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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
<TABLE>
<S> <C>
For the Fiscal year ended 0-19377
December 31, 1996 (Commission File Number)
</TABLE>
TCSI LOGO
TCSI CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Nevada 68-0140975
(State of incorporation) (IRS Employer Identification No.)
1080 Marina Village Parkway, Alameda, 94501
California
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 749-8500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
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 voting stock held by nonaffiliates of the
Registrant as of January 31, 1997 was $125,082,559.
The number of shares outstanding of the Registrant's common stock, $.10
par value, as of January 31, 1997 was 21,266,706 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the Company's 1997 Annual Meeting of
Shareholders to be held on May 7, 1997, are incorporated by reference into Part
III of this Report.
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PART I
ITEM 1. BUSINESS
This Business section and other parts of this Annual Report on Form 10-K
contain certain forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are subject to a number of risks and uncertainties which could cause
actual results to differ materially from those discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
THE COMPANY
TCSI Corporation (TCSI or the Company) provides integrated software
products and services for the global telecom industry. TCSI's products and
services enable telecom service providers and equipment manufacturers to meet
the growing demand for integrated and automated management of a wide range of
networks and services. TCSI serves its customers in offices throughout North
America, Europe, and the Pacific Rim. TCSI's software solutions are purchased by
many of the world's leading telecommunications companies, including Bell
Atlantic, BellSouth, GTE, Italtel, Lucent Technologies, Nippon Telegraph and
Telephone, and Telstra. The Company's software is also incorporated into
telecommunications equipment systems provided by manufacturers including Hughes
Network Systems, Motorola, and NEC.
Since its inception in 1983, a significant portion of the Company's
revenues have been earned from telecommunications service providers and
equipment manufacturers. Since 1993, the Company's growth has been led by sales
of Object Services Package (OSP) and related object-oriented products and
services. The Company has also earned revenue from licensing embedded software
contained in wireless products and the development of system solutions for
customers in the transportation industry. During the second half of 1996, the
Company divested its non-telecom product lines by licensing its embedded
software product lines and terminating its final transportation-related
development agreement. As a result, the Company has focused on offering software
solutions to the telecommunications industry.
INDUSTRY BACKGROUND
Telecommunications Industry Trends
The telecommunications services market can be divided into two tiers: (i)
traditional full-service providers and network operators, such as RBOCs
(Regional Bell Operating Companies) and national communications carriers (Tier
1) and (ii) smaller network operators and independent telephone companies (Tier
2). Tier 1 companies typically have complex technical requirements and large
budgets devoted to the acquisition of technology to maintain and enhance their
existing service offerings and to deploy new services and network management
systems. In contrast, Tier 2 companies typically have limited resources for the
acquisition of advanced technology, but are often more focused on rapidly
building new networks and leveraging proven and more complete systems. Several
recent trends within the telecommunications industry are changing the needs of
both Tier 1 and Tier 2 service providers and of telecommunications equipment
manufacturers. These trends include the following:
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- Increased competition driving the need for rapid introduction of new
products. Deregulation and privatization of the telecommunications
industry worldwide have intensified competition among existing operators
of public communications networks and encouraged the rapid entry of new
service providers. Telephone network operators also face increasing
competition from cable companies and wireless companies for the
provisioning of telephone and newer services, including high bandwidth
data and video. The Telecommunications Act of 1996 and a recently
approved global telecommunications agreement are increasing competitive
pressures within the worldwide telecommunications industry. To remain
competitive, network operators are continually seeking to differentiate
themselves by improving existing service offerings and accelerating the
time-to-market for new services, while at the same time reducing
operational costs and downsizing their organizations. These trends have
increased the need for scalable and flexible software solutions that
enable the rapid introduction of new and enhanced services to a growing
number of subscribers and improve and automate the management of
communications networks. The need to manage and respond quickly to
rapidly changing market and infrastructure conditions has become a focus
for many telecommunications companies.
- Proliferation of new communications services. Use of communications
networks has grown rapidly in recent years as a result of increased use
of computing and networking technology, wireless services, broadband data
and video services, and other services. This has resulted in increased
demand for communications capacity worldwide from operators of advanced
intelligent networks, the Internet, and other types of public networks.
At the same time, network infrastructures have become more diverse in
order to provide new services, and network operators must enhance and
maintain these increasingly complex infrastructures to support the
broadening array of services. For example, a single network operator's
infrastructure can include asynchronous transfer mode (ATM), broadband
synchronous optical network (SONET), frame relay, wireless cellular and
PCS, and internal signaling and control networks, all of which must
interoperate to provide reliable and efficient service. As a result of
this proliferation of services, individual networks and the
interconnections among networks have become considerably more complex.
This increased complexity places a strain on network management and
control systems, which incorporate multi-vendor equipment.
- Mitigation of risk. Telecommunication service providers are looking to
mitigate risk by purchasing proven reliable solutions on a referral
basis. Software solution providers are seeking to reduce risk by
developing more complete solutions and retaining rights to the
intellectual property.
System Management Requirements
Competition among existing and new telecommunications service providers,
the proliferation of new communications services, and pressure to provision them
quickly and cost-effectively has placed increased demands on telecommunications
service provider's systems and equipment manufacturers. These demands have
resulted in the following system management requirements:
- Need to link technology and customers. The International
Telecommunications Union's (ITU) Telecommunications Management Network
(TMN) standards have identified four functions of telecommunications
operations systems: element, network, service, and business management.
Historically, a telecom company's discrete network components and the
broader network have been managed separately from the activation and
monitoring of specific services and the handling of billing, customer
service, and other administrative tasks, and management of financial
controls, marketing databases, and payroll systems. An introduction of a
new service effects all components of an operators infrastructure. For
example, a customer desiring a temporary 800 number for a special event
requires a network operator to process the order (service management),
activate the service by providing special instructions to the appropriate
network components (element management), initiate billing, establish
circuits, and support customer inquires (service management), monitor the
network and respond to traffic bottlenecks and unexpected service
interruption or failure (network management), and update accounting and
marketing databases (business management).
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In response to increased competition, there is a greater need to rapidly
introduce new services and respond to customer service requests. There is
also an increased need to tighten the link between a telecom network's
technology components and service management (and ultimately the
customer). As a result, new network software implementation will
increasingly address specific business processes and customer service
requirements rather than network technology requirements. The
implications to software and hardware vendors is the need to offer
systems with proven technical and business viability. Further,
telecommunications service providers' technology decisions are
increasingly being led by marketing personnel, and include input from
various business functional areas throughout the Company. As service
providers focus more on customer care, there will be a need for network
systems designed to provide management more meaningful information, and
with automated links from the customer support processes straight through
to network and element management processes.
- Standardization of telecommunications management systems. Competition,
innovation, and profitability are becoming the main drivers shaping the
investment decisions of telecommunication services providers in many
parts of the world. Service providers are looking for solutions that will
not require them to lock-in to complex technologies or be limited to a
small number of equipment suppliers. Further, as deregulation enables
companies to compete on a more global scale, telecommunications companies
are increasingly seeking to standardize network architecture and
infrastructure (including hardware and software components) as well as
business practices. As open, distributed computing and industry standards
continue to evolve, hardware and software vendors will need to supply
telecommunications equipment and software solutions that permit such
standardization.
- New software requirements. The rapid proliferation of communication
services and networks requires highly flexible and customizable
management and control systems that can rapidly respond to changing
market and infrastructure conditions. These systems must also integrate
the increasing number of network elements involved in any given
connection. New technology must enable and automate the rapid
provisioning of new and enhanced services. Increased competition requires
network management and control software solutions that enable
cost-effective change management and offer highly reusable technology in
order to reduce the time-to-market for new or enhanced services by taking
advantage of past development work. Scalability is increasingly important
since the rates of growth of new services and number of subscribers are
highly variable and often unpredictable. Solutions that are not highly
scalable may not be adequate for mission-critical, long-lived networks,
particularly in Tier 1 networks. The mission-critical nature of public
networks also demands solutions that are highly reliable. Software
products that meet all of these requirements are very complex, and
suppliers of these products must increasingly provide highly specialized
implementation, integration, and customization services in order to
provide complete software solutions. The Company believes that few
companies possess both the industry expertise and software development
capabilities to provide integrated network management solutions to the
telecommunications industry.
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PRODUCT DEVELOPMENT STRATEGY AND CORE TECHNOLOGIES
Product Development
The Company believes that its future success depends primarily upon the
development and enhancement of telecom software products that meet market
needs.* Prior to 1996, the Company's product development was primarily funded by
customers as part of the development of software applications for such
customers. The Company typically retained certain rights to developed software
products. In certain circumstances, however, the Company agreed to restrict its
use of such products to certain markets and during certain time periods. During
1996, the Company began funding a larger portion of its product development
costs internally, totaling $6.6 million for the year. The Company intends to
target product development spending at amounts consistent with other software
companies.*
During 1996, the Company continued to enhance its object-oriented
development platform, SolutionCore(TM), and develop application software, used
to integrate and automate processes for a range of telecom networks and services
(SolutionSuites(TM)). At the end of 1996, SolutionCore, which includes the fifth
release of the Company's OSP and new releases of supporting application
templates and middleware, was in beta trial by a large telecommunication company
in the United States. Going forward, the Company intends to continue investing
financial resources in the development of telecom software, middleware, and
applications.
Periodically, the Company has entered into strategic relationships with
third party software vendors as a means of enhancing the Company's software
products. To date, such strategic relationships have consisted of licensing and
integrating technology developed by third parties and jointly developing new
products. In 1996, TCSI licensed parts of Vertel's "Power Cats" management
platform software which enables the Company to offer network management
solutions with an object-oriented TMN agent/manager. The TMN agent/manager
supports the rapid integration of business management and operational systems.
In early 1997, the Company announced the integration of IONA Technology's Orbix
product into SolutionCore. The integration of this Object Request Broker (ORB)
product enables the Company's product line to be fully interoperable with the
Common Object Request Broker Architecture (CORBA) 2.0, a key industry standard.
In both strategic relationships, the Company has agreed to pay a license fee for
sales of all Company products that contain the integrated software products. The
Company believes these strategic relationships are a key component of its
product strategy, and will continue to seek ways to integrate third-party
technology to enhance its products.*
Distributed Object Technology
The Company uses object-oriented software to design reusable building
blocks for business applications. Distributed object technology accomplishes
several objectives:
- Modeling of complex systems. Distributed object technology supports
modeling of complex systems very well. The building blocks of distributed
object systems are the objects, which can represent structures in
business or technology.
- Managing change. Objects support change in three principal ways. First,
it is possible to change an object's implementation without disrupting
existing applications. Second, object interfaces can be extended without
disrupting usage of existing interfaces. Third, the interface of an
object may be delegated, or redirected, to another object.
- Offering control of network services. Distributed object computing
technology supports information systems that match decentralized
organizational structures. The technology enables objects representing
the real information and actions involved in business processes to
interact using network links in a managed environment. The result is an
accurate representation of business processes in software.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
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- Sharing objects among different applications. Distributed object
computing technology also enables the views of an object to be
independent of the object itself. For example, the sales and marketing
department typically will view customers differently from the maintenance
department.
- Generating reusable code and components. Distributed object technology
supports the creation of reusable code and application components.
Developers must be able to design objects that represent the key
underlying components of an environment, and then use and reuse those
objects in new applications. These objects encapsulate the organization's
definition of its key business concepts.
- Enabling interoperability. Distributed objects help to integrate diverse
data. Once data values are loaded into the object environment, users may
manipulate them as if they were all of a uniform format in a variety of
applications.
- Integrating existing systems. Distributed object technology enables the
computing environment to not only integrate new applications and systems,
but existing systems as well.
System Architecture
The Company uses object modeling for system architectures, consisting of
three functional categories: middleware, application templates, and custom
applications. Middleware and application templates are sold as products, within
the SolutionCore product line, and applications may be customized through
implementation of services provided by the Company, its customers, or systems
integrators.
Development Environment
The Company's OSP is a development and run-time environment that
incorporates an object engine and provides the basic infrastructure for the
Company's distributed object management systems. OSP is a set of components for
object persistence, user-interface construction, object communication and
distribution, and external communication. Each of these components is a set of
cooperating classes that solve specific application problems. Collectively,
these components constitute the ORB, standards-based object services, and common
facilities that are similar to CORBA facilities. CORBA is an industry standard
governing the interaction of objects within a distributed environment.
Object Frameworks
An object framework is a reusable design of a system incorporating certain
functional knowledge. The Company's object frameworks currently focus on the
unique specifications of two of the four TMN operations systems -- element
management systems, which directly manage network elements such as switches and
multiplexors, and network management systems, which integrate and coordinate
multiple network elements through element managers to manage an entire network
consisting of nodes and links. Additionally, the Company plans to develop object
frameworks for service management systems, which manage the services offered
using the network and perform functions such as billing, ordering, and customer
contact.* The Company also intends to develop application templates for business
management systems such as financial control, marketing databases, and payroll
systems.*
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
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Object frameworks provide application developers with several advantages:
- Software reuse. The trend towards the adoption of object-oriented
techniques in software development has been driven largely by the
pressing need for software reuse. Reuse is important because building
large and complex operations systems may otherwise be impractical. Object
frameworks make reuse possible in two ways. First, object framework
components and object libraries are designed to be used in a variety of
ways and as a result can be used in multiple systems. Second, object
frameworks categorize the components necessary to address a particular
type of problem and provide standard interfaces among those components.
Using object frameworks enables developers to retain the benefits of
custom solutions to specific problems while leveraging reusable software
components.
- Development speed. Object frameworks enable application developers to
build custom distributed object computing systems much faster than
developing such systems without the benefit of object frameworks. Like a
template, object frameworks include a categorization that indicates how
objects should interact and a set of pre-built, reusable object
libraries.
- Architectural support. The move towards distributed computing for large
systems has been driven not only by the need for improved
cost-performance ratios, but also by the need for open, flexible
architectures. Although most distributed systems tools focus on a
specific type of client/server architecture, object frameworks can
support most common architectures for distributed systems.
Customized Applications
Applications enable customers to quickly and efficiently accomplish
business processes or tasks. Such tasks include configuration management, fault
management, and performance management of an operations network. Applications
run on top of and work in concert with object frameworks. Applications may be
customized using an object model approach to meet the needs of a customer's
business and individual end users.
PRODUCTS AND SERVICES
TCSI provides software solutions and services that enable its customers to
minimize the costs and risks of developing and deploying complex operational
systems within the telecom industry. Software licensing fees represented 17
percent, 21 percent, and 13 percent of total revenues for the years ended
December 31, 1996, 1995, and 1994, respectively. Services revenues accounted for
71 percent, 79 percent, and 87 percent of total revenues for 1996, 1995, and
1994, respectively. In 1996, the Company also earned revenues related to
equipment purchased on behalf of a customer which totaled 12 percent of
revenues.
SolutionCore Product Line
SolutionCore, introduced in 1997, provides sophisticated application
development modules that can be used to rapidly build network and element
management systems, and service/provisioning systems for a variety of network
technologies. Components of SolutionCore are:
- Object Services Package. OSP serves as the foundation for TCSI's
SolutionCore product line. OSP is a fifth generation suite of advanced
middleware and development tools for building and deploying large,
business-critical, operational support systems for the telecom industry.
OSP enables applications development and customization time to be
shortened; enables developers to better manage the building of large
scale, distributed applications; enables full interoperability with TMN
based applications; enables for runtime changes, such as addition of
application servers or changes to name server locations; and integrates
graphical user interface, business application, and communication layers,
helping users improve quality and reduce operating costs.
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- CORBA Services Package. CORBA Services Package enables full
interoperability between OSP and CORBA applications.
- TMN Services Package. The primary standards for communications
management are consolidated in the TMN series of recommendations from the
International Telecommunications Union (ITU) and the detailed
implementation guides from the Network Management Forum (NMF). TMN
Services Package provides full TMN capabilities as part of the
SolutionCore communications management platform. TMN Services Package
supports the integration and management of heterogeneous networks and
provides developers with a suite of development tools and application
programming interfaces that eliminate the complexities of the underlying
infrastructure.
- Application Templates Package. Applications Templates Package, based on
an object-oriented, reusable framework for building large scale telecom
applications, contains the templates that provide the basis for fault and
event management applications. These features allow network operators to
more effectively monitor the status of their networks, providing their
customers with better services while reducing costs for development,
training, and maintenance. Product features also manage user access and
the administration of application servers.
SolutionSuites Products
TCSI's SolutionSuites combine application software and tools to integrate
and automate a broad range of telecom processes. Built on client/server
information architecture, SolutionSuite products support geographically
distributed systems that can be centrally managed. They are available on a range
of platforms including UNIX and Windows NT servers, and are accessible from
workstations and PCs. The Company is engaged in the process of continuously
enhancing its application product offerings in an effort to provide customers
with reusable and customizable products. To date, the Company has developed
solutions in the following areas:
- Broadband. The Broadband SolutionSuite enables service providers to
achieve increased levels of service and performance of their SONET or
SDH-based broadband networks. This suite of products supports real-time
activation of services that run on customers' broadband networks,
including DS1 and DS3, E1 and E3, and higher-rates of services. The
broadband suite also provides features that minimize the impact of errors
in provisioning databases that are out-of-sync with the network and
reduce or eliminate the need for manual inventory. Further, these
products are designed to work across all broadband domains including
SONET, SDH, Digital Crossconnect Systems, and Next Generation Digital
Loop Carriers.
- Digital Cellular. The Digital Cellular SolutionSuite provides
application products that implement efficient and effective business
process and support systems that automate and integrate network
management operations and management capabilities. This suite of products
enables the customer to rapidly provision and add new services. These
applications are highly scalable, allowing service providers to more
easily increase volumes of equipment, operators, and customers.
- Intelligent Network. The Intelligent Network SolutionSuite provides
applications, tools, and middleware that operate across a wide range of
intelligent network switches from multiple users. These products improve
the manageability of SS7 networks by providing operators with a
consistent set of commands for managing equipment from multiple vendors.
Managers are also able to precisely control network utilization by
setting thresholds and jeopardy alarms to warn when utilization reaches
pre-specified levels. Further, a Mediation Module, based on industry
standards, translates bi-directionally between the proprietary interfaces
of many vendor's switches and the TMN/Q3 standard conformant TCSI
application.
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Professional Services and Customer Support
The Company provides implementation services to develop customized
solutions based on its SolutionCore and SolutionSuites products. This may
involve the integration of the Company's products into legacy systems and with
the software products of other companies. The Company works with its customers
to specify, design, develop, and deploy the software necessary to meet its
customer's business and operational requirements. The Company has extensive
experience in developing and implementing solutions for the telecommunications
industry in general, and network and element management solutions in particular.
The Company engages in careful planning of the development and deployment
phases, a formal development process, and rules or conventions that govern every
phase of object framework and application development. The Company's methods
combine techniques from object-oriented design and development, quality
management, and distributed systems deployment, and the Company's solutions rely
heavily on its products. Due to the complex requirements of its customers'
network systems, the Company believes its implementation services are a key
factor in customer purchasing decisions.*
The Company is committed to responsive user support. Management believes
that such support is critical in continuing successful long-term relationships
with its customers.* The Company offers technical customer support from 8:00
a.m. to 5:00 p.m. (Pacific Time), which can be extended at the customer's option
to 24 hours a day, 7 days a week for an additional fee. Support is provided by
telephone, e-mail, remote login, and on-site assistance, if necessary. The
Company has established a site on the World Wide Web which provides technical
information as well as schedules of the Company's upcoming training courses.
The Company conducts training courses for its customers, on a fee basis, at
the Company's training facilities in San Jose, California, and at customer
sites. Training courses include instruction in the installation, customization,
and usage of SolutionCore and related products. Specifically, the Company offers
OSP and TMN Services courses on a regular basis. As of December 31, 1996, the
Company had approximately 25 individuals performing customer support and
training.
As part of its software licensing agreements, the Company offers 12-month
software maintenance contracts to its customers generally at 15 to 25 percent of
the aggregate software licensing fee. The maintenance contract entitles
customers to telephone support, product maintenance, and upgrades to minor
product releases. Substantially, all licensees of the Company's object-oriented
software products were covered by a software maintenance contract during the
year ended December 31, 1996.
MARKETING AND SALES
The Company's products are typically intended for use in applications that
may be critical to a customer's business. Further, these applications are often
complex and require significant technical knowledge of the Company's products
and the customers' operations to be successfully deployed. To date, the Company
has primarily relied on its experienced worldwide sales force to sell its
products and related services. The sales team also significantly utilizes the
Company's engineering personnel to assist in product demonstrations, answer
customer questions, and scope system specifications. At December 31, 1996, the
Company had 34 sales and marketing personnel located in North America, Asia, and
Europe.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
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The Company also uses various sales channels to augment its product sales.
Such channels have included sales representatives, distributors, and system
integrators. In the past, significant training on the use of the Company's
products combined with extensive knowledge of object-oriented technology and
their use in developing advanced telecom systems was required to sell TCSI
products. Accordingly, such third party sales channels have accounted for less
than 10 percent of the Company's annual sales to date. Management believes that
new sales channels are an important part of the Company's growth strategy as
they will provide the Company access to important new customers and geographic
markets.* Accordingly, management intends to continue to invest in channel
development.* Further, as object-oriented technology becomes more widely used
and the Company continues to make enhancements to its products, management
believes that the Company's products will be more attractive to third-party
developers and resellers.*
Customers
The Company licenses its development and runtime environment, OSP, to
customers around the world. The Company's initial target market has been, and
continues to be, Tier 1 service providers. The following chart shows a
representative sample of the Company's customers:
<TABLE>
<CAPTION>
TELECOMMUNICATIONS CARRIERS EQUIPMENT MANUFACTURERS
-------------------------------------- --------------------------------------
<S> <C>
AT&T DSC Communications
Bell Atlantic Hughes Network Systems
BellSouth Lucent
GTE Motorola
Italtel NEC Corporation
Nippon Telegraph and Telephone (NTT) OKI Electric Industry
Telstra (Telecom Australia)
</TABLE>
To date, a significant portion of revenues has been concentrated among a
limited number of customers. In 1996, 1995, and 1994, revenues from the
Company's five largest customers represented 54 percent, 47 percent, and 44
percent of revenues, respectively. Further, as a percent of telecom revenues the
five largest telecom customers represented 62 percent, 63 percent, and 77
percent of revenues in 1996, 1995, and 1994, respectively. In 1996, two
customers, BellSouth and United Parcel Service, each represented approximately
16 percent of revenues. The Company anticipates that it will continue to
experience significant customer concentration.*
The Company earns a significant portion of revenues from foreign customers.
Revenues outside of North America accounted for approximately 40 percent, 32
percent, and 47 percent of the Company's total revenues for the years ended
December 31, 1996, 1995, and 1994, respectively. The Company expects that
international revenues will continue to account for a significant portion of its
total revenue in future periods.*
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
9
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Competition
The Company offers products and services in the evolving market for
telecommunications network management software and distributed object
technology. Competition in this market is intense and is characterized by
rapidly changing technologies, evolving industry standards, changing regulatory
requirements, frequent new product introductions, and rapid changes in customer
requirements. To maintain and improve its competitive position, the Company must
continue to develop and introduce, in a timely and cost-effective manner, new
services, products, and product features that keep pace with competitive
offerings by telecommunications companies and independent software vendors,
technological developments, and emerging industry standards in the development
of telecommunications network management software solutions. The principal
competitive factors in the Company's market are quality, performance, price,
customer support, corporate reputation, and product features such as
scalability, interoperability, functionality, customizability, and ease of use.
The Company's current and prospective competitors offer a variety of
solutions to address network management needs. The Company's SolutionCore and
SolutionSuites product lines enable the Company to provide its customers both
application development software and telecom applications. Because certain of
the Company's competitors focus only on one functional area of
telecommunications network management software solutions, such competitors may
be in a position to develop competitive products targeted solely at the segment
they serve. These competitors include major communications service providers,
RBOCs, and equipment and computer manufacturers, each of which has substantially
greater financial, manufacturing, technical, marketing, distribution, greater
name recognition, longer-standing relationships with customers than the Company
and other resources. Furthermore, many of the Company's current and potential
customers continuously evaluate whether to design, develop, and support
internally the software solutions provided by the Company, thereby obviating the
need for relying on an outside vendor, such as the Company. There can be no
assurance that the Company's current or potential competitors will not develop
products comparable or superior to those developed by the Company or adapt more
quickly than the Company to new technologies, evolving industry standards, new
product introductions, or changing customer requirements.
OTHER COMPANY INFORMATION
Backlog
Orders for the Company's software products and services are typically in
the form of licensing and service contracts, which call for the delivery of
products and the performance of services over a nine to twelve month period.
Backlog for the Company's products and services represents an estimate of
remaining unearned contract value for all signed contracts, including
unrecognized license fees, development service fees, maintenance and support
fees, and equipment pass-throughs. Backlog generally does not include any
potential sublicense fees or royalties, which are recognized as earned. Backlog
also does not include expected future additions to contract value associated
with existing customers' master license agreements and service contracts.
Because of variations in the magnitude and duration of orders received by the
Company, and because the Company's contracts may be canceled or rescheduled by
the customer without significant penalty, the Company's backlog at any
particular date may not be a meaningful indicator of future financial results.
At December 31, 1996, the Company's backlog amounted to approximately $18
million. At December 31, 1995, the Company's backlog was approximately $43
million, of which $10 million was related to equipment to be purchased on behalf
of a customer.
Employees
At December 31, 1996, the Company had 295 employees, of which approximately
70 percent were professional engineering staff. Over 90 percent of the Company's
employees hold options for Company stock. None of the Company's employees are
represented by a labor union, and the Company has not experienced any work
stoppages. Management believes that the Company's employee relations are good.
10
<PAGE> 12
The Company's future success will depend to a significant extent on its
ability to continue to recruit and assimilate skilled engineers, managers, and
other personnel.* The Company's future success will also depend on its ability
to attract and retain qualified managerial, sales, and software engineering
personnel.* The Company has at times experienced and continues to experience
difficulty in attracting and retaining qualified personnel. Competition for
qualified personnel in the software industry is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. The complex nature of the networks of the Company's customers
requires that the Company recruit and hire personnel with expertise in and a
broad understanding of the industries in which the Company's customers compete.
Furthermore, competitors have in the past and may in the future attempt to
recruit the Company's employees.* Failure to attract and retain key personnel
could have a material adverse effect on the Company's business, operating
results, and financial condition.*
Intellectual Property
The Company's success and ability to compete is dependent in part upon its
proprietary software technology. The Company relies on a combination of patent,
trade secret, copyright and trademark laws, nondisclosure and other contractual
agreements, and technical measures to protect its proprietary rights. To date,
the Company has received 28 patents and has applications pending for an
additional 18 patents. However, the Company transferred 35 patents and patent
applications to Atmel Corporation (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Non-recurring Special Items").
The Company expects to continue to file patent applications where it believes it
is appropriate to protect its proprietary technologies.*
Executive Officers of the Company
The executive officers of the Company and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- ---- ---------------------------------------------------
<S> <C> <C>
Roger A. Strauch....... 41 Chairman of the Board of Directors and Chief
Executive Officer
Ram A. Banin, Ph.D..... 55 President and Chief Operating Officer
Paul A. Farmer......... 38 Chief Financial Officer, Secretary, and Treasurer
</TABLE>
Mr. Strauch has been Chief Executive Officer since 1989 and Chairman of the
Board since March 1996. He was also President of TCSI from its incorporation in
1987 to December 1996. Prior to co-founding TCSI in 1983, Mr. Strauch was a
senior staff engineer and project manager with Hughes Aircraft Company's Space
and Communications Group from June 1978 to July 1983. Mr. Strauch holds an M.S.
in Electrical Engineering from Stanford University and a B.S. in Electrical
Engineering from Cornell University. Mr. Strauch also serves on the board of
directors of SymmetriCom, Inc.
Dr. Banin has been President of TCSI since December 1996. Dr. Banin joined
TCSI in May 1992 as Senior Vice President and General Manager, Object Software
Group. In January of 1996, Dr. Banin was promoted to Executive Vice President of
TCSI. Prior to joining TCSI, Dr. Banin founded and operated Banin Associates, a
technology and investment management services firm, from April 1989 to May 1992.
Dr. Banin was also co-founder and Chief Executive Officer of Atherton
Technology, a software tools company, from March 1986 to April 1989, as well as
co-founder, Senior Vice President, Engineering and General Manager of the
Systems Division of Daisy Systems, a software company, from June 1980 to
December 1985. Dr. Banin holds a Ph.D. and an M.A. in Computer Science from the
University of California, Berkeley, and an M.S. and a B.S. in Physics and
Physics Mathematics, respectively, from the Hebrew University of Jerusalem,
Israel.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
11
<PAGE> 13
Mr. Farmer has been Chief Financial Officer, Secretary, and Treasurer of
TCSI since December 1993. Prior to joining TCSI, Mr. Farmer served as Treasurer,
Corporate Controller, Assistant Secretary, and Vice President of Technology
Solutions Company, a public systems integration company, from November 1990 to
December 1993. Previously, Mr. Farmer was a senior manager for Price Waterhouse
from January 1982 to November 1990. Mr. Farmer is a Certified Public Accountant
and holds an M.B.A. in Finance and Economics from the University of Chicago and
a B.S. in Accounting from the University of Illinois.
ITEM 2. PROPERTIES
The Company's principal administrative, sales and marketing, customer
support, and product development facilities are located in Alameda and San Jose,
California. In addition, the Company leases sales offices in Dallas, Texas;
Vienna, Virginia; Ipswich, UK; and Tokyo, Japan. The Company currently has
approximately 220,000 square feet of facilities. The Company's leases have
various terms, expiring at different times through the year 2007. The Company
believes that its existing facilities are adequate to meet its current needs and
that suitable additional or alternative space will be available in the future on
commercially reasonable terms as needed.*
ITEM 3. LEGAL PROCEEDINGS
In late 1996, two class action lawsuits on behalf of certain shareholders
were filed against the Company and various of its officers and directors. The
suits allege violations of state securities laws during 1995 and 1996.
Management believes that the claims contained in the suits are without merit and
intends to vigorously defend against them. In the opinion of management,
resolution of this litigation is not expected to have a material adverse effect
on the financial position of the Company. However, depending on the amount and
timing, an unfavorable resolution of this matter could materially affect the
Company's future results of operations or cash flows in a particular period.*
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of the Company (Common Stock) commenced trading on The
Nasdaq National Market under the symbol "TCSI" in July 1991. The following table
sets forth the high and low closing sale prices of the Common Stock for the
periods indicated, as reported by The Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
First quarter.................................................... $ 8.33 $ 6.58
Second quarter................................................... 10.08 7.33
Third quarter.................................................... 11.83 8.00
Fourth quarter................................................... 13.83 8.50
1996
First quarter.................................................... $22.17 $11.33
Second quarter................................................... 29.75 17.50
Third quarter.................................................... 27.50 10.75
Fourth quarter................................................... 15.75 5.75
</TABLE>
The market price of the shares of Common Stock has been and is likely to
continue to be highly volatile and may be significantly affected by factors such
as actual or anticipated fluctuations in the Company's business, operating
results, and financial condition, announcements of technological innovations,
new products, or new contracts by the Company or its competitors, developments
with respect to proprietary rights, adoption of new accounting standards
affecting the software industry, general market conditions, and other factors.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the common stocks of technology companies. These types of broad market
fluctuations may adversely affect the market price of the Company's Common
Stock.*
As of January 15, 1997, the number of shareholders of record of the
Company's Common Stock was 112 and the number of beneficial holders was
approximately 5,600. The Company has declared no cash dividends on its common
stock since the Company's initial public offering in July 1991. The Company
currently intends to retain any earnings for use in its business and does not
anticipate paying any cash dividends in the foreseeable future.*
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
13
<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's consolidated financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Services....................................... $42,733 $43,790 $34,872 $27,970 $31,080
Software licensing fees........................ 10,230 11,572 5,434 4,081 3,033
------- ------- ------- ------- -------
Total services and licensing fees................ 52,963 55,362 40,306 32,051 34,113
Equipment...................................... 7,270 -- -- -- --
------- ------- ------- ------- -------
Total revenues................................... 60,233 55,362 40,306 32,051 34,113
Costs, expenses, and special items:
Services....................................... 28,773 24,945 17,985 15,098 15,397
Equipment...................................... 6,810 -- -- -- --
Product development............................ 6,642 -- -- -- --
Selling, general, and administrative........... 25,010 19,498 14,556 12,995 15,285
Non-recurring special items, net............... (4,587) -- -- -- --
------- ------- ------- ------- -------
Total costs, expenses, and special items......... 62,648 44,443 32,541 28,093 30,682
------- ------- ------- ------- -------
Income (loss) from operations.................... (2,415) 10,919 7,765 3,958 3,431
Gain on sale of investment in common stock....... 585 -- -- -- --
Interest income.................................. 2,276 982 591 567 499
------- ------- ------- ------- -------
Income before income taxes....................... 446 11,901 8,356 4,525 3,930
Provision for income taxes....................... 152 3,831 2,926 1,829 1,557
------- ------- ------- ------- -------
Net income....................................... $ 294 $ 8,070 $ 5,430 $ 2,696 $ 2,373
======= ======= ======= ======= =======
Earnings per share (EPS)......................... $ 0.01 $ 0.42 $ 0.30 $ 0.15 $ 0.13
======= ======= ======= ======= =======
Shares used in calculation of EPS................ 21,542 19,224 18,216 18,302 18,780
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and investments in marketable securities.... $52,607 $22,027 $22,212 $18,371 $16,570
Working capital.................................. 50,717 31,374 18,675 12,179 13,653
Total assets..................................... 87,175 49,510 34,059 27,587 24,789
Shareholders' equity............................. 73,610 37,376 23,792 17,879 18,307
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements. The forward-looking statements contained
herein are subject to certain factors that could cause actual results to differ
materially from those reflected in the forward-looking statements. Such factors
include, but are not limited to, those discussed below in "Factors Affecting
Operating Results and Market Price of Stock."
14
<PAGE> 16
COMPANY OVERVIEW
TCSI Corporation provides integrated software products and services for the
global telecommunications industry. Since its inception in 1983, a significant
portion of the Company's revenues has been earned from telecommunications
service providers and equipment manufacturers. Since 1993, the Company's growth
has been led by sales of OSP and related object-oriented products and services.
The Company has also earned revenue from licensing embedded software contained
in wireless products and the development of system solutions for customers in
the transportation industry. During the second half of 1996, the Company
divested its non-telecom product lines by licensing its embedded software
product lines and terminating its final transportation-related development
agreement. As a result, the Company has focused on offering software solutions
to the telecommunications industry.
A significant portion of the Company's revenues and operating income has
been, and is expected to continue to be, derived from software licensing fees
from a limited number of customers. The Company recognizes revenues from
software licensing fees only after delivery of software products and if there
are no remaining significant post-delivery obligations. The Company recognizes
revenues from software licensing fees with significant post-delivery obligations
associated with the related services contract on a percentage of completion
basis. The Company also provides services to customers under level-of-effort and
fixed price contracts. Service revenues are recognized on the
percentage-of-completion method based on the percentage of contract costs
incurred in relation to total estimated contract costs. Changes to total
estimated contract costs, if any, are recognized in the period such changes are
determined. The scope and size of many of the Company's system solutions are
large and complex, typically requiring delivery over several quarters. From
time-to-time, customers have established payment milestones which can be
achieved in some circumstances only after completion of the related services. In
some cases, customers have disputed fees charged for services provided. The
Company has had to write off receivable amounts if such disputes could not be
resolved.
The licensing and implementation of the Company's software products
generally involves a significant commitment of resources by prospective
customers. As a result, the Company's sales process is subject to delays
associated with lengthy approval processes typically accompanying such
significant capital expenditures. Accordingly, the Company is substantially
dependent on its customers' decisions as to the timing and level of expenditures
and resource commitments. The variability in the timing of such expenditures
could cause material fluctuations in the Company's business, operating results,
and financial condition. In this regard, the consistency of the Company's 1996
quarterly results were adversely affected by delays in the purchase of software
licenses.
A substantial portion of the Company's revenues are derived from the sale
of the Company's products and services which provide software solutions to major
telecommunications service providers and equipment manufacturers. Due to the
complex nature of the advanced element, network, and service management systems
being developed, successful deployment of these systems often contains
significant technological risks. The Company has in the past relied and will in
the future rely on its development and implementation expertise.* Additionally,
development and implementation of these systems often occurs over periods in
excess of one year. During the development and implementation period, there is
the risk that a change in the customer's technology or business strategy may
cause early termination of the project or discontinuance of future phases. In
this regard, the Company has experienced and expects to continue to experience
significant fluctuations in revenues and operating results on a quarterly basis
due to termination, cancellation, or non-renewal of agreements.*
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
15
<PAGE> 17
Management believes that continued revenue growth is highly dependent upon
the development and enhancement of software products that meet market needs.*
Prior to 1996, the Company's product development was primarily funded by
customers as part of the development of software applications for such
customers. The Company typically retained certain rights to developed software
products. In certain circumstances, however, the Company agreed to restrict its
use of such products to certain markets and during certain time periods. During
1996, the Company began funding a larger portion of its product development
costs internally. Management intends to target product development spending at
amounts consistent with other software companies.* Furthermore, management
expects that from time to time it may acquire businesses, products, or
technologies to enhance the Company's current product offerings.* To date, the
Company has not consummated any such acquisitions and the Company has no current
agreements to effect any such acquisitions. The failure to successfully
evaluate, negotiate, and effect such an acquisition could have a material
adverse effect on the Company's business, operating results, and financial
condition.*
RESULTS OF OPERATIONS
The following table sets forth selected income statement data for each of
the years ended December 31 as a percentage of revenues:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Services...................................................... 71% 79% 87%
Software licensing fees....................................... 17 21 13
Equipment..................................................... 12 -- --
--- --- ---
100 100 100
Cost, expenses, and special items:
Services...................................................... 48 45 45
Equipment..................................................... 11 -- --
Product development........................................... 11 -- --
Selling, general, and administrative.......................... 42 35 36
Non-recurring special items, net.............................. (8) -- --
--- --- ---
Income (loss) from operations................................... (4) 20 19
Interest and investment income.................................. 5 2 2
Income before income taxes...................................... 1 22 21
Net income...................................................... -- 15 13
</TABLE>
Revenues
The Company generates revenues primarily from the sale of its software
products and related services. In 1996, software licensing fees represented 17
percent and services represented 71 percent of total revenues. In 1994, the
Company entered into a significant development agreement with a transportation
customer. The deployment phase, which was initiated in 1996, provided that the
Company would purchase equipment on behalf of the customer. During 1996, 12
percent of revenues related to such equipment. During the third quarter of 1996,
the Company agreed to terminate this agreement and does not have any other
agreements with significant provisions to purchase equipment. In 1995, software
licensing fees represented 21 percent and services represented 79 percent of
total revenues. As there were no equipment revenues in 1995, the percentage of
software licensing and service revenues in 1996 declined as a percentage of
total revenues compared to 1995. In 1994, software licensing fees represented 13
percent of revenues and services represented 87 percent of revenues.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
16
<PAGE> 18
Revenues increased 9 percent in 1996 to $60.2 million from $55.4 million in
1995. The increase in 1996 revenues was attributable to $7.3 million of
equipment purchased on behalf of a customer, as described above. Excluding such
equipment revenues, total revenues attributable to services and software
licensing fees declined from $55.4 million in 1995 to $53.0 million in 1996 due
primarily to the discontinuance of non-telecom product lines in late 1996.
Revenues increased 37 percent to $55.4 million in 1995 from $40.3 million in
1994. The Company experienced a 20 percent growth in 1996 revenues from its
telecom-related software products and services and a 67 percent increase in
1995.
Software licensing revenues were $10.2 million in 1996 compared to $11.6
million in 1995 and $5.4 million in 1994. The 1995 increase in software
licensing revenues related to OSP licenses purchased prior to the commencement
of several large system solution projects. In 1996, as these large projects
continued toward completion, there was more demand for follow-on services than
there was for new licenses. In 1996, telecom-related licenses totaled $6.7
million compared to $8.9 million in 1995. The Company expects licensing revenues
to continue to vary on a quarterly and annual basis.*
Revenue for services was $42.7 million in 1996 as compared to $43.8 million
in 1995 and $34.9 million in 1994. In 1996, a 35 percent increase in
telecom-related services was more than offset by a decrease in non-
telecom-related services. In the fourth quarter of 1996, the Company divested
itself of its non-telecom product lines so that it could focus on its core
business. Accordingly, non-telecom services in 1996 declined approximately 60
percent as compared to the prior year. In 1995, telecom-related services
increased 54 percent and non-telecom services decreased 3 percent compared to
1994.
Revenues from North American customers represented 60 percent of 1996
revenues as compared to 68 percent in 1995 and 53 percent in 1994. Revenues from
customers in Asia and the Pacific Rim accounted for 28 percent of 1996 revenues
as compared to 22 percent in 1995 and 33 percent in 1994. European customers
accounted for 12 percent of 1996 revenues compared to 10 percent in 1995 and 14
percent in 1994. The 1996 increase in revenues from customers in Asia and the
Pacific Rim was the result of several new telecom customers in Japan and
Australia. The increase in North America during 1995 was primarily the result of
telecom-related products and services sold to several large customers in the
United States. The Company expects that international revenues will continue to
account for a significant portion of its total revenue in future periods*.
To date, a significant portion of revenues has been concentrated among a
limited number of customers. In 1996, 1995, and 1994, revenues from the
Company's five largest customers represented 54 percent, 47 percent, and 44
percent of revenues, respectively. Further, as a percentage of telecom revenues
the top five telecom customers represented 62 percent, 63 percent, and 77
percent of revenues in 1996, 1995, and 1994, respectively. In 1996, two
customers, BellSouth and United Parcel Services, represented approximately 16
percent of revenues.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
17
<PAGE> 19
Direct Costs of Services
The Company incurs direct costs in the development and deployment of its
customer's software solutions. The major components of direct costs are employee
compensation, subcontractor fees, training costs, and other billable direct
costs, including travel expenses. Direct costs also include an allocation for
benefits, facilities, and depreciation. Cost of services were $28.8 million in
1996 compared to $24.9 million in 1995 and $18.0 million in 1994. As a
percentage of services revenue, cost of services were 67 percent in 1996,
compared to 57 percent in 1995 and 52 percent in 1994. In 1996, the Company
discounted services to strategically important customers as a means of enhancing
the relationship and expanding its product portfolio. The Company anticipates
that such investments in customer relationships will decrease as a percentage of
revenue in 1997.* In 1995, direct costs increased primarily as a result of
increased service revenues. As a result of the increased demand for the
Company's products and services in 1996 and 1995, the Company incurred training
costs related to the hiring of approximately 90 engineers each in both years.
This contributed to increased direct cost of services as a percentage of service
revenues for 1996 and 1995, as compared to 1994.
