28 $ 0.37 $ 0.23 $ 1.02
======== ======== ======== ========
</TABLE>
For the nine months ended December 31, 1998, 1,190,000 shares issuable upon
conversion of convertible subordinated debentures and $507,000 of interest
expense were excluded from the computation of diluted net income per share
because the effect would have been anti-dilutive.
8
<PAGE> 9
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4. RESTRUCTURING AND OTHER EXPENSES
Restructuring and other expenses consisted of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ ---------------------
(In thousands; unaudited) 1998 1997 1998 1997
- -------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Personnel severance $ -- $ -- $ 3,800 $ --
Planned abandonment of manufacturing
facility lease -- -- 1,305 --
--------- --------- --------- ---------
Total restructuring and other expenses $ -- $ -- $ 5,105 $ --
========= ========= ========= =========
</TABLE>
During the quarter ended September 30, 1998, the Company implemented a plan to
restructure certain of its operations, which included outsourcing its domestic
manufacturing operations. As a result, it recorded $3.8 million for personnel
severance to reduce the workforce by approximately 5% in both domestic and
international operations and $1.3 million for the planned abandonment of a
manufacturing facility lease. As of December 31, 1998, $3.1 million of the $5.1
million had been incurred. These activities will be substantially completed by
the end of March 1999.
As of December 31, 1998, total accrued acquisition, restructuring and other
expenses were approximately $4.3 million and include approximately $1.6 million
for the elimination of duplicative and excess facilities, $0.9 million for
personnel severance and $1.8 million for other expenses.
9
<PAGE> 10
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 5. COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
beginning with the quarter ended June 30, 1998. SFAS No. 130 establishes new
rules for the reporting and disclosure of comprehensive income and its
components; however, it has no impact on net income or stockholders' equity. The
components of comprehensive income, net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
(In thousands; unaudited) 1998 1997 1998 1997
- ---------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 16,243 $ 21,836 $ 13,236 $ 60,951
Other comprehensive income (loss):
Add: change in unrealized gain (loss) on
available-for-sale investments,
net of a tax provision (benefit) of ($125),
$35, ($250) and $65 (267) 117 (532) 218
Less: reclassification adjustment for gains
included in net income,
net of a tax provision of $0, $0,
$146 and $0 -- -- 310 --
Add: change in cumulative translation
adjustment ("CTA"), net of a tax
benefit of ($42), ($547), ($1,726)
and ($1,033) (89) (1,830) (3,668) (3,457)
Less: reclassification adjustment for CTA
included in net income,
net of a tax provision of $0,
$0, $604 and $0 -- -- 1,284 --
-------- -------- -------- --------
Total other comprehensive loss (356) (1,713) (5,794) (3,239)
-------- -------- -------- --------
Comprehensive income $ 15,887 $ 20,123 $ 7,442 $ 57,712
======== ======== ======== ========
</TABLE>
10
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SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 6. LITIGATION AND CONTINGENCIES
On March 18, 1996, a class action complaint was filed by the law firm of
Milberg, Weiss, Bershad, Hynes & Lerach in Superior Court of the State of
California, County of Santa Clara, against the Company and several of its
current and former officers and directors. The complaint alleges that Symantec
insiders inflated the stock price and then sold stock based on inside
information that sales were not going to meet analysts' expectations. The
complaint seeks damages in an unspecified amount. The complaint has been refiled
twice in state court, most recently on January 13, 1997, following Symantec's
demurrers directed to previous complaints. The parties are currently conducting
discovery. On January 7, 1997, the same plaintiffs filed a complaint in the
United States District Court, Northern District of California, based on the same
facts as the state court complaint, for violation of the Securities Exchange Act
of 1934. The district court dismissed that complaint, and plaintiffs served an
amended complaint in April 1998. Symantec's motion to dismiss the new federal
complaint is currently pending. Symantec believes that neither the state court
complaint nor the federal court complaint has any merit and will vigorously
defend itself against both complaints.
On April 23, 1997, Symantec filed a lawsuit against McAfee Associates, Inc.,
which pursuant to a merger has become Network Associates, Inc. ("Network
Associates"), in the United States District Court, Northern District of
California, for copyright infringement and unfair competition. On October 6,
1997, the court found that Symantec had demonstrated a likelihood of success on
the merits of certain copyright claims, and issued a preliminary injunction (i)
prohibiting Network Associates from infringing Symantec's rights in specified
materials by marketing, selling, transferring or directly or indirectly copying
into any new Network Associates product or new version of an existing product
that has Symantec code, (ii) requiring Network Associates to notify distributors
who are still selling versions of PC Medic 97 that have Symantec's code to tell
customers that they should upgrade to versions that do not contain Symantec
code, and (iii) requiring Network Associates to provide Symantec and the court
with a sample of the notice to be used. On October 17, 1997, Symantec amended
its complaint to include additional claims for copyright infringement and
misappropriation of trade secrets, based on additional evidence found in the
discovery process. On April 1, 1998, Symantec amended its complaint to add
claims for misappropriation of trade secrets, RICO (Racketeer Influenced and
Corrupt Organizations Act) and related claims based on additional evidence
uncovered in the litigation. Following motions by Network Associates, the court
dismissed Symantec's unfair competition and trade secret claims regarding the
copyrighted code and its RICO and interference claims. On October 22, 1998, the
court consolidated this case with the case against Network Associates and the
case brought by CyberMedia, both of which are described below.
On September 4, 1998, Symantec filed a new lawsuit against Network Associates in
the United States District Court, Northern District of California, for copyright
infringement, trade secret misappropriation and unfair competition. Symantec
continues to investigate the extent to which Network Associates may have
misappropriated Symantec's intellectual property, and plans to aggressively
pursue its remedies under this lawsuit, which include both injunctive relief and
monetary damages.
On September 15, 1997, Hilgraeve Corporation ("Hilgraeve") filed a lawsuit in
the United States District Court, Eastern District of Michigan, against
Symantec, alleging that unspecified Symantec products infringe a patent owned by
Hilgraeve. The lawsuit requests damages, injunctive relief and costs and
attorney fees. Symantec believes this claim has no merit and intends to defend
the action vigorously.
On February 4, 1998, CyberMedia, Inc. ("CyberMedia,"), which in September 1998
was acquired by Network Associates, filed a lawsuit in the United States
District Court, Northern District of California, against Symantec, ZebraSoft
Inc., and others, alleging that Symantec's Norton Uninstall Deluxe infringes
CyberMedia's copyright, and asserting related state law claims. The suit
requests damages, injunctive relief, costs and attorneys fees. In May 1998,
CyberMedia filed a motion seeking a preliminary injunction prohibiting sale or
development of the challenged code, which preliminary injunction was granted
with respect to Symantec's domestic activities in September 1998. Subsequently,
Symantec ceased selling the Norton Uninstall Deluxe product. Symantec believes
11
<PAGE> 12
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
it has meritorious defenses to this claim and intends to defend the action
vigorously.
On February 19, 1998, a class action complaint was filed by the Milberg, Weiss,
Bershad, Hynes & Lerach law firm in Santa Clara County Superior Court, on behalf
of a class of purchasers of pre-version 4.0 Norton AntiVirus products. A similar
complaint was filed in the same court on March 6, 1998 by an Oregon law firm.
Those actions were consolidated, and a consolidated amended complaint was filed
in late October 1998. The complaint purports to assert claims for breach of
implied warranty, fraud, unfair business practices and violation of California's
Consumer Legal Remedies Act, among others, arising from the alleged inability of
earlier versions of Norton AntiVirus to function properly after the year 2000.
The complaint seeks unspecified damages and injunctive relief. Symantec believes
that these actions have no merit and intends to defend itself vigorously.
In connection with the May 1998 asset purchase agreement with IBM (see Note 8 of
Notes to Consolidated Financial Statements in this Form 10-Q), claims of patent
infringement previously asserted by IBM with respect to certain of the Company's
products were resolved. The terms of resolution were not material to Symantec.
In July 1998, the Ontario Court of Justice (General Division) ruled that
Symantec should pay a total of approximately $6.8 million for damages and legal
costs to Triolet Systems, Inc. and Brian Duncombe in a decade-old copyright
action, for damages arising from the grant of a preliminary injunction against
the defendant. The damages were awarded following the court's ruling that
evidence presented later in the case showed the injunction was not warranted.
Symantec inherited the case through its 1995 acquisition of Delrina Corporation,
which was the plaintiff in this lawsuit. Symantec has appealed the decision.
Symantec recorded a charge of $5.8 million in June 1998 representing the
unaccrued portion of the judgment plus costs.
In March 1997, a class action complaint was filed against Quarterdeck in San
Diego County Superior Court. The case was later transferred to and is currently
pending in Los Angeles County Superior Court. The complaint, purportedly on
behalf of a class of purchasers of Quarterdeck's MagnaRAM2 product, seeks
damages and injunctive relief under the Consumers Legal Remedies Act and
Business and Professions Code sections beginning with 17200 and 17500. Symantec
believes these claims to be without merit and intends to defend itself
vigorously. This case was inherited by Symantec as a result of its recent
acquisition of a majority interest in Quarterdeck (See Note 8 of Notes to
Consolidated Financial Statements in this Form 10-Q).
In October 1997, a complaint was filed in the United States District Court for
the District of Utah on behalf of PowerQuest Corporation against Quarterdeck.
The complaint alleges that Quarterdeck's partitioning software (included in
Partition-It and Partition-It Extra Strength) violates a patent held by
PowerQuest. In January 1998, PowerQuest obtained a second patent relating to
partitioning and has amended its complaint to allege infringement of that patent
as well. The plaintiff seeks an injunction against distribution of Partition-It
and Partition-It Extra Strength and monetary damages. Symantec believes this
action has no merit and intends to defend the lawsuit vigorously. This lawsuit
was inherited by Symantec as a result of its recent acquisition of a majority
interest in Quarterdeck . (See Note 8 of Notes to Consolidated Financial
Statements in this Form 10-Q).
On July 30, 1998, a class action complaint was filed against Quarterdeck in the
Supreme Court of the State of New York, County of New York, on behalf of a
purported class of purchasers of Procomm Plus version 4.0 for Windows product
(the "Product"). The complaint purports to assert claims for breach of warranty
and violation of New York's Consumer Protection From Deceptive Acts and
Practices Act arising from the Product's inability to process dates containing
the year 2000. The complaint seeks unspecified damages. Symantec believes these
claims to be without merit and intends to defend the lawsuit vigorously. This
lawsuit was inherited by Symantec as a result of its recent acquisition of a
majority interest in Quarterdeck. (See Note 8 of Notes to Consolidated Financial
Statements in this Form 10-Q).
Over the past few years, it has become common for software companies, including
Symantec, to receive claims of patent infringement. Symantec is currently
evaluating claims of patent infringement asserted by several parties, with
respect to certain of the Company's products. While the Company believes that it
has valid defenses to these
12
<PAGE> 13
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
claims, the outcome of any related litigation or negotiation could have a
material adverse impact on the Company's future results of operations or cash
flows.
Symantec is involved in a number of other judicial and administrative
proceedings incidental to its business. The Company intends to defend all of the
aforementioned pending lawsuits vigorously, and although adverse decisions (or
settlements) may occur in one or more of the cases, the final resolution of
these lawsuits, individually or in the aggregate, is not expected to have a
material adverse affect on the financial condition of the Company, although it
is not possible to estimate the possible loss or losses from each of these
cases. Depending, however, on the amount and timing of an unfavorable resolution
of these lawsuits, it is possible that the Company's future results of
operations or cash flows could be materially adversely affected in a particular
period. The Company has accrued certain estimated legal fees and expenses
related to certain of these matters; however, actual amounts may differ
materially from those estimated amounts.
NOTE 7. STOCK REPURCHASE
On June 9, 1998, the Board of Directors of Symantec authorized the repurchase of
up to 5% of Symantec's outstanding common stock before December 31, 1998. Among
other purposes, repurchased shares are used for employee stock purchase programs
and option grants. The Company completed the repurchase as of October 30, 1998,
repurchasing a total of 2.875 million shares at prices ranging from $13.10 to
$27.21, for an aggregate amount of approximately $56.3 million. Of the $56.3
million, approximately $20.8 million was charged to retained earnings after
appropriate amounts were deducted from common stock and capital in excess of
par.
NOTE 8. ACQUISITIONS
Effective May 18, 1998, Symantec entered into a Master Agreement with IBM to
acquire rights to IBM's digital immune technology. In addition, Symantec assumed
the majority of IBM's license arrangements with customers of IBM anti-virus. In
return for the various rights acquired by Symantec from IBM, Symantec agreed to
pay $16 million in installments over a specified period as well as pay royalties
on revenues received by Symantec from distribution of immune-enabled Symantec
products and immune services provided by Symantec using the digital immune
technology. The royalties are subject to specified maximums and vary by time
periods with ultimate termination of royalties as of a specified date. Symantec
also entered into a patent cross-licensing agreement under which the parties
licensed to each other their respective patent portfolios. The transaction was
accounted for as a purchase. Symantec assumed liabilities of $3.0 million and
incurred additional expenses of approximately $1.3 million as part of the
transaction. As of December 31, 1998, Symantec paid IBM $8.0 million in cash
with the remaining $8.0 million payable in two equal installments in August 1999
and November 1999. Under the transaction, Symantec recorded approximately $16.0
million for in-process research and development, $3.0 million for goodwill and
$1.3 million for certain prepaid research and development and other assets. The
amount of in-process research and development was established by a valuation
specialist based on management's estimates. Goodwill and intangibles will be
amortized over 5 years. As of December 31, 1998, the Company incurred
approximately $0.3 million in goodwill amortization expense related to this
asset.
On June 24, 1998, Symantec entered into an agreement whereby Symantec purchased
the operations of Binary, an Auckland, New Zealand based company, for $27.5
million. Symantec also incurred $0.7 million of acquisition related costs. The
transaction was accounted for as a purchase. Under the transaction, Symantec
recorded approximately $13.3 million for in-process research and development and
$14.2 million for capitalized software technology, with the remainder of the
purchase price allocated to net tangible and intangible assets. The amount of
in-process research and development was established by a valuation specialist
based on management's estimates. The capitalized software and intangibles are
being amortized over a 3 year period. As of December 31, 1998, the Company has
incurred approximately $2.8 million of amortization expense related to this
asset.
13
<PAGE> 14
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
On September 28, 1998, Symantec entered into an agreement whereby it purchased
Intel Corporation's anti-virus business for approximately $16.5 million.
Symantec also licensed Intel systems management technology, which it will
combine with its own anti-virus technology to create improved anti-virus
management solutions for corporate organizations. As part of the agreement,
Intel will continue to support its anti-virus customers and will transition
responsibility for support to Symantec by June 1999. In addition, Intel will
promote Norton AntiVirus through its worldwide reseller channels. As of December
31, 1998, Symantec had paid approximately $11.9 million under the agreement. The
transaction was accounted for as a purchase. Under the transaction, Symantec
recorded approximately $5.0 million for in-process research and development,
$10.7 million for capitalized software technology and $0.8 million for certain
intangible assets. The amount of in-process research and development was
established by a valuation specialist based on management's estimates. The
capitalized software and intangibles are being amortized over a 5 year period.
As of December 31, 1998, the Company has incurred approximately $0.5 million of
amortization expense related to this asset.
On October 15, 1998, Symantec signed a definitive merger agreement to acquire
Quarterdeck. On November 17, 1998, Symantec completed its tender offer for the
common stock of Quarterdeck acquiring an approximately 63% interest. Symantec
intends to acquire Quarterdeck's remaining shares through a cash merger at the
tender offer price of $0.52 per share in accordance with the definitive merger
agreement signed on October 15, 1998. The transaction was accounted for as a
purchase. Under the transaction, Symantec recorded approximately $7.6 million of
acquired in-process research and development, $4.4 million of capitalized
software technology, $45.6 million of goodwill and $1.8 million was allocated to
other intangibles. The amounts included in the Company's financial statements
represent approximately 63% of the total amount Symantec will ultimately record
once the merger is completed. The amount of in-process research and development
was established by a valuation specialist based on management's estimates. As of
December 31, 1998, the Company incurred approximately $0.1 million of
capitalized software amortization expense and $1.1 million of goodwill
amortization expense related to this acquisition. The workforce in place is
being amortized over 2 years. The capitalized software, goodwill and other
intangibles will be amortized over a 5 year period. (See Agreement and Plan of
Merger, dated October 15, 1998, among Symantec, Purchaser, and Quarterdeck filed
with Symantec's Schedule 14D-1 on October 19, 1998). Through its acquisition of
a majority interest in Quarterdeck, Symantec inherited Quarterdeck's 6%
convertible senior subordinated notes("Notes"). Quarterdeck issued $25 million
principal amount of Notes, due 2001, to an institutional investor in a private
placement pursuant to the terms of a Note Agreement dated March 1, 1996. The
Notes are required to be paid in full without any premium upon the earlier of
consummation of the Merger or March 31, 1999.
PRO FORMA. The following unaudited pro forma results of operations for the three
and nine month periods ended December 31, 1998 and 1997 are as if the
acquisition of Binary and Quarterdeck had occurred at the beginning of each
period presented. The pro forma information excludes approximately $7.6 million
and $20.9 million of in-process research and development for the three month and
nine month periods ended December 31, 1998, respectively. The pro forma
information has been prepared for comparative purposes only and is not
indicative of what operating results would have been if the acquisition had
taken place at the beginning of each period presented or of future operating
results.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- ----------------------
(In thousands, except per share data; unaudited) 1998 1997 1998 1997
- ------------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $165,331 $171,971 $478,159 $486,851
======== ======== ======== ========
Net income $ 17,753 $ 21,714 $ 8,857 $ 38,303
======== ======== ======== ========
Basic net income per share $ 0.32 $ 0.39 $ 0.16 $ 0.69
======== ======== ======== ========
Diluted net income per share $ 0.31 $ 0.36 $ 0.15 $ 0.64
======== ======== ======== ========
</TABLE>
14
<PAGE> 15
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 9. SUPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
December 31,
(In thousands; unaudited) 1998
- -------------------------------------------------------------- ------------
<S> <C>
Binary
Fair value of assets acquired $ 27,500
========
Cash paid $ 27,500
========
IBM Immune System Technology and anti-virus business
Fair value of assets acquired $ 20,250
========
Expenses incurred $ 1,250
Liabilities assumed 3,000
Current obligation 8,000
Cash paid 8,000
--------
Total $ 20,250
========
Intel's anti-virus business
Fair value of assets acquired $ 16,525
========
Current obligations $ 3,181
Long-term obligations 1,455
Cash paid 11,889
--------
Total $ 16,525
========
Majority Interest in Quarterdeck
Majority Interest in Quarterdeck $ 59,347
========
Expenses incurred $ 518
Net liabilities assumed 28,551
Cash paid 30,278
--------
Total $ 59,347
========
</TABLE>
NOTE 10. ADOPTION OF STOCKHOLDER RIGHTS PLAN
On August 11, 1998, Symantec's Board of Directors adopted a stockholder rights
plan designed to ensure orderly consideration of any future unsolicited
acquisition attempt to ensure fair value of the Company for its stockholders.
In connection with the plan, the Board declared a dividend of one preferred
share purchase right for each share of the Company's common stock outstanding on
August 21, 1998 (the "Record Date"). The Board further directed the issuance of
one such right with respect to each share of the Company's common stock that is
issued after the Record Date, except in certain circumstances. The rights will
expire on August 12, 2008.
The rights are initially attached to the Company's common stock and will not
trade separately. If a person or a group (an "Acquiring Person") acquires 20% or
more of the Company's common stock, or announces an intention to make a tender
offer for 20% or more of the Company's common stock, the rights will be
distributed and will thereafter trade separately from the common stock. Each
right will be exercisable for 1/1000th of a share of a newly designated Series A
Junior Participating Preferred Stock at an exercise price of $150.00. The
preferred stock has
15
<PAGE> 16
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
been structured so that the value of 1/1000th of a share of such preferred stock
will approximate the value of one share of common stock. Upon a person becoming
an Acquiring Person, holders of the rights (other than the Acquiring Person)
will have the right to acquire shares of the Company's common stock at a
substantially discounted price.
If a person becomes an Acquiring Person and the Company is acquired in a merger
or other business combination, or 50% or more of its assets are sold to an
Acquiring Person, the holder of rights (other than the Acquiring Person) will
have the right to receive shares of common stock of the acquiring corporation at
a substantially discounted price. After a person has become an Acquiring Person,
the Company's Board of Directors may, at its option, require the exchange of
outstanding rights (other than those held by the Acquiring Person) for common
stock at an exchange ratio of one share of the Company's common stock per right.
The Board may redeem outstanding rights at any time prior to a person becoming
an Acquiring Person at a price of $0.001 per right. Prior to such time, the
terms of the rights may be amended by the Board. In addition, the Board also
amended the Company's bylaws to: permit only the Chairman, President or the
Board to call a special meeting of the stockholders; require that the Board be
given prior notice of a stockholder proposal to take action by written consent
so that a record date for such action can be established; require advance notice
to the Board of stockholder-sponsored proposals for consideration at annual
meetings and for stockholder nominations for the election of directors; permit
the Board to meet on one- rather than two-day advance notice; and conform the
bylaws to applicable provisions of Delaware law regarding the inspection of
elections at stockholder meetings.
NOTE 11. LEASED BUILDINGS
In fiscal 1997, Symantec entered into lease agreements for two existing office
buildings (Cupertino City Center One or "CCC1" and World Head Quarters or
"WHQ"), one parcel of land and one office building under construction (Cupertino
City Center Five or "CCC5") in Cupertino, California. In connection with these
leases, the Company is required to maintain a restricted cash balance invested
in U.S. treasury securities with maturities not to exceed three years. In
accordance with the lease terms, these funds are not available to meet operating
cash requirements. In addition, the Company is obligated to comply with certain
financial covenants. Future acquisitions may cause the Company to be in
violation of these financial covenants, at which time the Company will need to
have the covenants amended or waived. On September 22, 1998, an agreement was
entered into, subject to certain closing conditions, whereby the landlord
intends to exchange CCC5 for another leased building (Cupertino City Center Two
or "CCC2") both located in Cupertino, California. If this transaction is
consummated, Symantec would move both personnel and equipment into CCC2 once
certain tenant improvements are completed. In conjunction with this move,
Symantec would be relieved of responsibility for its lease of WHQ. Due diligence
for the aforementioned exchange was completed on December 15, 1998 and the
parties completed the transaction on February 10, 1999.
NOTE 12. RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 will be effective for
Symantec at the beginning of the June 2000 quarter for both annual and interim
reporting periods. Symantec is evaluating the potential impact of this
accounting pronouncement on required disclosures and accounting practices.
NOTE 13. SUBSEQUENT EVENTS
CONVERSION OF OUTSTANDING 7.75% CONVERTIBLE SUBORDINATED DEBENTURES. During the
first week of February 1999, the holders of Symantec's 7.75% convertible
subordinated debentures converted the entire remaining $14.3 million principal
amount into 1,190,332 shares of Symantec common stock. The conversion of these
shares of
16
<PAGE> 17
SYMANTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
common stock were issued in a transaction which was exempt from registration
under the Securities Act of 1933.
LINE OF CREDIT AMENDMENT. As of January 26, 1999, certain covenants under the
Company's $10 million bank line of credit were amended. The line of credit is
available for general corporate purposes. The amendments were effective January
1, 1999. As of January 1, 1999, the Company is in compliance with all covenants
under the Credit Agreement and there were no borrowings and less than $1 million
in standby letters of credit outstanding under this line. Future acquisitions by
the Company may cause the Company to be in violation of the line of credit
covenants. However, the Company believes that if the line of credit were
canceled or amounts were not available under the line, there would not be a
material adverse impact on the financial results, liquidity or capital resources
of the Company.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The following discussion contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. These forward-looking statements
are subject to significant risks and uncertainties, including those identified
in the section "Factors That May Affect Future Results" and in the Company's
annual report on Form 10-K for the year ended March 31, 1998, that may cause
actual results to differ materially from those discussed in such forward-looking
statements. The forward-looking statements within this Form 10-Q are typically
identified by words such as "believes," "anticipates," "expects," "intends,"
"may" and other similar expressions, and include the statements of future
estimates under "Year 2000 - Product Liability" and "Year 2000 - Corporate
Systems" below. However, these words are not the exclusive means of identifying
such statements. In addition, any statements which refer to expectations,
projections or other characterizations of future events or circumstances are
forward-looking statements. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements which
may be made to reflect events or circumstances occurring subsequent to the
filing of this Form 10-Q with the Securities and Exchange Commission. Readers
are urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission, including its Form 10-K, that attempt to
advise interested parties of the risks and factors that may affect the Company's
business.
FACTORS THAT MAY AFFECT FUTURE RESULTS
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND STOCK PRICE. Due to the factors
noted below, the Company's earnings and stock price have been and may continue
to be subject to significant volatility, particularly on a quarterly basis.
Symantec has previously experienced shortfalls in revenue and earnings from
levels expected by securities analysts and investors, which has had an immediate
and significant adverse affect on the trading price of the Company's common
stock. This may occur again in the future.
RAPID TECHNOLOGICAL CHANGE AND DEVELOPMENT RISKS. The Company participates in a
highly dynamic industry characterized by rapid change and uncertainty related to
new and emerging technologies and markets. The recent trend toward server-based
applications in networks and applications distributed over the Internet could
have a material adverse affect on sales of the Company's products. Future
technology or market changes may cause certain of Symantec's products to become
obsolete more quickly than expected.
The use of a Web browser (running on either a PC or network computer) to access
client/server systems is emerging as an alternative to traditional desktop
access through operating systems that are resident on personal computers. Should
the functionality associated with such system access reduce the need for
Symantec's products, the Company's future net revenues and operating results
could be adversely affected.
OPERATING SYSTEM. The release and subsequent customer acceptance of current or
enhanced operating systems are particularly important events that increase the
uncertainty and volatility of Symantec's results. Should the Company be unable
to successfully and timely develop products that operate under existing or new
operating systems, or should pending or actual releases of the new operating
systems delay the purchase of Symantec's products, the Company's future net
revenues and operating results could be materially adversely affected.
Microsoft has incorporated advanced utilities including telecommunications,
facsimile and data recovery utilities in Windows 95 and has included additional
product features in Windows 98, including enhanced disk repair, defragmentation,
system file maintenance, ISDN support and PPTP virtual private networking, that
may decrease the demand for certain of the Company's products, including those
currently under development. Fax capabilities were dropped from Windows 98.
