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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995.
[ ] 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 0-18090
CAERE CORPORATION
(Exact name of registrant as specified in the charter:)
<TABLE>
<S> <C>
DELAWARE 94-2250509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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100 COOPER COURT, LOS GATOS, CALIFORNIA 95030
(Address of principal Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 395-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on March
1, 1996, as reported by NASDAQ, was approximately $111,501,827.
The number of shares of the Registrant's Common Stock outstanding as of
March 1, 1996, was 13,321,408.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Definitive proxy statement filed with the Securities and Exchange
Commission relating to the Company's 1995 Annual Meeting of
Stockholders to be held May 14, 1996 (Part III of Form 10-K).
(2) Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1995 (Parts II and IV of Form 10-K).
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PART I
ITEM 1. BUSINESS.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this Item 1 and Item 7.
Caere(R) Corporation ("Caere" or the "Company") designs, develops,
manufactures, and markets optical character recognition (OCR) software and
hardware for converting scanned and faxed images into computer usable text, as
well as computer desktop information management products. For many applications,
the Company's products provide a low cost accurate alternative to manual data
entry, which is slow, tedious, and error prone.
In December 1994, Caere acquired Calera(R) Recognition Systems, Inc.
("Calera"), another provider of optical character recognition (OCR) computer
software and hardware system products. The acquisition was accounted for using
the pooling of interests method of accounting, and all financial information
included or discussed herein has been restated to reflect the combined
operations of the two companies.
TRANSITION OF BUSINESS MODEL
During 1995, Caere transitioned its business model due to the changing
dynamics of the marketplace. In the past, OCR was primarily a "niche" market
characterized by relatively high prices and low unit volumes. Driven by the
increased power of personal computers, new scanner products with lower prices,
continuing improvements in OCR accuracy, and the education of the marketplace,
scanning and OCR solutions are beginning to reach the mainstream.
In the fourth quarter of 1994, Caere began to "bundle" limited capability
versions of its OmniPage(R) and WordScan(R) software recognition products with
scanner products from various manufacturers while continuing to sell fully
featured versions in the retail channel. The Company's objective in bundling its
software products with scanners was to expand the overall market for OCR
software by providing a larger number of scanner purchasers with experience in
the advantages of optical character recognition. "Light" versions with limited
capabilities are now bundled with most scanners being sold. This aggressive
seeding of the growing base of scanner owners has greatly expanded the number of
Caere product users. The success of this business model, compared to Caere's
former model of selling its software primarily through retail distribution, will
depend upon a decision by a significant proportion of customers who first
receive OCR software in a bundled form to upgrade to a newer or more fully
featured version of the Company's software. Such an upgrade is typically sold at
a substantially lower price than the retail price of a fully featured product.
The Company shipped more than 1,000,000 bundled units in fiscal 1995,
compared to approximately 400,000 bundled units in 1994. However, because of the
lower per-unit revenue to Caere that results from the combined sale of a bundled
product plus an upgrade, compared to the retail sales of a fully featured
version of the software, the "bundle and upgrade" business model resulted in
decreased revenues and gross margins from software recognition products in
fiscal 1995 compared to fiscal 1994, despite an increase of 111% in unit sales
for the same comparison periods. The Company believes that bundles and upgrades
will become a larger portion of its combined revenues and unit sales in the
future.
There can be no assurance that Caere's transition to the "bundle and
upgrade" business model will be successful and provide sufficient increases in
unit volume in the future to offset reduced per-unit revenue and gross margin.
In addition, customers using the bundled products may defer or forego the
purchase of Caere's more fully featured versions of OmniPage and WordScan
products if they find that the bundled products satisfy their recognition needs.
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PRODUCTS
The Company offers a product line designed to accommodate the diversity of
information and data entry requirements. Caere's products fall into two general
categories:
(1) SOFTWARE: Software products for the information management market that
offer a range of OCR, forms, and document management products that
provide personal computer users tools to manage, intelligently and
efficiently, the documents, images, forms and faxes that cross their
desktops.
(2) HARDWARE: Hardware products for the data capture market, which include
bar code scanners and OCR readers for transaction processing
applications such as high-volume data entry and check verification.
Customers of these products include retail establishments, government
agencies, banks, utility companies, and other organizations.
Additionally, the Millennium Series(R) provides hardware and software
solutions for high-speed commercial OCR applications.
Caere's products can be used with a range of computer systems, such as IBM,
IBM-compatible, and Apple Macintosh personal computers. Each product is designed
to accomplish the same overall goal: to improve the speed, accuracy, and
simplicity of information management.
SOFTWARE PRODUCTS
OmniPage Professional(R)
Caere's flagship product, OmniPage Professional 6.0 for Windows, is a
customizable fully featured page recognition solution for power users. OmniPage
Pro(R) is designed for the text handling professional who needs more than basic
OCR capabilities. OmniPage Pro was the first OCR product that allows the user to
recognize, edit, and save complex documents containing text and images in their
original full page formats. Using Caere's True Page(R) recognition, the user can
edit graphics contained on a recognized page simply by clicking on the image.
OmniPage Pro utilizes a combination of technologies, including neural networks,
linguistic analysis, character experts, and grayscale data to improve accuracy
on degraded documents.
OmniPage Professional for the Macintosh includes all of the features found
in OmniPage Pro for the personal computer ("PC"). It also offers many advanced
System 7 capabilities, including support of Publish, which allow users to scan a
document once and electronically publish it to subscribers on a network. The
program also supports Apple Events, which allows other software programs to
access OmniPage Pro.
OmniPage
OmniPage is Caere's mid-range offering in the information recognition
product line. It utilizes the same AnyFont(TM) recognition technology as
OmniPage Pro while lacking some of its more sophisticated features such as the
verification window, custom character feature, and graphic editing capabilities.
OmniPage includes an interactive spell checker specially designed for text
recognition.
OmniPage Limited Edition(TM)
OmniPage Limited Edition is a limited feature version of OmniPage that
allows an end user to perform OCR on a scanned document and save the document to
a file. OmniPage Limited Edition is bundled with most of the scanners offered by
the Company's scanner partners. A number of scanner purchasers upgrade to the
Company's fully featured products after experiencing the advantages of optical
character recognition in OmniPage Limited Edition.
OmniPage Direct(TM)
Rounding out the OmniPage product family is OmniPage Direct, a lower-cost,
easy to use version of OmniPage that scans text directly into a word processing
or spreadsheet program. OmniPage Direct offers direct access and input
capabilities from both Windows and Macintosh software, reducing the complexity
of scanning text and numbers into other applications.
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WordScan Plus
WordScan Plus, developed by Calera, is a full-featured and accurate page
recognition product that integrates with the most popular products being used in
Windows. Features like OLE 2.0 support, drag and drop recognition capability,
and a Chameleon Toolbar(TM) that automatically takes on the look and feel of the
user's office suite enable WordScan Plus to benefit from popular Windows
programs. WordScan Plus directly integrates with all leading office suites, word
processors, electronic mail systems, and facsimile applications.
WordScan
WordScan, also developed by Calera, is Caere's low-end partner to WordScan
Plus. It offers basic page recognition, integrated with many popular Windows
applications.
PageKeeper(R)
PageKeeper, Caere's entry into the text search and retrieval market,
incorporates newly developed "weighted relevance searching" and "document
similarity" technologies as it examines the content of the documents under
review. PageKeeper takes information from a local hard disk, network, or scanner
and creates a supercompressed database of both text and images. PageKeeper
incorporates the OmniPage AnyFont recognition capability to convert scanned
documents into computer-literate files automatically. Because PageKeeper stores
both text and images, users can electronically file documents in their original
format. Magazine articles with charts and graphs, datasheets with illustrations,
or letters with signatures can be stored using minimal disk space. PageKeeper
automatically indexes the database, eliminating the need to manually index or
assign keywords to the information. It presents the results of search requests
in the order of relevance to the original request using its weighted relevance
retrieval feature.
OmniForm(TM)
OmniForm converts paper forms to electronic forms with the click of a
button. Simply scan or fax documents into a computer and OmniForm creates an
electronic version using some of Caere's OCR technologies. OmniForm users also
can design their own forms, complete with fonts, graphics, and logos, using the
custom toolset and Form Assistant(TM). In addition, OmniForm allows for
efficient completion and processing of forms by accepting input, performing
calculations, validating entries and creating databases which can be searched,
sorted, imported, and exported to popular database applications.
License of Technology
In addition to the application products described above, Caere continues to
license its OCR technology to a broad range of computer equipment manufacturers,
systems integrators, and developers for inclusion as components in more complex
end user products, including document management and retrieval systems, forms
processing systems, resume screening systems, and standalone systems.
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The chart below shows system requirements and suggested retail price for
the Company's significant software products.
SELECTED SOFTWARE PRODUCTS
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SUGGESTED
PRODUCT SYSTEM REQUIREMENTS RETAIL PRICE*
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OmniPage Pro -- Windows 80386 or above based personal computers, 8 MB $ 695
RAM, 20 MB disk space, Microsoft Windows 3.1 or
later
OmniPage Pro -- Mac Macintosh computer with 68020 processor or $ 695
above, 8 MB RAM, 8 MB disk space, System 7.0 or
above
OmniPage Pro -- Windows Retail 80386 or above based personal computers, 8 MB
Upgrade RAM, 20 MB disk space, Microsoft Windows 3.1 or $ 129**
later
OmniPage Pro -- Mac Retail Macintosh computer with 68020 processor or
Upgrade above, 8 MB RAM, 8 MB disk space, System 7.0 or $ 149**
above
PageKeeper -- Windows version 80386 or above based personal computers, 8 MB
2.0 RAM, 15 MB disk space, Microsoft Windows 3.1 or $ 195
later
WordScan Plus -- Windows 80386 or above based personal computers, 4 MB $ 595
RAM, 13 MB disk space, Microsoft Windows 3.1 or
later
OmniForm -- Windows 80386 or above based personal computers, 8 MB $ 349
RAM, 8 MB disk space, Microsoft Windows 3.1 or
later
</TABLE>
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* Suggested Retail Price as of March 1, 1996.
** Estimated Street Price as of March 1, 1996.
Note: All Caere products support a wide range of output file formats and
scanners. Output file formats include, but are not limited to: WordPerfect, Word
for Windows, Lotus 1-2-3, and Excel. Supported scanners include, but are not
limited to: Hewlett Packard, Microtek, Epson, Apple, Canon, and Fujitsu.
OMNIPAGE AND WORDSCAN PAGE RECOGNITION PROCESS
The process by which Caere's recognition products recognize text involves
converting the electronic output of a scanner into computer usable files through
a series of complex software algorithms. The electronic image produced by the
scanner is comprised of white or black picture elements (pixels), usually 90,000
pixels per square inch, each rendered to the computer as a 0 or a 1,
representing either a white or a black pixel. Before the application of
recognition products such as OmniPage, a scanner's electronic output could be
displayed and manipulated only as an image on a computer's monitor; the computer
did not recognize that image as a data file usable in an application program
such as a word processor or spreadsheet.
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The graphic below illustrates the process by which scanned text or numeric
data is converted into computer usable form by the Company's OmniPage or
WordScan products.
GRAPHIC
Caere's products recognize an image in two steps. First, they analyze the
image of the page to determine which parts are text and numeric data and
determine the structure of the page layout. Tables, columns, and paragraphs are
identified and located. They then examine and identify the characters and
produce a file of the character data contained in words, including page
formatting information such as tables, columns, paragraphs, spacing, bold,
italics, and underlines that are necessary to allow manipulation of the data as
a text file.
OmniPage Pro 6.0 employs a combination of technologies, referred to as
Caere's 3D OCR(TM) and AnyFont technologies, to achieve the highest degree of
accuracy on many different types of documents. OmniPage Pro is the first OCR
product to utilize grayscale information to analyze characters the way a human
eye does. Character experts view certain character attributes like a closed loop
or crossed downward stroke to identify the unique set of features inherent in
each character. Neural networks have been developed on powerful mainframe
computers to "learn" what makes up one character versus another, a methodology
known as "feature recognition." Caere's page recognition products analyze each
character image according to proprietary algorithms. Feature recognition enables
the OmniPage products to provide the AnyFont capability that recognizes text in
almost any type style and size.
HARDWARE PRODUCTS
OCR Systems
Caere has produced high-quality handheld and slot-reader OCR systems since
1977. This line of data capture OCR systems reads single lines of characters.
These desktop systems -- consisting of an input device, such as a wand,
slot-reader or motorized slot-reader, a controller, and an interface cable --
are designed for transaction processing applications that do not require
variable font recognition technology, but demand extremely high accuracy. Common
applications involve entering customer account numbers or data from billing
documents into a computer. Caere's systems accelerate transaction processing,
while reducing operator fatigue and key entry errors.
Caere's 800 Series Combo Reader, which works with a wide variety of
computers, integrates OCR, bar code, and magnetic stripe reading capabilities in
a single unit. This provides cost-effective and versatile functionality for a
wide range of applications in remittance processing, banking, and point-of-sale
environments. The 800 Series is also widely used by government organizations,
post offices, and the public utility industry. The U.S. Government, for example,
creates military rosters by reading social security numbers, post
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offices scan certified mail article numbers, and Caere's electric, gas, and
telephone utility customers use the 800 Series to accelerate payment processing.
Caere's 1500 Series Document Processor has all the capabilities of the 800
Series, but handles documents in batches while processing over 3,000 per hour.
It is the smallest desktop reader/sorter of its type, with many features only
found on high-end machines.
Approximately 25% of Caere's OCR data capture business is the result of
original equipment manufacturer (OEM) sales; that is, sales to firms that
purchase Caere's OCR data capture technology and then build it into their own
products.
Bar Code Systems
Bar code readers recognize a series of vertical bars and spaces that
represent data. They are used in high-volume transaction processing
applications, such as point-of-sale operations, where human readability of data
is not necessary. Bar code systems tolerate lower-quality media than
limited-font OCR systems, and are typically less expensive than OCR systems.
Caere's bar code product line, introduced in 1983, includes both stand-alone
decoders that can be attached externally to personal computers, and internal
board-level decoders used in personal computers for cost and space savings.
Caere bar code products cater to the higher-end of the market with
feature-rich decoders and one of the industry's first five-year warranties.
Caere's decoders are used in manufacturing, retail point of sale, inventory,
asset tracking, and a myriad applications where value added resellers need more
functionality from bar code readers than just decoding.
Caere's Easy-Scanner(TM) 1000 and 2000 Series bar code systems are
decoder/wedges that can accommodate several input devices and connect easily to
keyboard ports for simple interfacing to over 350 different types of computers
and terminals. With three input ports, these decoder/wedges can accept input
from a bar code wand, CCD, laser, badge reader, or magnetic stripe reader and/or
serial data from portable data terminals and scales. Any data received can be
filtered for acceptance then rejected, transmitted or re-formatted to fit the
host application with over 90 built-in data editing commands. The Easy-Scanner
also features multiple output ports to accommodate a variety of interfaces such
as RS-232, parallel, and over 350 keyboard wedge protocols.
The Model 1731 Integrated Laser, one of the most versatile and effective
bar code scanners on the market today, combines many of Caere's interfacing and
data editing features with a high-performance handheld laser scanner from PSC,
Inc., a leading bar code laser manufacturer.
Millennium Series Professional Card System
For production OCR applications, Caere offers the M/Series(R) Professional
Card System. This system offers PC add-in cards and Windows software in
combination for business OCR needs. All the M/Series products were developed by
Calera.
M/Series Accelerator Card
For accelerated OCR processing, Caere offers the M/Series Accelerator Card.
The Card is based on the AMD RISC architecture and offers a separate AT
coprocessor for either real-time or background processing. The Card is designed
for mid- to high-volume OCR processing needs.
M/Series Professional Software
The M/Series Professional software is a Windows-based interface for
controlling large OCR volumes in various stages of progress. It was specifically
designed to work with Caere's M/Series hardware OCR engines.
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M/Series MM600, MM1200, and MM2400 OCR Systems
These RISC-based production OCR systems are designed especially for
high-volume OCR applications like document management, forms processing, resume
tracking, and full text retrieval. M/Series Pro software adds even further
enhanced throughput.
The chart below shows typical applications, features, available interfaces,
and input devices for selected Caere OCR and bar code transaction processing
products.
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TYPICAL AVAILABLE INPUT
PRODUCTS APPLICATIONS FEATURES INTERFACES DEVICES
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<S> <C> <C> <C> <C>
OCR
OCR/Bar Code Point of sale Reads the following fonts: Apple Macintosh Handheld wand
Combo 800 Series Remittance processing OCR-A-Full AT&T Fixed slot
and 1500 Document Document control Alphanumeric Burroughs Motorized slot
Processor Manufacturing applications OCR-A Eurobanking OCR-B DEC (AutoSlot)
Hospitals ECMA11 IBM Fixed mount
Banking OCR-B Eurobanking IBM PC and CCD scanner
Government E13B (MICR) compatibles Magnetic
Office file tracking PostNET ITT stripe
Postal All bard code symbologies Etc. (over 350) Bar code pen
Dual-track magnetic stripe Badge reader
Fully user programmable
BAR CODE Manufacturing applications Reads and autodiscriminates Apple Macintosh Wand
1000 Series Inventory control the following symbologies: AT&T Slot
1700 Series Work-in-process tracking Code 39, Code 128, DEC Handheld and
2000 Series Shop floor control Codabar, Interleaved IBM Lasers
Warehousing 2 of 5, IMB PC and Laser Diode
Point of sale UPC, EAN and MSI compatibles CCD scanner
Hospital health industry Pleassey ITT Magnetic
Video cassette rental Fully user programmable Memorex stripe
Government Dual-track NCR Badge reader
Document tracking Magnetic stripe UNISYS
Wyse
Etc. (over 300)
</TABLE>
DISTRIBUTION AND SUPPORT
Domestically, the Company markets its software products through
distributors, including Ingram Micro, Merisel, Tech Data, and to retail dealers
and chains such as OfficeMax, Best Buy, CompUSA, Computer City, and Egghead.
High-speed and integrator products are primarily sold through Law Cypress
Distributing Company, which works with the Company to serve value-added
resellers and systems integrators of imaging products. Accordingly, the Company
will be dependent upon the continued viability and financial stability of such
distributors and resellers, which are not under the direct control of the
Company.
Sales of software products to Ingram Micro represented approximately 22%,
23%, and 12% of the Company's net revenues during 1995, 1994, and 1993,
respectively. Sales of software products to Merisel represented approximately
6%, 7%, and 11% of the Company's net revenues during 1995, 1994, and 1993,
respectively. Should either of these distributors have a significant change in
its quarterly buying pattern or its financial condition, the Company could
experience a material adverse impact on its business and financial results. In
addition, there are increasing numbers of companies competing for access to
distribution channels. Distributors and retailers often carry competing
products. Retailers of Caere's products typically have a limited amount of shelf
space and promotional resources for which there is intense competition. There
can be no assurance that distributors and retailers will continue to provide the
Company's products with adequate levels of shelf space and promotional support.
Failure to do so would have a material adverse effect on the Company's results
of operations.
The Company markets its transaction processing OCR and bar code products
primarily through independent distributors, value-added resellers ("VARs"), and
hardware OEMs. The Company's agreements with OEMs typically grant an OEM the
right to distribute the Company's products with the OEMs'
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microcomputers and other data collection equipment. VARs purchase the Company's
products and incorporate them into systems integrated with the products of other
manufacturers.