Equipment Costs
Equipment costs relate to equipment purchased on behalf of a transportation
customer. In 1996, the Company had only one significant system development
contract which provided for the delivery of equipment. In October 1996, TCSI
agreed to terminate this contract. In the future, the Company does not
anticipate such equipment costs, or related revenues, will be significant.*
Product Development
Product development includes employee compensation, subcontractor fees,
training costs, and other product development costs, including an allocation for
benefits, depreciation, and facilities. Prior to 1996, the Company's product
development had been primarily funded by customers as part of the development of
software applications for such customers. As a result, internally funded product
development costs had not been material. The Company began internally funding
its product development costs in 1996.
In 1996, the Company's product development costs were $6.6 million. The
Company's funds were used, in part, to develop the SolutionCore(TM) product
line, which includes the fifth release of OSP and new releases of related
development tools. At the end of 1996, SolutionCore was in a beta trial by a
large telecommunication company in the United States. Further, the Company
continues to invest its financial resources in the development of telecom
software applications. The Company intends to target product development
spending at amounts consistent with other software companies.*
Selling, General, and Administrative Expenses
Selling expenses include sales and marketing employee compensation,
promotional material, trade show, travel, and facilities expenses. General and
administrative costs include compensation costs related to executive management,
finance, and administrative personnel along with other administrative costs
including recruiting, legal and accounting fees, insurance, and bad debt
expenses.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
18
<PAGE> 20
Selling, general, and administrative expenses increased 28 percent in 1996
to $25.0 million from $19.5 million in 1995. The increase was primarily due to
the expansion of Company facilities, bad debt expense, employee benefit costs,
and the increased international sales and marketing programs. In 1995, selling,
general, and administrative expenses increased 34 percent generally consistent
with the 37 percent increase in revenues. As a percent of revenues, selling,
general, and administrative expenses were 42 percent, 35 percent, and 36 percent
in 1996, 1995, and 1994, respectively. In 1997, the Company anticipates that
these costs, as a percentage of revenues, will decrease to historical levels as
it continues to focus on its core telecom business and completes its
consolidation to new facilities.*
Non-recurring Special Items
In October 1996, the Company agreed to terminate a significant development
agreement entered into in 1994 with a transportation company. The Company
recorded a charge in the third quarter of 1996 of approximately $3.3 million to
cover the costs related to the termination of this agreement. The customer paid
the Company approximately $5.3 million to terminate the agreement. Additionally,
the Company has $1.5 million of equipment held for sale related to this
agreement. At December 31, 1996 management believes the equipment is stated at
its net realizable value. The Company is actively pursuing the sale of this
equipment.
As part of the Company's strategy to focus on its core telecom operations,
in November 1996, the Company licensed its embedded wireless technology and
related product lines to Atmel Corporation (Atmel) in exchange for Atmel Common
Stock valued at $10.0 million. In the fourth quarter of 1996, the Company
recorded a gain on this licensing of its technology, net of transaction costs
and project commitments, totaling $7.9 million and a gain of approximately $0.6
million from the sale of the Atmel stock.
Income Taxes
The Company records income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The Company's
effective tax rate was 34 percent, 32 percent, and 35 percent for 1996, 1995,
and 1994, respectively. In 1995, the Company's tax rate decreased primarily as a
result of tax benefits from nontaxable interest income, foreign sales, and
research and development tax credits. Such benefits were not fully available in
1996, causing the tax rate to increase slightly.
At December 31, 1996, the Company had approximately $7.2 million of
deferred tax assets. Included in this balance is approximately $3.8 million
associated with stock options. In the event these stock option-related deferred
assets are not entirely realized, the unrealized balance would be reversed to
shareholders' equity. Realization of the remaining deferred tax assets is
dependent upon the Company generating sufficient taxable income in future years
to obtain the benefit from the reversal of temporary differences and from tax
credit carry forwards.
Earnings Per Share
Earnings per share (EPS) is computed using the weighted average number of
shares outstanding and dilutive stock equivalents from the Company's stock
option plans. EPS was $0.01, $0.42, and $0.30 for 1996, 1995, and 1994,
respectively. Shares used in the calculation of EPS increased to 21.5 million in
1996, from 19.2 million in 1995 and 18.2 million in 1994. The 1996 share
increase was primarily due to option exercises and 1.5 million of Common Stock
shares issued in the Company's secondary public offering in the first quarter of
1996. The share increase in 1995 was primarily due to dilution caused by options
with exercise prices below current market prices for the Company's Common Stock
and by an increase in the number of options outstanding.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
19
<PAGE> 21
Stock Option Plans
During 1996, the Company implemented the provisions of Financial Accounting
Standards Boards (FASB) Statement No. 123, "Accounting for Stock-Based
Compensation." As provided in the Statement, the Company continues to account
for stock option grants in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and, accordingly, recognizes no compensation expense
for the stock option grants. For the years ended December 31, 1996 and 1995, the
Company has provided pro-forma disclosure of what net income and earnings per
share would have been had the fair value, as defined by FASB No. 123, of the
options been expensed. In accordance with FASB No. 123, in determining the fair
value of the options, the Company uses the Black-Scholes option pricing model.
In calculating the value of the options and its effect on net income and EPS,
management has made certain assumptions regarding the length of time an employee
holds the options and expected stock volatility. The underlying assumptions are
based upon past experience and management's best estimates and are subject to
significant subjectivity. Accordingly, the ultimate value that an employee
receives and the actual number of options exercised may vary significantly from
amounts used in the pro-forma calculation.*
In January 1997, the Company's Board of Directors approved the repricing of
1.1 million options granted under the 1991 Stock Incentive Plan. Employees were
given the opportunity to exchange their current options for new options with an
exercise price of $6.63 per share (fair value of the related common shares as of
January 28, 1997). These options generally vest 50 percent in January 1998 and
25 percent each in January 1999 and January 2000.
LIQUIDITY AND CAPITAL RESOURCES
Over the past three years, the Company has satisfied its liquidity needs
principally through cash flows from operating activities. During 1996, the
Company generated approximately $6.9 million of cash from operations primarily
resulting from the licensing of the Company's embedded wireless product lines.
In 1995, the net cash used in operating activities was affected by a $9.5
million increase in receivables over 1994. The increase in the Company's
receivables in 1995 resulted from increased service revenues from certain
customers where contractual payment dates generally followed the completion of
work. Revenue on these projects, however, was recognized using the percentage of
completion method. In 1995, a significant amount of these receivables were
related to transportation and wireless customers. In late 1996, these product
lines were divested causing unbilled receivable balances to decrease as compared
to 1995. As in the past, the Company's operating cash flows in the future may be
affected by contractual billing and collection milestones; consequently,
management anticipates that receivable balances may continue to fluctuate.* The
Company's receivables are primarily from large, credit-worthy customers and, as
a result, the Company does not anticipate any significant default from a
customer's inability to make payment for products and services received.*
Cash and investments in marketable securities totaled $52.6 million at
December 31, 1996 and $22.0 million at December 31, 1995. During 1996, working
capital increased $19.3 million to $50.7 million at December 31, 1996. The
increase in cash and working capital was primarily the result of funds raised in
a secondary public offering of the Company's Common Stock in the first quarter
of 1996. The offering's net proceeds were approximately $25.8 million. During
1996, the Company also raised $3.7 million of cash from the exercise of employee
stock options and received approximately $10.0 million from the licensing of its
embedded wireless software. The Company invested $7.4 million during 1996 in
marketable securities with maturities greater than one year and the balance is
invested in marketable securities with maturities less than one year. The
Company has no outstanding debt or lines of credit.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
20
<PAGE> 22
During 1996, the Company used $7.5 million of cash for capital
expenditures, which primarily related to the consolidation of facilities in
northern California and new and upgraded hardware and software development tools
for engineers. The Company currently has no significant commitments for capital
expenditures, although management intends to support operational needs as
necessary including approximately $2.0 million of tenant improvements.
Management expects that capital expenditures in 1997 will be less than those in
1996.*
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
The Company operates in a rapidly changing environment that involves
numerous risks, some of which are beyond the Company's control. The following
discussion highlights some of the risks the Company faces.
Potential Fluctuations in Future Operating Results
The Company has experienced and expects to continue to experience
significant fluctuations in revenues and operating results on an annual or
quarterly basis as a result of a number of factors, many of which are beyond the
control of the Company. These factors include the cancellation, modification, or
non-renewal of service, license, or maintenance agreements; the size and timing
of significant customer engagements and license fees; the relative proportion of
services and software licensing fees; personnel changes; capital spending
patterns of the Company's customers; concentration of the Company's customers;
the lengthy sales cycles of the Company's products and services; industry
acceptance of the Company's products and services; changes in operating
expenses; new product introductions and product enhancements by the Company or
its competitors; the ability of the Company to develop, introduce, and market
new products and product enhancements on a timely basis; changes in pricing
policies by the Company or its competitors; regulatory changes, currency
fluctuations, and general economic factors. These factors are difficult to
forecast, and these or other factors could have a material adverse effect on the
Company's business, operating results, and financial condition.
A significant portion of the Company's operating income have been, and are
expected to continue to be, derived from software licensing fees from a limited
number of customers. Variability in the timing of such license fees has caused
and may continue to cause material fluctuations in the Company's business,
operating results, and financial condition. The Company's products and services
generally require significant capital expenditures by customers as well as the
commitment of resources to implement, monitor, and test the Company's
enhancements to such customer's systems. Accordingly, the Company is
substantially dependent on its customers' decisions as to the timing and level
of such expenditures and resource commitments. In addition, the Company
typically realizes a significant portion of license revenues in the last weeks
or even days of a quarter. As a result, the magnitude of quarterly fluctuations
may not become evident until late in, or after the close of, a particular
quarter. The Company's expenses are based in part on the Company's expectations
as to future revenue levels and to a large extent are fixed in the short-term.
If revenues do not meet expectations, the Company's business, operating results,
and financial condition are likely to be materially adversely affected. In
particular, because only a small portion of the Company's expenses varies with
revenues, net income may be disproportionately affected by a reduction in
revenues. As a result, the Company believes that period-to-period comparisons of
its operating results are not necessarily meaningful and should not be relied
upon as indications of future performance. Due to the foregoing factors, it is
likely that in some future period, as in the second half of 1996, the Company's
revenues or operating results will be below the expectations of public market
analysts and investors. In such event the price of the Company's common stock
could be materially adversely affected.
- ---------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. The Company strongly encourages
review of the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 21 for a discussion of factors that could
affect future performance.
21
<PAGE> 23
Lengthy Sales and Implementation Cycles
The Company's products are typically intended for use in applications that
may be critical to a customer's business. The licensing and implementation of
the Company's software products generally involves a significant commitment of
resources by prospective customers. As a result, the Company's sales process is
often subject to delays associated with lengthy approval processes that
typically accompany significant capital expenditures. For these and other
reasons, the sales cycles associated with the license of the Company's products
is often lengthy (averaging approximately nine to twelve months) and subject to
a number of significant delays over which the Company has little or no control.
In addition, the Company does not recognize service revenues until the services
are rendered. The time required to implement the Company's products can vary
significantly with the needs of its customers and is generally a process that
extends for several months. Because of their complexity, larger implementations
may take multiple quarters to complete. When the Company has provided services
to implement certain large projects, although no contractual basis exists for
the customer to do so, certain customers have delayed payment of a portion of
revenue and in some cases have disputed the fees charged. There can be no
assurance the Company will not experience additional delays or disputes
regarding payment in the future, particularly if the Company receives orders for
large, complex installations. Therefore, the Company believes that its quarterly
and annual operating results and financial condition are likely to vary
significantly in the future.
Acceptance of the Company's Products; Product Development Risks
A substantial portion of the Company's revenues are derived from the sale
of the Company's products and services which provide software solutions to major
corporations, in the worldwide telecom services and equipment industries.
Although many telecom companies currently seek to integrate their business
operation systems and network operation systems, there can be no assurance that
these or other service providers will continue to seek the integration of such
systems or that such companies will use the Company's products. Due to the
complex nature of the advanced element, network, and service management systems
developed by the Company, the Company has in the past relied and will in the
future rely on its development and implementation expertise. The Company
continues to develop distributed object software products that reduce the
customization necessary to fully integrate customers' systems. There can be no
assurance, however, that the Company will continue to successfully develop and
market such products or, if successful, that the revenue from such products will
compensate for any concurrent loss of development and implementation service
revenues. The failure by the Company to successfully develop and market such
products and technologies would have a material adverse effect on its business,
operating results, and financial condition.
Revenues attributable to the Company's distributed object software products
and services have in the past accounted for and are expected to continue to
account for a substantial majority of the Company's revenues. Accordingly, the
Company's future business, operating results, and financial condition are
significantly dependent upon the continued market acceptance of distributed
object software products and services and the Company's portfolio of products
and services. There can be no assurance that distributed object technology will
continue to achieve market acceptance or that the Company will be successful in
developing, introducing, or marketing improvements to its distributed object
products. Moreover, the life cycle of distributed object products is difficult
to estimate due in large part to the recent emergence of many of the Company's
markets, the effect of future product enhancements, and competition. A decline
in the demand for distributed object technology as a result of new or existing
competing technologies, or other factors would have a material adverse effect on
the Company's business, operating results, and financial condition.
Prior to 1996, the Company's product development was primarily funded by
customers as part of the development of software applications for such
customers. The Company typically retained certain rights to developed software
products. In certain circumstances, however, the Company agreed to restrict its
use of such products to certain markets and during certain time periods.
Management believes that continued revenue growth is highly dependent upon the
development and enhancement of software products that meet market needs. Prior
to 1996, internally funded product development costs were nominal. During the
year ended December 31, 1996, the Company expensed $6.6 million of product
development. Management intends to target product development spending at
amounts consistent with other software companies. There can be no assurance,
however, that such funding will result in the successful introduction of new
products.
22
<PAGE> 24
Customer Concentration
To date, a significant portion of the Company's revenues have been
concentrated among a limited number of customers. The Company anticipates that
it will continue to experience significant customer concentration. There can be
no assurance that such customers or any other customers will in the future
continue to place orders with the Company which equal or exceed the comparable
levels for prior periods. In addition, the Company's customers typically
designate one individual to procure network management software. If any of such
individuals were terminated, transferred, or replaced, the Company would be
vulnerable to cancellation of an order if, for example, the Company's
competitors had pre-existing relationships with such individual's replacement.
As a result of these factors, the Company's business, operating results, and
financial condition could be materially adversely affected.
Product Defects
The Company provides complex object-oriented software products for major
corporations. The development and enhancement of such complex software entails
substantial risks of product defects. The Company has in the past discovered
software defects in certain of its products. There can be no assurance that
errors will not be found in existing or new products or releases after
commencement of commercial licensing, which may result in delay or loss of
revenue, loss of market share, failure to achieve market acceptance, or may
otherwise adversely impact the Company's business, operating results, and
financial condition.
Implementation Risks
As characteristic of companies providing software solutions to the
telecommunications industry, the complexities involved in implementing the
Company's software solutions entail risks of performance failures. In some cases
the Company has agreed to accept some financial responsibility, in the form of
agreed upon penalty amounts, should the Company's products not meet
specifications or cause customer system downtime. There can be no assurance that
the Company will not encounter delays or other difficulties due to such
complexities. Because the Company's customer base consists of a relatively
limited number of customers, the reputational harm resulting from product
defects or implementation errors would be damaging to the Company. Any such
occurrence could have a material adverse effect upon the Company's business,
operating results, and financial condition.
International Sales
Revenues outside of North America accounted for approximately 40 percent,
32 percent, and 47 percent of the Company's total revenues for the years ended
December 31, 1996, 1995, and 1994, respectively. The Company expects that
international revenues will continue to account for a significant portion of its
total revenue in future periods. The Company intends to penetrate additional
international markets and to further expand its existing international
operations. The Company's international business involves a number of inherent
risks, including longer receivables collection periods and greater difficulty in
accounts receivable collection, difficulty in staffing and managing foreign
operations, a longer sales cycle than with domestic customers, potentially
unstable political and economic conditions, language barriers, cultural
differences in the conduct of business, seasonality due to the slowdown in
European business activity during the Company's third fiscal quarter, unexpected
changes in regulatory requirements, including a slowdown in the rate of
privatization of telecom service providers, reduced protection for intellectual
property rights in some countries, potentially adverse tax consequences,
tariffs, and other trade barriers. In addition, access to foreign markets is
often difficult due to the established relationships between government owned or
controlled communications companies and local suppliers of communications
products. There can be no assurance the Company will be able to successfully
penetrate such foreign markets. In addition, there can be no assurance that the
Company will be able to sustain or increase revenue derived from international
licensing and services or that the foregoing factors will not have a material
adverse effect on the Company's future international business, and consequently,
on the Company's business, operating results, and financial condition.
23
<PAGE> 25
International sales also entail risks associated with currency
fluctuations. The Company has attempted to reduce the risk of fluctuations in
currency exchange rates associated with international revenue by pricing its
products and services in United States dollars whenever possible. The Company,
however, generally pays the expenses of its international operations in local
currencies and generally does not engage in hedging transactions with respect to
such obligations. Fluctuations in currency exchange rates could cause the
Company's products to become relatively more expensive to foreign customers,
leading to a reduction in sales or profitability. Furthermore, future
international activity may result in foreign currency denominated sales, and, in
such event, gains and losses on the conversion to U.S. dollars of accounts
receivable and accounts payable arising from international operations may
contribute to fluctuations in the Company's operating results. In order to
reduce the risk of exchange rate losses from foreign currency denominated sales,
the Company may engage in hedging transactions. There can be no assurance that
such hedging transactions will not have a material adverse effect on the
Company's business, operating results, and financial condition.
Dependence on Telecommunications Carriers; Government Regulation
The Company's principal customers are concentrated among major telecom
carriers, including regional bell operating companies ("RBOCs"). Such companies
operate within the telecom industry, which has recently been characterized by
intense competition in the development of new technology, equipment, and
customer services. The Company believes that large telecom carriers have become
increasingly cautious in making significant capital expenditures, due in part to
increased competition from smaller, rapidly developing alternative carriers,
decreasing prices for telecom services and equipment, and regulatory rate
structures that have become less dependent on the level of carriers' capital
expenditures. These and other factors have in the past and may in the future
cause such customers to experience significant fluctuations in capital
expenditures for network management software solutions.
The telecom industry is subject to extensive regulation in the United
States and other countries, and the Company's customers generally must receive
regulatory approvals in conducting their businesses. Although the telecom
industry has undergone in the past year government deregulation, there can be no
assurance that deregulatory trends will continue or that reregulation will not
occur. Government regulatory policies are likely to continue to have a major
impact on the Company's ability to attract and retain customers. For example,
regulatory authorities may continue to oversee the pricing of new and existing
telecom services, which, in turn impact carriers' ability to make significant
capital expenditures. The enactment by federal, state, or foreign governments of
new laws or regulations or change in the interpretation of existing regulations
could adversely affect the Company's customers, and thereby affect the Company's
business, operating results, and financial condition.
Competition
The Company offers products and services in the evolving markets for
telecom network management software and distributed object technology.
Competition in this market is intense and is characterized by rapidly changing
technologies, evolving industry standards, changing regulatory requirements,
frequent new product introductions, and rapid changes in customer requirements.
To maintain and improve its competitive position, the Company must continue to
develop and introduce, in a timely and cost-effective manner, new services,
products, and product features that keep pace with competitive offerings by
telecom companies and independent software vendors, technological developments,
and emerging industry standards in the development of software solutions. The
principal competitive factors in the Company's market are quality, performance,
price, customer support, corporate reputation, and product features such as
scalability, interoperability, functionality, customizability, and ease of use.
24
<PAGE> 26
The Company's current and prospective competitors offer a variety of
solutions to address telecom software needs. The Company faces competition in
each of the three functional areas the Company believes are necessary for the
delivery of complete network management software solutions: development
environments, object frameworks, and customized applications. Because certain of
the Company's competitors focus only on one of these functional areas, such
competitors may be in a position to develop competitive products targeted solely
at the segment they serve. These competitors include major communications
service providers, RBOCs, and equipment and computer manufacturers, each of
which has substantially greater financial, manufacturing, technical, marketing,
distribution, and other resources, greater name recognition, and longer-standing
relationships with customers than does the Company. Furthermore, many of the
Company's current and potential customers continuously evaluate whether to
design, develop, and support internally the software solutions provided by the
Company, thereby obviating the need for relying on an outside vendor, such as
the Company. There can be no assurance that the Company's current or potential
competitors will not develop products comparable or superior to those developed
by the Company or adapt more quickly than the Company to new technologies,
evolving industry standards, new product introductions, or changing customer
requirements.
Rapid Technological Change; Need to Manage Product Transitions
The market for the Company's products is characterized by rapidly changing
technologies, evolving industry standards, changing regulatory environments,
frequent new product introductions, and rapid changes in customer requirements.
The introduction of products embodying new technologies and the emergence of new
industry standards and practices can render existing products obsolete and
unmarketable. As a result, the life cycles of the Company's products are
difficult to estimate. This poses substantial risks for the Company because the
Company's products and software solutions typically have lengthy development and
sales cycles. The Company's future success will depend on its ability to enhance
its existing products and to develop and introduce, on a timely and
cost-effective basis, new products and product features that keep pace with
technological developments and emerging industry standards and address the
evolving needs of its customers. There can be no assurance that the Company will
be successful in developing and marketing new products or product features that
respond to technological change or evolving industry standards, that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction, and marketing of these new products and features, or
that its new products or product features will adequately meet the requirements
of the marketplace and achieve market acceptance. If the Company is unable, for
technological or other reasons, to develop and introduce enhancements of
existing products or new products in a timely manner, the Company's business,
operating results, and financial condition will be materially adversely
affected.
The Company's products are designed to operate on a variety of hardware and
software platforms and with a variety of databases employed by its customers in
their networks. The Company must continually modify and enhance its products to
keep pace with changes in hardware and software platforms and database
technology. As a result, uncertainties related to the timing and nature of new
product announcements, introductions or modifications by systems vendors,
particularly Sun Microsystems, Inc. and Hewlett Packard Company, and by vendors
of relational database software, particularly Oracle Corporation, Sybase, Inc.,
and Informix Corporation, could materially adversely impact the Company's
business, operating results, and financial condition. In addition, the failure
of the Company's products to operate across the various existing and evolving
versions of hardware and software platforms and database environments employed
by consumers would have a material adverse effect on the Company's business,
operating results, and financial condition.
25
<PAGE> 27
The introduction or announcement of products by the Company or one or more
of its competitors embodying new technologies, or changes in industry standards
or customer requirements, could render the Company's software products and
solutions obsolete or unmarketable. The introduction of new or enhanced versions
of its products requires the Company to manage the transition from older
products in order to minimize disruption in customer ordering. There can be no
assurance that the introduction or announcement of new product offerings by the
Company or one or more of its competitors will not cause customers to defer
licensing of existing Company products or engaging the Company's services. Any
deferral of license or service revenues could have a material adverse effect on
the Company's business, operating results, and financial condition.
Protection of Intellectual Property
The Company's success and ability to compete is dependent in part upon its
proprietary software technology. The Company relies on a combination of patent,
trade secret, copyright and trademark laws, nondisclosure and other contractual
agreements, and technical measures to protect its proprietary rights. To date,
the Company has received 28 patents and has applications pending for an
additional 18 patents. However, the Company transferred 35 patents and patent
applications to Atmel Corporation (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Non-recurring Special Items").
The Company expects to continue to file patent applications where it believes it
is appropriate to protect its proprietary technologies. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. There can be no assurance that the steps taken
by the Company to protect its proprietary technology will prevent
misappropriation of such technology, and such protections may not preclude
competitors from developing products with functionality or features similar to
the Company's products. In addition, effective patent, copyright, trademark, and
trade secret protection may be unavailable or limited in certain foreign
countries. The failure of the Company to protect its proprietary information
could have a material adverse effect on the Company's business, operating
results, and financial condition.
While the Company believes that its products and trademarks and their use
by customers does not infringe upon the proprietary rights of third parties,
there can be no assurance that the Company will not receive future
communications from third parties asserting that the Company's products or their
use by customers infringe, or may infringe, the proprietary rights of such third
parties. The Company expects that software product developers will be
increasingly subject to infringement claims as the numbers of products and
competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, including
meritless claims, could result in costly, time-consuming litigation, and
diversion of technical and management personnel. In the event any third party
were to make a valid claim and a license were not made available on commercially
reasonable terms, or if the Company were unable to develop non-infringing
alternative technology, the Company's business, operating results, and financial
condition could be materially adversely affected.
In addition, certain of the Company's customers regard the solutions
provided by the Company to be proprietary to such customers and may attempt to
prohibit the Company from using or otherwise benefiting from certain of the
advances made in developing such solutions. Although the Company intends to
increasingly standardize its integration solutions through the use of
object-oriented software products, there can be no assurance that the
prohibition or restrictions imposed by certain customers of the use of certain
intellectual property will not adversely affect the Company's business,
operating results, and financial condition.
26
<PAGE> 28
The Company relies on certain software that it licenses from third parties,
including software that is integrated with internally developed software and
used in the Company's products to perform key functions. There can be no
assurance that these third party software licenses will continue to be available
to the Company on commercially reasonable terms or that such licenses will not
be terminated. Although the Company believes that alternative software is
available from other third-party suppliers, the loss of or inability to maintain
any of these software licenses or the inability of the third parties to enhance
their products in a timely and cost-effective manner could result in delays or
reductions in product shipments by the Company until equivalent software could
be developed internally or identified, licensed, and integrated, which would
have a material adverse effect on the Company's business, operating results, and
financial condition.
Risks Associated with Acquisitions
The Company from time to time evaluates potential acquisitions of
complementary businesses, products, and technologies. To support its growth
plans, the Company may acquire companies that have a significant installed base
of products not yet offered by the Company, have strategic distribution channels
or customer relationships, or otherwise present opportunities which management
believes enhance the Company's competitive position. Such acquisitions would
subject the Company to numerous risks, including risks associated with the
integration into the Company of new employees and technology. Moreover, the
negotiation and acquisition of such transactions involve the diversion of
substantial management resources and the evaluation of such opportunities
requires substantial diversion of engineering and technological resources. In
addition, transactions involving the issuance by the Company of common stock or
other securities could result in immediate and substantial dilution to the
Company's existing shareholders, large one-time write-offs, or the creation of
goodwill or other intangible assets that could result in amortization expenses.
To date, the Company has not consummated an acquisition transaction. The failure
to successfully evaluate, negotiate, and effect acquisition transactions could
have a material adverse effect on the Company's business, operating results, and
financial condition.
Potential Volatility of Stock Price
The market price of the shares of the Company's common stock has been and
is likely to continue to be highly volatile and may be significantly affected by
factors such as actual or anticipated fluctuations in the Company's business,
operating results, and financial condition, announcements of technological
innovations, new products, or new contracts by the Company or its competitors,
developments with respect to proprietary rights, adoption of new accounting
standards affecting the software industry, general market conditions, and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stocks of technology companies. These types of
broad market fluctuations may adversely affect the market price of the Company's
common stock. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
initiated against such company. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which could have
a material adverse effect upon the Company's business, operating results, and
financial condition. In this regard, in late 1996, two class action lawsuits on
behalf of certain of the Company's shareholders were filed against the Company
and various of its officers and directors. The suits allege violations of state
securities laws during 1995 and 1996. Management believes that the lawsuits are
without merit and intends to contest them.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated by reference herein from
Part IV Item 14(a)(1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27
<PAGE> 29
PART III
Certain information required by Part III is omitted from this Report in
that the registrant will file a definitive Proxy Statement pursuant to
Regulation 14A (Proxy Statement) not later than 120 days after the end of the
fiscal year covered by this Report, and certain information included therein is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is set forth under the captions,
"Proposal 1: Election of Directors," "Board Meetings, Committees, and Director
Compensation," in the Company's Proxy Statement and under the caption,
"Executive Officers of the Registrant" in Part I hereof, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is set forth under the caption,
"Executive Compensation," in the Company's Proxy Statement, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is set forth under the caption,
"Security Ownership of Directors, Officers, and Principal Shareholders," in the
Company's Proxy Statement, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is set forth under the caption,
"Compensation Committee Interlocks and Insider Participation" in the Company's
Proxy Statement, which information is incorporated herein by reference.
28
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this Report:
1. CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of TCSI are filed as part
of this Report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors................................................ F-1
Consolidated Balance Sheets at December 31, 1996 and 1995..................... F-2
Consolidated Statements of Income for the years ended
December 31, 1996, 1995, and 1994........................................... F-3
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995, and 1994........................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994........................................... F-5
Notes to Consolidated Financial Statements.................................... F-6
</TABLE>
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule of TCSI Corporation
is filed as part of this report and should be read in conjunction with the
consolidated financial statements of TCSI Corporation:
<TABLE>
<CAPTION>
SCHEDULE PAGE
------------------------------------------------------------------------------ ----
<S> <C>
II Valuation and Qualifying Accounts...................................... S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
29
<PAGE> 31
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C>
3.1 Restated Articles of Incorporation of the Company incorporated herein by reference
to Exhibit 3.1 of the Company's Registration Statement No. 33-40872 on Form S-1
filed on May 29, 1991.
3.2 Certificate of Amendment of the Restated Articles of Incorporation of the Company,
dated December 12, 1994, incorporated herein by reference to Exhibit 3.2 of Form
10-K filed March 9, 1995.
3.3 Amended By-laws of the Company incorporated herein by reference to Exhibit 3.2 of
the Company's Registration Statement No. 33-40872 on Form S-1 filed on May 29,
1991.
10.1# Teknekron Communications Systems, Inc. 1991 Stock Incentive Plan as amended
February 28, 1992, incorporated herein by reference to Exhibit 4 of the Company's
Registration Statement No. 33-57540 on Form S-8 filed on January 28, 1993.
10.2# Amendment to Teknekron Communications Systems, Inc. 1991 Stock Incentive Plan,
dated March 3, 1995, changing the name of the plan to TCSI Corporation 1991 Stock
Incentive Plan, incorporated herein by reference to Exhibit 10.2 of Form 10-K filed
March 9, 1995.
10.3# Amendments to TCSI Corporation 1991 Stock Incentive Plan, dated December 8, 1995
and March 1, 1996, incorporated herein by reference to Exhibit 10.3 of Form 10-K
filed March 25, 1996.
10.4 Teknekron Communications Systems, Inc. Equity Sharing Plan restated as of May 17,
1991, incorporated herein by reference to Exhibit 4 of the Company's Registration
Statement No. 33-41808 on Form S-8 filed on July 19, 1991.
10.5 Amendment One to Teknekron Communications Systems, Inc. Equity Sharing Plan dated
January 4, 1993 incorporated herein by reference to Exhibit 10.4 of Form 10-K filed
March 26, 1993.
10.6 Amendment to Teknekron Communications Systems, Inc. Equity Sharing Plan, dated
March 3, 1995, changing the name of the plan to TCSI Corporation Equity Sharing
Plan, incorporated herein by reference to Exhibit 10.5 of Form 10-K filed March 9,
1995.
10.7 Lease between Dwight Way Associates and the Company, dated January 17, 1990,
concerning the lease of the Company's facilities at 2201 Dwight Way, Berkeley,
California, incorporated herein by reference to Exhibit 10.6 of the Company's
Registration Statement No. 33-40872 on Form S-1 filed on May 29, 1991.
10.8 Amendment to lease between Dwight Way Associates and the Company, dated February
23, 1995, extending the original lease dated January 17, 1990, incorporated herein
by reference to Exhibit 10.10 of Form 10-K filed March 25, 1996.
10.9 Form of Indemnity Agreement between the Company and each of its directors and
officers incorporated herein by reference to Exhibit 10.8 of the Company's
Registration Statement No. 33-40872 on Form S-1 filed on May 29, 1991.
10.10 Form of specimen, TCSI Corporation Equity Sharing Plan Non-Qualified Notice of
Grant of Stock Options and Grant Agreement and Annex I (attached thereto), dated
March 3, 1995, incorporated herein by reference to Exhibit 10.10 of Form 10-K filed
March 9, 1995.
10.11 Form of specimen, Teknekron Communications Systems, Inc. Equity Sharing Plan
Amended Option Agreement, dated as of January 4, 1993, incorporated herein by
reference to Exhibit 10.14 of Form 10-K filed March 26, 1993.
10.12# Form of specimen, TCSI Corporation 1991 Stock Incentive Plan Notice of Grant of
Stock Options and Grant Agreement and Annex I (attached thereto), dated March 3,
1995, incorporated herein by reference to Exhibit 10.12 of Form 10-K filed March 9,
1995.
</TABLE>
- ---------------
* Filed herewith.
# Plans in which executive officers participate.
30
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C>
10.13#* Form of specimen, amendment to TCSI Corporation 1991 Stock Incentive Plan, dated
December 6, 1996, changing eligible participants, repricing and transferability of
options, and approval of material amendments.
10.14 Lease between Mitsubishi Estate Housing Co. and the Company dated December 27,
1993, concerning lease of the Company's facilities at 15-1, Jinnan 1-Chome,
Shibuya-ku, Tokyo, Japan, incorporated by reference to Exhibit 10.12 of Form 10-K
filed March 28, 1994.
10.15 Description of ongoing Incentive Bonus Program and form of standard letter
agreement entered into between the Company and Ram A. Banin, Ph.D., incorporated
herein by reference to Exhibit 10.2 of Form 10-K filed March 9, 1995.
10.16 Lease between Browning-Ferris Industries of California, Inc. and the Company, dated
December 16, 1994, concerning the lease of the Company's facilities located at 150
Almaden Blvd., Suite 850, San Jose, California, incorporated herein by reference to
Exhibit 10.15 of Form 10-K filed March 9, 1995.
10.17 Lease between Browning-Ferris Industries of California, Inc. and the Company, dated
December 16, 1994, concerning the lease of the Company's facilities located at 150
Almaden Blvd., Suite 800 and 900, San Jose, California, incorporated herein by
reference to Exhibit 10.16 of Form 10-K filed March 9, 1995.
10.18 Lease between JMB/San Jose Associates and the Company, dated January 31, 1996,
concerning lease of the Company's facilities located at 150 Almaden Blvd., Fifth
Floor, San Jose, California, incorporated herein by reference to Exhibit 10.21 of
Form 10-K filed March 25, 1996.
10.19 TCSI 1994 Board of Directors Option Plan, dated as of December 2, 1994,
incorporated herein by reference to Exhibit 4 of the Company's Registration
Statement No. 33-98842 on Form S-8 filed on October 27, 1995.
10.20* Amendment to TCSI 1994 Board of Directors Option Agreement, dated December 6, 1996,
changing eligibility of outside directors to receive equity securities under an
employee benefit plan, transferability of options, and approval of material
amendments.
10.21 Form of specimen, TCSI 1994 Board of Directors Option Agreement, dated as of
December 2, 1994, incorporated herein by reference to Exhibit 10.18 of Form 10-K
filed March 9, 1995.
10.22 Lease between Birmingham Realty Company and the Company, dated May 15, 1995,
concerning the lease of the Company's facilities located at One Perimeter Park
South, Fourth Floor North, Birmingham, Alabama, incorporated herein by reference to
Exhibit 10.24 of Form 10-K filed March 25, 1996.
10.23* Lease between Cow Holdings Limited and the Company, dated July 25, 1996, concerning
lease of Company's facilities located at 8605 Westwood Center Dr., Vienna,
Virginia.
10.24* Sublease between Computer Associates International, Inc. and the Company, dated
July 12, 1996, concerning the lease of Company's facilities located at 1080 Marina
Village Parkway, Alameda, California.
10.25* Lease between Tricoho, Ltd. and the Company, dated July 22, 1996, concerning lease
of Company's facilities located at 15851 Dallas Parkway, Suite 367, Dallas, Texas.
10.26* Form of specimen, TCSI Employee Stock Purchase Plan, dated January 19, 1997.
11.1* Statement regarding computation of earnings per share.
23.1* Consent of Independent Auditors.
</TABLE>
- ---------------
* Filed herewith.
# Plans in which executive officers participate.
31
<PAGE> 33
(b) Reports on Form 8-K in the fourth quarter of 1996:
<TABLE>
<C> <S>
(i) Press Release dated December 16, 1996, "TCSI Teams With Milan-Based Etnoteam
To Deliver Solutions To Italian Telecommunications Companies; TCSI Expands
Global Customer Base Through Synergistic Alliances With Industry Leaders"
(ii) Press Release dated December 10, 1996, "TCSI Promotes Dr. Ram Banin To
President And C.O.O.; Bart Heenan Appointed Vice President of Solutions
Delivery"
(iii) Press Release dated December 6, 1996, "TCSI and RBOC Discontinue Discussions
Relating to Anticipated Contract"
(iv) Regarding Asset Purchase and License Agreement with Atmel Corporation dated
November 29, 1996
(v) Press Release dated November 26, 1996, "TCSI Gains Endorsement of NEC
Corporation For Its Telecom Network Management Solutions; Largest Computer and
Communications Manufacturer in Japan Approves Use of TCSI's Software in
Multiple Solutions Worldwide"
(vi) Press Release dated November 20, 1996, "TCSI Announces Significant Contract
With Hughes Network Systems; New Wireless Network Management OMCs to be Based
on TCSI's Advanced Software Solutions"
(vii) Press Release dated November 15, 1996, "TCSI to License Wireless Technology to
Atmel Corporation"
(viii) Concerning "Backlog" dated November 7, 1996
(ix) Press Release dated November 4, 1996, "TCSI Awarded Multi-Million Dollar
Contract by IDC -- One of Japan's Largest International Telecom Companies;
TCSI Provides Leading Edge Solutions to Growing Pacific Rim Customer Base"
(x) Press Release dated October 23, 1996, "TCSI Previews New Application Software
Solutions For The Telecom Industry At The NMF Expo in Barcelona"
(xi) Press Release dated October 16, 1996, "TCSI Corporation Reports Third Quarter
Results"
(xii) Press Release dated October 8, 1996, "TCSI Announces New Suite of Software and
Hardware Development Tools for the Lode DSP Core; TCSI Makes Developing for
Lode Easier"
(xiii) Press Release dated October 8, 1996, "TCSI Launches Flexible Licensing Program
for Lode DSP Core"
(xiv) Press Release dated October 8, 1996, "Atmel Signs License for TCSI Lode DSP
Core"
</TABLE>
32
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
TCSI Corporation
(Registrant)
March 1, 1997 /s/ ROGER A. STRAUCH
-------------------------------------------------------------------
Roger A. Strauch, Chief Executive Officer
(Principal Executive Officer)
March 1, 1997 /s/ PAUL A. FARMER
-------------------------------------------------------------------
Paul A. Farmer, Chief Financial Officer, Secretary,
and Treasurer
(Principal Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities and 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>
<S> <C>
March 1, 1997 /s/ ROGER A. STRAUCH
-------------------------------------------------------------------
Roger A. Strauch, Chairman of the Board of Directors
March 1, 1997 /s/ JOHN C. BOLGER
-------------------------------------------------------------------
John C. Bolger, Director
March 1, 1997 /s/ WILLIAM A. HASLER
-------------------------------------------------------------------
William A. Hasler, Director
March 1, 1997 /s/ DAVID G. MESSERSCHMITT
-------------------------------------------------------------------
David G. Messerschmitt, Ph.D., Director
March 1, 1997 /s/ DANIEL H. MILLER
-------------------------------------------------------------------
Daniel H. Miller, Director
March 1, 1997 /s/ HARVEY E. WAGNER
-------------------------------------------------------------------
Harvey E. Wagner, Director
</TABLE>
33
<PAGE> 35
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
TCSI Corporation
We have audited the accompanying consolidated balance sheets of TCSI
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. Our audits also include the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TCSI
Corporation at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
ERNST & YOUNG LLP
San Francisco, California
January 23, 1997
F-1
<PAGE> 36
TCSI CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $30,880 $16,946
Investments in marketable securities................................... 14,352 5,081
Receivables............................................................ 12,522 16,500
Other receivables...................................................... 2,042 361
Deferred income taxes.................................................. 2,178 1,913
Other current assets................................................... 2,308 2,707
------- -------
Total current assets........................................... 64,282 43,508
Furniture, equipment, and leasehold improvements, net.................... 9,234 5,134
Non-current investments in marketable securities......................... 7,375 --
Non-current deferred income taxes........................................ 5,000 429
Other non-current assets................................................. 1,284 439
------- -------
Total assets................................................... $87,175 $49,510
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accruals.................................... $ 7,263 $ 4,005
Accrued compensation and related costs................................. 4,705 4,823
Income taxes........................................................... 1,597 3,306
------- -------
Total current liabilities...................................... 13,565 12,134
------- -------
Commitments (Note 8)
Shareholders' equity:
Preferred shares, $0.01 par value; 5,000 shares authorized; none
outstanding......................................................... -- --
Common shares, $0.10 par value; 75,000 shares authorized; 21,219 shares
issued and outstanding -- 1996 (18,602 - 1995)...................... 2,122 1,860
Additional paid-in capital............................................. 45,939 10,261
Retained earnings...................................................... 25,549 25,255
------- -------
Total shareholders' equity..................................... 73,610 37,376
------- -------
Total liabilities and shareholders' equity..................... $87,175 $49,510
======= =======
</TABLE>
See accompanying notes.