Microsoft may also include additional features in new versions of Windows 2000
that could decrease demand for certain of the Company's products intended for
Windows 2000, including those currently under development.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Additionally, as hardware vendors incorporate additional server-based network
management and security tools into network operating systems, the demand may
decrease for certain of the Company's products, including those currently under
development. Moreover, functionality previously provided only by software may be
incorporated directly into hardware, potentially reducing demand for Symantec's
products. Also, Symantec's competitors may license certain of their products to
Microsoft and OEMs for inclusion with their operating systems, add-on products
or hardware, which may also reduce the demand for certain of the Company's
products.
PERSONAL COMPUTERS, HARDWARE AND MICROSOFT WINDOWS 98. Shifts in customer
spending from software to hardware as the result of technological advancements
in hardware or price reductions of hardware have in the past, and may in the
future, result in reduced revenues which have had and would have a material
adverse affect on operating results.
Microsoft's Windows 98 operating system was introduced during the June 1998
quarter. The Company's ability to generate revenue from many of its current
products, and products currently under development, could be less than
anticipated in future periods due to reported incompatibilities by end-users,
and delays in the purchase of Symantec's products as end-users first deploy
Windows 98. The Company believes that weak retail software sales during the June
and September 1998 quarters compared to the March 1998 quarter were due, in
part, to the release of Windows 98 at the end of the June 1998 quarter. In
addition, the Company may face declining sales following Microsoft's
introduction of Windows 2000 (formerly known as Windows NT 5.0) currently
scheduled for 1999.
Symantec's stock price declined significantly within approximately 6 months
after the releases of Windows 3.1 and Windows 95, which in some cases also
caused the additional requirement for hardware upgrades. While there were a
variety of reasons for these declines in the stock price, Symantec's recent
stock price decline may have been due, in part, to the release of Windows 98.
Symantec could face additional stock price declines following the introduction
of Windows 2000 by Microsoft.
CONSOLIDATION IN THE INDUSTRY. Consolidation in the software industry continues
to occur, with competing companies merging or acquiring other companies in order
to capture market share or expand product lines. As this consolidation occurs,
the nature of the market may change as a result of fewer players dominating
particular markets, potentially providing consumers with fewer choices. Also,
certain of these companies offer a broader range of products than Symantec,
ranging from desktop to enterprise solutions, and Symantec may not be able to
compete effectively against certain competitors. Any of these changes may have a
significant adverse affect on Symantec's future revenues and operating results.
DEPENDENCE ON THE INTERNET. Critical issues concerning the commercial use of the
Internet, including security, reliability, cost, ease of use, accessibility,
quality of service, or potential tax or other government regulation, remain
unresolved and may affect the use of the Internet as a medium to support the
functionality of certain of the Company's products, or to distribute software.
Should the Company be unsuccessful in timely assimilating changes in the
Internet environment into its business operations and product development
efforts, the Company's future net revenues and operating results could be
adversely affected.
PRICE COMPETITION. Price competition is often intense in the microcomputer
software market, especially in regards to utility and anti-virus products, and
may continue to increase and become even more significant in the future,
resulting in reduced profit margins. Should competitive pressures in the
industry continue to increase in regards to utility and anti-virus products,
Symantec may be required to reduce prices and/or increase its spending on sales,
marketing and research and development of these products as a percentage of net
revenues, resulting in lower profit margins. These actions may not be sufficient
to offset the impact of price competition on the Company's business and net
revenues, resulting in adverse impacts on revenue, income and cash flow.
Many of the Company's competitors have significantly reduced the price of
utility and anti-virus products. These practices may have a material adverse
impact on revenue in future periods.
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
INTEGRATED SUITES. Symantec and its competitors are now providing integrated
suites of utility products. With the shift to integrated utility suites, price
competition is likely to be intense, and cannibalization of Symantec's existing
utility and anti-virus products may occur. The price of integrated utility
suites is significantly less than the total price of individual products
included in these utility suites when such products are sold separately. As a
result, there may be a negative impact to Symantec's revenue and operating
income from selling integrated utility suites rather than individual products,
as the lower price of integrated utility suites may not be offset by increases
in the total volume of utility suites sold. Additionally, the Company's products
may not compete effectively with competitors' products or integrated utility
suites introduced in the future.
QUARTERLY BUYING PATTERNS; ABSENCE OF BACKLOG. Most resellers tend to make a
majority of their purchases at the end of the fiscal quarter, in part because
they are able, or believe that they are able, to negotiate lower prices and more
favorable terms. This is also true of corporate customers that negotiate site
licenses near the end of each quarter. This end-of-period buying pattern means
that forecasts of quarterly and annual financial results are particularly
vulnerable to the risk that they will not be achieved, either because expected
sales do not occur or because they occur at lower prices or on less favorable
terms to the Company.
A significant proportion of the Company's revenues are generated during the last
month of the quarter. The reliance on a large proportion of revenue occurring at
the end of the quarter and the increase in the dollar value of transactions that
occur at the end of the quarter result in increased uncertainty relating to
quarterly revenues, and increase the chances that the Company's results could
diverge from the expectations of investors and analysts.
The Company operates with relatively little backlog; therefore, if near-term
demand for the Company's products weakens in a given quarter, there could be an
immediate, material adverse effect on net revenues and on the Company's
operating results, which would likely result in a significant and precipitous
drop in the Company's stock price.
RETAIL DISTRIBUTION CHANNEL. A large portion of the Company's sales are made
through the retail distribution channel, which is subject to events that create
unpredictable fluctuations in consumer demand. The Company's retail distribution
customers also carry the products of Symantec's competitors. These retail
distributors may have limited capital to invest in inventory, and their
decisions to purchase the Company's products is partly a function of pricing,
terms and special promotions offered by Symantec, as well as by its competitors
over which the Company has no control and which it cannot predict.
Agreements with distributors are generally nonexclusive and may be terminated by
either party without cause. Certain distributors and resellers have experienced
financial difficulties in the past. Distributors that account for significant
sales of the Company may experience financial difficulties in the future, which
could lead to reduced sales or write-offs and could adversely affect operating
results of the Company. When this has occurred in the past, the Company has
successfully moved these inventories to other distributors. The Company may not
be able to do so in the future.
NEW DISTRIBUTION CHANNELS. Symantec may not be able to develop an effective
method of distributing its software products utilizing the rapidly evolving
software distribution channels that leverage the use of the Internet. The
presence of new channels could adversely impact existing channels and/or product
pricing, which could have a material adverse impact on the Company's future
revenues and profitability. Symantec currently offers a broad range of products
and services over the Internet.
CHANNEL FILL. The Company's pattern of net revenues and earnings may be affected
by "channel fill." Distributors may fill their distribution channels in
anticipation of price increases, sales promotions or incentives. Distributor
inventories may decrease between the date Symantec announces a new version or
new product and the date of release, because distributors, dealers and end users
often delay purchases, cancel orders or return products in anticipation of the
availability of the new version or new product. The impact of channel fill is
somewhat mitigated by the Company's deferral of revenue associated with
distributor and reseller inventories estimated to be in excess of appropriate
levels; however, net revenues may still be materially affected favorably or
adversely by the effects of channel fill, particularly in periods where a large
number of new products are simultaneously introduced.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Channels may also become filled simply because the distributors do not sell
their inventories to retail distribution or retailers to end users as
anticipated. If sell-through does not occur at a sufficient rate, distributors
will delay purchases or cancel orders in later periods or return prior purchases
in order to reduce their inventories.
While such order delays or cancellations can cause fluctuations in net revenues
from one quarter to the next, the impact is substantially mitigated by the
Company's deferral of revenue associated with inventories estimated to be in
excess of appropriate levels in the distribution and retail channels. A material
adverse impact on revenue, however, can occur.
SITE LICENSES. Symantec sells volume license programs (corporate site licenses)
through the distribution channel and through corporate resellers. If the
corporate marketplace grows and becomes a bigger component of the overall
marketplace, the Company may not be successful in expanding this growing
corporate segment.
RELIANCE ON JOINT BUSINESS ARRANGEMENTS. Symantec has entered into various
development or joint business arrangements for the purpose of developing new
software products and enhancements to existing software products and gaining
presence in new markets, and Symantec may continue to do this in the future.
Depending on the nature of each such arrangement, the development, distribution,
sale or marketing of the resulting product may be controlled either by Symantec
or its business partner. Products resulting from joint business arrangements may
not be technologically successful, may not achieve market acceptance and/or may
not be able to compete with products either currently in the market or
introduced in the future.
Symantec distributes certain of its products through value-added resellers
("VARs") and independent software vendors ("ISVs") whereby Symantec's products
are included with hardware products prior to sale through retail channels. These
licensing agreements are generally non-exclusive and do not require the VAR or
ISV to make minimum purchases. If the Company is not successful in maintaining
its current relationships and securing license agreements with additional VARs
and ISVs, or if the Company's VAR and ISV customers are not successful in
selling their products, the Company's future net revenues and operating results
may be adversely affected.
ACQUISITIONS. Symantec has completed a number of acquisitions and may acquire
other companies and technology in the future. Acquisitions involve a number of
special risks, including the diversion of management's attention to integrate
the operations and personnel of the acquired companies in an efficient and
timely manner, the retention of key employees, the burden of presenting a
unified corporate image and the integration of acquired products and of research
and development and sales efforts. In addition, because the employees of
acquired companies have frequently remained in their existing geographically
diverse locations, the Company has not achieved certain economies of scale that
might otherwise have been realized. Such economies of scale may not be realized
in the future.
Symantec typically incurs significant expenses in connection with its
acquisitions, which have a significant adverse impact on the Company's
profitability and financial resources. Future acquisitions may have a
significant adverse impact on the Company's future profitability and financial
resources. (See Note 8 of Notes to Consolidated Financial Statements in this
Form 10-Q).
PRODUCT RETURNS. Product returns can occur when the Company introduces upgrades
and new versions of products or when distributors or retailers have excess
inventories. Symantec's return policy allows its distributors, subject to
certain limitations, to return purchased products in exchange for new products
or for credit towards future purchases. End users may return products through
dealers and distributors within a reasonable period from the date of purchase
for a full refund, and retailers may return older versions of the Company's
products. The Company estimates and maintains reserves for product returns.
However, future returns could exceed the reserves established by the Company,
which could have a material adverse affect on the operating results of the
Company.
FOREIGN OPERATIONS. A significant portion of Symantec's revenues, manufacturing
costs and operating expenses are transacted outside of the United States and in
foreign currencies. As a result, the Company's results may be materially and
adversely affected by fluctuations in currency exchange rates, as well as
increases in duty rates, exchange or price controls or other restrictions on
foreign currencies. Symantec utilizes natural hedging to mitigate
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Symantec's foreign currency transaction exposure and hedges certain residual
balance sheet positions through the use of one-month forward contracts. These
strategies may not continue to be effective, and the Company may not be
successful in accurately forecasting transaction gains or losses. The Company
expects that its non-U.S. dollar denominated activities may increase in the
future. Continued fluctuations in the currency markets could materially and
adversely impact Symantec's revenues.
The Company's international operations are also subject to other risks common to
international operations, such as political and economic instability, government
regulations, import restrictions, economic volatility, repatriation restrictions
and, in certain jurisdictions, reduced protection for the Company's copyrights
and trademarks, all of which could have an adverse affect on the Company's
operating results.
TECHNICAL SUPPORT. Consistent with many companies in the software industry,
technical support costs comprise a significant portion of the Company's
operating costs and expenses. The Company's technical support levels are based,
in a large part, on projections of future sales levels. Over the short term, the
Company may not be able to respond to fluctuations in customer demand for
support services or modify the format of the Company's support services to
compete with changes in support services provided by competitors. While the
Company performs extensive quality control review over its technical support
services provided by corporate personnel and, to a lesser extent, over support
services outsourced to third-party vendors, customer satisfaction with the
services rendered may not be favorable. In the event of customer
dissatisfaction, future product and upgrade sales to that customer base may be
negatively impacted. Fee-based technical support services did not generate
material revenues in any fiscal period presented and are not expected to
generate material revenues in the near future.
UNCERTAINTY OF RESEARCH AND DEVELOPMENT EFFORTS. Symantec believes significant
research and development expenditures will be necessary in order to remain
competitive. While the Company performs extensive usability and beta testing of
new products, any products currently being developed by Symantec may not be
technologically successful, resulting products may not achieve market
acceptance, and the Company's products may not compete effectively with
competitors' products either currently in the market or introduced in the
future.
LENGTH OF PRODUCT DEVELOPMENT CYCLE. The length of Symantec's product
development cycle has generally been greater than Symantec originally expected.
Although such delays have undoubtedly had a material adverse affect on
Symantec's business, Symantec is not able to quantify the magnitude of net
revenues that were deferred or lost as a result of any particular delay because
Symantec is not able to predict the amount of net revenues that would have been
obtained had the original development expectations been met. Delays in future
product development are likely to occur and could have a material adverse affect
on the amount and timing of future revenues. Due to the inherent uncertainties
of software development projects, Symantec does not generally disclose or
announce the specific expected shipment dates of the Company's product
introductions.
OPERATING LEVERAGE. Consistent with the experience of many companies in the
software industry, Symantec's employee and facility related expenditures
comprise a significant portion of the Company's operating expenses. The
Company's expense levels are based, in a large part, on projections of future
revenue levels. Given the fixed nature of these expenses over the short term, if
revenue levels fall below expectations, Symantec's operating results are likely
to be significantly and adversely affected.
MANAGEMENT OF EXPANDING OPERATIONS. Symantec continually evaluates its product
and corporate strategy and has in the past and will in the future undertake
organizational changes and/or product and marketing strategy modifications which
are designed to maximize market penetration, maximize use of limited corporate
resources and develop new products and product channels. These organizational
changes increase the risk that objectives will not be met due to the allocation
of valuable limited resources to implement changes. Further, due to the
uncertain nature of any of these undertakings, these efforts may not be
successful, and the Company may not realize any benefit from these efforts.
EMPLOYEE RISK. Competition in recruiting personnel in the software industry is
intense. Symantec believes that its future success will depend in part on its
ability to recruit and retain highly skilled management, marketing and
22
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
technical personnel. Symantec believes that it must provide personnel with a
competitive compensation package, which necessitates the continued availability
of stock options which, in turn, requires ongoing stockholder approval.
BUSINESS DISRUPTION. A disruption in communications between the Company's
geographically dispersed order entry and product shipping centers, particularly
at the end of a fiscal quarter, would likely result in an unexpected shortfall
in net revenues and could result in an adverse impact on operating results.
Disruptions in communications and Internet connectivity may also cause delays in
customer access to Symantec's Internet-based services or product sales. A
business disruption could occur as a result of natural disasters or the
interruption in service by communications carriers, and may cause delays in
product development that could adversely impact future net revenues of the
Company.
LITIGATION. Symantec is involved in a number of judicial and administrative
proceedings incidental to its business. The Company intends to defend and/or
pursue all of these lawsuits vigorously and, although an unfavorable outcome
could occur in one or more of the cases, the final resolution of these lawsuits,
individually or in the aggregate, is not expected to have a material adverse
affect on the financial position of the Company. However, depending on the
amount and timing of an unfavorable resolution of these lawsuits, it is possible
that the Company's future results of operations or cash flows could be
materially adversely affected in a particular period. (See Note 6 of Notes to
Consolidated Financial Statements in this Form 10-Q).
INTELLECTUAL PROPERTY RIGHTS. Symantec regards its software as proprietary and
relies on a combination of copyright, patent and trademark laws, non-disclosure
agreements and license agreements in an attempt to protect its rights. Despite
these precautions, it may be possible for unauthorized third parties to copy
aspects of Symantec's products or to obtain and use information that Symantec
regards as proprietary. All of Symantec's products are protected by copyright,
and Symantec has a number of patents and patent applications pending. However,
existing patent and copyright laws afford limited practical protection. In
addition, the laws of some foreign countries do not protect Symantec's
proprietary rights in its products to the same extent as do the laws of the
United States. Symantec's products are not copy protected.
As the number of software products in the industry increases and the
functionality of these products further overlap, Symantec believes that software
developers will become increasingly subject to infringement claims. This risk is
potentially greater for companies, such as Symantec, that obtain certain of
their products through publishing agreements or acquisitions, since they have
less direct control over the development of those products.
In addition, an increasing number of patents are being issued that are
potentially applicable to software, and allegations of patent infringement are
becoming increasingly common in the software industry. It is impossible to
ascertain all possible patent infringement claims because new patents are being
issued continually, the subject of patent applications is confidential until a
patent is issued, and it may not be apparent even from a patent that has already
been issued whether it is potentially applicable to a particular software
product. This increases the risk that Symantec's products may be subject to
claims of patent infringement. Although such claims may ultimately prove to be
without merit, they are time consuming and expensive to defend. Symantec has
been involved in disputes claiming patent infringement in the past, is currently
involved in a number of such disputes and litigation, and may be involved in
such disputes and/or litigation in the future. If Symantec is alleged to
infringe one or more patents, it may choose to litigate the claim and/or seek an
appropriate license. If litigation were to commence and a license were not
available on reasonable terms or if another party were found to have a valid
patent claim against Symantec, such a result could have a material adverse
affect on Symantec's business, operating results and financial condition (See
Note 6 of Notes to Consolidated Financial Statements in this Form 10-Q).
SOFTWARE DEFECTS AND PRODUCT LIABILITY. Software products frequently contain
errors or defects, especially when first introduced or when new versions or
enhancements are released. In the past, for example, Symantec's anti-virus
software products have incorrectly detected viruses that do not exist. Although
the Company has not experienced any material adverse effects resulting from any
such defects or errors to date, defects and errors could be found in current
versions, future upgrades to current products or newly developed and released
products, despite testing prior
23
<PAGE> 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
to release. Software defects could result in delays in market acceptance or
unexpected reprogramming costs, which could have a material adverse affect on
the Company's operating results. While Symantec has not been the target of
software viruses specifically designed to impede the performance of the
Company's products, such viruses could be created and deployed against
Symantec's products in the future.
Most of the Company's license agreements with its customers contain provisions
designed to limit the exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in such
license agreements may not be valid as a result of federal, state, local or
foreign laws or ordinances or unfavorable judicial decisions. A successful
product liability claim could have a material adverse affect on the Company's
business, operating results and financial condition.
EUROCURRENCY CONVERSION. On January 1, 1999 the euro became the common currency
of 11 of the 15 member countries of the European Union. The national currencies
of these 11 countries will coexist with the euro at fixed exchange rates through
December 31, 2001. Euro denominated bills and coins will be introduced on
January 1, 2002, and by July 1, 2002 the national currencies will no longer be
legal tender.
Symantec established a euro task force to address the business implications of
the euro. The task force implemented changes to its system and processes in
order to be euro ready on January 1, 1999. The Company will continue to evaluate
the impact of the euro and expects to make further changes to accommodate doing
business in the euro.
The Company expects the euro will dictate changes in its foreign exchange
hedging program, and this may lead to increased fluctuations in foreign currency
hedging results. Based on current information, the Company does not believe the
euro will have a material adverse impact on its operations or financial
condition.
YEAR 2000 - PRODUCT LIABILITY. While the Company believes that most of its
currently developed and actively marketed products are Year 2000 compliant for
significantly all functionality, these software products could contain errors or
defects related to the Year 2000. Versions of the Company's products that are
not the most currently released or that are not currently being developed may
not be Year 2000 compliant. The Company sells some of its older product lines,
which are not being actively developed and updated, and such products are also
not necessarily Year 2000 compliant. Symantec is currently party to a lawsuit
related to the alleged inability of pre-version 4.0 Norton AntiVirus products to
function properly in respect to Year 2000. Symantec believes that this lawsuit
has no merit and intends to defend itself vigorously. The final resolution of
this lawsuit is not expected to have a material adverse affect on the results of
operations and financial condition of the Company . Depending, however, on the
amount and timing of an unfavorable resolution of this lawsuit, it is possible
that the Company's future results of operations or cash flows could be
materially adversely affected in a particular period (See Note 6 of Notes to
Consolidated Financial Statements in this Form 10-Q).
YEAR 2000 - PRODUCT DEMAND. With the emerging requirements on Year 2000
compliance and functionality, many enterprise customers may use their
Information Technology (IT) budgets in 1999 to focus on Year 2000 issues and
thus IT organizations may be unwilling to deploy new software until after the
Year 2000. Either of these factors could reduce sales of Symantec products and
could have an adverse affect on revenues.
YEAR 2000 - CORPORATE SYSTEMS. The Company has recently completed a major
evaluation of its applications systems and databases and is modifying or
replacing portions of its hardware and associated software to enable its
operational systems and networks to function properly with respect to dates
leading up to January 1, 2000 and thereafter. The Company continues to evaluate
system interfaces with third-party systems, such as those of key suppliers,
distributors and financial institutions, for Year 2000 functionality. The
Company expects the process of evaluating third-party Year 2000 compliance to be
an ongoing process through the Year 2000. The Company is evaluating Year 2000
exposures of its key suppliers, as well as those of company buildings and
related facilities. The costs to complete the Year 2000 project are expected to
be approximately $2 million and will be expensed as incurred.
24
<PAGE> 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
The Year 2000 Project is divided into several phases:
Assessment - where the vulnerability of the hardware, software, process or
service element is identified.
Planning - where corrective action is determined for each vulnerable element.
Remediation and Unit Test - where the corrective action is taken and initial
testing is performed.
Limited System Test - where related elements are tested together, using dates
in the vulnerable range.
Project progress is tracked on a sub-project level as noted below. The following
table summarizes the completion status and currently expected completion date
for each phase for each sub-project. The expected completion dates are
forward-looking statements that are subject to the risks and uncertainties of
locating and correcting errors in complex computer systems, and actual dates of
completion may vary significantly.
<TABLE>
<CAPTION>
PHASE AND STATUS OR DUE DATE
------------------------------------------------------------
Limited
SUB-PROJECT Assessment Planning Remediation System Test
- ----------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Business Systems Complete Complete Complete Jan-Jun 1999
Networks, Servers & Communications
Americas and EMEA Complete Complete Jan-Jun 1999 Jul-Dec 1999
Japan & Asia/Pacific March 1999 March 1999 Jan-Jun 1999 Jul-Dec 1999
Desktop and Mobile Computers Jan-Jun 1999 Jan-Jun 1999 Jan-Jun 1999 Jul-Dec 1999
Buildings and Related Facilities Jan-Mar 1999 Mar 1999 Jan-Jun 1999 Jul-Dec 1999
Suppliers and Outside Services Jan-Mar 1999 Mar 1999 Jan-Jun 1999 Jul-Dec 1999
</TABLE>
The Company believes that, with its conversions to new software and
modifications to existing computer hardware and software, the Year 2000 issue
will not pose significant operational problems for its computer systems.
However, if remaining modifications and conversions are not made, or are not
completed in a timely manner, the Year 2000 issue could have a material adverse
impact on the operations of the Company.
Additionally, the systems of other companies with which Symantec does business
may not address Year 2000 problems on a timely basis, which could have an
adverse effect on Symantec's systems or business transactions.
As testing of Year 2000 functionality of the Company's systems must occur in a
simulated environment, the Company will not be able to test fully all Year 2000
interfaces and capabilities prior to the Year 2000. The Company believes that
its exposure on Year 2000 issues is not material to its business as a whole and
has not deferred any other information systems projects as a result of its focus
on Year 2000 compliance issues. Periodic updates regarding the Year 2000 status
are provided to both the Executive Staff and Board of Directors.
If certain key suppliers or distributors should suffer business interruptions
due to Year 2000 problems, the Company could be forced to delay product
shipments. If there should be significant periods of electric power or telephone
service interruptions, some of the Company's facilities might be unable to
operate. The Company maintains Business Recovery Plans for its major locations
to provide for orderly response to various disaster scenarios. These will be
reviewed and augmented to provide contingency plans for potential Year 2000
related problems, both internal and external. Completion of the analysis and the
associated contingency plans is scheduled for June 1999.
RISK OF ACCOUNTING TREATMENT. The Company has received requests from the staff
of the Securities and Exchange Commission for additional information regarding
the accounting for certain of its acquisitions, including questions relating to
the write-off of associated in-process research and development costs. The
Company cannot determine at this time the effect, if any, that the outcome of
this matter will have on its reported financial position or results of
operations. However, should the staff of the Securities and Exchange Commission
require the Company to
25
<PAGE> 26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
retroactively record any adjustments, the effect could have an adverse impact on
the future trading prices of the Company's common stock.
26
<PAGE> 27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
OVERVIEW
Symantec develops utility software for business and personal computing.
Symantec's business strategy is to satisfy customer needs by developing and
marketing products that make customers productive and keep their computers safe
and reliable - anywhere, anytime. These products are developed for multiple
operating platforms.
Founded in 1982, the Company has offices in the United States, Canada, Mexico,
Asia, Australia, New Zealand, Europe, Africa and South America.
Symantec has a 52/53-week fiscal accounting year. The nine months ended December
31, 1998 comprised 39 weeks of revenue and expense activity, while the
comparable prior year period comprised 40 weeks.
RESULTS OF OPERATIONS
During the December 1998 quarter, the Company acquired a majority interest in
Quarterdeck Corporation ("Quarterdeck") (See Note 8 of Notes to Consolidated
Financial Statements in this Form 10-Q). During the September 1998 quarter, the
Company acquired Intel Corporation's ("Intel") anti-virus business (See Note 8
of Notes to Consolidated Financial Statements in this Form 10-Q). During the
June 1998 quarter, the Company acquired International Business Machine's ("IBM")
anti-virus business and the operations of Binary Research Limited ("Binary")
(See Note 8 of Notes to Consolidated Financial Statements in this Form 10-Q).
The results of operations from these acquisitions have been included in
Symantec's results of operations from the date of acquisition.
On January 6, 1999, the Company received a comment letter from the Securities
and Exchange Commission with respect to its Form 10-K for the fiscal year ended
March 31, 1998 and Form 10-Q for the quarter ended October 2, 1998. The comment
letter contained questions related to accounting for certain acquisitions,
including questions relating to the write-off of associated in-process research
and development costs. The Company is in the process of re-evaluating the Binary
and IBM transactions and the related in-process research and development costs
as well as the other questions raised in the comment letter. As a result, final
operating results for the quarters ended June, September and December, 1998 and
the related year-to-date amounts may be restated.