Internationally, the Company's products are sold through distributors. At
December 31, 1995, the Company had distributors servicing Western Europe,
Canada, Australia, New Zealand, South Korea, Mexico, and Japan. The Company will
be dependent upon the continued viability and financial stability of such
distributors, which are not under the direct control of the Company.
International revenues in 1995, 1994, and 1993 were approximately $15,154,000,
$18,125,000, and $15,725,000, respectively. The Company bills its international
customers in U.S. dollars; therefore, such revenues are not subject to foreign
currency fluctuations. However, fluctuations in exchange rates could affect
demand for the Company's products by causing their prices to be out of line with
products priced in the local currency. The Company's international revenues are
subject to certain risks, such as export controls, import restrictions, longer
payment cycles, greater difficulties in accounts receivable collections and the
requirement of complying with a wide variety of foreign laws. Although Caere has
not previously experienced any difficulties under foreign law in exporting its
products to other countries, there can be no assurance that the Company will not
experience such difficulties in foreign countries in the future. Any such
difficulties would have a material adverse effect on the Company's international
sales. The Company is not currently affected adversely by such controls or
regulations and is not aware of pending changes in export regulations that would
adversely affect its international business or its ability to collect foreign
receivables.
The Company's agreements with its distributors generally provide for a
limited right of return, with the distributor receiving full credit of the
product's purchase price, less any discounts, against a purchase order of equal
or greater value. The Company monitors its returns and records provisions for
estimated returns as shipments are made. During 1995, 1994, and 1993, returns
have represented 3.7%, 4.3%, and 7.0% of revenues, respectively. Although Caere
believes that it provides adequate allowances for returns, there can be no
assurance that actual returns will not exceed the Company's allowances. Any
product returns in excess of recorded allowances could result in a material
adverse effect on operating results of the Company.
The Company has a domestic sales and support staff of 59 employees located
throughout the United States. During 1992, the Company established a European
sales office, Caere GmbH, in Munich, Germany. Domestically, information
management customers who register with the Company currently receive limited
hotline technical support and product information at no cost. Additional
technical support services are available on a "fee for support" basis
thereafter. Outside of the U.S., information management customers currently
receive technical support from a variety of Caere partners on a non-fee basis.
The Company warrants to end users that software disks are free from media
defects for three months. OCR and bar code hardware customers receive free
telephone support, including assistance with installation, programming, and
trouble shooting. OCR hardware products are warranted for one year, while bar
code hardware products are warranted for between one and five years. In
addition, the Company provides hardware customers with spare parts and repair
services. OCR and bar code hardware customers also may purchase annual service
contracts under which the Company performs service work as needed for the
duration of the service contract.
COMPETITION
The information management market is highly competitive and subject to
rapid change along with constant pressure to reduce prices. The Company believes
that the principal competitive factors in the software products market include
accuracy, ease of understanding and use, product reliability, tolerance for poor
media, product features and functions, price/performance characteristics, brand
recognition, and quality of product support. Caere's competition within the
microcomputer software industry ranges from large corporations to small
independent software vendors. Caere also expects to encounter continued
competition both from established companies and from new companies that are now
developing, or may develop, competing products. Competition in the software
products market can be grouped into the following categories:
The OmniPage family of recognition products contends with competition in
two markets. First, several companies offer packaged OCR application programs
through the retail distribution channel. These include
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Xerox Imaging Systems and several small independent software vendors. The
Company faces significant price competition in the retail channel. The second
competitive market for the OmniPage family of recognition products is the OEM
and reseller market in which companies license OCR technology to incorporate
into different application software products or to "bundle" the technology with
related hardware products such as scanners or fax modems. Competitors include
Xerox Imaging Systems and several small independent software vendors. Adobe
Systems Incorporated is also a potential major competitor in this market. The
Company experiences significant price competition in the OEM market and expects
this to continue. In addition, the "bundled" products themselves present
competition to the Company's retail shrinkwrap product.
PageKeeper has few direct competitors as it represents a fairly new product
category of document entry and management for personal computer users and small
work groups. However, there are document management type products being offered
for high end applications by FileNet, IBM, and Verity. For personal computer
users, competitive product offerings include Imara by Imara, FileMagic by
Westbrook, and Watermark Discovery Edition by Watermark (a wholly owned
subsidiary of FileNet). Caere expects to face increasing competition in this
product category from a variety of software developers in the future.
The Company believes that the principal competitive factors in the hardware
products market include accuracy, tolerance for poor media, product features and
functions, and reliability. Price is also an important factor in the bar code
market. The major competition in the OCR segment of the Company's hardware
business is Siemens CGK. In the bar code segment of the hardware business there
are numerous competitors, including Symbol Technologies.
Many of the Company's competitors have substantially greater financial,
marketing, recruiting and training resources than the Company. There can be no
assurance that the Company will be successful in competing in the information
management market.
PRODUCT DEVELOPMENT
The development and enhancement of the Company's OCR and desktop document
management products have recently absorbed and are expected to continue to
consume the greatest part of the Company's development effort. The Company
believes that it must continue to upgrade and enhance its existing products to
ensure that its products remain competitive. The introduction of new or enhanced
products requires Caere to manage the transition from older products. Caere must
manage new product introductions so as to minimize disruption in customer
ordering patterns, avoid excessive levels of older product inventories and
ensure that adequate supplies of new products can be delivered to meet customer
demands. There can be no assurance that future product transitions will be
managed successfully by the Company.
Certain products sold by the Company through its Caere Affiliate Publishing
(CAP) program are developed by and remain the property of third parties. Caere
maintains exclusive rights to market those products for the term of the license
agreement in exchange for a royalty. Currently, OmniForm is the only Caere
product begin sold through the CAP program.
During 1995, 1994, and 1993, research and product development expenses were
approximately $7,915,000, $9,072,000, and $8,667,000, respectively. In addition
to internal product development, the Company incorporates software produced by
other companies into its products. All such incorporation or use is pursuant to
licensing agreements. See also "Product Protection". There can be no assurance
that the research and development expenses incurred will not exceed development
budgets or that new products will achieve market acceptance and generate sales
sufficient to offset development costs. Furthermore, Caere will be subject to
the risk that significant portions of the functionality provided by its OCR
products could be incorporated into computer operating systems such as those
developed and marketed by Microsoft Corp., Apple Computer, Inc., IBM and Novell,
Inc., which could have a material adverse effect on the Company's revenues and
results of operations.
From time to time, the Company has experienced delays in product
development and "debugging" efforts, and could experience such delays in the
future. Significant delays in developing, completing, or shipping new or
enhanced products could adversely affect the Company's financial results. In
addition,
9
<PAGE> 11
programs as complex as those offered by Caere may contain a number of undetected
errors or bugs when they are first introduced or as new versions are released.
There can be no assurance that, despite testing by Caere and third party test
sites, errors will not be found in future releases of the Company products which
would negatively affect market acceptance of these products. Furthermore, as the
Company's products become more complex, development cycles become longer and
more expensive. There can be no assurance that the Company will be able to
respond effectively to technological changes or new product announcements by
others, or that the Company's product development efforts will be successful.
INVESTMENT IN ZYLAB INTERNATIONAL, INC.
In November, 1995, Caere invested $2.4 million for a 19.9% ownership stake
in ZyLab International, Inc. ("ZyLab") and was granted an option to purchase the
remaining 81.1%. ZyLab is a developer of full text indexing and retrieval
software that simplifies the process of searching large volumes of information
from a variety of sources. Working together, Caere and ZyLab plan to incorporate
Caere's OCR and PageKeeper technology with ZyLab's full text retrieval
technology to develop solutions for document intensive applications. There can
be no assurances that such product development efforts will be successful.
BACKLOG
The majority of the Company's net revenues in a particular quarter has
typically resulted from orders booked in that quarter. The Company considers
backlog to be orders received and due to be filled within six months. Orders
included in backlog typically may be canceled or rescheduled by customers
without significant penalty. The Company's backlog at December 31, 1995, was
approximately $449,000 as compared to backlog at December 31, 1994, of
approximately $573,000. Backlog primarily represents orders for the Company's
hardware products, which represented approximately 16% of net revenues during
1995. There is typically little or no backlog for the Company's software
products, as these products ship as soon as orders are received. Backlog as of
any particular date should not be relied upon as indicative of the Company's net
revenues for any future period.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations for its OCR and bar code business
products and its M/Series Professional Card Systems consist of final assembly,
test, burn in, and quality control for its systems, subassemblies, and
components. Components for products are procured by the Company and then
supplied to third party contractors. Many of these components are tested and
burned in prior to delivery to contractors to reduce failure rates. Major
subassemblies such as printed circuit boards are contracted to third parties for
assembly and initial testing.
Most of the components used in the manufacture of the Company's products
are available from multiple sources of supply. Certain components used in the
manufacture of the Company's OCR products are currently available only from a
single source. Although the Company generally maintains a several-month
inventory level of these components, failure of a single-source supplier to
deliver required quantities of such materials could materially and adversely
affect the Company's operating results. The Company believes that, if necessary,
it could develop alternative sources of supply for these components and parts,
or re-engineer the products. However, any delays in developing such alternative
sources of supply or in the re-engineering of the products could have a material
adverse effect on the Company's results of operations.
PRODUCT PROTECTION
The Company relies upon proprietary technology, trade secrets, know-how,
continuing technological innovations and licensing opportunities to maintain its
competitive position. The Company attempts to protect its technology and trade
secrets with patents, copyrights, trade secret laws, technical measures and non-
disclosure agreements. The Company's policy is to file patent and copyright
applications to protect technology,
10
<PAGE> 12
inventions and improvements that are important to the development of its
business. The Company has been issued a series of patents which directly relate
to its products. Assurance cannot be given, however, that any patents issued to
the Company will not be challenged, invalidated or circumvented or that the
rights granted by the patents will provide competitive advantages to the
Company.
In order to protect its ownership rights in its software products, the
Company licenses such products to OEMs and resellers on a non-exclusive basis
with contractual restrictions on reproduction, distribution and transferability.
In addition, the Company generally licenses it software in object code form
only. The Company licenses its software products to end users by use of a
"shrink-wrap" customer license that restricts the end user to internal use of
the product. Despite these contractual restrictions, it may be possible for
competitors or users to illegally copy the software or obtain information which
the Company regards as proprietary.
The Company also relies on trade secrets and proprietary know-how. The
Company has been and will continue to be required to disclose its trade secrets
and proprietary know-how to employees and consultants. Although the Company
seeks to protect its trade secrets and proprietary know how, in part by entering
into confidentiality agreements with such persons, there can be no assurance
that these agreements will not be breached, that the Company would have an
adequate remedy for any breach, or that the Company's trade secrets will not
otherwise become known or be independently discovered by competitors.
Because of technological developments in the industry in which the Company
markets its products, it is possible that certain of the Company's products may
infringe third party patents rights. From time to time the Company has received,
and in the future may receive, notices of claims of infringement. In response to
these claims, the Company may have to obtain licenses for an allegedly
infringing product or stop selling such product and be liable for damages in
addition to defending such actions in costly litigation. However, there can be
no assurances that such licenses or rights could in fact be obtained on
commercially reasonable terms.
In addition, Caere has developed products in the past that incorporate
technology based on licenses received from third parties. The Company's ability
to continue to develop and commercialize its products will be affected by its
ability to renew existing technology licenses and to obtain technology licenses
from third parties in the future. There can be no assurance that the Company
will be able to renew its current licenses or obtain any necessary licenses in
the future. The failure to renew existing licenses or to obtain any licenses
that may be required in the future could have a material adverse effect on the
Company.
Policing unauthorized use of technology is difficult, especially in the
software industry. Software piracy can be expected to be a persistent problem
for the software industry for the foreseeable future. Such piracy can be
particularly egregious in international markets in which the Company distributes
its products. The Company believes that, due to the rapid pace of technological
change in the industry, factors such as knowledge, ability, frequent product
enhancements, timeliness and quality of product support and the experience of
the Company's employees are more significant as a means to protect the Company's
competitiveness than patent, copyright and trade secret protection.
EMPLOYEES
As of December 31, 1995, Caere employed 223 people. None of the Company's
employees is represented by a labor union. The Company has experienced no work
stoppages and believes that its employee relations are good. The Company has
utilized the services of consultants, third-party developers, and other vendors
extensively in its sales, development, and manufacturing activities
Competition in the recruiting of personnel in the computer and data
recognition industry is intense. The Company believes that its future success
will depend in part on its continued ability to hire and retain qualified
management, marketing, and technical employees, and independent contractors.
There can be no assurance that the Company will be able to attract and retain
enough qualified employees. Caere does not carry any key person life insurance
with respect to any of its personnel.
11
<PAGE> 13
ADDITIONAL RISK FACTORS
Caere's business is subject to the following risks and uncertainties in
addition to those described above.
Fluctuating Revenues and Operating Results
Caere's revenues and operating results have fluctuated in the past and the
Company's future revenues and operating results are likely to do so in the
future, particularly on a quarterly basis. Caere's experience has been that a
disproportionately large percentage of shipments has occurred in the third month
of each fiscal quarter and that shipments tend to be concentrated in the latter
half of the month. Backlogs early in a quarter are not generally large enough to
assure that Caere will meet its revenue target for any particular quarter. A
shortfall in shipments at the end of any particular quarter may cause the
results of operations for that quarter to fall significantly short of
anticipated levels.
The Company's quarterly operating results may continue to fluctuate due to
numerous other factors. Some of these factors include the demand for the
Company's products, seasonality, customer order deferrals in anticipation of new
versions of the Company's products, the introduction of new products and product
enhancements by the Company or its competitors, including the effects of filling
the distribution channels following such introductions and of potential delays
in availability of announced or anticipated products, price changes by the
Company or its competitors, product sales mix, timing of acquisitions and
associated costs, and timing of significant marketing and sales promotions.
Termination of ViewStar Merger Agreement
On October 9, 1995, the Company entered into an Agreement and Plan of
Merger and Reorganization (the "Agreement") with ViewStar Corporation
("ViewStar") under the terms of which ViewStar would become a wholly owned
subsidiary of Caere. On January 20, 1996, the Company notified ViewStar of the
Company's termination of the Agreement. The Company received a response from
ViewStar denying the Company's right to terminate and notifying the Company of
ViewStar's intent to terminate the Agreement. Both Caere and ViewStar have
demanded payment from each other of the breakup fee provided for in the
Agreement as well as expenses incurred in connection with the transaction.
Neither Caere nor, as far as Caere is currently aware, ViewStar has commenced
any legal proceedings to date regarding this matter.
Lack of Product Revenue Diversification
Caere derived approximately 69% of sales in 1995 from the OmniPage and
WordScan line of products. Caere expects that these software products will
continue to account for a majority of the Company's sales in the future. A
decline in demand for these products as a result of competition, technological
change or other factors would have a material adverse effect on the Company's
results of operations.
Mature Markets for Certain OCR Products
For fiscal years ended December 31, 1993 and 1994 and 1995, Caere derived
approximately 22%, 15% and 23%, respectively, of its net revenues from sales of
its transaction processing OCR and bar code products. The market for both of
these sets of products is relatively mature and may not be subject to growth or
expansion by the Company in the future. There can be no assurance that Caere's
hardware-based transaction processing products will continue to be a significant
source of net revenues for the Company.
Possible Volatility of Caere Stock Price
The prices for Caere Common Stock have fluctuated widely in the past. The
management of Caere believes that such fluctuations may have been caused by
announcements of new products, quarterly fluctuations in the results of
operations and other factors, including changes in conditions of the personal
computer industry in general. Stock markets have experienced extreme price
volatility in recent years. This volatility has had a substantial effect on the
market prices of securities issued by Caere and other high technology companies,
often for reasons unrelated to the operating performance of the specific
companies.
12
<PAGE> 14
Caere anticipates that prices for Caere Common Stock may continue to be
volatile. Such future stock price volatility for Caere Common Stock may provoke
the initiation of securities litigation, which may divert substantial management
resources and have an adverse effect on the Company and its results of
operations.
Effect of Antitakeover Provisions of Delaware Law and Caere's Charter
Documents
Caere is a corporation organized under the laws of the state of Delaware.
Certain provisions of the Delaware Law and the charter documents of Caere may
have the effect of delaying, deferring or preventing changes in control or
management of Caere. Caere is subject to the provisions of Section 203 of the
Delaware Law, which has the effect of restricting changes in control of a
company. In addition, Caere's Board of Directors is divided into three separate
classes. Caere's Board has authority to issue up to 2,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of such shares without any further vote or action by
its stockholders. Caere also has a Preferred Share Rights Plan (the "Caere
Rights Plan"). The effect of the antitakeover protections of the Delaware Law,
the Caere charter documents and the Caere Rights Plan could be to make it more
difficult for a third party to acquire, or could discourage a third party from
acquiring, a majority of the outstanding stock of Caere.
ITEM 2. PROPERTIES.
The Company's principal administrative, marketing, manufacturing, and
product development facilities consist of approximately 56,000 square feet in
two buildings in Los Gatos, California. The Company occupies this space under a
lease agreement that expires in 1997. In addition, the Company leases office and
storage space in four locations in the United States for use by its regional
field sales and support staff. The Company believes that its existing facilities
are adequate for its needs for at least the next twelve months.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in certain claims arising in the normal course of
business. The extent to which these matters will be pursued by the claimants or
the eventual outcome is not presently determinable. However, Company management,
after review and consultation with the Company's counsel, believes that the
ultimate resolution of these matters will not have a material adverse effect on
its consolidated financial position or results of operations.
As previously reported, the Department of Justice (DOJ) advised the Company
on December 19, 1994 that it had commenced an investigation of the acquisition
of Calera for possible violation of Federal Anti-trust Laws. No proceedings have
been instituted to date and the Company has not received any further notice with
respect to the DOJ investigation since January, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Incorporated by reference to the section of the Company's 1995 Annual
Report to Stockholders entitled "Quarterly Results of Operations," page 30.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference to the section of the Company's 1995 Annual
Report to Stockholders entitled "Financial Highlights," page 1.
13
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference to the section of the Company's 1995 Annual
Report to Stockholders entitled "Management's Discussion and Analysis," pages 12
through 16.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated by reference to the sections of the Company's 1995 Annual
Report to Stockholders entitled "Financial Statements," pages 17 through 29.
Supplementary data for the year ending December 31, 1994, is as follows:
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
1994, QUARTER ENDED YEAR
------------------------------------------- ENDED
MAR 31 JUN 30 SEP 30 DEC 31 DEC 31
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues............................. $11,753 $13,540 $17,575 $16,262 $59,130
Earnings (loss) before income taxes...... (233) 905 3,731 (419) 3,984
Net earnings (loss)...................... (159) 618 2,548 (623) 2,384
Net earnings (loss) per share............ $ (.01) $ .05 $ .20 $ (.05) $ .18
Shares used in per share calculations.... 12,552 12,851 12,917 12,878 13,136
Common stock price per share:
High................................... $ 10.87 $ 9.00 $ 9.50 $ 18.75 $ 18.75
Low.................................... 7.75 6.62 6.62 9.12 6.62
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the sections of the Company's definitive proxy
statement for the 1996 Annual Meeting of Stockholders to be held May 14, 1996,
entitled "Election of Directors" and "Management."