F-2
<PAGE> 37
TCSI CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues:
Services.................................................. $42,733 $43,790 $34,872
Software licensing fees................................... 10,230 11,572 5,434
------- ------- -------
Total services and licensing fees................. 52,963 55,362 40,306
Equipment................................................. 7,270 -- --
------- ------- -------
Total revenues.................................... 60,233 55,362 40,306
------- ------- -------
Costs, expenses, and special items:
Services.................................................. 28,773 24,945 17,985
Equipment................................................. 6,810 -- --
Product development....................................... 6,642 -- --
Selling, general, and administrative...................... 25,010 19,498 14,556
Non-recurring special items, net.......................... (4,587) -- --
------- ------- -------
Total costs, expenses, and special items.......... 62,648 44,443 32,541
------- ------- -------
Income (loss) from operations............................... (2,415) 10,919 7,765
Gain on sale of investment in common stock.................. 585 -- --
Interest income............................................. 2,276 982 591
------- ------- -------
Income before income taxes.................................. 446 11,901 8,356
Provision for income taxes.................................. 152 3,831 2,926
------- ------- -------
Net income.................................................. $ 294 $ 8,070 $ 5,430
======= ======= =======
Earnings per share (EPS).................................... $ 0.01 $ 0.42 $ 0.30
======= ======= =======
Shares used in calculation of EPS........................... 21,542 19,224 18,216
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 38
TCSI CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON SHARES
------------------ ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993.................. 17,588 $1,759 $ 4,365 $ 11,755 $17,879
Net income................................... -- -- -- 5,430 5,430
Proceeds from exercise of options............ 350 35 1,182 -- 1,217
Tax benefits from exercise of options........ -- -- 348 -- 348
Repurchase of common shares.................. (242) (24) (1,058) -- (1,082)
------ ------ ------- ------- -------
Balances at December 31, 1994.................. 17,696 1,770 4,837 17,185 23,792
Net income................................... -- -- -- 8,070 8,070
Proceeds from exercise of options............ 996 99 3,979 -- 4,078
Tax benefits from exercise of options........ -- -- 2,096 -- 2,096
Repurchase of common shares.................. (90) (9) (651) -- (660)
------ ------ ------- ------- -------
Balances at December 31, 1995.................. 18,602 1,860 10,261 25,255 37,376
Net income................................... -- -- -- 294 294
Proceeds from exercise of options............ 1,117 112 3,586 -- 3,698
Tax benefits from exercise of options........ -- -- 2,570 -- 2,570
Deferred tax benefits from exercise of
options................................... -- -- 3,827 -- 3,827
Issuance of common shares, net of offering
costs -- March 1996....................... 1,500 150 25,695 -- 25,845
------ ------ ------- ------- -------
Balances at December 31, 1996.................. 21,219 $2,122 $ 45,939 $ 25,549 $73,610
====== ====== ======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 39
TCSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................... $ 294 $ 8,070 $ 5,430
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 4,240 1,682 687
Deferred income taxes................................... (157) (385) 224
Provision for doubtful accounts......................... -- 250 --
Changes in:
Receivables........................................... 3,978 (9,540) (2,291)
Other current assets.................................. 497 (2,279) (172)
Accounts payable and other accruals................... 687 820 1,124
Accrued compensation and related costs................ (118) 1,127 1,165
Income taxes.......................................... (2,561) (80) (1,730)
------- ------- --------
Net cash provided by (used in) operating
activities....................................... 6,860 (335) 4,437
------- ------- --------
INVESTMENT ACTIVITIES
Capital expenditures......................................... (7,548) (5,373) (1,064)
Purchase of marketable securities............................ (35,907) (3,743) (18,806)
Maturity and sale of marketable securities................... 19,261 17,194 14,433
Decrease (increase) in other non-current assets.............. (845) 9 (15)
------- ------- --------
Net cash provided by (used in) investing
activities....................................... (25,039) 8,087 (5,452)
------- ------- --------
FINANCING ACTIVITIES
Issuance of common shares.................................... 25,845 -- --
Proceeds from exercise of options............................ 3,698 4,078 1,217
Tax benefits from exercise of options........................ 2,570 2,096 348
Repurchase of common shares.................................. -- (660) (1,082)
------- ------- --------
Net cash provided by financing activities.......... 32,113 5,514 483
------- ------- --------
Net increase (decrease) in cash and cash equivalents......... 13,934 13,266 (532)
Cash and cash equivalents at beginning of year............... 16,946 3,680 4,212
------- ------- --------
Cash and cash equivalents at end of year..................... $30,880 $16,946 $ 3,680
======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for income taxes................................. $ 353 $ 2,200 $ 4,084
======= ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 40
TCSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
TCSI Corporation provides integrated software products and services for the
global telecommunications industry.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and a wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
Revenues
The Company provides its software to customers under contracts which
generally include both software licensing fees and systems solutions services.
Revenue for services is generally recognized on a percentage-of-completion basis
as work is performed. Differences between invoiced amounts and revenue
recognized are reflected as unbilled receivables. The Company recognizes revenue
from software licensing fees only after delivery and installation of software
products and if there are no remaining significant post-installation
obligations. The Company recognizes revenues from software licensing fees with
significant post-delivery obligations associated with the related services
contract on a percentage of completion basis. The Company's revenue recognition
policy is in accordance with the provisions of the American Institute of
Certified Public Accountant's Statement of Position 91-1, "Software Revenue
Recognition".
Stock Based Compensation
During 1996, the Company implemented the Provisions of Financial Accounting
Standards Board (FASB) Statement No. 123, "Accounting for Stock-Based
Compensation". The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees", and,
accordingly, recognizes no compensation expense for the stock option grants.
Common Shares
In April 1996, the Board increased the authorized common shares from 37.5
million to 75.0 million and changed the par value from $0.0067 to $0.15 per
share. In May 1996, the Board approved a three-for-two stock split of the
Company's common shares and concurrently the par value was changed from $0.15 to
$0.10 per share. All share and per share information has been adjusted to
reflect these matters.
Per Share Information
Earnings per share is computed using the weighted average number of shares
outstanding and dilutive common stock equivalents from the Company's stock
option plans, calculated using the treasury stock method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-6
<PAGE> 41
TCSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
The Company accounts for its marketable securities under Statement of FASB
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Management determines the appropriate classification of investments
and debt securities at the time of purchase and reevaluates such designation as
of each balance sheet date. Investments are classified as held-to-maturity when
the Company has the intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost. Investments not
classified as such are classified as available-for-sale. Available-for-sale
securities are stated at fair value, with the unrealized gains and losses, net
of tax, included in shareholders' equity. Realized and unrealized gains and
losses from investments have been insignificant to the results of operations and
financial position of the Company. Total cash and cash equivalents and
investments in marketable securities at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cash in banks.................................................... $ 5,827 $ 2,466
Held-to-maturity securities:
Obligations of states and political subdivisions............... 6,800 15,800
Debt securities of U.S. companies.............................. 14,483 2,748
U.S. Treasury securities and obligations of U.S. government
agencies.................................................... 2,000 1,013
------- -------
23,283 22,027
------- -------
Available-for-sale securities:
Obligations of states and political subdivisions............... 1,900 --
Debt securities of U.S. companies.............................. 18,121 --
U.S. Treasury securities and obligations of U.S. government
agencies.................................................... 3,476 --
------- -------
23,497 --
------- -------
$52,607 $22,027
======= =======
</TABLE>
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company's cash
flows relating to the purchases and maturities of its marketable securities for
the years ended December 31 are:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Purchase of marketable securities:
Investments held-to-maturity........................ $18,795 $ 3,743 $18,806
Investments available-for-sale...................... 17,112 -- --
------- ------- -------
$35,907 $ 3,743 $18,806
======= ======= =======
Maturity and sale of marketable securities:
Investments held-to-maturity........................ $10,540 $17,194 $14,433
Investments available-for-sale:
Maturities....................................... 1,950 -- --
Sales............................................ 6,771 -- --
------- ------- -------
$19,261 $17,194 $14,433
======= ======= =======
</TABLE>
F-7
<PAGE> 42
TCSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. RECEIVABLES AND CREDIT RISK
Receivable balances are primarily from large, credit-worthy customers in
the telecommunications industry and are unsecured. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
Reserves are maintained for potential credit losses.
Receivables at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Billed receivables............................................... $10,433 $ 7,832
Unbilled receivables............................................. 2,489 9,068
Reserve for doubtful accounts.................................... (400) (400)
------- -------
$12,522 $16,500
======= =======
</TABLE>
4. MAJOR CUSTOMERS AND REVENUES BY GEOGRAPHIC AREA
For the year ended December 31, 1996, the Company had two customers that
each represented 16 percent of revenues (1995-one customer, representing 14
percent of revenues; 1994-two customers, representing 14 percent and 10 percent
of revenues). No other customers represented more than 10 percent of revenues in
these periods.
Revenues for the years ended December 31 were derived from customers based
in the following geographic areas:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
North America......................................... $36,032 $37,724 $21,391
Asia and Pacific Rim.................................. 17,206 12,389 13,458
Europe................................................ 6,995 5,249 5,457
------- ------- -------
$60,233 $55,362 $40,306
======= ======= =======
</TABLE>
5. FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Furniture, equipment, and leasehold improvements are stated at cost.
Depreciation is provided for furniture and equipment in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated service
lives of five years and three years, respectively, utilizing the straight-line
method. Amortization is provided for leasehold improvements in amounts
sufficient to relate the cost over the shorter of the term of the related office
lease or ten years utilizing the straight-line method. Furniture, equipment, and
leasehold improvement balances at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Computer and office equipment................................... $ 12,856 $11,094
Furniture and fixtures.......................................... 3,307 2,350
Leasehold improvements.......................................... 4,194 1,442
-------- -------
20,357 14,886
Less accumulated depreciated and amortization................... (11,123) (9,752)
-------- -------
$ 9,234 $ 5,134
======== =======
</TABLE>
F-8
<PAGE> 43
TCSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Leasehold improvements were reduced by $1,400 as a result of allowances due
from the Company's landlords. In addition, this balance contains $2,200 for
accrued expenditures that were not yet paid as of December 31, 1996. These
amounts are non-cash transactions and, accordingly, are not included in the
Company's Consolidated Statement of Cash Flows.
6. EMPLOYEE PROFIT SHARING/401(K) PLAN AND STOCK OPTION PLANS
Profit Sharing/401(k)
Eligible employees can contribute amounts to the Company's Profit
Sharing/401(k) Plan (the Plan) via payroll withholding subject to certain
limitations. The Company matches contributions by plan participants based upon a
percentage of the participant's contribution determined by the Board of
Directors for each plan year. Total charges to income under the Plan in 1996
were $637 (1995 -- $616; 1994 -- $451).
Equity Sharing Plan
The Equity Sharing Plan (Equity Plan) authorizes up to 2.6 million common
shares for the granting of options to employees and consultants. The Equity Plan
provides for issuance of incentive options at an exercise price of not less than
100 percent of fair value at the time of grant. As provided by the Equity Plan,
all ungranted options expired March 1, 1996, accordingly, no shares are
available for grant at December 31, 1996.
Information regarding the Equity Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE OPTION SHARES
-------------- -------------
<S> <C> <C>
Outstanding at December 31, 1993.......................... $ 3.79 2,199,000
Granted................................................. 3.98 123,000
Exercised............................................... 3.57 (339,000)
Options canceled and available for re-grant............. 2.51 (132,000)
---------
Outstanding at December 31, 1994.......................... 3.91 1,851,000
Granted................................................. 8.51 30,000
Exercised............................................... 4.87 (712,000)
Options canceled and available for re-grant............. 3.99 (110,000)
---------
Outstanding at December 31, 1995.......................... 3.34 1,059,000
Granted................................................. 13.06 134,000
Exercised............................................... 3.78 (588,000)
Options canceled and available for re-grant............. 6.18 (77,000)
---------
Outstanding at December 31, 1996.......................... $ 5.05 528,000
=========
Exercisable at December 31, 1996.......................... $ 2.43 381,000
=========
</TABLE>
F-9
<PAGE> 44
TCSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average grant date fair value of options granted during 1996
and 1995 was $13.86 and $5.57 per share, respectively.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS
WEIGHTED EXERCISABLE
AVERAGE ------------------------
REMAINING WEIGHTED WEIGHTED
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE PRICES NUMBER LIFE (YEARS) EXERCISE PRICE NUMBER EXERCISE PRICE
- ----------------------------------------- ------- ------------ -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$ 2.17 - 5.00........................... 401,000 1.2 $ 2.50 381,000 $ 2.43
5.01 - 10.00........................... 2,000 5.1 9.97 -- --
10.01 - 15.00........................... 112,000 5.2 12.22 -- --
15.01 - 20.67........................... 13,000 5.2 20.02 -- --
------- -------
528,000 381,000
======= =======
</TABLE>
1991 Stock Incentive Plan
The 1991 Stock Incentive Plan (Stock Plan) authorizes up to 3.0 million
common shares for the granting of options or restricted shares to employees,
directors, and consultants. The Stock Plan provides for issuance of incentive
options at an exercise price per share of not less than 100 percent of fair
value at the time of the grant. The Stock Plan also provides for issuance of
nonstatutory options and restricted stock awards at any price as determined by
the 1991 Stock Incentive Plan Committee. Options granted under the Stock Plan
generally have a term of up to six years from the date of the grant and are
exercisable to the extent vested. The option term and vesting schedule is
established by the 1991 Stock Incentive Plan Committee at the date of grant. No
grants of restricted stock have been issued under the Stock Plan.
In 1996, the Company's shareholders approved an amendment to the Stock Plan
which increased the number of common shares reserved for option grants to 7.5
million. Beginning January 1, 1997, the number of options eligible to be granted
under the Stock Plan automatically increases by 0.75 million each year.
Information regarding the 1991 Stock Incentive Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE OPTION SHARES
-------------- -------------
<S> <C> <C>
Outstanding at December 31, 1993.......................... $ 2.48 761,000
Granted................................................. 4.16 959,000
Exercised............................................... 2.25 (11,000)
Options canceled and available for re-grant............. 3.09 (21,000)
---------
Outstanding at December 31, 1994.......................... 3.46 1,688,000
Granted................................................. 8.35 1,226,000
Exercised............................................... 2.85 (284,000)
Options canceled and available for re-grant............. 4.98 (188,000)
---------
Outstanding at December 31, 1995.......................... 5.73 2,442,000
Granted................................................. 16.47 970,000
Exercised............................................... 3.48 (529,000)
Options canceled and available for re-grant............. 10.06 (439,000)
---------
Outstanding at December 31, 1996.......................... $ 9.61 2,444,000
=========
Exercisable at December 31, 1996.......................... $ 4.92 778,000
=========
Options available for grant at December 31, 1996.......... 4,227,000
=========
</TABLE>
F-10
<PAGE> 45
TCSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average grant date fair value of options granted during 1996
and 1995 was $11.14 and $5.63 per share, respectively.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ------------------------
REMAINING WEIGHTED WEIGHTED
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE PRICE NUMBER LIFE (YEARS) EXERCISE PRICE NUMBER EXERCISE PRICE
- --------------------------------------- --------- ------------ -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.77 - 5.00......................... 645,000 2.0 $ 3.27 484,000 $ 3.15
5.01 - 10.00......................... 993,000 4.3 7.99 284,000 7.74
10.01 - 15.00......................... 332,000 5.0 11.42 10,000 11.05
15.01 - 19.55......................... 474,000 5.6 20.36 -- --
--------- -------
2,444,000 778,000
========= =======
</TABLE>
1994 Outside Directors Stock Option Plan
In 1995, the Company's shareholders approved the 1994 Outside Directors
Stock Option Plan (Directors Plan) which authorizes up to 300,000 common shares
for options to non-employee directors. Each eligible director is granted options
to purchase approximately 30,000 shares upon appointment or election to the
Board of Directors. Each year, current directors are granted options to purchase
an additional six thousand shares. Options vest monthly over a three-year
period. At December 31, 1996, the weighted average contractual life of options
outstanding is 3.7 years.
Information regarding the Director's Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE OPTION SHARES
-------------- -------------
<S> <C> <C>
Outstanding at December 31, 1993............................ $ -- --
Granted................................................... 6.40 56,000
-------
Outstanding at December 31, 1994............................ 6.40 56,000
Granted................................................... 10.75 30,000
-------
Outstanding at December 31, 1995............................ 7.93 86,000
Granted................................................... 8.75 30,000
-------
Outstanding at December 31, 1996............................ $ 8.14 116,000
=======
Exercisable at December 31, 1996............................ $ 7.19 45,000
=======
</TABLE>
The weighted average grant date fair value of options granted during 1996
and 1995 was $5.40 and $6.92 per share, respectively.
Stock-Based Compensation and Pro-forma Information
Under provisions of FASB No. 123, the Company is required to disclose the
fair value, as defined, of options granted to employees and related compensation
expense. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions used for both 1996 and 1995: risk-free interest rate of 6.6 percent;
no dividend yield; volatility factors of the expected market price of the
Company's common stock of 0.978; and a weighted-average expected life of the
option of 4 years.
F-11
<PAGE> 46
TCSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The Company is also required to present pro-forma information as if
provisions of FASB Statement No. 123 had been implemented as of January 1, 1995.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The effect of
adjustments made to obtain pro-forma income (loss) and earnings (loss) per share
is not expected to be indicative of the effect on future periods' pro-forma
results. The Company's pro forma information for the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Pro-forma:
Net income (loss)............................................... $(2,968) $7,019
======= ======
Earnings (loss) per share....................................... $ (0.14) $ 0.38
======= ======
</TABLE>
Employee Stock Purchase Plan
In December 1996, the Company's Board of Directors (Board) approved the
Employee Stock Purchase Plan (Purchase Plan) under section 423 of the Internal
Revenue Code and reserved 500,000 shares of Company common stock for issuance
under this plan. The number of shares available under the Purchase Plan will
increase annually by the lesser of 100,000 shares, one percent of the Company's
outstanding shares, or an amount determined by the Board. All employees, as
defined by the Purchase Plan, may contribute up to 15 percent of their
compensation to purchase shares of the Company's common stock at the lesser of
85 percent of the fair market value at the beginning or end of each six month
offering period. The offering periods commence each February and August. No
shares of common stock have been issued under the Purchase Plan, which is
subject to approval by the Company's shareholders in May 1997.
Option Repricing
In January 1997, the Company's Board of Directors approved the repricing of
1.1 million options granted under the 1991 Stock Incentive Plan. Employees were
given the opportunity to exchange their current options for new options with an
exercise price of $6.63 per share (fair value of the related common shares as of
January 28, 1997). These options generally vest 50 percent in January 1998 and
25 percent each in January 1999 and January 2000.
F-12
<PAGE> 47
TCSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets as of December 31 are as follows using the
liability method:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Current deferred tax assets:
Revenue differences related to timing............................ $1,212 $ 879
Other accrued items.............................................. 966 1,034
------ ------
Net current deferred tax asset..................................... 2,178 1,913
Benefit of operating loss carry forward relating to stock option
exercises........................................................ 3,827 --
Benefit of credit carry forward.................................... 852 --
Depreciation....................................................... 321 429
------ ------
Net deferred tax asset............................................. $7,178 $2,342
====== ======
</TABLE>
The current and deferred tax provisions for the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ------ ------
<S> <C> <C> <C>
Current:
Federal................................................. $(640) $2,759 $1,944
State................................................... 97 1,019 385
Foreign................................................. 852 438 373
----- ------ ------
309 4,216 2,702
----- ------ ------
Deferred:
Federal................................................. (136) (336) 170
State................................................... (21) (49) 54
----- ------ ------
(157) (385) 224
----- ------ ------
$ 152 $3,831 $2,926
===== ====== ======
</TABLE>
Deferred income tax asset balances also increased in 1996 as a result of
deferred taxes related to stock option exercises. These amounts are not
reflected in the deferred provisions as they are charged directly to additional
paid-in capital.
The provision for income taxes differed from the amount computed by
applying the statutory federal income tax rate for the years ended December 31
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate.......................................... 34% 34% 34%
State taxes, net of federal..................................... 5 5 6
Tax exempt interest............................................. (10) (2) (4)
Other items..................................................... 5 (5) (1)
-- --
---
Income tax provision............................................ 34% 32% 35%
=== == ==
</TABLE>
At December 31, 1996, the Company had a net operating loss carry forward
for federal income tax purposes of approximately $15,000 and a foreign tax
credit carry forward of approximately $850 which expire in the years 2011 and
2001, respectively.
F-13
<PAGE> 48
TCSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, the Company had approximately $7.2 million of
deferred tax assets. Included in this balance is approximately $3.8 million
associated with stock options. In the event these stock option related deferred
assets are not entirely realized, the unrealized balance would be reversed to
shareholders' equity. Realization of the remaining deferred tax assets is
dependent upon the Company generating sufficient taxable income in future years
to obtain the benefit from the reversal of temporary differences and from tax
credit carry forwards.
8. COMMITMENTS
The Company is obligated under operating lease agreements for its
facilities with noncancelable lease terms in excess of one year. Certain of
these leases contain renewal options and require that the Company pay for taxes,
insurance, and maintenance expenses. Rent expense on these leases during the
year ended December 31, 1996 was $2,270 (1995 -- $1,591; 1994 -- $1,167). Future
minimum lease payments on noncancelable operating leases for the years ended
December 31 are as follows:
<TABLE>
<S> <C>
1997............................................................... $ 2,712
1998............................................................... 2,682
1999............................................................... 2,589
2000............................................................... 1,953
2001 and beyond.................................................... 6,472
-------
$16,408
=======
</TABLE>
9. LEGAL PROCEEDINGS
In late 1996, two class action lawsuits on behalf of certain shareholders
were filed against the Company and various of its officers and directors. The
suits allege violations of state securities laws during 1995 and 1996.
Management believes that the claims contained in the suits are without merit and
intends to vigorously defend against them. In the opinion of management,
resolution of this litigation is not expected to have a material adverse effect
on the financial position of the Company. However, depending on the amount and
timing, an unfavorable resolution of this matter could materially affect the
Company's future results of operations or cash flows in a particular period.
10. NON-RECURRING SPECIAL ITEMS
In 1994, the Company entered into a development agreement to deploy a
solution for a transportation customer. This deployment included equipment
purchased on behalf of the customer. Such equipment revenues, and related costs,
were included in the operating results for the first half of 1996. Revenue from
services related to this agreement were approximately $2,500, $3,500, and $500
for 1996, 1995, and 1994, respectively.
On October 10, 1996, the Company and the customer terminated this
agreement. The Company recorded a charge in the third quarter of 1996 of
approximately $3,334 to cover the costs related to the termination of this
agreement. The customer paid the Company approximately $5,300 to terminate the
agreement. Additionally, the Company has $1,500 of equipment held for sale
related to this agreement which is included in other current assets at December
31, 1996. Management believes the equipment is stated at its net realizable
value. The Company is actively pursuing sale of this equipment.
In November 1996, the Company licensed its wireless technology to Atmel
Corporation (Atmel) for 335,000 shares of Atmel common stock. The fair value of
the common stock on the transaction date was $29.90 per share. The Company has
recorded a gain on this licensing agreement, net of transaction costs and
project commitments, totaling $7,921.
F-14
<PAGE> 49
TCSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1996, the Company sold the Atmel stock at a price of $32.42 per
share which resulted in the Company recording a gain on the sale of its
investment in common stock totaling $600. Revenue from services and software
licensing fees related to wireless products employing this technology amounted
to approximately $7,400, $11,600 and $11,700 for 1996, 1995, and 1994
respectively.
11. UNAUDITED QUARTERLY FINANCIAL DATA
Selected unaudited quarterly financial data for 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
1996 QUARTER ENDED
-------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Services........................................ $12,583 $ 12,962 $ 8,835 $ 8,353
Software licensing fees......................... 3,116 4,438 950 1,726
------- ------- -------- --------
Total services and licensing fees................. 15,699 17,400 9,785 10,079
Equipment....................................... 2,839 4,431 -- --
------- ------- -------- --------
Total revenues.......................... 18,538 21,831 9,785 10,079
------- ------- -------- --------
Costs, expenses, and special items:
Services........................................ 6,128 6,824 8,666 7,155
Equipment....................................... 2,654 4,156 -- --
Product development............................. 1,004 1,487 2,078 2,073
Selling, general, and administrative............ 5,283 5,899 5,993 7,835
Non-recurring special items, net................ -- -- 3,334 (7,921)
------- ------- -------- --------
Total costs, expenses, and special
items................................. 15,069 18,366 20,071 9,142
------- ------- -------- --------
Income (loss) from operations..................... 3,469 3,465 (10,286) 937
Gain on sale of investment in common stock........ -- -- -- 585
Interest income................................... 282 664 719 611
------- ------- -------- --------
Income (loss) before income taxes................. 3,751 4,129 (9,567) 2,133
Provision for (benefit from) income taxes......... 1,200 1,321 (3,061) 692
------- ------- -------- --------
Net income (loss)................................. $ 2,551 $ 2,808 $ (6,506) $ 1,441
======= ======= ======== ========
Earnings (loss) per share (EPS)................... $ 0.13 $ 0.13 $ (0.31) $ 0.07
======= ======= ======== ========
Shares used in calculation of EPS................. 20,348 22,191 21,027 21,736
======= ======= ======== ========
</TABLE>
F-15
<PAGE> 50
TCSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 QUARTER ENDED
-------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues
Services........................................ $10,446 $ 10,026 $ 11,813 $ 11,505
Software licensing fees......................... 2,266 3,345 2,267 3,694
------- ------- -------- --------
Total revenues.......................... 12,712 13,371 14,080 15,199
------- ------- -------- --------
Costs and expenses:
Services........................................ 5,992 5,522 6,439 6,992
Selling, general, and administrative............ 4,210 5,232 4,906 5,150
------- ------- -------- --------
Total costs and expenses................ 10,202 10,754 11,345 12,142
------- ------- -------- --------
Income from operations............................ 2,510 2,617 2,735 3,057
Interest income................................... 206 237 269 270
------- ------- -------- --------
Income before income taxes........................ 2,716 2,854 3,004 3,327
Provision for income taxes........................ 952 978 903 998
------- ------- -------- --------
Net income........................................ $ 1,764 $ 1,876 $ 2,101 $ 2,329
======= ======= ======== ========
Earnings per share (EPS).......................... $ 0.09 $ 0.10 $ 0.11 $ 0.12
======= ======= ======== ========
Shares used in calculation of EPS................. 18,827 19,140 19,266 19,661
======= ======= ======== ========
</TABLE>
F-16
<PAGE> 51
TCSI CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCES AT CHARGE TO BALANCES AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------------------------------------------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for uncollectible accounts......... $ 400 $ 1,248 $ (1,248) $ 400
---- ------ ------- ----
$ 400 $ 1,248 $ (1,248) $ 400
==== ====== ======= ====
Year ended December 31, 1995:
Allowance for uncollectible accounts......... $ 150 250 -- $ 400
---- ------ ------- ----
$ 150 250 -- $ 400
==== ====== ======= ====
Year ended December 31, 1994:
Allowance for uncollectible accounts......... $ 150 $ -- -- $ 150
---- ------ ------- ----
$ 150 $ -- -- $ 150
==== ====== ======= ====
</TABLE>
S-1
<PAGE> 52
3060-10K-97
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- -----------
<S> <C>
3.1 Restated Articles of Incorporation of the Company incorporated herein by
reference to Exhibit 3.1 of the Company's Registration Statement No. 33-40872 on
Form S-1 filed on May 29, 1991.
3.2 Certificate of Amendment of the Restated Articles of Incorporation of the
Company, dated December 12, 1994, incorporated herein by reference to Exhibit
3.2 of Form 10-K filed March 9, 1995.
3.3 Amended By-laws of the Company incorporated herein by reference to Exhibit 3.2
of the Company's Registration Statement No. 33-40872 on Form S-1 filed on May
29, 1991.
10.1# Teknekron Communications Systems, Inc. 1991 Stock Incentive Plan as amended
February 28, 1992, incorporated herein by reference to Exhibit 4 of the
Company's Registration Statement No. 33-57540 on Form S-8 filed on January 28,
1993.
10.2# Amendment to Teknekron Communications Systems, Inc. 1991 Stock Incentive Plan,
dated March 3, 1995, changing the name of the plan to TCSI Corporation 1991
Stock Incentive Plan, incorporated herein by reference to Exhibit 10.2 of Form
10-K filed March 9, 1995.
10.3# Amendments to TCSI Corporation 1991 Stock Incentive Plan, dated December 8, 1995
and March 1, 1996, incorporated herein by reference to Exhibit 10.3 of Form 10-K
filed March 25, 1996.
10.4 Teknekron Communications Systems, Inc. Equity Sharing Plan restated as of May
17, 1991, incorporated herein by reference to Exhibit 4 of the Company's
Registration Statement No. 33-41808 on Form S-8 filed on July 19, 1991.
10.5 Amendment One to Teknekron Communications Systems, Inc. Equity Sharing Plan
dated January 4, 1993 incorporated herein by reference to Exhibit 10.4 of Form
10-K filed March 26, 1993.
10.6 Amendment to Teknekron Communications Systems, Inc. Equity Sharing Plan, dated
March 3, 1995, changing the name of the plan to TCSI Corporation Equity Sharing
Plan, incorporated herein by reference to Exhibit 10.5 of Form 10-K filed March
9, 1995.
10.7 Lease between Dwight Way Associates and the Company, dated January 17, 1990,
concerning the lease of the Company's facilities at 2201 Dwight Way, Berkeley,
California, incorporated herein by reference to Exhibit 10.6 of the Company's
Registration Statement No. 33-40872 on Form S-1 filed on May 29, 1991.
10.8 Amendment to lease between Dwight Way Associates and the Company, dated February
23, 1995, extending the original lease dated January 17, 1990, incorporated
herein by reference to Exhibit 10.10 of Form 10-K filed March 25, 1996.
10.9 Form of Indemnity Agreement between the Company and each of its directors and
officers incorporated herein by reference to Exhibit 10.8 of the Company's
Registration Statement No. 33-40872 on Form S-1 filed on May 29, 1991.
10.10 Form of specimen, TCSI Corporation Equity Sharing Plan Non-Qualified Notice of
Grant of Stock Options and Grant Agreement and Annex I (attached thereto), dated
March 3, 1995, incorporated herein by reference to Exhibit 10.10 of Form 10-K
filed March 9, 1995.
10.11 Form of specimen, Teknekron Communications Systems, Inc. Equity Sharing Plan
Amended Option Agreement, dated as of January 4, 1993, incorporated herein by
reference to Exhibit 10.14 of Form 10-K filed March 26, 1993.
</TABLE>
- ---------------
* Filed herewith.
# Plans in which executive officers participate.
<PAGE> 54
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- -----------
<S> <C>
10.12# Form of specimen, TCSI Corporation 1991 Stock Incentive Plan Notice of Grant of
Stock Options and Grant Agreement and Annex I (attached thereto), dated March 3,
1995, incorporated herein by reference to Exhibit 10.12 of Form 10-K filed March
9, 1995.
10.13#* Form of specimen, amendment to TCSI Corporation 1991 Stock Incentive Plan, dated
December 6, 1996, changing eligible participants, repricing and transferability
of options, and approval of material amendments.
10.14 Lease between Mitsubishi Estate Housing Co. and the Company dated December 27,
1993, concerning lease of the Company's facilities at 15-1, Jinnan 1-Chome,
Shibuya-ku, Tokyo, Japan, incorporated by reference to Exhibit 10.12 of Form
10-K filed March 28, 1994.
10.15 Description of ongoing Incentive Bonus Program and form of standard letter
agreement entered into between the Company and Ram A. Banin, Ph.D., incorporated
herein by reference to Exhibit 10.2 of Form 10-K filed March 9, 1995.
10.16 Lease between Browning-Ferris Industries of California, Inc. and the Company,
dated December 16, 1994, concerning the lease of the Company's facilities
located at 150 Almaden Blvd., Suite 850, San Jose, California, incorporated
herein by reference to Exhibit 10.15 of Form 10-K filed March 9, 1995.
10.17 Lease between Browning-Ferris Industries of California, Inc. and the Company,
dated December 16, 1994, concerning the lease of the Company's facilities
located at 150 Almaden Blvd., Suite 800 and 900, San Jose, California,
incorporated herein by reference to Exhibit 10.16 of Form 10-K filed March 9,
1995.
10.18 Lease between JMB/San Jose Associates and the Company, dated January 31, 1996,
concerning lease of the Company's facilities located at 150 Almaden Blvd., Fifth
Floor, San Jose, California, incorporated herein by reference to Exhibit 10.21
of Form 10-K filed March 25, 1996.
10.19 TCSI 1994 Board of Directors Option Plan, dated as of December 2, 1994,
incorporated herein by reference to Exhibit 4 of the Company's Registration
Statement No. 33-98842 on Form S-8 filed on October 27, 1995.
10.20* Amendment to TCSI 1994 Board of Directors Option Agreement, dated December 6,
1996, changing eligibility of outside directors to receive equity securities
under an employee benefit plan, transferability of options, and approval of
material amendments.
10.21 Form of specimen, TCSI 1994 Board of Directors Option Agreement, dated as of
December 2, 1994, incorporated herein by reference to Exhibit 10.18 of Form 10-K
filed March 9, 1995.
10.22 Lease between Birmingham Realty Company and the Company, dated May 15, 1995,
concerning the lease of the Company's facilities located at One Perimeter Park
South, Fourth Floor North, Birmingham, Alabama, incorporated herein by reference
to Exhibit 10.24 of Form 10-K filed March 25, 1996.
10.23* Lease between Cow Holdings Limited and the Company, dated July 25, 1996,
concerning lease of Company's facilities located at 8605 Westwood Center Dr.,
Vienna, Virginia.
10.24* Sublease between Computer Associates International, Inc. and the Company, dated
July 12, 1996, concerning the lease of Company's facilities located at 1080
Marina Village Parkway, Alameda, California.
10.25* Lease between Tricoho, Ltd. and the Company, dated July 22, 1996, concerning
lease of Company's facilities located at 15851 Dallas Parkway, Suite 367,
Dallas, Texas.
</TABLE>
- ---------------
* Filed herewith.
# Plans in which executive officers participate.
<PAGE> 55
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- -----------
<S> <C>
10.26* Form of specimen, TCSI Employee Stock Purchase Plan, dated January 19, 1997.
11.1* Statement regarding computation of earnings per share.
23.1* Consent of Independent Auditors.
</TABLE>
- ---------------
* Filed herewith.
# Plans in which executive officers participate.
<PAGE> 1
EXHIBIT 10.13
AMENDMENT TO TCSI CORPORATION
1991 STOCK INCENTIVE PLAN
(December 6, 1996)
WHEREAS, Section 5.3 of the 1991 Stock Incentive Plan, as amended (the
"Plan"), permits amendment of the Plan by the Board of Directors of TCSI
Corporation (the "Company");
WHEREAS, the following amendments to the Plan will become effective
upon approval by the shareholders of the Company:
NOW, THEREFORE, the Plan is amended to read as set forth below:
1. Article I, Section I.2(f) of the Plan is amended to read as follows:
"(f) "Committee" shall mean a committee designated by the
Board of Directors to administer the plan. The committee shall consist
of at least two (2) Outside Directors appointed by the Board to
administer the Plan.
2. Article I, Section I.2(n) of the Plan is amended to read as follows:
"(n) "Participant" shall mean an employee or Director of or
consultant to the Company or any future subsidiary of the Company who
is eligible to participate in the Plan and to whom an Award is granted
pursuant to the Plan, and, upon such employee's, Director, or
consultant's death, his or her successors, heirs, executors and
administrators, as the case may be.
3. Article I, Section I.2(q) of the Plan is amended to read as follows:
"(q) "Retirement" shall mean retirement from active employment
with the Company and its subsidiaries on or after the normal retirement
date specified in the Company's retirement plan for salaried employees
or such earlier retirement date as approved by the Committee for
purposes of this Plan or, in the case of consultant or Director
Participants, such date as may be approved by the Committee for
purposes of this Plan."
4. Article I, Section I.2(s) of the Plan is amended to read as follows:
"(s) "Termination of Employment" shall mean the discontinuance
of employment or retention as a consultant or Director of a Participant
for any reason by the Company or any future subsidiary of the Company."
5. Article I, Section I.5(a) of the Plan is amended by adding the
following new section:
"(ix) reduce the exercise price of any option to the then
current fair market value if the current fair market value of the
common stock covered by such option shall have declined since the date
the option was granted."
6. Article V, Section V.3(a)(iv) is deleted.
<PAGE> 1
EXHIBIT 10.20
AMENDMENT TO TCSI CORPORATION
1994 OUTSIDE DIRECTORS STOCK OPTION PLAN
(December 6, 1996)
WHEREAS, Section 7 of the 1994 Outside Directors Stock Option Plan
permits amendment of the Plan by the Board of Directors of TCSI Corporation (the
"Company");
WHEREAS, the following amendments to the Plan will become effective
upon approval by the shareholders of the Company:
NOW, THEREFORE, the Plan is amended to read as set forth below:
1. Section 1 of the Plan is amended to read as follows:
"The purpose of this Outside Directors Stock Option Plan (the
"Plan") of TCSI Corporation, a Nevada corporation (the
"Company"), is to provide an incentive to each Outside
Director (as hereinafter defined) of the Company to increase
stockholder value by granting to each such Outside Director
options ("Stock Options") to purchase shares of the Company's
common stock, par value $.10 per share ("Common Stock").
2. Section 7 of the Plan is amended to read as follows:
"The Plan may be amended or terminated by the Board in any
respect, at any time. The Board may, at its discretion, seek
shareholder approval of any amendment. No Stock Option granted
hereunder may be altered or canceled, except in accordance
with its terms, without the written consent of the optionee".
3. Section 14 "Non-Transferability of Options" is deleted.
<PAGE> 1
EXHIBIT 10.23
WESTWOOD II AND III
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
1. LEASE OF PREMISES ........................................ 1
2. DEFINITIONS .............................................. 1
3. EXHIBITS AND ADDENDA ..................................... 2
4. DELIVERY OF POSSESSION ................................... 3
5. RENT ..................................................... 3
6. INTEREST AND LATE CHARGES ................................ 4
7. SECURITY DEPOSIT ......................................... 4
8. TENANTS USE OF THE PREMISES .............................. 4
9. SERVICES AND UTILITIES ................................... 5
10. CONDITION OF THE PREMISES ................................ 5
11. CONSTRUCTION, REPAIRS AND MAINTENANCE .................... 5
12. ALTERATIONS AND ADDITIONS ................................ 6
13. LEASEHOLD IMPROVEMENTS; TENANTS PROPERTY ................. 6
14. RULES AND REGULATIONS .................................... 6
15. CERTAIN RIGHTS RESERVED BY LANDLORD ...................... 7
16. ASSIGNMENT AND SUBLETTING ................................ 7
17. HOLDING OVER ............................................. 8
18. SURRENDER OF PREMISES .................................... 8
19. DESTRUCTION OR DAMAGE .................................... 8
20. EMINENT DOMAIN ........................................... 8
21. INDEMNIFICATION .......................................... 9
22. TENANT'S INSURANCE ....................................... 9
23. WAIVER OF SUBROGATION .................................... 9
24. SUBORDINATION AND ATTORNMENT ............................. 9
25. TENANT ESTOPPEL CERTIFICATES ............................. 10
26. TRANSFER OF LANDLORD'S INTEREST .......................... 10
27. DEFAULT .................................................. 10
28. BROKERAGE FEES ........................................... 12
29. NOTICES .................................................. 12
30. GOVERNMENT ENERGY OR UTILITY CONTROLS .................... 12
31. ...................................... 12
32. QUIET ENJOYMENT .......................................... 12
33. OBSERVANCE OF LAW ........................................ 12
34. FORCE MAJEURE ............................................ 12
35. CURING TENANT'S DEFAULTS ................................. 12
36. SIGN CONTROL ............................................. 12
37. HAZARDOUS SUBSTANCES ..................................... 13
38. PARKING .................................................. 13
39. MISCELLANEOUS ............................................ 14
40. TRAFFIC CONTROL .......................................... 15
41. WAIVER OF JURY TRIAL; WAIVER OF COUNTERCLAIMS ............ 15
42. FIRST OPPORTUNITY TO LEASE ADDITIONAL SPACE .............. 15
EXHIBIT "A" ....................................................... 17
EXHIBIT "B" ....................................................... 18
EXHIBIT "C" ....................................................... 19
</TABLE>
Page i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
EXHIBIT "D" ..................................................... 22
EXHIBIT "E" ..................................................... 24
Rider to Lease .................................................. 25
</TABLE>
Page ii
<PAGE> 4
WESTWOOD II & III
This Deed of Lease ("Lease") between COW HOLDINGS LIMITED, a Delaware
corporation ("Landlord"), and TSCI Corporation, a Nevada corporation ("Tenant"),
is dated, for reference purposes only, July 25, 1996.
1. LEASE OF PREMISES
In consideration of the Rent (as defined at Article 5) and the provisions of
this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises shown on the floor plan attached hereto as Exhibit "A", and further
described at Section 2h. The Premises are located within the Building and
Project described in Section 2i. Tenant shall have the non-exclusive right
(unless otherwise provided herein) in common with Landlord, other tenants,
subtenants and invitees, to use of the Common Areas (as defined at Section 2f).
2. DEFINITIONS
As used in this Lease, the following terms shall have the following meanings:
a. Commencement Date: October 1, 1996.
b. Expiration Date: September 30, 2001, unless otherwise sooner
terminated in accordance with the provisions of this Lease.
c. Term: The period commencing on the Commencement Date and
expiring at midnight on the Expiration Date.
d. Total Base Rent: $1,068,949.20.
e. Monthly Installments of Base Rent:
<TABLE>
<CAPTION>
Period Monthly Base Rent
------ -----------------
<S> <C> <C>
October 1, 1996 through and Including September 30, 1997 $16,777.58
October 1, 1997 through and including September 30, 1998 $17,280.91
October 1, 1998 through and including September 30, 1999 $17,803.98
October 1, 1999 through and including September 30, 2000 $18,336.91
October 1, 2000 through and including September 30, 2001 $18,879.72
</TABLE>
f. Common Areas: The Building lobbies, common corridors and hallways, restrooms,
parking areas, stairways, and other generally understood public or common
areas. Landlord shall have the right to regulate or restrict the use of the
Common Areas.
g. Parking: Tenant shall be permitted to park 41 cars on a non-exclusive basis
in the area(s) designated by Landlord from time to time for parking. Parking
space shall be designated by Landlord and shall be free of charge until
September 30, 2001. Thereafter, parking spaces shall be rented on a monthly
basis at the prevailing fee for parking charged in the marketplace, per space
per month, and any parking tax charged in connection therewith, payable as
Rent, in advance, on or before the first day of each calendar month of the
Term.
h. Premises: That portion of the Building containing approximately 11,843 square
feet of Rentable Area, shown on Exhibit "A", located in, and known as
Westwood III, Suite 500.
i. Project: The building of which the Premises are a part (the "Building")
located at 8603-8605 Westwood Center Drive, Vienna, Virginia 22182, and any
other buildings or improvements on the real property (the "Property"),
further depicted on Exhibit "B", and known as Westwood II & III.
j. Rentable Area: As to both the Premises and the Project, the respective
measurements of floor area as may from time to time be subject to lease by
Tenant and all tenants of the
Landlord /s/ JF Tenant /s/ PF
-------- ------
Page 1
<PAGE> 5
Project, respectively, as determined by Landlord and applied on a consistent
basis throughout the Project.
k. Security Deposit: $0.00.
l. Landlord's Mailing Address: Birtcher Property Services, 27611 La Paz Road,
P.O. Box 30009, Laguna Niguel, California 92677, Attn: Asset Manager,
Westwood II & III.
With a copy to the Building Manager:
Birtcher Property Services, 8605 Westwood Center Drive, Suite 206, Vienna,
Virginia 22182.
Tenant's Mailing Address: 8605 Westwood Center Drive, Suite 500, Vienna,
Virginia 22182.
m. State: The Commonwealth of Virginia.
n. Tenant's Proportionate Share: The parties agree that Tenant's initial pro
rata share is 11.30%. Such share is a fraction, the numerator of which is the
Rentable Area of the Premises, and the denominator of which is the Rentable
Area of the Project, as determined by Landlord from time to time. If the area
of the Premises, of the Building or of the Project change, Tenant's
appropriate pro rata share shall be adjusted accordingly.
o. Base Year: The calendar year of 1996.
p. Tenant's Use Clause: Offices for object-oriented software products developer
and provider.
q. Broker(s):
Landlord's: Carey Winston Company
Tenant's: Commercial Group Realty, Inc.
In the event that Carey Winston Company represents both Landlord and Tenant,
Landlord and Tenant hereby confirm that they were timely advised of the dual
representation and that they consent to the same, and that they do not expect
said broker to disclose to either of them the confidential information of the
other party.