27
<PAGE> 28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
The following table sets forth each item from the consolidated statements of
operations as a percentage of net revenues and the percentage change in the
total amount of each item for the periods indicated.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Percent Ended Percent
December 31, Change December 31, Change
--------------- in Dollar --------------- in Dollar
(Unaudited) 1998 1997 Amounts 1998 1997 Amounts
---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenues ............................... 100% 100% 11% 100% 100% 9%
Cost of revenues ........................... 16 15 (18) 15 16 4
---- ---- ---- ----
Gross margin ......................... 84 85 10 85 84 9
Operating expenses:
Research and development ............... 15 15 11 17 16 12
Sales and marketing .................... 43 46 5 46 45 11
General and administrative ............. 6 6 3 7 6 6
In-process research and
development .......................... 5 -- -- 9 -- --
Litigation judgment .................... -- -- -- 1 -- --
Restructuring and other expenses ....... -- -- -- 1 -- --
---- ---- ---- ----
Total operating expenses ............. 69 67 14 81 67 29
---- ---- ---- ----
Operating income ........................... 15 18 (5) 4 17 71
Interest income ............................ 2 2 (19) 2 2 18
Interest expense ........................... -- -- 49 -- -- 26
Other income, net .......................... -- -- 527 1 -- 247
---- ---- ---- ----
Income before income taxes ................. 17 20 (6) 7 19 59
Provision for income taxes ................. 7 5 54 4 5 4
---- ---- ---- ----
Net income ................................. 10% 15% (26) 3% 14% 78
==== ==== ==== ====
</TABLE>
28
<PAGE> 29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
NET REVENUES.
Net revenues were approximately $165 million in the December 1998 quarter, an
increase of 11% from $148 million in the December 1997 quarter. Net revenues
increased 9% to $458 million in the nine-month period ended December 31, 1998
from $422 million in the nine-month period ended December 31, 1997.
Revenues from corporate sales were higher for both the three and nine-month
periods ended December 31, 1998 when compared to the same periods ended December
31, 1997. In addition, revenues were higher in both the three and nine month
periods ended December 31, 1998 over the same periods ended December 31, 1997
due to Symantec's sales growth in Europe. Revenues from retail sales were
somewhat lower in both the three and nine month periods ended December 31, 1998
in comparison to the three and nine month periods ended December 31, 1997,
primarily due to a general softness in the retail markets in the United States.
BUSINESS UNITS. The Security and Assistance business unit is dedicated to
assisting in customers' daily use of computers by increasing productivity and
keeping computers safe and reliable. The Security and Assistance business unit
comprised approximately 57% and 51% of the Company's total net revenues in the
quarters ended December 31, 1998 and 1997, respectively. The Security and
Assistance business unit comprised approximately 52% and 49% of the Company's
total net revenues in the nine-month periods ended December 31, 1998 and 1997,
respectively. Increased net revenues for the business unit in the comparable
three and nine month periods were primarily related to increased revenues for
two new products, Norton Ghost and the new utility suite, Norton SystemWorks. In
addition, increased sales of Norton AntiVirus for Windows and Norton AntiVirus
for the Macintosh were partially offset by decreases in Norton Utilities for
Windows. The Norton Ghost product was acquired as part of the purchase of Binary
operations in the June 1998 quarter (See Note 8 of Notes to Consolidated
Financial Statements in this Form 10-Q).
The Remote Productivity Solutions business unit helps remote professionals
remain productive and work reliably, anywhere, anytime. The Remote Productivity
Solutions business unit comprised approximately 35% and 37% of the Company's
total net revenues in the quarters ended December 31, 1998 and 1997,
respectively, and it comprised approximately 36% and 38% of the Company's total
net revenues for the nine months ended December 31, 1998 and 1997, respectively.
Net revenues for the business unit increased in the December 1998 quarter over
the December 1997 quarter, with increases in pcANYWHERE for Windows 95 partially
offset by decreased revenues for ACT! For Windows. Net revenues for the business
unit increased for the nine months ended December 1998, with increases in
pcANYWHERE for Windows 95 and Talkworks being partially offset by decreases in
revenues for ACT! for Windows, WinFax PRO and WinFax Lite.
Internet tools, royalties and other, which includes products providing an easy
to use Java development environment, as well as revenue streams from the sale of
certain of the Company's other software product lines and technologies, and
revenues from products nearing the end of their life cycles, comprised
approximately 8% and 12% of the Company's total net revenues in the quarters
ended December 31, 1998 and 1997, respectively and 12% and 13% for the nine
month periods ended December 31, 1998 and 1997, respectively. This business
unit's net revenues decreased in the quarter ended December 31, 1998 over the
quarter ended December 31, 1997 due to reductions in revenues from products in
Internet Tools, royalties and from products nearing the end of their life
cycles. The business unit's net revenues increased in the comparable nine month
December periods due to increased product sales in Internet Tools and increased
royalties, partially offset by decreased revenues from products nearing the end
of their life cycles.
Included in Internet tools, royalties and other are royalties and other revenue
of approximately $10 million recorded in both the quarters ended December 31,
1998 and 1997, and $36 million and $38 million in the nine month periods ended
December 31, 1998 and 1997, respectively. These royalties and other revenues
primarily relate to the sale of certain software products, technologies and
tangible assets to JetForm Corporation ("JetForm") and the Hewlett-
29
<PAGE> 30
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Packard Company ("Hewlett-Packard") during fiscal 1997. Royalties from
Hewlett-Packard concluded in the December 1998 quarter.
Payments from JetForm were higher in the three and nine-month periods ended
December 31, 1998 over the three and nine-month periods ended December 31, 1997
primarily due to an amendment to the JetForm agreement accelerating the payment
schedule. JetForm has the option to tender payment in either cash or in
registered JetForm common stock, within a contractually defined quantity
threshold. Due to the uncertainty regarding the ultimate collectibility of these
installments, Symantec is recognizing the revenue as payments are due and
collectibility is assured from JetForm. In addition, JetForm payments were
approximately the same for both the three month periods ended December 31, 1998
and September 30, 1998. Both December 1998 and September 1998 were lower as
compared to the three month period ended June 30, 1998 and payments are expected
to decline in future periods through the conclusion of the contract in the June
2000 quarter.
INTERNATIONAL. Net revenues from sales outside of North America were $65 million
and $51 million and represented 40% and 34% of total net revenues in the
quarters ended December 31, 1998 and 1997, respectively. The increase in net
revenues was the result of sales growth in Europe, Middle East and Africa
("EMEA") and Japan.
Net revenues from sales outside of North America were $160 million and $132
million and represented 35% and 31% of net revenues in the nine-month periods
ended December 31, 1998 and 1997, respectively. The increase in net revenues was
the result of sales growth in EMEA and Japan.
Foreign exchange rate fluctuations during the three and nine month periods ended
December 31, 1998 compared to the three and nine month periods ended December
31, 1997 did not materially affect revenue for either period.
GROSS MARGIN.
Gross margin represents net revenues less cost of revenues. Cost of revenues
consists primarily of manufacturing expenses, costs of producing manuals,
packaging costs, royalties paid to third parties under publishing contracts and
amortization and write-off of capitalized software. During the quarter ended
September 30, 1998, the Company implemented a plan to restructure certain of its
operations, which included outsourcing its domestic manufacturing operations.
This outsourcing should be complete by the end of March 1999, and the Company
does not expect any significant impact to its gross margins. (See Note 5 of
Notes to Consolidated Financial Statements).
Gross margin decreased to 84% of net revenues in the three-month period ended
December 31, 1998 from 85% in the three-month period ended December 31, 1997.
Gross margin increased to 85% from 84% in the nine-month periods ended December
31, 1998 and 1997, respectively.
Factors contributing to a decrease in gross margin percentage during the three
month period ended December 31, 1998 compared to the three month period ended
December 31, 1997 include an increase in purchased product rights and
capitalized software amortization from acquisitions and increases in
obsolescence reserves in anticipation of new product releases. Factors
contributing to an increase in gross margin percentage during the nine month
period ended December 31, 1998 compared to the nine month period ended December
31, 1997 include a product mix favoring the Company's higher margin site license
and OEM business and a reduction in royalty expense.
PURCHASED PRODUCT RIGHTS AND CAPITALIZED SOFTWARE. During the December 1998
quarter, Symantec acquired a majority interest in Quarterdeck and recorded
approximately $4 million of purchased product rights and technology as a result
of the transaction. (See Note 8 of Notes to Consolidated Financial Statements).
During the September 1998 quarter, Symantec recorded approximately $11 million
of purchased product rights and technology acquired as part of the Company's
acquisition of Intel's Anti-virus business (See Note 8 of Notes to Consolidated
Financial Statements in this Form 10-Q). During the June 1998 quarter, Symantec
recorded approximately $14 million of purchased product rights and technology
acquired as part of the Company's acquisition of Binary's operations (See Note 8
of Notes to Consolidated Financial Statements in this Form 10-Q).
30
<PAGE> 31
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Amortization of purchased product rights and capitalized software expense,
totaled approximately $2 million in the three month periods ended December 31,
1998. In addition, amortization of purchased product rights and capitalized
software expenses totaled approximately $4 million and $1 million for the nine
month periods ended December 31, 1998 and 1997, respectively. The increases for
the 1998 periods over the 1997 periods are primarily due to additional
amortization related to the purchase of Intel's anti-virus business, and the
acquisitions of Binary and Quarterdeck. Symantec expects purchased product
rights and capitalized software amortization to increase in future periods
through March 31, 1999. The amortization will occur over the next 3 to 5 years.
(See Note 8 of Notes to Consolidated Financial Statements in this Form 10-Q).
RESEARCH AND DEVELOPMENT EXPENSES.
Research and development expenses were 15% of net revenues for both the three
month periods ended December 31, 1998 and 1997 and 17% and 16% of net revenues
for the nine month periods ended December 31, 1998 and 1997. Research and
development expenses are charged to operations as incurred.
Research and development expenses increased 11% to $24 million in the December
1998 quarter from $22 million in the December 1997 quarter and increased 12% to
$75 million in the nine month period ended December 31, 1998 from $67 million in
the nine month period ended December 31, 1997. For both the three and nine month
periods the increase was primarily due to legal expenses related to product
claims (See Note 6 of the Notes to Consolidated Financial Statements in this
Form 10-Q) and growth in employee related expenses.
SALES AND MARKETING EXPENSES.
Sales and marketing expenses were 43% and 46% of net revenues in the three month
periods ended December 31, 1998 and 1997 and 46% and 45% of net revenues in the
nine month periods ended December 31, 1998 and 1997, respectively. Sales and
marketing expenses were approximately $72 million and $68 million for the three
months ended December 31, 1998 and 1997, respectively, and $212 million and $191
million for the nine months ended December 31, 1998 and 1997. The increase in
sales and marketing expenses in both the three and nine month comparable
December periods is due to increases in employee related expenses and
advertising and promotion expenditures.
GENERAL AND ADMINISTRATIVE EXPENSES.
General and administrative expenses were 6% of net revenues for both the three
month periods ended December 31, 1998 and 1997 and were approximately 7% and 6%
of net revenues for the nine month periods ending December 31, 1998 and 1997,
respectively. General and administrative expenses were approximately $10 million
for both three month periods ended December 31, 1998 and 1997. General and
administrative expenses increased 6% to approximately $29 million in the nine
month period ended December 31, 1998 from $28 million in the nine month period
ended December 31, 1997. The increase in general and administrative expenses is
primarily related to employee related expenses.
IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSES.
In May 1998, the Company entered into an agreement with IBM for their immune
system technology and related anti-virus patents. The agreement was accounted
for as a purchase and paid for with cash. The Company recorded intangible assets
of prepaid research and development, customer base, goodwill, and in-process
research and development. The company wrote-off the in-process research and
development as of the date of the purchase and is amortizing the value of
prepaid R&D over 1 year. The value of both the goodwill and customer base is
being amortized over 5 years. (See Note 8 of the Notes to Consolidated Financial
Statements in this Form 10-Q).
In June 1998 the Company acquired the operations of Binary. The acquisition was
accounted for as a purchase and paid for with cash. The Company recorded
intangible assets of developed software, workforce in place and in-
31
<PAGE> 32
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
process research and development as of the date of the acquisition. The Company
wrote off the in-process research and development at the time of the purchase,
and the value of the workforce in place and developed software is being
amortized over 3 years. (See Note 8 of the Notes to Consolidated Financial
Statements in this Form 10-Q).
In September 1998 the Company entered into an agreement with Intel to purchase
their anti-virus business, as well as license their systems management
technology. The agreement was accounted for as a purchase and paid for with
cash. The Company recorded intangible assets of developed software, customer
base and in-process research and development as of the date of the acquisition.
The Company wrote off the in-process research and development at the time of the
purchase, and the value of the customer base and developed software is being
amortized over 5 years. (See Note 8 of the Notes to Consolidated Financial
Statements in this Form 10-Q).
In November 1998 the Company successfully completed a tender offer for the
common stock of Quarterdeck and obtained 63% of the outstanding shares. The
Company expects to acquire the remaining shares through a cash merger at a
future date during a Quarterdeck shareholders' meeting. The acquisition is being
accounted for as a purchase and the Company intends to pay cash for the
remaining interest. The Company recorded intangible assets of developed
software, tradename, customer base, goodwill, workforce in place, and in-process
research and development. The Company wrote off the in-process research and
development at the time of the purchase and is amortizing the value of the
workforce in place over 2 years. The value of the remaining intangibles,
developed software, tradename, customer base and goodwill are all to be
amortized over 5 years. (See Note 8 of the Notes to Consolidated Financial
Statements in this Form 10-Q).
The following table outlines the value of the above referenced intangible assets
(in thousands):
<TABLE>
<CAPTION>
Allocated Purchase Price Components
--------------------------------------------------------------------------------------------------
Purchase In-Process Developed Customer Prepaid
Price R&D Software Goodwill Base Workforce Tradename R&D
-------- ---------- --------- -------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IBM $20,250 $16,000 -- $ 2,950 $100 -- -- $1,200
Binary $27,871 $13,325 $14,435 -- -- $111 -- --
Intel $16,525 $ 5,017 $10,697 -- $811 -- -- --
Quarterdeck $59,347 $ 7,560 $ 4,410 $45,588 $882 $ 25 $882 --
</TABLE>
The Company wrote-off $41.9 million in in-process research and development
associated with the IBM, Binary, Intel and Quarterdeck purchases. These
write-offs were necessary because the acquired technologies had not yet reached
technological feasibility and had no future alternative uses. The Company is
using the acquired in-process research and development associated to create new
anti-virus products and enhanced management and administrative capabilities to
be integrated into the Company's suite of anti-virus offerings and other
corporate products over the next 2 years. The in-process technology will also be
used to create new Uninstall and Disk Cloning products.
The nature of the efforts required to develop the purchased in-process
technology principally relate to the completion of all planning, designing,
development and testing activities that are necessary to establish that the
product or service can be produced to meet its design specifications including
features, functions and performance. The Company expects the acquired in-process
technology to be developed into commercially feasible products, however , there
are no assurances that this will occur. Failure to complete these products in
their entirety, or in a timely manner could have a material adverse impact on
the Company's operating results, financial condition and results of operations.
Additionally, the value of the other intangible assets may become impaired.
The fair value of the in-process technology for each of the purchases was
determined by estimating the projected cash flows related to such projects,
including cost to complete the development of in-process technology and future
revenues to be earned upon commercialization of the products. The resulting cash
flows were discounted back to
32
<PAGE> 33
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
their net present values. The net cash flows from such projects were based on
management's analysis of the respective markets, and estimates of revenues and
operating profits related to such projects.
IBM
The in-process technology acquired in the IBM purchase primarily consisted of
the IBM immune system technology and related anti-virus patents. This technology
will detect previously unknown viruses, analyze them, and distribute a cure, all
automatically and faster than existing methods. The technology is to be
integrated into the Company's suite of anti-virus products throughout 1999,
along with a considerable amount of infrastructure enhancement required for
deployment.
Revenue attributable to the in-process technology was assumed to increase
substantially during the first year, and then decrease at rates of 35% to 8%
during the remaining three years of the four year projection. Projected annual
revenues range from $38.1 million to $19.5 million over the term of the
projection. These projections were based on penetration into Symantec's and
IBM's existing installed base of customers, anticipated growth rates of the
anti-virus markets, an accelerated growth of new customers during the first year
of delivering immune system technology, and the estimated life of the underlying
technologies.
Marketing and sales expenses, expressed as a percentage of revenue, for the
in-process technology, were estimated to be 40% throughout the valuation period
based on the Company's historical experience with similar products. General and
administrative expenses were estimated to be 7% throughout the period of
analysis and are supported by the Company's historical general and
administrative expenses.
Operating profit was projected to increase from a loss of $1.8 million during
1998 to income of $13.9 million in 1999, the first year revenue is earned on the
technology. Operating profits then decrease at rates of 4% to 35% over the
remaining three years resulting in operating profits of $13.3 million to $7.4
million. Operating profit declines less than revenue in the early years of the
projection because most product development costs were assumed to be incurred in
the first year, reducing operating expenses as a percentage of revenue in later
years. To date, operating expenses and revenues attributable to in-process
technologies associated with the IBM purchase are consistent with management's
projections.
The Company used a discount rate of 30% for valuing the in-process technology
from IBM, which the Company believes reflected the risk associated with the
completion of these research and development projects and the estimated future
economic benefits to be generated subsequent to their completion. This discount
rate is higher than Symantec's Weighted Average Cost of Capital ("WACC") of 17%
due to the fact that the technology had not reached technological feasibility as
of the date of the valuation.
BINARY
The in-process technology acquired in the Binary acquisition primarily consisted
of disk cloning technologies associated with Ghost, the flagship product of
Binary. Ghost software can create a complete image of a hard drive in the form
of a single file, which can be copied to another computer connected via a
network.
Revenue attributable to Binary's in-process technology was assumed to increase
in the first three years of the five year projection period at annual rates
ranging from 724% to 65%, decreasing at rates of 3% to 70% over the remaining
periods as other technologies enter the marketplace. Projected annual revenues
range from $2.4 million to $33.1 million over the projected period. These
estimates were based on aggregate growth rates for the business on a whole,
individual product revenues, anticipated product development cycles, and the
life of the underlying technology.
Marketing and sales expenses, expressed as a percentage of revenue, for the
in-process technology, were estimated to be 30% throughout the valuation period
for the disk cloning products, and 40% for other revenue streams which is based
on the Company's historical experience with similar products. General and
administrative expenses were
33
<PAGE> 34
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
estimated to be 7% throughout the period of analysis and are supported by the
Company's historical general and administrative expenses.
Operating profit was projected to increase from a loss of $1.2 million during
the first year to a profit of $15.9 million during the third year. Operating
profits then decrease from 3% to 70% during the remaining two years resulting in
profits of $15.3 million and $4.7 million. Operating profit increases faster
than revenue in the early years because most product development costs were
assumed to be incurred in the first year, reducing operating expenses as a
percentage of revenue in later years. To date, operating expenses and revenues
attributable to in-process technologies associated with the Binary purchase are
consistent with management's projections.
The Company used a discount rate of 30% for valuing the in-process technologies
from Binary, which the Company believes reflected the risk associated with the
completion of these research and development projects and the estimated future
economic benefits to be generated subsequent to their completion. This discount
rate is higher than Symantec's WACC of 17% due to the fact that the technology
had not reached technological feasibility as of the date of the valuation.
INTEL
The in-process technology acquired in the Intel purchase consists of the LANDesk
anti-virus technology which resides in the LANDesk virus protect product line,
LDVP. The LDVP product offers centrally managed virus protection to computer
networks. The Company intends to initially sell the next version of LDVP
software on a standalone basis. During 1999 the Company anticipates the
technology will be integrated into the Company's suite of corporate anti-virus
offerings, in addition to future corporate products.
Revenue attributable to Intel's in-process technology was assumed to be $12.2
million during the first year, increasing to $12.7 million during the second
year, and declining at annual rates ranging from 35% to 77% during the remaining
three years of the five year projection as other technologies enter the
marketplace. Projected annual revenues range from $12.7 million to $0.8 million
over the projected period. These estimates were based on revenue estimates of
the acquired LDVP business, aggregate growth rates for the anti-virus business
on a whole, anticipated revenue to be earned from future corporate product
offerings, anticipated product development cycles, and the life of the
underlying technology.
Marketing and sales expenses, expressed as a percentage of revenue, for the
in-process technology, were estimated to be 43% throughout the valuation period
based on the Company's historical experience with similar products. General and
administrative expenses were estimated to be 8% throughout the period of
analysis and are supported by the Company's historical general and
administrative expenses.
Operating profit was assumed to be $4.9 million during the first year,
increasing by 7% during the second year, and declining at annual rates ranging
from 34% to 77% during the remaining periods, resulting in annual operating
profits ranging between $5.3 million and $0.3 million. The operating profit
projections during the early years assumed a growth rate slightly higher than
revenue projections. The higher growth rate is attributable to the increase in
revenues discussed above as the technology is integrated more deeply into the
Company's product offerings, while research costs remain constant. To date,
operating expenses and revenues attributable to in-process technologies
associated with the Intel purchase are consistent with management's projections.
Estimated costs to be incurred to reach technological feasibility of in-process
technologies from Intel as of the date of the product being delivered to
Symantec totaled $0.5 million. The in-process technology was estimated to be
88.1% complete at this time. The projected introduction dates of acquired
in-process technologies is early/mid 1999.
The Company used a discount rate of 30% for valuing the in-process technology
from Intel, which the Company believes reflected the risk associated with the
completion of these research and development projects and the estimated future
economic benefits to be generated subsequent to their completion. This discount
rate is higher than
34
<PAGE> 35
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
Symantec's WACC of 17% due to the fact that the technology had not reached
technological feasibility as of the date of the valuation.
QUARTERDECK
The in-process technology acquired with Quarterdeck consisted of projects
related to Quarterdeck's CleanSweep product line. The CleanSweep product line is
designed to enhance the performance of the Windows operating system by finding
and removing outdated, unnecessary, or unwanted files, applications, and system
components, thereby freeing up disk space.
Revenue attributable to the in-process technology was assumed to be $23.7
million during the first year and declining at annual rates of 5% to 65% during
the remaining periods of the six year projection period as other technologies
are released into the marketplace. Projected annual revenues range from $23.7
million to $2.9 million over the projected period. These projections were based
on aggregate revenue estimates for the business as a whole, anticipated revenue
derived from the Company being able to increase our penetration in the uninstall
market, anticipated growth rates in the utilities suites markets, anticipated
product development cycles, and the life of the underlying technology.
Overall sales, marketing, and general and administrative expenses were estimated
to be 30% throughout the valuation period based on indications from similar
companies.
Operating profit was assumed to be $10.9 million during the first year,
increasing by 1% during the second year, and declining at annual rates ranging
from 17% to 69% during the remaining periods, resulting in annual operating
profits ranging between $11 million and $1.4 million. Operating profit in early
years increases as revenue declines because most product development costs were
assumed to be incurred in the first year, reducing operating expenses as a
percentage of revenue in later years.
Estimated costs to be incurred to reach technological feasibility as of the date
of acquisition for Quarterdeck in-process technologies totaled $0.7 million. The
in-process technology was estimated to be 80% complete as of the date of the
acquisition. The projected introduction dates of acquired in-process
technologies is early/mid 1999.
The Company used a discount rate of 20% for valuing the in-process technology
from Quarterdeck, which the Company believes reflected the risk associated with
the completion of these research and development projects and the estimated
future economic benefits to be generated subsequent to their completion. This
discount rate reflects a premium above that of the risk associated with the
acquired developed technology, and is higher than the Company's WACC.
LITIGATION JUDGMENT.
Litigation judgment expenses totaled approximately $6 million in the nine month
period ended December 31, 1998. These expenses related to a judgment by a
Canadian court on a decade-old copyright action assumed by Symantec as a result
of the acquisition of Delrina Corporation (See Note 6 of Notes to Consolidated
Financial Statements in this Form 10-Q).
35
<PAGE> 36
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
RESTRUCTURING AND OTHER EXPENSES.
During the quarter ended September 30, 1998, the Company implemented a plan to
restructure certain of its operations, which included outsourcing its domestic
manufacturing operations. As a result, it recorded approximately $4 million for
personnel severance to reduce the workforce by approximately 5% in both domestic
and international operations and approximately $1 million for the planned
abandonment of a manufacturing facility lease. As of December 31, 1998,
approximately $3 million of the $5 million had been incurred. These activities
will be substantially completed by the end of March 1999.
INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME.
Interest income was approximately $2.7 million and $3.3 million for the three
month periods ended December 31, 1998 and 1997, respectively. Interest income
decreased 19% in the three month period ended December 31, 1998 over the three
month period ended December 31, 1997 primarily due to a lower average invested
cash balance and losses on the sale of investments.
Interest income was approximately $11 million and $9 million in the nine month
periods ended December 31, 1998 and 1997, respectively. Interest income
increased 18% in the nine month period ended December 31, 1998 over the nine
month period ended December 31, 1997 primarily due to a higher average invested
cash balance, gains on the sale of investments and interest income received with
income tax refunds.
Interest expense was approximately $0.5 million and $0.3 million in the three
month periods ended December 31, 1998 and 1997, and $1.1 million and $0.9
million for the nine month periods ended December 31, 1998 and 1997,
respectively. Interest expense principally relates to Symantec's and
Quarterdeck's convertible subordinated debentures.
Other income was approximately $0.4 million and $0.1 million in the three month
periods ended December 31, 1998 and 1997, respectively, and $2.5 million and
$0.7 million in the nine month periods ended December 31, 1998 and 1997,
respectively. Other income increased in the three month period ended December
31, 1998 compared to the three month period ended December 31, 1997 due to
foreign currency exchange gains from fluctuations in currency exchange rates.
Other income increased in the nine month period ended December 31, 1998 compared
to the nine month period ended December 31, 1997 primarily due to a foreign
exchange gain realized during the June 1998 quarter as a result of the paydown
of an intercompany loan.
INCOME TAX PROVISION.
The effective tax rate on income before income taxes, excluding charges for
acquired in-process research and development expenses, for the three and nine
months periods ended December 31, 1998 was 32%. This rate is lower than the U.S.
federal statutory tax rate primarily due to a lower statutory tax rate on the
Company's Irish operations. The effective tax rate for the three and nine months
periods ended December 31, 1997 were 25% and 24%, respectively.