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the sections of the Company's definitive proxy
statement for the 1996 Annual Meeting of Stockholders entitled "Executive
Compensation" and "Compensation of Directors."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the section of the Company's definitive proxy
statement for the 1996 Annual Meeting of Stockholders entitled "Security
Ownership of Management and Principal Stockholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the section of the Company's definitive proxy
statement for the 1996 Annual Meeting of Stockholders entitled "Executive
Compensation," "Compensation of Directors," and "Stock Option Grants and
Exercises."
14
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1. INDEX TO FINANCIAL STATEMENTS
The following documents are incorporated in Part II of this Annual Report
by reference to the 1995 Annual Report to Stockholders:
<TABLE>
<CAPTION>
ANNUAL REPORT TO
STOCKHOLDERS
----------------
<S> <C>
Independent Auditors' Report.................................................. Page 17
Consolidated Balance Sheets as of December 31, 1995 and 1994.................. Page 18
Consolidated Statements of Earnings for each of the years in the three-year
period ended December 31, 1995.............................................. Page 19
Consolidated Statements of Stockholders' Equity for each of the years in the
three-year period ended December 31, 1995................................... Page 20
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 1995.............................................. Page 21
Notes to Consolidated Financial Statements.................................... Pages 22-29
</TABLE>
With the exception of the information expressly incorporated by reference
into Items 5, 6, 7, and 8 of this Annual Report, the 1995 Annual Report to
Stockholders, attached as Exhibit 13.1, is not deemed filed as part of this
report.
The Independent Auditors' Report of Coopers & Lybrand L.L.P., independent
auditors to Calera Recognition System, Inc., dated March 4, 1994, appears on
pages IV-1 and IV-2.
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as a part of this
Annual Report and should be read in conjunction with the Financial Statements:
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not required, or not
applicable, or because the required information is included in the 1995 Annual
Report to Stockholders, filed as Exhibit 13.1.
15
<PAGE> 17
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of October 14, 1994, between the
Company and Calera Recognition Systems, Inc. (5)
3.1 Certificate of Incorporation of the Company (exhibit 3.4)(1)
3.1 (i) Certificate of Amendment filed with the Delaware Secretary of State October 13,
1994 (6)
3.1 (ii) Agreement of Merger between the Caere Acquisition Corporation and Calera
Recognition Systems, Inc. as filed with the California Secretary of State
December 20, 1994 (1) (Exhibit 3.5) (6)
3.2 By-laws of the Company (exhibit 3.5)(1)
4.1 Reference is made to Exhibits 3.1 and 3.2
*10.1 1981 Incentive Stock Option Plan, as amended, and related form of incentive stock
option agreement (exhibit 10.1)(4)
*10.2 1981 Supplemental Stock Option Plan, as amended, and related form of supplemental
stock option agreement (exhibit 10.2)(4)
10.3 Lease Agreement for 100 Cooper Court, dated November 27, 1991 between the Company
and Vasona Business Park
10.4 Lease Agreement for 104 Cooper Court, dated November 27, 1991 between the Company
and Vasona Business Park
10.5 Form of Indemnity Agreement between the Company and its officers and directors
(exhibit 10.12)(1)
*10.7 Employee Stock Purchase Plan (exhibit 10.15)(2)
*10.8 1992 Officer Bonus Plan (exhibit 10.9)(4)
*10.9 1992 Non-Employee Directors' Stock Option Plan (exhibit 10.10)(4)
10.10 Preferred Share Purchase Rights Plan (exhibit 1)(3)
*10.11 Executive Compensation and Benefits Continuation Agreement, Robert G. Teresi,
dated December 28, 1994. (6)
11.1 Statement regarding computation of net earnings (loss) per share
13.1 1995 Annual Report to Stockholders
21.1 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Coopers & Lybrand LLP
24.1 Power of Attorney. Reference is made to the signature page
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Registration Statement on Form S-1, as amended (File No.
33-30842).
(2) Incorporated by reference to the corresponding exhibit in the Company's Form
10-K Annual Report for the fiscal year ended December 31, 1990.
(3) Incorporated by reference to the indicated exhibit in the Company's Form 8-K
Current Report filed on April 18, 1991.
(4) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1991.
(5) Incorporated by reference to Caere's Registration Statement on Form S-4
(File No. 33-85840).
16
<PAGE> 18
(6) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1994.
(B) REPORTS ON FORM 8-K.
None.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAERE CORPORATION
Dated: March 25, 1996 By: /s/ BLANCHE M. SUTTER
------------------------------------
Blanche M. Sutter
Senior Vice President, Chief
Financial Officer
and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert G. Teresi and Blanche M. Sutter, or either
of them, his attorney-in-fact, each with the power of substitution, for him or
her, in any and all capacities, to sign any amendments to this Report, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------- ---------------
<C> <S> <C>
/s/ ROBERT G. TERESI Chairman of the Board, Chief March 25, 1996
- ------------------------------------------ Executive Officer (Principal
Robert G. Teresi Executive Officer)
/s/ JAMES K. DUTTON Director March 25, 1996
- ------------------------------------------
James K. Dutton
/s/ WAYNE E. ROSING Director March 25, 1996
- ------------------------------------------
Wayne E. Rosing
/s/ FREDERICK W. ZUCKERMAN Director March 25, 1996
- ------------------------------------------
Frederick W. Zuckerman
/s/ BLANCHE M. SUTTER Senior Vice President, Chief March 25, 1996
- ------------------------------------------ Financial Officer and
Blanche M. Sutter Secretary (Principal
Financial Officer and
Accounting Officer)
</TABLE>
18
<PAGE> 20
[COOPERS & LYBRAND L.L.P. LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
Calera Recognition Systems, Inc.
Sunnyvale, California
We have audited the balance sheet of Calera Recognition Systems, Inc. (the
Company) as of December 31, 1993 and the related statements of operations,
shareholders' equity and cash flows for the year then ended, before the
restatement of the cumulative effect of the change in accounting for income
taxes to $960,000, as reported in the consolidated statement of earnings and in
Note 1 to the consolidated financial statements of Caere Corporation and
subsidiaries. The financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An wait includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements, before the restatement, referred
to above present fairly, in all material respects, the financial position of
Calera Recognition Systems, Inc. as of December 31, 1993, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for income taxes.
/s/ COOPERS & LYBRAND L.L.P.
March 4, 1994
San Jose, California
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
IV-1
<PAGE> 21
[COOPERS & LYBRAND L.L.P. LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Calera Recognition Systems, Inc.
Sunnyvale, California
In connection with our audit of the financial statements of Calera
Recognition Systems, Inc. as of December 31, 1993 and for the year then ended,
we have also audited the related financial statement schedule.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
March 4, 1994
San Jose, California
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
IV-2
<PAGE> 22
SCHEDULE II
CAERE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------------------------------------------- ---------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993
Allowance for returns, coop advertising and
other customer credits....................... $1,667 $2,821 $ -- $ 2,725 $ 1,763
====== ====== ==== ====== ======
Accumulated amortization of software
development costs............................ $1,133 $ 935 $ -- $ -- $ 2,068
====== ====== ==== ====== ======
YEAR ENDED DECEMBER 31, 1994
Allowance for returns, coop advertising and
other customer credits....................... $1,763 $2,831 $ -- $ 2,321 $ 2,273
====== ====== ==== ====== ======
Accumulated amortization of software
development costs............................ $2,068 $ 662 $ -- $ -- $ 2,730
====== ====== ==== ====== ======
YEAR ENDED DECEMBER 31, 1995
Allowance for returns, coop advertising and
other customer credits....................... $2,273 $1,828 $ -- $ 2,399 $ 1,702
====== ====== ==== ====== ======
Accumulated amortization of software
development costs............................ $2,730 $ 683 $ -- $ -- $ 3,413
====== ====== ==== ====== ======
</TABLE>
<PAGE> 23
CAERE CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------- --------------------------------------------------------- ------------------
<C> <C> <S> <C>
2.1 -- Agreement and Plan of Reorganization dated as of October
14, 1994, between the Company and Calera Recognition
Systems, Inc. (5)(exhibit 2.01)
3.1 -- Certificate of Incorporation of the Company (1)(exhibit 3.4)
3.1(i) -- Certificate of Amendment filed with the Delaware
Secretary of State October 13, 1994. (6)
3.1(ii) -- Agreement of Merger between the Caere Acquisition
Corporation and Calera Recognition Systems, Inc. as filed
with the California Secretary of State December 20, 1994. (6)
3.2 -- By-laws of the Company (1)(exhibit 3.5)
4.1 -- Reference is made to Exhibits 3.1 and 3.2
*10.1 -- 1981 Incentive Stock Option Plan, as amended, and related
form of incentive stock option agreement (4)(exhibit 10.1)
*10.2 -- 1981 Supplemental Stock Option Plan, as amended, and
related form of supplemental stock option agreement (4)(exhibit 10.2)
10.3 -- Lease Agreement for 100 Cooper Court, dated November 27,
1991 between the Company and Vasona Business Park
10.4 -- Lease Agreement for 104 Cooper Court, dated November 27,
1991 between the Company and Vasona Business Park
10.5 -- Form of Indemnity Agreement between the Company and its
officers and directors (1)(exhibit 10.12)
*10.7 -- Employee Stock Purchase Plan (2)(exhibit 10.15)
*10.8 -- 1992 Officer Bonus Plan (4)(exhibit 10.9)
*10.9 -- 1992 Non-Employee Directors' Stock Option Plan (4)(exhibit 10.10)
10.10 -- Preferred Share Purchase Rights Plan (3)(exhibit 1)
10.11 -- Executive Compensation and Benefits Continuation
Agreement, Robert G. Teresi, dated December 28, 1994. (6)
11.1 -- Statement regarding computation of net earnings (loss)
per share
13.1 -- 1995 Annual Report to Stockholders
21.1 -- Subsidiaries of the Company
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Coopers & Lybrand LLP
24.1 -- Power of Attorney. Reference is made to the signature
page
</TABLE>
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* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Registration Statement on Form S-1, as amended (File No.
33-30842).
(2) Incorporated by reference to the corresponding exhibit in the Company's Form
10-K Annual Report for the fiscal year ended December 31, 1990.
(3) Incorporated by reference to the indicated exhibit in the Company's Form 8-K
Current Report filed on April 18, 1991.
(4) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1991.
(5) Incorporated by reference to Caere's Registration Statement on Form S-4
(File No. 33-85840).
(6) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1994.
<PAGE> 1
Exhibit 10.3
LEASE
THIS LEASE is made on this 27 day of Nov. ,1991, by and between VASONA
BUSINESS PARK, a California General Partnership, (hereinafter called "Lessor")
and CAERE CORPORATION, a California Corporation, (hereinafter called "Lessee").
IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES AGREE
AS FOLLOWS:
1. Premises. Lessor leases to Lessee and Lessee leases from Lessor,
upon the terms and conditions herein set forth, those certain premises
("Premises") situated in the City of Los Gatos, County of Santa Clara,
California, as outlined in Exhibit "A" attached and described as: Approximately
33,020 square feet of space in that industrial building commonly known as 100
Cooper Court.
2. Term. The term of this Lease shall be for five (5) years, commencing
February 1, 1992, and ending on January 31,1993, unless sooner terminated
pursuant to any provisions hereof.
3. Rent. Lessee shall pay to Lessor rent for the Premises of Nineteen
Thousand Seven Hundred Sixty-four and no/100ths Dollars ($19,764.00) per month
in lawful money of the United States of America, subject to adjustment or
offset, prior notice or demand, at such place as may be designated from time to
time by Lessor as follows: $19,764.00 shall be paid upon execution of the
Lease, which sum represents the amount of the first month's rent. A deposit of
$19,764.00 as a Security Deposit shall be made by Lessee and held by the Lessor
pursuant to Paragraph 5 of this Lease, and shall also be paid upon execution of
the Lease. If Lessee is not in default of any provisions of this Lease, this
sum, without interest thereon for the first two (2) years of the Lease, and
with interest thereon for the last three (3) years of the Lease, shall be
applied toward the rent due for the last month of the term of this Lease or the
extended term, pursuant to any extension of the initial term In accordance with
the provisions of this Lease. $19,764.00 shall be paid on March 1,1992, and in
advance of the first (1st) day of each month until January 31,1994. $26,416.00
shall be paid on February 1,1994, and in advance of the first (1st) day of each
month until January 31, 1995. $28,067.00 shall be paid on February 1, 1995, and
in advance of the first (1st) day of each month until January 31, 1996.
$29,718.00 shall be paid on February 1, 1996, and in advance of the first (1st)
day of each month until January 31, 1997.
<PAGE> 2
Rent for any period during the term hereof which is for less than one (1) full
month shall be a pro-rata portion of the monthly rent payment. Lessee
acknowledges that late payment by Lessee to Lessor of rent or any other payment
due Lessor will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of such costs being extremely difficult and impracticable to fix.
Such costs include, without limitation, processing and accounting charges, and
late charges that may be imposed on Lessor by the terms of any encumbrances and
note secured by any encumbrance covering the Premises. Therefore, if any
installment of rent or other payment due from Lessee is not received by Lessor
within five (5) days following the date it is due and payable, Lessee shall pay
to Lessor an additional sum of five (5%) percent of the overdue amount as a late
charge, except for the first failure to make a payment of rent or other amount
when due in each lease year of the Lease. Further, in only this event, said late
charge will not be imposed until such failure to pay has not occurred within
three (3) business days after Lessor has delivered written notice to Lessee that
Such payment is due. The parties agree that this late charge represents a fair
and reasonable estimate of the costs that Lessor will incur by reason of late
payment by Lessee. Acceptance of any late charge shall not constitute a waiver
of Lessee's default with respect to the overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies available to Lessor.
If for any reason whatsoever, Lessor cannot deliver possession of the
Premises on the commencement date set forth in Paragraph 2 above, this Lease
shall not be void or voidable, nor shall Lessor be liable to Lessee for any
loss or damage resulting therefrom; but in such event, Lessee shall not be
obligated to pay rent untiI possession of the Premises is tendered to Lessee
and the commencement and termination dates of this Lease shall be revised to
conform to the date of Lessor's delivery of possession. In the event that
Lessor shall permit Lessee to occupy the Premises prior to the commencement
date of this term, such occupancy shall be subject to all of the provisions of
this Lease, including the obligation to pay rent at the same monthly rate as
that prescribed for the first month of the Lease term.
B. All taxes, insurance premiums, Outside Area Charges, late charges,
costs and expenses which Lessee is required to pay hereunder, together with all
interest and penalties that may accrue thereon in the event of Lessee's failure
to pay such amounts, and all reasonable damages, costs and attorney's fees and
expenses which Lessor may incur by reason of any default of Lessee or failure on
Lessee's part to comply with the terms of this Lease, shall be deemed to be
additional rent ("Additional Rent") and, in the event of non-payment by Lessee,
Lessor shall have all of the rights and remedies with respect thereto as Lessor
has for the non-payment of the monthly installment of rent.
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<PAGE> 3
4. Security Deposit. Lessor acknowledges that Lessee has deposited with
Lessor a Security Deposit in the sum of $19,764.00 to secure the full and
faithful performance by Lessee of each term, covenant, and condition of this
Lease. If Lessee shall at any time fail to make any payment or fail to keep or
perform any term, covenant, or condition on its part to be made or performed or
kept under this Lease, Lessor may, but shall not be obligated to and without
waiving or releasing Lessee from any obligation under this Lease, use, apply, or
retain the whole or any part of said Security Deposit (a) to the extent of any
sum due to Lessor; or (b) to make any required payment on Lessee's behalf; or
(c) to compensate Lessor for any loss, damage, attorneys' fees or expense
sustained by Lessor due to Lessee's default. In such event, Lessee shall within
five (5) days of written demand by Lessor, remit to Lessor sufficient funds to
restore the Security Deposit to its original sum. No interest shall accrue on
the Security Deposit during the first two (2) years of the Lease. Should Lessee
comply with all the terms, covenants and conditions of this Lease and at the end
of the term of this Lease leave the Premises in the condition required by this
Lease, then said Security Deposit or any balance thereof, less any sums owing to
Lessor, shall be resumed to Lessee within fifteen (15) days after the
termination of this Lease and vacancy of the Premises by Lessee. Lessor can
maintain the Security Deposit separate and apart from Lessor's general funds, or
can commingle the Security Deposit with Lessor's general and other funds. Lessor
agrees to pay Lessee annually interest on the security deposit from October 1,
1993 through September 30, 1996. The rate of interest shall be the average
monthly rate paid by Cupertino National Bank on their Money Market Account.
5. Use of the Premises. The Premises shall be used exclusively for the
purpose of administrative offices and manufacturing of electronic products.
Lessee shall not use, or permit the Premises, or any part thereof, to be
used, for any purpose or purposes other than the purpose for which the Premises
are hereby leased; and no use shall be made or permitted to be made of the
Premises, nor acts done, which will increase the existing rate of insurance upon
the building in which the Premises are located, or cause a cancellation of any
insurance policy covering said building, or any part thereof, nor shall Lessee
sell, or permit to be kept, used or sold, in or about the Premises, any article
which may be prohibited by the standard form of fire insurance policies. Lessee
shall not commit, or suffer to be committed, any waste upon the Premises, or any
public or private nuisance, or other act or thing which may disturb the quiet
enjoyment of any other tenant in the building in which the Premises are located;
nor, without limiting the generality of the foregoing, shall Lessee allow the
premises to be used for any improper, unlawful or objectionable purpose.
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<PAGE> 4
6. Hazardous Materials.
Lessee shall not place any harmful liquids in the drainage system of the
Premises or of the building of which the Premises forms a part except in
compliance with law. No waste materials or refuse shall be disposed of or stored
upon any part of the Premises outside of the building proper except in trash
containers placed inside exterior enclosures designated for the purpose by
Lessor, or inside the building proper where designated by Lessor unless such
outside storage or disposal is required by law. No materials, supplies,
equipment, finished or semi-finished products, raw materials or articles of any
nature shall be disposed of or stored upon any portion of the Premises outside
of the building unless such outside storage or disposal is required by law.
Should, at any time during the term of this Lease, or for a period of five
(5) years after termination or expiration of this Lease, there be charges or
findings of toxic waste, spillage, or other contaminants found by a governmental
agency to be hazardous and requiring removal or remedial work of the same, and
it is determined that Lessee is the sole cause, Lessee shall hold Lessor
harmless from all claims, obligations, liabilities and costs, including
reasonable attorney's fees, for the removal, remedial work, or other action
required by the governmental agency so prescribing said action, or any other
agency having jurisdiction. If it is determined that Lessee is only partially
responsible for toxic waste spillage, or other contaminants found by a
governmental agency to be hazardous and requiring removal or remedial work of
the same, then Lessee shall be responsible only for its prorata share and to the
extent of said prorata share, Lessee shall hold Lessor harmless from any claims,
obligations, liabilities and costs, including reasonable attorney's fees, for
the removal, remedial work, or other action required by the governmental agency
so prescribing said action, or any other agency having jurisdiction. If at any
time during the term of this Lease, Lessor suspects that toxic waste, spillage,
or other contaminants may be present on the Premises, Lessor may order a soils
report, or its equivalent. If it is determined that Lessee is the cause of
contamination and that a governmental agency, or any other agency having
jurisdiction, requires the removal or remediation of said contamination, Lessee
shall pay the costs of the soils report within fifteen (15) days from the date
of invoice by Lessor. If any such toxic waste, spillage, or other contaminants
are found upon the Premises, Lessee shall either (i) remove such substance and
remedy the problem as provided in (b) below or (ii) deposit with Lessor, within
fifteen (15)
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<PAGE> 5
days of notice from Lessor to Lessee to do so, the amount necessary to remove
such substances and remedy the problem, if it is proven that Lessee is
responsible for such toxic waste, spillage, or contaminants.