3. EXHIBITS AND ADDENDA
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A" - Floor Plan showing the Premises.
b. Exhibit "B" - Site Plan of the Project.
c. Exhibit "C" - Landlord's Work.
d. Exhibit "D" - Rules and Regulations.
e. Exhibit "E" - Base Operating Costs
Landlord /s/ JF Tenant /s/ PF
------ ------
Page 2
<PAGE> 6
4. DELIVERY OF POSSESSION
"Delivery of Possession" shall be deemed to occur on the date Landlord
substantially completes Landlord's Work as defined in Exhibit "C". If for any
reason Landlord does not deliver possession of the Premises to Tenant on the
Commencement Date, Landlord shall not be subject to any liability for such
failure, the Expiration Date shall not change and the validity of this Lease
shall not be impaired. Rent shall be abated until delivery of possession, or
until such time that possession would have been delivered were it not for
Tenant's acts or omissions. If Landlord's failure to deliver possession of the
Premises for reasons other than Tenant's acts or omissions continues more than
one hundred twenty (120) days after the Commencement Date, Tenant shall have the
right, upon written notice to Landlord, to terminate this Lease. If Landlord
permits Tenant to enter into possession of the Premises before the Commencement
Date, such possession shall be subject to the provisions of this Lease,
including, without limitation, the payment of Rent.
5. RENT
5.1 Payment of Base Rent. Tenant agrees to pay the Base Rent for the
Premises. The monthly installments of Base Rent set forth at Section 2e
shall be payable in advance on or before the first day of each calendar
month of the Term. If the Term begins (or ends) on other than the first
(or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis. Tenant shall pay Landlord the
first Monthly Installment of Base Rent when Tenant executes the Lease.
5.2 Project Operating Costs.
a. Tenant agrees to pay Landlord as Rent, Tenant's Proportionate
Share of all costs, expenses and obligations attributable to
the Project and its operating, all as provided below.
b. If, during any calendar year during the Term, Project
Operating Costs, as estimated by Landlord, exceed the Project
Operating Costs for the Base Year, Tenant shall pay to
Landlord, in addition to the Base Rent and all other payments
due under this Lease, an amount equal to Tenant's
Proportionate Share of such excess Project Operating Costs in
accordance with the provisions of this Section 5.2b.
(1) The term "Project Operating Costs" shall include all those
items described in the following subparagraphs (a) and (b).
(a) All taxes, assessments, water and sewer charges and other
similar governmental charges levied on or attributable to the
Building or Project or their operation, including without
limitation, (i) real property taxes or assessments due and
payable against the Building or Project, (ii) assessments or
charges due and payable against the Building or Project by any
redevelopment agency or any front foot benefit charges, (iii)
any tax measured by gross rentals received from the leasing of
the Premises, Building or Project, excluding any net income,
franchise, capital stock, estate or inheritance taxes imposed
by the State or federal government or their agencies, branches
or departments; provided that if at any time during the Term
any governmental entity levies, assesses or imposes on
Landlord any (1) general or special, ad valorem or specific,
excise, capital levy or other tax, assessment, levy or charge
directly on the Rent received under this Lease or on the rent
received under any other leases of space in the Building or
Project, or (2) any license fee, excise or franchise tax,
assessment, levy or charge measured by or based, in whole or
in part, upon such rent, or (3) any transfer, transaction, or
similar tax, assessment, levy or charge based directly or
indirectly upon the transaction represented by this Lease or
such other lease, or (4) any occupancy, use, per capita or
other tax, assessment, levy or charge based directly or
indirectly upon the use or occupancy of the Premises or other
premises within the Building or Project, then any such taxes,
assessments, levies and charges shall be deemed to be included
in the term Project Operating Costs. Project Operating Costs
shall also include all costs incurred by Landlord in
protesting the amount of real property taxes or assessments
levied against the Building or Project, including without
limitation, reasonable attorney's fees, so long as there is a
reasonable expectation that the protesting of real property
taxes or assessments will result in a reduction of amount of
the real property taxes or assessments.
(b) Operating costs incurred by Landlord in maintaining and
operating the Building and Project, including without
limitation the following: costs of (1) utilities; (2)
supplies; (3) insurance (including public liability, property
damage, earthquake, and fire and extended coverage insurance)
for the full replacement cost of the Building and Project as
required by Landlord or its lenders for the Project; (4)
services of independent contractors; (5) compensation
(including employment taxes and fringe benefits) of all
persons who perform duties connected with the operation,
maintenance, repair of overhaul of the Building or Project,
and equipment, improvements and facilities located
within the Project, including without limitation engineers,
janitors, painters, floor waxers, window washers, security and
parking personnel and gardeners (but excluding persons
performing services not uniformly available to or performed
for substantially all Building or Project tenants); (6)
operation and maintenance of a room for delivery and
distribution of mail to tenants of the Building or Project as
required by the U.S. Postal Service (including, without
limitation, an amount equal to the fair market rental value of
the mail room premises); (7) management of the Building or
Project, whether managed by Landlord or an independent
contractor (including, without limitation, an amount equal to
the fair market rental value of any on-site manager's office);
(8) rental expenses for (or a reasonable depreciation
allowance on) personal property used in the maintenance,
operation or repair of the Building or Project; (9) costs,
expenditures or charges (whether capitalized or not) required
by any governmental or quasi-governmental authority; (10)
amortization of capital expenses (including financing costs)
(i) required by a governmental entity for energy conservation
or life safety purposes, or (ii) made by Landlord which can be
shown to reasonably reduce Project Operating Costs; and (11)
any other costs or expenses incurred by Landlord under this
Lease in maintaining and operating the Building and Project in
a prudent Manner and not otherwise reimbursed by tenants of
the Project.
(2) Tenant's Proportionate Share of Project Operating Costs shall
be payable by Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year
and for each calendar year thereafter ("Comparison Year"),
Tenant shall pay Landlord an amount equal to Tenant's
Proportionate Share of the Project Operating Costs incurred by
Landlord in the Comparison Year which exceeds the total amount
of Project Operating Costs payable by Landlord for the Base
Year. This excess is referred to as the "Excess Expenses".
(b) To provide for current payments of Excess Expenses, Tenant
shall pay as additional rent during each Comparison Year an
amount equal to Tenant's Proportionate Share of the Excess
Expenses payable during such Comparison Year, as estimated by
Landlord from time to time. Such payments shall be made in
monthly installments, commencing on the first day of the month
following the month in which Landlord notifies Tenant of the
amount it is to pay hereunder and continuing until the first
day of the month following the month in which Landlord gives
Tenant a new notice of Estimated Expenses. It is the intention
hereunder to estimate from time to time the amount of the
Excess Expenses for each Comparison Year and Tenant's
Proportionate Share thereof, and then to make an adjustment in
the following year based on the actual Excess Expenses
incurred for that Calendar Year.
(c) On or before April 1 of each Comparison Year after the
first Comparison Year (or as soon thereafter as is practical),
Landlord shall deliver to Tenant a statement setting forth
Tenant's Proportionate Share of the Excess Expense for the
preceding Comparison Year. If Tenant's Proportionate Share of
the actual Excess Expenses for the previous Comparison Year
exceeds the total of the estimated monthly payments made by
Tenant for such year, Tenant shall pay Landlord the amount
of the deficiency within thirty (30) days of the receipt of
the statement. If such total exceeds Tenant's Proportionate
Share of the actual Excess Expense for such Comparison Year,
then Landlord shall credit against Tenant's next ensuing
monthly installment(s) of additional rent an amount equal to
the difference until the credit is exhausted. If a credit is
due from Landlord on the Expiration Date, Landlord shall pay
Tenant the amount of the credit. The obligations of Tenant and
Landlord to make payments required under this Section 5.2
shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any
Comparison Year having less than 365 days shall be prorated on
a per diem basis.
Landlord /s/ JF Tenant /s/ PF
-------- ------
Page 3
<PAGE> 7
(e) If any dispute arises as to the amount of any
additional rent due hereunder, Tenant shall have the right
after reasonable notice and at reasonable time to inspect
Landlord's accounting records at Landlord's accounting
office and, if after such inspection Tenant still disputes
the amount of additional rent owed, a certification as to
the proper amount shall be made by Landlord's certified
public accountant, which certification shall be final and
conclusive. Tenant agrees to pay the cost of such
certification unless it is determined that Landlord's
original statement overstated Project Operating Costs by
more than five percent (5%).
5.3 Definition of Rent. All costs and expenses which Tenant
assumes or agrees to pay to Landlord under this Lease shall be
deemed additional rent (which, together with the Base Rent is
sometimes referred to as the "Rent"). The Rent shall be paid
to the Building manager (or other person) as set forth in
Section 21, or at such place, as Landlord may from time to
time designate in writing, without any prior demand therefor
and without deduction or offset, in lawful money of the United
States of America.
5.4 Rent Control. If the amount of Rent or any other payment due
under this Lease violates the terms of any governmental
restrictions on such Rent or payment, then the Rent or payment
due during the period of such restrictions shall be the
maximum amount allowable under those restrictions. Upon
termination of the restrictions, Landlord shall, to the extent
it is legally permitted, recover from Tenant the difference
between the amounts received during the period of the
restrictions and the amounts Landlord would have received had
there been no restrictions, to the extent legally permitted.
5.5 Taxes Payable by Tenant. In addition to the Rent and any other
charges to be paid by Tenant hereunder, Tenant shall reimburse
Landlord upon demand for any and all taxes payable by Landlord
(other than net income taxes) which are not otherwise
reimbursable under this Lease, whether or not now customary or
within the contemplation of the parties, where such taxes are
upon, measured by or reasonably attributable to (a) the cost
or value of Tenant's equipment, furniture, fixtures and other
personal property located in the Premises, or the cost or
value of any leasehold improvements made in or to the Premises
by or for Tenant, regardless of whether title to such
improvements is held by Tenant or Landlord; (b) the gross or
net Rent payable under this Lease, including, without
limitation, any rental or gross receipts tax levied by any
taxing authority with respect to the receipt of the Rent
hereunder; (c) the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of
the Premises or any portion thereof; or (d) this transaction
or any document to which Tenant is a party creating or
transferring an interest or an estate in the Premises. If it
becomes unlawful for Tenant to reimburse Landlord for any
costs as required under this Lease, the Base Rent shall be
revised to net Landlord the same net Rent after imposition of
any tax or other charge upon Landlord as would have been
payable to Landlord but for the reimbursement being unlawful,
to the extent legally permitted.
6. INTEREST AND LATE CHARGES
If Tenant fails to pay when due any Rent or other amounts or charges
which Tenant is obligated to pay under the terms of this Lease, the
unpaid amounts shall bear interest at the lesser of fifteen percent
(15%) per annum or the maximum rate then allowed by law. Tenant
acknowledges that the late payment of Rent will cause Landlord to lose
the use of that money and incur costs and expenses not contemplated
under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact
amount of which is extremely difficult to ascertain. Therefore, in
addition to interest, the second time and each time thereafter during
the term of this Lease, and any extension(s) thereof, that any Rent is
not received by Landlord within ten (10) days from the date it is due,
Tenant shall pay Landlord a late charge equal to ten percent (10%) of
such amount. Landlord and Tenant agree that this late charge represents
a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such non-payment by
Tenant. Acceptance of any interest or late charge shall not constitute
a waiver of Tenant's default with respect to such nonpayment by Tenant
nor prevent Landlord from exercising any other rights or remedies
available to Landlord under this Lease.
7. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord the Security Deposit set forth
at Section 2k upon execution of this Lease, as security for Tenant's
faithful performance of its obligations under this Lease. Landlord and
Tenant agree that the Security Deposit may be commingled with funds of
Landlord and Landlord shall have no obligation or liability for payment
of interest on such deposit. Tenant shall not mortgage, assign,
transfer or encumber the Security Deposit without the prior written
consent of Landlord and any attempt by Tenant to do so shall be void,
without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable
under this Lease, or fails to perform any of the terms hereof, Landlord
may appropriate and apply or use all or any portion of the Security
Deposit for Rent payments or any other amount then due and unpaid, for
payment of any amount for which Landlord has become obligated as a
result of Tenant's default or breach, and for any loss or damage
sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any
other remedy Landlord may have by reason of Tenant's default or breach.
If Landlord so uses any of the Security Deposit, Tenant shall, within
ten (10) days after written demand therefor, restore the Security
Deposit to the full amount originally deposited; Tenant's failure to do
so shall constitute an act of default hereunder and Landlord shall have
the right to exercise any remedy provided for at Article 27 hereof.
Within fifteen (15) days after the Term (or any extension thereof) has
expired or Tenant has vacated the Premises, whichever shall last occur,
and provided Tenant is not then in default on any of its obligations
hereunder, Landlord shall return the Security Deposit to Tenant, or if
Tenant has assigned its interest under this Lease, to the last assignee
of Tenant. If Landlord sells its interest in the Premises, Landlord may
deliver this deposit to the purchaser of Landlord's interest and
thereupon be relieved of any further liability or obligation with
respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES
Tenant shall use the Premises solely for the purposes set forth in
Tenant's Use Clause. Tenant shall not use or occupy the Premises in
violation of law or any covenant, condition or restriction affecting
the Building or Project or the certificate of occupancy issued for the
Building or Project, and shall, upon notice from Landlord, immediately
discontinue any use of the Premises which is declared by an
governmental authority having jurisdiction to be a violation of law or
the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any
directions of any governmental agencies or authorities having
jurisdiction which shall, by reason of the nature of Tenant's use or
occupancy of the Premises, impose any duty upon Tenant or Landlord with
respect to the Premises or its use or occupation. A judgment of any
court of competent jurisdiction or the admission by Tenant in any
action or proceeding against Tenant that Tenant has violated any such
laws, ordinances, regulations, rules and/or directions in the use of
the Premises shall be deemed to be a conclusive determination of that
fact as between Landlord and Tenant. Tenant shall not do or permit to
be done anything which will invalidate or increase the cost of any
fire, extended coverage or other insurance policy covering the Building
or Project and/or property located therein, and shall comply with all
rules, orders, regulations, requirements and recommendations of the
Insurance Services Office or any other organization performing a
similar function. Tenant shall promptly upon demand reimburse Landlord
for any additional premium charged for such policy by reason of
Tenant's failure to comply with the provisions of this Article. Tenant
shall not do or permit anything to be done in or about the Premises
which will in any way obstruct or interfere with the rights of other
tenants or occupants of the Building or Project, or injure or annoy
them, or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon the
Premises.
Page 4
Landlord /s/ JF Tenant /s/ PF
------ ------
<PAGE> 8
9. SERVICES AND UTILITIES
Provided that Tenant is not in default hereunder, Landlord agrees to
furnish to the Premises during generally recognized business days, and
during hours determined by Landlord in its sole discretion, and subject
to the Rules and Regulations of the Building or Project, electricity
for normal desktop office equipment and normal copying equipment, and
heating, ventilation and air conditioning ("HVAC") as required in
Landlord's judgment for the comfortable use and occupancy of the
Premises. If Tenant desires HVAC at any other time, Landlord shall use
reasonable efforts to furnish such service upon reasonable notice from
Tenant and Tenant shall pay Landlord's charges therefor on demand.
Landlord shall also maintain and keep lighted the common stairs, common
entries and restrooms in the Building. Landlord shall not be in default
hereunder or be liable for any damages directly or indirectly resulting
from, nor shall the Rent be abated by reason of (i) the installation,
use or interruption of use of any equipment in connection with the
furnishing of any of the foregoing services, (ii) failure to furnish or
delay in furnishing any such services where such failure or delay is
caused by accident or any condition or event beyond the reasonable
control of Landlord, or by the making of necessary repairs or
improvements to the Premises, Building or Project, or (iii) the
limitation, curtailment or rationing of, or restrictions on, use of
water, electricity, gas or any other form of energy serving the
Premises, Building or Project. Except for Landlord's gross negligence,
Landlord shall not be liable under any circumstances for a loss of or
injury to property or business, however occurring, through or in
connection with or incidental to failure to furnish any such services.
If Tenant uses heat generating machines or equipment in quantities that
cause, produce or which individually produce more heat than customary
for an office use in the Premises and the use of such equipment or
machines affect the temperature otherwise maintained by the HVAC
system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the
cost of installation, operation and maintenance thereof, shall be paid
by Tenant to Landlord upon demand by Landlord.
Tenant shall not, without the written consent of Landlord, use any
apparatus or device in the Premises, which consumes more electricity
than is usually furnished or supplied for the use of premises as
general office space, as determined by Landlord. Tenant shall not
connect any apparatus with electric current, except through existing
electrical outlets in the Premises. Tenant shall not consume water or
electric current in excess of that usually furnished or supplied for
the use of premises as general office space (as determined by
Landlord), without first procuring the written consent of Landlord,
which Landlord may refuse, and in the event of consent, Landlord may
have installed a water meter or electric current meter in the Premises
to measure the amount of water or electric current consumed. The cost
of any such meter and of its installation, maintenance and repair shall
be paid for by the Tenant and Tenant agrees to pay Landlord promptly
upon demand for all such water and electric current consumed as shown
by said meters, at the rates charged for such services by the local
public utility plus any additional expense incurred in keeping account
of the water and electric current so consumed. If a separate meter is
not installed, the excess cost for such water and electric current
shall be established by an estimate made by a utility company or
electrical engineer hired by Landlord at Tenant's expense.
Tenant shall make arrangements with the telephone company and other
public utilities for those other services desired by Tenant.
Nothing contained in this Article shall restrict Landlord's right to
require at any time separate metering of utilities furnished to the
Premises. In the event utilities are separately metered, Tenant shall
pay promptly upon demand for all utilities consumed at utility rates
charged by the local public utility plus any additional expense
incurred by Landlord in keeping account of the utilities so consumed.
Tenant shall be responsible for the maintenance and repair of any such
meters at its sole cost.
Landlord shall furnish elevator service, lighting replacement for
building standard lights, restroom supplies, window washing, and
janitor services in a manner that such services are customarily
furnished to comparable office buildings in the area.
10. CONDITION OF THE PREMISES
Tenant's taking possession of the Premises shall be deemed conclusive
evidence that as of the date of taking possession of the Premises are
in good order and satisfactory condition, except for such matters as to
which Tenant gave Landlord notice on or before the Commencement Date
and minor punchlist items of which Tenant gives Landlord notice within
ten (10) days following the Commencement Date. No promise of Landlord
to alter, remodel, repair or improve the Premises, the Building or the
Project and no representation, express or implied, respecting any
matter or thing relating to the Premises, Building, Project or this
Lease (including, without limitation, the condition of the Premises,
the Building or the Project) have been made to Tenant by Landlord or
its Broker or Sales Agent, other than as may be contained herein or as
described in Exhibit "C".
11. CONSTRUCTION, REPAIRS AND MAINTENANCE
a. Landlord's Obligations. Landlord shall maintain in good order,
condition and repair the Building, Common Areas and all other portions
of the Premises not the obligation of Tenant or of any other tenant in
the Project. Landlord shall furnish solely the following, the cost and
expense of all which shall be included within the term Project
Operating Costs as defined in Section 5.2:
(1) Landlord shall cause cold water to be piped to the Project and
to the Premises (if applicable);
(2) Landlord shall provide for trash removal from the Project;
(3) Landlord shall cause removal of snow accumulations from the
parking lot and sidewalks and cutting of the grass in the
Common Areas designated pursuant to Section 11b hereof;
(4) Landlord shall cause to be provided lighting for the exterior
of the Project and of the Common Areas in the Project; and;
(5) Landlord shall cause to be maintained, repaired and replaced,
when necessary, the heating and air conditioning, water and
all other mechanical equipment, systems and fixtures
applicable to the Premises and the Common Areas whether
located on the roof of the Premises or in the Premises.
Landlord shall not be liable for damages, by abatement of rent
or otherwise, for failure to furnish, or delay in furnishing,
any one or more of the above, which failure or delay is
caused, in whole or in part, by war, insurrection, civil
disturbance, riots, acts of God, governmental action, repairs,
improvements, alterations, strikes, lockouts or picketing
(whether legal or illegal), inability to obtain electricity,
fuel or supplies, accidents, casualties, acts caused directly
or indirectly by Tenant (or Tenant's agents, representatives,
employees, licensees or invitees) any other act or cause
beyond the reasonable control of Landlord. Any such failure or
delay in furnishing the above shall be without any liability
of Landlord to Tenant and shall not be deemed to be an
eviction or disturbance in any manner of Tenant's use and
possession of the Premises or relieve Tenant from its
obligation to pay all Rent when due, or from any other
obligation hereunder.
b. Common Areas. Tenant, its employees, agents and invitees, shall have
the nonexclusive right in common with Landlord and other tenants of the
Building or Project, and their respective employees, agents and
invitees, to the use of any and all driveways, common parking areas and
other common areas that may be designated by Landlord. Such use shall
be subject to the rules and regulations of the Landlord, and Tenant
shall not obstruct or store anything into any Common Area or allow any
objectionable noises or odors to emit from the Premises, or create or
maintain a nuisance in any Common Area, or shall not distribute,
solicit or canvass any occupants of the Building or Project.
c. Tenant's Obligations.
(1) Except for services furnished by Landlord pursuant to Article
9 hereof, Tenant at Tenant's sole expense shall maintain the
Premises in good order, condition and repair, including the
interior surfaces of the ceilings, walls and floors, all
doors, all interior windows, all plumbing, pipes and fixtures,
electrical wiring, switches and fixtures, building standard
furnishings and special items and equipment installed by or at
the expense of Tenant.
(2) Tenant shall be responsible for all repairs, replacements,
renewals, improvements or alterations, in and to the Premises,
Building and Project and the facilities and systems thereof,
normal wear and tear excepted, the need for which arises out
of (i) Tenant's use or occupancy of the Premises, (ii) the
installation, removal, use or operation of Tenant's Property
(as defined in Article 13) in the Premises, (iii) the moving
of Tenant's Property into or out of the Building, or (iv) the
act, omission, misuse or negligence of Tenant, its agents,
contractors, employees or invitees.
(3) If Tenant fails to maintain the Premises in good order,
condition and repair, Landlord shall give Tenant notice to do
such acts as are reasonably required to so maintain the
Premises. If Tenant fails to promptly commence such work and
diligently prosecute it to completion, then Landlord shall
have the right to do such acts and expend such funds at the
expense of Tenant as are reasonably
Landlord /s/ JF Tenant /s/ PF
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<PAGE> 9
reasonably required to perform such work. Any amount so
expended by Landlord shall be paid by Tenant promptly after
demand with interest from the date of such work, at the lesser
of fifteen percent (15%) per annum or the maximum rate then
allowed by law. Landlord shall have no liability to Tenant for
any damage, inconvenience, or interference with the use of the
Premises by Tenant as a result of performing any such work.
d. Compliance with Law. Landlord and Tenant shall each do all
acts required to comply with all applicable laws, ordinances,
and rules of any public authority relating to their respective
maintenance obligations as set forth herein. Landlord shall be
responsible for compliance with the requirements of Title
III of the Americans with Disabilities Act of 1990 with
respect to physical accessibility to, within and about the
Building and Project of which the Premises are a part. Tenant
shall be responsible for said compliance with the Premises,
after the Commencement Date.
e. Waiver by Tenant. Tenant expressly waives the benefits of any
statute now or hereafter in effect which would otherwise
afford the Tenant the right to make repairs at Landlord's
expense or to terminate this Lease because of Landlord's
failure to keep the Premises in good order, condition and
repair.
f. Load and Equipment Limits. Tenant shall not place a load upon
any floor of the Premises which exceeds the load per square
foot which such floor was designed to carry, as determined by
Landlord or Landlord's structural engineer. The cost of any
such determination made by Landlord's structural engineer
shall be paid for by Tenant upon demand. Tenant shall not
install business machines or mechanical equipment which cause
noise or vibration to such a degree as to be objectionable to
Landlord or other Building tenants.
g. Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant nor shall Tenant's
obligations under this Lease be reduced or abated in any
manner whatsoever by reason of any inconvenience, annoyance,
interruption or injury to business arising from Landlord's
making any repairs or changes which Landlord is required or
permitted by this Lease or by any other tenant's lease or
required by law to make in or to any portion of the Project,
Building or the Premises. Landlord shall nevertheless use
reasonable efforts to minimize any interference with Tenant's
business in the Premises.
h. Tenant shall give Landlord prompt notice of any damage to or
defective condition in any part or appurtenance of the
Building's mechanical, electrical, plumbing, HVAC or other
systems serving, located in, or passing through the Premises.
12. ALTERATIONS AND ADDITIONS
a. Tenant shall not make any additions, alterations or
improvements to the Premises without obtaining the prior
written consent of Landlord. Landlord's consent shall not be
unreasonably withheld and may be conditioned on Tenant's
removing any such additions, alterations or improvements upon
Landlord's election at or before the expiration of the Term
and restoring the Premises to the same condition as on the
date Tenant took possession. All work with respect to any
addition, alteration or improvement shall be done in a good
and workmanlike manner by properly qualified and licensed
personnel approved by Landlord, and such work shall be
diligently prosecuted to completion. Landlord may, at
Landlord's option, require that any such work be performed by
Landlord's contractor, in which case the cost of such work
shall be paid for before commencement of the work.
Notwithstanding the foregoing Tenant's obligation to
Landlord's contractor shall not be greater than it would have
been to a qualified contractor selected through a competitive
bidding process. Tenant shall pay to Landlord upon completion
of any such work by Landlord's contractor, an administrative
fee of fifteen percent (15%) of the cost of the work.
Landlord's review of any plans and specifications or consent
to additions, alterations or improvements shall not be
construed as a warranty or certification that such plans and
specifications or such additions, alterations or improvements
are adequate for any purpose or comply with applicable laws,
ordinances, or regulations, nor shall Landlord's approval or
consent relieve Tenant from the obligation of complying with
such applicable laws, ordinances and regulations.
b. Tenant shall pay the costs of any work done on the Premises
pursuant to Section 12a, and shall keep the Premises, Building
and Project free and clear of liens of any kind. Tenant shall
indemnify, defend against and keep Landlord free and harmless
from all liability, loss, damage, costs, attorneys' fees and
any other expense incurred on account of claims by any person
performing work or furnishing materials or supplies for Tenant
or any person claiming under Tenant.
Tenant shall keep Tenant's leasehold interest, and any
additions or improvements which are or become the property of
Landlord under this Lease, free and clear of all attachment or
judgment liens. Before the actual commencement of any work for
which a claim or lien may be filed, Tenant shall give Landlord
notice of the intended commencement date a sufficient time
before that date to enable Landlord to post notices of
non-responsibility or any other notices which Landlord deems
necessary for the proper protection of Landlord's interest in
the Premises, Building or the Project, and Landlord shall have
the right to enter the Premises and post such notices at any
reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant
provide to Landlord, at Tenant's expense, a lien and
completion bond in an amount equal to at least one and
one-half (1 1/2) times the total estimated cost of any
additions, alterations or improvements to be made in or to the
Premises, to protect Landlord against any liability for
mechanic's and materialmen's liens and to insure timely
completion of the work. Nothing contained in this Section 12c
shall relieve Tenant of its obligation under Section 12b to
keep the Premises, Building and Project free of all liens.
d. Unless their removal is required by Landlord as provided in
Section 12a, additions, alterations and improvements made to
the Premises shall become the property of Landlord and be
surrendered with the Premises upon the expiration of the Term;
provided, however, Tenant's equipment, machinery and trade
fixtures which can be removed without damage to the Premises
shall remain the property of Tenant and may be removed,
subject to the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY
a. All fixtures, equipment, improvements and appurtenances
attached to or built into the Premises at the commencement of
or during the Term, whether or not by or at the expense of
Tenant ("Leasehold Improvements"), shall be and remain a part
of the Premises, shall be the property of Landlord and shall
not be removed by Tenant, except as expressly provided in
Sections 12, 12d or 13b.
b. All movable partitions, business and trade fixtures, machinery
and equipment, communications equipment and office equipment
located in the Premises and acquired by or for the account of
Tenant, without expense to Landlord, which can be removed
without damage to the Building, and all furniture, furnishings
and other articles of movable personal property owned by
Tenant and located in the Premises (collectively "Tenant's
property") shall be and shall remain the property of Tenant
and may be removed by Tenant at any time during the Term;
provided that if any of Tenant's Property is removed, Tenant
shall promptly repair any damage to the Premises or to the
Building resulting from such removal.
14. RULES AND REGULATIONS
Tenant agrees to comply with (and cause its agents, contractors employees
and invitees to comply with) the rules and regulations attached hereto as
Exhibit "D" and with such reasonable modifications thereof and additions
thereto as Landlord may from time to time make. Landlord shall not be
responsible for any violation of said rules and regulations by other
tenants or occupants of the Building or Project.
Landlord /s/ JF Tenant /s/ PF
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<PAGE> 10
15. CERTAIN RIGHTS RESERVED BY LANDLORD
Landlord reserves the following rights, exercisable without liability
to Tenant for (a) damage or injury to property, person or business, (b)
causing an actual or constructive eviction from the Premises, or (c)
disturbing Tenant's use or possession of the Premises;
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and safes;
d. At any time during the Term, and on reasonable prior notice to Tenant,
to inspect the Premises, and to show the Premises to any prospective
purchaser or mortgagee of the Project, or to any assignee of any
mortgage on the Project, to prospective tenants, or to others having an
interest in the Project or Landlord; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls on other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or
Landlord's interest therein, or as may be necessary or desirable for
the operation or improvement of the Building or in order to comply with
laws, orders or requirements of governmental or other authority.
Landlord agrees to use its good faith reasonable efforts (except in an
emergency) to minimize interference with Tenant's business in the
Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING
No assignment of this Lease or sublease of all or any part of the
Premises shall be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign
or hypothecate this Lease or any interest herein or sublet the Premises
or any part thereof, or permit the use of the Premises by any party
other than Tenant. Any of the foregoing acts without such consent shall
be void and shall, at the option of Landlord, terminate this Lease.
This Lease shall not, nor shall any interest of Tenant herein, be
assignable by operation of law without the written consent of Landlord.
b. If at any time or from time to time during the term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant
shall give notice to Landlord setting forth the terms and provisions of
the proposed assignment or sublease, and the identity of the proposed
assignee or subtenant. Tenant shall promptly supply Landlord with such
information concerning the business background and financial condition
of such proposed assignee or subtenant as Landlord may reasonably
request. Landlord shall have the option exercisable by notice given to
Tenant within twenty (20) days after Tenant's notice is given, either
to sublet such space from Tenant at the rental and on the other terms
set forth in this Lease for the term set forth in Tenant's notice, or,
in the case of an assignment, to terminate this Lease. Subject to the
other provision in this Article 16, if Landlord does not exercise such
option, Tenant may assign the Lease or sublet such space to such
proposed assignee or subtenant on the following further conditions:
(1) Landlord shall have the right to approve such proposed
assignee or subtenant, which approval shall not be
unreasonably withheld;
(2) The assignment or sublease shall be on the same terms set
forth in the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
subleasee shall take possession of the Premises until an
executed counterpart of such assignment or sublease in such
form as may be required by Landlord has been delivered to
Landlord;
(4) No assignee or sublessee shall have a further right to assign
or sublet except on the terms herein contained; and
(5) Fifty percent (50%) of any sums or other economic
consideration received by Tenant as a result of such
assignment or subletting, however denominated under the
assignment or sublease, which exceed, in the aggregate, (i)
the total sums of which Tenant is obligated to pay Landlord
under this Lease (prorated to reflect obligations allocable to
the portion of the Premises subleased), plus (ii) any real
estate brokerage commissions or fees payable in connection
with such assignment or subletting and any Tenant improvement
costs, shall be paid to Landlord as additional rent under this
Lease without affecting or reducing any other obligations of
Tenant hereunder;
(6) Tenant shall not then be in default beyond the time herein
provided, if any, to cure such default; and
(7) Tenant shall be prohibited from negotiating with a person or
entity with whom Landlord is then negotiating to lease space
in the Building or Project, including any existing tenant in
the Building or Project with whom Landlord is then negotiating
to lease additional or expansion space in the Building or
Project, unless otherwise agreed to by Landlord at that time.
c. Notwithstanding the provisions of paragraphs a and b above, Tenant may
assign this Lease or sublet the Premises or any portion thereof,
without Landlord's consent and without extending any recapture or
termination option to Landlord, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any
corporation resulting from a merger or consolidation with Tenant, or to
any person or entity which acquires all the assets of Tenant's business
as a going concern, provided that (I) the assignee or sublessee
assumes, in full, the obligations of Tenant under this Lease, (ii)
Tenant remains fully liable under this Lease, and (iii) the use of the
Premises under Article 8 remains unchanged.
d. No subletting or assignment shall release Tenant of Tenant's
obligations under this Lease or alter the primary liability of Tenant
to pay the Rent and to perform all other obligations to be performed by
Tenant hereunder. The acceptance of Rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of
default by an assignee or subtenant of Tenant or any successor of
Tenant in the performance of any of the terms hereof, Landlord may
proceed directly against Tenant without the necessity of exhausting
remedies against such assignee, subtenant or successor. Landlord may
consent to subsequent assignments of the Lease or subletting or
amendments or modifications to the Lease with assignees of Tenant,
without notifying Tenant, or any successor of Tenant, and without
obtaining its or their consent thereto and any such actions shall not
relieve Tenant of liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant
requests the consent of Landlord for any act that Tenant proposes to
do, then Tenant shall, upon demand, pay Landlord an administrative fee
of One Hundred Fifty and 00/100 Dollars ($150.00) plus and reasonable
attorneys' fees attributable to any such assignment or subletting
incurred by Landlord in connection with such act or request.
f. Any transfer, by operation of law or otherwise, of Tenant's interest in
this Lease (in whole or in part) or of a fifty percent (50%) or greater
interest in Tenant (whether stock, partnership interest or otherwise)
shall be deemed an assignment of this Lease within the meaning of this
Section 16. The issuance of shares of stock to other than the existing
shareholders is deemed to be a transfer of that stock for the purposes
of this Section 16. If, during the Term of this Lease, there is a
transfer of less than a fifty percent (50%) interest in Tenant, then
any other transfer of an interest in Tenant which, when added to the
total percentage interest previously transferred, totals a transfer of
greater than a fifty percent (50%) interest in Tenant shall be deemed
an assignment of Tenant's interest in this Lease within the meaning of
this Article 16.
Landlord /s/ JF Tenant /s/ PF
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<PAGE> 11
17. HOLDING OVER
If Tenant shall, with the knowledge and consent of Landlord, continue to
remain in the Premises after the Expiration Date, then and in that event,
Tenant shall, by virtue of this Article 17 become a tenant by the month at
the rental per month agreed upon by Landlord and Tenant to be paid therefor
(or, failing such agreement, one hundred fifty percent (150%) of the Monthly
Installments of Base Rent in effect immediately prior to the Expiration
Date), commencing said monthly tenancy with the first (1st) day after the
Expiration Date. In such event, Tenant shall deliver to Landlord at least
thirty (30) days' written notice of any intention to quit the Premises, and
Tenant shall be entitled to thirty (30) days' written notice to quit the
Premises, except in the event of nonpayment of rent in advance or of the
breach of any other covenant by Tenant, IN WHICH EVENT TENANT SHALL NOT BE
ENTITLED TO ANY NOTICE TO QUIT, THE USUAL THIRTY (30) DAYS' NOTICE TO QUIT
BEING HEREBY EXPRESSLY WAIVED. In the event that Tenant shall hold over
after the Expiration Date without Landlord's knowledge or consent, then at
any time prior to Landlord's acceptance of rent from Tenant as a monthly
tenant hereunder, Landlord, at its option, may forthwith re-enter and take
possession of the Premises without process, or by any legal process in force
in the Commonwealth of Virginia, TENANT HEREBY WAIVING ANY NOTICE TO QUIT;
provided, however, that (i) Tenant shall pay Landlord a fair rental value
(but not as rent) equal to two and one half (2.5) times the greater of the
fair market value rent for the Premises or the Monthly Installment of Base
Rent plus all Additional Rent payable for the last month of the Term, for
each month or portion thereof that Tenant remains in possession following
the Expiration Date, and (ii) Tenant shall defend, indemnify and hold
Landlord harmless from and against any and all claims, losses, liabilities
or damages resulting from Tenant's failure to surrender possession of the
Premises on the Expiration Date (including, but not limited to, any and all
claims made by any succeeding tenant).
18. SURRENDER OF PREMISES
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, or upon earlier termination of this Lease, in
broom-clean condition and in as good condition as when Tenant took
possession, except for (i) reasonable wear and tear, (ii) loss by fire
or other casualty, and (iii) loss by condemnation. Tenant shall remove
Tenant's Property on or before the Expiration Date and promptly repair
all damage to the Premises or Building caused by such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the
Premises shall be deemed to be abandoned, and, at Landlord's option,
title shall pass to Landlord under this Lease as by a bill of sale. If
Landlord elects to remove all or any part of such Tenant's Property,
the cost of removal, including repairing any damage to the Premises or
Building caused by such removal, shall be paid by Tenant. On the
Expiration Date Tenant shall surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements of
other casualty, Landlord shall, subject to the provisions of this
Article, promptly repair the damage, if such repairs can, in Landlord's
opinion, be completed within ninety (90) days. If Landlord determines
that repairs can be completed within ninety (90) days, this Lease shall
remain in full force and effect, except that if such damage is not the
result of the negligence or willful misconduct of Tenant or Tenant's
agents, employees, contractors, licensees or invitees, the Base Rent
shall be abated to the extent Tenant's use of the Premises is impaired,
commencing with the date of damage and continuing until completion of
the repairs required of Landlord under Section 19d.
b. If in Landlord's opinion, such repairs to the Premises or portion of
the building necessary for Tenant's occupancy cannot be completed
within ninety (90) days, Landlord may elect, upon notice to Tenant
given within thirty (30) days after the date of such fire or other
casualty, to repair such damage, in which event this Lease shall
continue in full force and effect but the Base Rent shall be partially
abated as provided in Section 19a. If Landlord does not so elect to
make such repairs, this Lease shall terminate as of the date of such
fire or other casualty.
c. If any other portion of the Building or Project is totally destroyed or
damaged to the extent that in Landlord's opinion repair thereof cannot
be completed within ninety (90) days, Landlord may elect upon notice to
Tenant given within thirty (30) days after the date of such fire or
other casualty, to repair such damage, in which event this Lease shall
continue in full force and effect, but the Base Rent shall be partially
abated as provided in Section 19a. If Landlord does not elect to make
such repairs, this Lease shall terminate as of the date of such fire or
other casualty.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and building
standard work in the Premises. Tenant shall be responsible at its sole
cost and expense for the repair, restoration and replacement of any
other Leasehold Improvements and Tenant's Property. Landlord shall not
be liable for any loss of business, inconvenience or annoyance arising
from any repair or restoration of any portion of the Premises, Building
or Project as a result of any damage from fire or other casualty.
e. If the damage to the Premises occurs during the last six (6) months of
the Lease Term, Landlord or Tenant may elect to terminate this Lease as
of the date the damage occurred, regardless of the sufficiency of any
insurance proceeds. The party electing to terminate this Lease shall
give written notification to the other party of such election within
thirty (30) days after the date of the casualty event. In the event
that Tenant has an option to extend or renew this Lease, and the time
within which said option may be exercised has not yet expired. Tenant
shall exercise such option, if it is to be exercised at all, no later
than twenty (20) days after the occurrence of such partial damage to
the Premises during the last six (6) months of the term of this Lease.
If Tenant duly exercises such option during said twenty (20) day
period, Landlord shall, at Landlord's expense, repair such damage, but
not Tenant's fixtures, equipment or Tenant improvements, as soon as
reasonably possible and this Lease shall continue in full force and
effect. If Tenant fails to exercise such option during said twenty (20)
day period, then Landlord may at Landlord's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by
giving written notice to Tenant of Landlord's election to do so within
ten (10) days after the expiration of said twenty (20) day period,
notwithstanding any term or provision in the grant of the option to the
contrary.
f. Landlord and Tenant hereby acknowledge that the provisions of this
Article 19 are intended to be the sole and exclusive provisions
applicable in the event of any fire, casualty or unavoidable accident
to the Premises or the Building, and that the same are provided in lieu
of the operation of Virginia Code Ann. sec. 55-226 (as the same may be
amended and any successor provision thereto).
20. EMINENT DOMAIN
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quasi-public
purpose this Lease shall terminate as of the date of such taking, and
Rent shall be prorated to such date. If less than the whole of the
Building or Premises is so taken, this Lease shall be unaffected by
such taking, provided that (i) Tenant shall have the right to terminate
this Lease by notice to Landlord given within ninety (90) days after
the date of such taking if twenty percent (20%) or more of the Premises
is taken and the remaining area of the Premises is not reasonably
sufficient for Tenant to continue operation of its business, and (ii)
Landlord shall have the right to terminate this Lease by notice to
Tenant given within ninety (90) days after the date of such taking. If
either Landlord or Tenant so elects to terminate this Lease, the Lease
shall terminate on the thirtieth (30th) day after either such notice.
The Rent shall be prorated to the date of termination. If this Lease
continues in force upon such partial taking, the Base Rent and Tenant's
Proportionate Share shall be equitably adjusted according to the
remaining Rentable Area of the Premises and Project.
b. In the event of any taking, partial or whole, all of the proceeds of
any award, judgment or settlement payable by the condemning authority
shall be the exclusive property of Landlord, and Tenant hereby assigns
to Landlord all of its right, title and interest in any award, judgment
or settlement from the condemning authority. Tenant, however, shall
have the right, to the extent that Landlord's award is not reduced or
prejudiced, to claim from the condemning authority (but not from
Landlord) which compensation as may be recoverable by Tenant in its own
right for relocation expenses and damage to Tenant's personal property.
Landlord /s/ JF Tenant /s/ PF
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8
<PAGE> 12
c. In the event of a partial taking of the Premises which does not result
in a termination of this Lease, Landlord shall restore the remaining
portion of the Premises as nearly as practicable to its condition prior
to the condemnation or taking, but only to the extent of building
standard work. Tenant shall be responsible at its sole cost and expense
for the repair, restoration and replacement of any other Leasehold
Improvements and Tenant's Property.
21. INDEMNIFICATION
a. To the extent permitted by applicable law, Tenant shall indemnify and
hold Landlord harmless against and from liability and claims of any
kind for loss or damage to property of Tenant or any other person, or
for any injury to or death of any person, arising out of: (1) Tenant's
use and occupancy of the Premises, or any work, activity or other
things allowed or suffered by Tenant to be done in, on, or about the
Premises; (2) any breach or default by Tenant of any of Tenant's
obligations under this Lease; or (3) any negligent or tortuous act or
omission of Tenant, its agents, employees, invitees or contractors.