The tax provision for the nine month period ended December 31, 1998 consists of
two items: 1) a $24 million (or 32% effective tax rate) provision on income
before income taxes of $75 million (which excludes a $42 million charge for
acquired in-process research and development expenses) and 2) a $5 million tax
benefit on the $42 million charge for acquired in-process research and
development. A valuation allowance has been established for the portion of the
deferred tax asset attributable to the acquired in-process research and
development charges that is not expected to be realized within five years.
LIQUIDITY AND CAPITAL RESOURCES.
Cash, short-term investments and long-term investments decreased $69 million to
$191 million at December 31, 1998 from $260 million at March 31, 1998. This
decrease was largely due to the repurchase of approximately 2.9 million shares
of Symantec common stock for approximately $56 million during the September and
December 1998
36
<PAGE> 37
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
quarters. In addition, portions of the decrease were due to the acquisition of
Binary for approximately $28 million, an $8 million payment to IBM during the
quarter ended June 30, 1998, an approximately $12 million payment to Intel and a
$30 million payment for the tendered shares of Quarterdeck during the quarter
ended December 31, 1998 (See Notes 8 of Notes to Consolidated Financial
Statements in this Form 10-Q).
In addition to cash, short-term investments and long-term investments of $192
million, the Company has $69 million of restricted investments related to
collateral requirements under certain lease agreements entered into during
fiscal 1997. In accordance with the lease terms, these funds are not available
to meet operating cash requirements. Symantec is obligated under these lease
agreements for two existing office buildings (Cupertino City Center One or
"CCC1" and World Head Quarters or "WHQ"), one parcel of land and one office
building (Cupertino City Center Five or "CCC5") under construction in Cupertino,
California to maintain a restricted cash balance invested in U.S. treasury
securities with maturities not to exceed three years. In addition, the Company
is obligated to comply with certain financial covenants. Future acquisitions may
cause the Company to be in violation of these financial covenants, at which the
time the Company will need to have the covenants amended or waived. On September
22, 1998, an agreement was entered into, subject to certain closing conditions,
whereby the landlord intends to exchange CCC5 for another leased building
(Cupertino City Center Two or "CCC2") both located in Cupertino, California. If
this transaction is consummated, Symantec would move both personnel and
equipment into CCC2 once certain tenant improvements are completed. In
conjunction with this move, Symantec would be relieved of responsibility for its
lease of WHQ. Due diligence for the aforementioned exchange was completed on
December 15, 1998 and the parties completed the transaction on February 10,
1999.
On October 15, 1998, Symantec signed a definitive merger agreement to acquire
Quarterdeck. On November 17, 1998, Symantec completed its tender offer for the
common stock of Quarterdeck acquiring approximately 63% interest. Symantec
intends to acquire Quarterdeck's remaining shares through a cash merger at the
tender offer price of $0.52 per share in accordance with the definitive merger
agreement signed on October 15, 1998. The transaction was accounted for as a
purchase. Under the transaction, Symantec recorded approximately $7.6 million of
acquired in-process research and development, $4.4 million of capitalized
software technology, $45.6 million of goodwill and $1.8 million was allocated to
other intangibles. The amounts included in the Company's financial statements
represent approximately 63% of the total amount Symantec will ultimately record
once the merger is completed. The amount of in-process research and development
was established by a valuation specialist based on management's estimates. As of
December 31, 1998, the Company incurred approximately $0.1 million of
capitalized software amortization expense and $1.1 million of goodwill
amortization expense related to this acquisition. The capitalized software and
goodwill will amortized over a 5 year period. (See Agreement and Plan of Merger,
dated October 15, 1998, among Symantec, Purchaser, and Quarterdeck filed with
Symantec's Schedule 14D-1 on October 19, 1998).
Through its acquisition of a majority interest in Quarterdeck, Symantec
inherited Quarterdeck's 6% convertible senior subordinated notes. Quarterdeck
issued $25 million principal amount of 6% convertible senior subordinated notes,
due 2001 ("Notes"), to an institutional investor in a private placement pursuant
to the terms of a Note Agreement dated March 1, 1996. The Notes are required to
be paid in full without any premium upon the earlier of consummation of the
Merger or March 31, 1999.
Net cash provided by operating activities was approximately $86 million for the
nine months ended December 31, 1998 and was comprised of the Company's net
income of approximately $13 million, offset by non-cash related expenses of
approximately $63 million and a net decrease in assets and liabilities,
excluding effects of acquisitions, of approximately $10 million.
Net trade accounts receivable decreased $3 million to $62 million at December
31, 1998 from $65 million at March 31, 1998. Days sales outstanding was 34 days
at December 31, 1998 and 38 days at March 31, 1998. The decrease in days sales
outstanding is due to an increase in quarter end collections in the December
1998 quarter.
On June 9, 1998, the Board of Directors of Symantec authorized the repurchase of
up to 5% of Symantec's
37
<PAGE> 38
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS, CONTINUED
outstanding common stock before December 31, 1998. Among other purposes,
repurchased shares are used for employee stock purchase programs and option
grants. The Company completed the repurchase as of October 31, 1998,
repurchasing a total of 2.875 million shares at prices ranging from $13.10 to
$27.21, for an aggregate amount of approximately $56.3 million. Of the $56.3
million, approximately $20.8 million was charged to retained earnings after
appropriate amounts were deducted from common stock and capital in excess of
par.
Effective January 1, 1999, certain covenants under the $10 million line of
credit agreement were amended. As of January 1, 1999, the Company is in
compliance with all covenants under the Credit Agreement and there were no
borrowings and less than $1 million of standby letters of credit outstanding
under this line. Future acquisitions by the Company may cause the Company to be
in violation of the line of credit covenants. However, the Company believes that
if the line of credit were canceled or amounts were not available under the
line, there would not be a material adverse impact on the financial results,
liquidity or capital resources of the Company.
If Symantec were to sustain significant losses, the Company could be required to
reduce operating expenses, which could result in product delays; reassess
acquisition opportunities, which could negatively impact the Company's growth
objectives; and/or pursue further financing options. The Company believes
existing cash and short-term investments and cash generated from operating
results will be sufficient to fund operations for the next year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
38
<PAGE> 39
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item is incorporated by reference to Note 6 of
Notes to Consolidated Financial Statements included herein on page 11 of this
Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed as part of this Form 10-Q or are
incorporated by reference:
10.01 Amendment No. 1 of Agreement for exchange and purchase and escrow
instructions, dated as of November 4, 1998 between Symantec
Corporation and TST Development, L.L.C.
10.02 Amendment No. 2 of Agreement for exchange and purchase and escrow
instructions, dated as of November 20, 1998 between Symantec
Corporation and TST Development, L.L.C.
10.03 Amendment No. 3 of Agreement for exchange and purchase and escrow
instructions, dated as of December 4, 1998 between Symantec
Corporation and TST Development, L.L.C.
10.04 Amendment No. 4 of Agreement for exchange and purchase and escrow
instructions, dated as of December 15, 1998 between Symantec
Corporation and TST Development, L.L.C.
27.01 Financial Data Schedule for the Nine Months Ended December 31, 1998.
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on December 1, 1998, reporting the
merger agreement on October 15, 1998 between Symantec Corporation and
Quarterdeck Corporation, which includes as Exhibit 2.01 the Agreement and Plan
of Merger dated as of October 15, 1998 by among Symantec Corporation, Oak
Acquisition Corporation and Quarterdeck Corporation.(incorporated by reference
to Exhibit c(1) to the Registrant's Schedule 14D-1 (Commission File No. 5-45153)
initially filed on October 19, 1998).and Exhibit 99.01 the license agreement
dated as of October 15, 1998 by and between Symantec Corporation and Quarterdeck
Corporation. (incorporated by reference to Exhibit c(2) to the Registrant's
Schedule 14D-1 (Commission File No. 5-45153) initially filed on October 19,
1998).
ITEMS 2, 3 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: February 12, 1999 SYMANTEC CORPORATION
By /s/ GORDON E. EUBANKS, JR.
-----------------------------------------
Gordon E. Eubanks, Jr.
President and Chief Executive Officer
(duly authorized officer)
/s/ GREGORY E. MYERS
-----------------------------------------
Gregory E. Myers
Vice President Finance
(duly authorized officer)
40
<PAGE> 41
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.01 Amendment No. 1 of Agreement for exchange and purchase and
escrow instructions, dated as of November 4, 1998 between
Symantec Corporation and TST Development, L.L.C.
10.02 Amendment No. 2 of Agreement for exchange and purchase and
escrow instructions, dated as of November 20, 1998 between
Symantec Corporation and TST Development, L.L.C.
10.03 Amendment No. 3 of Agreement for exchange and purchase and
escrow instructions, dated as of December 4, 1998 between
Symantec Corporation and TST Development, L.L.C.
10.04 Amendment No. 4 of Agreement for exchange and purchase and
escrow instructions, dated as of December 15, 1998 between
Symantec Corporation and TST Development, L.L.C.
27.01 Financial Data Schedule for the Nine Months Ended December 31,
1998.
</TABLE>
<PAGE> 1
EXHIBIT 10.01
AMENDMENT NO. 1
TO
AGREEMENT FOR EXCHANGE AND PURCHASE AND ESCROW
INSTRUCTIONS
This AMENDMENT NO. 1 TO AGREEMENT FOR EXCHANGE AND PURCHASE AND ESCROW
INSTRUCTIONS ("Amendment No. 1") is made as of November 4, 1998 by and between
SYMANTEC CORPORATION, a Delaware corporation ("Symantec") and TST DEVELOPMENT,
L.L.C., a Delaware limited liability company ("TST") with reference to the
following:
A. Symantec and TST are parties to that certain Agreement for Exchange and
Purchase and Escrow Instructions dated as of September 22, 1998 (the
"Agreement").
B. The parties now desire to amend the Agreement to extend the end of the
Feasibility Period.
C. All capitalized terms used in this Amendment No. 1 shall have the same
meaning as defined in the Agreement unless separately defined herein.
AGREEMENT
1. Notwithstanding anything to the contrary in the Agreement the end of the
Feasibility Period is hereby extended to 5:00 p.m. PST on November 20,
1998.
2. This Amendment may be executed in one or more counterparts pursuant to the
Agreement.
3. Except as herein amended, the Agreement remains unchanged and in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of
November 4, 1998.
"Symantec" "TST"
SYMANTEC CORPORATION, A TST DEVELOPMENT, L.L.C., a
Delaware corporation Delaware limited liability company
By: /s/ DEREK WHITE By: /s/ ANDREW J. NATHEN
------------------------------- ---------------------------------
NAME: Derek White NAME: Andrew J. Nathen
Its: Its: Vice President
------------------------------- --------------------------------
<PAGE> 1
Exhibit 10.02
AMENDMENT NO. 2
TO
AGREEMENT FOR EXCHANGE AND PURCHASE AND ESCROW
INSTRUCTIONS
This AMENDMENT NO. 2 TO AGREEMENT FOR EXCHANGE AND PURCHASE AND ESCROW
INSTRUCTIONS ("Amendment No. 2") is made as of November 20, 1998 by and between
SYMANTEC CORPORATION, a Delaware corporation ("Symantec") and TST DEVELOPMENT,
L.L.C., a Delaware limited liability company ("TST") with reference to the
following:
A. Symantec and TST are parties to that certain Agreement for Exchange and
Purchase and Escrow Instructions dated as of September 22, 1998 (the
"Agreement").
B. The Agreement was amended pursuant to that certain Amendment No. 1 dated
as of November 4, 1998 ("Amendment No. 1").
C. The parties now desire to further amend the Agreement to further extend
the end of the Feasibility Period.
D. All capitalized terms used in this Amendment No. 2 shall have the same
meaning as defined in the Agreement unless separately defined herein.
AGREEMENT
1. Notwithstanding anything to the contrary in the Agreement or Amendment
No. 1, the end of the Feasibility Period is hereby extended to 5:00 p.m.
PST on December 4, 1998.
2. Except as herein amended, the Agreement remains unchanged and in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 as
of November 20, 1998.
"SYMANTEC" "TST"
SYMANTEC CORPORATION, TST DEVELOPMENT, L.L.C.,
a Delaware corporation a Delaware limited liability company
By: /s/ HOWARD BAIN By: /s/ BRUCE D. SABER
------------------- -----------------------
Name: Howard Bain Name: Bruce D. Saber
Its Its Vice President
-------------------
<PAGE> 1
EXHIBIT 10.03
AMENDMENT NO. 3
TO
AGREEMENT FOR EXCHANGE AND PURCHASE AND ESCROW
INSTRUCTIONS
This AMENDMENT NO. 3 TO AGREEMENT FOR EXCHANGE AND PURCHASE AND ESCROW
INSTRUCTIONS ("Amendment No. 3") is made as of December 4, 1998 by and between
SYMANTEC CORPORATION, a Delaware corporation ("Symantec") and TST DEVELOPMENT,
L.L.C., a Delaware limited liability company ("TST") with reference to the
following:
A. Symantec and TST are parties to that certain Agreement for Exchange and
Purchase and Escrow Instructions dated as of September 22, 1998 ("the
"Agreement").
B. The Agreement was amended pursuant to that certain Amendment No. 1 dated
as of November 4, 1998 ("Amendment No. 1").
C. The Agreement was amended pursuant to that certain Amendment No. 2 dated
as of November 20, 1998 ("Amendment No. 2").
D. The parties now desire to further amend the Agreement to further extend
the end of the Feasibility Period.
E. All capitalized terms used in this Amendment No. 3 shall have the same
meaning as defined in the Agreement unless separately defined herein.
AGREEMENT
1. Notwithstanding anything to the contrary in the Agreement, Amendment No. 1 or
Amendment No. 2, the end of the Feasibility Period is hereby extended to
5:00 p.m. PST on December 15, 1998.
2. Except as herein amended, the Agreement remains unchanged and in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 as of
December 4, 1998.
<TABLE>
<CAPTION>
"Symantec" "TST"
<S> <C>
SYMANTEC CORPORATION, A TST DEVELOPMENT, L.L.C., a
Delaware corporation Delaware limited liability company
By: Derek Witte By: /s/ Steven R. Weckster
------------------------ ------------------------
Name: /s/ Derek Witte Name: Steven R. Weckster
------------------------ ------------------------
Its Its Vice President
------------------------ ------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.04
AMENDMENT NO. 4
TO
AGREEMENT FOR EXCHANGE AND PURCHASE AND ESCROW INSTRUCTIONS
This AMENDMENT NO. 4 TO AGREEMENT FOR EXCHANGE AND PURCHASE AND ESCROW
INSTRUCTIONS ("Amendment No. 4") is made as of December 15, 1998 by and between
SYMANTEC CORPORATION, a Delaware corporation ("Symantec") and TST DEVELOPMENT,
L.L.C., a Delaware limited liability company ("TST") with reference to the
following:
A. Symantec and TST are parties to that certain Agreement for Exchange and
Purchase and Escrow Instructions dated as of September 22, 1998 (the
"Agreement").
B. The parties amended the Agreement to extend the end of the Feasibility
Period pursuant to Amendment No. 1 made as of November 4, 1998
("Amendment No. 1").
C. The parties further amended the Agreement to extend the end of the
Feasibility Period pursuant to Amendment No. 2 made as of November 20,
1998 ("Amendment No. 2").
D. The parties further amended the Agreement to extend the end of the
Feasibility Period pursuant to Amendment No. 3 made as of December 4,
1998 ("Amendment No. 3").
E. The parties now desire to further amend the Agreement as forth below.
F. All capitalized terms used in this Amendment No. 4 shall have the same
meaning as defined in the Agreement unless separately defined herein.
AGREEMENT
1. ELECTION TO PROCEED. By executing this Amendment No. 4: (i) Symantec shall be
deemed to have given its Election to Proceed with respect to CCC2 in
satisfaction of the condition set forth in Section 5.4.1.1 of the Agreement, and
(ii) TST shall be deemed to have given its Election to Proceed with respect to
CCC5 and WHQ pursuant to Section 5.3.1.1 of the Agreement.
1.1. INVESTIGATION. In giving such Elections to Proceed, each of
Symantec and TST acknowledge that, pursuant to the Agreement, each of
them has had the right to acquire the respective Property since the
Agreement Date and during the Feasibility Period, each of them has been
permitted to inspect conditions with regard to such Property by
reviewing matters affecting entitlements to develop the Property and by
conducting such feasibility investigations, studies and analyses thereon
or thereabout as each of them, in their sole discretion has deemed
appropriate and, without limiting the generality of the foregoing, the
condition of title of the Property.
1.2. PROCEED PURSUANT TO AGREEMENT. Based upon all such review and such
feasibility investigations, studies and analyses conducted by the
respective parties, Symantec hereby elects to proceed with the
acquisition of CCC2 and TST hereby elects to proceed with the
acquisition of CCC5 and WHQ, each in accordance with and subject to the
terms of the Agreement as amended.
<PAGE> 2
2. TITLE. Symantec (as to CCC2) and TST (as to CCC5 and WHQ) agree at the First
Closing with respect to CCC2 and CCC5 and at the Second Closing with respect to
WHQ, subject to the terms of the Agreement as amended, to accept title to the
Property in the condition of the following Pro Forma Title Policies issued by
First American Title Insurance Company under the following order numbers
pertaining to the particular Property identified below, copies of each of which
are attached hereto:
CCC2: 515343 dated December 10, 1998 (the "CCC2 Pro Forma");
CCC5: 515342 dated November 2, 1998 (the "CCC5 Pro Forma");
WHQ: 515341 dated November 2, 1998 (the "WHQ Pro Forma").
3. ADDITIONAL DEPOSIT FIRST. Section 2.2.20.1.2 "Additional Deposit First CCC5
and CCC2" is hereby amended to increase the amount of Additional Deposit First
with respect to each of CCC5 and CCC2 to Nine Hundred Fifty Thousand Dollars
($950,000) making the total Deposit for each of CCC5 and CCC2 equal to One
Million Dollars ($1,000,000). Section 4.2.1.2 is likewise hereby amended to
increase the respective amounts payable as Additional Deposits.
4. PURCHASE PRICE CCC5.
4.1. EXCHANGE VALUE. The Basic Information in Article 1 of the
Agreement is amended for the Item designated as "Exchange
Value/Purchase Price" for the column headed "CCC5" to read as
follows:
"Fee title to CCC2 plus $1,325,000"
4.2. SECTION 4.2.1.3 "CLOSING". Section 4.2.1.3 of the Agreement
is hereby amended to amend subsection (iii) and add subsection
(iv) to read as follows:
"(iii) (a) The Initial Deposit and the Additional Deposit with
respect to CCC2 together with any interest earned thereon shall
be returned to the party designated by Symantec and (b) the
Initial Deposit and the Additional Deposit with respect to CCC5
together with any interest earned thereon shall be applied in
partial satisfaction of TST's obligation in subsection (iv)
immediately following; and
(iv) TST shall deposit for release to the party designated by
Symantec immediately following the Closing the sum of One
Million Three Hundred Twenty-Five Thousand Dollars ($1,325,000)
less the Deposit amounts identified in subsection (iii)(b)
immediately preceding."
4.3. SECTION 2.2.20.2.2 "ADDITIONAL DEPOSIT FIRST WHQ". Section
2.2.20.2.2 of the Agreement is hereby deleted.
5. WHQ PRICE AND LIQUIDATED DAMAGES.
5.1. PURCHASE PRICE.
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<PAGE> 3
5.1.1. BASIC INFORMATION. The Basic Information in Article 1 of
the Agreement is amended for the Item designated as "Exchange
Value/Purchase Price" for the column headed "WHQ" to read as
follows:
"$16,175,000", and
for the Item designated as "Additional Deposit First: for the
column header "WHQ" to read as follows:
"0"
5.1.2. SECTION 2.2.29 WHQ PURCHASE PRICE. Section 2.2.29 of the
Agreement is hereby amended to read as follows:
"Sixteen Million One Hundred Seventy-Five Thousand Dollars
($16,175,000)."
5.1.3. SECTION 4.2.2.1 DEPOSIT.
Section 4.2.2.1 of the Agreement is hereby amended to delete the
second sentence thereof (regarding the requirement for
Additional Deposit WHQ).
5.2. LIQUIDATED DAMAGES. Section 8.6 of the Agreement (Default by TST As
to WHQ) is hereby amended to delete subsection B of said Section 8.6
6. ESCROW AND CLOSING.
6.1. ESCROW. Section 2.2.22 is hereby amended to read as follows:
"2.2.22 "Escrow". The following Escrows have been opened with
Escrow Holder:
2.2.22.1 "Escrow Exchange". The Escrow opened for the
exchange of CCC5 and CCC2 under Escrow Numbers: 515342
and 515343.
2.2.22.2 "Escrow WHQ." The Escrow opened for the sale of
WHQ under Escrow Number: 515341.
2.2.23 "Escrow Holder". First American Title Guaranty
Company, 1737 N. First Street, San Jose, CA 95112,
Attention: Carol Weir ("Escrow Officer").
6.2. FIRST CLOSING SCHEDULED DATE. Section 2.2.31.1 is hereby amended to
provide that the date of the First Closing shall be February 2, 1999.
7. CONDITION OF BUILDING CCC5. The Certificate of Substantial Completion has
been received from the Building CCC5 Architect and the Building CCC5 Contractor,
and a Temporary Certificate of Occupancy for Building CCC5 has been issued by
the City. Copies of the Certificate of Substantial Completion have been
delivered to TST.
7.1. PRELIMINARY ACCEPTANCE OF BUILDING CCC5. In lieu of delivering the
Building CCC5 Preliminary Acceptance in the form of Exhibit M to the
Agreement as
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<PAGE> 4
contemplated by Sections 5.3.2.1 and 5.4.13 of the Agreement, TST hereby
acknowledges as follows:
Following notice from Symantec that Substantial Completion of Building
CCC5 occurred, TST has (i) reviewed the Certificate of Substantial
Completion including the Punchlist attached thereto, and (ii) walked
through and otherwise investigated the condition of Building CCC5
utilizing such personnel and consultants as TST has deemed appropriate.
Based upon such review and investigation, TST hereby acknowledges TST's
acceptance of Building CCC5 subject to Final Completion.
7.2. BUILDING CCC5 FINAL COMPLETION. Section 2.2.9 of the Agreement is
hereby modified to read as follows:
2.2.9. "Building CCC5 Final Completion." As a result of the Preliminary
Acceptance acknowledgement set forth in Section 7.1 of this Amendment
No. 4, TST and Symantec have agreed that with respect to the First
Closing Condition required by Section 5.4.2.2 of the Agreement, Building
CCC5 Final Completion shall have occurred when all of the following have
occurred:
(i) Symantec Completion Covenant. At the expense of Symantec or
parties other than TST, Symantec agrees to use its diligent
efforts to cause the completion (the "Symantec Completion
Covenant") prior to the First Closing Scheduled Date the
construction items specified in subsection (ii) below (the
"Remaining Construction Items"). In order to satisfy the
Symantec Completion Covenant either (a) or (b) below of this
subsection (i) shall have occurred:
(a) The Remaining Construction Items have been completed to
TST's reasonable satisfaction or
(b) if TST reasonably believes that one or more of such
construction items have not been properly completed, TST
has
(1) given notice to Symantec not later than five (5)
business days prior to the First Closing
Scheduled Date specifying as follows: (x) with
particularity which items TST believes have not
been properly completed, (y) the reasons for
such belief and (z) the amount TST estimates
should be reserved not to exceed Thirty Five
Thousand Dollars ($35,000) (the "Completion
Reserve) in order to properly complete such
items, and
(2) Symantec or its designee has instructed Escrow
Holder to disburse to TST from funds otherwise
payable to Symantec or its designee a sum equal
to the Completion Reserve.
(ii) Remaining Construction Items. The following are the Remaining
Construction Items which are the subject of the Symantec
Completion Covenant:
(a) only those items shown on Schedule 1 to this Amendment
No. 4, and
(b) TST agrees that unless a construction item is identified
on Schedule 1 (even if such item is otherwise shown on
the Punchlist attached to the Certificate of Substantial
Completion), the completion of such item shall
4
<PAGE> 5
not be a condition to achieving Building CCC5 Final
Completion even if such items are shown on the Building
CCC5 Plans or covered by the Building CCC5 General
Contract; provided that nothing set forth in this
Subsection (i) shall be deemed a waiver by TST of any
warranty claims against the Building CCC5 General
Contractor.
(iii) Payment of Subcontractors. All subcontractors and material
suppliers with respect to portions of the "Work" (as defined in
the CCC5 General Contract) completed prior to the date hereof or
required to be completed pursuant to Subsection (i) above, have
been paid (or, in the event of a dispute over such payment, an
appropriate bond has been posted or funds set aside in a manner
reasonably acceptable to TST and the Title Company for payment
to such subcontractors and material suppliers when such dispute
in finally resolved);
(iv) Certificate of Payment. A final "Certificate of Payment" (as
defined in Section 9.10 of the General Conditions to the
Building CCC5 General Contract) has been issued by the Building
CCC5 Architect with respect to the portions of the Work
described in Subsection (ii) above; and
(v) Lien Waivers. Copies of those final waivers and releases of
mechanics liens then having been obtained by Symantec from
subcontractors and material suppliers are furnished to TST.
(vi) Completion of Remaining Construction Items Not a Condition to
First Closing. Although Symantec has given the Symantec
Completion Covenant, TST agrees that completion of the Remaining
Construction Items shall not be a condition to the First Closing
so long as either (a) or (b) of subsection (i) above has been
satisfied.
(vii) Completion Reserve. In the event a Completion Reserve is
established, Symantec shall have no further responsibility for
completion of any of the Remaining Construction Items whether or
not TST believes they have been properly completed prior to the
First Closing Scheduled Date, and TST shall accept the
Completion Reserve as TST's sole remedy on account of such
alleged failure to properly complete. If Symantec disagrees with
TST as to whether any particular Remaining Construction Items
were properly completed, then following the First Closing,
Symantec and TST agree to attempt to reach agreement with regard
to such disagreement and the amount, if any, to be retained by
TST out of the Completion Reserve. If Symantec and TST are
unable to reach agreement within sixty (60) days following the
First Closing, then either of them may submit the issue to
binding arbitration pursuant to the applicable rules of the
American Arbitration Association with the venue for any
arbitration proceeding to be within either San Francisco or
Santa Clara County, California.