Lessee shall abide by all laws, ordinances and statutes, as they now exist
or may hereafter be enacted by legislative bodies having jurisdiction thereof,
relating to its use and occupancy of the Premises.
A. Definitions. As used herein, the term "Hazardous Material" shall
mean any substance or material which has been determined by any state, federal
or local governmental authority to be capable of posing a risk of injury to
health, safety or property including all of those materials and substances
designated as hazardous or toxic by the Environmental Protection Agency, the
California Water Quality Control Board, the Department of Labor, the California
Department of Industrial Relations, the Department of Transportation, the
Department of Agriculture, the Consumer Product Safety Commission, the
Department of Health and Human Services, the Food and Drug Agency or any other
governmental agency now or hereafter authorized to regulate materials and
substances in the environment. Without limiting the generality of the foregoing,
the term "Hazardous Material" shall include all of those materials and
substances defined as "Toxic Materials" in Section 66680 through 66685 of Title
22 of the California Administrative Code, Division 4, Chapter 30, as the same
shall be amended from time to time.
B. Use Restriction. Lessee shall not cause or permit any Hazardous
Material to be used, stored, or disposed of in or about the Premises except in
strict accordance with all laws and ordinances governing Hazardous Materials.
The appearance of any Hazardous Material on or about the Premises which is
caused or permitted by Lessee shall be deemed an Event of Default. If the
presence of Hazardous Material on or about the Premises which is caused or
permitted by Lessee results in contamination of the Premises or any soil in or
about the Premises or groundwater under the Premises, Lessee, at its expense,
shall promptly take all action necessary to return the Premises to the
condition existing prior to the appearance of such Hazardous Material and shall
perform all monitoring, testing, containment clean-up and other actions
required by any applicable governmental agency.
C. Lessee's Indemnity. Lessee shall defend, hold harmless and indemnify
Lessor and its agents, lenders and employees from or against any and all
liabilities, obligations, damages, penalties, claims, costs (including
compliance and clean-up costs), charges, expenses of attorneys, expert
witnesses, engineers and other consultants which may be imposed upon, incurred
by or asserted against Lessor or the Premises by reason of any contamination of
the Premises or any soil in or about the Premises or any groundwater under the
Premises caused
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<PAGE> 6
by Lessee's storage, use or disposal of Hazardous Material in or about the
Premises.
D. Lessor's Indemnification. Lessor shall indemnify, defend and hold
harmless Lessee from and against any and all liabilities, obligations, damages,
penalties, claims, costs, (including compliance and clean-up costs), charges,
expenses of attorneys, expert witnesses, engineers and other consultants which
may be imposed upon, incurred by or asserted against Lessee at any time by
reason of any contamination of the Premises caused by either Lessor's storage or
a previous tenant's use or disposal of Hazardous Material on or about the
Premises or caused by a release of Hazardous Material by third parties which
release is proven to have occurred on or off the Premises.
E. Representations and Warranties. Lessor represents and warrants that
Lessor has not received nor is aware of any notification from the Department of
Health Services, California Regional Water Quality Control Board, the U.S.
Environmental Protection Agency or Such other City, County or State authority
having jurisdiction to require investigation, monitoring or remediation of any
release of Hazardous Material, on, above or beneath the Premises. Lessor further
represents that in the event that such notice or notices are received by Lessor,
Lessor shall promptly deliver copies thereof to Lessee.
F. Compliance. Lessee shall immediately notify Lessor of any inquiry,
test, investigation, enforcement proceeding by or against Lessee or the Premises
concerning Hazardous Material used, stored or disposed of by Lessee or alleged
to have been used, stored or disposed of by Lessee on or about the Premises.
Lessor shall have the right to appoint a consultant to conduct an investigation
to determine whether Lessee has used, stored or disposed of Hazardous Material
on or about the Premises. If the consultant determines that Hazardous Materials
have been stored, used or disposed of by Lessee, Lessee, at its expense, shall
comply with all recommendations of the consultant, including, without
limitation, any recommended testing, monitoring and clean-up.
G. Assignment and Subletting. It shall not be unreasonable for Lessor
to withhold its consent to any proposed assignment or subletting if (i) the
proposed assignee's or sublessee's anticipated use of the Premises involves the
storage, use or disposal of Hazardous Material; (ii) if the proposed assignee or
sublessee has been required by any prior Lessor, lender or governmental
authority to "clean-up" Hazardous Material; (iii) if the proposed assignee or
sublessee is subject to investigation or enforcement order or proceeding by any
governmental authority in connection with the use, disposal or storage of a
Hazardous Material.
H. Survival. The provisions contained in this Paragraph 6 shall survive
the expiration or earlier termination of this Lease.
-6-
<PAGE> 7
7. Improvements. Lessee is leasing the subject building "as is", Lessee, at
Lessee's sole expense, shall make any improvements that Lessee requires to the
Premises. There shall be no abatement of rent during construction of any of
these improvements.
8. Taxes and Assessments.
A. Lessee shall pay before delinquency any and all taxes, assessments,
license fees, public charges levied, assessed or imposed upon or against
Lessee's fixtures, equipment, furnishings, appliances and personal property
installed or located on or within the Premises. Lessee shall cause said
fixtures, equipment, furnishings, furniture, appliances and personal property to
be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay to Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement from Lessor setting forth the taxes
applicable to Lessee's property.
B. All property taxes or assessments levied or assessed or hereafter
levied or assessed, by any governmental authority, against the Premises or any
portion of such taxes or assessments which becomes due or accrued during the
term of this Lease, shall be paid by Lessor. Lessee shall reimburse Lessor for
one hundred (100%) percent of such taxes or assessments within ten (10) days of
receipt of Lessor's invoice demanding such payment. Lessee's liability hereunder
shall be prorated to reflect the commencement and termination dates of this
Lease.
9. Insurance.
A. Indemnity. Lessee agrees to indemnify and defend Lessor against and
hold Lessor harmless from any and all demands, claims, causes of action,
judgments, obligations, liabilities, and all reasonable expenses incurred in
investigating or resisting the same (including reasonable attorney's fees) on
account of, or arising out of the Lessee's condition, use or occupancy of the
Premises. This Lease is made on the express condition that Lessor shall not be
liable for, or suffer loss by reason of, injury to person or property, from
whatever cause, in any way connected with the Lessee's use or occupancy of the
Premises, specifically including, without limitation, any liability for injury
to the person or property of Lessee, its agents, officers, employees, licensees
and invitees.
B. Liability Insurance. Lessee shall, at the Lessee's expense, obtain
and keep in force during the term of this Lease, a policy of commercial general
liability insurance insuring Lessor and Lessee, with cross-liability
endorsements, against any liability arising out of the condition, use or
occupancy of the Premises and Lessee's use of all areas appurtenant thereto,
including parking areas. Such insurance shall be in an amount satisfactory to
Lessor of not less than $3,000,000 for bodily injury or death as a result of any
one occurrence, and $500,000
-7-
<PAGE> 8
for damage to property as a result of any one occurrence. The insurance shall be
with companies approved by Lessor, which approval Lessor agrees not to
unreasonably withhold. Lessee shall deliver to Lessor prior to possession, a
certificate of insurance evidencing the existence of the policy required
hereunder, and such certificate shall certify that the policy (1) names Lessor
as an additional insured, (2) shall not be canceled without thirty (30) days
prior written notice to Lessor, (3) insures performance of the indemnity set
forth in Sub-paragraph (A) above subject to standard commercial general
liability coverage exclusions, and (4) the coverage is primary and any coverage
by Lessor is in excess thereto.
C. Property Insurance. Lessor shall obtain and keep in force during the
term of this Lease, a policy or policies of insurance covering loss or damage to
the Premises, in the amount of the full replacement value thereof, providing
protection against those perils included within the classification covering
Direct Risk of physical loss with endorsement covering Special Form perils
insurance, plus a policy of rental income insurance in the amount of 100% of the
twelve (12) months rent (including sums payable as Additional Rent), and, at
Lessor's option, earthquake insurance and flood insurance. Lessee shall have no
interest in nor any right to the proceeds of any insurance procured by Lessor on
the Premises. Lessee shall, within twenty (20) days after receipt of billing,
pay to Lessor as additional rent, the full cost of such insurance procured and
maintained by Lessor. Lessee acknowledges that such insurance procured by Lessor
shall contain a deductible which reduces Lessee's cost for such insurance and,
in the event of loss or damage, Lessee shall be required to pay to Lessor the
amount of such deductible.
D. Release of Lessor. Lessee acknowledges that the insurance to be
maintained by Lessor on the Premises pursuant to Sub-paragraph C above will not
insure any of Lessee's property. Accordingly, Lessee, at Lessee's own expense,
shall maintain in full force and effect on all its fixtures, equipment,
leasehold improvements and personal property in the Premises, a policy covering
Direct Risk of physical loss with endorsement covering Special Form perils
insurance to the extent of at least ninety (90%) percent of their insurable
value. Lessee hereby releases Lessor, and its partners, officers, agents,
employees, and servants, from any and all claims, demands, loss, expense or
injury to the Premises or to the furnishings, fixtures, equipment, inventory or
other personal property of Lessee in, about, or upon the Premises which is
caused by perils, events or happenings which are covered by insurance required
by this Lease or which are the subject of insurance carried by Lessee and in
force at the time of such loss. Lessee shall procure an appropriate clause in,
or an endorsement to, all policies required by this Lease, or any other
insurance policy maintained by Lessee with
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<PAGE> 9
respect to the Premises or Lessee's occupancy thereof, pursuant to which the
insurance company or companies waive subrogation or consent to a wavier of a
right of recovery against Lessor.
E. Mutual Waiver of Subrogation. Lessee and Lessor hereby mutually
waive their respective rights for recovery against each other for any loss of or
damage to the property of either party, where such loss or damage is insured by
any insurance policy required to be maintained by this Lease or otherwise in
force at the time of such loss or damage. Each party shall obtain any special
endorsements, if required by the insurer, whereby the insurer waives its right
of recovery against the other party hereto. The provisions of this Sub-paragraph
E shall not apply in those instances in which waiver of subrogation would cause
either party's insurance coverage to be voided or otherwise made uncollectable.
10. Utilities. Lessee shall pay for all water, gas, light, heat, power,
electricity, telephone, trash pick-up, sewer charges, and all other services
supplied to or consumed on the Premises, and all taxes and surcharges thereon.
Further, in the event that any other utility services are not separately metered
to the Premises, the cost of such utility service shall be an Outside Area
Charge and Lessee shall pay its share of such cost to Lessor as provided in
Paragraph 13 below. In addition, the cost of any utility service supplied to the
Outside Area shall be an Outside Area Charge and Lessee shall pay its share of
such cost to Lessor as provided in Paragraph 13 below.
11. Repairs and Maintenance.
A. Subject to provisions of Paragraph 17, Lessor shall be responsible
for the cost of maintaining the roof until a new roof is installed. Lessor shall
keep and maintain the paving, structural elements, landscaping, irrigation, the
roof, except for the first time a new roof is installed and the exterior walls
of the building in which the Premises are located and all common areas in good
order and repair. Lessee shall reimburse Lessor for its proportionable share of
said expense within ten (10) days of Lessee's receipt of Lessor's invoice
demanding payment. If, however, any repairs or maintenance are required because
of an act or omission of Lessee, or its agents, employees, or authorized
representatives, Lessee shall pay to Lessor upon demand 100% of the costs of
such repair or maintenance.
Notwithstanding the foregoing, if the roofing or roof membrane is
replaced during the Lease term, Lessor shall be responsible for the cost of such
replacement.
B. Except as expressly provided in Sub-paragraph (A) above, Lessee
shall at its sole cost, keep and maintain the entire Premises and every part
thereof, including, without limitation, the windows, window frames, plate glass,
glazing, truck doors, doors, all door hardware, interior of the Premises,
interior walls and partitions, and the electrical, plumbing,
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<PAGE> 10
heating and air-conditioning systems in good and sanitary order, condition and
repair.
Lessee shall, at all times during the Lease term, have in effect a
service contract for the maintenance of the heating, ventilating and
air-conditioning (HVAC) equipment with a HVAC repair and maintenance contractor
approved by Lessor which provides for periodic inspection and servicing at least
once every three (3) months during the term hereof and shall provide Lessor with
a copy of such contract and all periodic service reports.
Should Lessee fail to maintain the Premises or make repairs required of
Lessee hereunder forthwith upon notice from Lessor, Lessor, in addition to all
other remedies available hereunder or by law, and without waiving any
alternative remedies, may make the same, and in that event, Lessee shall
reimburse Lessor as additional rent for the reasonable cost of such maintenance
or repairs on the next date upon which rent becomes due.
Lessee hereby expressly waives the provisions of Sub-section 1 of
Section 1932, and Sections 1941 and 1942 of the Civil Code of California and all
rights to make repairs at the expense of Lessor, as provided in Section 1942 of
said Civil Code.
12. Outside Area . Subject to the terms and conditions of this Lease and
such rules and regulations as Lessor may from time to time prescribe, Lessee and
Lessee's employees, invitees and customers shall, in common with other occupants
of the parcel on which the Premises are located, and their respective employees,
invitees and customers, and others entitled to the use thereof, have the
non-exclusive right to use the access roads, parking areas and facilities
provided and designated by Lessor for the general use and convenience of the
occupants of the parcel on which the Premises are located, which areas and
facilities are referred to herein as "Outside Area". This right shall terminate
upon the termination of this Lease. Lessor reserves the right from time to time
to make changes in the shape, size, location, amount and extent of the Outside
Area. Lessor further reserves the right to promulgate such reasonable rules and
regulations relating to the use of the Outside Area, and any part or parts
thereof, as Lessor may deem appropriate for the best interest of the occupants
of the parcel. The rules and regulations shall be binding upon Lessee upon
delivery of a copy of them to Lessee, and Lessee shall abide by them and
cooperate in their observance. Such rules and regulations may be amended by
Lessor from time to time, with or without advance notice, and all amendments
shall be effective upon delivery of a copy to Lessee, provided such regulation
does not interfere with Lessee's quiet enjoyment.
Lessee shall have the exclusive use of all of the parking spaces in the
Outside Area as designated from time to time by Lessor. Lessee shall not at any
time park or permit the parking of Lessee's trucks or other vehicles, or the
trucks or other vehicles of others, adjacent to the loading areas so as to
interfere in any way with the use of such areas, nor shall Lessee at
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<PAGE> 11
any time park or permit the parking of Lessee's vehicles or trucks, or the
vehicles or trucks of Lessee's suppliers or others, in any portion of the
Outside Area not designated by Lessor for such use by Lessee. Lessee shall not
abandon any inoperative vehicles or equipment on any portion of the Outside
Area.
Lessor shall operate, manage, maintain and repair the Outside Area in
good order, condition and repair. The manner in which the Outside Area shall be
maintained and the expenditures for such maintenance shall be at the discretion
of the Lessor. The cost of such repair, maintenance, operation and management,
including without limitation, maintenance and repair of landscaping, irrigation
systems, paving, sidewalks, fences and lighting, shall be an Outside Area Charge
and Lessee shall pay to Lessor its share of such costs as provided in Paragraph
13 below.
13. Outside Area Charges. Lessee shall pay to Lessor, as additional rent,
upon demand but not more often than once each calendar month, an amount equal to
one hundred (100%) percent of the Outside Area Charges as defined in this Lease.
Lessee acknowledges and agrees that the Outside Area Charges shall include an
additional one (1%) percent of the actual expenditures in order to compensate
the Lessor for accounting and processing services. The Outside Area Charges
shall be documented by Lessor.
14. Alterations and Additions. Lessee shall not make, or suffer to be made,
any alterations, improvements, or additions in, on or about, or to the Premises
or any part thereof, without the prior written consent of Lessor, and without a
valid building permit issued by the appropriate governmental authority. Lessor
retains, at his sole option, the right to perform all repairs, alterations,
improvements or additions in, or about, or to said Premises or any part thereof.
As a condition to giving such consent, Lessor may require that Lessee agree to
remove any such alterations, improvements or additions at the termination of
this Lease, and to restore the Premises to their prior condition. Any
alteration, addition, or improvement to the Premises, except movable furniture
and trade fixtures not affixed to the Premises, shall become the property of the
Lessor upon installation, and shall remain upon and be surrendered with the
Premises at the termination of this Lease. Lessor can elect, however, within
thirty (30) days before expiration of the term to require Lessee to remove any
alterations, additions or improvements that Lessee has made to the Premises. If
Lessor so elects, Lessee shall restore the Premises to the condition designated
by Lessor in its election, before the last day of the term, or within thirty
(30) days after notice of election is given, whichever is later. Alterations and
additions, which are not to be deemed as trade fixtures, include heating,
lighting, electrical systems, air-conditioning, partitioning, electrical signs,
carpeting or any other
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installation which has become an intregal part of the Premises. In the event
Lessor consents to Lessee's making any alterations, improvements or additions,
Lessee shall notify Lessor in writing at least fifteen (15) days prior to
commencing work and Lessee shall be responsible for the timely posting of
notices of non-responsibility on Lessor's behalf, providing that Lessor shall be
responsible for executing and recording said notices and delivering the same to
Lessee for posting, which shall remain posted until completion of the
alterations, additions, or improvements. Lessee's failure to notify Lessor
within the time period provided in the preceding sentence shall be a breach of
this Lease.
If, during the term hereof, any alteration, change or addition of any
sort through all or any portion of the Premises or of the building of which the
Premises form a part, is required by law, regulation, ordinance or order of any
public agency, Lessee, at its sole cost and expense, shall promptly make the
same.
15. Acceptance of the Premises and Covenant to Surrender. Lessee has leased
the subject Premises for the past thirteen (13) years, accepts the Premises as
being in good and sanitary order, condition and repair and accepts the Premises
in their condition existing as of date of execution of this Lease.
Subject to Paragraphs 17 and 18, Lessee agrees on the last day of the
term hereof, or on sooner termination of this Lease, to surrender the Premises
together with all alterations, additions and improvements which may have been
made in, to or on the Premises by Lessor or Lessee, unto Lessor in good and
sanitary order, condition and repair, excepting for such wear and tear as would
be normal for the period of Lessee's occupancy. Lessee, on or before the end of
term or sooner termination of this Lease, shall remove all personal property and
trade fixtures from the Premises, and all property not so removed shall be
deemed to be abandoned by Lessee. Lessee further agrees that at the end of the
term or sooner termination of this Lease, Lessee, at its sole expense shall have
the carpets steam cleaned, the walls and columns painted, the floors waxed, any
damaged ceiling tiles replaced, the windows cleaned, the drapes cleaned and any
damaged doors replaced.
If the Premises are not surrendered at the end of the term or sooner
termination of this Lease, Lessee shall indemnify Lessor against loss or
liability resulting from delay by Lessee in so surrendering the Premises,
including, without limitation, any claims made by any succeeding tenant founded
on such delay.