Tenant shall at Tenant's expense, and by counsel satisfactory to
Landlord, defend
Landlord in any action or proceeding arising from any such claim and
shall indemnify Landlord against all costs, attorneys' fees, expert
witness fees and any other expenses incurred in such action or
proceeding. As a material part of the consideration for Landlord's
execution of this Lease, Tenant hereby assumes all risk of damage or
injury to any person or property in, on or about the Premises from any
cause to the extent permitted by law. The provisions of this Section
21a shall survive the expiration or sooner termination of this Lease.
b. Landlord, except for Landlord's gross negligence, shall not be liable
for injury or damage which may be sustained by the person or property
of Tenant, its employees, invitees or customers, or any other person in
or about the Premises, caused by or resulting from fire, steam,
electricity, gas, water or rain which may leak or flow from or into any
part of the Premises, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, and the like whether such damage or
injury results from conditions arising upon the Premises or upon other
portions of the Building or Project or from other sources. Landlord
shall not be liable for any damages arising from any act or omission of
any other tenant of the Building or Project.
22. TENANT'S INSURANCE
a. All insurance required to be carried by Tenant hereunder shall be
issued by responsible insurance companies acceptable to Landlord and
Landlord's lender and qualified to do business in the State. Each
policy shall name Landlord, and at Landlord's request any mortgage of
Landlord, as an additional insured, as their respective interests may
appear. Each policy shall contain (i) a cross-liability endorsement,
(ii) a provision that such policy and the coverage evidenced thereby
shall be primary and non-contributing with respect to any policies
carried by Landlord and that any coverage carried by Landlord shall be
excess insurance, and (iii) a waiver by the insurer of any right of
subrogation against Landlord, its agents, employees and
representatives, which arises or might arise by reason of any payment
under such policy or by reason of any act or omission of Landlord, its
agents, employees or representatives. A copy of each paid up policy
(authenticated by the insurer) or certificate of the insurer evidencing
the existence and amount of each insurance policy required hereunder
shall be delivered to Landlord before the date Tenant is first given
the right of possession of the Premises, and thereafter within thirty
(30) days after any demand by Landlord therefor. Landlord may, at any
time and from time to time, inspect and/or copy any insurance policies
required to be maintained by Tenant hereunder. No such policy shall be
cancelable, except after twenty (20) days' written notice to Landlord
and Landlord's lender. Tenant shall furnish Landlord with renewals or
"binders" of any such policy at least ten (10) days prior to the
expiration thereof. Tenant agrees that if Tenant does not take out and
maintain such insurance, Landlord may (but shall not be required to)
procure said insurance on Tenant's behalf and charge the Tenant the
premiums together with a ten percent (10%) handling charge (to cover
Landlord's administration and handling of said policy), payable upon
demand. Tenant shall have the right to provide such insurance coverage
pursuant to blanket policies obtained by the Tenant, provided such
blanket policies expressly afford coverage to the Premises, Landlord,
Landlord's mortgagee and Tenant as required to this Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall
procure, pay for and maintain in effect policies of casualty insurance
covering (i) all Leasehold Improvements (including any alterations,
additions or improvements as may be made by Tenant pursuant to the
provisions of Article 12 hereof), and (ii) trade fixtures, merchandise
and other personal property from time to time, providing protection
against any peril included within the classification "Fire and Extended
Coverage" together with insurance against sprinkler damage, vandalism
and malicious mischief. The proceeds of such insurance shall be used
for the repair or replacement of the property so insured. Upon
termination of this Lease following a casualty as set forth herein, the
proceeds under (i) shall be paid to Landlord, and the proceeds under
(ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall
procure, pay for and maintain in effect workers' compensation insurance
as required by law and comprehensive public liability and property
damage insurance with respect to the construction of improvements on
the Premises, the use, operation or condition of the Premises and the
operations of Tenant in, on or about the Premises, providing personal
injury and broad form property damage coverage including blanket
contractual liability coverage and tenant's legal liability coverage,
for not less than Two Million Dollars ($2,000,000.00) combined single
limit for bodily injury, death and property damage liability.
23. WAIVER OF SUBROGATION
Landlord and Tenant each hereby agree to exercise all reasonable
commercial diligence to have included in each of its hazard insurance
policies (insuring the Building and Landlord's personal property
therein, in the case of Landlord, and insuring the Tenant's personal
property and the Leasehold Improvements in the Premises, in the case of
Tenant, against loss, damage or destruction by fire or other casualty
therein covered) a waiver of the insurer's right of subrogation against
the other party, or, if such waiver should be unobtainable or
unenforceable, (i) and express agreement that such policy shall not be
invalidated if the insured waives, before the casualty, the right of
recovery against any party responsible for a casualty covered by the
policy or (ii) any other form of permission for the release of the
other party. If such waiver, agreement or permission shall not be, or
shall cease to be, obtainable (A) without additional charge, or (B) at
all, the insured party shall so notify the other party promptly after
learning thereof. In the first such case, if the other party shall so
elect and shall pay the insurer's additional charge therefor, such
waiver, agreement or permission shall be included in the policy.
Landlord and Tenant each hereby release the other party with respect to
any claim (including a claim for negligence) which it might otherwise
have against the other party for loss, damage or destruction with
respect to the releasing party's property occurring during the Term of
this Lease to the extent to which the releasing party is insured and
receives proceeds under a policy or policies containing a waiver of
subrogation or permission to release liability, as provided in the
preceding paragraph. If, notwithstanding the recovery of insurance
proceeds by either party for such loss, damage or destruction of its
property, the other party is liable to the first party with respect
thereto or is obligated under this Lease to make replacement, repair or
restoration or payment, then (provided the first party's right of full
recovery under its insurance policies is not thereby prejudiced or
otherwise adversely affected) the amount of the net proceeds of the
first party's insurance against such loss, damage or destruction shall
be offset against the second party's liability to the first party
therefor, or shall be made available to the second party to pay for
replacement, repair or restoration, as the case may be. Nothing
contained in this paragraph shall relieve either party of any duty
imposed elsewhere in this Lease to repair, restore or rebuild or to
nullify any abatement of Rent provided for elsewhere in this Lease.
4. SUBORDINATION AND ATTORNMENT
This Lease is and shall be subject and subordinate to the lien of any
mortgage (which term "mortgage" shall include both construction and
permanent financing and shall include deeds of trust, ground leases and
similar security agreements) which may now or hereafter encumber or
otherwise affect the land and Building of which the Premises form a
part, or Landlord's leasehold interest therein), and to all and any
renewals, extensions, modifications, recastings or refinancing thereof;
provided, however, that Landlord's mortgagee may elect, at its sole
election, that any mortgage held by such mortgagee shall be
subordinate, in whole or in part, to this Lease.
Landlord /s/ JF Tenant /s/ PF
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Page 9
<PAGE> 13
Within ten (10) days after written request of Landlord, or any
mortgagee or deed of trust beneficiary of Landlord, or ground lessor of
Landlord, Tenant shall, in writing, subordinate its rights under this
Lease to the lien of any mortgage or deed of trust, or to the interest
of any lease in which Landlord is lessee, and to all advances made or
hereafter to be made thereunder. However, before signing any
subordination agreement, Tenant shall have the right to obtain from any
lender or lessor or Landlord requesting such subordination, an
agreement in writing providing that, as long as Tenant is not in
default hereunder, this Lease shall remain in effect for the full Term.
The holder of any security interest may, upon written notice to Tenant,
elect to have this Lease prior to its security interest regardless of
the time of the granting or recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure
or termination of a lease in which Landlord is lessee, Tenant shall
attorn to the purchaser, transferee or lessor as the case may be, and
recognize that party as Landlord under this Lease, provided such party
acquires and accepts the Premises subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES
Within ten (10) days after written request from Landlord, Tenant shall
execute and deliver to Landlord or Landlord's designee a written
statement certifying (a) that this Lease is unmodified and in full
force and effect, or is in full force and effect as modified, and
stating the modifications; (b) the amount of Base Rent and the date to
which Base Rent and additional rent have been paid in advance; (c) the
amount of any security deposited with Landlord; (d) that Landlord is
not in default hereunder or, if Landlord is claimed to be in default,
stating the nature of any claimed default, and (e) such other matters
relating to this Lease as Landlord shall request. Any such statement
may be relied upon by a purchaser, assignee or lender. Tenant's failure
to execute and deliver such statement within the time required shall at
Landlord's election be a default under this Lease and shall also be
conclusive upon Tenant that: (1) this Lease is in full force and effect
and has not been modified except as represented by Landlord; (2) there
are no uncured defaults in Landlord's performance and that Tenant has
no right of offset, counter-claim or deduction against Rent; and (3)
not more than one month's Rent has been paid in advance.
26. TRANSFER OF LANDLORD'S INTEREST
In the event of any sale or transfer by Landlord of the Premises,
Building or Project, and assignment of this Lease by Landlord, Landlord
shall be and is hereby entirely freed and relieved of any and all
liability and obligations contained in or derived from this Lease
arising out of any act, occurrence or omission relating to the
Premises, Building, Project or Lease occurring after the consummation
of such sale or transfer, providing the purchaser shall expressly
assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant,
Landlord may transfer the security deposit or prepaid Rent to
Landlord's successor and upon such transfer, Landlord shall be relieved
of any and all further liability with respect thereto.
27. DEFAULT
27.1 Events of Default. The occurrence of any one or more of the following
matters constitutes a Default by Tenant under this Lease:
a. Failure by Tenant to pay any Rent or any other moneys required
to be paid by Tenant under this Lease within five (5) business
days after written notice such payment is due and payable;
b. Failure by Tenant to observe or perform any of the covenants
with respect to assignment and subletting set forth in Article
16;
c. Failure by Tenant to comply with Tenant's obligations set
forth in Article 37;
d. Failure by Tenant to cure, immediately after receipt of notice
from Landlord, any hazardous condition which Tenant has
created in violation of law or of this Lease;
e. Failure by Tenant to observe or perform any other covenant,
agreement, condition or provision of this Lease, if such
failure continues for thirty (30) days after notice thereof
from Landlord to Tenant;
f. The levy upon, under writ of execution or the attachment by
legal process of, the leasehold interest of Tenant, or the
filing or creation of a lien with respect to such leasehold
interest, which lien shall not be released or discharged
within ten (10) days from the date of such filing;
g. Tenant vacates or abandons the Premises or fails to take
possession of the Premises when available for occupancy (the
transfer of a substantial part of the operations, business and
personnel of Tenant to some other location being deemed,
without limiting the meaning of the term "vacates or
abandons", to be a vacation or abandonment within the meaning
of this clause g), whether or not Tenant thereafter continues
to pay Rent due under this Lease;
h. Tenant becomes insolvent or bankrupt or admits in writing its
inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors, or applies for or
consents to the appointment of a trustee or receiver for
Tenant or for the substantial part of its property;
i. A trustee or receiver is appointed for Tenant or for the major
part of its property and is not discharged within sixty (60)
days after such appointment; or
j. Any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding, or other proceeding for relief under
any bankruptcy law, or similar law for the relief of debtors,
is instituted (i) by Tenant or (ii) against Tenant and is
allowed against it or is consented to by it or is not
dismissed within sixty (60) days after such institution.
27.2 Rights and Remedies of Landlord. If a Default occurs Landlord shall
have the rights and remedies hereinafter set forth, which shall be
distinct, separate and cumulative and shall not operate to exclude or
deprive Landlord of any other right or remedy allowed it by law:
a. Landlord may terminate this Lease by giving to Tenant notice
of Landlord's election to do so, in which event the Term of
this Lease shall end, and all right, title and interest of
Tenant hereunder shall expire, on the date stated in such
notice;
b. Landlord may terminate the right of Tenant to possession of
the Premises without terminating this Lease by giving notice
to Tenant that Tenant's right to possession shall end on the
date stated in such notice, whereupon the right of Tenant to
possession of the Premises or any part thereof shall cease on
the date stated in such notice; and
c. Landlord may enforce the provisions of this Lease and may
enforce and protect the rights of Landlord hereunder by a suit
or suits in equity or at law for the specific performance of
any covenant or agreement contained herein, or for the
enforcement of any other appropriate legal or equitable
remedy, including recovery of all moneys due or to become due
from Tenant under any of the provisions of this Lease.
d. Landlord's rights and remedies hereunder are cumulative. In
the event of a breach by Tenant, Landlord shall have all
rights and remedies provided by law.
27.3 Right to Re-Enter. If Landlord exercises either of the remedies
provided in Sections 27.2a or b, Tenant shall surrender possession and
vacate the Premises and immediately deliver possession thereof to
Landlord, and Landlord may re-enter and take complete and peaceful
possession of the Premises, full and complete license to do so being
hereby granted to Landlord, and Landlord may remove all occupants and
property therefrom, using such force as may be necessary, without being
deemed guilty in any manner of trespass,
Page 10
Landlord /s/ JF Tenant /s/ PF
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<PAGE> 14
eviction or forcible entry and detainer and without relinquishing
Landlord's right to Rent or any other right given to Landlord
hereunder or by operation of law.
27.4 Current Damages. If Landlord terminates the right of Tenant to
possession of the Premises without terminating this Lease, Landlord
shall have the right to immediate recovery of all amounts then due
hereunder. Such termination of possession shall not release Tenant, in
whole or in part, from Tenant's obligation to pay Rent hereunder for
the full Term, and Landlord shall have the right, from time to time,
to recover from Tenant, and Tenant shall remain liable for, all Base
Rent and any other sums accruing as they become due under this Lease
during the period from the date of such notice of termination of
possession to the stated end of the Term. In any such case, Landlord
may relet the Premises or any part thereof for the account of Tenant
for such rent, for such time (which may be for a term extending beyond
the Term of this Lease) and upon such terms as Landlord shall
determine and may collect the rents from such reletting. Landlord
shall not be required to accept any tenant offered by Tenant or to
observe any instructions given by Tenant relative to such reletting.
Also, in any such case, Landlord may make repairs, alterations and
additions in or to the Premises and redecorate the same to the extent
deemed by Landlord necessary or desirable and in connection therewith
change the locks to the Premises, and Tenant upon demand shall pay the
cost of all of the foregoing together with Landlord's expenses of
reletting. The rents from any such reletting shall be applied first to
the payment of the expenses of re-entry, redecoration, repair and
alterations and the expenses of reletting and second to the payment of
Rent herein provided to be paid by Tenant. Any excess or residue shall
operate only as an offsetting credit against the amount of Rent due
and owing as the same thereafter becomes due and payable hereunder,
and the use of such offsetting credit to reduce the amount of Rent due
Landlord, if any, shall not be deemed to give Tenant any right, title
or interest in or to such excess or residue and any such excess or
residue shall belong to Landlord solely, and in no event shall Tenant
be entitled to a credit on its indebtedness to Landlord in excess of
the aggregate sum (including Base Rent and any other charges) which
would have been paid by Tenant for the period for which the credit to
Tenant is being determined, had no Default occurred. No such re-entry
or repossession, repairs, alterations and additions, or reletting
shall be construed as an eviction or ouster of Tenant or as an
election on Landlord's part to terminate this Lease, unless a written
notice of such intention is given to Tenant, or shall operate to
release Tenant in whole or in part from any of Tenant's obligations
hereunder, and Landlord, at any time and from time to time, may sue
and recover judgment for any deficiencies remaining after the
application of the proceeds of any such reletting.
27.5 Final Damages. In the event the Landlord shall elect to terminate this
Lease pursuant to Section 27.2, Landlord shall have the option, to be
exercised in Landlord's sole discretion, to require Tenant to pay
Landlord, in lieu of the sums set forth in the preceding Section 27.4,
the sum of (a) all accrued and unpaid Rent as of the date of such
termination (together with interest and late charges thereon in the
amounts specified herein), plus (b) the amount of the Security Deposit
then held by Landlord (if any), plus (c) the present value (based on a
discount rate equal to the then-current average yield on Treasury
bonds maturing at approximately the same time as the Expiration Date)
of the aggregate of the Monthly Installments of Base Rent and
Additional Rent (as estimated by Landlord acting reasonably, giving
effect to any provisions hereof for the increase in Monthly
Installments of Base Rent) for the eighteen (18) month period
commencing on the date following such termination (or, if less than
eighteen (18) months remain in the Term, the aggregate of Landlord's
reasonable estimate of the Monthly Installments of Base Rent and
Additional Rent for the remainder of the Term), in one lump sum, said
sum being the parties' reasonable estimation of the damages which
Landlord will suffer as a result of Tenant's breach (including the
loss of rents, the costs of reletting, and the rent concessions which
Landlord would have to incur as a consequence thereof) as of the date
hereof. Tenant shall pay to Landlord the foregoing sum immediately
upon delivery to it of Landlord's notice of the foregoing election.
Landlord and Tenant hereby acknowledge and agree that the foregoing
sum represents an enforceable liquidated damages remedy, and does not
(and in no event shall be deemed to) constitute a penalty, the
parties hereby further acknowledging that, in light of the size of
the Premises, Landlord is likely to encounter a substantial and
prolonged period of vacancy, and substantial brokerage fees and other
costs and expenses in connection with any attempt to relet the
Premises following a termination of this Lease.
27.6 Anticipatory Breach. Nothing contained herein shall prevent the
enforcement of any claim Landlord may have against Tenant for
anticipatory breach of the unexpired Term of this Lease. In the event
of a breach or anticipatory breach by Tenant of any of the covenants
or provisions hereof, Landlord shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if
re-entry, summary proceedings and other remedies were not provided for
herein.
27.7 Removal of Personal Property. All property of Tenant removed from the
Premises by Landlord pursuant to any provision of this Lease or
applicable law may be handled, removed or stored by Landlord at the
cost and expense of Tenant, and Landlord shall not be responsible in
any event for the value, preservation or safekeeping thereof. Tenant
shall pay Landlord for all expenses incurred by Landlord with respect
to such removal and storage so long as the same is in Landlord's
possession or under Landlord's control. All such property not removed
from the Premises or retaken from storage by Tenant within thirty (30)
days after the end of the Term, however terminated, at Landlord's
option, shall be conclusively deemed to have been conveyed by Tenant
to Landlord as by bill of sale without further payment or credit by
Landlord to Tenant.
27.8 Attorneys' Fees. Tenant shall pay all of Landlord's costs, charges and
expenses, including court costs and reasonable attorneys' fees,
incurred in enforcing Tenant's obligations under this Lease, incurred
by Landlord in any action brought by Tenant in which Landlord is the
prevailing party, or incurred by Landlord in any litigation,
negotiation or transaction in which Tenant causes Landlord, without
Landlord's fault, to become involved or concerned. For purposes of the
foregoing sentence, Landlord shall be deemed to be the prevailing
party in any action brought by Tenant if, upon resolution of the
action (whether by voluntary withdrawal by Tenant, unilateral action,
mutual settlement, dismissal or judgment), Tenant has failed in any
material respect to obtain all relief sought by Tenant in such action;
provided that Landlord shall in all events be deemed to be the
prevailing party in any action in which Landlord is granted a judgment
for possession of the Premises. In any such events Landlord shall be
entitled to recover one hundred percent (100%) of its legal fees
incurred in such action, notwithstanding that Landlord has not
prevailed on one hundred percent (100%) of its claims in such action.
27.9 Assumption or Rejection in Bankruptcy. If Tenant is adjudged bankrupt,
or a trustee in bankruptcy is appointed for Tenant. Landlord and
Tenant, to the extent permitted by law, agree to request that the
trustee in bankruptcy determine within sixty (60) days thereafter
whether to assume or to reject this Lease.
27.10 Default Under Other Leases. If the term of any lease, other than this
Lease, for any space in the Project under which Tenant is now or
hereafter the tenant, shall be terminated or terminable after the
making of this Lease because of any default by Tenant under such other
lease, such fact shall empower Landlord, at Landlord's sole option, to
terminate this Lease by notice to Tenant or to exercise any of the
rights or remedies set forth in Section 27.2.
27.11 WAIVER OF TENANT'S RIGHT OF REDEMPTION. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TENANT HEREBY WAIVES ANY AND ALL RIGHTS OF REDEMPTION
AND RIGHTS TO CURE ANY DEFAULT HEREUNDER (HOWSOEVER DENOMINATED) NOW
OR HEREAFTER GRANTED TO TENANT PURSUANT TO APPLICABLE LAW. NO
ACCEPTANCE BY LANDLORD OF ANY MONIES OWED BY TENANT TO LANDLORD SHALL
CONSTITUTE A WAIVER OF THE PROVISIONS OF THIS ARTICLE 27, NOR SHALL
ANY REFUSAL BY LANDLORD TO ACCEPT ANY TENDER BY TENANT OF ANY SUMS
OWED BY TENANT TO LANDLORD, IN CONNECTION WITH ANY PURPORTED EXERCISE
OF ANY RIGHT OF REDEMPTION OR RIGHT TO CURE TO WHICH TENANT WOULD
OTHERWISE BE ENTITLED, CONSTITUTE A TERMINATION OF THIS LEASE OR A
RELEASE OF TENANT FROM ANY LIABILITY HEREUNDER.
27.12 CERTAIN WAIVERS. EXCEPT AS SPECIFICALLY PROVIDED IN THIS LEASE AND
EXCEPT AS SPECIFICALLY PROVIDED TO THE CONTRARY PURSUANT TO APPLICABLE
LAW, TENANT HEREBY EXPRESSLY WAIVES THE SERVICE OF ANY NOTICE TO CURE
OR VACATE OR TO QUIT THE PREMISES AND WAIVES THE SERVICE OF ANY OTHER
NOTICE OR DEMAND PRESCRIBED BY ANY CURRENT OR FUTURE STATUTE OR OTHER
APPLICABLE LAW.
27.13 Landlord's Default. It is expressly understood and agreed that if
Tenant obtains a money judgment against Landlord resulting from any
default or other claim arising under this Lease, that judgment shall
be satisfied only out of the rents, issues, profits and other income
actually received on account of Landlord's right, title and interest
in the Premises, Building or Project, and no other real,
Page 11 Landlord /s/ JF Tenant /s/ PF
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<PAGE> 15
personal or mixed property of Landlord (or of any of the partners which
comprise Landlord, if any) wherever situated, shall be subject to levy
to satisfy such judgment. Tenant shall not have the right to terminate
this Lease or to withhold, reduce or offset any amount against any
payments of Rent or any other charges due and payable under this Lease,
except as otherwise specifically provided herein.
28. BROKERAGE FEES
Tenant warrants and represents that it has not dealt with any real
estate broker or agent in connection with this Lease or its negotiation
except those noted in Section 2pq. Tenant shall indemnify and hold
Landlord harmless from any cost, expense or liability (including costs
of suit and reasonable attorneys' fees) for any compensation,
commission or fees claimed by any other real estate broker or agent in
connection with this Lease or its negotiation by reason of any alleged
act of Tenant.
29. NOTICES
All notices, approvals and demands permitted or required to be given
under this Lease shall be in writing and deemed duly served or given if
personally delivered or sent by certified or registered U.S. mail,
postage prepaid, and addressed as follows: (a) if to Landlord, to
Landlord's Mailing Address and to the Building manager, and (b) if to
Tenant, to Tenant's Mailing Address; provided, however, notices to
Tenant shall be deemed duly served or given if delivered or mailed to
Tenant at the Premises. Landlord and Tenant may from time to time by
notice to the other designate another place for receipt of future
notices.
Landlord hereby designates Edward R. Parker, whose address in the
Commonwealth of Virginia is 5511 Staples Mill Road, Richmond, Virginia
23228 as Landlord's agent for the purpose of service of any process,
notice, order or demand required or permitted by law to be served upon
Landlord; provided, however, that any such notice, order or demand
required or permitted by law to be served upon Landlord shall in
addition be served to Landlord in accordance with the first sentence of
this Article 29.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS
In the event of imposition of federal, state or local government
controls, rules, regulations, or restrictions on the use or consumption
of energy or other utilities during the Term, both Landlord and Tenant
shall be bound thereby. In the event of a difference in interpretation
by Landlord and Tenant of any such controls, the interpretation of
Landlord shall prevail, and Landlord shall have the right to enforce
compliance therewith, including the right of entry into the Premises to
effect compliance.
32. QUIET ENJOYMENT
Tenant, upon paying the Rent and performing all of its obligations
under this Lease, shall peaceably and quietly enjoy the Premises,
subject to the terms of this Lease and to any mortgage, lease, or other
agreement to which this Lease may be subordinate.
33. OBSERVANCE OF LAW
Tenant shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or
which may hereafter be enacted or promulgated. Tenant shall, at its
sole cost and expense, promptly comply with all laws, statutes,
ordinances and governmental rules, regulations or requirements now in
force or which may hereafter be in force, and with the requirements of
any board of fire insurance underwriters or other similar bodies now or
hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to
or affected by Tenant's improvements or acts. The judgment of any court
of competent jurisdiction or the admission of Tenant in any action
against Tenant, whether Landlord is a party thereto or not, that Tenant
has violated any law, ordinance or governmental rule, regulation or
requirement, shall be conclusive of that fact as between Landlord and
Tenant.
34. FORCE MAJEURE
Any prevention, delay or stoppage of work to be performed by Landlord
or Tenant which is due to strikes, labor disputes, inability to obtain
labor, materials, equipment or reasonable substitutes therefor, acts of
God, governmental restrictions or regulations or controls, judicial
orders, enemy or hostile government actions, civil commotion, fire or
other casualty, or other causes beyond the reasonable control of the
party obligated to perform hereunder, shall excuse performance of the
work by that party for a period equal to the duration of that
prevention, delay or stoppage. Nothing in this Article 34 shall excuse
or delay Tenant's obligation to pay Rent or other charges under this
Lease.
35. CURING TENANT'S DEFAULTS
If Tenant defaults in the performance of any of its obligations under
this Lease, Landlord may (but shall not be obligated to) without
waiving such default, perform the same for the account at the expense
of Tenant. Tenant shall pay Landlord all costs of such performance
promptly upon receipt of a bill therefor.
36. SIGN CONTROL
Tenant shall not affix, paint, erect or inscribe any sign, projection,
awning, signal or advertisement of any kind to any part of the
Premises, Building or Project, including without limitation, the inside
or outside of windows or doors, without the written consent of
Landlord. Landlord shall have the right to remove any signs or other
matter, installed without Landlord's permission, without being liable
to Tenant by reason of such removal, and to charge the cost of removal
to Tenant as additional rent hereunder payable within ten (10) days of
written demand by Landlord.
Page 12 Landlord /s/ JF Tenant /s/ PF
-------- --------
<PAGE> 16
37. HAZARDOUS SUBSTANCES
37.1 Defined Terms.
a. "Claim" shall mean and include any demand, cause of action,
proceeding or suit for any one or more of the following: (i)
actual or punitive damages, losses, injuries to person or
property, damages to natural resources, fines, penalties,
interest, contribution or settlement, (ii) the costs of site
investigations, feasibility studies, information requests,
health or risk assessments, or Response (as hereinafter
defined) actions, and (iii) enforcing insurance, contribution
or indemnification agreements.
b. "Environmental Laws" shall mean and include all federal, state
and local statutes, ordinances, regulations and rules relating
to environmental quality, health, safety, contamination and
clean-up, including, without limitation, the Clean Air Act, 42
U.S.C. Section 7401 et seq., the Clean Water Act, 33 U.S.C.
Section 1251 et seq.; and the Water Quality Act of 1987; the
Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"),
7 U.S.C. Section 136 et seq.; the Marine Protection, Research,
and Sanctuaries Act, 33 U.S.C., Section 1401 et seq.; the
National Environmental Policy Act, 42 U.S.C. Section 4321 et
seq.; the Noise Control Act, 42 U.S.C. Section 4901 et seq.;
the Occupational Safety and Health Act, 29 U.S.C. Section 651
et seq.; the Resource Conservation and Recovery Act ("RCRA"),
42 U.S.C. Section 6901 et seq., as amended by the Hazardous
and Solid Waste Amendments of 1984; the Safe Drinking Water
Act, 42 U.S.C. Section 3001 et seq.; the Comprehensive
Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. Section 9601 et seq., as amended by the
Superfund Amendments and Reauthorization Act, the Emergency
Planning and Community Right-to-Know Act, and Radon Gas and
Indoor Air Quality Research Act; the Toxic Substance Control
Act ("TSCA"), 15 U.S.C. Section 2601 et seq.; the Atomic
Energy Act, 42 U.S.C. Section 2011 et seq., and the Nuclear
Waste Policy Act of 1982, 42 U.S.C. Section 10101 et seq.; and
state superlien and environmental clean-up statutes, with
implementing regulations and guidelines, as amended from time
to time. Environmental Laws shall also include all state,
regional, county, municipal and other local laws, regulations,
and ordinances insofar as they are equivalent or similar to
the federal laws recited above or purport to regulate
Hazardous Materials (as hereinafter defined).
c. "Hazardous Materials" shall mean and include the following,
including mixtures thereof: any hazardous substance,
pollutant, contaminant, waste, by-product or constituent
regulated under CERCLA; oil and petroleum products and natural
gas, natural gas liquids, liquefied natural gas and synthetic
gas usable for fuel; pesticides regulated under the FIFRA;
asbestos and asbestos-containing materials, PCBs, and other
substances regulated under the TSCA; source material, special
nuclear material, by-product material and any other
radioactive materials or radioactive wastes, however produced,
regulated under the Atomic Energy Act or the Nuclear Waste
Policy Act; chemicals subject to the OSHA Hazard
Communication Standard, 29 C.F.R. Section 1910.1200 et seq.,
and industrial process and pollution control wastes, whether
or not hazardous within the meaning of RCRA; any substance
whose nature and/or quantity of existence, use, manufacture,
disposal or effect render it subject to federal, state or
local regulation, investigation, remediation, or removal as
potentially injurious to public health or welfare.
d. "Use" means to manage, generate, manufacture, process, treat,
store, use, re-use, refine, recycle, reclaim, blend or burn
for energy recovery, incinerate, accumulate speculatively,
transport, transfer, dispose of, or abandon Hazardous
Materials.
e. "Release" or "Released" shall mean any actual or threatened
spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or
disposing of Hazardous Materials into the environment, as
"environment" is defined in CERCLA.
f. "Response" or "Respond" shall mean action taken in compliance
with Environmental Laws to correct, remove, remediate,
cleanup, prevent, mitigate, monitor, evaluate, investigate,
assess or abate the Release of a Hazardous Material.
37.2 Tenant's Obligations with Respect to Environmental Matters. During the
term of this Lease, (a) Tenant shall comply at its own cost with all
Environmental Laws; (b) Tenant shall not Use, or authorize the Use of,
any Hazardous Materials on the Premises, including installation of any
underground storage tanks, without prior written disclosure to and
approval by the Landlord, except for small quantities ordinarily used
by office tenants in ordinary office equipment, such as copying
machines, typewriters and personal computers; but only to the extent
permitted by law; (c) Tenant shall not take any action that would
subject the Premises to permit requirements under RCRA for storage,
treatment or disposal of Hazardous Materials; (d) Tenant shall not
dispose of Hazardous Materials in dumpsters provided by Landlord for
tenant use; (e) Tenant shall not discharge Hazardous Materials into
Project drains or sewers; (f) Tenant shall not cause or allow the
Release of any Hazardous Materials on, to, or from the Project; and (g)
Tenant shall arrange at its own cost for the lawful transportation and
off-site disposal of all Hazardous Materials that it generates.
37.3 Copies of Notices. During the term of this Lease, Tenant shall provide
Landlord promptly with copies of all summons, citations, directives,
information inquiries or requests, notices of potential responsibility,
notices of violation or deficiency, orders or decrees, Claims,
complaints, investigations, judgments, letters, notices of
environmental liens or Response actions in progress, and other
communications, written or oral, actual or threatened, from the United
States Environmental Protection Agency, Occupational Safety and Health
Administration, or other federal, state or local agency or authority,
or any other entity or individual, concerning (a) any Release of a
Hazardous Material on, to or from the Premises; (b) the imposition of
any lien on the Premises; or (c) any alleged violation of or
responsibility under Environmental Laws. Landlord and Landlord's
beneficiaries, agents and employees shall have the right to enter the
Premises and conduct appropriate inspections or tests in order to
determine Tenant's compliance with Environmental Laws.
37.4 Tests and Reports. Upon written request by Landlord, Tenant shall
provide Landlord with the results of appropriate reports and tests,
with transportation and disposal contracts for Hazardous Materials,
with any permits issued under Environmental Laws, and with any other
applicable documents to demonstrate that Tenant complies with all
Environmental Laws relating to the Premises.
37.5 Tenant's Obligation to Respond. If Tenant's Use of Hazardous Materials
at the Premises (a) gives rise to liability or to a Claim under any
Environmental Law, (b) causes a significant public health effect, or
(c) creates a nuisance, Tenant shall promptly take all applicable
action in Response.
37.6 Indemnification. Tenant shall indemnify, defend, and hold harmless
Landlord, its beneficiaries, its lenders, any managing agents and
leasing agents of the Premises, and their respective agents,
representatives partners, officers, directors and employees from and
against any and all Claims arising from or attributable to any breach
by Tenant of any of its warranties, representations or covenants in
this Article. Tenant's obligations hereunder shall survive the
termination or expiration of this Lease.
38. PARKING
a. Parking Rules and Regulations. Tenant shall observe and abide by all
parking rules and regulations created or imposed from time to time by
Landlord. If Tenant commits, permits or allows any activity prohibited
by the rules and regulations, Landlord shall have the right, without
notice and in addition to any other available rights and remedies, to
remove, tow or physically incapacitate the vehicle involved at Tenant's
cost and expense, payable immediately upon demand.
b. Changes by Landlord. Landlord reserves the right in its sole discretion
to change or alter the parking, its layout or access thereto, and to
restrict, expand or reduce the number or size of the parking spaces.
c. Waiver and Release. The right to park granted hereunder is solely for
the convenience and accommodation of Tenant, and does not constitute a
bailment or create the relationship of bailor and bailee. Tenant waives
and releases Landlord from any responsibility or liability for loss or
damage to any person or property respecting use of the parking by
Tenant, its employees or invitees.
Landlord /s/ JF Tenant /s/ PF
-------- ------
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<PAGE> 17
39. MISCELLANEOUS
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant
or receipt by Landlord of a lesser amount than the Rent provided for in
this Lease shall be deemed to be other than on account of the earliest
Rent due, nor shall any endorsement or statement on any check or letter
accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of the Rent or
pursue any other remedy provided for in this Lease. In connection with
the foregoing, Landlord shall have the absolute right in its sole
discretion to apply any payment received from Tenant to any account or
other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in a Rider to this Lease is
inconsistent with any other provision herein, the provision contained
in the Rider shall control, unless otherwise provided in the Rider.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the
finally prevailing party shall be entitled to recover all costs and
expenses, including reasonable attorneys' fees, incurred on account of
such action or proceeding. For purposes of the foregoing sentence, the
"finally prevailing party" shall be deemed to be the party which, upon
resolution of the action (whether by voluntary withdrawal, unilateral
action, mutual settlement, dismissal or judgment), has obtained
substantially the relief sought by such party in such action; provided
that, Landlord shall in all events be deemed to be the finally
prevailing party in any action in which Landlord is granted a judgment
for possession of the Premises. In all events the finally prevailing
party shall be entitled to recover one hundred percent (100%) of its
legal fees incurred in such action, notwithstanding that such party has
not prevailed on one hundred percent (100%) of its claims in such
action.
d. Captions, Articles and Section Numbers. The captions appearing within
the body of this Lease have been inserted as a matter of convenience
and for reference only and in no way define, limit or enlarge the scope
or meaning of this Lease. All references to Article and Section numbers
refer to Articles and Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord nor Tenant shall
unreasonably withhold its consent to changes or amendments to this
Lease requested by the lender on Landlord's interest, so long as these
changes do not alter the basic business terms of this Lease or
otherwise materially diminish any rights or materially increase any
obligations of the party from whom consent to such change or amendment
is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance
with the laws of the Commonwealth of Virginia, without regard to the
conflict of Laws principles thereof.
g. Consent. Notwithstanding anything contained in this Lease to the
contrary, Tenant shall have no claim, and hereby waives the right to
any claim against Landlord for money damages by reason of any refusal,
withholding or delaying by Landlord of any consent, approval or
statement of satisfaction, and in such event, Tenant's only remedies
therefor shall be an action for specific performance, injunction or
declaratory judgment to enforce any right to such consent, etc.
Additionally, unless otherwise specifically provided herein, Landlord
may grant or refuse its consent to any item in its sole discretion.
h. Authority. If Tenant is a corporation or partnership, each individual
signing this Lease on behalf of Tenant represents and warrants that he
is duly authorized to execute and deliver this Lease on behalf of the
corporation, and that this Lease is binding on Tenant in accordance
with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of a resolution of its board of directors authorizing
such execution.
i. Counterparts. This Lease may be executed in multiple counterparts, all
of which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant
shall be for examination purposes only, and does not and shall not
constitute a reservation of or option for Tenant to lease, or otherwise
create any interest of Tenant in the Premises or any other premises
within the Building or Project. Execution of this Lease by Tenant and
its return to Landlord shall not be binding on Landlord notwithstanding
any time interval, until Landlord has in fact signed and delivered this
Lease to Tenant.
k. Furnishing of Financial Statements; Tenant's Representations. In order
to induce Landlord to enter into this Lease, Tenant agrees that it
shall promptly furnish Landlord, from time to time, upon Landlord's
written request, Tenant's audited annual report(s) unless Tenant is in
default of this Lease, in which event Tenant shall furnish Landlord
with financial statements reflecting Tenant's current financial
condition. Tenant represents and warrants that all financial
statements, records and information furnished by Tenant to Landlord in
connection with this Lease are true, correct and complete in all
respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered
mail to any mortgagee or deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default
served by Tenant on Landlord. If Landlord fails to cure such default
within the time provided for in this Lease, such mortgagee or
beneficiary shall have an additional thirty (30) days to cure such
default; provided that if such default cannot reasonably be cured
within that thirty (30) day period, then such mortgagee or beneficiary
shall have such additional time to cure the default as is reasonably
necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements
of the parties with respect to any matter covered or mentioned in this
Lease, and no prior agreement or understanding pertaining to any such
matter shall be effective for any purpose. No provisions of this Lease
may be amended or added to except by an agreement in writing signed by
the parties of their respective successors in interest.
o. Recording. Tenant shall not record this Lease without the prior written
consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for
recording purposes.
p. Severability. A final determination by a court of competent
jurisdiction that any provision of this Lease is invalid shall not
affect the validity of any other provision, and any provision so
determined to be invalid shall, to the extent possible, be construed to
accomplish its intended effect. In the event that any material
provision (or any material part of any provision) contained in this
Lease shall for any reason be held to be invalid, unlawful or
unenforceable in any respect, Landlord and Tenant shall, at Landlord's
election, amend this Lease so as to render every provision hereby fully
valid, lawful and enforceable in all respect, and so as to result in a
revised lease with equivalent economic and legal substance as if no
provision or portion of this Lease had been declared invalid, unlawful
or unenforceable.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the
parties.
r. Time of the Essence. Time is of the essence of the Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant shall impair such right or remedy
to be construed as a waiver of such default.
The receipt and acceptance by Landlord of delinquent Rent shall not
constitute a waiver of any default.
Landlord /s/ JF Tenant /s/ PF
------- ------
Page 14
<PAGE> 18
No act or conduct of Landlord, including, without limitation, the
acceptance of keys to the Premises, shall constitute an acceptance of
the surrender of the Premises by Tenant before the expiration of the
Term. Only a written notice from Landlord to Tenant shall constitute
acceptance of the surrender of the Premises and accomplish a
termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by
Tenant.
Any waiver by Landlord of any default must be in writing and shall not
be a waiver of any other default concerning the same or any other
provision of the Lease.
40. TRAFFIC CONTROL
Pursuant to Statement of Conditions FDP 82-C-056 imposed by the County
of Fairfax, Tenant agrees as follows:
a. Tenant will engage in a program which will encourage ride-sharing and
other measures designed to reduce peak-hour traffic generated by the
development. Included within such provisions will be the following
options:
1. That the Tenant establish, either individually or in common with other
tenants within the development, a formal ride-sharing program whereby
an employee(s) will be designated as a car-pool coordinator to work
with fellow employees and the Fairfax County ride-sharing coordinator
to actively encourage employees to participate in ride-sharing. Also,
that Tenant provide distribution of public transit information.
2. That Tenant give consideration to active participation in the
establishment and maintenance of a vanpooling program for its
employees.
3. That Tenant give consideration to establishing and maintaining a system
of flexible or staggered work hours.
41. WAIVER OF JURY TRIAL; WAIVER OF COUNTERCLAIMS
IN CONSIDERATION OF THE RECIPROCAL WAIVER GRANTED BY THE OTHER PARTY
PURSUANT TO THIS ARTICLE 41, EACH OF LANDLORD AND TENANT HEREBY (I)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE
OF RIGHT BY A JURY, AND (II) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO
THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST, WITH
RESPECT TO EACH AND EVERY ACTION, CLAIM, COUNTERCLAIM, PROCEEDING OR
SUIT IN WHICH LANDLORD AND TENANT ARE ADVERSE PARTIES OR TAKE ADVERSE
POSITIONS. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN,
KNOWINGLY AND VOLUNTARILY, AND THIS WAIVER IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
JURY TRIAL WOULD OTHERWISE ACCRUE, INCLUDING, BUT NOT LIMITED TO, ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER LANDLORD OR TENANT
ON, OR IN RESPECT OF, ANY MATTER OR CLAIM WHATSOEVER, WHETHER SOUNDING
IN TORT OR CONTRACT, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE
PREMISES OR THIS LEASE (INCLUDING, BUT NOT LIMITED TO, ANY CHALLENGE TO
THE VALIDITY AND/OR EFFECTIVENESS OF THE LEASE IN WHICH THIS JURY TRIAL
WAIVER APPEARS OR TO THE VALIDITY OR EFFECTIVENESS OF THIS JURY TRIAL
WAIVER, WHETHER BY CLAIM OR FRAUD IN THE FACTUM OR IN THE INDUCEMENT,
INTENTIONAL OR NEGLIGENT MISREPRESENTATION, DECEIT, OR OTHERWISE), THE
RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, TENANT'S USE OR
OCCUPANCY OF THE PREMISES AND/OR ANY CLAIM OF PERSONAL OR PROPERTY
INJURY OR DAMAGE, OR ANY STATUTORY REMEDY. EACH PARTY HERETO IS HEREBY
AUTHORIZED AND REQUESTED TO SUBMIT THIS LEASE PROVISION TO ANY COURT
HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, AS
TO SERVE AS CONCLUSIVE EVIDENCE OF THE HEREIN CONTAINED WAIVER OF THE
RIGHT TO JURY TRIAL. FURTHER, EACH OF LANDLORD AND TENANT HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE OTHER PARTY HERETO
(NOR THEIR RESPECTIVE COUNSEL) HAS REPRESENTED TO THE OTHER, EXPRESSLY
OR OTHERWISE, THAT SUCH PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF
RIGHT TO JURY TRIAL PROVISION. BY INITIALING WHERE INDICATED BELOW,
LANDLORD AND TENANT EACH ACKNOWLEDGE THAT (I) THEY ARE FULLY AWARE OF
THE EXISTENCE OF THIS JURY TRIAL WAIVER, (II) THEY HAVE READ AND FULLY
REVIEWED THIS JURY TRIAL WAIVER, (III) THEY HAVE HAD A REASONABLE
OPPORTUNITY TO REVIEW THIS JURY TRIAL WAIVER WITH COUNSEL OF THEIR
RESPECTIVE CHOICE, AND (IV) THIS JURY TRIAL WAIVER CONSTITUTES AN
INDEPENDENT AGREEMENT AND COVENANT OF LANDLORD AND TENANT WHICH SHALL
SURVIVE (A) THE INVALIDATION OF ALL OR ANY PORTION OF THE REMAINDER OF
THE DEED OF LEASE IN WHICH THIS JURY TRIAL WAIVER APPEARS, OR (B) THE
EXPIRATION OR SOONER TERMINATION OF THE DEED OF LEASE IN WHICH THIS
JURY TRIAL WAIVER APPEARS.