8. APPLE LEASE TERMINATION. With regard to that certain Lease Termination
Agreement dated as of November 20, 1998 which has been previously executed by
Apple Computer, as soon as possible following the execution hereof, Symantec
will deliver a copy of such Lease Termination Agreement executed by Symantec and
Apple and TST will deliver a copy of such Lease Termination Agreement executed
by Travelers. It is intended that such Lease Termination Agreement be delivered
to the parties thereto, including, without limitation, Apple, following the
execution of this Amendment No. 4 in
5
<PAGE> 6
order to create a binding agreement between the parties thereto. TST has been a
party to the negotiation and preparation of such Lease Termination Agreement in
conformance with Section 5.2.1.8.2 of the Agreement, and TST hereby approves the
terms and conditions of the Lease Termination Agreement. Each of Symantec and
TST hereby confirm their agreement set forth in Section 5.2.1.8.2 of the
Agreement to contribute at the First Closing Two Hundred Thousand Dollars
($200,000) each toward the total Termination Payment of Four Hundred Thousand
Dollars ($400,000) to be paid to Apple Computer pursuant to the Lease
Termination Agreement.
9. SERVICE CONTRACTS. Attached hereto are Schedules 4, 5 and 6 dealing with
Service Contracts. With respect to each of such Schedules, the applicable
Transferor Party has listed each of those Service Contracts existing as of the
date of this Amendment No. 4. In turn and pursuant to Section 7.3.4.1 of the
Agreement, each Transferee Party has indicated as to each listed Service
Contract whether such Transferee Party desires that such Service Contract be
assigned to and be assumed by such Transferee party as of the applicable Closing
or that the applicable Transferor Party agree to either terminate such Service
Contract or be responsible for any such Service Contract not assumed and not
terminated at no cost to the applicable Transferee Party. Those Service
Contracts to be assigned to and assumed by a Transferee Party shall be
enumerated on Schedule A to the Assignment and Assumption of Obligations
(Exhibit I to the Agreement) as of the applicable Closing.
10. PARKING RELOCATION-CCC5. TST is aware of that certain Parking Easement and
Relocation Agreement recorded February 5, 1997 as Instrument No. 13602281 that
encumbers CCC5 and identified as item 21 in the Proforma Schedule B to the CCC5
Pro Forma (the "Parking Easement and Relocation Agreement"). Pursuant to Section
3a of the Parking Easement and Relocation Agreement, upon completion of the
"Symantec Parking Facilities" (as therein defined), the owner of the "Lot 5
Property" (as therein defined) shall give written notice to the "Permittees" and
others as defined and specified therein specifying the date upon which such
relocation to the Symantec Parking Facilities shall be effective, and setting
forth the identification numbers and floor location of the parking spaces in the
Symantec Parking Facilities initially allocated to the "Benefited Property" (as
therein defined), if only assigned spaces are to be used by such Permitees. The
completion of the Symantec Parking Facilities as defined in the Parking Easement
and Relocation Agreement is close at hand and is likely to occur prior to the
First Closing. Symantec hereby agrees that if Symantec intends to give notice of
the relocation to the Symantec Parking Facilities pursuant to such Section 3a
prior to the First Closing, TST shall have the right to approve any such notice,
which approval shall not be unreasonably withheld. If such notice is not given
by Symantec prior to the First Closing, TST agrees that a notice shall be given
by TST concurrently and as a condition to the First Closing.
11. CREDITS AND ADJUSTMENTS. During the Feasibility Period, each of Symantec and
TST, as a result of their respective investigations of the Properties, have
asserted that the other should be responsible for one or more items or repair or
construction with respect to the Properties. Each of Symantec and TST have now
agreed that neither of them shall have any responsibility prior to or after
Closing to undertake any repair or construction except (i) as specifically set
forth in Schedule 1 to this Amendment No. 4, or (ii) as
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<PAGE> 7
necessary to comply with the requirements of Section 7.3 of the Agreement
("Operations of the Projects"). Without limiting the generality of the
foregoing, Symantec and TST specifically agree that Symantec shall have no
responsibility for any public art requirement imposed by the City with respect
to Building CCC5 and TST hereby agrees to assume such public art requirement. In
consideration therefor, at the First Closing, Symantec shall fund One Hundred
Thousand Dollars ($100,000.00) of TST's Apple termination payment.
12. CITY ISSUES. From time to time during the Feasibility Period, TST or its
consultants have raised certain concerns relating to City entitlements and
approvals relating to the CCC5 Building, including, without limitation, issues
relating to (i) an alleged requirement that Symantec occupy the CCC5 Building in
light of the special square footage allocations granted by the City for the CCC5
Building (the "Occupancy Issue"), (ii) the adequacy of parking within the CCC5
Building (the "Parking Issue"), and (iii) any requirement that an improved
pedestrian connection be created between the CCC5 Building and WHQ (the "Yellow
Brick Road Issue"). In executing this Amendment No. 4, TST is doing so after
having a complete opportunity to satisfy itself as to the Occupancy Issue, the
Parking Issue, the Yellow Brick Road Issue, and any other issue relating to the
City and the City's approval of Building CCC5. TST hereby accepts the status of
City entitlements and approvals and waives any condition whatsoever based upon
such issues. Symantec covenants and agrees to take such actions and pay, or
cause to be paid, such sums as are necessary in order to comply with Resolution
98-294 of the City.
13. SUBDIVISION IMPROVEMENTS. From and after the date of this Amendment No. 4,
Symantec shall cause to be completed to the satisfaction of City all subdivision
improvements required to be completed by Symantec pursuant to that certain
Agreement (De Anza Blvd-Symantec-Tract 7953 Lot 5) by and between the city of
Cupertino and Symantec and requiring Symantec to complete certain sidewalk
improvements pursuant to the plans and specifications prepared by Kier and
Wright, and, among other things, to post a bond in the amount of $27,000 to
cover the maximum estimated cost of such improvements (the "Sidewalk
Improvements"), and shall perform from and after the First Closing all warranty
repairs as may be required by City to the Sidewalk Improvements. The provisions
of this Section 13 shall survive the First Closing.
14. MISCELLANEOUS COVENANTS OF TST.
14.1. GRANT DEED (CCC2). The legal description attached hereto as
Schedule 3 shall be attached as Exhibit A to Exhibit B-2 to the
Agreement (Grant Deed-CCC2)
14.2. TST OBLIGATIONS RE AMENDMENT NO. THREE TO MASTER DECLARATION. TST
is aware that on February 7, 1997 there was recorded in the Official
Records of Santa Clara County as Instrument No. 13605375 a document
entitled Amendment No. 3 to Declaration of Covenants, Conditions and
Restrictions and Grant of Easements for Cupertino City Center
("Amendment No. 3 to Master CCR's"). Amendment No. 3 to Master CCR's
reserves unto Symantec or the Owner of CCC5 certain rights and benefits
relating to such Master CCR's and the Cupertino City Center Owner's
Association. Such rights and benefits obtained by Symantec through
Amendment No.
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<PAGE> 8
3 to Master CCR's are rights and benefits desired by Symantec with
respect to its ownership of CCC2. TST hereby covenants that TST shall
agree to accord to Symantec with respect to CCC2 the same rights and
benefits under Amendment No. 3 to CCR's as Symantec now enjoys with
respect to CCC5. In furtherance of such covenant, TST and Symantec
agree, as of the First Closing, to enter into the covenant running with
the land in the form of Schedule 7 to this Amendment No. 4.
15. ASSIGNMENT AND ASSUMPTION OF OBLIGATIONS.
15.1. SCHEDULE A LISTS OF CONTRACTS TO BE ASSUMED. The Agreement
requires an Assignment and Assumption of Obligations in the form
attached to the Agreement as Exhibit I to be delivered at the First
Closing and the Second Closing. Exhibit I contemplates that the parties
will attach to the form of Exhibit I delivered at each such Closing a
Schedule A identifying the "Contracts" to be specifically assigned to
and assumed by the respective Transferee Party. Attached hereto as
Schedules 12, 13 and 14 are the completed Schedule A to be attached to
the Assignment and Assumption of Obligations for CCC5, CCC2, and WHQ
respectively. The Contracts listed are intended to include all
amendments and change orders thereto through the date of this Amendment
No. 4 plus all change orders between the date hereof and Closing
approved by the Assignee thereof.
15.2. ASSIGNOR RESPONSIBLE FOR AMOUNTS OWING FOR WORK PRIOR TO CLOSING.
With respect to all such "Contracts" to be so assumed in connection with
each respective Assignment and Assumption of Obligations, it is
specifically agreed that the Assignor party shall either (i) have paid
all amounts due under the assigned Contracts for work under such
Contracts undertaken prior to the date of Closing or (ii) shall have, by
executing this Amendment No. 4, agreed to be responsible for the payment
of all amounts due under the assigned Contracts for work under such
Contracts undertaken prior to the date of Closing but not fully paid as
of the date of Closing.
16. COUNTERPARTS. This Amendment No. 4 may be executed in one or more
counterparts pursuant to the Agreement.
17. NO FURTHER AMENDMENT. Except as herein and heretofore amended, the Agreement
remains unchanged and in full force and effect.
18. CCC5 SIGNAGE. Immediately following the mutual execution of this Amendment
No. 4, Symantec will remove all signage from the Property identifying
Sares-Regis as Symantec's project developer, and TST shall have the right to
erect leasing and marketing signs on CCC5.
19. BUILDING CCC5 GENERAL CONTRACT DEFINITION. The definition of "Building CCC5
General Contract" set forth in the Agreement at Section 2.2.10 is hereby amended
to add to Exhibit O to the Agreement the following:
"Webcor change orders #2, 3, and 4 as forwarded to TST (Tom Shapiro, Thomas
Feldstein and General Counsel Tishman Speyer Properties, LP) via Federal Express
on November 30, 1998 and those Webcor Change Orders through Webcor Change Order
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<PAGE> 9
No. 70 as shown on the Webcor Builders Change Estimate Log faxed to Thomas
Feldstein on December 16, 1998."
20. CONSENT TO ASSIGNMENT OF ARCHITECT'S AGREEMENT. Exhibit P-2 to the Agreement
is hereby modified by adding the following sentence:
"Owner hereby reconfirms and agrees to all of the duties and obligations it
assumed under the Architect's Agreement."
21. CONSENT TO ASSIGNMENT OF BUILDING CCC5 GENERAL CONTRACT. Exhibit P-1 of the
Agreement is hereby modified by adding the following at the end of paragraph 1
thereof:
"; provided, however, that the warranty for equipment shall be twelve (12)
months."
22. BILL OF SALE AND GENERAL ASSIGNMENT. Paragraph 1 of Exhibit R to the
Agreement (Form of Bill of Sale and General Assignment) is hereby amended to
read as follows:
"1. All fittings, equipment, machinery, fixtures of every kind and character
owned by Assignor and affixed to the Property, without limitation, specifically
including and excluding those items identified on Schedule 1 as "Included" or
"Excluded" attached hereto. Specifically excluded from this assignment is all
personal property of every kind and character owned by Assignor and placed or
situated upon the Property, except those items of personal property owned by
Assignor, situated on the Property and used in connection with the operation of
the Property and specifically identified on Schedule 1;"
Schedules 8, 9, and 10 attached to this Amendment No. 4 identify with respect to
each Property items that are specifically to be "Included" and those items that
are specifically to be "Excluded". Schedule 11 attached to this Amendment No. 4
identifies those items of personal property used in connection with the
operation of the Properties which are to be assigned to the Transferor Party at
the applicable Closing.
23. MANAGEMENT OF CCC5 CONSTRUCTION. Pursuant to Section 7.3.1 of the Agreement,
Symantec undertook to manage the construction of Building CCC5 in accordance
with the provisions of such Section 7.3.1. In executing this Amendment, TST
acknowledges that to the date hereof, Symantec has complied to TST's
satisfaction with the requirements of such Section 7.3.1. Symantec hereby
represents that no change orders in addition to (i) those set forth in Exhibit O
to the Agreement (as amended by Section 19 of this Amendment No. 4) or (ii) any
change order issued in connection with the completion of the Remaining
Construction Items for the fulfillment of the Symantec Completion Covenant will
be entered into by Symantec unless TST's prior consent has been obtained.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 4 as of
December 15, 1998.
"SYMANTEC" "TST"
SYMANTEC CORPORATION, TST DEVELOPMENT, L.L.C., a Delaware
Delaware corporation limited liability company
By: /s/ HOWARD BAIN By: /s/ BRUCE SABER
-------------------------------- --------------------------------------
Name: Howard Bain Name: Bruce Saber
------------------------------ ------------------------------------
Its Its Vice President
-------------------------------- --------------------------------------
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SCHEDULE 1
SYMANTEC CONSTRUCTION ITEMS
MEMORANDUM
- --------------------------------------------------------------------------------
Date: 11/2/1998
Revised 11/19/1998
Revised 12/2/1998
Revised 12/11/1998
Revised 12/14/1998
To: Carl Shannon
From: Michael Lambert
Re: Symantec CCC5
- --------------------------------------------------------------------------------
The following list of deficiencies is a result of my site visits to the Symantec
CCC5 project in Cupertino. The following list describes all punchlist items know
and outstanding to date and now incorporates the outstanding items from the HOK
project punchlist dated 10/9/98 that accompanied the Certificate of Substantial
Completion
GENERAL NOTES:
1. Stacked telephone rooms need to have either 4" conduit sleeves
between rooms that have been firesafed or have a concrete
knock-out in the deck. (work is ongoing)
2. TSP to schedule acoustical consultant visit to project to
determine if there are any acoustical or vibration issues at the
rooftop mechanical rooms and adjacent spaces. The concern comes
from the fact that the pipes feeding the chillers are not
mounted on isolation mounts. The worst case solution would be to
install insulation mounts on the pipes feeding the chillers.
Simpler solutions may be possible.
3. Consolidated and outstanding HOK Punchlist items carried on this
Punchlist
o Elevator 3 is not complete, has a low ceiling and has not been reviewed
o Elevator 4 & 5 is not complete and has not been reviewed
o Room 107 - door 107A to the outside needs to have panic hardware removed
and deadlock installed on the operating leaf. Plywood needs to be
removed.
ROOM ITEM
FIRST FLOOR
108 Carpet inset edges need correction
115 Replace standard toilet compartment stall door due to scratch and dent
in door.
119 Vinyl Base needs to be completed
SECOND FLOOR
205 Handicapped toilet partition door damaged at latch mechanism. Replace
door.
THIRD FLOOR
All items completed
<PAGE> 12
FOURTH FLOOR
All items completed
STAIRS
All items completed
FIFTH FLOOR (MECHANICAL PENTHOUSE)
o Need to verify that chiller does not emanate unacceptable noise
and vibration to tenant space below mechanical rooms.
o Chillers are on isolation mounts but piping supports to chiller
piping appear to short circuit isolation flex connections.
GARAGE (ALL LEVELS)
o Drainage lines that run down the face of columns need guards to
protect them from vehicle damage.
o Add bollards to protect electrical / mechanical equipment in basement
and relocate selected bollards to provide more adequate protection.
PENTHOUSE
All items completed
EXTERIOR
All items completed
SITE
o Planter walls in plaza area have cracks which need patching.
Method of patching discussed with the general contractor is to
paint all planter wall with an elastomeric coating system (Text
Coat), color to match existing building exterior wainscot.
o Planting strip adjacent to the DeAnza sidewalk at the southwest
corner of the property remains un-planted.
o Front steps and railing have been corrected. Control joints for
this work need sealant.
<PAGE> 13
SCHEDULE 2
PARKING RELOCATION NOTICE
[INTENTIONALLY OMITTED]
<PAGE> 14
SCHEDULE 3
LEGAL DESCRIPTION FOR CCC2
REAL PROPERTY in the City of CUPERTINO, County of Santa Clara, State of
California, described as follows:
PARCEL ONE:
Lot 2 as shown on that certain Map of Tract No. 7734 filed October 9,
1985 in Book 550 of Maps, pages 24, 25 and 26, Records of Santa Clara
County.
Excepting therefrom the underground water rights conveyed to California
Water Service Company, a California corporation by Deeds recorded July
11, 1984 in Book I709, page 320 of Official Records and September 7,
1984 in Book I859, page 185 of Official Records.
PARCEL TWO:
All easements, rights, benefits and privileges described in that certain
Declaration of Covenants, Conditions and Restrictions and Grants of
Easements for Cupertino City Center, recorded October 9, 1985 in Book
J482, page 1907, Official Records, as amended by First Amendment to
Declaration of Covenants, Conditions and Restrictions and Grant of
Easements for Cupertino City Center, recorded September 2, 1987, in Book
K281, page 2071, Official Records, appurtenant to Parcel One above.
PARCEL THREE:
A non-exclusive easement for the benefit of Parcel One above, its
owners, successors, assigns, employees, tenants, and invitees, for the
parking of 494 automobiles in the commercial parking structure located
on lot three as shown on that certain Map of Tract No. 7734 recorded in
Book 550, Pages 24, 25 and 26, Official Records of the County of Santa
Clara, and more particularly described as Parcel A of that certain Map
of Tract No. 7870, recorded in Book 573, Pages 21 and 22, Official
Records of the County of Santa Clara, as granted in that certain
TRUSTEE'S DEED UPON SALE, recorded in Book N936, Page 132, Official
Records of the County of Santa Clara.
Together with a non-exclusive easement across Parcel A for vehicular
ingress to and egress from such parking structure.
PARCEL FOUR:
An easement over that certain real property described as Lot 5 as shown
on that certain map of Tract No. 7734 filed October 9, 1985 in Book 550
of Maps, pages 24, 25 and 26, Official Records of Santa Clara County for
an encroachment of certain improvements all as more particularly
described in that certain Grant of Encroachment Easement between
Cupertino City Center Owners Association, as grantor and Cupertino City
Center Associates D, as grantee, recorded on February 26, 1987,
Instrument No. 9172700, in Book K052, page 518, Official Records of
Santa Clara County.
<PAGE> 15
SCHEDULE 4
SERVICE CONTRACTS (CCC5)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
EXISTING SERVICE CONTRACTS TO BE TERMINATED TO BE ASSUMED
(List those Service Contracts (If Transferor Party (If Transferee Party
existing as of the date of Amendment should terminate or be intends to assume a
No. 4) responsible for a Service Service Contract,
Contract, check here) check here)
- ---------------------------------------------------------------------------------------------
Pacific Auxiliary Fire Alarm (fire X
alarm monitoring)
- ---------------------------------------------------------------------------------------------
Dover Elevator (elevator If Dover executes and
maintenance) delivers the form of
contract presented
to TST, TST will assume
such contract
- ---------------------------------------------------------------------------------------------
Soundnet (elevator phone monitoring) X
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
SCHEDULE 5
SERVICE CONTRACTS (CCC2)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
EXISTING SERVICE CONTRACTS TO BE TERMINATED TO BE ASSUMED
(List those Service Contracts (If Transferor Party (If Transferee Party
existing as of the date of Amendment should use its best intends to assume a
No. 4) efforts to terminate a Service Contract,
Service Contract, check check here)
here)
- ---------------------------------------------------------------------------------------------
None
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
SCHEDULE 6
SERVICE CONTRACTS (WHQ)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
EXISTING SERVICE CONTRACTS TO BE TERMINATED TO BE ASSUMED
(List those Service Contracts (If Transferor Party (If Transferee Party
existing as of the date of Amendment should use its best intends to assume a
No. 4) efforts to terminate a Service Contract,
Service Contract, check check here)
here)
- ---------------------------------------------------------------------------------------------
Cummins West (generator maintenance) X
- ---------------------------------------------------------------------------------------------
Industrial Landscape Services X
(landscape maintenance)
- ---------------------------------------------------------------------------------------------
Protection Service Industries X
- ---------------------------------------------------------------------------------------------
United States Elevator X
- ---------------------------------------------------------------------------------------------
Cal-Air X
- ---------------------------------------------------------------------------------------------
Loma Cleaning Service X
- ---------------------------------------------------------------------------------------------
T&R Cabling X
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 18
SCHEDULE 7
COVENANT RUNNING WITH THE LAND RE
AMENDMENT NO. 3 TO MASTER CCR'S
WHEN RECORDED RETURN TO:
Symantec Corporation
10201 Torre Ave
Cupertino, CA 95014
Attn: Ruth Gaube, Esq.
- --------------------------------------------------------------------------------
DECLARATION OF AGREEMENT AND COVENANTS RUNNING WITH THE LAND REGARDING
AMENDMENTS TO CUPERTINO CITY CENTER MASTER DECLARATION
THIS DECLARATION OF AGREEMENT AND COVENANTS RUNNING WITH THE LAND
REGARDING AMENDMENTS TO CUPERTINO CITY CENTER MASTER DECLARATION (the
"Agreement") is made this ____ day of ________, 1999, by Symantec Corporation, a
Delaware corporation ("Symantec"), Sumitomo Bank Leasing and Finance, a Delaware
corporation ("Sumitomo") and TST Development, L.L.C., a Delaware limited
liability company ("TST").
R E C I T A L S
A. TST is the fee owner of certain real property located in the
City of Cupertino, County of Santa Clara, State of California,
described as Lot 5 of Tract No. 7953, per map recorded in Book
571, Pages 36 and 37 of the records of the Santa Clara County
Recorder ("Lot 5").
B. Sumitomo is the fee owner of certain real property located in
the City of Cupertino, County of Santa Clara, State of
California, described as Lot 2 of Tract No. 7734, per map
recorded in Book 550, Pages 24, 25 and 26 of the records of the
Santa Clara County Recorder ("Lot 2 ").
C. Symantec Corporation, a Delaware corporation ("Symantec") is the
lessee of Lot 2.
D. A Declaration of Covenants, Conditions and Restrictions and
Grant of Easements for Cupertino City Center was recorded
October 9, 1985, in Book J482, Page 1907, as amended
(collectively, the "Declaration").
E. Section 2.4.2 of the Declaration provides that it may be amended
for the purpose of terminating the Class B Membership of the
Association (the "Class B Membership") by the written assent of
each of the following: (i) Cupertino City Center Associates B, a
California limited partnership
<PAGE> 19
("CCCB"), (ii) Cupertino City Center Associates C, a California
limited partnership and (iii) Cupertino City Center Associates
D, a California limited partnership ("CCCD").
F. Cupertino City Center Associates C, a California limited
partnership was merged into CCCD.
G. Amendment No. 3 to Declaration of Covenants, Conditions and
Restrictions and Grant of Easements for Cupertino City Center
was recorded February 7, 1997 as Document No. 13605375 in the
Official Records of Santa Clara County ("Amendment No. 3").
H. Pursuant to Amendment No. 3, CCCB and CCCD, agreed to certain
covenants as particularly set forth in paragraphs 1 (the
"Paragraph 1 Covenants"), 2 (the "Paragraph 2 Covenants") and 3
(the "Paragraph 3 Covenants") of Amendment No. 3 (the "Amendment
No. 3 Covenants") and summarized as follows:
o (i) relating to the termination of the Class B
Membership; and
o (ii) requiring, prior to the termination of the Class B
Membership, the written approval of the owner of Lot 5
in order to: (x) amend the Declaration or to permit the
Association to take any action which would adversely
impact the exercise of certain specified rights set
forth in paragraph 3(a) of Amendment No. 3 or (y) impose
rules and regulations against the owner of Lot 5 or
which are not imposed uniformly against all "Owners" (as
defined in the Declaration) pursuant to paragraph 3(b)
of Amendment No. 3.
I. Symantec will hereafter hold its leasehold interest in and
Sumitomo will hereafter hold its fee title in and to Lot 2 and
TST will hereafter hold its fee title in and to Lot 5, subject
to the covenants herein set forth which shall inure to the
benefit of and burden each of Sumitomo and Symantec, and the
successors in interest as to Lot 2 and TST and its successors in
interest as to Lot 5, and shall run with Lot 5 and Lot 2, all as
hereinafter set forth.
NOW, THEREFORE, Sumitomo, Symantec and TST hereby covenant, agree and
declare that all of their respective interests in Lot 5 and Lot 2 shall be held
and conveyed subject to the respective burdens and benefits of the following
covenants the enjoyment of which are hereby declared to be for the benefit of
each of Lot 5 and Lot 2, and the owners of said interests, their successors and
assigns and the covenants which are hereby declared to be for the benefit of
each of Lot 5 and Lot 2 as described herein, and the owners of said interests,
their successors and assigns.
<PAGE> 20
COVENANTS AND AGREEMENTS RE AMENDMENTS TO DECLARATION
1. AMENDMENT NO. 3 COVENANTS. TST hereby covenants and agrees as follows with
respect to the Amendment No. 3 Covenants:
1.1. PARAGRAPH 1 COVENANTS. TST concurs that it is desirable that the
Class B membership be terminated at the earliest possible date. In
furtherance thereof, TST agrees that if, prior to December 31, 1999, an
amendment to the Declaration terminating the Class B Membership prior to
December 31, 1999 is presented for TST's approval , TST agrees to grant
such approval; provided, however, if such amendment includes issues in
addition to the termination of the Class B Membership which additional
issues TST reasonably believes will have a materially adverse impact on
Lot 5, TST shall not be obligated to grant such approval.
1.2. PARAGRAPH 3 COVENANTS. Until the termination of the Class B
Membership, the written approval of the owner of Lot 2 shall be required
before the owner of Lot 5 grants any approval required by the Paragraph
3 Covenants if the issue for which such approval is required will
materially adversely impact or materially discriminate against the owner
of Lot 2.
GENERAL PROVISIONS
1. NO WAIVER. Failure to enforce any provision, term or condition of this
Agreement in any instance or on any particular occasion shall not be deemed a
waiver of such right on that or any such future breach of the same or any other
provision, term or condition of this Agreement.
2. CUMULATIVE REMEDIES. All rights, options and remedies of the owner of Lot 5
or Lot 2 shall be cumulative and such party shall have the right to pursue any
one or all of such rights, options and remedies or any other remedy or relief
which may be provided by law or in equity, whether or not stated in this
Agreement.
3. SEVERABILITY. Invalidation of any one or a portion of the provisions, terms
or conditions of this Agreement by judgment or court order (including
arbitration) shall in no way affect any other provisions, which shall remain in
full force and effect.
4. COVENANTS TO RUN WITH THE LAND; TERM; AUTOMATIC EXPIRATION OF EFFECT. The
covenants, conditions and restrictions described herein shall run with the
property described herein as being burdened and benefited therewith, but shall
terminate as of 12 midnight on December 31, 1999 (the "Termination Date"). As of
the Termination Date, the agreements, covenants, conditions and restrictions set
forth herein and created hereby shall be of no further force or effect.
Following the Termination Date, this Agreement shall NOT be an encumbrance on
title for either of Lot 5 or Lot 2, and the parties hereto agree that it shall
NOT be necessary to record any subsequent document in order to cause this
Agreement to be removed as an encumbrance on title.