16. Default. In the event of any default under the terms of this Lease by
Lessee, or an abandonment of the Premises by the Lessee, the Lessor has the
option of: (1) removing all
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persons and property from the Premises and repossessing the Premises, in which
case any of the Lessee's property which Lessor removes from the Premises may be
stored in a public warehouse or elsewhere at the cost of, and for the account of
Lessor or, (2) allowing the Lessee to remain in full possession and control of
the Premises. If the Lessor chooses to repossess the Premises, the Lease will
automatically terminate in accordance with the provisions of California Civil
Code Section 1951.2. In the event of such termination of the Lease, Lessor may
recover from the Lessee: (1) the worth at the time of award of unpaid rent which
had been earned at the time of termination, including interest at the maximum
rate an individual is permitted by law to charge; (2) the worth at the time of
award of the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss that
the Lessee proves could have been reasonably avoided, including interest at the
maximum rate an individual is permitted by law to charge; (3) the worth at the
time of award of the amount by which the unpaid rent for the balance of the
term, after the time of award exceeds the amount of such rental loss that the
Lessee proves could be reasonably avoided; and (4) any other amount necessary to
compensate the Lessor for all the detriment proximately caused by the Lessee's
failure to perform his obligations under the Lease or which, in the ordinary
course of things, would be likely to result therefrom. "The worth at the time of
the award", as used in (1) and (2) of this paragraph is to be computed by
allowing interest at the maximum rate an individual is permitted by law to
charge. "The worth at the time of the award", as referred to in (3) of this
paragraph is to be computed by discounting the amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of the award, plus one
(1%) percent.
If Lessor chooses not to repossess the Premises, but allows the Lessee to
remain in full possession and control of the Premises, then in accordance with
provisions of California Civil Code Section 1951.4, the Lessor may treat the
Lease as being in full force and effect, and may collect from the Lessee all
rents as they become due through the termination date of the Lease, as specified
in the Lease. For the purpose of this paragraph. the following do not constitute
a termination of Lessee's right to possession:
a) Acts of maintenance or preservation, or efforts to relet the
property.
b) The appointment of a receiver on the initiative of the Lessor
to protect his interest under this Lease.
Lessee shall be liable immediately to Lessor for all costs
Lessor incurs in reletting the Premises, including, without limitation, brokers'
commissions, expense of remodeling the Premises required by the reletting, and
like costs. Reletting can be for a period shorter or
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longer than the remaining term of this Lease. Lessee shall pay to Lessor the
rent due under this Lease on the dates the rent is due, less the rent the Lessor
receives from any reletting. No act by Lessor allowed by this Section shall
terminate this Lease unless Lessor notifies Lessee that Lessor elects to
terminate this Lease. After Lessee's default, and for as long as Lessor does not
terminate Lessee's right to possession of the Premises, if Lessee obtains
Lessor's consent, Lessee shall have the right to assign or sublet its interest
in this Lease, but Lessee shall not be released from liability. Lessor's consent
to proposed assignment or subletting shall not be unreasonably withheld.
If Lessor elects to relet the Premises as provided in this Paragraph, rent
that Lessor receives from reletting shall be applied to the payment of
First, any indebtedness from Lessee to Lessor
other than rent due from Lessee;
Second, all costs, including for maintenance,
reasonably incurred by Lessor in reletting;
Third, rent due and unpaid under this Lease.
After deducting payment referred to in this Paragraph,
any sum remaining from rent Lessor receives from
reletting shall be applied in payment of future rent
as rent becomes due under this Lease. If on the date
rent is due under this Lease, the rent received from
reletting is less than the rent due on that date,
Lessee shall pay to Lessor, in addition to remaining
rent due, all costs, including for maintenance, Lessor
incurred In reletting that remain after applying rent
received from the reletting, as provided in this
paragraph.
Lessor at any time after Lessee commits a default can
cure the default at Lessee's cost. If Lessor at any time, by reason of Lessee's
default, pays any sum or does any act that requires the payment of any sum, the
reasonable sum paid by Lessor shall be due immediately from Lessee to Lessor at
the time the sum is paid, and if paid at a later date shall bear interest at the
maximum rate an individual is permitted by law to charge from the date the sum
is paid by Lessor until Lessor is reimbursed by Lessee. The sum, together with
interest on it, shall be additional rent.
Rent not paid within five (5) days after becoming due shall
bear interest at the maximum rate an individual is permitted by law to
charge from the date due until paid.
17. Damage or Destruction.
(a) Uninsured Minor Casualty. In the event that any portion of the
Premises are destroyed or damaged by an uninsured peril, Lessor or Lessee may,
upon written notice to the
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other, given within thirty (30) days after the occurrence of such damage or
destruction, elect to terminate this Lease; provided, however, that either party
may, within thirty (30) days after receipt of such notice, elect to make any
required repairs and/or restoration at such party's sole cost and expense, in
which event this Lease shall remain in full force and effect, and the party
having made such election to restore or repair shall thereafter diligently
proceed with such repairs and/or restoration.
(b) Insured Major Casualty. In the event the Premises are damaged or
destroyed from any insured peril to the extent of thirty-three (33%) percent or
more of the then replacement cost of the Premises Lessor may, upon written
notice to Lessee, given within thirty (30) days after the occurrence of such
damage or destruction, elect to terminate this Lease. If Lessor does not give
such notice in writing within such period, Lessor shall be deemed to have
elected to rebuild or restore the Premises, in which event Lessor shall, at its
expense, promptly rebuild or restore the Premises to their condition prior to
the damage or destruction.
(c) Insured Minor Casualty. In the event the Premises are damaged or
destroyed from any insured peril to the extent of less than thirty-three (33%)
percent of the then replacement cost of the Premises, Lessor shall, at Lessor's
expense, promptly rebuild or restore the Premises to their condition prior to
the damage or destruction.
In the event that, pursuant to the foregoing provisions, Lessor is to
rebuild or restore the Premises, Lessor shall, within thirty (30) days after the
occurrence of such damage or destruction, provide Lessee with written notice of
the time required for such repair or restoration. If such period is longer than
one hundred eighty (180) days from the issuance of a building permit, Lessee
may, within thirty (30) days of receipt of Lessor's notice, elect to terminate
the Lease by giving written notice to Lessor of such election, whereupon the
Lease shall immediately terminate. The period of time for Lessor to complete the
repair or restoration shall be extended for delays caused by the fault or
neglect of Lessee or because of acts of God, acts of stormy weather, inability
to obtain materials, supplies or fuels, acts of contractors or subcontractors,
or delay of contractors or subcontractors due to such causes or other
contingencies beyond the control of Lessor. Lessor's obligation to repair or
restore the Premises shall not include restoration of Lessee's trade fixtures,
equipment, merchandise, or any improvements, alterations or additions made by
Lessee to the Premises.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect; provided, however, that during
any period of repairs or restoration, rent and all other amounts to be paid by
Lessee on account of the Premises and this Lease shall be abated in proportion
to the area of the Premises rendered not reasonably suitable
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for the conduct of Lessee's business thereon. Lessee hereby expressly waives the
provisions of Section 1932, Subdivision 2 and Section 1933, Subdivision 4 of the
California Civil Code.
18. Condemnation. If any part of the Premises shall be taken for any public
or quasi-public use, under any statute or by right of eminent domain, or private
purchase in lieu thereof, and a part thereof remains, which is susceptible of
occupation and use hereunder, this Lease, shall, as to the part so taken,
terminate as of the date title shall vest in the condemner or purchase, and the
rent payable hereunder shall be adjusted so that the Lessee shall be required to
pay for the remainder of the term only such portion of such rent as the value of
the part remaining after such taking bears to the value of the entire Premises
prior to such taking. Lessor and Lessee shall have the option to terminate this
Lease in the event that such taking causes a reduction in rent payable hereunder
by fifty (50%) percent or more. If all of the Premises or such part thereof be
taken so that there does not remain a portion susceptible for occupation and use
hereunder, as reasonably necessary for Lessee's conduct of its business as
contemplated in this Lease, this Lease shall thereupon terminate. If a part or
all of the Premises be taken, all compensation awarded upon such taking shall go
to the Lessor, and the Lessee shall have no claim thereto and the Lessee hereby
irrevocably assigns and transfers to the Lessor any right to compensation or
damages to which the Lessee may become entitled during the term hereof by reason
of the purchase or condemnation of all or a part of the Premises.
If this Lease is terminated by either Lessor or Lessee pursuant to this
Paragraph 18, Lessor shall receive (and Lessee shall assign to Lessor upon
demand from Lessor) any and all income, rent, award or interest thereon which
may be paid or owed in connection with the exercise of such power of eminent
domain or conveyance in lieu thereof and Lessee shall have no claim against
Lessor except that Lessee shall have the right to recover its share of any award
or consideration for (a) moving expenses; (b) loss or damage to Lessee's trade
fixtures, furnishings, equipment and other personal property; and (c) business
goodwill.
19. Free from Liens. Lessee shall (1) pay for all labor and services
performed and for materials used by or furnished to Lessee, or any contractor
employed by Lessee with respect to the Premises, and (2) indemnify, defend and
hold Lessor and the Premises harmless and free from any liens, claims, demands,
encumbrances or judgments created or suffered by reason of any labor or services
performed for materials used by or furnished to Lessee or any contractor
employed by Lessee with respect to the Premises and (3) give notice to Lessor in
writing five (5) days prior to employing any laborer or contractor to perform
services related, or receiving materials for use upon the Premises, and (4)
shall post, on behalf of Lessor, a notice of non-responsibility in accordance
with the statutory requirements of California Civil Code
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Section 3094, or any amendment thereof, provided that Lessor shall be
responsible for executing and recording such notices. In the event an
improvement bond with a public agency in connection with the above is required
to be posted, Lessee agrees to include Lessor as an additional obligee.
20. Compliance with Laws. Subject to the provisions of Paragraph 14 above,
Lessee shall, at its own cost, comply with and observe all requirements of all
municipal, county, state and federal authority now in force, or which may
hereafter be in force, pertaining to the use and occupancy of the Premises.
21. Subordination. Lessee agrees that this Lease shall, at the option of
Lessor, be subjected and subordinated to any mortgage, deed of trust, or other
instrument of security, which has been or shall be placed and this subordination
is hereby made effective without any further act of Lessee or Lessor. The Lessee
shall, at any time hereinafter, within twenty-four (24) hours of delivery,
execute any instruments, releases or other documents that may be required by any
mortgage, mortgagor, or trustor or beneficiary under any deed of trust or other
instrument of security. If Lessee fails to execute and deliver any such
documents or instruments, Lessee irrevocably constitutes and appoints Lessor as
Lessee's special attorney-in-fact to execute and deliver any such documents or
instruments.
However, the provisions of this Paragraph 21 shall not be effective
with respect to the interest of any successor to Lessor unless and until such
successor shall have delivered to Lessee a written non-disturbance agreement for
the benefit of Lessee, to the effect that this Lease shall not be terminated in
the event of any default under any ground lease or underlying lease or any
foreclosure or sale pursuant to the terms of any mortgage or deed of trust, so
long as Lessee is not in default (after the expiration of all applicable cure
periods) under the terms of this Lease, and Lessee agrees to attorn to and
become the Lessee of Lessor's successor. In addition, Lessor shall use its best
efforts to obtain such a written non-disturbance agreement from all existing
lienholders having an interest in the Premises. So long as Lessee pays all
rentals required hereunder and observes and performs all of the covenants,
conditions and provisions on Lessee's part to be observed and performed
hereunder, Lessee shall have quiet possession of the Premises for the entire
Lease term, subject to all the provisions of this Lease.
22. Abandonment. Lessee shall not vacate nor abandon the Premises at any
time during the term. If Lessee shall abandon, vacate or surrender said
Premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and left on the Premises shall be deemed to be
abandoned at the option of Lessor, except such property as may
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be mortgaged to Lessor; provided, however, that Lessee shall not be deemed to
have abandoned or vacated the Premises so long as Lessee continues to pay all
rents as and when due and otherwise pursuant to terms and conditions of the
Lease.
23. Assignment and Subletting. Lessee's interest in this Lease is not
assignable by operation of law or otherwise nor shall Lessee have the right to
sublet the Premises, transfer any interest of Lessee's therein or permit any use
of the Premises by another party, without prior written consent of Lessor to
such assignment, subletting or transfer of use, which consent shall not be
unreasonably withheld.
If Lessee is a partnership. a withdrawal or change, voluntary,
involuntary or by operation of law of any partner(s) owning fifty (50%) percent
or more of the partnership, or the dissolution of the partnership, shall be
deemed a voluntary assignment.
If Lessee consists of more than one person, a purported assignment,
voluntary, involuntary or by operation of law, from one person to the other or
from a majority of persons to the others, shall be deemed a voluntary
assignment.
If Lessee is a corporation, any dissolution, merger, consolidation, or
other reorganization of Lessee, or the sale or other transfer of a controlling
percentage of capital stock of Lessee, or sale of at least fifty-one (51%)
percent of the value of assets of Lessee, shall be deemed a voluntary
assignment. The phrase, a controlling percentage" means ownership of and right
to vote, stock possessing at least fifty-one (51%) percent of the total combined
voting power of all classes of Lessee's capital stock issued, outstanding, and
entitled to vote for election of directors. This Paragraph shall not apply to
corporations the stock of which is traded through an exchange or over the
counter.
Lessor's prior consent shall not be required for any assignment,
sublease or other transfer of Lessee's interest in the Premises or this to any
corporation with which Lessee may merge or consolidate or become affiliated as a
parent, subsidiary, holding company or otherwise, or to an entity in which
Lessee has a controlling interest, provided that any such transfer shall not
result in Lessee's being released or discharged from any liability under this
Lease and such assignee, sublessee or transferee shall, prior to taking
possession of the Premises, deliver to Lessor written notice of the transfer and
its terms, covenants, conditions and provisions of the Lease, including without
limitation the provisions regarding the use of the Premises.
In the event of any such subletting or transfer which is consented to,
or not consented to, by Lessor, a sublessee agrees to pay monies or other
consideration whether by increased rent or otherwise, in excess of or in
addition to those provided for herein, then all
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such excess or additional monies or other consideration shall be paid solely to
Lessor, and this shall be one of the conditions to obtaining Lessor's consent.
Lessee immediately and irrevocably assigns to Lessor, as security for
Lessee's obligations under this Lease, all rent from any subletting of all or
part of the Premises as permitted by this Lease, and Lessor, as assignee and as
attorney-in-fact for Lessee, or a receiver for Lessee appointed on Lessor's
application, may collect such rent and apply it toward Lessee's obligations
under this Lease; except that until the occurrence of an act of default by the
Lessee, Lessee shall have the right to collect such rent.
A consent to or assignment, subletting, occupation or use by another
party shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by another party. Any assignment or subletting
without such consent shall be void and shall at the option of Lessor, terminate
this Lease. Lessor's waiver or consent to any assignment or subletting hereunder
shall not relieve Lessee from any obligation under this Lease unless the consent
shall so provide. If Lessee requests Lessor to consent to a proposed assignment
or subletting, Lessee shall pay to Lessor, whether or not consent is ultimately
given, Lessor's reasonable attorney's fees incurred in conjunction with each
such request.
24. Parking Charges. Lessee agrees to pay upon demand, based on its percent
of occupancy of the entire building, its prorate share of any parking charge,
surcharges, or any other cost hereafter levied or assessed by local, state or
federal governmental agencies in connection with the use of parking facilities
serving the Premises including without limitation, parking surcharges imposed by
or under authority of the Federal Environmental Protection Agency.
25. Insolvency on Bankruptcy. Either (a) the appointment of a receiver to
take possession of all or substantially all of the assets of Lessee, or (b) a
general assignment by Lessee for the benefit of creditors or (c) any action
taken or suffered by Lessee under any insolvency or bankruptcy act shall
constitute a breach of this Lease. Upon the happening of any such event, this
Lease shall terminate ten (10) days after written notice of termination from
Lessor to Lessee. This section is to be applied consistent with applicable state
and federal law in effect at the time such event occurs.
Any action referred to above which is suffered involuntarily by Lessee
shall not constitute an unauthorized assignment or transfer or a breach of this
Lease by Lessee if Lessee shall successfully dismiss any action or proceeding in
connection therewith within sixty (60) days of the filing thereof. In such
event, Lessor shall not be entitled to exercise its remedies described in said
Section until the expiration of such sixty (60)-day period, provided that Lessee
shall diligently pursue such dismissal.
26. Lessor Loan or Sale. Lessee agrees promptly following request by Lessor
to (a)
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execute and deliver to Lessor any documents including estoppel certificates
presented to Lessee by Lessor, (i) certifying that this Lease is unmodified and
in full force and effect, or if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect and the date to which the rent and other charges are paid in advance,
and (ii) acknowledging that there are not, to Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder, and (iii) evidencing the status of the
Lease as may be required by either a lender making a loan to Lessor, to be
secured by deed of trust or mortgage covering the Premises, or a purchaser of
the Premises from Lessor and (b) if requested by any bona fide lender of Lessor
or purchaser of the Premises, to deliver to Lessor current financial statements
of Lessee, including a balance sheet and profit and loss statement for the
current fiscal year and the two (2) immediately prior fiscal years, all prepared
in accordance with generally accepted accounting principles consistently
applied. Lessee's failure to deliver an estoppel certificate within ten (10)
days following such request shall constitute a default under this Lease and
shall be conclusive upon Lessee that this Lease is in full force and effect and
has not been modified except as may be represented by Lessor. If Lessee fails to
deliver the estoppel certificate within ten (10) days of written notice
delivered by certified mail, Lessee irrevocably constitutes and appoints Lessor
as its special attorney-in-fact to execute and deliver the certificate to any
third party.
27. Surrender of Lease. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, shall not work a merger nor relieve
Lessee of any of Lessee's obligations under this Lease, and shall, at the option
of Lessor, terminate all or any existing subleases or subtenancies, or may, at
the option of Lessor, operate as an assignment to him of any or all such
subleases or subtenancies.
28. Attorneys' Fees. If for any reason, any suit be initiated to enforce
any provisions of this Lease, the prevailing party shall be entitled to legal
costs, expert witness expenses and reasonable attorneys' fees as fixed by the
court.
29. Notices. All notices to be given to Lessee may be given in writing
personally or by depositing the same in the United States mail, postage prepaid,
and addressed to Lessee at the said Premises. Any notice or document required or
permitted by this Lease to be given Lessor shall be addressed to Lessor at the
address set forth below, or at such other address as it may have theretofore
specified by notice delivered in accordance herewith:
LESSOR: VASONA BUSINESS PARK
3880 South Bascom Avenue, Suite 207
San Jose, California 95124
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LESSEE: CAERE CORPORATION
100 Cooper Court
Los Gatos, California 95030
30. Transfer of Security. If any security be given by Lessee to secure the
faithful performance of all or any of the covenants of this Lease on the part of
Lessee, Lessor may transfer and/or deliver the security, as such, to the
purchaser of the reversion in the event that the reversion be sold, and
thereupon Lessor shall be discharged from any further liability in reference
thereto, upon the assumption by such transferee of Lessor's obligations under
this Lease.
31. Waiver. The waiver by Lessor or Lessee of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance of
rent hereunder by Lessor shall not be deemed to be a waiver of any preceding
breach by Lessee of any term, covenant or condition of this Lease, other than
the failure of Lessee to pay the particular rental so accepted, regardless of
Lessor's knowledge of such preceding breach at the time of acceptance of such
rent.
32. Holding Over. Any holding over after the expiration of the term or any
extension thereof, with the consent of Lessor, shall be construed to be a
tenancy from month-to-month, at a rental of one and one-half times the previous
month's rental rate per month, and shall otherwise be on the terms and
conditions herein specified, so far as applicable.