TENANT'S INITIALS /s/ PF LANDLORD'S INITIALS /s/ JF
------------------- -------------------
TENANT FURTHER AGREES NOT TO INSTITUTE, ASSERT, RAISE OR INTERPOSE ANY
NON-COMPULSORY CLAIM, DEFENSE OR COUNTERCLAIM IN ANY ACTION OR
PROCEEDING INSTITUTED BY LANDLORD TO RECOVER POSSESSION OF THE PREMISES
OR TO COLLECT RENT DUE HEREUNDER. TENANT HEREBY REPRESENTS AND
ACKNOWLEDGES THAT NEITHER LANDLORD, NOR ANY AGENT OF LANDLORD
(INCLUDING LANDLORD'S ATTORNEYS), HAS REPRESENTED OR OTHERWISE
INDICATED THAT LANDLORD WILL NOT SEEK TO ENFORCE THIS WAIVER OF
NON-COMPULSORY COUNTERCLAIMS UNDER ANY CIRCUMSTANCES WHATSOEVER.
42. FIRST OPPORTUNITY TO LEASE ADDITIONAL SPACE.
a. Provided Tenant is not in default and has performed all of its
obligations hereunder, Tenant shall have the first opportunity to lease
such other space located in Suites 501 on the fifth floor of the
Building as it becomes available for leasing ("First Opportunity") for
a term coterminous with this Lease at the following rental rates:
<TABLE>
<CAPTION>
Period Rentable Per Sq. Ft. Per Yr. Rental Rate
------ ----------------------------------------
<S> <C> <C>
October 1, 1996 through and including September 30, 1997 $17.00
October 1, 1997 through and including September 30, 1998 $17.51
October 1, 1998 through and including September 30, 1999 $18.04
October 1, 1999 through and including September 30, 2000 $18.58
October 1, 2000 through and including September 30, 2001 $19.13
</TABLE>
Landlord /s/ JF Tenant /s/ PF
-------- ------
Page 15
<PAGE> 19
b. Landlord will provide Tenant an improvement allowance only for the
construction of building standard tenant improvements within the
additional space leased in an amount calculated using the following
formula:
$7.00 x Usable Square Feet x Number of months prior to July 31, 2001,
beginning the next month of additional
space after Landlord notifies Tenant
that the additional space is available
for lease.
c. Upon notification in writing by Landlord that such space is available,
Tenant shall have ten (10) business days in which to elect in writing
so to lease such space, in which event the lease for same shall
commence not more than thirty (30) days after such space becomes vacant
and shall be coterminous with this Lease.
d. In the event Tenant declines or fails to elect so to lease such space,
then the first Opportunity hereby granted shall automatically terminate
and shall thereafter be null and void as to such space.
e. It is understood that this First Opportunity shall not be construed to
prevent any lessee in the Building from extending or renewing its
lease.
f. The First Opportunity hereby granted is personal to TCSI Corporation, a
Nevada corporation, and is not transferable; in the event of any
assignment or subletting under this Lease, the First Opportunity shall
automatically terminate and shall thereafter be null and void.
The parties hereto have executed this Lease as of the dates set forth below.
TENANT LANDLORD
TCSI Corporation, a Nevada COW HOLDINGS LIMITED, a Delaware
corporation corporation
By: /s/ Paul A. Farmer By: /s/ Jonathan J. Feicht
------------------------------- --------------------------------
Its: CFO Its: Assistant Secretary
------------------------------ -------------------------------
Date: 8/6/96 Date: August 14, 1996
----------------------------- ------------------------------
By:
--------------------------
Its:
-------------------------
Date:
------------------------
Landlord /s/ JF Tenant /s/ PF
-------- ------
Page 16
<PAGE> 20
EXHIBIT "A"
To Lease dated July 25, 1996
by and between
COW HOLDINGS LIMITED, a Delaware corporation, as Landlord, and
TCSI Corporation, a Nevada corporation, as Tenant
FLOOR PLAN
Landlord /s/ JF Tenant /s/ PF
-------- ------
Page 17
<PAGE> 21
EXHIBIT "B"
To Lease dated July 25, 1996
by and between
COW HOLDINGS LIMITED, a Delaware corporation, as Landlord, and
TCSI Corporation, a Nevada corporation, as Tenant
SITE PLAN
Landlord /s/ JF Tenant /s/ PF
-------- ------
Page 18
<PAGE> 22
EXHIBIT "C"
To Lease dated July 25, 1996
by and between
COW HOLDINGS LIMITED, a Delaware corporation, as Landlord, and
TCSI Corporation, a Nevada corporation, as Tenant
WORK LETTER
1. APPLICATION OF WORK LETTER
Capitalized terms used and not otherwise defined herein shall have the same
definitions as set forth in this Lease. The provisions of this Work Letter shall
apply to the planning and completion of leasehold improvements requested by
Tenant (the "Tenant Improvements") for the fitting out of the Premises, as more
fully set forth herein.
2. LANDLORD AND TENANT PRE-CONSTRUCTION OBLIGATIONS
a) Preliminary Space Plans. Within ten (10) days following full execution of
this Lease by both Landlord and Tenant, Landlord's Architect shall prepare
preliminary space plans for the Tenant Improvements (the "Preliminary Plans")
which shall include, without limitation, sketches and/or drawings showing the
location of doors, partitioning, electrical fixtures, outlets and switches,
plumbing fixtures, and other requirements mutually agreed upon by Landlord and
Tenant as required for Tenant's use of the Premises. Tenant agrees to and shall
promptly and fully cooperate with Landlord's Architect and shall supply all
information Landlord's Architect deems necessary for the preparation of the
Preliminary Space Plans. Tenant acknowledges that the Preliminary Space Plans
shall be prepared by Landlord's Architect after consultation and cooperation
between Tenant and Landlord's Architect regarding the proposed Tenant
Improvements and Tenant's requirements. The costs associated with preparation of
the Preliminary Space Plans shall be borne by Tenant and paid as set forth in
Sections 5 and 6 of this Work Letter.
b) Work Drawings. Within twenty (20) days following full execution of this
Lease by both Landlord and Tenant, Landlord's Architect shall prepare working
drawings (the "Workings Drawings") for the Tenant Improvements based upon the
approved Preliminary Space Plans. The Working Drawings shall include
architectural, mechanical and electrical drawings for the Tenant Improvements
based on the Preliminary Space Plans. Notwithstanding the Preliminary Space
Plans, in all cases the Working Drawings (i) shall be subject to Landlord's
final approval, which approval shall not be unreasonably withheld, (ii) shall
not be in conflict with building codes for the city or county within which the
Building is located or with insurance requirements for a fire resistive Class A
building, and (iii) shall be in a form satisfactory to appropriate governmental
authorities responsible for issuing permits and licenses required for
construction. The costs associated with preparation of the Working Drawings
shall be borne by Tenant and paid as set forth in Sections 5 and 6 of this Work
Letter.
c) Approval of Working Drawings. Landlord or Landlord's Architect shall
submit the Working Drawings to Tenant for Tenant's review and Tenant shall
notify Landlord and Landlord's Architect within three (3) business days after
delivery thereof of any requested revisions. Within three (3) business days
after receipt of Tenant's notice, Landlord's Architect shall make all approved
revisions to the Working Drawings and submit two (2) copies thereof to Tenant
for its final review and approval, which approval shall be given within two (2)
business days thereafter. Concurrently with the above review and approval
process, Landlord may submit all plans and specifications to city and/or other
applicable governmental agencies in an attempt to expedite city approval and
issuance of all necessary permits and Licenses to construct the Tenant
Improvements as shown on the Working Drawings. Any changes which are required by
city or other governmental agencies shall be immediately submitted to Landlord
for Landlord's review and reasonable approval, and Landlord shall promptly
notify Tenant of such changes.
d) Schedule of Critical Dates. set forth below is a schedule of certain
critical dates relating to Landlord's and Tenant's respective obligations for
the design and construction of the Tenant Improvements. Such dates and the
respective obligations of Landlord and Tenant are more fully described elsewhere
in this Work Letter. The purpose of the following schedule is to provide a
reference for Landlord and Tenant and to make certain the Final Approval Date
occurs as set forth herein. Following the Final Approval Date, Tenant shall be
deemed to have released Landlord to commence construction of the Tenant
Improvements as set forth in Section 4 below.
<TABLE>
<CAPTION>
Reference Date Due Responsible Party
- --------- -------- -----------------
<S> <C> <C>
A. "Preliminary Space Ten (10) days after full Tenant & Landlord
Plan Approval" execution of this Lease
B. "Working Drawings Twenty (20) days after full Landlord
Completion" execution of this Lease
C. "Working Drawings Three (3) business days after Tenant
Review" Landlord submits the Working
Drawings to Tenant
D. "Working Drawings Three (3) business days after Landlord
Revisions" Tenant returns the Working
Drawings to Landlord
E. "Final Approval Two (2) business days after Tenant
Date" Landlord submits the revised
Working Drawings to Tenant
</TABLE>
Landlord /s/ JF Tenant /s/ PF
------ ------
Page 19
<PAGE> 23
3. BUILDING PERMIT
After the Final Approval Date has occurred, Landlord shall, if Landlord has
not already done so, submit the Working Drawings to the appropriate governmental
body or bodies for final plan checking and a building permit. Landlord, with
Tenant's cooperation, shall cause to be made any change in the Working Drawings
necessary to obtain the building permit; provided, however, after the Final
Approval Date, no changes shall be made to the Working Drawings without the
prior written approval of both Landlord and Tenant, and then only after
agreement by Tenant to pay any excess costs resulting from such changes.
4. CONSTRUCTION OF TENANT IMPROVEMENTS
After the Final Approval Date has occurred and a building permit for the
work has been issued, Landlord shall, through a guaranteed maximum cost or fixed
price (at Landlord's sole option) construction contract ("Construction
Contract") with a reputable, licensed contractor selected by Landlord
("Contractor"), cause the construction of the Tenant Improvements to be carried
out in substantial conformance with the Working Drawings in a good and
workmanlike manner using first-class materials. The costs associated with the
construction of the Tenant Improvements shall be paid as set forth in Section 5
and 6 of this Work Letter. Landlord shall see that the construction complies
with all applicable building, fire, health, and sanitary codes and regulations,
the satisfaction of which shall be evidenced by a certificate of occupancy for
the Premises.
5. TENANT IMPROVEMENT ALLOWANCE
Landlord shall provide Tenant with a Tenant Improvement Allowance in the
amount of Eighty-Two Thousand Nine Hundred One and 00/100 Dollars ($82,901.00)
towards the cost of the design, purchase and construction of the Tenant
Improvements, including without limitation design, engineering and consulting
fees (collectively, the "Tenant Improvements Costs"). The Tenant Improvement
Allowance shall be used for payment of the following Tenant Improvements Costs:
(i) Preparation of the Preliminary Space Plans and the Working Drawings
as provided in Section 2 of this Work Letter, including without limitation all
fees charged by the city or other governmental agencies (including without
limitation fees for building permits and plan checks) in connection with the
Tenant Improvements work in the Premises;
(ii) Construction work for completion of the Tenant Improvements as
reflected in the Construction Contract;
(iii) All contractor's charges, general conditions, performance bond
premiums and construction management fees.
6. COSTS IN EXCESS OF TENANT IMPROVEMENT ALLOWANCE AT TENANT'S EXPENSE
(a) Cost Approval. Tenant shall pay the excess of the Tenant Improvements
Costs over the amount of the Tenant Improvement Allowance available to defray
such costs. Concurrent with the plan checking referred to in Section 3 of this
Work Letter, Landlord shall prepare and submit to Tenant a written estimate of
the amount of the Tenant Improvements Costs and the amount of the Tenant
Improvement Allowance available to defray such costs (after preparation of the
Preliminary Space Plans and Working Drawings). Tenant shall approve or
disapprove any such estimate by written notice to Landlord within three (3)
business days after receipt thereof. If Tenant fails to notify Landlord of its
disapproval within such three (3) business day period, Tenant shall be deemed to
have approved such estimate. If such estimate exceeds the Tenant Improvement
Allowance then still available and Tenant approves such estimate, Tenant's
notice of approval shall include payment to Landlord for the full amount of such
excess. If Tenant disapproves such estimate within the three (3) business day
period, Tenant shall be required to direct Landlord and Landlord's Architect to
amend the Working Drawings in a manner satisfactory to Landlord so as to reduce
the estimated costs to an amount acceptable to Tenant, and any excess estimated
costs remaining after such amendment shall be paid by Tenant in the manner
described in the preceding sentence. Tenant shall additionally pay any costs
resulting from such amendment and Tenant shall be liable for the delay in
completing the Tenant Improvements and the increased costs, if any, resulting
from such delay. If Tenant is unwilling or unable to amend the Working Drawings
in a manner acceptable to Landlord, then Tenant shall be deemed to have approved
of the estimate for the Working Drawings as prepared, and shall pay in full the
amount of any excess estimated costs together with any costs arising from delay
as a result of Tenant's action hereunder, in the manner hereinabove provided.
(b) Final Costs. Within sixty (60) days after completion by Landlord of the
Tenant Improvements, Landlord shall determine the actual final Tenant
Improvements Costs and shall submit a written statement of such amount to
Tenant. If any estimate previously paid by Tenant exceeds the amount due
hereunder from Tenant for such work, such excess shall be refunded to Tenant. If
any amount is still due from Tenant for such work, then Tenant shall pay such
amount in full within ten (10) days after receipt of Landlord's statement.
7. CHANGE ORDERS
Tenant may from time to time request and obtain change orders during the
course of construction provided that: (i) each such request shall be reasonable,
shall be in writing and signed by or on behalf of Tenant, and shall not result
in any structural change in the Building, as reasonably determined by
Landlord, (ii) all additional charges and costs, including without limitation
architectural and engineering costs, construction and material costs, and
processing costs of any governmental entity shall be the exclusive obligation of
Tenant, and (iii) any resulting delay in the completion of the Tenant
Improvements shall be deemed a Tenant Delay and in no event shall extend the
Commencement Date. Upon Tenant's request for a change order, Landlord shall as
soon as reasonably possible submit to Tenant a written estimate of the increased
or decreased cost and anticipated delay, if any, attributable to such requested
change. Within three (3) days of the date of such estimated cost adjustment and
delay are delivered to Tenant, Tenant shall advise Landlord whether it wishes to
proceed with the change order, and if Tenant elects to proceed with the change
order, Tenant shall remit, concurrently with Tenant's notice to proceed, the
amount of the increased cost, if any, attributable to such change order.
Landlord /s/ JF Tenant /s/ PF
-------- ------
Page 20
<PAGE> 24
Unless Tenant includes in its initial change order request that the work in
process at the time such request is made to be halted pending approval and
execution of a change order, Landlord shall not be obligated to stop
construction of the Tenant Improvements, whether or not the change order relates
to the work then in process or about to be started.
8. TENANT DELAYS
In no event shall the Commencement Date be extended or delayed due or
attributable to delays due to the fault of Tenant ("Tenant Delays"). Tenant
Delays shall include, but are not limited to, delays caused by or resulting from
any one or more of the following:
a) Tenant's failure to timely review and reasonably approve the Working
Drawings or to promptly cooperate with Landlord's Architect and furnish
information to Landlord for the preparation of the Preliminary Space Plans and
Working Drawings;
b) Tenant's request for or use of special materials, finishes or
installations which are not readily available, provided that Landlord shall
notify Tenant that the particular material, finish, or installation is not
readily available promptly upon Landlord's discovery of same;
c) Change orders requested by Tenant;
d) Interference by Tenant or by Tenant's Agents with Landlord's
construction activities;
e) Tenant's failure to approve any other item or perform any other
obligation in accordance with any by the dates specified herein or in the
Construction Contract;
f) Tenant's requested changes in the Preliminary Space Plans, Working
Drawings or any other plans and specifications after the approval thereof by
Tenant or submission thereof by Tenant to Landlord;
g) Tenant's failure to approve written estimates of costs in accordance
with this Work Letter; and
h) Tenant's obtaining or failure to obtain any necessary governmental
approvals or permits for Tenant's intended use of the Premises.
If the Commencement Date is delayed by any Tenant delays, whether or not within
the control of Tenant, then the Commencement Date and the payment of Rent shall
be accelerated by the number of days of such delay. Landlord shall give tenant
written notice within a reasonable time of any circumstance that Landlord
believes constitute a Tenant Delay.
9. TRADE FIXTURES AND EQUIPMENT
Tenant acknowledges and agrees that Tenant is solely responsible for
obtaining, delivering and installing in the Premises all necessary and desired
furniture, trade fixtures, equipment and other similar items, and that Landlord
shall have no responsibility whatsoever with regard thereto. Tenant further
acknowledges and agrees that neither the Commencement Date nor the payment of
Base Rent shall be delayed for any period of time whatsoever due to any delay in
the furnishing of the Premises with such items.
10. FAILURE OF TENANT TO COMPLY
Any failure of Tenant to comply with any of the provisions contained in this
Work Letter within the times for compliance herein set forth shall be deemed a
default under this Lease. In addition to the remedies provided to Landlord in
this Work Letter upon the occurrence of such a default by Tenant, Landlord shall
have all remedies available at law or equity to a landlord against a defaulting
tenant pursuant to a written lease, including but not limited to those set forth
in this Lease.
Landlord /s/ JF Tenant /s/ PF
------ ------
Page 21
<PAGE> 25
EXHIBIT "D"
To Lease dated July 25, 1996
by and between
COW HOLDINGS LIMITED, a Delaware corporation, as Landlord, and
TCSI Corporation, a Nevada corporation, as Tenant
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, concourses, ramps, courts, vestibules,
stairways, corridors, or halls shall not be obstructed or used by Tenant or
the employees, agents, servants, visitors or business of Tenant for any
purpose other than ingress and egress to and from the Premises for delivery
of merchandise and equipment in prompt and efficient manner, using
elevators and passageways designated for delivery by Landlord.
2. No awnings, air conditioning units, fans or other projections shall be
attached to the Building. No curtains, blinds, shades or screens shall be
attached to or hung in or used in connection with, any window or door of
the Premises or Building, without the prior written consent of Landlord.
All electrical fixtures hung in offices or spaces along the perimeter of
the Premises must be fluorescent, of a quality type, design and bulb color
approved by Landlord unless the prior consent of Landlord has been obtained
for other lamping.
3. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of
the Premises or Building or inside of the Premises if the same can be seen
from the outside of the Premises without the prior written consent of
Landlord. In the event of the violation of the foregoing by Tenant,
Landlord may remove same without any liability, and may charge the expense
incurred by such removal to Tenant. Interior signs on doors and directory
tablet shall be inscribed, painted or affixed for Tenant by Landlord and
shall be of a size, color and style acceptable to Landlord.
4. The exterior windows and doors that reflect or admit light and air into the
Premises or the halls, passageways or other public places in the Building,
shall not be covered or obstructed by Tenant, nor shall any articles be
placed on the windowsills. No showcases or other articles shall be put in
front or affixed to any part of the exterior of the Building, nor placed in
the halls, corridors or vestibules, nor shall any article obstruct any
air-conditioning supply or exhaust without the prior written consent of
Landlord.
5. The electrical and mechanical closets, water and wash closets, drinking
fountains and other plumbing, electrical and mechanical fixtures shall not
be used for any purposes other than those for which they are constructed,
and no sweepings, rubbish, rags, coffee grounds, acids or other substances
shall be deposited therein. All damages resulting from any misuse of the
fixtures shall be borne by the Tenant who, or whose servants, employees,
agents, visitors or licensees, shall have caused the same. No person shall
waste water by interfering or tampering with the faucets or otherwise.
6. Tenant shall not mark, paint, drill into, or in any way deface any part of
the Premises or the Building. No boring, drilling of nails or screws,
cutting or stringing of wires shall be permitted, except with the prior
written consent of Landlord, and as Landlord may direct. Tenant shall not
lay floor tile or other similar floor covering in the Premises, except with
the prior approval of Landlord.
7. No portion of the Premises or the Building shall be used or occupied at any
time for manufacturing, for the storage of merchandise, for the sale of
merchandise, goods or property of any kind at auction or otherwise without
the express consent of Landlord, or as sleeping or lodging quarters.
8. Tenant, Tenant's servants, employees, agents, visitors or licensees, shall
not at any time bring or keep upon the Premises any hazardous waste, toxic,
inflammable, combustible, caustic, poisonous or explosive fluid, chemical
or substance.
9. No bicycles, vehicles, or animals of any kind (other than a seeing eye dog
for a blind person), shall be brought into or kept by Tenant in or about
the Premises or the Building.
10. Tenant shall not use or occupy or permit any portion of the Premises to be
used or occupied as an office for offset printing or the possession,
storage, manufacture, sale of liquor or narcotics, or as a barber or
manicure shop, a labor office, a doctor's or dentist's office, a dance or
music studio, any type of school, or for any use other than those
specifically granted in the Lease and with the express consent of the
Landlord. Tenant shall not engage or pay any employees on the Premises,
except those actually working for such Tenant on said Premises.
11. Landlord shall have the right to prohibit any advertising by Tenant which,
in Landlord's opinion, tends to impair the reputation of the Building or
Project or its desirability as a building for offices, and upon written
notice from Landlord, Tenant shall refrain from or discontinue such
advertising. In no event shall Tenant, without the prior written consent
of Landlord, use the name of the Building or Project or use pictures or
illustrations of the Building or Project.
12. Any person in the Building will be subject to identification by employees
and agents of Landlord. All persons in or entering Building shall be
required to comply with the security policies of the Building. Tenant shall
keep doors to unattended areas locked and shall otherwise exercise
reasonable precautions to protect property from theft, loss or damage.
Landlord shall not be responsible for the theft, loss or damage of any
property.
13. No additional locks or bolts of any kind shall be placed on any door in the
Building or the Premises and no lock on any door therein shall be changed
or altered in any respect without the consent of the Landlord. Landlord
shall furnish two keys for each lock on exterior doors to the Premises and
shall, on Tenant's request and at Tenant's expense, provide additional
duplicate keys. All keys, either furnished to, or otherwise procured by
Tenant, shall be returned to Landlord upon termination of this Lease.
Landlord may at all times keep a pass key to the Premises. All entrance
doors to the Premises shall be left closed at all times, and left locked
when the Premises are not in use. Tenant shall not copy any keys.
14. Tenant shall give immediate notice to Landlord in case of theft,
unauthorized solicitation or accident in the Premises or in the Building or
of defects therein or in any fixtures or equipment, or of any known
emergency in the Building.
15. Tenant shall not use the Premises or permit the Premises to be used for
photographic, multilith or multigraph reproductions, except in connection
with its own business and not as a service for others, without Landlord's
prior permission.
16. No freight, furniture or bulky matter of any description will be received
into the Building or Project except in such manner, during such hours and
using such passageways as may be approved by Landlord, and then only upon
having been scheduled at least two (2) working days prior to the date on
which such service is required. Any hand trucks, carryalls, or similar
appliances suited for the delivery or receipt of merchandise or equipment
shall be equipped with rubber tires, side guards and such other safeguards
as Landlord shall require.
17. Tenants, or the employees, agents, servants, visitors or licensees of
Tenant shall not at any time place, leave or discard any rubbish, paper
articles, or objects of any kind whatsoever outside the doors of the
Premises or in the corridors or passageways of the Building or Project.
18. Tenant shall not make excessive noises, cause disturbances or vibrations or
use or operate any electrical or mechanical devices that emit excessive
sound or other waves or disturbances or create obnoxious odors, any of
which may be offensive to the other tenants and occupants of the Building
or Project, or that would interfere with the operation of any device,
equipment, radio, television broadcasting or reception from
Landlord /s/ JF Tenant /s/ PF
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Page 22
<PAGE> 26
or within the Building or elsewhere and shall not place or install any
projections, antennas, aerials or similar devices inside or outside of the
Premises or on the Building without Landlord's prior written approval.
19. Tenant shall comply with all applicable federal, state and municipal laws,
ordinances and regulations, and building rules and shall not directly or
indirectly make any use of the Premises which may be prohibited by any of
the foregoing or which may be dangerous to persons or property or may
increase the cost of insurance or require additional insurance coverage.
20. Tenant, its servants, employees, customers, invitees and guests shall, when
using the parking facilities in and around the Building observe and obey
all signs regarding fire lanes, no parking zones, visitor parking and
handicapped zones, and when parking, always park between designated lines.
Landlord reserves the right to tow away, at the expense of the owners, any
vehicle which is improperly parked or parked in a "No Parking" zone. All
vehicles shall be parked at the sole risk of the owners, and Landlord
assumes no responsibilities for any damage or loss of vehicles. There shall
be no overnight parking of any kind, without Landlord's prior written
consent, which consent may be granted or withheld at Landlord's sole
discretion.
21. Tenant shall not serve, nor permit the serving of alcoholic beverages in
the Premises unless Tenant shall have procured Host Liquor Liability
Insurance, issued by companies and in amounts reasonably satisfactory to
Landlord, naming Landlord as an additional party insured.
22. The requirements of Tenant will be attended to only upon written
application at the office of the Building. Employees shall not perform any
work or do anything outside of the regular duties unless under special
instructions from the office of Landlord.
23. Canvassing, soliciting and peddling in the Building or Project is
prohibited and Tenant shall cooperate to prevent the same.
24. Except as otherwise explicitly permitted in its lease, Tenant shall not do
any cooking, conduct any restaurant, luncheonette or cafeteria for the sale
or service of food or beverages to its employees or to others, install or
permit the installation or use of any food, beverage, cigarette, cigar or
stamp dispensing machine or permit the delivery of any food or beverage to
the Premises, except by such persons delivering the same as shall be
approved by Landlord.
25. Tenant shall at all times keep the Premises neat and orderly.
26. The regular business hours of the Building shall be between 7:00 a.m. to
6:00 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on Saturdays.
The Building shall be closed to the public on Sundays, and on New Year's
Day, President's Day, Memorial Day, Independence Day, Labor Day, the
Thanksgiving holiday and Christmas, and such other federal or state
holidays as Landlord shall elect by notice to the Tenants.
Page 23
Landlord /s/ JF Tenant /s/ PF
------ ------
<PAGE> 27
EXHIBIT " E"
To Lease dated July 25, 1996
by and between
COW HOLDINGS LIMITED, a Delaware corporation, as Landlord, and
TCSI Corporation, a Nevada corporation, as Tenant
AMENDMENT NO.1
THIS AMENDMENT NO.1 ("Amendment") made as of the _ day of , 199_, by and between
COW HOLDINGS LIMITED, a Delaware corporation ("Landlord"), and TCSI Corporation,
a Nevada corporation, ("Tenant"),
RECITALS
A. Landlord and Tenant entered into that certain Deed of Lease dated , 19
[,as amended,] ([collectively,] the "Lease" ).
B, Pursuant to Section 5.2 of the Lease, Tenant is obligated to pay
Landlord for each Comparison Year the Tenant's Proportionate Share of the excess
of the Project Operating Costs above the Project Operating Costs for the Base
Year.
C. Landlord and Tenant desire to amend the Lease to evidence the amount of
the Project Operating Costs for the Base Year.
NOW, THEREFORE, in consideration of the sum of Ten Dollars (S10.00) cash in
hand paid and other good and valuable consideration, the receipt and Efficiency
of which are hereby acknowledged, Landlord and Tenant hereby agree to amend the
Lease as follows:
1. Recitals. The foregoing recitals are true and correct and are herein
incorporated by this reference.
2. Project Operating Costs. Landlord and Tenant hereby agree that, for all
purposes of the Lease, the phrase "Project Operating Costs for the Base Year"
and similar phrases shall mean the sum of Dollars ($ ), which amount
Landlord and Tenant further agree represents the actual Project Operating Costs
incurred in calendar year .
3. Interpretation. Except as otherwise provided herein, all terms and
phrases herein shall have the same meaning as set forth in the Lease.
4. Confirmation. Except as otherwise expressly modified by the terms of
this Amendment, the Lease shall remain unchanged and in full force and effect.
Nothing herein contained shall be deemed to waive Tenant's obligation to pay
sums due Landlord from Tenant as of the date hereof. Tenant acknowledges that
Landlord is not in default in the performance of any of its obligations under
the Lease and that Tenant has no claims or setoffs of any kind against Landlord.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease Amendment to
be executed as of the day and year first above-written by their duly authorized
officers, intending to be legally bound hereby.
LANDLORD:
COW HOLDINGS LIMITED, a Delaware corporation
By:___________________________________________
Name:_________________________________________
Its:__________________________________________
[Corporate Seal]
TENANT:
By:___________________________________________
Name:_________________________________________
Its:__________________________________________
[Corporate Seal]
By:___________________________________________
Name:_________________________________________
Its:__________________________________________
Landlord /s/ JF Tenant /s/ PF
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Page 24
<PAGE> 28
RIDER TO LEASE
DATED JULY 25, 1996
BY AND BETWEEN
COW HOLDINGS LIMITED, A DELAWARE CORPORATION, AS LANDLORD
AND
TCSI CORPORATION, A NEVADA CORPORATION, AS TENANT
This Rider, dated as of July 25, 1996, is attached to and made part of the above
described Lease. Except as otherwise set forth in this Rider, all terms used in
this Rider shall have the same meaning as when used in the foregoing portion of
the Lease. To the extent of any inconsistencies between the foregoing provisions
of the Lease and the provisions of this Rider, the former are hereby amended.
1. Without limiting the generality of the foregoing, Tenant shall have no
obligation to remediate any condition resulting from the presence of Hazardous
Materials on or about the Premises unless the presence of such Hazardous
Materials was caused by or on behalf of Tenant or its agents, contractors,
employees or representatives. Further, Tenant shall have no obligation to
remediate, correct or repair the Premises to comply with the Americans with
Disabilities Act (the "ADA"), unless the alleged violation of the ADA resulted
from Tenant's use of the Premises or the business conducted thereon or from the
improvements on or about the Premises constructed by or on behalf of Tenant.
Landlord hereby agrees to make all improvements, modifications and alterations
required to be made prior to the Commencement Date in order to comply with ADA.
2. Notwithstanding any provision of the Lease to the contrary, including
without limitation Article 12: a) Tenant may, at the expiration of the term of
the Lease, remove all removable fixtures placed in the Premises by Tenant and
used in connection with Tenant's business, provided Tenant is not in default and
repairs any damage caused by the installation or removal.
3. Except to the extent expressly set forth herein, Landlord shall not be
relieved of any liability of Landlord arising out of or related to Landlord's
breach of this Agreement, or Landlord's negligence or willful misconduct. In
addition, Tenant shall not be required to indemnify Landlord for any losses or
liabilities arising from the conduct of persons other than Tenant or Tenant's
representatives, agents, employees and contractors.
4. Notwithstanding any provision of the Lease to the contrary, including
without limitation Article 19, if, during the term of the Lease the Premises
receive damage, the effect of which is to render the Premises untenantable for
continued occupancy for a period of six (6) months or more, than Tenant may
terminate this Lease upon written notice to Landlord, within ten (10) days after
the expiration of the six (6) month period. If the damage is such that the
Premises will not be untenantable for such period, or if neither party
terminates this Lease as provided in the Lease and/or this Addendum, Landlord
shall with due diligence repair or rebuild, excluding Leasehold Improvements and
Tenant's Property, the Premises to the condition at least equal to that existing
immediately prior to such damage, and the rent called for (including Tenant's
share of Project Operating Costs, if payable) shall be equitably prorated and
abated during the period commencing with the date of the casualty and continuing
until such repairs are completed.
5. Notwithstanding any provision of the Lease to the contrary, including
without limitation Article 10, Tenant's acceptance of the Premises does not
constitute acceptance or waiver of any latent defects therein; and Landlord
agrees, upon discovery of any such latent defects, of which Landlord is notified
within one (1) year of the Commencement Date, promptly to correct the same.
6. Notwithstanding any provision of the Lease to the contrary, including
without limitation Articles 11 and 19, Landlord shall not, in exercising its
right of entry to the Premises or its right to use, repair or modify the common
areas, materially and adversely affect Tenant's use or enjoyment of the
Premises, in any unreasonable manner (i.e. in no event shall Landlord be
required to pay overtime wages).
7. Notwithstanding any provision of the Lease to the contrary, including
without limitation Article 5, the term Project Operating Costs shall not
include:
Landlord /s/ JF Tenant /s/ PF
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Page 25
<PAGE> 29
(a) Expenses incurred in connection with (i) obtaining financing for the
Premises or any property of which the Premises form a part; (ii) constructing
improvements for Tenant or any other tenant of Landlord; (iii) procuring tenants
(including commissions or legal fees); (iv) the negotiation, amendment, or
termination of any lease (including unlawful detainer actions); or (v)
proceedings against any specific tenant, unless one or more other tenant is
benefited;
(b) Any expenditure to the extent which Landlord has been reimbursed by
insurance, by Tenant or by any third party;
(c) Any depreciation or amortization on the Project;
(d) Expenses in connection with services or other benefits of the type that
Landlord is not obligated to provided to Tenant, but which are provided to other
tenants of the Project;
(e) Costs incurred to due to the violation by Landlord of the terms of any
lease with Landlord affecting the Project to the extent the same would not be
incurred absent the violation.
(f) Overhead and profit increments paid to Affiliates of Landlord, or to
any party as a result of a noncompetitive selection process, for management or
other services with respect to the Project to the extent the cost exceeds the
Fair Market Value of such services, supplies and materials;
(g) Except to the extent expressly set forth herein, interest, principal or
any other payment made with respect to any loans obtained by Landlord or any
ground lease or underlying lease affecting the Project;
(h) Rental incurred in leasing building service equipment ordinarily
considered to be of a capital nature;
(i) Accounting expenses relating to the ownership entity and non-related to
the ownership or operation of the Project;
(j) Any fines or penalties incurred due to violations by Landlord or any
third party of any law;
(k) Any fine and the cost of correcting any violations of law applicable to
the design or construction of the Premises as of the date the building permit is
issued, or any latent defects in the construction of the Premises;
(l) Costs incurred to comply with any law (including ADA) to the extent of
violations which were required to be cured prior to the Commencement Date;
(m) Costs directly resulting from the negligence or intentional misconduct
of Landlord or Landlord's agents to the extent such costs would not have been
incurred absent such negligence or intentional misconduct;
(n) Any cost or expense incurred in connection with the presence or alleged
presence or remediation of any Hazardous Material on the Project not caused by
Tenant or its agents; excluding, however, costs relating to Hazardous Materials
utilized in the course of operating, maintaining or repairing the Building;
(o) Except as otherwise permitted hereunder, the cost of maintenance,
repairs or replacements to any structural parts of the Project.
8. If Tenant disputes such statement, then Tenant may, by written notice
within sixty (60) days after the delivery of the statement to Landlord, refer
the dispute to binding arbitration of the dispute by a nationally recognized,
independent firm of certified public accountants selected by the parties, or if
the parties cannot agree to the selection of such firm, then such firm shall be
appointed by the American Arbitration Association. Any adjustment to any
previous payment of Operating Expenses shall be paid by Landlord or Tenant, as
the case may be, within thirty (30) days after such accountants render their
decision. If the accountants determine that the Landlord's statement overstated
the total Operating Expenses by five (5%) percent or more, then Landlord shall
bear the costs of all fees and expenses of the accountants. Otherwise, the
Tenant shall bear the costs of all fees and expenses of the accountants.
9. Consents. If a court of competent jurisdiction shall determine that one
party unreasonably withheld or delayed such consent in bad faith, then that
party shall be liable to the other party for the foreseeable damages resulting
from such withholding or delay, if any.
Landlord /s/JF Tenant /s/PF
----- -----
Page 26
<PAGE> 30
10. Rules and Regulations. Notwithstanding any provision of the Lease to
the contrary:
(a) In the event of any conflict between any new rule or regulation and the
other terms of this Lease, the other terms of this Lease shall prevail.
(b) Landlord agrees not to discriminate against the Tenant in the
enforcement of the Rules and Regulations.
(c) The rule or regulation alleged to have been violated was, at the time
of the violation, which Landlord has made generally applicable to all comparable
Tenants in the Project, throughout the Project.
LANDLORD:
COW HOLDINGS LIMITED, a Delaware corporation
By: /s/ Jonathan J. Feicht
---------------------------------------------
Name: /s/ Joanthan J. Feicht
-------------------------------------------
Its: Assistant Secretary
--------------------------------------------
[Corporate Seal]
TENANT:
/s/ TCSI
------------------------------------------------
------------------------------------------------
By: /s/ Paul Farmer
---------------------------------------------
Name: /s/ Paul Farmer
-------------------------------------------
Its: CFO
--------------------------------------------
[Corporate Seal]
By:
---------------------------------------------
Name:
-------------------------------------------
Its:
-------------------------------------------
Page 27
Landlord /s/ JF Tenant /s/ PF
------ -------
<PAGE> 1
EXHIBIT 10.24
THIS SUBLEASE (the "Sublease") is entered into as of the date set forth
in Section 1.1(e) below, by and between the Sublandlord and the Subtenant set
forth below.
W I T N E S S E T H
1. SUBLEASE SUMMARY AND DEFINITIONS.
1.1. The Sublease provisions and definitions set forth in this Section
1.1 in summary form are solely to facilitate convenient reference by the
parties. If there is any conflict between this Section and any other provisions
of this Sublease, the latter shall control.
(a) Sublandlord's Name COMPUTER ASSOCIATES
and address: INTERNATIONAL, INC.
1 Computer Associates Plaza
Islandia, N.Y. 11788-7000
Attn: Senior Vice President - Facilities
Rent payments to above address:
Attention: Treasurer-Rent Collection
(b) Sublandlord's State of
Incorporation: Delaware
(c) Subtenant's Name and TCSI Corporation
address: 2121 Alston Way
Berkeley, CA 94704
Attn: Paul Farmer
(d) Subtenant's State of
Incorporation: Nevada
(e) Sublease Date: July 12, 1996
(f) Overlandlord's Name and Alameda Real Estate Investors
Address: Vintage Properties
393 Vintage Park Drive, Ste. 210
Foster City, CA 94404
(g) Overlease: Lease dated June 25, 1992 between
Overlandlord and Sublandlord as amended by
Amendment No.1 dated January 29, 1993,
and Amendment No. 2 dated December 1,
1994.
(h) Unincorporated provisions
of the Overlease: Articles: 2B, 2C, 3A, 3B(XV), 3C, 3D, 4B,
4C, 4E, 4H, 5, 14, 32, 36, 45
and 46.
Exhibits: A, B, B-1 and C
<PAGE> 2
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
(i) Building: 1080 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA
(j) Premises: Initially, 34,684 Rentable Square Feet,
subsequently increased to 54,504 RSF and
finally increased to 72,967 Rentable Square
Feet comprised of the entire 1st, 2nd, 3rd
and 4th Floors, such square footage to be
provided to Subtenant in stages during the
Sublease Term.
(k) Sublease Commencement Date: September 1, 1996
(l) Sublease Expiration Date: September 30, 2004
(m) Base Rent:
<TABLE>
<CAPTION>
Annual
Rent per rentable
Monthly Periods Square Feet square foot Monthly Base Rent Annual Base Rent
- --------------- ----------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
months 1-7 34,684 $ 19.20 $ 55,494.40 $ 665,932.80
months 8-18 54,504 $ 19.20 $ 87,206.40 $1,046,476.80
months 19-60 72,967 $ 19.20 $116,747.20 $1,400,966.40
months 61-97 72,967 $ 20.76 $126,232.91 $1,514,794.92
</TABLE>
(n) Prepaid Base Rent: $55,494.40
(o) Operating Expenses/Taxes: Increases over 1997 Base Year
Subtenant temporarily responsible
for all operating/taxes for entire
space - See Article 13.
(p) Subtenant's Proportionate 81.747%
Share:
(q) Electric Charge: Included. See Article 14.
(r) Security Deposit: $500,000 to be reduced pursuant to
Article 16.
(s) Alterations: "As Is". See Article 7
(t) Brokers: For Sublandlord: BT Commercial
For Subtenant: Aegis Corporate Services
2
<PAGE> 3
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
(u) Parking: 3.4 spaces per 1,000 square feet at no cost.
(v) Renewal Option: See Article 21.
(w) Expansion Option: Entire 5th Floor subject to current tenant;
See Article 22.
2. SUBLEASE GRANT
2.1. By lease (hereinafter referred to as the "Overlease") described
above, the Overlandlord leased to Sublandlord certain space (hereinafter called
the "Leased Space") in the Building in accordance with the terms of the
Overlease. A copy of the Overlease (from which certain terms which do not relate
to Subtenant's obligations hereunder may have been deleted) is annexed hereto as
EXHIBIT A.
2.2. In consideration of the obligation of Subtenant to pay rent as
herein provided and in consideration of the other terms, covenants and
conditions hereof, Sublandlord hereby leases to Subtenant and Subtenant hereby
hires from Sublandlord, upon and subject to the provisions of this Sublease and
the Overlease, the square feet of rentable area as set forth in Section 1.1
herein and as shown hatched on EXHIBIT B annexed hereto and made a part hereof
(hereinafter called the "Premises"). Sublandlord shall make the computer room
available on or about June 1, 1997.
3. SUBLEASE TERM
3.1. Subject to the other provisions hereof, this Sublease shall
continue in full force and effect for a primary term beginning on the Sublease
Commencement Date and ending on the Sublease Expiration Date as defined above.
Such term, as it may be extended or modified only by written agreement of the
parties or pursuant to an express provision of this Sublease, is herein called
the "Sublease Term".
4. RENT
4.1. Subtenant, in consideration of this Sublease agrees to pay to
Sublandlord as rent ("Base Rent") the amounts set forth in SECTION 1.1 hereof.
Base Rent is payable in advance and without demand, at Sublandlord's office (or
such other location as Sublandlord shall designate) by check in equal monthly
installments, on the first day of each month during the Sublease Term without
any set-off, off-set, abatement or reduction whatsoever. Subtenant's failure to
receive an invoice from Sublandlord for the rent shall not relieve Subtenant
from its obligation of timely payment hereunder. The Prepaid Base Rent shall be
paid upon Subtenant's execution of this Sublease. In the event the Sublease
Commencement Date is after the first day of the month, Subtenant shall be
entitled to a pro rated credit for each such day after the first day of the
month to be applied towards the next month's payment.
4.2. As used in this Sublease, "Rent" shall mean the Base Rent, the
Operating Expense reimbursements pursuant to SECTION 1.1, and all other monetary
obligations provided for in this
3
<PAGE> 4
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
Sublease to be paid by Subtenant, all of which constitute rental in
consideration for this Sublease.