<PAGE> 21
5. CONSTRUCTION. The Article and Section headings have been inserted for
convenience only, and shall not be considered or referred to in resolving
questions of interpretation or construction.
6. NUMBER AND GENDER. Whenever the context of this Agreement requires the same,
the singular shall include the plural and the masculine shall include the
feminine and the neuter.
7. ATTORNEYS' FEES.
7.1. ADVERSARIAL ACTIONS. Should any party institute any action or
proceeding (i) to enforce or interpret this Agreement, (ii) for damages by
reason of any alleged breach of this Agreement or of any provision thereof, or
(iii) for a declaration of rights under this Agreement, the prevailing party in
any such action or proceeding shall be entitled to receive from the other party
or parties thereto all attorneys' and other fees incurred by the prevailing
party in connection with such action or proceeding.
7.2. DEFINITIONS. The term "attorneys' and other fees" shall mean and
include actual attorneys' fees (whether by retainer, salary or otherwise),
accountants' fees, expert witnesses' fees, and any and all other similar fees,
costs and expenses incurred in connection with the action or proceeding and
preparations therefor (which actual fees may be in excess of what a court would
determine to be reasonable, had such issue been presented to the court). The
term "action or proceeding" shall mean and include actions, proceeds, suits,
arbitrations, appeals and other similar proceedings and other nonjudicial
dispute resolution mechanisms.
8. NOTICES. Except as otherwise provided in this Agreement, any notice to be
given pursuant to this Agreement shall be in writing and shall be deemed to have
been properly mailed when placed in the first class United States mail, postage
prepaid, return receipt requested, to the address set forth below and when also
sent by facsimile to the number set forth below. Any notice so deposited in the
mail within the County shall be deemed delivered on the third (3rd) business day
after such proper mailing.
Symantec:
---------
Symantec Corporation
10201 Torre Ave
Cupertino, CA 95014
Attn: Ruth Gaube, Esq.
FAX:
TST:
----------------------
----------------------
----------------------
<PAGE> 22
Sumitomo:
----------------------
----------------------
----------------------
Attn:
-----------------
FAX:
-----------------
Any party may change its address for the purpose of receiving notices by giving
notice as herein provided. The affidavit of an officer or authorized agent of
the owner of Lot 5 or Lot 2 declaring under penalty of perjury that a notice has
been mailed to the respective party, to the address or addresses described
above, shall be deemed conclusive proof of such mailing, whether or not such
notices are actually received.
9. AMENDMENTS. This Agreement may be amended by the written assent of the owners
of Lot 5 and Lot 2 and recording in the Official Records of Santa Clara County.
10. MORTGAGEE PROTECTION CLAUSE. No breach of the provisions, terms or
conditions of this Agreement shall defeat or render invalid the lien of any deed
of trust made in good faith and for value, but all of said provisions, terms or
conditions of this Agreement shall be binding upon and effective against any
such lienholder in possession of a portion of Lot 5 and Lot 2 and any owner
whose title is derived through foreclosure or trustee's sale, or otherwise, with
respect to a portion of Lot 5 or Lot 2; provided, however, that no such
lienholder in possession or owner whose title is derived through foreclosure or
trustee's sale under said lien shall be liable for any obligation arising prior
to the date of said foreclosure, trustee's sale or possession.
11. FURTHER DOCUMENTATION. Each of the undersigned hereby agrees to cooperate in
the review and execution of such additional documents as may be reasonably
presented in order to confirm the rights and obligations created hereby.
IN WITNESS WHEREOF, the parties have executed this DECLARATION OF AGREEMENT AND
COVENANTS RUNNING WITH THE LAND REGARDING AMENDMENTS TO CUPERTINO CITY CENTER
MASTER DECLARATION on the day and year first herein above written.
SYMANTEC CORPORATION, a Delaware corporation
By:
------------------------------------
Name:
----------------------------
Its:
---------------------------
SUMITOMO BANK LEASING AND FINANCE, INC., a Delaware corporation
By:
------------------------------------
Name:
----------------------------
Its:
---------------------------
<PAGE> 23
TST DEVELOPMENT, L.L.C., a Delaware corporation
By:
---------------------------------
Name:
-------------------------------
Its:
--------------------------------
[ADD NOTARY JURAT]
<PAGE> 24
SCHEDULE 8
(SCHEDULE 1 TO BILL OF SALE FOR CCC5)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ITEM INCLUDED EXCLUDED
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Model of Building CCC5 X
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 25
SCHEDULE 9
(SCHEDULE 1 TO BILL OF SALE FOR CCC2)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ITEM INCLUDED EXCLUDED
- ------------------------------------------------------------------------------------------
<S> <C> <C>
None
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
SCHEDULE 10
(SCHEDULE 1 TO BILL OF SALE FOR WHQ)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ITEM INCLUDED EXCLUDED
- ------------------------------------------------------------------------------------------
<S> <C> <C>
2 power conditioners X
- ------------------------------------------------------------------------------------------
Wiring, cabling X
- ------------------------------------------------------------------------------------------
All installed HVAC units X
- ------------------------------------------------------------------------------------------
Built-in dishwashers X
- ------------------------------------------------------------------------------------------
Electric drop screens in conference rooms X
- ------------------------------------------------------------------------------------------
Roof deck awnings X
- ------------------------------------------------------------------------------------------
Track lighting X
- ------------------------------------------------------------------------------------------
Conference room cabinetry X
- ------------------------------------------------------------------------------------------
Under sink water filtration systems X
- ------------------------------------------------------------------------------------------
Courtyard-tables, ash and trash receptacles X
- ------------------------------------------------------------------------------------------
Fire extinguishers X
- ------------------------------------------------------------------------------------------
400kw diesel generator and transfer switch X
- ------------------------------------------------------------------------------------------
30kva Libert UPS X
- ------------------------------------------------------------------------------------------
Computer, phone equipment and racking X
- ------------------------------------------------------------------------------------------
Furniture (including partitions and modules), X
whiteboards, bulletin boards, artwork
- ------------------------------------------------------------------------------------------
4 portable spot lights over building entries X
- ------------------------------------------------------------------------------------------
Water coolers X
- ------------------------------------------------------------------------------------------
First aid boxes X
- ------------------------------------------------------------------------------------------
Vending machines X
- ------------------------------------------------------------------------------------------
Soda fountains X
- ------------------------------------------------------------------------------------------
All conference room audio-visual equipment and X
racking
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ITEM INCLUDED EXCLUDED
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Projection glass screens X
- ------------------------------------------------------------------------------------------
Portable screens X
- ------------------------------------------------------------------------------------------
Roof deck furniture X
- ------------------------------------------------------------------------------------------
ATM versateller X
- ------------------------------------------------------------------------------------------
Fitness Center equipment X
- ------------------------------------------------------------------------------------------
All supplies X
- ------------------------------------------------------------------------------------------
All portable equipment X
- ------------------------------------------------------------------------------------------
All copiers, fax machines, printers, computers X
- ------------------------------------------------------------------------------------------
Mailing machines X
- ------------------------------------------------------------------------------------------
Coffee makers X
- ------------------------------------------------------------------------------------------
Interior plants X
- ------------------------------------------------------------------------------------------
Lobby furniture and plants X
- ------------------------------------------------------------------------------------------
Mechanical files in Finance, legal and treasury X
- ------------------------------------------------------------------------------------------
Electronic message boards and monitors X
- ------------------------------------------------------------------------------------------
Wall and ceiling mounted cameras X
- ------------------------------------------------------------------------------------------
Computer room temperature monitoring equipment X
- ------------------------------------------------------------------------------------------
Projection room equipment X
- ------------------------------------------------------------------------------------------
Coffee cart X
- ------------------------------------------------------------------------------------------
Security system equipment, including without X
limitation, keypads, readers
- ------------------------------------------------------------------------------------------
Signage X
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 28
SCHEDULE 11
PERSONAL PROPERTY LIST
USED IN OPERATION OF PROPERTIES
<TABLE>
<S> <C>
PROPERTY: CCC5
- ------------------------------------------------------------------------------------------
ITEM: (IF NONE, ENTER "NONE") COMMENT:
- ------------------------------------------------------------------------------------------
None
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
PROPERTY: CCC2
- ------------------------------------------------------------------------------------------
ITEM: (IF NONE, ENTER "NONE") COMMENT:
- ------------------------------------------------------------------------------------------
None
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
PROPERTY: WHQ
- ------------------------------------------------------------------------------------------
ITEM: (IF NONE, ENTER "NONE") COMMENT:
- ------------------------------------------------------------------------------------------
None
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 29
SCHEDULE 12
ASSIGNMENT AND ASSUMPTION OF OBLIGATIONS
LIST OF CONTRACTS
(CCC5)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CONTRACT TO BE ASSUMED BY TST COMMENTS
- ------------------------------------------------------------------------------------------
<S> <C>
Webcor Builders (Building CCC5 General
Contract)
- ------------------------------------------------------------------------------------------
HOK Architects (Building CCC5 Architectural
Contract)
- ------------------------------------------------------------------------------------------
Treadwell & Rollo (Geotechincal testing and
inspection)
- ------------------------------------------------------------------------------------------
Kier & Wright (Civil engineering design)
- ------------------------------------------------------------------------------------------
Nishkian & Associates (Structural engineer)
- ------------------------------------------------------------------------------------------
C & B Consulting engrs (Mechanical design review)
- ------------------------------------------------------------------------------------------
The Engineering Enterprise (Electrical
design review)
- ------------------------------------------------------------------------------------------
Guzzardo & Associates (Landscape architect)
- ------------------------------------------------------------------------------------------
Ehrlich-Rominger (Interior design)
- ------------------------------------------------------------------------------------------
Consolidated Engineering Laboratories
(Special inspection)
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
SCHEDULE 13
ASSIGNMENT AND ASSUMPTION OF OBLIGATIONS
LIST OF CONTRACTS
(CCC2)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CONTRACT TO BE ASSUMED BY SYMANTEC COMMENTS
- ------------------------------------------------------------------------------------------
<S> <C>
None
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 31
SCHEDULE 14
ASSIGNMENT AND ASSUMPTION OF OBLIGATIONS
LIST OF CONTRACTS
(WHQ)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CONTRACT TO BE ASSUMED BY TST COMMENTS
- ------------------------------------------------------------------------------------------
<S> <C>
None
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 32
PROFORMA TITLE POLICY
(CCC5)
PROFORMA prepared 11-2-98
Owners Policy
(1970) Form B
Schedule A
PROFORMA SCHEDULE A
Total Fee for Title Search, Examination
and Title Insurance $PROFORMA
Amount of Insurance $TBD Policy No. 515342
Date of Policy: PROFORMA
1. Name of Insured:
TO BE DETERMINED
2. The estate or interest in the land which is covered by this policy is:
A FEE AS TO PARCEL ONE, EASEMENTS AS TO PARCELS TWO, THREE, FOUR AND
FIVE
3. Title to the estate or interest in the land is vested in:
TO BE DETERMINED
4. The land referred to in this policy is described as follows:
REAL PROPERTY in the City of Cupertino, County of Santa Clara, State of
California, described as follows:
PARCEL ONE:
Lot 5, as shown on that certain Map entitled Tract No. 7953 Cupertino
City Center Phase III, which Map was filed for record in the office of
the Recorder of the County of Santa Clara, State of California on
February 27, 1987, in Book 571 of Maps, pages 36 and 37.
PARCEL TWO:
Easements as described in the Section entitled "Easements and Rights
Reserved for Owners" of the Article entitled "Easements and Rights of
Entry" of the Declaration of Covenants, Conditions and Restrictions and
Grant of Easement for Cupertino City Center recorded October 9, 1985, in
Book J482, page 1907, as amended by that certain First Amendment
recorded September 2, 1987, in Book K281, page 2071, and as amended by
that Second Amendment recorded February 7, 1997 in Instrument No
13605374, and as amended by that certain Third Amendment recorded
February 7, 1997 in Instrument No 13605375 and each in the Official
Records of Santa Clara County, California.
<PAGE> 33
(LEGAL DESCRIPTION CONTINUED)
PARCEL THREE:
Easements for parking, landscaping, support, settlement and encroachment
as granted to Cupertino City Center Buildings, a California Limited
Partnership, in the Grant of Easement (Cupertino City Center 5) recorded
February 5, 1997 under Series No.
13602286, Official Records.
PARCEL FOUR:
Easements for parking structure support as granted to Sumitomo Bank
Leasing and Financing Inc., a Delaware corporation in Easement For
Parking Structure Agreements recorded February 5, 1997 under Series Nos.
13711104 and 13711105, Official Records.
PARCEL FIVE:
Easements for parking structure construction shoring as granted to
Sumitomo Bank Leasing and Financing Inc., a Delaware corporation in
Easement For Parking Structure Construction Shoring recorded October 21,
1997 under Series No 13903074, Official Records.
APN: 369-01-035
<PAGE> 34
Owners Policy - 1970
PROFORMA SCHEDULE B Policy No. 515342
Part I
This policy does not insure against loss or damage by reason of the following:
1. TAXES for the fiscal year 1998-1999
1st Installment : $40,139.94, paid
2nd Installment : $40,139.94, unpaid, a lien not yet due
Land : $6,630,000
Improvements : $620,000
Personal Property : $-0-
Exemption : $-0-
A. P. No. : 369-01-035
Code Area : 13-003
2. THE LIEN of supplemental taxes, if any, assessed on or after the date
hereof, pursuant to Chapter 3.5 commencing with Section 75 of the
California Revenue and Taxation Code.
3. EASEMENTS as shown on the Parcel Map filed in Book 526 of Maps, pages 3,
4 and 5 for the following purposes:
a) For : Public Sidewalk
Affects : Strips of Land, 10 feet wide, within Parcel Two
b) For : Public Utilities
Affects : Strips of Land, 10 feet wide, within Parcels
Two and Three
BY RESOLUTION NO. 9739 of the City Council of the City of Cupertino of
Santa Clara County, a portion of said easement was vacated as
unnecessary for present or prospective public use, a certified copy of
which was recorded November 25, 1996 under Series No. 13533987, Official
Records.
BY RESOLUTION NO. 9739 of the City Council of the City of Cupertino
recorded February 5, 1997 under Series No. 13601894, Official Records,
that portion of the above Public Utilities Easement within the westerly
269.46 feet of the southerly 10 feet of Lot 7 of Tract No. 7953
Cupertino City Center Phase III was vacated.
Said matter affects Parcels Two and Three.
4. COVENANTS, running with the land, for reciprocal ingress and egress
easements
Executed by : Cupertino City Center Associates B, a California
Limited Partnership
Recorded : April 10, 1984 in Book I444, page 237,
Official Records
Said matter affects Parcel Two.
<PAGE> 35
5. COVENANTS, running with the land, for reciprocal ingress and egress
easements
Executed by : Cupertino City Center Associates C, a California
Limited Partnership
Recorded : April 10, 1984 in Book I444, page 239,
Official Records
Said matter affects Parcels One, Two and Three.
6. COVENANTS, running with the land, for reciprocal ingress and egress
easements
Executed by : Cupertino City Center Associates D, a California
Limited Partnership
Recorded : April 10, 1984 in Book I444, page 241,
Official Records
Said matter affects Parcels One, Two and Three.
7. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Water Pipelines
Granted to : California Water Service Company,
a California corporation
Recorded : July 11, 1984 in Book I709, page 323,
Official Records
Affects : as follows:
A strip of land 20 feet in width, the centerline of which is more
particularly described as follows:
Beginning at a point on the North line of Parcel B, distant thereon
South 89E 06' 40" East 216.99 feet from the Northwest corner thereon;
thence from said point of beginning South 0E 53' 20" West 140.00 feet to
an angle point; thence South 45E 53' 20" West 24.04 feet to an angle
point; thence South 0E 53' 20" West 131.33 feet to an angle point;
thence South 89E 06' 40" East 357.54 feet to a point on the general
Easterly line of said Parcel B; said line also being the general
Westerly line of Torre Avenue.
The said lines of the above described easement to be lengthened or
shortened as to terminate at the boundary of said Parcel B.
(Said Parcel B being shown on the Parcel Map filed in Book 526 of Maps,
page 3).
Said matter affects PARCEL TWO.
8. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Utilities
Granted to : Pacific Gas and Electric Company,
a California corporation
Recorded : April 4, 1985 in Book J311, page 1042,
Official Records
Affects : Portions of Parcel C as shown upon the Parcel
Map filed for record in Book 526 of Maps at page
3, Santa Clara County Records, which lie within
the strips of land described as follows:
Strip 1: A strip of land of the uniform width of 15 feet lying
contiguous to and Southerly of the Southerly boundary line of the City
street known as Stevens Creek Boulevard and extending from the general
boundary line of said lands Westerly 36.1 feet.
Strip 2: A strip of land of the uniform width of 5 feet contiguous to
and Southerly of the Southerly boundary line of the strip of land
hereinbefore described and designated Strip 1 and extending from the
Southerly prolongation of the Westerly terminus of said Strip 1 Easterly
10 feet.
(CONTINUED)
<PAGE> 36
8. (CONTINUED)
Strip 3: A strip of land of the uniform width of 10 feet extending
Westerly from the Westerly terminus and the Southerly prolongation
thereof of said Strip 1 and lying 5 feet on each side of the line which
begins at a point in said Westerly terminus and runs thence South 89E 27
1/2' West 80.0 to a point within said lands; said point of beginning
bears South 64E 24' West 40.4 feet distant from the point of
intersection of the Southerly boundary line of said Stevens Creek
Boulevard with the general Easterly boundary line of said lands.
Said matter affects Parcel Two.
9. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Utilities
Granted to : Pacific Gas and Electric Company,
a California corporation
Recorded : April 9, 1985 in Book J314, page 1915,
Official Records
Affects : Portions of Parcel B as shown upon the Parcel
Map filed for Record in Book 526 of Maps at page
3, Santa Clara County Records, which lie within
the strips of land described as follows:
Strip 1: A strip of land of the uniform width of 15 feet lying
contiguous to and Southerly of the Southerly boundary line of the City
street known as Stevens Creek Boulevard and extending from the Westerly
line of the street shown as Torre Avenue upon said Parcel Map Westerly
approximately 552 feet to the general boundary line of said lands.
Strip 2: A strip of land of the uniform width of 15 feet lying
contiguous to and Southerly of the Southerly boundary line of the strip
of land hereinbefore described and designated Strip 1 and extending from
the Westerly boundary line of said Torre Avenue Westerly 40 feet.
Said matter affects Parcel Two.
10. EASEMENT shown on filed map of Tract No. 7734 filed October 9, 1985 in
Book 550 of Maps, pages 24, 25 and 26 for the following:
Purpose : (a) Public Utility Purposes
(b) Emergency Ingress and Egress
(c) Private Ingress and Egress for Lots 1, 2, 3
and 4 of Tract No. 7734
Said matter affects Parcel Two.
11. LIMITATIONS, covenants, conditions, restrictions, reservations,
exceptions, terms, liens or charges, but deleting any covenant,
condition or restriction indicating a preference, limitation or
discrimination based on race, color, religion, sex, handicap, familial
status, or national origin to the extent such covenants, conditions or
restrictions violate 42 USC 3604(c), contained in the document recorded
OCTOBER 9, 1985 IN BOOK J482, PAGE 1907, Official Records.
CONTAINS mortgagee protection clause.
FIRST AMENDMENT thereof recorded September 2, 1987 in Book K281, page
2071, Official Records.
SECOND and THIRD AMENDMENTS thereof recorded February 7, 1998 in
Instrument No. 13605374 and 13605375, Official Records.
Said matter affects Parcels One, Two, Three and other property.
<PAGE> 37
12. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Sewer Pipeline
Granted to : Cupertino Sanitary District, Santa Clara
County, California
Recorded : November 12, 1985 in Book J517, page 127,
Official Records
Affects : As follows:
A strip of land 10 feet in width, the centerline of said strip being
more particularly described as follows:
Beginning at a point on the Northwesterly line of Torre Avenue as said
Torre Avenue is shown upon the above referenced Parcel Map; said point
of beginning being on the arc of the curve having a radius of 530 feet
and from which point the center of the said curve bears South 43E 46'
34" East; thence from said point of beginning North 39E 33' 21" West
81.40 feet to an angle point; thence North 89E 06' 40" West 319.99 feet
to the terminus of this description.
The Easterly sidelines to be lengthened or shortened as to terminate at
said Northwesterly line of Torre Avenue.
Said matter affects Parcel Two.
13. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Communication Facilities
Granted to : Pacific Bell
Recorded : April 1, 1986 in Book J646, page 1259,
Official Records
Affects : Those Areas designated "P.S.E." AND "P.U.E."
on the Tract Map No. 7734
Said matter affects Parcel Two.
14. The effect of Resolution No. 7007 of the City Council of the City of
Cupertino and Tract Agreement(s) attached thereto, recorded February 26,
1987 in Book K051, page 1795 of Official Records.
Said matter affects Parcels One, Two, Three and other property.
15. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Encroachment
Granted to : Cupertino City Center Associates D, a
California Limited Partnership
Recorded : February 26, 1987 in Book K052, page 518,
Official Records
Said matter affects Parcel Two.
16. EASEMENTS as shown on the Tract Map No. 7953 filed February 27, 1987 in
Book 571 of Maps, pages 36 and 37 for the following purposes:
a) Emergency Vehicle Access
b) Public Utilities
(CONTINUED)
<PAGE> 38
16. (CONTINUED)
BY RESOLUTION NO. 9739 of the City Council of the City of Cupertino of
Santa Clara County, a portion of said easement was vacated as
unnecessary for present or prospective public use, a certified copy of
which was recorded November 25, 1996 under Series No. 13533987, Official
Records.
BY RESOLUTION NO. 9739 of the City Council of the City of Cupertino
recorded February 5, 1997 under Series No. 13601894, Official Records, a
portion of the above Public Utilities, Emergency Ingress and Egress, and
Private Ingress and Egress Easements within Lot 7 of Tract No. 7953
Cupertino City Center Phase III was vacated.
Said matter affects Parcels Two and Three.
17. AGREEMENT on the terms and conditions contained therein,
For : Grant of Parking Easement for 580 Automobiles,
vehicular and pedestrian, Ingress and egress
Between : Cupertino City Center Associates D, a
California Limited Partnership, as Grantor
And : Cupertino City Center Associates B, a California
Limited Partnership, as Grantee
Recorded : June 26, 1987 in Book K202, page 1782,
Official Records.
Said matter affects Parcel Two.
18. LIMITATIONS, covenants, conditions, restrictions, reservations,
exceptions, terms, liens or charges, but deleting any covenant,
condition or restriction indicating a preference, limitation or
discrimination based on race, color, religion, sex, handicap, familial
status, or national origin to the extent such covenants, conditions or
restrictions violate 42 USC 3604(c), contained in the document recorded
June 26, 1987 in Book K202, page 1789, Official Records.
CONTAINS mortgagee protection clause.
Said matter affects Parcel Two.
19. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Sewer Pipelines
Granted to : Cupertino Sanitary District, Santa Clara County,
California
Recorded : December 9, 1988 in Book K783, page 645,
Official Records
Affects : As follows:
A portion of Lot 7 as said lot is shown on that certain Tract Map
entitled Tract Map No. 7953, filed for record in Book 571 of Maps at
pages 36 and 37, Santa Clara County Records described as follows:
A strip of land 10 feet in width the center line of said strip being
more particularly described as follows:
Beginning at a point on the Easterly line of said Lot 7 North 0E 53' 20"
East, 17.00 feet from the Northeast corner of Lot 4 of said Map; thence
leaving said Easterly line North 89E 06' 40" West 340.00 feet.
(CONTINUED)
<PAGE> 39
19. (CONTINUED)
Said Easement as previously established in the Declaration recorded in
Book J482, page 1907, Official Records affects A PORTION OF PARCEL TWO.
Said Easement affects the Northerly 1 foot of the Easterly 57 feet of
the Landscape Easement and of the Support, Settlement and Encroachment
Easement of PARCEL THREE.
20. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Communication Facilities
Granted to : Pacific Bell
Recorded : June 29, 1989 in Book L004, page 7,
Official Records
Affects : Lot 7, Tract No. 7953
Said matter affects Parcel Three.
21. AGREEMENT on the terms and conditions contained therein,
For : Parking Easement and Relocation
Between : Cupertino City Center Buildings, a California
Limited Partnership,
And : Teachers Insurance and Annuity Association of
America, a New York corporation, Cupertino City
Center Apartments, a California limited
partnership, Cupertino City Center Land, a
California limited partnership, Cupertino City
Center Owners Association, a California
nonprofit corporation
Recorded : February 5, 1997 under Series No. 13602281,
Official Records.
Said matter affects Parcel One.
22. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Parking and Ingress and egress
Granted to : Cupertino City Center Apartments II, a
California limited partnership
Recorded : February 5, 1997 under Series No. 13602284,
Official Records
and as modified by a document executed by Symantec Corporation, a
Delaware corporation and Sumitomo Bank Leasing and Finance, Inc., a
Delaware corporation, recorded September 25, 1998 under Series No.
14416538, Official Records.
23. LIMITATIONS, covenants, conditions, restrictions, reservations,
exceptions or terms, but deleting any covenant, condition or restriction
indicating a preference, limitation or discrimination based on race,
color, religion, sex, handicap, familial status, or national origin to
the extent such covenants, conditions or restrictions violate 42 USC
3604(c), contained in the Declaration of Covenants, Conditions,
Restrictions and Establishment of Easements (Cupertino City Center 5)
recorded February 5, 1997 under Series No. 13602285, Official Records.
CONTAINS mortgagee protection clause.
CONSENT to Declaration of Covenants, Conditions, Restrictions and
Establishment of Easements and Quitclaim of Private Access Easements
(Cupertino City Center 5) recorded February 5, 1997 under Series No.
13602287, Official Records.
Said matter affects Parcels One and Three.
<PAGE> 40
24. AGREEMENTS on the terms and conditions contained therein,
For : Easements for Parking Structure Support
Between : Cupertino City Center Owners Association, a
non-profit corporation, Cupertino City Center
Apartments II, a California Limited Partnership
And : Cupertino City Center Associates B., a California
Limited Partnership and Cupertino City Center
Associates D, a California Limited Partnership
Recorded : May 20, 1997 under Series No. 13711104
and 13711105, Official Records.