33. Limitation on Lessor's Liability. If Lessor is in default of this
Lease, and as a consequence Lessee recovers a money judgment against Lessor, the
judgment shall be satisfied only out of the proceeds of sale received on
execution of the judgment and levy against the right, title and interest of
Lessor in the Premises, or in the building, other improvements and land of which
the Premises are part, and out of rent or other income from such real property
receivable by Lessor or out of the consideration received by Lessor from the
sale or other disposition of all or any part of Lessor's right, title and
interest in the Premises or in the building, other improvement and land of which
the Premises are part. Neither Lessor nor any of the partners comprising the
partnership designated as Lessor shall be personally liable for any deficiency.
34. Miscellaneous.
a) Time is of the essence of this Lease, and of each and all of
its provisions.
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b) The term "Building" shall mean the building in which the
Premises are situated.
c) If the Building is leased to more than one tenant, then
each such tenant, its agents, officers, employees and
invitees, shall have the non-exclusive right (in
conjunction with the use of the part of the building
leased to such tenant) to make reasonable use of any
driveways, sidewalks and parking areas located on the
parcel of land on which the Building is situated, except
such parking areas as may from time to time be leased for
exclusive use by other tenant(s).
d) Lessee's such reasonable use of parking areas shall not
exceed that percent of the total parking areas which is
equal to the ratio which floor space of the Premises
bears to floor space of the Building.
e) The term "assign" shall include the "transfer".
f) The invalidity or unenforceability of any provision of
this Lease shall not affect the validity or
enforceability of the remainder of this Lease.
g) All parties hereto have equally participated in the
preparation of this Lease.
h) The headings and titles to the paragraphs of this Lease
are not a part of this Lease and shall have no effect
upon the construction or interpretation of any part
thereof.
i) Lessor has made no representation(s) whatsoever to Lessee
(express or implied) except as may be expressly stated in
writing, signed by all of the parties hereto or their
respective successors in interest.
j) This instrument contains all of the agreements and
conditions made between the parties hereto, and may not
be modified orally or in any other manner than by
agreement in writing, signed by all of the parties hereto
or their respective successors in interest.
k) It is understood and agreed that the remedies herein
given to Lessor shall be cumulative, and the exercise of
any one remedy by Lessor shall not be to the exclusion of
any other remedy.
l) The covenants and conditions herein contained shall,
subject to the provisions as to assignment, apply to and
bind the heirs, successors,
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executors, administrators and assigns of all of the
parties hereto; and all of the parties hereto shall
jointly and severally be liable hereunder.
m) This Lease has been negotiated by the parties hereto and
the language hereof shall not be construed for or against
either party.
n) All exhibits to which reference is made are deemed
incorporated into this Lease, whether or not actually
attached.
35. Even though this Lease is fully executed, it shall be binding only upon
receipt of a building permit from the Town of Los Gatos by Lessee for the
interior improvements shown on Exhibit "B". If said building permit Is not
obtained by February 1, 1992, this Lease Agreement and the new Lease Agreement
for 104 Cooper Court, Los Gatos shall be null and void. The existing Leases for
100 Cooper Court, Los Gatos, California, and 104 Cooper Court, Los Gatos,
California shall then continue in full force and effect.
IN WITNESS HEREOF, Lessor and Lessee have executed this Lease on the
date first above-written.
LESSOR: VASONA BUSINESS PARK, LESSEE: CAERE CORPORATION,
A California Limited Partnership A California Corporation
By: (s) William A. Cooper By: (s) Blanche M. Sutter
----------------------------------- ----------------------------
William A. Cooper Blanche M. Sutter
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<PAGE> 1
Exhibit 10.4
LEASE
THIS LEASE is made on this 27 day of Nov ,1991, by and between VASONA
BUSINESS PARK, a California General Partnership, (hereinafter called "Lessor")
and CAERE CORPORATION, a California Corporation, (hereinafter called "Lessee").
IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES
AGREE AS FOLLOWS:
1. Premises. Lessor leases to Lessee and Lessee leases from Lessor,
upon the terms and conditions herein set forth, those certain premises
("Premises") situated in the City of Los Gatos, County of Santa Clara,
California, as outlined in Exhibit "A" attached and described as: Approximately
23,100 square feet of space in that larger 43,230 square foot industrial
building commonly known as 104 Cooper Court.
2. Term. The term of this Lease shall be for five (5) years, commencing
February 1, 1992, and ending on January 31,1997, unless sooner terminated
pursuant to any provisions hereof.
3. Rent. Lessee shall pay to Lessor rent for the Premises of Seventeen
Thousand Three Hundred Twenty-five and no/100ths Dollars ($17,325.00) per month
in lawful money of the United States of America, subject to adjustment or
offset, prior notice or demand, at such place as may be designated from time to
time by Lessor as follows: $17,325.00 shall be paid upon execution of the Lease,
which sum represents the amount of the first month's rent. A deposit of
$17,325.00 as a Security Deposit shall be made by Lessee and held by the Lessor
pursuant to Paragraph 5 of this Lease, and shall also be paid upon execution of
the Lease. If Lessee is not in default of any provisions of this Lease, this
sum, with interest thereon, shall be applied toward the rent due for the last
month of the term of this Lease or the extended term, pursuant to any extension
of the initial term in accordance with the provisions of this Lease. $17,325.00
shall be paid on March 1, 1992, and in advance of the first (1st) day of each
month until January 31, 1994. $18,480.00 shall be paid on February 1, 1994 and
in advance of the first (1st) day of each month until January 31,1995.
$19,635.00 shall be paid on February 1, 1995, and in advance of the first (1st)
day of each month until January 31, 1996. $20,790.00 shall be paid on February
1, 1996, and in advance of the first (1st) day of each month until January 31,
1997.
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Rent for any period during the term hereof which is for less than one (1) full
month shall be a pro-rata portion of the monthly rent payment. Lessee
acknowledges that late payment by Lessee to Lessor of rent or any other payment
due Lessor will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of such costs being extremely difficult and impracticable to fix.
Such costs include, without limitation, processing and accounting charges, and
late charges that may be imposed on Lessor by the terms of any encumbrances and
note secured by any encumbrance covering the Premises. Therefore, if any
installment of rent or other payment due from Lessee is not received by Lessor
within five (5) days following the date it is due and payable, Lessee shall pay
to Lessor an additional sum of five (5%) percent of the overdue amount as a late
charge, except for the first failure to make a payment of rent or other amount
when due in each lease year of the Lease. Further, in only this event, said late
charge will not be imposed until such failure to pay has not occurred within
three (3) business days after Lessor has delivered written notice to Lessee that
such payment is due. The parties agree that this late charge represents a fair
and reasonable estimate of the costs that Lessor will incur by reason of late
payment by Lessee. Acceptance of any late charge shall not constitute a waiver
of Lessee's default with respect to the overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies available to Lessor.
If for any reason whatsoever, Lessor cannot deliver possession of the
Premises on the commencement date set forth in Paragraph 2 above, this Lease
shall not be void or voidable, nor shall Lessor be liable to Lessee for any loss
or damage resulting therefrom; but in such event, Lessee shall not be obligated
to pay rent until possession of the Premises is tendered to Lessee and the
commencement and termination dates of this Lease shall be revised to conform to
the date of Lessor's delivery of possession. In the event that Lessor shall
permit Lessee to occupy the Premises prior to the commencement date of this
term, such occupancy shall be subject to all of the provisions of this Lease,
including the obligation to pay rent at the same monthly rate as that prescribed
for the first month of the Lease term.
B. All taxes, insurance premiums, Outside Area Charges, late charges,
costs and expenses which Lessee is required to pay hereunder, together with all
interest and penalties that may accrue thereon in the event of Lessee's failure
to pay such amounts, and all reasonable damages, costs and attorney's fees and
expenses which Lessor may incur by reason of any default of Lessee or failure on
Lessee's part to comply with the terms of this Lease, shall be deemed to be
additional rent ("Additional Rent") and, in the event of non-payment by Lessee,
Lessor shall have all the rights and remedies with respect thereto as Lessor has
for the non-payment of the monthly installment of rent.
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4. Security Deposit. Lessor acknowledges that Lessee has deposited with
Lessor a Security Deposit in the sum of $17,325.00 to secure the full and
faithful performance by Lessee of each term, covenant, and condition of this
Lease. If Lessee shall at any time fail to make any payment or fail to keep or
perform any term, covenant, or condition on its part to be made or performed or
kept under this Lease, Lessor may, but shall not be obligated to and without
waiving or releasing Lessee from any obligation under this Lease, use, apply,
or retain the whole or any part of said Security Deposit (a) to the extent of
any sum due to Lessor; or (b) to make any required payment on Lessee's behalf;
or (c) to compensate Lessor for any loss, damage, attorneys' fees or expense
sustained by Lessor due to Lessee's default. In such event, Lessee shall within
five (5) days of written demand by Lessor, remit to Lessor sufficient funds to
restore the Security Deposit to its original sum. Should Lessee comply with all
the terms, covenants and conditions of this Lease and at the end of the term of
this Lease leave the Premises in the condition required by this Lease, then
said Security Deposit or any balance thereof, less any sums owing to Lessor,
shall be returned to Lessee within fifteen (15) days after the termination of
this Lease and vacancy of the Premises by Lessee. Lessor can maintain the
Security Deposit separate and apart from Lessor's general funds, or can
commingle the Security Deposit with Lessor's general and other funds. Lessor
agrees to pay Lessee annually interest on the security deposit. The rate of
interest shall be the average monthly rate paid by Cupertino National Bank on
their Money Market Account.
5. Use of the Premises. The Premises shall be used exclusively for the
purpose of administrative offices and manufacturing of electronic products.
Lessee shall not use, or permit the Premises, or any part thereof, to
be used, for any purpose or purposes other than the purpose for which the
Premises are hereby leased; and no use shall be made or permitted to be made of
the Premises, nor acts done, which will increase the existing rate of insurance
upon the building in which the Premises are located, or cause a cancellation of
any insurance policy covering said building, or any part thereof, nor shall
Lessee sell, or permit to be kept, used or sold, in or about the Premises, any
article which may be prohibited by the standard form of fire insurance policies.
Lessee shall not commit, or suffer to be committed, any waste upon the Premises,
or any public or private nuisance, or other act or thing which may disturb the
quiet enjoyment of any other tenant in the building in which the Premises are
located; nor, without limiting the generality of the foregoing, shall Lessee
allow the premises to be used for any improper, unlawful or objectionable
purpose.
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6. Hazardous Materials.
Lessor hereby represents to Lessee that to the best of Lessor's
knowledge, there is no toxic waste, spillage, or other contaminants, including
asbestos, present in or about the Premises or the building thereon as of the
date of execution of this Lease and that no hazardous material has been used on
the Premises except in compliance with law. Lessee shall not place any harmful
liquids in the drainage system of the Premises or of the building of which the
Premises forms a part except in compliance with law. No waste materials or
refuse shall be disposed of or stored upon any part of the Premises outside of
the building proper except in trash containers placed inside exterior enclosures
designated for the purpose by Lessor, or inside the building proper where
designated by Lessor unless such outside storage or disposal is required by law.
No materials, supplies, equipment, finished or semi-finished products, raw
materials or articles of any nature shall be disposed of or stored upon any
portion of the Premises outside of the building unless such outside storage or
disposal is required by law.
Should, at any time during the term of this Lease, or for a period
of five (5) years after termination or expiration of this Lease, there be
charges or findings of toxic waste, spillage, or other contaminants found by a
governmental agency to be hazardous and requiring removal or remedial work of
the same, and it is determined that Lessee is the sole cause, Lessee shall hold
Lessor harmless from all claims, obligations, liabilities and costs, including
reasonable attorney's fees, for the removal, remedial work, or other action
required by the governmental agency so prescribing said action, or any other
agency having jurisdiction. If it is determined that Lessee is only partially
responsible for toxic waste spillage, or other contaminants found by a
governmental agency to be hazardous and requiring removal or remedial work of
the same, then Lessee shall be responsible only for its prorate share and to the
extent of said prorate share, Lessee shall hold Lessor harmless from any claims,
obligations, liabilities and costs, including reasonable attorney's fees, for
the removal, remedial work, or other action required by the governmental agency
so prescribing said action, or any other agency having jurisdiction. If at any
time during the term of this Lease, Lessor suspects that toxic waste, spillage,
or other contaminants may be present on the Premises, Lessor may order a soils
report, or its equivalent. If it is determined that Lessee is the cause of
contamination and that a governmental agency, or any other agency having
jurisdiction, requires the removal or remediation of said contamination, Lessee
shall pay the costs of the soils report within fifteen (15) days from the date
of invoice by Lessor. If any such toxic waste, spillage, or other contaminants
are found upon the Premises, Lessee shall either (i) remove such substance and
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remedy the problem as provided in (b) below or (ii) deposit with Lessor, within
fifteen (15) days of notice from Lessor to Lessee to do so, the amount necessary
to remove such substances and remedy the problem, if it is proven that Lessee is
responsible for such toxic waste, spillage, or contaminants.
Lessee shall abide by all laws, ordinances and statutes, as they now
exist or may hereafter be enacted by legislative bodies having jurisdiction
thereof, relating to its use and occupancy of the Premises.
A. Definitions. As used herein, the term "Hazardous Material"
shall mean any substance or material which has been determined by any state,
federal or local governmental authority to be capable of posing a risk of injury
to health, safety or property including all of those materials and substances
designated as hazardous or toxic by the Environmental Protection Agency, the
California Water Quality Control Board, the Department of Labor, the California
Department of Industrial Relations, the Department of Transportation, the
Department of Agriculture, the Consumer Product Safety Commission, the
Department of Health and Human Services, the Food and Drug Agency or any other
governmental agency now or hereafter authorized to regulate materials and
substances in the environment. Without limiting the generality of the foregoing,
the term "Hazardous Material" shall include all of those materials and
substances defined as "Toxic Materials" in Section 66680 through 66685 of Title
22 of the California Administrative Code, Division 4, Chapter 30, as the same
shall be amended from time to time.
B. Use Restriction. Lessee shall not cause or permit any Hazardous
Material to be used, stored, or disposed of in or about the Premises except in
strict accordance with all laws and ordinances governing Hazardous Materials.
The appearance of any Hazardous Material on or about the Premises which is
caused or permitted by Lessee shall be deemed an Event of Default. If the
presence of Hazardous Material on or about the Premises which is caused or
permitted by Lessee results in contamination of the Premises or any soil in or
about the Premises or groundwater under the Premises, Lessee, at its expense,
shall promptly take all action necessary to return the Premises to the condition
existing prior to the appearance of such Hazardous Material and shall perform
all monitoring, testing, containment clean-up and other actions required by any
applicable governmental agency.
C. Lessee's Indemnity. Lessee shall defend, hold harmless and
indemnify Lessor and its agents, lenders and employees from or against any and
all liabilities, obligations, damages, penalties, claims, costs (including
compliance and clean-up costs), charges, expenses
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<PAGE> 6
of attorneys, expert witnesses, engineers and other consultants which may be
imposed upon, incurred by or asserted against Lessor or the Premises by reason
of any contamination of ;`he Premises or any soil in or about the Premises or
any groundwater under the Premises caused by Lessee's storage, use or disposal
of Hazardous Material in or about the Premises.
D. Lessor's Indemnification. Lessor shall indemnify, defend and
hold harmless Lessee from and against any and all liabilities, obligations,
damages, penalties, claims, costs, (including compliance and clean-up costs),
charges, expenses of attorneys, expert witnesses, engineers and other
consultants which may be imposed upon, incurred by or asserted against Lessee at
any time by reason of any contamination of the Premises caused by either
Lessor's storage or a previous tenant's use or disposal of Hazardous Material on
or about the Premises or caused by a release of Hazardous Material by third
parties which release is proven to have occurred on or off the Premises.
E. Representations and Warranties. Lessor represents and warrants
that Lessor has not received nor is aware of any notification from the
Department of Health Services, California Regional Water Quality Control Board,
the U.S. Environmental Protection Agency or such other City, County or State
authority having jurisdiction to require investigation, monitoring or
remediation of any release of Hazardous Material, on, above or beneath the
Premises. Lessor further represents that in the event that such notice or
notices are received by Lessor, Lessor shall promptly deliver copies thereof to
Lessee.
F. Compliance. Lessee shall immediately notify Lessor of any
inquiry, test, investigation, enforcement proceeding by or against Lessee or the
Premises concerning Hazardous Material used, stored or disposed of by Lessee or
alleged to have been used, stored or disposed of by Lessee on or about the
Premises. Lessor shall have the right to appoint a consultant to conduct an
investigation to determine whether Lessee has used, stored or disposed of
Hazardous Material on or about the Premises. If the consultant determines that
Hazardous Materials have been stored, used or disposed of by Lessee, Lessee, at
its expense, shall comply with all recommendations of the consultant, including,
without limitation, any recommended testing, monitoring and clean-up.
G. Assignment and Subletting. It shall not be unreasonable for
Lessor to withhold its consent to any proposed assignment or subletting if (i)
the proposed assignee's or sublessee's anticipated use of the Premises involves
the storage, use or disposal of Hazardous Material; (ii) if the proposed
assignee or sublessee has been required by any prior Lessor, lender or
governmental authority to "clean-up" Hazardous Material; (iii) if the proposed
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assignee or sublessee is subject to investigation or enforcement order or
proceeding by any governmental authority in connection with the use, disposal or
storage of a Hazardous Material.
H. Survival. The provisions contained in this Paragraph 6 shall
survive the expiration or earlier termination of this Lease.
7. Improvements. Lessor will, at its sole expense, make improvements to
the Premises as specified in Exhibit "B" attached hereto and by this reference
made a part hereof. Lessor will make reasonable efforts to complete such
improvements prior to February 1,1992.
8. Taxes and Assessments.
A. Lessee shall pay before delinquency any and all taxes,
assessments, license fees, public charges levied, assessed or imposed upon or
against Lessee's fixtures, equipment, furnishings, appliances and personal
property installed or located on or within the Premises. Lessee shall cause said
fixtures, equipment, furnishings, furniture, appliances and personal property to
be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay to Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement from Lessor setting forth the taxes
applicable to Lessee's property.
B. All property taxes or assessments levied or assessed or
hereafter levied or assessed, by any governmental authority, against the
Premises or any portion of such taxes or assessments which becomes due or
accrued during the term of this Lease, shall be paid by Lessor. Lessee shall
reimburse Lessor for Lessee's proportionate share of such taxes or assessments
within ten (10) days of receipt of Lessor's invoice demanding such payment.
Lessee's liability hereunder shall be prorated to reflect the commencement and
termination dates of this Lease.
9. Insurance.
A. Indemnity. Lessee agrees to indemnify and defend Lessor against
and hold Lessor harmless from any and all demands, claims, causes of action,
judgments, obligations, liabilities, and all reasonable expenses incurred in
investigating or resisting the same (including reasonable attorney's fees) on
account of, or arising out of the Lessee's condition, use or occupancy of the
Premises. This Lease is made on the express condition that Lessor shall not be
liable for, or suffer loss by reason of, injury to person or property, from
whatever cause, in any way connected with the Lessee's use or occupancy of the
Premises, specifically including, without limitation, any liability for injury
to the person or property of Lessee, its agents, officers, employees, licensees
and invitees.