4.3. In the event the rent is not paid when due as aforesaid, interest
shall accrue thereon at the lesser of 18% per annum or the maximum rate
permitted by law. In addition, if the rent is not paid by the tenth day of any
given month, Subtenant shall pay as a penalty to Sublandlord an additional
amount equal to five percent (5%) of the rent which is due, but not less than
$100.
5. ASSIGNMENT OR UNDERLETTING
5.1. Subtenant shall not (a) assign this Sublease, nor (b) permit this
Sublease to be assigned by operation of law or otherwise, nor (c) underlet all
or any desk space therein to be occupied by any person(s), without first
obtaining:
(a) Overlandlord's consent and all other required consents to such
assignment or subletting as set forth in and pursuant to the
Overlease, and
(b) Sublandlord's consent.
Notwithstanding anything hereinbefore contained in SECTION 5.1 hereof,
in the event Subtenant desires Sublandlord's consent to an assignment of this
Sublease or an underletting of all of the Premises, Subtenant by notice in
writing (a) shall notify Sublandlord of the name of the proposed assignee or
undertenant, furnish such information as to the proposed assignee's or
undertenant's financial responsibility and standing as Sublandlord may require,
and advise Sublandlord of the covenants, agreements, terms, provisions and
conditions contained in the proposed assignment or underlease and (b) shall
offer to vacate the Premises and to Surrender the same to Sublandlord as of a
date (hereafter called the "Surrender Date") specified in said offer which shall
be the last day of any calendar month during the term hereof, provided, however,
that the Surrender Date shall not be earlier than the date occurring 120 days
after the giving of such notice nor be later than the effective date of the
proposed assignment or the commencement date of the term of the proposed
underlease. Sublandlord may accept such offer by notice to Subtenant given
within 60 days after the receipt of such notice from Subtenant. If Sublandlord
accepts such offer, Subtenant shall surrender to Sublandlord, effective as of
the Surrender Date, all Subtenant's right, title and interest in and to the
entire Premises. If the Premises be so surrendered by Subtenant, this Sublease
shall be canceled and terminated as of the Surrender Date with the same force
and effect as if the Surrender Date were the date hereinbefore specified for the
expiration of the full term of this Sublease.
5.2. In the event Sublandlord does not accept such offer of Subtenant
referred to in SECTION 5.1 hereof, Sublandlord covenants not to unreasonably
withhold its consent to such proposed assignment or underletting by Subtenant of
the Premises to the proposed assignee or undertenant on said covenants,
agreements, terms, provisions and conditions set forth in notice
4
<PAGE> 5
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
to Sublandlord referred to in SECTION 5.1 hereof; provided, however, that
Sublandlord shall not in any event be obligated to consent to any such proposed
assignment or underletting unless:
(a) the proposed assignee or undertenant is of a financial
standing and is engaged in a business and the Premises will be
used in a manner which is in keeping with the then standards of
the Building;
(b) the proposed assignee or undertenant is a reputable party;
(c) the assignment or underletting shall not have the effect (or
give the utility company servicing the Building with electricity
cause to claim) that Sublandlord may not service the Premises, or
any part thereof, with electricity on a "rent inclusion" basis;
(d) Sublandlord shall have the right, upon five (5) days prior
written notice to Subtenant, to require Subtenant thereafter to
pay to Sublandlord a sum equal to fifty percent (50%) of: (i) any
rent or other consideration paid to Subtenant by any undertenant
which is in excess of the fixed annual rent and additional rent
then being paid by Subtenant to Sublandlord pursuant to the terms
of this Sublease, and (ii) any other profit or gain realized by
Subtenant from any such assignment or underletting in connection
with any underletting; all sums payable hereunder by Subtenant
shall be paid to Sublandlord as additional rent immediately upon
receipt thereof by Subtenant and, if requested by Sublandlord,
Subtenant shall promptly enter into a written agreement with
Sublandlord setting forth the amount of additional rent to be paid
to Sublandlord pursuant to this Section;
(e) there shall be no default by Subtenant under any of the terms,
covenants and conditions of this Sublease at the time that
Sublandlord's consent to any such assignment or underletting is
requested and on the effective date of the assignment or the
proposed underlease;
(f) the proposed assignee or undertenant shall not be (i) a
government or any subdivision or agency thereof, (ii) a school
college, university or educational institution of any type,
whether for profit or non-profit, (iii) a direct competitor of
Sublandlord or (iv) an employment or recruitment agency;
(g) Subtenant shall reimburse Sublandlord for any reasonable
expenses that may be incurred by Sublandlord in connection with
the proposed assignment or underlease, including without
limitation the reasonable costs of making investigations as to the
acceptability of a proposed assignee or undertenant and reasonable
legal expenses incurred in connection with the granting of any
5
<PAGE> 6
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
requested consent to the assignment or underlease;
(h) such proposed underletting will result in there being no more
than four occupants of the Premises including Subtenant.
5.3. Provided Subtenant receives Overlandlord's consent, Sublandlord
will not withhold its consent to any exempt transfers described in Section 25(D)
of the Overlease, and the provisions of Section 5.2(d) above shall not apply to
such exempt transfers.
5.4. Anything contained in the foregoing provisions of this section to
the contrary notwithstanding, neither Subtenant nor any other person having an
interest in the possession, use, occupancy or utilization of the Premises shall
enter into any lease, sublease, license, concession or other agreement for the
use, occupancy or utilization of space in the Premises which provides for rental
or other payment for such use, occupancy or utilization based, in whole or in
part, on the net income or profits derived by any person from the Premises
leased, used, occupied or utilized (other than an amount based on a fixed
percentage or percentages of receipts or sales), and any such purported lease,
sublease, license, concession or other agreements shall be absolutely void and
ineffective as a conveyance of any right or interest in the possession, use,
occupancy or utilization of any part of the Premises.
6. TERMS OF THE OVERLEASE
6.1. Except as herein otherwise expressly provided and except for the
obligation to pay rent and additional rent under the Overlease, all of the
terms, covenants, conditions and provisions in the Overlease are hereby
incorporated in, and made a part of this Sublease, and such rights and
obligations as are contained in the Overlease are hereby imposed upon the
respective parties hereto; the Sublandlord herein being substituted for the
Landlord in the Overlease, and the Subtenant herein being substituted for the
Tenant named in the Overlease; provided, however, that the Sublandlord herein
shall not be liable for any defaults by Overlandlord and, if Overlandlord is not
the fee owner, the owner in fee of the land and Building of which the Premises
are a part. Neither Sublandlord nor Subtenant shall take any action that shall
cause there to occur a default under the terms of the Overlease, nor shall
either fail to take any action the failure of which shall cause there to occur
such default. If the Overlease shall be terminated for any reason during the
term hereof, except due to a default by Sublandlord or a written agreement
between Overlandlord and Sublandlord, then and in that event this Sublease shall
thereupon automatically terminate and Sublandlord shall have no liability to
Subtenant by reason thereof. Upon the termination of this Sublease, whether by
forfeiture, lapse of time or otherwise, or upon the termination of Subtenant's
right to possession, Subtenant will at once surrender and deliver up the
Premises in good condition and repair, reasonable wear and tear excepted.
Sublandlord and Subtenant shall promptly deliver to the other any and all
notices received from the Overlandlord or its agents which affect the other's
rights or obligations under the Overlease or this Sublease.
6
<PAGE> 7
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
6.2. This Sublease is subject to, and Subtenant accepts this Sublease
subject to, any amendments and supplements to the Overlease hereafter made
between Overlandlord and Sublandlord, provided that any such amendment or
supplement to the Overlease will not prevent or adversely affect the use by
Subtenant of the Premises in accordance with the terms of this Sublease,
increase the obligations of Subtenant or decrease its rights under the Sublease
or in any other way materially adversely affect Subtenant.
6.3. This Sublease is subject and subordinate to the Overlease and to
all ground or underlying leases and to all mortgages which may now or hereafter
affect such leases or the real property of which the Premises are a part and all
renewals, modifications, replacements and extensions of any of the foregoing.
This SECTION 6.3 shall be self-operative and no further instrument of
subordination shall be required. To confirm such subordination, Subtenant shall
execute promptly any certificate that Sublandlord may reasonably request,
provided that such certificate does not materially adversely affect Subtenant's
rights hereunder.
7. CONDITION OF PREMISES
7.1. Subtenant has examined the Premises, is aware of the physical
condition thereof, and agrees to take the same "as is," (unless otherwise
provided in SECTION 15 herein) with the understanding that there shall be no
obligation on the part of Sublandlord to incur any expense whatsoever in
connection with the preparation of the Premises for Subtenant's occupancy
thereof. Any work performed by Subtenant shall be in accordance with the terms
of the Overlease and SECTION 15 herein. Notwithstanding anything herein to the
contrary, Sublandlord shall provide Subtenant with an allowance (from monies
provided by the Overlandlord) equal to $1,641,757 ($22.50/square foot) for the
purpose of performing improvements in the Premises and, provided that (a)
Overlandlord approves, and (b) Subtenant spends some of its own monies on
approved tenant improvements so that at least $1,641,757 is spent on approved
tenant improvements, Subtenant may use a portion of the allowance monies for
reimbursement of moving expenses for Subtenant's relocation to the Premises. All
plans for improvements must first be approved in writing by Sublandlord and
Overlandlord, and Subtenant shall provide Sublandlord with paid invoices
indicating all such work which was performed, at which point Sublandlord will
reimburse Subtenant for such expenditures up to the amount of the allowance.
8. USE OF PREMISES
8.1. Subtenant agrees that the Premises shall be occupied only as
executive, administrative and general offices for Subtenant's business.
9. CONSENT OF OVERLANDLORD
9.1. This Sublease is conditioned upon the consent thereto by
Overlandlord which consent shall be evidenced by Overlandlord's signature
appended hereto or a separate consent in the form utilized by Overlandlord for
such purposes. Subtenant and Sublandlord shall share equally the cost of any
fees or charges imposed by the Overlandlord in connection with the obtaining of
such consent. Provided Overlandlord's consent does not materially affect the
terms
7
<PAGE> 8
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
of this Sublease, Subtenant shall immediately execute any documents requested by
Overlandlord in order to obtain Overlandlord's approval, and in the event such
documents are not signed and returned by Subtenant within five (5) days of
receipt, Subtenant hereby appoints Sublandlord as its attorney in fact and
authorizes Sublandlord to execute same on Subtenant's behalf.
9.2. Sublandlord makes no representation with respect to obtaining
Overlandlord's approval of this Sublease and, in the event that Overlandlord
notifies Sublandlord that Overlandlord will not give such approval, Sublandlord
will so notify Subtenant and, upon receipt of such notification by Sublandlord
of the disapproval by Overlandlord, this Sublease shall be deemed to be null and
void and without force or effect, and Sublandlord and Subtenant shall have no
further obligations or liabilities to the other with respect to this Sublease.
9.3. Except as otherwise specifically provided herein, wherever in this
Sublease Subtenant is required to obtain Sublandlord's consent or approval,
Subtenant understands that Sublandlord may be required to first obtain the
consent or approval of Overlandlord. If Overlandlord should refuse such consent
or approval, Sublandlord shall be released of any obligation to grant its
consent or approval whether or not Overlandlord's refusal, in Subtenant's
opinion, is arbitrary or unreasonable.
10. DEFAULT
10.1. Subtenant acknowledges that the services to be rendered to the
Premises are to be rendered by Overlandlord. Anything in this Sublease to the
contrary notwithstanding, if there exists a breach by Sublandlord of any of its
obligations under this Sublease and, concurrently, a corresponding breach by
Overlandlord under the Overlease of its obligations under the Overlease exists,
then and in such event, Subtenant's sole remedy against Sublandlord in the event
of any breach of obligations under this Sublease shall be the right to pursue a
claim in the name of Sublandlord against Overlandlord, and Sublandlord agrees
that it will, at Subtenant's expense, cooperate with Subtenant in the pursuit of
such claim.
10.2. Anything contained in any provisions of this Sublease to the
contrary notwithstanding, Subtenant agrees, with respect to the Premises, to
comply with and remedy any default claimed by Overlandlord and caused by
Subtenant, within the period allowed to Sublandlord as tenant under the
Overlease, even if such time period is shorter than the period otherwise allowed
in the Overlease, due to the fact that notice of default from Sublandlord to
Subtenant is given after the corresponding notice of default from Overlandlord.
Sublandlord agrees to forward to Subtenant, upon receipt thereof by Sublandlord,
a copy of each notice of default received by Sublandlord in its capacity as
tenant under the Overlease. Subtenant agrees to forward to Sublandlord, upon
receipt thereof, copies of any notices received by Subtenant with respect to the
Premises from Overlandlord or from any governmental authorities.
10.3. Subtenant acknowledges that upon breach of any provisions of this
Sublease by Subtenant which breach is not cured within the time period provided
below, any rights or options
8
<PAGE> 9
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
granted to Subtenant under this Sublease or the Overlease relating to expansion,
renewal, or any other equity option, shall immediately terminate and shall not
be exercisable for the remainder of the Sublease term. Subtenant shall be
entitled to a thirty day (30) cure period for all non-monetary breaches
(provided that if the nature of the breach is such that more than thirty (30)
days are reasonably required for its cure, then no event of default shall be
deemed to have occurred if Subtenant commences such cure within such thirty (30)
day period and thereafter diligently prosecutes such cure to completion), and if
any breach is not cured within any applicable cure period, such breach shall be
deemed an event of default. If and whenever there shall occur any event of
default of this Sublease, Sublandlord may, at Sublandlord's option, in addition
to any other remedy or right given under the Overlease or by law or equity, do
any one or more of the following in compliance with applicable provisions of the
California Code of Civil Procedure and California Civil Code governing
enforcement of leases and/or subleases of commercial real property:
(a) Terminate this Sublease, in which event Subtenant shall
immediately surrender possession of the Premises to Sublandlord;
(b) Terminate Subtenant's right to possession of the Premises
under this Sublease without terminating the Sublease itself, by
written notice to Subtenant, in which event Subtenant shall
immediately surrender possession of the Premises to Sublandlord;
(c) Enter upon the Premises by force if necessary without being
liable for prosection or any claim for damages therefor, and do
whatever Subtenant is obligated to do under the terms of this
Sublease; and Subtenant agrees to reimburse Sublandlord on demand
for any direct or indirect expenses which Sublandlord or
Overlandlord may incur in thus effecting compliance with
Subtenant's obligations under this Sublease, and Subtenant
further agrees that Sublandlord shall not be liable for any
damages resulting to Subtenant from such action.
10.4. It is hereby expressly stipulated by Sublandlord and Subtenant
that any of the above listed actions including, without limitation, termination
of this Sublease, termination of Subtenant's right to possession, and re-entry
by Sublandlord, will not affect the obligations of Subtenant for the unexpired
Sublease Term, including the obligations to pay unaccrued monthly rentals and
other charges provided in this Sublease for the remaining portion of the
Sublease Term. Sublandlord is entitled to the same remedies as Overlandlord has
under the Overlease in addition to the above.
11. SUBLANDLORD REPRESENTATION
11.1. Sublandlord represents (a) that it is the holder of the interest
of the tenant under the Overlease, and (b) that the Overlease is in full force
and effect and no default exists under
9
<PAGE> 10
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
the Overlease.
12. BROKERS
12.1. Each party hereto covenants, represents and warrants to the other
that it has had no dealings or communications with any broker or agent in
connection with the consummation of this Sublease other than those set forth in
Section 1.1 hereof, and each party covenants and agrees to pay, hold harmless
and indemnify the other from and against any and all cost, expense (including
reasonable attorneys' fees) or liability for any compensation, commissions or
charges claimed by any broker or agent other than such brokers with respect to
this Sublease or the negotiation thereof. Sublandlord shall pay any applicable
commission to such brokers in accordance with separate agreements between
Sublandlord and such brokers.
13. OPERATING EXPENSES/TAXES
13.1. All charges for standard Operating Expenses and Property Taxes,
as defined in the Overlease, incurred during normal business hours for the Base
Year set forth in Subsection 1.1(o) hereof shall be included in the rent paid
herein. Any additional charges shall be paid by Subtenant to Sublandlord as
additional rent upon receipt of an invoice for such charges.
13.2. In addition to Base Rent, Subtenant shall be responsible for all
operating expenses and taxes for the entire 72,967 square feet beginning on the
Sublease Commencement Date (less the area comprising the computer room until
Sublandlord vacates such space, and the area for which Subtenant is paying gross
rent).
14. ELECTRIC CHARGE
14.1. All charges for standard electric incurred during normal business
hours shall be included in the Base Rent paid herein. Any additional charges
shall be paid by Subtenant to Sublandlord as additional rent upon receipt of an
invoice for such services at actual cost.
15. ALTERATIONS
15.1. In the event Subtenant is permitted to perform alterations in the
Premises hereunder, Subtenant may make no changes, alterations, additions,
improvements or decorations in, to or about the Premises without submitting
detailed plans and construction schedules to Sublandlord and receiving
Sublandlord's prior written consent to such plans. Subtenant shall make no
changes, alterations, additions, improvements or decorations which would result
in Overlandlord charging Sublandlord for the cost of same, including any removal
costs associated therewith and Subtenant shall comply with all laws and
regulations relating to such construction including, but not limited to, receipt
of certificates of occupancy, permits and ADA requirements, and shall be
responsible for all costs associated therewith. Sublandlord may impose
reasonable guidelines as may be necessary to protect its occupancy and rights
provided in the Overlease, including placing reasonable restrictions on times
when certain types of work may be performed in order to prevent undue intrusion
and noise to Sublandlord or other tenants
10
<PAGE> 11
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
in the Leased Premises.
16. SECURITY DEPOSIT
16.1. As security for the faithful performance and observance by
Subtenant of the terms, provisions, covenants and conditions of this Sublease,
Subtenant is simultaneously herewith delivering to Sublandlord a security
deposit in the amount set forth in Section l.l(r) (the "Security Deposit"),
which shall earn a five percent (5%) rate of interest. Upon the first
anniversary of the Sublease Commencement Date, provided Subtenant is not then in
default under this Sublease (or if Subtenant is in default, at such time as the
default has been cured), Sublandlord shall pay over to Subtenant the interest
then earned on the Security Deposit. Upon each anniversary thereafter, provided
Subtenant is not then in default under this Sublease (or if Subtenant is in
default, at such time as the default has been cured), Sublandlord shall pay over
to Subtenant all interest earned on the Security Deposit plus $100,000, provided
however that the Security Deposit shall not be thereby reduced below the sum of
$100,000. In the event that Sublandlord applies any portion of the security in
respect of a default by Subtenant, Subtenant shall forthwith restore the amount
so applied so that at all times the amount of the Security Deposit shall be not
less than the security required to be maintained from time to time. Sublandlord
may apply the whole or any part of the Security Deposit to the extent required
for the payment of any sum as to which Subtenant is in default, or for any sum
which Sublandlord may expend or may be required to expend by reason of
Subtenant's default.
16.2. In the event that Subtenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this Sublease,
that portion of the Security Deposit not used or applied by Overlandlord, plus
interest accrued thereon, shall be returned to Subtenant (i) within thirty (30)
days after the Sublease Expiration Date and after delivery of entire possession
of the Premises to Sublandlord, or (ii) upon Sublandlord's receipt of an
equivalent amount of security from a assignee or undertenant pursuant to an
assignment or underletting permitted by Section 5 of this Sublease. In the event
of an assignment of the Overlease by Sublandlord, Sublandlord shall have the
right to transfer any interest it may have in the security to the assignee and
Sublandlord shall thereupon be released by Subtenant from all liability for the
return of such security, provided such assignee assumes any responsibilities of
Sublandlord with respect to such security, and Subtenant agrees to look solely
to the new sublandlord for the return of said security; and it is agreed that
the provisions hereof shall apply to every transfer or assignment made of the
security to a new sublandlord. Subtenant further covenants that it will not
assign or encumber or attempt to assign or encumber the monies deposited herein
as security and that neither Sublandlord nor its successors or assigns shall be
bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance.
17. QUIET ENJOYMENT
17.1. So long as Subtenant pays all of the rent and additional rent due
under this Sublease and performs all of Subtenant's other obligations hereunder,
Subtenant shall peacefully and quietly have, hold and enjoy the Premises
subject, however, to the terms, provisions and
11
<PAGE> 12
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
obligations of this Sublease and the Overlease.
17.2. In the event Subtenant does not completely vacate the Premises by
the Sublease Expiration Date or earlier termination of this Sublease, Subtenant
shall indemnify and hold harmless Sublandlord in respect of any and all holdover
charges or penalties imposed under the Overlease upon Sublandlord in respect of
the entire Leased Space and in respect of any and all costs, liabilities or
expenses (including attorneys fees) suffered by Sublandlord in respect of same,
as and when such costs, liabilities or expenses are incurred. In this regard,
Subtenant shall, if requested by Sublandlord, in Sublandlord's sole discretion,
defend Sublandlord against any action or proceeding brought against Sublandlord
which arises out of said holdover.
18. INTENTIONALLY OMITTED
19. NO WAIVER
19.1. The failure of Sublandlord to seek redress for violation of, or
to insist upon the strict performance of any covenant or condition of this
Sublease or of any of the Rules and Regulations set forth or hereafter adopted
by Sublandlord, shall not prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Sublandlord of rent with knowledge of the breach of
any covenant of this Sublease shall not be deemed a waiver of such breach and no
provision of this Sublease shall be deemed to have been waived by Sublandlord
unless such waiver be in writing signed by Sublandlord. No payment by Subtenant
or receipt by Sublandlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated base rent, additional rent or other charge, nor shall any endorsement
or statement on any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Sublandlord may accept such check
or payment without prejudice to Sublandlord's right to recover the balance of
such base rent, additional rent or other charge, or pursue any other remedy in
this Sublease provided. No act or thing done by Sublandlord or Sublandlord's
agents during the term hereby demised shall be deemed an acceptance of a
surrender of the demised premises and no agreement to accept such surrender
shall be valid unless in writing signed by Sublandlord. No employee of
Sublandlord of Sublandlord's agent shall have any power to accept the keys of
the demised premises prior to the termination of the Sublease and the delivery
of keys to any such agent or employee shall not operate as a termination of the
Sublease or a surrender of the demised premises.
20. NOTICES
20.1. Any notice, demand or communication which, under the terms of
this Sublease or under any statute or municipal regulation must or may be given
or made by the parties hereto, shall be in writing and given or made by mailing
the same by registered or certified mail, return receipt requested to the
address and person designated in Section 1.1(a) and (c) herein.
Either party, however, may designate such new or other address to which
such notices,
12
<PAGE> 13
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
demands or communications thereafter shall be given, made or mailed by notice
(given in the manner prescribed herein). Any such notice, demand or
communication shall be deemed given or served, as the case may be, on the date
of the posting thereof. In the event Subtenant's address is not set forth above,
notice to Subtenant shall be deemed sufficient if sent to the Premises.
21. RENEWAL OPTION
21.1. Sublandlord will cooperate with Subtenant, without the obligation
to incur any costs, in Subtenant's efforts to secure a direct lease with
Overlandlord after the Sublease Expiration Date.
22. EXPANSION
22.1. Pursuant to the terms of the Overlease, Sublandlord has also
leased the Fifth Floor of the Building. The Fifth Floor is currently subject to
the sublease to Pilot Network Services, Inc. ("Pilot"). Provided that Pilot has
not exercised its option to renew its sublease pursuant to Article 18 thereof,
Subtenant shall have the option to sublease the Fifth Floor beginning on the
termination of the Pilot sublease and continuing for the remainder of the
Sublease Term, upon the terms and conditions set forth herein, except that the
Base Rent shall be at Fair Market Value at the time of the expansion. Subtenant
shall notify Sublandlord in writing of its intent to exercise this expansion
option on or before December 31, 1999, but not earlier than June 30, 1999.
Within ten (10) business days of receipt of such notice, Sublandlord shall
advise Subtenant whether Pilot has exercised its option to renew its sublease.
If Pilot has not elected to so renew, Subtenant and Sublandlord shall execute a
sublease amendment to reflect the additional square footage.
22.2. "Fair Market Value" as used above shall mean the going market
rental and any adjustment or adjustments to such rental at such time and in such
amount or using such formula as is prevailing at the time of the commencement of
the expansion term, for comparably equipped space in buildings containing
between 50,000 and 250,000 square feet, located within a five (5) mile radius of
the expansion space, and in a condition comparable to the then condition of the
expansion space, taking into account all legal uses for which the expansion
space could be used without material alteration thereto and the value of all the
improvements in the expansion space made by Sublandlord or Overlandlord (but
adjusting for the age and the then condition of such improvements) for a tenant
proposing to sign a lease for a similar term and having financial qualifications
similar to Subtenant and using as a guide equivalent space in the size range of
the expansion space of a similar age, construction, quality, use and location.
Any determination of Fair Market Value shall take into account rental
concessions then prevailing in the market (e.g., "free rent," lease assumptions,
payment of moving expenses, etc.).
23. MISCELLANEOUS
23.1. Where applicable, Subtenant shall be responsible for all
additional costs incurred as a result of this Sublease including, but not
limited to, security cards, keys and parking cards.
13
<PAGE> 14
STANDARD SUBLEASE AGREEMENT
as of June 21, 1996
23.2. This Sublease may not be changed orally, but only by an agreement
in writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
23.3. This Sublease shall not be binding upon Sublandlord unless and
until it is signed by Sublandlord and delivered to Subtenant. This Section 23.3
shall not be deemed to modify the provisions of Section 9 hereof.
23.4. This Sublease constitutes the entire agreement between the
parties and all representations and understandings have been merged herein.
23.5. This Sublease shall inure to the benefit of all of the parties
hereto, their successors and (subject to the provisions hereof) their assigns.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
of the day and year first above written.
ATTEST: COMPUTER ASSOCIATES INTERNATIONAL, INC.,
Sublandlord
/s/ ILLEGIBLE By /s/ ILLEGIBLE
- -------------------- -------------------------------
ATTEST: TCSI CORPORATION, Subtenant
- -------------------- By /s/ ILLEGIBLE
--------------------------------
ACKNOWLEDGED AND AGREED:
ALAMEDA REAL ESTATE INVESTORS, Overlandlord
By: /s/ ILLEGIBLE
----------------
President
14
<PAGE> 15
CONSENT TO SUBLEASE
Reference is made to that certain Lease (the "Lease") dated June 25,
1992 between Alameda Real Estate Investors ("Landlord") and Computer Associates
International, Inc. ("CA") and to that certain sublease (the "Sublease") dated
of even date hereof between CA and TCSI Corporation ("TCSI").
1. Consent to Sublease. Pursuant to the terms of the Lease, CA is
obligated to obtain Landlord's consent to the proposed subletting of all or any
portion of the space (the "Leasehold") leased by Tenant under the Lease to a
non-affiliated, third party tenant. CA has entered into the Sublease with TCSI
to sublease a certain portion of the Leasehold (the "Premises"). A copy of the
Sublease is attached hereto as Exhibit A. Landlord hereby consents to the
attached Sublease; provided, however, Landlord's consent shall not release or
alter the primary liability of CA to pay rental and to perform all other
obligations to be performed by CA under the Lease.
2. Tenant Improvement and Moving Expense Reimbursement. Landlord and CA
acknowledge that Landlord has agreed to make available the sum of $1,641,757.50,
which sum was to be used pursuant to the terms of the Lease to reimburse CA for
certain tenant improvements to be constructed at the Leasehold (the "Improvement
Fund"). Landlord agrees that it shall reimburse TCSI from the Improvement Fund
for tenant improvements performed at the Premises, in an amount not to exceed
$1,241,757.50 (the "Reimbursement Maximum"). TCSI shall provide CA and Landlord
with paid invoices and final lien waivers and releases indicating such tenant
improvement construction when and as performed, upon receipt of which Landlord
will promptly reimburse TCSI from the Tenant Improvement Fund for such
expenditures up to the amount of the Reimbursement Maximum. Upon TCSI taking
possession of the Premises, and upon Landlord's receipt of invoices showing that
TCSI has expended in excess of $2,000,000.00 for tenant improvements to the
Premises, Landlord shall pay to TCSI from the Improvement Fund the sum of
$400,000.00 to reimburse TCSI for a portion of its expenses incurred in moving
its offices to the Premises. Landlord and CA hereby acknowledge that Landlord's
obligation to pay for, perform and construct certain Renovation Improvements
within the Premises pursuant to Exhibit B of the Lease are no longer applicable.
Attached hereto (or submitted herewith) are plans for tenant improvements to be
performed by TCSI at the Premises, which plans and tenant improvements are
hereby approved by CA and by Landlord. Landlord reserves the right to approve of
TCSI's contractor, which approval shall not unreasonably be withheld or delayed.
3. Options to Extend. Pursuant to the terms of the Lease, Landlord has
granted to CA three options to extend the term of the Lease (the "CA Options").
With CA's approval, Landlord hereby grants to TCSI three options (the "TCSI
Options") to enter into a direct lease with Landlord for the Leasehold. Subject
to the terms of this Paragraph 3, the TCSI Options, and the exercise thereof,
shall be upon the same terms and conditions as set forth in the Lease for the CA
Options. In accordance with the terms of Paragraph 36 of the Lease, CA must give
Landlord written notice of its exercise of its initial CA Option not earlier
than 24 months, nor later than 18 months, prior to the end of the initial term
of the Lease. Accordingly, if TCSI wishes to exercise its initial TCSI Option,
it will give Landlord and CA written notice of its intention to do so not
earlier than 24 months, nor later than 20 months, prior to the end of the
initial term of the Lease. Upon such timely
<PAGE> 16
notice exercising the initial TCSI Option, and if and when TCSI and Landlord
enter into a direct lease for the Leasehold, all of CA's Options under the Lease
shall terminate. If TCSI fails timely to exercise the initial TCSI Option, then
CA's Options under the Lease shall remain in effect in accordance with the terms
of the Lease. Notwithstanding the foregoing, TCSI may not exercise its initial
option hereunder if (i) TCSI is then in material default under the terms of the
Sublease and (ii) CA has given TCSI written notice of such material default.
TCSI shall have the time periods permitted to cure such default as are provided
under the terms of the Sublease, and if TCSI timely cures such default, then
TCSI shall be entitled to exercise its initial option so long as such exercise
shall have occurred not later than 20 months prior to the end of the initial
term of the Lease.
4. Payment of Sublease Rent: Quiet Enjoyment.
(a) In the event of a default by CA under the Lease, Landlord shall
give written notice to TCSI concurrently with the giving of notice to CA and
Landlord may, at its option, and in addition to its other rights and remedies,
in such notice require TCSI to make all further payments of rent and other
amounts due under the Sublease directly to Landlord, to which action CA hereby
consents. In such event, TCSI shall thereafter make payments of rent and other
amounts due under the Sublease directly to Landlord and such payments, to the
extent thereof, shall be in satisfaction of TCSI's payment obligations to CA
under the Sublease and in satisfaction of CA's obligations to Landlord with
respect to the amounts paid.
(b) In the event of any default by CA under the Lease, provided TCSI
is not in default under the Sublease Landlord shall recognize TCSI under the
terms of the Sublease provided TCSI is not in default under the Sublease and
thereafter performs its obligations under the Sublease directly for the benefit
of Landlord and cures any such events of default of CA under the Lease within
the time periods required under the Lease with respect to the Leasehold as
provided under the Sublease, including, without limitation, payment of any
rentals or other amounts due and unpaid under the Lease to the extent of TCSI's
obligations under the Sublease, even if TCSI has previously paid such amounts
directly to CA, provided however that TCSI's obligation to pay rent to CA after
it has previously paid rent for the same portion of the Sublease term to CA
shall not exceed one month's rent for any period of CA's default prior to TCSI
receiving written notice from Landlord of CA's default. Thus, by way of example,
if CA defaults in its rent obligations to Landlord commencing on January 1, 2000
and such default continues until March 31, 2000, if Landlord gives TCSI notice
of CA's default on March 2, 2000 and in the meantime TCSI has paid to CA rent
for January, February and March, then TCSI's obligation to pay Landlord Sublease
rent for the period January through March shall be limited to one-month's rent.
(c) Following an event of default by CA under the Lease, and
provided that TCSI performs its obligations under the Sublease directly to
Landlord, Landlord shall credit all amounts received from TCSI with respect to
the Leasehold for any period of time against amounts due from CA with respect to
the same portion of the premises under the Lease during the same period. In
addition to all rights and remedies available to Landlord as a result of such
default, Landlord shall be entitled to receive from CA: (i) all amounts then due
and unpaid under the Lease, together with interest thereon as provided in the
Lease; (ii) if the Lease and the Sublease have been terminated as a result of
TCSI's default under the Sublease, all amounts which would have been payable to
Landlord under the Lease from the date of termination through the expiration of
the Lease, together with interest thereon as provided in the Lease; plus (iii)
the present value of the amount by which the sum of all payments due from CA to
Landlord under the Lease from time to time
2
<PAGE> 17
Landlord obtains a judgment against CA exceeds the sum of all such amounts
payable by TCSI under the terms of the Sublease. In calculating such present
value, the discount rate shall be that quoted by the Federal Reserve Banks of
San Francisco at the time of the award plus one percent.
5. Signage. TCSI shall have the right to install building signage and
monument signage subject to the Marina Village Project Signage Criteria and all
governmental approvals. Landlord and CA shall reasonably cooperate with TCSI in
obtaining such approvals. TCSI shall bear the cost of the design, approval,
installation and removal of all signage.
6. Lobby Separation. CA and Landlord acknowledge that TCSI intends to
redesign the main lobby of the Building. TCSI shall submit plans and
specifications to Landlord and CA for approvals, which approvals shall not be
unreasonably withheld or delayed. TCSI shall bear all costs for the construction
of lobby improvements. TCSI will not be required to remove or reconstruct any
lobby improvements at the termination of its tenancy.
This Agreement is entered into by the parties as of this 18th day of
July 1996.
ALAMEDA REAL ESTATE INVESTMENTS,
A California Limited Partnership
By: VINTAGE PROPERTIES-ALAMEDA COMMERCIAL, a California Corporation, Its
Managing General Partner
By: /s/ ILLEGIBLE, President
------------------------------------
Name and Title
COMPUTER ASSOCIATES INTERNATIONAL, INC.,
a Delaware Corporation
By: /s/ Abraham Poznanski
------------------------------------
Abraham Poznanski
Senior Vice President - Facilities
TCSI CORPORATION,
a Nevada Corporation
By: /s/ Paul Farmer
------------------------------------
Paul Farmer
Chief Financial Officer
3
<PAGE> 18
Design Development Studies: Space Planning
Plan - Level One
(Diagram of Floor Plan)
<PAGE> 19
Design Development Studies: Space Planning
Plan - Level Two
(Diagram of Floor Plan)
<PAGE> 20
Design Development Studies: Space Planning
Plan - Level Three
(Diagram of Floor Plan)
<PAGE> 21
Design Development Studies: Space Planning
Plan - Level Four
(Diagram of Floor Plan)
<PAGE> 22
Entrance Ramp Plan
(Diagram of Plan)
<PAGE> 23
LEASE
BY AND BETWEEN
ALAMEDA REAL ESTATE INVESTMENTS,
a California limited partnership
AND
ASK COMPUTER SYSTEMS, INC.,
a California corporation
1080 Marina Village Parkway
Alameda, California
<PAGE> 24
TABLE OF CONTENTS
Page
1. Parties .............................................................1
2. Demise of Premises...................................................1
3. Lease Term, Definitions, Early Entry and Construction................1
A. Lease Term.......................................................1
B. Definitions......................................................1
C. Early Entry Following Renovation Improvements....................3
D. Construction of Renovation Improvements..........................3
4. Rent.................................................................3
A. Payment of Rent..................................................3
B. Schedule of Base Monthly Rent....................................3
C. Rental Abatement.................................................4
D. Late Charge......................................................4
E. Renovation Improvements..........................................4
F. Additional Rent..................................................4
G. Operating Expenses...............................................4
H. Place of Payment.................................................6
5. Security Deposit.....................................................7
6. Use of Premises......................................................7
7. Taxes and Assessments................................................7
A. Tenant's Property................................................7
B. Payment of Property Taxes........................................7
C. Property Taxes Defined...........................................7
D. Assessments......................................................8
E. Other Taxes......................................................8
F. Tenant's Right to Contest........................................8
G. Reduction in Property Taxes......................................8
8. Insurance............................................................8
A. Waiver and Indemnity.............................................8
B. Tenant's Liability Insurance.....................................9
C. Landlord's Liability Insurance...................................9
D. Fire and All Risk Insurance......................................9
E. Release of Landlord.............................................10
F. Mutual Waiver of Subrogation....................................10
9. Utilities...........................................................10
10. Repairs and Maintenance.............................................10
A. Tenant's Responsibilities.......................................10
B. Landlord's Responsibilities.....................................11
C. Warranties......................................................12
D. Condition on Delivery...........................................12
E. Limitation on Repair Obligation of Landlord.....................12
11. Outside Areas.......................................................12
12. Amortization of Certain Improvements as Additional Rent.............12
13. Alterations.........................................................13
A. Trade Fixtures..................................................13
B. Alterations.....................................................13
C. Lien Waiver.....................................................14
D. Legally Required Alterations....................................14
14. Delivery of Possession After Renovation Improvements................14
15. Default.............................................................15
A. Events of Tenant's Default......................................15
B. Remedies........................................................15
16. Destruction.........................................................16
A. Landlord's Duty to Restore......................................16
B. Landlord's Right to Terminate...................................17
C. Tenant's Right to Terminate.....................................18
D. Abatement of Rent...............................................18
17. Condemnation........................................................18
A. Definition of Terms.............................................18
B. Rights..........................................................18
C. Total Taking....................................................19
D. Partial Taking..................................................19
E. Temporary Taking................................................19
18. Mechanics' Liens....................................................19
19. Inspection of the Premises..........................................19
20. Compliance with Laws................................................19
A. Obligation of Tenant............................................19
B. Right to Contest................................................20
21. Subordination.......................................................20
22. Holding Over........................................................20
23. Notices.............................................................20
24. Attorneys' Fees.....................................................21
25. Nonassignment.......................................................21
A. Consent Required................................................21
B. Notice Requested................................................22
-i-
<PAGE> 25
TABLE OF CONTENTS
(continued)
Page
C. Landlord's Right to Share in Net Subrent Profit.................22
D. Exempt Transfers................................................23
26. Successors..........................................................23
27. Lender Protection...................................................23
28. Estoppel Certificates and Financial Statements......................23
29. Surrender of Lease Not Merger.......................................24
30. Waiver..............................................................24
31. General.............................................................24
A. Captions........................................................24
B. Transfers by Landlord; Limitations on Tenant's Recourse
for Landlord Default..........................................24
C. Time............................................................25
D. Severability; Governing Law.....................................25
E. Joint and Several Liability.....................................25
F. Exhibits........................................................25
G. Miscellaneous...................................................25
H. Survival........................................................25
32. Signs...............................................................25
33. Interest on Past Due Obligations....................................26
34. Surrender of the Premises...........................................26
35. Authority...........................................................26
36. Options to Extend...................................................26
37. Hazardous Material..................................................27
A. Definitions.....................................................27
B. Use Restriction.................................................27
C. Compliance......................................................29
D. Assignment and Subletting.......................................29
E. Notice..........................................................29
F. Surrender.......................................................29
G. Landlord's Obligations..........................................30
38. Approvals...........................................................30
39. Reasonable Expenditures.............................................30
40. Right to Perform Other Party's Covenants............................30
41. CPI Adjustment......................................................30
42. Integration and Amendments..........................................30
43. Memorandum of Lease.................................................31
44. Non-Discrimination..................................................31
45. Brokerage Commissions...............................................31
46. Existing Tenancy....................................................31
EXHIBITS
EXHIBIT A - Diagram(s) of Premises
EXHIBIT B - Improvement Agreement
EXHIBIT C - Diagram of Marina Village Project
EXHIBIT D - Existing Hazardous Material Condition
-ii-
<PAGE> 26
MARINA VILLAGE
LEASE
ASK COMPUTER SYSTEMS, INC.
1080 MARINA VILLAGE PARKWAY
As of the Commencement Date (as hereinafter defined) this Lease shall replace
and supersede that certain Lease dated August 1, 1984 ("Previous Lease") by and
between ASK COMPUTER SYSTEMS, INC., as successor-in-interest to RELATIONAL
TECHNOLOGY, INC., as Tenant, and ALAMEDA REAL ESTATE INVESTMENTS, as Landlord,
with respect to the Premises (as hereinafter defined), except that the Previous
Lease shall continue to govern the rights and obligations of the parties
accruing prior to that date with respect to the Premises.
1. Parties. This Lease, dated for reference purposes as of June 25, 1992, is
made by and between ALAMEDA REAL ESTATE INVESTMENTS, a California limited
partnership ("Landlord"), and ASK COMPUTER SYSTEMS, INC., a Delaware
corporation ("Tenant").
2. Demise of Premises. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord, upon the terms and conditions hereinafter set forth,
those certain premises (the "Premises") situated in the City of Alameda,
County of Alameda, State of California, described as follows:
A. The right to use in common with other tenants of the Building, the
Common Areas within the Building and the Outside Areas adjacent to the
Building and located on the Parcel (as such terms are hereinafter defined);
B. Approximately 83,091 square feet of Rentable Area (as defined in
Paragraph 3.B(xiv)) as shown on Exhibit A hereto, subject to adjustment
under Paragraph 4.C(ii), and located within that building (the "Building")
known as 1080 Marina Village Parkway, constructed on a portion of that
certain real property described as Lot 3 of Parcel Map 4299 recorded July
24, 1985 in Map Book 155, Pages 21-26, Alameda County Records (the
"Parcel"); and
C. All interior improvements previously constructed or to be constructed
(the "Renovation Improvements") in the Premises in accordance with the
provisions of the Improvement Agreement attached hereto as Exhibit B.
3. Lease Term, Definitions, Early Entry and Construction.
A. Lease Term. The term of this Lease (the "Lease Term") shall commence on
June 30, 1992 (the "Commencement Date") and shall end September 30, 2004,
unless sooner terminated or extended pursuant to any provision of this
Lease. Landlord and Tenant acknowledge that Tenant has the Option, pursuant
to that certain Marina Village Lease for 1101 Marina Village Parkway, of
even date herewith, to terminate this Lease by notice given to Landlord on
or before December 15, 1992.
B. Definitions. As used herein, the following terms shall have the
following meanings:
(i) The term "Affiliate" shall mean with respect to either Landlord or
Tenant, a person or entity that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is
under common control with Landlord (or either of its constituent
partners, or the shareholders or partners of such constituent
partners) or Tenant and any officer, director, trustee,
stockholder or partner of any such person or entity. For purposes
of this definition, the term "control" means the ownership of
fifty percent (50%) or more of the beneficial interest or voting
power of the appropriate entity (e.g., partnership, corporation,
trust, or unincorporated association).
(ii) The term "Agent" shall mean, with respect to either Landlord or
Tenant, its respective agents, employees, contractors (and their
subcontractors), and invitees (and in the case of Tenant, its
subtenants).