25. AGREEMENT on the terms and conditions contained therein,
For : Easements for Parking Structure Construction
Shoring
Between : Great Western Bank, a Federal Savings Bank,
Sumitomo Bank, Leasing and Finance Incorporated,
a Delaware corporation
And : Symantec Corporation, a Delaware corporation and
Sares-Regis Group of Northern California,
a California corporation
Recorded : October 21, 1997 under Series No. 13903074,
Official Records.
26. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Parking
Granted to : Sumitomo Bank Leasing and Finance, Inc.,
a Delaware corporation
Recorded : October 1, 1998 under Series No. 14428703,
Official Records
Affects : Parcel One
27. No coverage is afforded as to the location, size, or the number of
parking spaces available at any given time, referred to in the legal
description of this report.
28. ANY RIGHTS, interests, or claims adverse to those of the vestee herein
which may exist or arise by reason of the following facts shown on a
survey plat entitled "ALTA/ACSM LAND TITLE SURVEY", dated November 5,
1998, prepared by KIER & WRIGHT, Job No. 95220-9.
a. The fact that a Walkway crosses over the Northwest boundary of
Parcel One onto Parcel Three.
b. The fact that a Vent Structure extends over the Northwest
boundary of Parcel One onto Parcel Three.
<PAGE> 41
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515342
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures against loss which the Insured shall sustain
by reason of any of the following matters:
1. Any incorrectness in the assurance which the Company hereby
gives:
(a) That there are no present violations on the land of any
enforceable covenants, conditions or restrictions;
(b) That, except as shown in Schedule B, there are no
encroachments of buildings, structures, or improvements
located on the land onto adjoining lands, nor any
encroachments onto the land of buildings, structures or
improvements located on adjoining lands.
2. Unmarketability of the title to the estate or interest by reason
of any violations on the land, occurring prior to acquisition of
title to the estate or interest by the Insured, of any
covenants, conditions or restrictions.
3. Damage to existing building improvements,
(a) which are located or encroach upon the portion of the
land subject to any easement shown in Schedule B, which
damage results from the exercise of the right to use or
maintain the easement for the purposes for which the
same was granted or reserved;
(b) resulting from the exercise of any right to use the
surface of the land for the extraction or development of
the minerals excepted from the description of the land
or shown as a reservation in Schedule B.
4. Any final court order or judgment requiring removal from any
land adjoining the land of any encroachment shown in Schedule B.
Wherever in this endorsement any or all the words "covenants, conditions
or restrictions" appear, they shall not be deemed to refer to or include the
terms, covenants and conditions contained in any lease referred to in Schedule
A.
No coverage is provided under this endorsement as to any covenant,
condition, restriction or other provision relating to environmental protection.
<PAGE> 42
PROFORMA FA31.1 ENDORSEMENT
(continued)
The total liability of the Company under the policy and any endorsements
therein shall not exceed, in the aggregate, the face amount of the policy and
costs which the Company is obligated under the conditions and stipulations
thereof to pay.
This endorsement is made a part of the policy and is subject to the
schedules, conditions and stipulations therein, except as modified by the
provisions hereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By:
------------------------------------
Authorized Signatory
F.A. Form 31.1 (8/26/91)
ALTA Extended Owner
(Improved Land)
Restrictions, Encroachments & Minerals
<PAGE> 43
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515342
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of present violations on the land of the
covenants, conditions and restrictions referred to in paragraphs 4, 5, 6, 11,
14, 17, 18, 21, 23, 24 & 25 of Schedule B.
For purposes of this endorsement, the words "covenants," "conditions" or
"restrictions" shall not be deemed to refer to or include any covenants,
conditions or restrictions relating to environmental protection, except to the
extent that a notice of a violation or alleged violation affecting the land has
been recorded in the public records at Date of Policy and is not excepted in
Schedule B.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By:
------------------------------------
Authorized Signatory
CLTA Form 100.19 (Rev. 6-14-96)
ALTA or CLTA - Owner or Lender
<PAGE> 44
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515342
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of the failure of the easement described as
Parcel 2 in Schedule A to provide the owner of the estate or interest referred
to in Schedule A with ingress and egress to and from a public street known as De
Anza Boulevard.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By:
------------------------------------
Authorized Signatory
CLTA Form 103.4 (Rev. 6-14-96)
ALTA or CLTA - Owner or Lender
<PAGE> 45
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515342
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of the failure of the land to be the same as
that delineated on the plat of a survey made by KIER & WRIGHT on November 5,
1998, designated Job No. 95220-9, a copy of which is attached hereto and made a
part hereof.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By:
------------------------------------
Authorized Signatory
CLTA Form 116.1 (Rev. 6-14-96)
ALTA or CLTA - Owner
<PAGE> 46
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515342
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of the failure of the land described in Schedule
A as PARCEL ONE to be contiguous to PARCELS TWO, THREE, FOUR AND FIVE.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By:
------------------------------------
Authorized Signatory
CLTA Form 116.4 (Rev. 6-14-96)
ALTA or CLTA - Owner or Lender
<PAGE> 47
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515342
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of the failure of the land described as Parcel
ONE in Schedule A to constitute a lawfully created parcel according to the
Subdivision Map Act (Section 66410, et seq., of the California Government Code)
and local ordinances adopted pursuant thereto.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By:
------------------------------------
Authorized Signatory
CLTA Form 116.7 (Rev. 6-14-96)
ALTA or CLTA - Owner or Lender
Subdivision Map Act Endorsement
<PAGE> 48
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515342
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
1. The Company insures the Insured against loss or damage sustained by
reason of any incorrectness in the assurance that, at Date of Policy:
(a) According to applicable zoning ordinances and amendments
thereto, the land is classified Zone TBD.
(b) The following use or uses are allowed under that classification
subject to compliance with any conditions, restrictions, or
requirements contained in the zoning ordinances and amendments
thereto, including but not limited to the securing of necessary
consents or authorizations as a prerequisite to the use or uses:
TBD
2. The Company further insures against loss or damage arising from a
final decree of a court of competent jurisdiction
(a) prohibiting the use of the land, with any structure presently
located thereon, as specified in paragraph 1(b); or
(b) requiring the removal or alteration of the structure on the
basis that, at Date of Policy, the ordinances and amendments
thereto have been violated with respect to any of the following
matters:
(i) Area, width or depth of the land as a building site for
the structure;
(ii) Floor space area of the structure;
(iii) Setback of the structure from the property lines of the
land; or
(iv) Height of the structure.
There shall be no liability under this endorsement based on the
invalidity of the ordinances and amendments thereto until after a final decree
of a court of competent jurisdiction adjudicating the invalidity, the effect of
which is to prohibit the use or uses.
Loss or damage as to the matters insured against by this endorsement
shall not include loss or damage sustained or incurred by reason of the refusal
of any person to purchase, lease or lend money on the estate or interest covered
by this policy.
<PAGE> 49
123.2 ENDORSEMENT
(continued)
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By:
------------------------------------
Authorized Signatory
CLTA Form 123.2 (Rev. 3-13-87)
ALTA Form 3.1 (6-1-87)
Zoning -- completed structure
<PAGE> 50
[FIRST AMERICAN TITLE GUARANTY COMPANY LETTERHEAD]
Sender's Direct (408) 451-7973
January 8, 1999
First American Title
1737 North First Street
San Jose, CA 95112
Attn: Carol Weir
Re: Escrow # 515342
Dear Carol,
Enclosed please find the Proforma version of the Policy to be issued in the
above referenced escrow. Review of documentation and any information requested
below may necessitate additional or amendment of exceptions. Issuance of the
final policy is conditioned upon satisfaction of the following requirements.
a) The agreed amounts for the interest in the land and/or the
mortgage to be insured must be paid;
b) The premiums, fees and charges for the policy and escrow must be
paid;
c) Documents satisfactory to us creating the interest in the land
to be insured must be signed and delivered;
d) You must tell us in writing the name of anyone not referred to
in this Proforma who will get an interest in the land or who
will make a loan on the land;
e) Sufficient evidence of the authority of the parties executing
documents on behalf of the Seller.
f) Sufficient indemnification by the Seller as to any potential
mechanic's liens by virtue of work in progress or begun prior to
the close of escrow.
g) A Lease certification executed by the Seller reflecting any
leases affecting the property.
h) Terminate lease recorded February 5, 1997 under Series No.
13602289, Official Records.
<PAGE> 51
i) Payoff and Release Financing Statement recorded February 5, 1997
under Series No. 13602291, Official Records.
j) Terminate or Exercise Option to Purchase recorded February 5,
1997 under Series No. 13602289, Official Records.
k) Payoff and Release Financing Statement recorded February 5, 1997
under Series No. 13602291, Official Records.
l) Pay first installment 1998-1999 Taxes.
In addition, the final policy when issued, will include as exceptions any
matters which intervene between the date of our Commitment for Title Insurance
and the closing date.
The attached proforma policy and endorsements are subject to final underwriting
approval by our underwriting department and any reinsurers.
If you have any questions or comments please let me know.
Very truly yours,
L. Lance Lewis
Advisory Title Officer - Special Projects
<PAGE> 52
PROFORMA TITLE POLICY
(CCC2)
PROFORMA prepared 12-10-98
Owners Policy
(1970) Form B
Schedule A
PROFORMA SCHEDULE A
Total Fee for Title Search, Examination
and Title Insurance $PROFORMA
Amount of Insurance $TBD Policy No. 515343
Date of Policy: PROFORMA
1. Name of Insured:
Symantec Corporation
2. The estate or interest in the land which is covered by this policy is:
A FEE AS TO PARCEL ONE; AN EASEMENT AS TO PARCELS TWO THREE AND FOUR
3. Title to the estate or interest in the land is vested in:
Symantec Corporation
4. The land referred to in this policy is described as follows:
REAL PROPERTY in the City of Cupertino, County of Santa Clara, State of
California, described as follows:
PARCEL ONE:
Lot 2 as shown on that certain Map of Tract No. 7734 filed October 9,
1985 in Book 550 of Maps, pages 24, 25 and 26, Records of Santa Clara
County.
Excepting therefrom the underground water rights conveyed to California
Water Service Company, a California corporation by Deeds recorded July
11, 1984 in Book I709, page 320 of Official Records and September 7,
1984 in Book I859, page 185 of Official Records.
<PAGE> 53
PARCEL TWO:
All easements, rights, benefits and privileges described in that certain
Declaration of Covenants, Conditions and Restrictions and Grants of
Easements for Cupertino City Center, recorded October 9, 1985 in Book
J482, page 1907, Official Records, as amended by First Amendment to
Declaration of Covenants, Conditions and Restrictions and Grant of
Easements for Cupertino City Center, recorded September 2, 1987, in Book
K281, page 2071, Official Records, appurtenant to Parcel One above.
(CONTINUED)
<PAGE> 54
(LEGAL DESCRIPTION CONTINUED)
PARCEL THREE:
A non-exclusive easement for the benefit of Parcel One above, its
owners, successors, assigns, employees, tenants, and invitees, for the
parking of 494 automobiles in the commercial parking structure located
on lot three as shown on that certain Map of Tract No. 7734 recorded in
Book 550, Pages 24, 25 and 26, Official Records of the County of Santa
Clara, and more particularly described as Parcel A of that certain Map
of Tract No. 7870, recorded in Book 573, Pages 21 and 22, Official
Records of the County of Santa Clara, as granted in that certain
TRUSTEE'S DEED UPON SALE, recorded in Book N936, Page 132, Official
Records of the County of Santa Clara.
Together with a non-exclusive easement across Parcel A for vehicular
ingress to and egress from such parking structure.
PARCEL FOUR:
An easement over that certain real property described as Lot 5 as shown
on that certain map of Tract No. 7734 filed October 9, 1985 in Book 550
of Maps, pages 24, 25 and 26, Official Records of Santa Clara County for
an encroachment of certain improvements all as more particularly
described in that certain Grant of Encroachment Easement between
Cupertino City Center Owners Association, as grantor and Cupertino City
Center Associates D, as grantee, recorded on February 26, 1987,
Instrument No. 9172700, in Book K052, page 518, Official Records of
Santa Clara County.
APN: 369-01-020
<PAGE> 55
Owners Policy - 1970
PROFORMA SCHEDULE B Policy No. 515343
Part I
This policy does not insure against loss or damage by reason of the following:
1. TAXES for the fiscal year 1998-1999
1st Installment : $115,210.97, open
2nd Installment : $115,210.97, open
Land : $1,820,700
Improvements : $18,727,100
Personal Property : $-0-
Exemption : $-0-
A. P. No. : 369-01-020
Code Area : 13-003
1.a) Supplemental taxes, which have been assessed pursuant to the provisions
of Chapter 3.5 commencing with Section 75 of the California Revenue and
Taxation Code
A.P. No. : 369-01-020-71
Code Area : 13-003
Fiscal Year : 1997-1998
1st Installment : $702.13, unpaid
2nd Installment : $702.13, unpaid
2. THE LIEN of supplemental taxes, if any, assessed pursuant to Chapter 3.5
commencing with Section 75 of the California Revenue and Taxation Code.
3. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Electric Transmission Pole Lines
Granted to : Pacific Gas and Electric Company, a California
corporation
Recorded : November 10, 1947 in Book 1447, page 287,
Official Records
Affects : The route of said pole line is as follows:
Beginning in the Northerly prolongation of the Easterly line of Lot 27 of
the Cali Subdivision distant thereon 6.6 feet Northerly from the
Northeast corner of Lot 27 of the Cali Subdivision; running thence South
89E 57' East 22.1 feet; thence North 73E 26(2)' East 120 feet more or
less, to the Southerly boundary line of Stevens Creek Road.
Quitclaim Deed from Pacific Gas and Electric Company to Cupertino City
Center Associates D recorded July 14, 1987 in Book K223, page 591,
Official Records, extinguished the guy and anchor portion of the
easement.
(Affects Parcel Two)
4. A waiver in favor of the State of California of any claims for damages to
said land by reason hereinafter shown in connection with a highway
contiguous thereto, contained in the Deed
From : R. Cali & Bro., a corporation
Reason : The location, construction, landscaping or
maintenance of said highway
Recorded : February 20, 1957 in Book 3734, page 546, of
Official Records
(Affects Parcel Two)
<PAGE> 56
5. A waiver in favor of the State of California of any claims for damages to
said land by reason hereinafter shown in connection with a highway
contiguous thereto, contained in the Deed
From : Giuseppe Cali, et al
Reason : The location, construction, landscaping or
maintenance of said highway
Recorded : March 1, 1957 in Book 3741, page 609, of Official
Records
(Affects Parcel Two)
6. Easements as shown on the Parcel Map filed March 15, 1984 in Book 526 of
maps, pages 3, 4 and 5 for the following purposes:
a) For : Public Utilities
b) For : Public Sidewalk
(Affects Parcel Two)
7. Covenants running with the land, for reciprocal ingress and egress
easements
Executed by : Cupertino City Center Associates B, a California
Limited Partnership
Recorded : April 10, 1984 in Book I444, page 237 of
Official Records
(Affects Parcels One, Two and Three)
8. Covenants running with the land, for reciprocal ingress and egress
easements
Executed by : Cupertino City Center Associates C, a California
Limited Partnership
Recorded : April 10, 1984 in Book I444, page 239 of
Official Records
(Affects Parcels Two and Three)
9. Covenants running with the land, for reciprocal ingress and egress
easements
Executed by : Cupertino City Center Associates D, a California
Limited Partnership
Recorded : April 10, 1984 in Book I444, page 241 of Official
Records
(Affects Parcel Two)
10. Declaration concerning an agreement to join a car pool/van pool program
Executed by : Cupertino City Center Associates B, a California
Limited Partnership
Recorded : April 10, 1984 in Book I444, page 243 of Official
Records
(Affects Parcels One, Two and Three)
11. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Water pipelines
Granted to : California Water Service Company, a California
corporation
Recorded : July 11, 1984 in Book I709, page 323, Official
Records
Affects : As follows:
A strip of land 20 feet in width, the centerline of which is more
particularly described as follows:
(CONTINUED)
<PAGE> 57
11.(CONTINUED)
Beginning at a point on the North line of Parcel B, distant thereon South
89E 06' 40" Est 216.99 feet from the Northwest corner thereon; thence
from said point of beginning South 0E 53' 20" West 140.00 feet to an
angle point; thence South 45E 53' 20" West 24.04 feet to an angle point;
thence South 0E 53' 20" West 131.33 feet to an angle point; thence South
89E 06' 40" East 357.54 feet to a point on the general Easterly line of
said Parcel B; said line also being the general Westerly line of Torre
Avenue.
The said lines of the above described easement to be lengthened or
shortened as to terminate at the boundary of said Parcel B.
(Said Parcel B being shown on the Parcel Map filed in Book 526 of maps,
page 3)
(Affects Parcel Two)
12. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Utilities
Granted to : Pacific Gas and Electric Company, a California
corporation
Recorded : April 4, 1985 in Book J311, page 1042, Official
Records
Affects : Portions of Parcel C as shown upon the Parcel
Map Filed for record in Book 526 of Maps at Page 3,
Santa Clara County Records, which lie within the
strips of land described as follows:
Strip 1. A strip of land of the uniform width of 15 feet lying contiguous
to and Southerly of the Southerly boundary line of the city street known
as Stevens Creek Boulevard and extending from the general boundary line
of said lands Westerly 36.1 feet.
Strip 2. A strip of land of the uniform width of 5 feet contiguous to and
Southerly of the Southerly boundary line of the strip of land
hereinbefore described and designated Strip 1 and extending from the
Southerly prolongation of the Westerly terminus of said Strip 1 Easterly
10 feet.
Strip 3. A strip of land of the uniform width of 10 feet extending
Westerly from the Westerly terminus and the Southerly prolongation
thereof of said Strip 1 and lying 5 feet on each side of the line which
begins at a point in said Westerly terminus and runs thence South 89E
27(2)' West 80.0 to a point within said lands; said point of beginning
bears South 64E 24' West 40.4 feet distant from the point of intersection
of the Southerly boundary line of said Stevens Creek Boulevard with the
general Easterly boundary line of said lands.
(Affects Parcel Two)
13. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Utilities
Granted to : Pacific Gas and Electric Company, a California
corporation
Recorded : April 9, 1985 in Book J314, page 1915, Official
Records
Affects : Portions of parcel B as shown upon the Parcel
Map filed for record in Book 526 of Maps at Page 3,
Santa Clara County Records, which lie within the
strips of land described as follows:
(CONTINUED)
<PAGE> 58
13. (CONTINUED)
Strip 1. A strip of land of the uniform width of 15 feet lying contiguous
to and Southerly of the Southerly boundary line of the city street known
as Stevens Creek Boulevard and extending from the Westerly line of the
street shown as Torre Avenue upon said Parcel Map Westerly approximately
552 feet to the general boundary line of said lands.
Strip 2. A strip of land of the uniform width of 15 feet lying contiguous
to and Southerly of the Southerly boundary line of the strip of land
hereinbefore described and designated Strip 1 and extending from the
Westerly boundary line of said Torre Avenue Westerly 40 feet.
(Affects Parcel Two)
14. Easement as shown on the Map of Tract No. 7734 filed October 9, 1985 in
Book 550, of maps, pages 24, 25 and 26 for the following purposes:
a) For : Public Utilities
b) For : Emergency ingress and egress
c) For : Private Ingress and Egress for Lots 1, 2, 3 and 4
of Tract No. 7734
(Affects Parcel Two)
15. LIMITATIONS, covenants, conditions, restrictions, reservations,
exceptions, terms, liens or charges, but deleting any covenant, condition
or restriction indicating a preference, limitation or discrimination
based on race, color, religion, sex, handicap, familial status, or
national origin to the extent such covenants, conditions or restrictions
violate 42 USC 3604(c), contained in the document recorded OCTOBER 9,
1987 in Book J482, page 1907, Official Records.
CONTAINS mortgagee protection clause.
MODIFICATION thereof recorded September 2, 1987 in Book K281, page 2071,
Official Records.
Second Modification thereof recorded February 7, 1997 under Series No.
13605374, Official Records.
Third Modification thereof recorded February 7, 1997 under Series No.
13605375, Official Records
Said matter affects PARCELS ONE, TWO AND THREE.
16. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Sewer Pipeline
Granted to : Cupertino Sanitary District, Santa Clara County,
California
Recorded : November 12, 1985 in Book J517, page 127,
Official Records
Affects : As follows:
A strip of land 10 feet in width, the centerline of said strip being more
particularly described as follows:
(CONTINUED)
<PAGE> 59
16.(CONTINUED)
Beginning at a point on the Northwesterly line of Torre Avenue as said
Torre Avenue is shown upon the above referenced Parcel Map; said point of
beginning being on the arc of the curve having a radius of 530 feet and
from which point the center of the said curve bears South 43E 46' 34"
East; thence from said point of beginning North 39E 33' 21" West 81.40
feet to an angle point; thence North 89E 06' 40" West 319.99 feet to the
terminus of this description.
The Easterly sidelines to be lengthened or shortened as to terminate at
said Northwesterly line of Torre Avenue.
(Affects Parcel Two)
17. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Communication Facilities
Granted to : Pacific Bell
Recorded : April 1, 1986 in Book J646, page 1259, Official
Records
Affects : Those areas designated "P.S.E." and "P.U.E." on
the Tract Map No. 7734
(Affecting Parcel Two)
18. Easements as shown on the Tract Map No. 7953 filed February 27, 1987 in
Book 571 of Maps, pages 36 and 37 for the following purposes:
a) Private Access
b) Emergency Vehicle Access
c) Public Utilities
(Affects Parcel Two)
19. AGREEMENT on the terms and conditions contained therein,
For : Grant of Permanent Easement
Between : Cupertino City Center Associates D, a California
Limited Partnership
And : Cupertino City Center Associates B, a California
Limited Partnership
Recorded : June 26, 1987 in Book K202, page 1782, Official
Records.
(Affects Parcel Three)
20. LIMITATIONS, covenants, conditions, restrictions, reservations,
exceptions, terms, liens or charges, but deleting any covenant, condition
or restriction indicating a preference, limitation or discrimination
based on race, color, religion, sex, handicap, familial status, or
national origin to the extent such covenants, conditions or restrictions
violate 42 USC 3604(c), contained in the document recorded June 26, 1987
in Book K202, page 1789, Official Records.
CONTAINS mortgagee protection clause.
Said matter affects PARCEL THREE.
<PAGE> 60
21. Rights of Parties, other than the vestee herein as to the Parcels, as
contained in the following Agreement
For : Grant of Parking Easement for 111 Automobiles
over Lot 7 of Tract No. 7953
Between : Cupertino City Center Owners Association, a non-
profit corporation
And : Cupertino City Center Associates, D, a California
Limited Partnership
Recorded : February 17, 1988 in Book K447, page 1434,
Official Records
As amended by document recorded November 6, 1989, in Book L157, page 639,
Official Records
(AFFECTS PARCEL TWO)
22. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Sewer pipelines
Granted to : Cupertino Sanitary District, Santa Clara County,
California
Recorded : December 9, 1988 in Book K783, page 645, Official
Records
Affects : As follows:
A portion of Lot 7 as said lot is shown on that certain Tract Map
entitled Tract Map No. 7953, filed for record in Book 571 of maps at
pages 36 and 37, Santa Clara County Records described as follows:
A strip of land 10 feet in width the center line of said strip being more
particularly described as follows:
Beginning at a point on the Easterly line of said Lot 7 North 0E 53' 20"
East, 17.00 feet from the Northeast corner of Lot 4 of said Map; thence
leaving said Easterly line North 89E 06' 40" West 340.00 feet.
(Affects Parcel Two)
<PAGE> 61
23. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Communication Facilities
Granted to : Pacific Bell
Recorded : June 29, 1989 in Book L004, page 7, Official
Records
Affects : Lot 7, Tract No. 7953 filed in Book 571 of Maps
pages 36 and 37
(Affects Parcel Two)
24. Rights of Parties, other than the vestee herein as to the insured parcels
as contained in the following Agreement,
For : Grant of Parking Easement for 35 Automobiles over
Lot 5 of Tract No. 7734
Between : Cupertino City Center Owners Association, a
nonprofit corporation
And : Cupertino City Center Associates D, a California
Limited Partnership
Recorded : November 6, 1989 in Book L157, page 645, Official
Records.
(Affects Parcel Two)
<PAGE> 62
25. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Parking, ingress, egress
Granted to : Cupertino City Center Buildings, a California
Limited Partnership
Recorded : July 7, 1994 in Book N511, page 358, Official
Records
(Affects Parcel Three)
26. INTENTIONALLY OMITTED
27. No coverage is afforded as to the location within Parcel A, size, or the
number of parking spaces available at any given time, of the 494 parking
spaces referred to in Parcel Three of the legal description of this
report.
28. AGREEMENT on the terms and conditions contained therein,
For : Parking Easement and Relocation
Between : Cupertino City Center Buildings, a California
Limited Partnership, Teachers Insurance and
Annuity Association of America, a New York
corporation, Cupertino City Center Apartments, a
California limited partnership, Cupertino City
Center Land, a California limited partnership
And : Cupertino City Center Owners Association, a
California nonprofit corporation.
Recorded : February 5, 1997, as Instrument No. 13602281,
Official Records.
(Affects Parcel Three)
29. ANY RIGHTS, interests, or claims adverse to those of the vestee herein
which may exist or arise by reason of the following facts shown on a
survey plat entitled "ALTA/ACSM LAND TITLE SURVEY", dated November 12,
1998, prepared by BRIAN, KANGAS & FOULK, Job No. 980270.
a. The fact that a sign lies outside of the Southeasterly boundary
and within The P.U.E. & E.V.A.E. as shown on Map Book 550, page
24,25 and 26.
<PAGE> 63
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515343
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures against loss which the Insured shall sustain
by reason of any of the following matters:
1. Any incorrectness in the assurance which the Company hereby gives:
(a) That there are no present violations on the land of any
enforceable covenants, conditions or restrictions;
(b) That, except as shown in Schedule B, there are no
encroachments of buildings, structures, or improvements
located on the land onto adjoining lands, nor any
encroachments onto the land of buildings, structures or
improvements located on adjoining lands.
2. Unmarketability of the title to the estate or interest by reason
of any violations on the land, occurring prior to acquisition of
title to the estate or interest by the Insured, of any covenants,
conditions or restrictions.
3. Damage to existing building improvements,
(a) which are located or encroach upon the portion of the land
subject to any easement shown in Schedule B, which damage
results from the exercise of the right to use or maintain
the easement for the purposes for which the same was
granted or reserved;
(b) resulting from the exercise of any right to use the surface
of the land for the extraction or development of the
minerals excepted from the description of the land or shown
as a reservation in Schedule B.