B. Liability Insurance. Lessee shall, at the Lessee's expense,
obtain and keep in
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force during the term of this Lease, a policy of commercial general liability
insurance insuring Lessor and Lessee, with cross-liability endorsements, against
any liability arising out of the condition, use or occupancy of the Premises and
Lessee's use of all areas appurtenant thereto, including parking areas. Such
insurance shall be in an amount satisfactory to Lessor of not less than
$3,000,000 for bodily injury or death as a result of any one occurrence, and
$500,000 for damage to property as a result of any one occurrence. The insurance
shall be with companies approved by Lessor, which approval Lessor agrees not to
unreasonably withhold. Lessee shall deliver to Lessor prior to possession, a
certificate of insurance evidencing the existence of the policy required
hereunder, and such certificate shall certify that the policy (1) names Lessor
as an additional insured, (2) shall not be canceled without thirty (30) days
prior written notice to Lessor, (3) insures performance of the indemnity set
forth in Sub-paragraph (A) above subject to standard commercial general
liability coverage exclusions, and (4) the coverage is primary and any coverage
by Lessor is in excess thereto.
C. Property Insurance. Lessor shall obtain and keep in force
during the term of this Lease, a policy or policies of insurance covering loss
or damage to the Premises, in the amount of the full replacement value thereof,
providing protection against those perils included within the classification
covering Direct Risk of physical loss with endorsement covering Special Form
perils insurance, plus a policy of rental income insurance in the amount of 100%
of the twelve (12) months rent (including sums payable as Additional Rent), and,
at Lessor's option, earthquake insurance and flood insurance. Lessee shall have
no interest in nor any right to the proceeds of any insurance procured by Lessor
on the Premises. Lessee shall, within twenty (20) days after receipt of billing,
pay to Lessor as additional rent, the full cost of such insurance procured and
maintained by Lessor. Lessee acknowledges that such insurance procured by Lessor
shall contain a deductible which reduces Lessee's cost for such insurance and,
in the event of loss or damage, Lessee shall be required to pay to Lessor the
amount of such deductible.
D. Release of Lessor. Lessee acknowledges that the insurance to be
maintained by Lessor on the Premises pursuant to Sub-paragraph C above will not
insure any of Lessee's property. Accordingly, Lessee, at Lessee's own expense,
shall maintain in full force and effect on all its fixtures, equipment,
leasehold improvements and personal property in the Premises, a policy covering
Direct Risk of physical loss with endorsement covering Special Form perils
insurance to the extent of at least ninety (90%) percent of their insurable
value. Lessee hereby releases Lessor, and its partners, officers, agents,
employees, and servants, from any and all claims, demands, loss, expense or
injury to the Premises or to the furnishings,
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fixtures, equipment, inventory or other personal property of Lessee in, about,
or upon the Premises which is caused by perils, events or happenings which are
covered by insurance required by this Lease or which are the subject of
insurance carried by Lessee and in force at the time of such loss. Lessee shall
procure an appropriate clause in, or an endorsement to, all policies required by
this Lease, or any other insurance policy maintained by Lessee with respect to
the Premises or Lessee's occupancy thereof, pursuant to which the insurance
company or companies waive subrogation or consent to a wavier of a right of
recovery against Lessor.
E. Mutual Waiver of Subrogation. Lessee and Lessor hereby mutually
waive their respective rights for recovery against each other for any loss of or
damage to the property of either party, where such loss or damage is insured by
any insurance policy required to be maintained by this Lease or otherwise in
force at the time of such loss or damage. Each party shall obtain any special
endorsements, if required by the insurer, whereby the insurer waives its right
of recovery against the other party hereto. The provisions of this Sub-paragraph
E shall not apply in those instances in which waiver of subrogation would cause
either party's insurance coverage to be voided or otherwise made uncollectable.
10. Utilities. Lessee shall pay for all water, gas, light, heat, power,
electricity, telephone, trash pick-up, sewer charges, and all other services
supplied to or consumed on the Premises, and all taxes and surcharges thereon.
Lessor shall install a separate electric service so that the subject space is
billed on Lessee's own separate meter. Until the separate meter is installed,
Lessee agrees to pay its prorate share of the monthly utility charges to the
whole building of which the subject space is a part. Further, in the event that
any other utility services are not separately metered to the Premises, the cost
of such utility service shall be an Outside Area Charge and Lessee shall pay its
share of such cost to Lessor as provided in Paragraph 13 below. In addition, the
cost of any utility service supplied to the Outside Area shall be an Outside
Area Charge and Lessee shall pay its share of such cost to Lessor as provided in
Paragraph 13 below.
11. Repairs and Maintenance.
A. Subject to provisions of Paragraph 17, Lessor shall be
responsible for the cost of maintaining the roof until a new roof is installed.
Lessor shall keep and maintain the paving, structural elements, landscaping,
irrigation, the roof, except for the first time a new roof is installed and the
exterior walls of the building in which the Premises are located and all common
areas in good order and repair. Lessee shall reimburse Lessor for its
proportionable
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share of said expense within ten (10) days of Lessee's receipt of Lessor's
invoice demanding payment. If, however, any repairs or maintenance are required
because of an act or omission of Lessee, or its agents, employees, or authorized
representatives, Lessee shall pay to Lessor upon demand 100% of the costs of
such repair or maintenance.
Notwithstanding the foregoing, if the roofing or roof membrane is
replaced during the Lease term, Lessor shall be responsible for the cost of such
replacement.
B. Except as expressly provided in Sub-paragraph (A) above, Lessee
shall at its sole cost, keep and maintain the entire Premises and every part
thereof, including, without limitation, the windows, window frames, plate glass,
glazing, truck doors, doors, all door hardware, interior of the Premises,
interior walls and partitions, and the electrical, plumbing, heating and
air-conditioning systems in good and sanitary order, condition and repair.
Lessee shall, at all times during the Lease term, have in effect a
service contract for the maintenance of the heating, ventilating and
air-conditioning (HVAC) equipment with a HVAC repair and maintenance contractor
approved by Lessor which provides for periodic inspection and servicing at least
once every three (3) months during the term hereof and shall provide Lessor with
a copy of such contract and all periodic service reports.
Should Lessee fail to maintain the Premises or make repairs
required of Lessee hereunder forthwith upon notice from Lessor, Lessor, in
addition to all other remedies available hereunder or by law, and without
waiving any alternative remedies, may make the same, and in that event, Lessee
shall reimburse Lessor as additional rent for the reasonable cost of such
maintenance or repairs on the next date upon which rent becomes due.
Lessee hereby expressly waives the provisions of Sub-section 1 of
Section 1932, and Sections 1941 and 1942 of the Civil Code of California and all
rights to make repairs at the expense of Lessor, as provided in Section 1942 of
said Civil Code.
12. Outside Area . Subject to the terms and conditions of this Lease
and such rules and regulations as Lessor may from time to time prescribe, Lessee
and Lessee's employees, invitees and customers shall, in common with other
occupants of the parcel on which the Premises are located, and their respective
employees, invitees and customers, and others entitled to the use thereof, have
the non-exclusive right to use the access roads, parking areas and facilities
provided and designated by Lessor for the general use and convenience of the
occupants of the parcel on which the Premises are located, which areas and
facilities are referred to herein as "Outside Area". This right shall terminate
upon the termination of this Lease. Lessor reserves the right from time to time
to make changes in the shape, size, location, amount and extent of the Outside
Area. Lessor further reserves the right to promulgate such reasonable rules and
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regulations relating to the use of the Outside Area, and any part or parts
thereof, as Lessor may deem appropriate for the best interest of the occupants
of the parcel. The rules and regulations shall be binding upon Lessee upon
delivery of a copy of them to Lessee, and Lessee shall abide by them and
cooperate in their observance. Such rules and regulations may be amended by
Lessor from time to time, with or without advance notice, and all amendments
shall be effective upon delivery of a copy to Lessee, provided such regulation
does not interfere with Lessee's quiet enjoyment.
Lessee shall have the exclusive use of eighty-nine (89) parking
spaces in the Outside Area as designated from time to time by Lessor. Lessee
shall not at any time park or permit the parking of Lessee's trucks or other
vehicles, or the trucks or other vehicles of others, adjacent to the loading
areas so as to interfere in any way with the use of such areas, nor shall Lessee
at any time park or permit the parking of Lessee's vehicles or trucks, or the
vehicles or trucks of Lessee's suppliers or others, in any portion of the
Outside Area not designated by Lessor for such use by Lessee. Lessee shall not
abandon any inoperative vehicles or equipment on any portion of the Outside
Area.
Lessor shall operate, manage, maintain and repair the Outside Area
in good order, condition and repair. The manner in which the Outside Area shall
be maintained and the expenditures for such maintenance shall be at the
discretion of the Lessor. The cost of such repair, maintenance, operation and
management, including without limitation, maintenance and repair of landscaping,
irrigation systems, paving, sidewalks, fences and lighting, shall be an Outside
Area Charge and Lessee shall pay to Lessor its share of such costs as provided
in Paragraph 13 below.
13. Outside Area Charges. Lessee shall pay to Lessor, as additional
rent, upon demand but not more often than once each calendar month, an amount
equal to fifty-four (54%) percent of the Outside Area Charges as defined in this
Lease. Lessee acknowledges and agrees that the Outside Area Charges shall
include an additional one (1%) percent of the actual expenditures in order to
compensate the Lessor for accounting and processing services. The Outside Area
Charges shall be documented by Lessor.
14. Alterations and Additions. Lessee shall not make, or suffer to be
made, any alterations, improvements, or additions in, on or about, or to the
Premises or any part thereof, without the prior written consent of Lessor, and
without a valid building permit issued by the appropriate governmental
authority. Lessor retains, at his sole option, the right to perform all repairs,
alterations, improvements or additions in, or about, or to said Premises or any
part
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thereof. As a condition to giving such consent, Lessor may require that Lessee
agree to remove any such alterations, improvements or additions at the
termination of this Lease, and to restore the Premises to their prior condition.
Any alteration, addition, or improvement to the Premises, except movable
furniture and trade fixtures not affixed to the Premises, shall become the
property of the Lessor upon installation, and shall remain upon and be
surrendered with the Premises at the termination of this Lease. Lessor can
elect, however, within thirty (30) days before expiration of the term to require
Lessee to remove any alterations, additions or improvements that Lessee has made
to the Premises. If Lessor so elects, Lessee shall restore the Premises to the
condition designated by Lessor in its election, before the last day of the term,
or within thirty (30) days after notice of election is given, whichever is
later. Alterations and additions, which are not to be deemed as trade fixtures,
include heating, lighting, electrical systems, air-conditioning, partitioning,
electrical signs, carpeting or any other installation which has become an
intregal part of the Premises. In the event Lessor consents to Lessee's making
any alterations, improvements or additions, Lessee shall notify Lessor in
writing at least fifteen (15) days prior to commencing work and Lessee shall be
responsible for the timely posting of notices of non-responsibility on Lessor's
behalf, providing that Lessor shall be responsible for executing and recording
said notices and delivering the same to Lessee for posting, which shall remain
posted until completion of the alterations, additions, or improvements. Lessee's
failure to notify Lessor within the time period provided in the preceding
sentence shall be a breach of this Lease.
If, during the term hereof, any alteration, change or addition of
any sort through all or any portion of the Premises or of the building of which
the Premises form a part, is required by law, regulation, ordinance or order of
any public agency, Lessee, at its sole cost and expense, shall promptly make the
same.
15. Acceptance of the Premises and Covenant to Surrender. By entry and
taking possession of Premises to this Lease, Lessee accepts the Premises as
being in good and sanitary order, condition and repair and accepts Premises in
their condition existing as of date of such entry and Lessee further accepts any
tenant improvements to be constructed by Lessor, if any as being completed in
accordance with plans and specifications for such improvements.
Subject to Paragraphs 17 and 18, Lessee agrees on the last day of
the term hereof, or on sooner termination of this Lease, to surrender the
Premises together with all alterations, additions and improvements which may
have been made in, to or on the Premises by Lessor or Lessee, unto Lessor in
good and sanitary order, condition and repair, excepting for such wear
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<PAGE> 13
and tear as would be normal for the period of Lessee's occupancy. Lessee, on or
before the end of term or sooner termination of this Lease, shall remove all
personal property and trade fixtures from the Premises, and all property not so
removed shall be deemed to be abandoned by Lessee. Lessee further agrees that at
the end of the term or sooner termination of this Lease, Lessee, at its sole
expense shall have the carpets steam cleaned, the walls and columns painted, the
floors waxed, any damaged ceiling tiles replaced, the windows cleaned, the
drapes cleaned and any damaged doors replaced.
If the Premises are not surrendered at the end of the term or
sooner termination of this Lease, Lessee shall indemnify Lessor against loss or
liability resulting from delay by Lessee in so surrendering the Premises,
including, without limitation, any claims made by any succeeding tenant founded
on such delay.
16. Default. In the event of any default under the terms of this Lease
by Lessee, or an abandonment of the Premises by the Lessee, the Lessor has the
option of: (1) removing all persons and property from the Premises and
repossessing the Premises, in which case any of the Lessee's property which
Lessor removes from the Premises may be stored in a public warehouse or
elsewhere at the cost of, and for the account of Lessor or, (2) allowing the
Lessee to remain in full possession and control of the Premises. If the Lessor
chooses to repossess the Premises, the Lease will automatically terminate in
accordance with the provisions of California Civil Code Section 1951.2. In the
event of such termination of the Lease, Lessor may recover from the Lessee: (1)
the worth at the time of award of unpaid rent which had been earned at the time
of termination, including interest at the maximum rate an individual is
permitted by law to charge; (2) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided, including interest at the maximum rate an
individual is permitted by law to charge; (3) the worth at the time of award of
the amount by which the unpaid rent for the balance of the term after the time
of award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (4) any other amount necessary to compensate the Lessor
for all the detriment proximately caused by the Lessee's failure to perform his
obligations under the Lease or which, in the ordinary course of things, would be
likely to result therefrom. "The worth at the time of the award", as used in (1)
and (2) of this paragraph is to be computed by allowing interest at the maximum
rate an individual is permitted by law to charge. "The worth at the time of the
award", as referred to in (3) of this paragraph is to be computed by discounting
the amount at
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<PAGE> 14
the discount rate of the Federal Reserve Bank of San Francisco at the time of
the award, plus one (1%) percent.
If Lessor chooses not to repossess the Premises, but allows the
Lessee to remain in full possession and control of the Premises, then in
accordance with provisions of California Civil Code Section 1951.4, the Lessor
may treat the Lease as being in full force and effect, and may collect from the
Lessee all rents as they become due through the termination date of the Lease,
as specified in the Lease. For the purpose of this paragraph, the following do
not constitute a termination of Lessee's right to possession:
a) Acts of maintenance or preservation, or efforts to relet the
property.
b) The appointment of a receiver on the initiative of the Lessor
to protect his interest under this Lease.
Lessee shall be liable immediately to Lessor for all costs Lessor
incurs in reletting the Premises, including, without limitation, brokers'
commissions, expense of remodeling the Premises required by the reletting, and
like costs. Reletting can be for a period shorter or longer than the remaining
term of this Lease. Lessee shall pay to Lessor the rent due under this Lease on
the dates the rent is due, less the rent the Lessor receives from any reletting.
No act by Lessor allowed by this Section shall terminate this Lease unless
Lessor notifies Lessee that Lessor elects to terminate this Lease. After
Lessee's default, and for as long as Lessor does not terminate Lessee's right to
possession of the Premises, if Lessee obtains Lessor's consent, Lessee shall
have the right to assign or sublet its interest in this Lease, but Lessee shall
not be released from liability. Lessor's consent to proposed assignment or
subletting shall not be unreasonably withheld.
If Lessor elects to relet the Premises as provided in this
Paragraph, rent that Lessor receives from reletting shall be applied to the
payment of
First, any indebtedness from Lessee to Lessor other than rent
due from Lessee;
Second, all costs, including for maintenance, reasonably
incurred by Lessor in reletting;
Third, rent due and unpaid under this Lease. After deducting
payment referred to in this Paragraph, any sum remaining from rent
Lessor receives from reletting shall be applied in payment of
future rent as rent becomes due under this Lease. If on the date
rent is due
-14-
<PAGE> 15
under this Lease, the rent received from reletting is less than
the rent due on that date, Lessee shall pay to Lessor, in addition
to remaining rent due, all costs, including for maintenance,
Lessor incurred in reletting that remain after applying rent
received from the reletting, as provided in this paragraph.
Lessor at any time after Lessee commits a default can cure the
default at Lessee's cost. If Lessor at any time, by reason of Lessee's default,
pays any sum or does any act that requires the payment of any sum, the
reasonable sum paid by Lessor shall be due immediately from Lessee to Lessor at
the time the sum is paid, and if paid at a later date shall bear interest at the
maximum rate an individual is permitted by law to charge from the date the sum
is paid by Lessor until Lessor is reimbursed by Lessee. The sum, together with
interest on it, shall be additional rent.
Rent not paid within five (5) days after becoming due shall bear
interest at the maximum rate an individual is permitted by law to charge from
the date due until paid.
17. Damage or Destruction.
(a) Uninsured Minor Casualty. In the event that any portion of the
Premises are destroyed or damaged by an uninsured peril. Lessor or Lessee may,
upon written notice to the other, given within thirty (30) days after the
occurrence of such damage or destruction, elect to terminate this Lease;
provided, however, that either party may, within thirty (30) days after receipt
of such notice, elect to make any required repairs and/or restoration at such
party's sole cost and expense, in which event this Lease shall remain in full
force and effect, and the party having made such election to restore or repair
shall thereafter diligently proceed with such repairs and/or restoration.
(b) Insured Major Casualty. In the event the Premises are damaged
or destroyed from any insured peril to the extent of thirty-three (33(degree)/O)
percent or more of the then replacement cost of the Premises Lessor may, upon
written notice to Lessee, given within thirty (30) days after the occurrence of
such damage or destruction, elect to terminate this Lease. If Lessor does not
give such notice in writing within such period, Lessor shall be deemed to have
elected to rebuild or restore the Premises, in which event Lessor shall, at its
expense, promptly rebuild or restore the Premises to their condition prior to
the damage or destruction.
(c) Insured Minor Casualty. In the event the Premises are damaged
or destroyed from any insured peril to the extent of less than thirty-three
(33%) percent of the then replacement cost of the Premises, Lessor shall, at
Lessor's expense, promptly rebuild or restore the Premises to their condition
prior to the damage or destruction.
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<PAGE> 16
In the event that, pursuant to the foregoing provisions, Lessor is
to rebuild or restore the Premises, Lessor shall, within thirty (30) days after
the occurrence of such damage or destruction, provide Lessee with written notice
of the time required for such repair or restoration. If such period is longer
than one hundred eighty (180) days from the issuance of a building permit,
Lessee may, within thirty (30) days of receipt of Lessor's notice, elect to
terminate the Lease by giving written notice to Lessor of such election,
whereupon the Lease shall immediately terminate. The period of time for Lessor
to complete the repair or restoration shall be extended for delays caused by the
fault or neglect of Lessee or because of acts of God, acts of stormy weather,
inability to obtain materials, supplies or fuels, acts of contractors or
subcontractors, or delay of contractors or subcontractors due to such causes or
other contingencies beyond the control of Lessor. Lessor's obligation to repair
or restore the Premises shall not include restoration of Lessee's trade
fixtures, equipment, merchandise, or any improvements, alterations or additions
made by Lessee to the Premises.
Unless this Lease is terminated pursuant to the foregoing
provisions, this Lease shall remain in full force and effect; provided, however,
that during any period of repairs or restoration, rent and all other amounts to
be paid by Lessee on account of the Premises and this Lease shall be abated in
proportion to the area of the Premises rendered not reasonably suitable for the
conduct of Lessee's business thereon. Lessee hereby expressly waives the
provisions of Section 1932, Subdivision 2 and Section 1933, Subdivision 4 of the
California Civil Code.
18. Condemnation. If any part of the Premises shall be taken for any
public or quasi-public use, under any statute or by right of eminent domain, or
private purchase in lieu thereof, and a part thereof remains, which is
susceptible of occupation and use hereunder, this Lease, shall, as to the part
so taken, terminate as of the date title shall vest in the condemner or
purchase, and the rent payable hereunder shall be adjusted so that the Lessee
shall be required to pay for the remainder of the term only such portion of such
rent as the value of the part remaining after such taking bears to the value of
the entire Premises prior to such taking. Lessor and Lessee shall have the
option to terminate this Lease in the event that such taking causes a reduction
in rent payable hereunder by fifty (50%) percent or more. If all of the Premises
or such part thereof be taken so that there does not remain a portion
susceptible for occupation and use hereunder, as reasonably necessary for
Lessee's conduct of its business as contemplated in this Lease, this Lease shall
thereupon terminate. If a part or all of the Premises be taken, all compensation
awarded upon such taking shall go to the Lessor, and the Lessee shall have no
claim thereto and the Lessee hereby irrevocably assigns and transfers to
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<PAGE> 17
the Lessor any right to compensation or damages to which the Lessee may become
entitled during the term hereof by reason of the purchase or condemnation of all
or a part of the Premises.
If this Lease is terminated by either Lessor or Lessee pursuant to
this Paragraph 18, Lessor shall receive (and Lessee shall assign to Lessor upon
demand from Lessor) any and all income, rent, award or interest thereon which
may be paid or owed in connection with the exercise of such power of eminent
domain or conveyance in lieu thereof and Lessee shall have no claim against
Lessor except that Lessee shall have the right to recover its share of any award
or consideration for (a) moving expenses; (b) loss or damage to Lessee's trade
fixtures, furnishings, equipment and other personal property; and (c) business
goodwill.
19. Free from Liens. Lessee shall (1) pay for all labor and services
performed and for materials used by or furnished to Lessee, or any contractor
employed by Lessee with respect to the Premises, and (2) indemnify, defend and
hold Lessor and the Premises harmless and free from any liens, claims, demands,
encumbrances or judgments created or suffered by reason of any labor or services
performed for materials used by or furnished to Lessee or any contractor
employed by Lessee with respect to the Premises and (3) give notice to Lessor in
writing five (5) days prior to employing any laborer or contractor to perform
services related, or receiving materials for use upon the Premises, and (4)
shall post, on behalf of Lessor, a notice of non-responsibility in accordance
with the statutory requirements of California Civil Code Section 3094, or any
amendment thereof, provided that Lessor shall be responsible for executing and
recording such notices. In the event an improvement bond with a public agency in
connection with the above is required to be posted, Lessee agrees to include
Lessor as an additional obligee.
20. Compliance with Laws. Subject to the provisions of Paragraph 14
above, Lessee shall, at its own cost, comply with and observe all requirements
of all municipal, county, state and federal authority now in force, or which may
hereafter be in force, pertaining to the use and occupancy of the Premises.
21. Subordination. Lessee agrees that this Lease shall, at the option
of Lessor, be subjected and subordinated to any mortgage, deed of trust, or
other instrument of security, which has been or shall be placed and this
subordination is hereby made effective without any further act of Lessee or
Lessor. The Lessee shall, at any time hereinafter, within twenty-four (24) hours
of delivery, execute any instruments, releases or other documents that may be
required by any mortgage, mortgagor, or trustor or beneficiary under any deed of
trust or other instrument of security. If Lessee fails to execute and deliver
any such documents or
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<PAGE> 18
instruments, Lessee irrevocably constitutes and appoints Lessor as Lessee's
special attorney-in-fact to execute and deliver any such documents or
instruments.
However, the provisions of this Paragraph 21 shall not be
effective with respect to the interest of any successor to Lessor unless and
until such successor shall have delivered to Lessee a written non-disturbance
agreement for the benefit of Lessee, to the effect that this Lease shall not be
terminated in the event of any default under any ground lease or underlying
lease or any foreclosure or sale pursuant to the terms of any mortgage or deed
of trust, so long as Lessee is not in default (after the expiration of all
applicable cure periods) under the terms Of this Lease, and Lessee agrees to
attorn to and become the Lessee of Lessor's successor. In addition, Lessor shall
use its best efforts to obtain such a written non-disturbance agreement from all
existing lienholders having an interest in the Premises. So long as Lessee pays
all rentals required hereunder and observes and performs all of the covenants,
conditions and provisions on Lessee's part to be observed and performed
hereunder, Lessee shall have quiet possession of the Premises for the entire
Lease term, subject to all the provisions of this Lease.
22. Abandonment. Lessee shall not vacate nor abandon the Premises at
any time during the term. If Lessee shall abandon, vacate or surrender said
Premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and left on the Premises shall be deemed to be
abandoned at the option of Lessor, except such property as may be mortgaged to
Lessor; provided, however, that Lessee shall not be deemed to have abandoned or
vacated the Premises so long as Lessee continues to pay all rents as and when
due and otherwise pursuant to terms and conditions of the Lease.
23. Assignment and Subletting. Lessee's interest in this Lease is not
assignable by operation of law or otherwise nor shall Lessee have the right to
sublet the Premises, transfer any interest of Lessee's therein or permit any use
of the Premises by another party, without prior written consent of Lessor to
such assignment, subletting or transfer of use, which consent shall not be
unreasonably withheld.
If Lessee is a partnership, a withdrawal or change, voluntary,
involuntary or by operation of law of any partner(s) owning fifty (50%) percent
or more of the partnership, or the dissolution of the partnership, shall be
deemed a voluntary assignment.
If Lessee consists of more than one person, a purported
assignment, voluntary, involuntary or by operation of law, from one person to
the other or from a majority of persons to the others, shall be deemed a
voluntary assignment.
If Lessee is a corporation, any dissolution, merger,
consolidation, or other reorganization of Lessee, or the sale or other transfer
of a controlling percentage of capital stock of Lessee, or sale of at least
fifty-one (51%) percent of the value of assets of Lessee, shall
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<PAGE> 19
be deemed a voluntary assignment. The phrase, "controlling percentage" means
ownership of and right to vote, stock possessing at least fifty-one (51%)
percent of the total combined voting power of all classes of Lessee's capital
stock issued, outstanding, and entitled to vote for election of directors. This
Paragraph shall not apply to corporations the stock of which is traded through
an exchange or over the counter.
Lessor's prior consent shall not be required for any assignment,
sublease or other transfer of Lessee's interest in the Premises or this to any
corporation with which Lessee may merge or consolidate or become affiliated as a
parent, subsidiary, holding company or otherwise, or to an entity in which
Lessee has a controlling interest, provided that any such transfer shall not
result in Lessee's being released or discharged from any liability under this
Lease and such assignee, sublessee or transferee shall, prior to taking
possession of the Premises, deliver to Lessor written notice of the transfer and
its terms, covenants, conditions and provisions of the Lease, including without
limitation the provisions regarding the use of the Premises.
In the event of any such subletting or transfer which is consented
to, or not consented to, by Lessor, a sublessee agrees to pay monies or other
consideration whether by increased rent or otherwise, in excess of or in
addition to those provided for herein, then all such excess or additional monies
or other consideration shall be paid solely to Lessor, and this shall be one of
the conditions to obtaining Lessor's consent.
Lessee immediately and irrevocably assigns to Lessor, as security
for Lessee's obligations under this Lease, all rent from any subletting of all
or part of the Premises as permitted by this Lease, and Lessor, as assignee and
as attorney-in-fact for Lessee, or a receiver for Lessee appointed on Lessor's
application, may collect such rent and apply it toward Lessee's obligations
under this Lease; except that until the occurrence of an act of default by the
Lessee, Lessee shall have the right to collect such rent.
A consent to or assignment, subletting, occupation or use by
another party shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by another party. Any assignment or subletting
without such consent shall be void and shall at the option of Lessor, terminate
this Lease. Lessor's waiver or consent to any assignment or subletting hereunder
shall not relieve Lessee from any obligation under this Lease unless the consent
shall so provide. If Lessee requests Lessor to consent to a proposed assignment
or subletting, Lessee shall pay to Lessor, whether or not consent is ultimately
given, Lessor's reasonable attorney's fees incurred in conjunction with each
such request.
24. Parking Charges. Lessee agrees to pay upon demand, based on its
percent of occupancy of the entire building, its pro-rata share of any parking
charge, surcharges, or any other cost
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<PAGE> 20
hereafter levied or assessed by local, state or federal governmental agencies in
connection with the use of parking facilities serving the Premises including
without limitation, parking surcharges imposed by or under authority of the
Federal Environmental Protection Agency.
25. Insolvency on Bankruptcy. Either (a) the appointment of a receiver
to take possession of all or substantially all of the assets of Lessee, or (b) a
general assignment by Lessee for the benefit of creditors or (c) any action
taken or suffered by Lessee under any insolvency or bankruptcy act shall
constitute a breach of this Lease. Upon the happening of any such event, this
Lease shall terminate ten (10) days after written notice of termination from
Lessor to Lessee. This section is to be applied consistent with applicable state
and federal law in effect at the time such event occurs.
Any action referred to above which is suffered involuntarily by
Lessee shall not constitute an unauthorized assignment or transfer or a breach
of this Lease by Lessee if Lessee shall successfully dismiss any action or
proceeding in connection therewith within sixty (60) days of the filing thereof.
In such event, Lessor shall not be entitled to exercise its remedies described
in said Section until the expiration of such sixty (60)-day period, provided
that Lessee shall diligently pursue such dismissal.
26. Lessor Loan or Sale. Lessee agrees promptly following request by
Lessor to (a) execute and deliver to Lessor any documents including estoppel
certificates presented to Lessee by Lessor, (i) certifying that this Lease is
unmodified and in full force and effect, or if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect and the date to which the rent and other charges are paid in
advance, and (ii) acknowledging that there are not, to Lessee's knowledge, any
uncured defaults on the part of Lessor hereunder, and (iii) evidencing the
status of the Lease as may be required by either a lender making a loan to
Lessor, to be secured by deed of trust or mortgage covering the Premises, or a
purchaser of the Premises from Lessor and (b) if requested by any bona fide
lender of Lessor or purchaser of the Premises, to deliver to Lessor current
financial statements of Lessee, including a balance sheet and profit and loss
statement for the current fiscal year and the two (2) immediately prior fiscal
years, all prepared in accordance with generally accepted accounting principles
consistently applied. Lessee's failure to deliver an estoppel certificate within
ten (10) days following such request shall constitute a default under this Lease
and shall be conclusive upon Lessee that this Lease is in full force and effect
and has not been modified except as may be represented by Lessor. If Lessee
fails to deliver the estoppel certificate within ten (10) days of written notice
delivered by certified mail, Lessee irrevocably constitutes and appoints Lessor
as its special attorney-in-fact to execute and deliver the certificate to any
third party.
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<PAGE> 21
27. Surrender of Lease. The voluntary or other surrender of this Lease
by Lessee, or a mutual cancellation thereof, shall not work a merger nor relieve
Lessee of any of Lessee's obligations under this Lease, and shall, at the option
of Lessor, terminate all or any existing subleases or subtenancies, or may, at
the option of Lessor, operate as an assignment to him of any or all such
subleases or subtenancies.
28. Attorneys' Fees. If for any reason, any suit be initiated to
enforce any provisions of this Lease, the prevailing party shall be entitled to
legal costs, expert witness expenses and reasonable attorneys' fees as fixed by
the court.
29. Notices. All notices to be given to Lessee may be given in writing
personally or by depositing the same in the United States mail, postage prepaid,
and addressed to Lessee at the said Premises. Any notice or document required or
permitted by this Lease to be given Lessor shall be addressed to Lessor at the
address set forth below, or at such other address as it may have theretofore
specified by notice delivered in accordance herewith:
LESSOR: VASONA BUSINESS PARK
3880 South Bascom
Avenue, Suite 207
San Jose, California 95124
LESSEE: CAERE CORPORATION
100 Cooper Court
Los Gatos, California 95030
30. Transfer of Security. If any security be given by Lessee to secure
the faithful performance of all or any of the covenants of this Lease on the
part of Lessee, Lessor may transfer and/or deliver the security, as such, to the
purchaser of the reversion in the event that the reversion be sold, and
thereupon Lessor shall be discharged from any further liability in reference
thereto, upon the assumption by such transferee of Lessor's obligations under
this Lease.
31. Waiver. The waiver by Lessor or Lessee of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance of
rent hereunder by Lessor shall not be deemed to be a waiver of any preceding
breach by Lessee of any term, covenant or condition of this Lease, other than
the failure Of Lessee to pay the particular rental so accepted, regardless of
Lessor's knowledge of such preceding breach at the time of acceptance of such
rent.
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<PAGE> 22
32. Holding Over. Any holding over after the expiration of the term or
any extension thereof, with the consent of Lessor, shall be construed to be a
tenancy from month-to-month, at a rental of one and one-half times the previous
month's rental rate per month, and shall otherwise be on the terms and
conditions herein specified, so far as applicable.
33. Limitation on Lessor's Liability. If Lessor is in default of this
Lease, and as a consequence Lessee recovers a money judgment against Lessor, the
judgment shall be satisfied only out of the proceeds of sale received on
execution of the judgment and levy against the right, title and interest of
Lessor in the Premises, or in the building, other improvements and land of which
the Premises are part, and out of rent or other income from such real property
receivable by Lessor or out of the consideration received by Lessor from the
sale or other disposition of all or any part of Lessor's right, title and
interest in the Premises or in the building, other improvement and land of which
the Premises are part. Neither Lessor nor any of the partners comprising the
partnership designated as Lessor shall be personally liable for any deficiency.
34. Miscellaneous.
a) Time is of the essence of this Lease, and of each and all of
its provisions.
b) The term "Building" shall mean the building in which the
Premises are situated.
c) If the Building is leased to more than one tenant, then each
such tenant, its agents, officers, employees and invitees,
shall have the non-exclusive right (in conjunction with the use
of the part of the building leased to such tenant) to make
reasonable use of any driveways, sidewalks and parking areas
located on the parcel of land on which the Building is
situated, except such parking areas as may from time to time be
leased for exclusive use by other tenant(s).
d) Lessee's such reasonable use of parking areas shall not exceed
that percent of the total parking areas which is equal to the
ratio which floor space of the Premises bears to floor space of
the Building.
e) The term "assign" shall include the "transfer".
f) The invalidity or unenforceability of any provision of this
Lease shall not affect the validity or enforceability of the
remainder of this Lease.
g) All parties hereto have equally participated in the preparation
of this Lease.
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<PAGE> 23
h) The headings and titles to the paragraphs of this Lease are not
a part of this Lease and shall have no effect upon the
construction or interpretation of any part thereof.
i) Lessor has made no representation(s) whatsoever to Lessee
(express or implied) except as may be expressly stated in
writing, signed by all of the parties hereto or their
respective successors in interest.
j) This instrument contains all of the agreements and conditions
made between the parties hereto, and may not be modified orally
or in any other manner than by agreement in writing, signed by
all of the parties hereto or their respective successors in
interest.
k) It is understood and agreed that the remedies herein given to
Lessor shall be cumulative, and the exercise of any one remedy
by Lessor shall not be to the exclusion of any other remedy.
I) The covenants and conditions herein contained shall, subject to
the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of all of the
parties hereto; and all of the parties hereto shall jointly and
severally be liable hereunder.
m) This Lease has been negotiated by the parties hereto and the
language hereof shall not be construed for or against either
party.
n) All exhibits to which reference is made are deemed incorporated
into this Lease, whether or not actually attached.
35. Even though this Lease is fully executed, it shall be binding only
upon receipt of a building permit from the Town of Los Gatos by Lessee for the
interior improvements shown on Exhibit "B" of the Lease for 100 Cooper Court,
Los Gatos. If said building permit is not obtained by December 31, 1991, this
Lease Agreement and the new Lease Agreement for 100 Cooper Court, Los Gatos
shall be null and void. The existing Leases for 104 Cooper Court, Los Gatos,
California and 100 Cooper Court, Los Gatos, California shall then continue in
full force and effect.
36. Lessee agrees to pay to Lessor Seventy-Five (75%) Percent of the
costs to remodel the 14,710 square feet of space Lessee is now leasing at 104
Cooper Court. Lessor shall provide Lessee with actual invoices of the work
completed and Lessee shall reimburse Lessor Seventy-five (75%) percent of this
cost within fifteen (15) days of receipt of invoice. The work shall include, but
not be limited to, demolition of walls, reconstruction of walls, adding T-bar
ceiling in the lounge, electrical, HVAC, painting and floor coverings and
patching.
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<PAGE> 24
IN WITNESS HEREOF, Lessor and Lessee have executed this Lease on the
date first above-written.
LESSOR: VASONA BUSINESSPARK, LESSEE: CAERE CORPORATION,
A California Limited Partnership A California Corporation
BY: /s/ William A. Cooper BY: /s/ Blanche M. Sutter
--------------------------- --------------------------
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<PAGE> 1
CAERE CORPORATION EXHIBIT 11.1
-------------------
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Earnings (loss) before cumulative effect of change $ 2,397 $ 2,384 ($ 608)
in accounting principle
Cumulative effect of change in accounting -- -- 960
priniciple
------- ------- --------
Net earnings $ 2,397 $ 2,384 $ 352
======= ======= ========
Shares used in per share calculation: 13,172 12,649 12,639
Weighted average common shares outstanding
Common stock equivalents 366 487 --
------- ------- --------
13,538 13,136 12,639
======= ======= ========
Earnings (loss) per share:
Earnings (loss) before cumulative effect of change
in accounting prinicple $ 0.18 $ 0.18 ($ 0.05)
Cumulative effect of change in accounting
principle -- -- 0.08
------- ------- --------
Net earnings $ 0.18 $ 0.18 $ 0.03
======= ======= ========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Caere FSC Corporation, Guam
Caere GmbH, Germany
Calera Recognition Systems, Inc.
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Exhibit 23.1
Report on Schedule and Consent of Independent Auditors
The Board of Directors and Stockholders
Caere Corporation:
The audits referred to in our report dated January 26, 1996, included the
related financial statement schedule as of December 31, 1995, and for each of
the years in the three-year period ended December 31, 1995, included in the 1995
annual report on Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, based on our audits and the report of other auditors, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to incorporation by reference in the registration statements (Nos.
33-35033, 33-49114, 33-32992, 33-66430, 33-81708, 33-87824, 33-81680 and
33-60027) on Form S-8 of Caere Corporation of our reports dated January 26,
1996, relating to the consolidated balance sheets of Caere Corporation and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1995, and the related
schedule, which reports are included or incorporated by reference herein.
/s/ KPMG Peat Marwick L.L.P.
San Jose, California
March 25, 1996
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Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Caere Corporation on Form S-8 (File Nos. 33-81680, 33-32992, 33-35033, 3349114,
33-66430, 33-81708, 33-87824 and 33-60027) of our report dated March 4, 1994, on
our audit of the financial statements of Calera Recognition Systems, Inc. as of
December 31, 1993 and for the year then ended, which report is included in the
Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
March 26, 1996
San Jose, California