4. Any final court order or judgment requiring removal from any land
adjoining the land of any encroachment shown in Schedule B.
Wherever in this endorsement any or all the words "covenants, conditions
or restrictions" appear, they shall not be deemed to refer to or include the
terms, covenants and conditions contained in any lease referred to in
Schedule A.
No coverage is provided under this endorsement as to any covenant,
condition, restriction or other provision relating to environmental protection.
<PAGE> 64
PROFORMA FA31.1 ENDORSEMENT
(continued)
The total liability of the Company under the policy and any endorsements
therein shall not exceed, in the aggregate, the face amount of the policy and
costs which the Company is obligated under the conditions and stipulations
thereof to pay.
This endorsement is made a part of the policy and is subject to the
schedules, conditions and stipulations therein, except as modified by the
provisions hereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
F.A. Form 31.1 (8/26/91)
ALTA Extended Owner
(Improved Land)
Restrictions, Encroachments & Minerals
<PAGE> 65
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515343
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the owner of the indebtedness secured by the
insured mortgage against loss or damage which the insured shall sustain by
reason of the failure of (i) COMMERCIAL STRUCTURE known as 20330 TORRE AVENUE,
CUPERTINO, CALIFORNIA, to be located on the land at Date of Policy, or (ii) the
map attached to this policy to correctly show the location and dimensions of the
land according to the public records.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
CLTA Form 116 (Rev. 6-14-96)
ALTA - Lender
<PAGE> 66
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 55343
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of the failure of the land to be the same as
that delineated on the plat of a survey made by BRIAN, KANGAS & FOULK on
November 12, 1998, designated Job No. 980270, a copy of which is attached hereto
and made a part hereof.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
CLTA Form 116.1 (Rev. 6-14-96)
ALTA or CLTA - Owner
<PAGE> 67
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515343
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of the failure of the easement described as
Parcel Two in Schedule A to provide the owner of the estate or interest referred
to in Schedule A with ingress and egress to and from a public street known as
Torre Avenue.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
CLTA Form 103.4 (Rev. 6-14-96)
ALTA or CLTA - Owner or Lender
<PAGE> 68
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515343
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
1. The Company insures the Insured against loss or damage sustained
by reason of any incorrectness in the assurance that, at Date of Policy:
(a) According to applicable zoning ordinances and amendments thereto,
the land is classified Zone A(PD).
(b) The following use or uses are allowed under that classification
subject to compliance with any conditions, restrictions, or
requirements contained in the zoning ordinances and amendments
thereto, including but not limited to the securing of necessary
consents or authorizations as a prerequisite to the use or uses:
PLANNED DEVELOPMENT
2. The Company further insures against loss or damage arising from a
final decree of a court of competent jurisdiction
(a) prohibiting the use of the land, with any structure presently
located thereon, as specified in paragraph 1(b); or
(b) requiring the removal or alteration of the structure on the basis
that, at Date of Policy, the ordinances and amendments thereto
have been violated with respect to any of the following matters:
(i) Area, width or depth of the land as a building site for the
structure;
(ii) Floor space area of the structure;
(iii) Setback of the structure from the property lines of the
land; or
(iv) Height of the structure.
There shall be no liability under this endorsement based on the
invalidity of the ordinances and amendments thereto until after a final decree
of a court of competent jurisdiction adjudicating the invalidity, the effect of
which is to prohibit the use or uses.
Loss or damage as to the matters insured against by this endorsement
shall not include loss or damage sustained or incurred by reason of the refusal
of any person to purchase, lease or lend money on the estate or interest covered
by this policy.
<PAGE> 69
123.2 ENDORSEMENT
(continued)
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
CLTA Form 123.2 (Rev. 3-13-87)
ALTA Form 3.1 (6-1-87)
Zoning -- completed structure
<PAGE> 70
First American Title Guaranty Company
1737 North First Street Suite 100
San Jose, Ca 95112
(408) 451-7800
Fax (408) 451-7836
Sender's Direct (408) 451-7973
January 8, 1999
First American Title
1737 North First Street
San Jose, CA 95112
Attn: Carol Weir
Re: Escrow # 515343
Dear Carol,
Enclosed please find the Proforma version of the Policy to be issued in the
above referenced escrow. Review of documentation and any information requested
below may necessitate additional or amendment of exceptions. Issuance of the
final policy is conditioned upon satisfaction of the following requirements.
a) The agreed amounts for the interest in the land and/or the
mortgage to be insured must be paid;
b) The premiums, fees and charges for the policy and escrow must be
paid;
c) Documents satisfactory to us creating the interest in the land to
be insured must be signed and delivered;
d) You must tell us in writing the name of anyone not referred to in
this Proforma who will get an interest in the land or who will
make a loan on the land;
e) Sufficient evidence of the authority of the parties executing
documents on behalf of the Seller.
f) Sufficient indemnification by the Seller as to any potential
mechanic's liens by virtue of work in progress or begun prior to
the close of escrow.
g) A Lease certification executed by the Seller reflecting any leases
affecting the property.
h) Payoff and Reconvey Deed of Trust Recorded JUNE 29, 1987, under
Series No. 9332602 in Book K205, PAGE 960, Official Records.
i) Payoff and Release Collateral assignment of LEASES AND RENTS
Recorded JUNE 29, 1987, IN BOOK K205, PAGE 995, Official Records.
<PAGE> 71
In addition, the final policy when issued, will include as exceptions any
matters which intervene between the date of our Commitment for Title Insurance
and the closing date.
If you have any questions or comments please let me know.
Very truly yours,
L. Lance Lewis
Advisory Title Officer - Special Projects
<PAGE> 72
PROFORMA TITLE POLICY
(WHQ)
PROFORMA prepared 11-2-98
Owners Policy
(1970) Form B
Schedule A
PROFORMA SCHEDULE A
Total Fee for Title Search, Examination
and Title Insurance $PROFORMA
Amount of Insurance $TO BE DETERMINED Policy No. 515341
Date of Policy: PROFORMA
1. Name of Insured:
TO BE DETERMINED
2. The estate or interest in the land which is covered by this policy is:
A FEE AS TO PARCEL ONE, AN EASEMENT AS TO PARCELS TWO AND THREE
3. Title to the estate or interest in the land is vested in:
TO BE DETERMINED
4. The land referred to in this policy is described as follows:
Real Property in the City of Cupertino, County of Santa Clara, State of
California, described as follows:
PARCEL ONE:
All of Parcel 2, as shown upon that certain Map entitled, "Parcel Map
being a Subdivision of Lot 9 of Tract 3743 (186-MAPS-36 & 37)" which Map
was filed for record in the Office of the Recorder of the County of
Santa Clara, State of California on December 12, 1978 in Book 432, of
Maps, at page 3.
PARCEL TWO:
A non-exclusive easement for vehicular parking space purposes,
appurtenant to Parcel One described above, as described in the Grant of
Easement, executed by Lincoln Property Company, No. 468, Ltd., a
California Limited Partnership to Lincoln Cupertino Associates, Limited,
a California Limited Partnership, recorded January 25, 1983 in Book H293
of Official Records, page 703, more particularly set forth in that
certain document recorded December 21, 1983 in Book I167, page 530, of
Official Records, lying within Lot 8 as shown on that certain Map
entitled Tract No. 3743 Cupertino Town Center, which Map was filed in
the office of the Recorder of the County of Santa Clara, State of
California on October 16, 1984 in Book 186 of Maps, at pages 36 and 37,
described as follows:
<PAGE> 73
(LEGAL DESCRIPTION CONTINUED)
Commencing at the most Northwesterly corner of said Lot 8; thence
Southerly along the Westerly line of said Lot 8, South 0E 56' 25" West
126.00 feet to the true point of beginning for this description; thence
Easterly leaving said Westerly line South 89E 03' 20" East 36.19 feet to
a tangent curve concave Westerly having a radius of 1.00 feet; thence
Northerly along said curve through a central angle of 180E 00' 00" a
distance of 3.14 feet; thence Westerly North 89E 03' 20" West 13.00
feet; thence Northerly 0E 56' 40" East 40.00 feet; thence Westerly North
89E 03' 20" West 3.19 feet; thence Northerly North 0E 56' 40" East 54.00
feet; thence Easterly South 89E 03' 20" East 19.00 feet to a tangent
curve concave Northwesterly having a radius of 2.50 feet; thence
Northerly along last said curve through a central angle of 90E 00' 00"
distance of 3.93 feet; thence Northerly North 0E 56' 40" East 24.50
feet; thence Easterly South 89E 03' 20" East 24.00 feet; thence
Southerly South 0E 56' 40" West 11.50 feet to tangent curve concave
Northeasterly having a radius of 2.50 feet; thence Southerly along last
said curve through a central angle of 90E 00' 00" a distance of 3.93
feet; thence Easterly South 89E 03' 20" East 14.00 feet; thence
Southerly South 0E 56' 40" West 87.00 feet; thence Westerly North 89E
03' 20" West 2.50 feet; thence Southerly South 0E 56' 40" West 8.00
feet; thence Westerly North 89E 03' 20" West 2.31 feet; thence Southerly
South 0E 56' 40" West 8.00 feet; thence Westerly North 89E 03' 20" West
11.50 feet to a tangent curve concave Southeasterly having a radius of
2.50 feet; thence Southerly along last said curve through a central
angle of 90E 00' 00" a distance of 3.93 feet; thence Southerly South 0E
56' 40" West 27.37 feet to a curve concave Northwesterly having a radius
of 44.00 feet, a bearing to the radius point being North 3E 24' 13"
West; thence Westerly along said curve through a central angle of 4E 20'
53" a distance of 3.34 feet; thence Westerly North 89E 03' 20" West
59.85 feet to the Westerly line of said Lot 8; thence Northerly along
said Westerly line of said Lot 8 North 0E 56' 25" East 24.00 feet to the
true point of beginning of this description.
PARCEL THREE:
A non-exclusive easement, appurtenant to Parcel One, described above,
for pedestrian and vehicular traffic purposes, over the following
described parcel of land:
A portion of Parcel 1, as shown upon that certain map entitled, "Parcel
Map being a Subdivision of Lot 9 of Tract 3743 (Book 186 of Maps, pages
36 and 37)", which map was filed for record in the Office of the
Recorder of the County of Santa Clara, State of California on December
12, 1978 in Book 432 of Maps, at page 3, more particularly described as
follows:
Beginning at the most Northwesterly corner of said Parcel 1, said corner
being on the Easterly line of DeAnza Boulevard, thence along said line
South 00E 53' 20" West 30 feet to the True Point of Beginning, thence
South 00E 53' 20" West 26 feet, thence leaving the Easterly line of
De Anza Boulevard, South 89E 06' 40" East a distance of 126 feet, thence
North 00E 53' 20" East 56 feet to the point on the boundary between
Parcels 1 and 2, thence along said boundary North 89E 06' 40" West a
distance of 26 feet, thence leaving said boundary South 00E 53' 20" West
a distance of 5 feet, thence through a tangent curve to the right with a
radius of 25 feet, a central angle of 90E 00' 00" and a length of 39.27
feet, thence North 89E 06' 40" West a distance of 75 feet to the true
point of beginning.
APN: 369-41-005
ARB: 371-3-8.01
<PAGE> 74
Owners Policy - 1970
PROFORMA SCHEDULE B Policy No. 515341
Part I
This policy does not insure against loss or damage by reason of the following:
29. TAXES for the fiscal year 1998-1999
1st Installment : $83,063.12, paid
2nd Installment : $83,063.12, unpaid, a lien not yet due
Land : $3,672,000.00
Improvements : $9,384,000.00
Personal Property : $-0-
Exemption : $NONE
A. P. No. : 369-41-005
Code Area : 13-003
1a) Bond for STREET & TRAFFIC IMPACT FEE ASSESSMENT DISTRICT
Bond No. : 97P
Assessment No. : 3
Balance of principal : $93,422.15
Balance of interest
through maturity : $47,000.84
The above Amount excludes $5,190.12 principal, $7,335.37 interest and
$7.99 handling charge spread on the 1998-1999 tax roll, which amounts
cannot be prepaid.
30. THE LIEN of supplemental taxes, if any, assessed on or after the date
hereof, assessed pursuant to Chapter 3.5 commencing with Section 75 of
the California Revenue and Taxation Code.
31. EASEMENT shown on filed Map of Tract 3743, and incidents thereto
Purpose : Public Utilities Easement
Affects : Northerly 10 feet
BY RESOLUTION NO. 9739 of the CITY COUNCIL of the City of Cupertino of
Santa Clara County, a portion of said easement was vacated as unnecessary
for present or prospective public use, a certified copy of which was
recorded November 25, 1996 under Series No. 13533987, Official Records.
BY RESOLUTION NO. 9739 of the City Council of the City of Cupertino of
Santa Clara County, a Portion of easement was vacated as unnecessary for
present or prospective public use, a certified copy of which was recorded
February 5, 1997 under Series No. 13601894, Official Records.
32. EASEMENT shown on filed Map of Tract 3743, and incidents thereto
Purpose : Wire Clearance Easement
Affects : Southerly 5 feet of the Northerly 15 feet
(CONTINUED)
<PAGE> 75
4.(CONTINUED)
BY RESOLUTION NO. 9739 of the City Council of the City of Cupertino of
Santa Clara County, a portion of said easement was vacated as unnecessary
for present or prospective public use, a certified copy of which was
recorded November 25, 1996 under Series No. 13533987, Official Records.
BY RESOLUTION NO. 9739 of the City Council of the City of Cupertino of
Santa Clara County, a portion of easement was vacated as unnecessary for
present or prospective public use, a certified copy of which was recorded
February 5, 1997 under Series No. 13601894, Official Records.
33. MATTERS contained in the document entitled "Covenants Running with the
Land"
Dated : May 26, 1976
Executed by : Northern California Savings and
Loan Association
Recorded : May 27, 1976 in Book C046, page 611, Official
Records.
34. MATTERS contained in the document entitled "Covenants Running with the
Land"
Dated : November 30, 1978
Executed by : Northern California Savings and Loan
Association
Recorded : January 15, 1979 in Book E227, page 42,
Official Records.
35. AGREEMENT on the terms and conditions contained therein,
For : Deferment of Certain Required Development
Improvements
Between : City of Cupertino, a Municipal corporation
And : Lincoln Cupertino Associates Limited, a
California Limited Partnership
Recorded : December 1, 1982 in Book H176, page 602,
Official Records.
36. TERMS, conditions and provisions contained in the Grant of Easement
From : Lincoln Property Company No. 468, Ltd., a
California Limited Partnership
To : Lincoln Cupertino Associates Limited, a
California Limited Partnership
Recorded : January 25, 1983 in Book H293, page 703,
Official Records.
AGREEMENT on the terms and conditions contained therein,
For : Location of Easement and Joint Use
Between : Lincoln Cupertino Associates Limited, a
California Limited Partnership
And : Pinn Brothers Construction, Inc., a
California corporation
Recorded : December 21, 1993 in Book I167, page 530,
Official Records.
37. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Pedestrian and Vehicular Traffic
Granted to : Great Western Savings
Recorded : January 25, 1983 in Book H293, page 707,
Official Records
Affects : The Westerly 35 feet of the Southerly 70
feet
<PAGE> 76
38. MATTERS contained in the document entitled "Covenants Running with the
Land"
Dated : December 23, 1982
Executed by : Lincoln Cupertino Associates Limited, a California
Limited Partnership
Recorded : January 25, 1983 in Book H293, page 719, Official
Records.
39. EASEMENT for the purposes stated herein and incidents thereto
Purpose : Construction and Maintenance of Sidewalks
Granted to : The City of Cupertino
Recorded : February 17, 1984 in Book I315, page 435, Official
Records
Affects : As follows:
PART 1
A strip of land 11 feet in width contiguous to the most Southerly
property line of said Parcel 2, said line also being the Northerly
boundary of Rodriques Avenue. Said strip begins at a point on said line
215 feet from the most Easterly boundary of Parcel 1 as shown on said
Parcel Map, and extends Easterly along said line a distance of 255 feet.
PART 2
A strip of land 5 feet in width contiguous to the most Easterly property
line of said Parcel 2, said line also being the Westerly boundary of
Torre Avenue. Said strip begins at a point on said line 65 feet from the
most Northeasterly corner of said Parcel 2, and extends Southerly along
said line a distance of 65 feet.
40. ANY RIGHTS, interests, or claims adverse to those of the vestee herein
which may exist or arise by reason of the following facts shown on a
survey plat entitled "ALTA/ACSM LAND TITLE SURVEY", dated November 13,
1998, prepared by Brian Kangas Foulk, Job No. 980266-50.
a. The fact that the Face of Curb lies outside of the Northerly
boundary no greater than 1.7 feet.
b. The fact that a Post Indicator Valve (P.I.V.) lies within that
Sidewalk Easement along the Southerly boundary.
c. The fact that a 4-story Concrete w/Steel Frame Building lies 1
foot within the Southerly and Easterly 30 foot Building Setback.
<PAGE> 77
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515341
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures against loss which the Insured shall sustain
by reason of any of the following matters:
1. Any incorrectness in the assurance which the Company hereby
gives:
(a) That there are no present violations on the land of any
enforceable covenants, conditions or restrictions;
(b) That, except as shown in Schedule B, there are no
encroachments of buildings, structures, or improvements
located on the land onto adjoining lands, nor any
encroachments onto the land of buildings, structures or
improvements located on adjoining lands.
2. Unmarketability of the title to the estate or interest by reason
of any violations on the land, occurring prior to acquisition of
title to the estate or interest by the Insured, of any covenants,
conditions or restrictions.
3. Damage to existing building improvements,
(a) which are located or encroach upon the portion of the land
subject to any easement shown in Schedule B, which damage
results from the exercise of the right to use or maintain
the easement for the purposes for which the same was
granted or reserved;
(b) resulting from the exercise of any right to use the
surface of the land for the extraction or development of
the minerals excepted from the description of the land or
shown as a reservation in Schedule B.
4. Any final court order or judgment requiring removal from any land
adjoining the land of any encroachment shown in Schedule B.
Wherever in this endorsement any or all the words "covenants, conditions
or restrictions" appear, they shall not be deemed to refer to or include the
terms, covenants and conditions contained in any lease referred to in
Schedule A.
No coverage is provided under this endorsement as to any covenant,
condition, restriction or other provision relating to environmental protection.
<PAGE> 78
PROFORMA FA31.1 ENDORSEMENT
(continued)
The total liability of the Company under the policy and any endorsements
therein shall not exceed, in the aggregate, the face amount of the policy and
costs which the Company is obligated under the conditions and stipulations
thereof to pay.
This endorsement is made a part of the policy and is subject to the
schedules, conditions and stipulations therein, except as modified by the
provisions hereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
F.A. Form 31.1 (8/26/91)
ALTA Extended Owner
(Improved Land)
Restrictions, Encroachments & Minerals
<PAGE> 79
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515341
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of present violations on the land of the
covenants, conditions and restrictions referred to in paragraphs 5, 6, 7, 8 & 10
of Schedule B.
For purposes of this endorsement, the words "covenants," "conditions" or
"restrictions" shall not be deemed to refer to or include any covenants,
conditions or restrictions relating to environmental protection, except to the
extent that a notice of a violation or alleged violation affecting the land has
been recorded in the public records at Date of Policy and is not excepted in
Schedule B.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
CLTA Form 100.19 (Rev. 6-14-96)
ALTA or CLTA - Owner or Lender
<PAGE> 80
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515341
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of the failure of the easement described as
Parcel THREE in Schedule A to provide the owner of the estate or interest
referred to in Schedule A with ingress and egress to and from a public street
known as De Anza Boulevard.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
CLTA Form 103.4 (Rev. 6-14-96)
ALTA or CLTA - Owner or Lender
<PAGE> 81
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515341
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of the failure of the land to abut upon and have
pedestrian and vehicular ingress and egress to a publicly held, physically open
street known as De Anza Boulevard.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
CLTA Form 103.7 (Rev. 6-14-96) modified
ALTA or CLTA - Owner or Lender
<PAGE> 82
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515341
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of the failure of the land to be the same as
that delineated on the plat of a survey made by on , designated
Job No. , a copy of which is attached hereto and made a part hereof.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
CLTA Form 116.1 (Rev. 6-14-96)
ALTA or CLTA - Owner
<PAGE> 83
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515341
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of the failure of the land described in Schedule
A as PARCEL ONE to be contiguous to PARCEL THREE.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
CLTA Form 116.4 (Rev. 6-14-96)
ALTA or CLTA - Owner or Lender
<PAGE> 84
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515341
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
The Company hereby insures the insured against loss or damage which the
insured shall sustain by reason of the failure of the land described as Parcel
ONE in Schedule A to constitute a lawfully created parcel according to the
Subdivision Map Act (Section 66410, et seq., of the California Government Code)
and local ordinances adopted pursuant thereto.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
CLTA Form 116.7 (Rev. 6-14-96)
ALTA or CLTA - Owner or Lender
Subdivision Map Act Endorsement
<PAGE> 85
PROFORMA ENDORSEMENT
ATTACHED TO POLICY NO. 515341
ISSUED BY
FIRST AMERICAN TITLE INSURANCE COMPANY
1. The Company insures the Insured against loss or damage sustained by
reason of any incorrectness in the assurance that, at Date of Policy:
(a) According to applicable zoning ordinances and amendments thereto,
the land is classified Zone TBD.
(b) The following use or uses are allowed under that classification
subject to compliance with any conditions, restrictions, or
requirements contained in the zoning ordinances and amendments
thereto, including but not limited to the securing of necessary
consents or authorizations as a prerequisite to the use or uses:
TBD
2. The Company further insures against loss or damage arising from a
final decree of a court of competent jurisdiction
(a) prohibiting the use of the land, with any structure presently
located thereon, as specified in paragraph 1(b); or
(b) requiring the removal or alteration of the structure on the basis
that, at Date of Policy, the ordinances and amendments thereto
have been violated with respect to any of the following matters:
(i) Area, width or depth of the land as a building site for the
structure;
(ii) Floor space area of the structure;
(iii) Setback of the structure from the property lines of the
land;
(iv) Height of the structure; or
(v) Number of parking spaces.
There shall be no liability under this endorsement based on the
invalidity of the ordinances and amendments thereto until after a final decree
of a court of competent jurisdiction adjudicating the invalidity, the effect of
which is to prohibit the use or uses.
<PAGE> 86
123.2 ENDORSEMENT
(continued)
Loss or damage as to the matters insured against by this endorsement
shall not include loss or damage sustained or incurred by reason of the refusal
of any person to purchase, lease or lend money on the estate or interest covered
by this policy.
This endorsement is made a part of the policy and is subject to all of
the terms and provisions thereof and of any prior endorsements thereto. Except
to the extent expressly stated, it neither modifies any of the terms and
provisions of the policy and any prior endorsements, nor does it extend the
effective date of the policy and any prior endorsements, nor does it increase
the face amount thereof.
FIRST AMERICAN TITLE INSURANCE COMPANY
PROFORMA
By: _______________________________________
Authorized Signatory
CLTA Form 123.2 (Rev. 3-13-87)
ALTA Form 3.1 (6-1-87)
Zoning -- completed structure
<PAGE> 87
First American Title Guaranty Company
1737 North First Street Suite 100
San Jose, Ca 95112
(408) 451-7800
Fax (408) 451-7836
Sender's Direct (408) 451-7973
January 8, 1999
First American Title
1737 North First Street
San Jose, CA 95112
Attn: Carol Weir
Re: Escrow # 515341
Dear Carol,
Enclosed please find the Proforma version of the Policy to be issued in the
above referenced escrow. Review of documentation and any information requested
below may necessitate additional or amendment of exceptions. Issuance of the
final policy is conditioned upon satisfaction of the following requirements.
a) The agreed amounts for the interest in the land and/or the
mortgage to be insured must be paid;
b) The premiums, fees and charges for the policy and escrow must be
paid;
c) Documents satisfactory to us creating the interest in the land to
be insured must be signed and delivered;
d) You must tell us in writing the name of anyone not referred to in
this Proforma who will get an interest in the land or who will
make a loan on the land;
e) Sufficient evidence of the authority of the parties executing
documents on behalf of the Seller.
f) Sufficient indemnification by the Seller as to any potential
mechanic's liens by virtue of work in progress or begun prior to
the close of escrow.
g) A Lease certification executed by the Seller reflecting any leases
affecting the property.
h) Terminate lease recorded October 21, 1996 as instrument no.
13489802, Official Records.
<PAGE> 88
i) Payoff and Reconvey Deed of Trust recorded October 21, 1996, under
Series No. 13489802, Official Records.
j) Payoff and Release Financing Statement recorded October 21,1996,
under Series no. 13489805, Official Records.
k) Terminate or Exercise Option to Purchase recorded October 21,
1996, under Series No. 13489802, Official Records.
l) Release Assignment of Rents recorded October 21, 1996, under
Series No. 13489803, Official Records.
m) Pay first installment 1998-1999 Taxes.
In addition, the final policy when issued, will include as exceptions any
matters which intervene between the date of our Commitment for Title Insurance
and the closing date.
The attached proforma policy and endorsements are subject to final underwriting
approval by our underwriting department and any reinsurers.
If you have any questions or comments please let me know.
Very truly yours,
L. Lance Lewis
Advisory Title Officer - Special Projects
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYMANTEC
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTH PERIOD ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-02-1999
<PERIOD-START> APR-04-1998
<PERIOD-END> JAN-01-1998
<CASH> 150,151
<SECURITIES> 32,625
<RECEIVABLES> 67,414
<ALLOWANCES> (5,828)
<INVENTORY> 6,890
<CURRENT-ASSETS> 290,459
<PP&E> 187,711
<DEPRECIATION> (133,880)
<TOTAL-ASSETS> 505,316
<CURRENT-LIABILITIES> 220,299
<BONDS> 14,284
0
0
<COMMON> 555
<OTHER-SE> 277,056
<TOTAL-LIABILITY-AND-EQUITY> 505,316
<SALES> 458,208
<TOTAL-REVENUES> 458,208
<CGS> 68,454
<TOTAL-COSTS> 68,454
<OTHER-EXPENSES> 369,408
<LOSS-PROVISION> 458
<INTEREST-EXPENSE> 1,126
<INCOME-PRETAX> 32,877
<INCOME-TAX> 19,641
<INCOME-CONTINUING> 13,236
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,236
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