(iii) The term "Agreed Interest Rate" shall mean the "prime" or
reference rate announced from time to time by the Bank of America,
NT & SA, or its successor, for short-term commercial loans plus
two percent (2%) per annum, but in no event to exceed the maximum
interest rate permitted by law.
1
<PAGE> 27
(iv) The term "Alterations" shall mean all improvements, additions,
alterations and fixtures installed in the Premises by Tenant at
its expense which are not Trade Fixtures.
(v) The term "Common Area" shall mean those portions of the Building
not leased to Tenant or other tenants or available for lease or
exclusive use to other tenants, whether or not those areas are
actually subject to an existing lease, such as hallways, lobby,
common restrooms, utility rooms, etc.
(vi) The term "Consumer Price Index" shall mean the Consumer Price
Index, for All Urban Consumers, Subgroup "All Items", for the San
Francisco-Oakland-San Jose Metropolitan Area (Base Year 1982-84 =
100), which is currently being published monthly by the United
States Department of Labor, Bureau of Labor Statistics. If,
however, this Consumer Price Index is changed so that the base
year is altered from that used as of the Commencement Date, then
the Consumer Price Index shall be converted in accordance with the
conversion factor published by the United States Department of
Labor, Bureau of Labor Statistics, to obtain the same results that
would have been obtained had the base year not been changed. If no
conversion factor is available or if the Consumer Price Index is
otherwise changed, revised or discontinued for any reason, there
shall be substituted in lieu thereof and the term "Consumer Price
Index" shall thereafter refer to the most nearly comparable
official price index of the United States Government to obtain
substantially the same result as would have been obtained had the
original Consumer Price Index not been changed, revised or
discontinued, which alternative index shall be selected by
Landlord and shall be subject to Tenant's prior written approval.
(vii) The term "Effective Date" shall mean the date first set forth
above also used for reference purposes as the date of this Lease.
(viii) The term "Institutional Lender" shall mean any commercial bank,
savings and loan association, life insurance company, pension
fund, or other entity regularly engaged in the business of lending
where the primary security is real property whose activities are
regulated by the state or federal government, and which
institution is then in compliance with all regulations by which it
is governed.
(ix) The term "Law" shall mean any judicial decision, statute,
constitution, ordinance, resolution, regulation, rule,
administrative order, or other requirement of any municipal,
county, state, federal or other governmental agency or authority
having jurisdiction over the parties to this lease or the
Premises.
(x) The term "Lender" shall mean any beneficiary, mortgagee, secured
party or other holder of any deed of trust, mortgage or other
written security device or agreement encumbering the Premises.
(xi) The term "Outside Areas" shall mean all access roads, driveways,
parking areas, loading docks and ramps, sidewalks, landscape
areas, exterior lighting and other facilities located on the
Parcel outside the exterior walls of the Building.
(xii) The term "Project" shall mean all real property within the West
End Community Improvement Project Area which is commonly referred
to as Marina Village, Alameda, California, and more specifically
outlined on Exhibit C attached hereto.
(xiii) The term "Renovation Commencement Date" with respect to any
portion of the Premises vacated by Tenant to permit Landlord to
perform the Renovation Improvements under the Improvement
Agreement shall mean and date when all of the following have
occurred: (a) Landlord has caused to be substantially completed on
any given floor of the Premises all work to be performed by
Landlord pursuant to the Improvement Agreement ("Landlord's
Work"); (b) the City of Alameda has issued a temporary Certificate
of Occupancy which permits Tenant to legally occupy that portion
of the Premises and to commence the operation of its business
therein; (c) possession of any portion of the Premises has been
tendered by Landlord to Tenant; (d) all utility services are
available for use by Tenant; and (e) there are no uncompleted
items or defects in construction relating to the Renovation
Improvements which would materially interfere with Tenant's
ability to use the Premises for the uses permitted by the Lease.
(xiv) The term "Rentable Area" shall mean rentable square footage of the
Premises as determined by the Building Owners and Managers
Association (BOMA) measurement standards for multi-story
buildings, measuring to the
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"glass line" outside boundary, excluding major vertical
penetrations, such as stair wells, elevators and mechanical
shafts, exterior decks, atria and courtyards.
(xv) The term "Tenant's Percentage Share" shall mean the Rentable Area
of the Premises divided by the total Rentable Area of the
Building, which shall be deemed to be 93.08%, subject to
adjustment under subparagraph 4.C(ii) below.
(xvi) The term "Trade Fixtures" shall mean anything installed in or
affixed to the Premises by Tenant at its expense for purposes of
trade, manufacture, ornament or domestic use (except replacement
of similar work or material originally installed by Landlord)
which can be removed without injury to the Premises (e.g.,
demountable partitions, business and production equipment and
systems, furniture and furnishings) unless such thing has, by the
manner in which it is affixed, become an integral part of the
Premises.
C. Early Entry Following Renovation Improvements. Tenant may enter the
portion of the Premises after its vacation of such portion (as set forth in
the Improvement Agreement) and prior to the Renovation Commencement Date
for such portion and in accordance with the terms of the Improvement
Agreement to install fixtures and equipment therein provided it first
obtains the prior written approval of Landlord for such entry, which
approval Landlord may withhold if such entry will substantially delay or
increase the cost of completion of construction and Tenant does not agree
to pay such increased cost of Landlord's Work; provided, however, to the
extent such early entry by Tenant causes a delay in the construction of
Landlord's Work, then the Renovation Commencement Date for that portion of
the Premises shall be advanced by the number of days of delay. If Landlord
permits Tenant to so enter upon the Premises, such entry shall be subject
to all of the terms and conditions of this Lease, excepting only the
obligation to pay Base Monthly Rent, Operating Expenses and Property Taxes
with respect to such portion. Tenant shall coordinate its entry onto the
Premises with Landlord and the contractors and other personnel employed by
Landlord and shall at all times while exercising its right of entry refrain
from interfering with the construction activities of such personnel. In any
case, Tenant shall repair any damage to the Renovation Improvements
constructed by Landlord pursuant to Exhibit "B" resulting from the entry
upon the Premises by Tenant prior to the Renovation Commencement Date or
caused by the installation of Trade Fixtures and equipment by Tenant or
Tenant's Agents. If the entry by Tenant or its Agents prior to the
applicable Renovation Commencement Date causes a delay in completing the
construction of the Renovation Improvements, then the Renovation
Commencement Date shall be deemed to have occurred on the date the
Renovation Improvements would have been completed had there been no such
delay caused by Tenant or its Agents. In the event Tenant does not
immediately comply with any notice from Landlord requesting that Tenant
cease any interference with Landlord's construction activities. Tenant
shall be required to vacate that portion of the Premises but shall
thereafter be entitled to re-enter that portion as soon as reasonably
practicable so long as Tenant's re-entry does not interfere with Landlord's
construction activities in the Premises. Notwithstanding anything to the
contrary contained above, Tenant's obligation for payment of Base Monthly
Rent, Operating Expenses and Property Taxes shall not be advanced unless
within a reasonable period of time after learning of the occurrence of any
delay caused by Tenant or its Agents, Landlord gives notice to Tenant of
the fact that such delay has occurred and the known or anticipated extent
of any such delay.
D. Construction of Renovation Improvements. Following Tenant's vacation of
a portion of the Premises and prior to the Renovation Commencement Date,
Landlord shall perform Renovation Improvements in accordance with the terms
of the Improvement Agreement.
4. Rent.
A. Payment of Rent. Tenant shall pay to Landlord as rent for the Premises
the sum specified in Paragraph 4.B. as the same may be adjusted pursuant to
such same Paragraph 4.B (the "Base Monthly Rent") each month in advance on
the first day of each calendar month, without deduction, offset, prior
notice or demand (except as otherwise expressly permitted by this Lease),
commencing on the Commencement Date and continuing through the initial
Lease Term, together with such Additional Rent as is payable by Tenant to
Landlord under the terms of this Lease, subject to the abatement described
in Paragraph 4(c) below.
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B. Schedule of Monthly Rent. The Base Base Monthly Rent for the Premises
shall be as follows:
7/1/92 - 3/31/95 $1.160 per square foot of Rentable Area
4/1/95 - 3/31/98 $1.305 per square foot of Rentable Area
4/1/98 - 3/31/01 $1.468 per square foot of Rentable Area
4/1/01 - 3/31/04 $1.651 per square foot of Rentable Area
4/1/04 - 9/30/04 $1.857 per square foot of Rentable Area
This Paragraph 4.B shall not apply during the Option Terms, as the subject
of periodic increases in Base Monthly Rent during the Option Terms is
governed by Paragraph 36.B.
C. Rental Abatement.
(i) Tenant shall receive a credit in the amount of $140.214 towards
the first installment of Base Monthly Rent due hereunder.
(ii) Landlord and Tenant acknowledge and agree that during the Lease
Term, Landlord shall furnish and install on a phased floor by
floor basis, certain Renovation Improvements within the Premises,
pursuant to the terms and progress schedule described in the
Improvement Agreement. Landlord and Tenant agree to amend this
Lease to reflect that commencing on the date on which Tenant has
completely vacated any given floor or portion of floor of the
Premises in accordance with the schedule set forth in the
Improvement Agreement and continuing until the Renovation
Commencement Date for such floor, such floor and its related
Rentable Area shall be deleted from the Premises. Concurrent with
the Renovation Commencement Date for any given floor in the
Building, Landlord and Tenant shall further amend this Lease to
reflect the addition of such Rentable Area to the Premises and
such amendment shall provide that until two weeks after such
Renovation Commencement Date for such floor, Tenant shall not be
obligated to pay Monthly Base Rent, Operating Expenses and
Property Taxes due under this Lease pertaining to that portion of
the Premises.
D. Late Charge. If any installment of Base Monthly Rent, Additional Rent or
any other sum payable by Tenant shall not be received by Landlord when due,
Tenant shall pay to Landlord, as Additional Rent, a late charge equal to
four percent (4%) of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of late payment by Tenant. Acceptance of such
late charge by Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount, nor prevent Landlord from
exercising any of its rights and remedies hereunder.
E. Renovation Improvements. The rights and obligations of Landlord and
Tenant with respect to the Renovation Improvements shall be as set forth in
Exhibit B.
F. Additional Rent. Tenant's obligation to pay its percentage share of
Property Taxes in accordance with Paragraph 7, Operating Expenses (as
defined herein), and other sums required to be paid by Tenant under this
Lease other than Base Monthly Rent (which other amounts are referred to
herein as the "Additional Rent") shall commence on the Commencement Date.
All taxes, Operating Expenses, late charges, costs and expenses which
Tenant is required to pay hereunder, together with all interest and
penalties that may accrue thereon in the event of Tenant's failure to pay
such amounts, and all damages, costs, and attorneys' fees and expenses
which Landlord may incur by reason of any default of Tenant or failure on
Tenant's part to comply with the terms of this Lease, shall be deemed to be
Additional Rent and shall be paid in addition to the Base Monthly Rent,
and, in the event of nonpayment by Tenant, Landlord shall have all of the
rights and remedies with respect thereto as Landlord has for the nonpayment
of Base Monthly Rent.
G. Operating Expenses.
(1) The term "Operating Expenses" shall mean all expenses and costs of
every kind and nature which Landlord shall reasonably pay or become
obligated to pay because of or in connection with the operation,
maintenance and repair of the Premises, the Building, the Common Area, the
Outside Areas, or the Project including, without limitation, (i) licenses,
permit and inspection fees not related to the Renovation Improvement of the
Premises, (ii) premiums for insurance maintained by Landlord with respect
to the Building and the Project which complies with Paragraphs 8.C and 8.D
hereof, (iii) wages, salaries and related expenses and benefits of all
employees engaged in operation, maintenance and security to
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the extent fairly allocable to the Building (but excluding leasing,
accounting and management activities which are covered by the specified
management fee), (iv) supplies and materials and equipment rental; (v) all
maintenance, repair, janitorial, security and service costs, (vi) a
management cost recovery equal to three percent (3%) of Base Monthly Rent
and Additional Rent payable with respect to the Premises (collectively,
"Gross Revenues") so long as Tenant leases less than all of the Building,
and two percent (2%) of Gross Revenues so long as Tenant leases all of the
Building, provided that Operating Expenses shall not include any other
management fee or costs incurred by Landlord in connection with property
management services, or payable to any third party manager for such
services, and provided further that Gross Revenues shall not include any of
the items described as exclusions from Operating Expenses under
subparagraph 4.G(2), (vii) professional services fees; (viii) repair,
replacement and maintenance costs of the Common Area and Outside Areas,
including, without limitation, those for sidewalks, landscaping, service
areas, parking areas, building exterior, pipes, ducts, conduits, wires and
driveways (excluding those described in Paragraph 10.B to be paid for by
Landlord and not reimbursed as Operating Expenses and those paid for by
proceeds of insurance or by other parties and excluding alterations to the
extent attributable to tenants of the Building other than Tenant), (ix)
amortization of capital improvements to the extent such capital
improvements reduce other Operating Expenses or to the extent that they are
required by governmental authorities amortized according to Paragraph 12,
(x) all charges for heat, water, gas, electricity, sewer and other
utilities used or consumed in the Building, Common Area and Outside Areas,
(xi) maintenance and repair of the roof membrane and (xii) all other
operating expenses reasonably incurred by Landlord in connection with the
operation of the Building and the Project. Landlord shall not collect in
excess of 100% of all Operating Expenses, and Landlord shall not recover,
through Operating Expenses, any item of cost more than once. Tenant's share
of Operating Expenses and costs incurred by Landlord on a Project-wide
basis shall be the product obtained by multiplying such expenses by a
fraction, the numerator of which is the Rentable Area of the Premises and
the denominator of which is the total Rentable Area of all improvements
located within the Project which benefit from the goods and services
relating to such expenses and costs.
(2) Notwithstanding anything contained in this Lease, the term "Operating
Expenses" shall not include any of the following:
(a) Expenses incurred in connection with (i) obtaining financing for the
Project; (ii) constructing improvements for Tenant or any other tenant
of the Project; (iii) procuring tenants for any portion of the Project
(including commissions and legal fees); (iv) the negotiation, amendment,
or termination of any lease (including unlawful detainer action); or (v)
proceedings against any specific tenant;
(b) Any expenditure for which Landlord has been reimbursed by insurance,
by Tenant, or by any third party (other than pursuant to rent escalation
or tax and operating expense reimbursement provisions in leases);
(c) Any depreciation or amortization on the Project or any property used
in connection therewith;
(d) Expenses in connection with services or other benefits of the type
that are not provided to Tenant, but which are provided to other tenants
of the Project;
(e) Costs incurred due to the violation by Landlord or any other tenant
of the terms of any lease with Landlord affecting the Project;
(f) Overhead and profit increments paid to Affiliates of Landlord, or to
any party as a result of a non-competitive selection process, for
management or other services with respect to the Project to the extent
the cost that would have been paid had the services, supplies, and
materials been provided by parties unaffiliated with Landlord on a
competitive basis;
(g) Interest, principal or any other payment made with respect to any
loans obtained by Landlord or any ground lease or underlying lease
affecting the Project;
(h) Rental incurred in leasing building service equipment ordinarily
considered to be of a capital nature (excluding equipment used in
providing janitorial services that is not affixed to the building);
(i) Accounting expenses relating to the ownership entity and not related
to the ownership or operation of the Project;
(j) Any costs, fines or penalties incurred due to violations by Landlord
or any third party of any Law.
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(k) Any fine and the cost of correcting any violations of Laws
applicable to the design or construction of the Premises prior to the
Commencement Date or any latent defects in the construction of the
Premises;
(l) Costs incurred to comply with any Law to the extent of violations
which existed prior to the Commencement Date, including the cost to
bring the Project into compliance with the Americans with Disabilities
Act;
(m) The cost of repairs or replacements incurred by reason of fire or
other peril, or caused by the exercise of the right of eminent domain;
(n) Costs directly resulting from the negligence or intentional
misconduct of Landlord or Landlord's Agents;
(o) Any cost or expense incurred in connection with the presence or
alleged presence or remediation of any Hazardous Material on the Project
(which subject is governed exclusively in Paragraph 37 of the Lease) not
caused by Tenant or its Agents;
(p) The "deductible" under any insurance policy maintained by Landlord
(with Tenant's obligation to contribute to the cost of any "deductible"
covered by Paragraph 8.D hereof);
(q) Any Property Taxes or taxes or similar charges excluded from the
definition of "Property Taxes" pursuant to Paragraph 7.C (with Tenant's
obligation to contribute to the payment of Real Property Taxes governed
by Paragraph 7.B hereof);
(r) The cost of maintenance, repairs or replacements to the structural
parts of any Building that is part of the Project (including foundation,
load-bearing walls, roof structural system, and floor slab) and all
enclosed plumbing and electrical lines up to the point they enter any
Building in the Project.
(3) Tenant shall pay to Landlord each month at the same time and in the
same manner as monthly Base Rent 1/12th of Landlord's estimate of Tenant's
Percentage Share of Operating Expenses for the then current calendar year.
Within 90 days after the close of each calendar year, or as soon after
such 90 days as practicable, Landlord shall deliver to Tenant a statement
of actual Operating Expenses for such calendar year. If on the basis of
such statement Tenant owes an amount that is less than the estimated for
such calendar year previously made by Tenant, Landlord shall refund such
excess to Tenant. If on the basis of such statement Tenant owes an amount
that is more than the estimated payments for such calendar year previously
made by Tenant, Tenant shall pay the deficiency to Landlord within 30 days
after delivery of the statement. The obligations of Landlord and Tenant
under this subparagraph with respect to the reconciliation between
estimated payments and actual Operating Expenses for the last year of the
term shall survive the termination of the Lease.
(4) If requested by Tenant, Landlord shall make available to Tenant,
within 45 days of Tenant's notice of request, which notice shall be given
no later than 90 days following Tenant's receipt of Landlord's statement,
actual bills and invoices, or copies thereof, supporting Landlord's
statement of estimated or actual Operating Expenses for such calendar
year, together with Landlord's calculations of Operating Expenses and
Tenant's Percentage Share. If Tenant disputes such statement, then Tenant
shall not withhold payment but shall, within 10 days after reviewing such
bills and invoices, send notice to Landlord objecting to such statement.
If such notice is sent, the parties recognize the unavailability of
Landlord's books and records because of the confidential nature thereof
and hence agree that either party may refer the decision of the issues
raised to a reputable independent firm of certified public accountants
selected by Landlord and approved by Tenant, which approval shall not be
unreasonably withheld or delayed, which accountants shall have the right
to audit Landlord's records pertaining to Operating Expenses. Any
adjustment to any previous payment of Operating Expenses shall be paid by
Landlord or Tenant, as the case may be, within 30 days after such
accountants render their decision. If the accountants find that the
Landlord's statement has overstated the total Operating Expenses by 5% or
more, then Landlord shall bear the cost of all fees and expenses of the
accountants. Otherwise, the Tenant shall bear the cost of all fees and
expenses of the accountants.
H. Place of Payment. Rent shall be payable in lawful money of the United
States of America to Landlord at 1150 Marina Village Parkway, Suite 100,
Alameda, California or to such other person(s) or at such other place(s)
as Landlord may designate in writing.
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5. Security Deposit. No security or similar deposit shall at any time be due
from Tenant under this Lease.
6. Use of Premises. Tenant may use the Premises for general office use and,
for so long as Tenant is the tenant for the entire Building, for research
and development purposes which are similar to, and not inconsistent with,
other uses in the Project and which do not require excessive use or misuse
of Building mechanical, electrical, structural or elevator systems, but the
Premises shall not be used for any other purpose. In making such use of the
Premises, Tenant shall comply with all provisions of this Lease, including
without limitation Paragraph 37. Tenant shall indemnify, defend and hold
Landlord harmless against any loss, expense, damage, reasonable attorneys'
fees or liability arising out of failure of Tenant to comply with any
applicable Law. Tenant shall not commit, or suffer to be committed, any
waste upon the Premises, or any nuisance, or allow any sale by auction upon
the Premises, or allow the Premises to be used for any unlawful purpose, or
use any corridor, sidewalks or Outside Areas for storage or any purpose
other than access to the premises, or place or maintain any signs on or
visible from the exterior of the Premises without Landlord's written
consent or so or permit to be done anything in and about the Premises,
either in connection with activities hereunder expressly permitted or
otherwise which would cause a cancellation of any policy of insurance
(including fire insurance) maintained by Landlord in connection with the
Premises or the Building which would violate the terms of any covenants,
conditions or restrictions affecting the Building or the land on which it
is located or place any loads upon the floor, walls or ceiling which
endanger the structure, or place any harmful liquids in the drainage system
of the Building. No waste materials or refuse shall be dumped upon or
permitted to remain upon any part of the Outside Areas except in trash
containers placed inside exterior enclosures designated for that purpose by
Landlord or otherwise with the written consent of Landlord.
7. Taxes and Assessments.
A. Tenant's Property. Tenant shall pay before delinquency any and all taxes
and assessments, license fees and public charges levied, assessed or
imposed upon or against Tenant's Trade Fixtures, equipment, furnishings,
furniture, appliances and personal property installed or located on or
within the Premises. Tenant shall use all reasonable efforts to cause said
Trade Fixtures, equipment, furnishings, furniture, appliances and personal
property to be assessed and billed separately from the real property of
Landlord. If any of Tenant's said personal property shall be assessed with
Landlord's real property, Tenant shall pay Landlord the taxes attributable
to Tenant within ten (10) days after receipt of a written statement from
Landlord setting forth the taxes applicable to Tenant's personal property.
B. Payment of Property Taxes. Tenant shall pay, as Additional Rent,
Tenant's Percentage Share of all Property Taxes payable by Landlord and
levied or assessed with respect to the Building and parking area
attributable to the Building, which accrue and become due during the Lease
Term; provided, however, that if the Premises do not constitute a separate
parcel for purposes of assessing Property Taxes, Tenant shall only pay that
portion of the Property Taxes for the tax parcel of which the Building is a
part that is reasonably and equitably allocable to the Building and
attributable parking. Tenant shall pay such Property Taxes to Landlord not
later than (i) twenty (20) days after receipt of billing; or (ii) ten (10)
days prior to the delinquency date of such Property Taxes, whichever is
later. If Tenant fails to do so, Tenant shall reimburse Landlord, on
demand, for all interest, late fees and penalties that the taxing authority
charges the Landlord as a result of such late payment by Tenant. In the
event the Lender holding a first deed of trust encumbering the Premises
requires an impound for Property Taxes, then Tenant shall pay on the first
day of each calendar month one twelfth (1/12) of its annual share of such
Property Taxes, so long as Tenant receives all interest earned thereon
received by Landlord until paid to the taxing authority. Tenant's liability
hereunder shall be prorated to reflect the commencement and termination
dates of the Lease Term, and any overpayment of taxes by Tenant shall be
credited against sums otherwise due hereunder or shall be paid by Landlord
to Tenant in cash if attributable to any period after the termination date
of this Lease; provided, however, that if there exists an uncured Event of
Tenant's Default at any time that Landlord is obligated to reimburse
overpayments to Tenant pursuant to this sentence, Landlord may apply the
amount so held by it to cure such uncured default. Upon written request,
Landlord shall supply to Tenant all tax bills and other correspondence from
any governmental agency relating to any Property Tax that Tenant is
obligated to pay, and Tenant shall have the right to inspect and copy
Landlord's books and records at Tenant's expense upon reasonable notice to
the extent such books and records relate to a determination of the amount
of Property Taxes due or being contested by Landlord or Tenant.
C. Property Taxes Defined. For the purpose of this Lease, "Property Taxes"
means and includes all taxes, assessments (including, but not limited to,
assessments for public improvements or benefits), taxes based on vehicles
utilizing parking areas, taxes based or measured by the rent paid, payable
or received under this Lease, taxes on the value, use or occupancy of the
Premises, and all other governmental impositions and charges of every kind
and nature whatsoever, whether or not customary or within the contemplation
of the parties hereto and regardless of whether the same shall be
extraordinary or
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ordinary, general or special, unforeseen or foreseen, or similar or
dissimilar to any of the foregoing which, at any time during the Lease
Term, shall be applicable to the Premises, or assessed, levied or imposed
upon the Premises, or become due and payable and a lien or charge upon the
Premises, or any part thereof, under or by virtue of any present or future
Laws whatsoever. There shall be credited against Property Taxes all amounts
received by Landlord from tax increment reimbursements from the West End
Community Improvement District related to improvements to real property on
the tax parcel to which such Property Taxes relate. The term "Property
Taxes" shall not include (i) any federal, state or local net income,
estate, transfer, excise, capital stock or inheritance tax imposed on
Landlord, or (ii) any tax, assessment or other governmental levy or any
increase therein occasioned by or relating to any "change in ownership" (as
defined in Sections 60-65 of the California Revenue and Taxation Code and
the regulations thereunder) during the initial term of the Lease, and in
such event Tenant also shall not receive the benefit of any increase in tax
increment, if any, resulting from such change of ownership or transfer.
D. Assessments. With respect to any Property Tax that may be payable in
installments or by an alternative means at the election of Landlord, Tenant
shall be obligated to pay no more than that amount which would have been
payable had Landlord elected to pay such Property Tax in installments over
the maximum term allowable.
E. Other Taxes. Tenant shall pay, as Additional Rent, or reimburse Landlord
for, any tax based upon, allocable to, or measured by the area of the
Premises or the rental payable by Tenant under this Lease, including,
without limitation, any gross receipts tax levied by any state, local or
federal government with respect to the receipt of such rental; any tax upon
or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy of the Premises or any
portion thereof; any privilege tax, business and occupation tax, sales
and/or use tax, water tax, sewer tax, employee tax, parking tax,
occupational license tax imposed upon Landlord or Tenant with respect to
the Premises; any tax upon this transaction or any document to which Tenant
is a party creating or transferring an interest or an estate in the
Premises; provided, however, that Tenant shall not be obligated to pay any
federal, state or local net income, estate, transfer, excise, capital stock
or inheritance tax imposed on Landlord or imposed as a result of the sale
or conveyance of Landlord's interest in the Premises and/or this Lease.
F. Tenant's Right to Contest. Tenant shall have the right, by appropriate
proceedings, to protest or contest any assessment, reassessment or
allocation of Property Taxes or any change therein or any application of
any Law to the Premises or Tenant's use thereof. Landlord shall notify
Tenant in writing of any change in Property Taxes within sufficient time to
allow Tenant to review and, if it so desires, to contest or protest such
change. In the contest or proceedings, Tenant may act in its own name
and/or the name of Landlord and Landlord will, at Tenant's request and
expense, cooperate with Tenant in any way Tenant may reasonably require in
connection with such contest. If Tenant does not pay Tenant's Percentage
Share of the Property Taxes when due which are the subject of such protest
or contest, Tenant shall post a bond in lieu thereof and, with respect to
any contest of Property Taxes or Laws, shall hold Landlord and the Premises
harmless from any damage arising out of the proceedings or contest and
shall pay any judgment that may be rendered for which Tenant would
otherwise be liable under this Lease without such contest or protest. In
any event, Tenant agrees to pay Tenant's Percentage Share of the Property
Taxes prior to the foreclosure of any tax lien. Any contest conducted by
Tenant under this Paragraph shall be at Tenant's expense and if interest or
late charges become payable as a result of such contest or protest, Tenant
shall pay the same.
G. Reduction in Property Taxes. Within a reasonable period following the
Commencement Date, Landlord shall apply for and use reasonable efforts to
obtain a reduction in Property Taxes from the County Assessors Office,
based on a finding that the current assessed valuation of the Premises
exceeds the current fair market value thereof.
8. Insurance.
A. Waiver and Indemnity. As this Lease does not involve the public interest
and insurance is available to Tenant which will protect it against such
claims, damage, injury or death, Tenant hereby waives all claims against
Landlord for damage to any property to injury to or death of any person in,
upon or about the Premises or the Building arising at any time and from any
cause; provided, however, that the foregoing waiver shall not apply to (i)
damage to the property of persons other than Tenant; or (ii) death or
injury to any person resulting from the negligence or willful misconduct of
Landlord or its Agents. Tenant shall hold Landlord harmless from and defend
Landlord against all claims (except to the extent such arises from the
negligence or willful misconduct of Landlord or its agents) (i) for damage
to any property or injury to or death of any person arising from the use of
the Premises by Tenant, or (ii) arising from the negligence or willful
misconduct of Tenant, its employees, agents, or contractors in, upon or
about those portions of the Project or the Building other than
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the Premises. Landlord shall hold harmless from and defend Tenant against
all claims (except such as arise from the negligence or willful misconduct
of Tenant or its Agents) for damage to any property or injury to or death
of any person arising from events occurring in the Common Areas and Outside
Areas. The foregoing indemnity obligation of Landlord and Tenant shall
include attorneys' fees, investigation costs, and all other costs and
expenses incurred by the other party from the first notice that any claim
or demand is to be made or may be made. The provisions of this Paragraph 8
shall survive the expiration or termination of this Lease with respect to
any damage, injury, or death occurring prior to such termination, and other
than with respect to Tenant's right to early entry under Paragraph 3, its
provisions shall only apply after the later of the Commencement Date or the
date that Tenant or its Agents has actually entered into occupancy of the
Premises.
B. Tenant's Liability Insurance. Tenant shall obtain and maintain during
the term of this Lease comprehensive general liability insurance with
combined single limit for personal injury and property damage in a form and
with carriers acceptable to Landlord in an amount not less than $1,000,000,
and employer's liability and workers' compensation insurance as required by
Law. In addition, Tenant shall maintain excess or umbrella liability
insurance with limits not less than $4,000,000 having the general liability
coverage desired above as underlying. Tenant's comprehensive general
liability and excess/umbrella insurance policy shall be endorsed to provide
that (i) it may not be canceled or altered in such a manner as adversely to
affect the coverage afforded thereby without 30 days' prior written notice
to Landlord, (ii) Landlord is named as additional insured, (iii) the
insurer acknowledges acceptance of the mutual waiver of claims by Landlord
and Tenant pursuant to subparagraph (F) below, and (iv) such insurance is
primary with respect to Landlord and that any other insurance maintained by
Landlord is excess and noncontributing with such insurance. If, in the
reasonable opinion of Landlord's insurance adviser, based on a substantial
increase in recovered liability claims generally, the specified amounts of
coverage are no longer adequate, such coverage shall be appropriately
increased but, in no event shall such required coverage exceed the level of
coverage customarily carried by similar businesses in Alameda County. Prior
to the Term Commencement, Tenant shall deliver to Landlord a duplicate of
such policy or a certificate thereof to Landlord for retention by it with
endorsements, and at least 30 days prior to the expiration of such policy
or any renewal thereof, Tenant shall deliver to Landlord a replacement or
renewal binder, followed by a duplicate policy or certificate within a
reasonable time thereafter. If Tenant fails to obtain such insurance or to
furnish Landlord any such duplicate policy or certificate as herein
required, Landlord may, at its election, without notice to Tenant and
without any obligation to do so, procure and maintain such coverage and
Tenant shall reimburse Landlord on demand as Additional Rent for any
premium so paid by Landlord.
C. Landlord's Liability Insurance. Landlord shall maintain a policy or
policies of comprehensive general liability insurance insuring Landlord
(and such others as are designated by Landlord) against liability for
personal injury, bodily injury, death and damage to property occurring or
resulting from an occurrence in, on or about the Premises in an amount not
less than that required of Tenant, endorsed to provide coverage for the
obligations of Landlord under Paragraph 8.A, provided if Landlord elects to
carry a higher level of coverage such amount of excess coverage must be
reasonable. The cost of such liability insurance which Landlord elects to
maintain shall be Additional Rent, and Tenant shall pay to Landlord the
cost of such insurance as a part of Operating Expenses.
D. Fire and All Risk Insurance. Landlord shall obtain and keep in force
during the Lease Term a policy or policies of insurance covering loss or
damage to the Building in the amount of the full replacement cost thereof
and the Renovation Improvements to the extent paid for by Landlord
providing protection against those perils included within the
classification of "all risk" insurance, plus a policy of rental income
insurance in the amount of twelve (12) months of Base Monthly Rent and
revenues received from the Building together with such additional coverages
(such as earthquake and flood insurance) which Landlord may reasonably
elect to maintain from time to time or which Landlord's Lender may require
Landlord to maintain from time to time so long as such Lender is an
Institutional Lender whose loan is secured by a deed of trust encumbering
the Premises. Tenant shall have no interest in nor any right to the
proceeds of any insurance procured by Landlord on the Building and
Renovation Improvements. Tenant shall pay to Landlord, as Additional Rent,
Tenant's Percentage Share of the cost of such insurance procured and
maintained by Landlord as part of its Operating Expense payment. Tenant's
liability for the cost of such insurance shall be prorated as of the
commencement and termination of the Lease Term. Tenant acknowledges that
such insurance procured by Landlord shall contain a commercially reasonable
deductible approved by Landlord and Tenant which reduces Tenant's cost for
such insurance and, in the event of loss or damage which is not caused by
Landlord or its Agents, Tenants shall be required to pay to Landlord the
amount of such deductible. Notwithstanding anything contained herein, the
following shall apply:
(i) In the event Tenant becomes liable to pay "deductibles" with respect
to any loss or losses the aggregate amount of which exceeds for any
twelve (12) month period during the Lease Term an amount equal to one
installment of the
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Base Monthly Rent then payable, the amount of such excess shall not be
payable by Tenant currently but instead shall be amortized over the
useful life of the improvements constructed with such deductible
amount, together with interest at the Agreed Interest Rate, and
payable as Additional Rent in accordance with the procedure set forth
in Paragraphs 12.A. and B.
(ii) Tenant shall not be obligated to pay the cost of earthquake insurance
to the extent that it exceeds a commercially reasonable rate for
earthquake insurance; provided, however, that in the event an
Institutional Lender which holds at least 30 loans secured by
office/industrial buildings in Northern California and is holding a
loan that is secured by a deed of trust encumbering the Premises
requires that earthquake insurance be maintained, and it is the
general policy of such Lender to require that earthquake insurance be
maintained on substantially all properties owned, managed or
encumbered by such Lender in the same or comparable seismic zone as
the Premises in California, then in that event Tenant shall pay the
entire cost of earthquake insurance even if it exceeds a commercially
reasonable rate; provided, however, if such Institutional Lender does
not hold loans on a minimum of 30 office or industrial buildings in
Northern California then Tenant shall not be obligated to pay the cost
of such earthquake insurance to the extent the annual cost thereof
exceeds Thirty Six Cents ($0.36) per One Hundred Dollars ($100) of
replacement cost. If the cost of earthquake insurance exceeds a
commercially reasonable rate, Tenant shall nonetheless continue to pay
an amount equal to a commercially reasonable rate for such earthquake
insurance to long as such insurance is carried by Landlord, subject to
the limit contained in preceding sentence, and Landlord shall pay the
remainder of the cost of the earthquake insurance. For purposes
hereof, a "commercially reasonable rate" for earthquake insurance
shall mean any rate that is within the range of the then-current cost
of earthquake coverage which is then being paid by "Prime Owners"
(defined below) of office buildings in the San Francisco Bay Area
containing more than 50,000 square feet that were built after 1976 and
which is customarily being reimbursed or paid by tenants occupying
under triple net office leases, such buildings. The term "Prime
Owners" shall be defined to mean any entity or individual whose office
or commercial real property holdings in the San Francisco Bay Area
exceed Fifty Million Dollars ($50,000,000) in fair market value who
fit into any one of the following categories: (a) institutional
investors such as pension funds, insurance companies, and syndications
where partnership interests were offered pursuant to a registered
public offering; (b) office developers and their affiliated
partnerships who individually have owned or developed more than
250,000 square feet of office buildings in the San Francisco Bay Area;
and (c) office corporations who own office facilities they occupy.
E. Release of Landlord. Tenant acknowledges that the insurance to be
maintained by Landlord on the Premises pursuant to Paragraph 8.D above will
not insure any of Tenant's property. Accordingly, Tenant, at Tenant's own
expense, shall maintain in full force and effect on all of its Trade
Fixtures, equipment, leasehold improvements and personal property in the
Premises, a policy of "all risk" coverage insurance to the extent of at
least ninety percent (90%) of their insurable value.
F. Mutual Waiver of Subrogation. Tenant and Landlord 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 an insurance policy required to be maintained by this lease or
otherwise in force at the time of such loss or damage (except such waiver
shall not apply to any loss to the extent it is within the "deductible
amount" of such policy). Each party shall obtain any special endorsements,
if required by the insurer, whereby the insurer waives its right of
subrogation against the other party hereto. The provisions of this
Paragraph 8.F shall not apply in those instances in which waiver of
subrogation would cause either party's insurance coverage to be voided or
otherwise made uncollectible or is not available at reasonable cost.
9. Utilities. Tenant 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; provided, however, so long as Tenant's Percentage Share
is less than One Hundred Percent (100%). Landlord shall pay all utility
charges, except those specifically allocable to Tenant such as telephone,
and Tenant shall reimburse to Landlord, in the same manner as Base Monthly
Rent, Landlord's estimate of Tenant's Percentage Share of such utility
costs, except that Tenant shall pay One Hundred Percent (100%) of the
utility costs related to Tenant's computer room. During any portion of the
term that Tenant's Percentage Share is less than One Hundred Percent
(100%), Landlord may elect to submeter any such utility costs in order to
determine a more accurate actual usage of such utilities by Tenant and
reimbursement by Tenant. Wherever it is practical to do so such services
shall be separately metered or charged to Tenant by the provider thereof
and paid for directly by Tenant. To the extent any of the foregoing
services are provided by Landlord, Tenant shall reimburse Landlord as
Additional Rent for all actual out-of-pocket costs incurred by Landlord in
connection with the provision of such services as billed by the provider
thereof based on Landlord's reasonable estimate of Tenant's use or
consumption of such services.
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10. Repairs and Maintenance.
A. Tenant's Responsibilities. Subject to Landlord's obligations to
maintain, repair and replace pursuant to Paragraph 10.B, Tenant shall,
during the Lease Term, at Tenant's sole cost and expense, keep and maintain
in good order, condition and repair the entire Premises and every part
thereof and Common Areas, including, without limitation, windows, window
frames, plate glass, glazing, skylights, truck doors, doors and all door
hardware, partitions and all plumbing, electrical, gas, water, telephone
and other cabling, lighting, heating, air conditioning and ventilation
facilities, equipment and systems within the Premises or within the
Building serving the Premises; provided, however, so long as Tenant's
Percentage Share is less than One Hundred Percent (100%), Landlord shall
keep and maintain in good order and repair those portions of the Common
Area specifically described as (i) the first floor lobby, (ii) all
stairwells, (iii) fourth floor elevator lobby and corridor, (iv) fourth
floor common restrooms, and (v) elevators, and Tenant shall reimburse
Landlord in the same manner as Base Monthly Rent for Tenant's Percentage
Share of such costs with the exception that the cost of maintaining items
(iii) and (iv) above shall be reimbursed by Tenant at 64.88% until such
time as Tenant vacates the fourth floor in accordance with the schedule set
forth in the Improvement Agreement. The term "repair" shall include
replacements, restorations and/or renewals when necessary, as well as
painting. Tenant's obligation shall extend to all alterations, additions
and improvements to the Premises, and all fixtures and appurtenances
therein and thereto. Tenant shall, at all times during the Lease Term,
either (i) personally maintain any heating, ventilating and air
conditioning ("HVAC") equipment which serves the Premises through a
maintenance program reasonably approved by Landlord; or (ii) have in effect
a service contract for the maintenance of such HVAC equipment with an HVAC
repair maintenance contractor approved by Landlord which provides for
periodic inspection and servicing at least once every sixty (60) days
during the Lease Term and shall provide Landlord with a copy of such
contract. No less frequently than annually, Tenant shall cause to be made
an inspection of any HVAC system which serves the premises by a licensed
HVAC repair and maintenance contractor or mechanical engineer approved by
Landlord. Tenant shall deliver to Landlord a written report prepared by the
party making such inspections promptly after the conclusion of each such
inspection. Except as otherwise provided herein, Tenant shall perform such
maintenance and repair work as is recommended by such inspectors to the
extent such work is reasonably necessary to keep any HVAC equipment which
serves the Premises in good order, condition and repair, Tenant shall
indemnify and save Landlord harmless against and from all costs, expenses,
liabilities, losses, injuries, damages, suits, fines penalties, claims and
demands, including reasonable attorneys' fees, resulting from Tenant's
failure to comply with the foregoing, and Tenant hereby expressly releases
and discharges Landlord of and from any liability therefor. The foregoing
notwithstanding, so long as Tenant's Percentage Share is less than One
Hundred Percent (100%). Tenant shall be credited with that portion of the
costs attributable to HVAC maintenance for space in the Building not leased
by Tenant.
B. Landlord's Responsibilities. During the Lease Term, Landlord shall be
responsible for the following.
(i) Landlord shall maintain, repair and replace when necessary in order to
maintain in good order, condition and repair: (1) Common Areas as
described above; (2) Outside Areas; (3) all structural parts of the
Building (i.e., foundation, floor slabs, load-bearing walls and roof
structural systems); (4) roof membrane; (5) all plumbing and
electrical lines, pipes, conduits, systems and facilities up to the
point they enter the Building; and (6) all other portions of the
Building requiring capital expenditures excluding Renovation
Improvements (but not excluding HVAC, plumbing and electrical systems)
where (a) the useful life of any replacement item will extend beyond
the remaining Lease Term (excluding options to extend that have not
yet been exercised), and (b) the cost of replacement (and all other
replacements commenced within the same calendar year) exceeds $55,000.
Landlord shall be solely responsible for the payment of costs relating
to the maintenance, repair and replacement of all structural parts of
the Building and all plumbing and electrical lines, pipes, conduits,
systems and facilities up to the point they enter the Building (except
to the extent such costs are the result of an event of damage or
destruction covered under Paragraph 16 below). Landlord shall pay for
the other maintenance, repair and replacement obligations set forth in
this subparagraph provided that the cost thereof shall be considered
Operating Expenses reimbursable by Tenant under Paragraph 4.G, except
that capital expenditures items which, together with all other capital
expenditures incurred within the same calendar year, exceeds $55,000,
shall be amortized, together with interest, as described in Paragraph
12.A., and shall be paid by Tenant in accordance with Paragraph 12.B.
Upon the commencement of any Option Term, the $55,000 limit in this
subparagraph (i) shall be increased pursuant to Paragraph 41 in
accordance with the increase in the Consumer Price Index from the
Effective Date through the commencement of the Option Term.
(ii) Landlord shall be responsible for the correction of defects in design
and construction of the Building and Renovation Improvements and for
corrections of violations of Law existing as of the date of the
building permits for the Building
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and Renovation Improvements were issued. The costs of such
correction shall be borne exclusively by Landlord without right of
reimbursement from Tenant.
(iii) No less frequently than annually, Landlord shall cause to be made
an inspection of the Building roof membrane and roof system by an
inspection service approved by Tenant which inspection shall be
done in accordance with the roofing contractor's specifications
and the roof vendor's recommended specifications. Landlord shall
deliver to Tenant a written report prepared by the party making
such inspections promptly after the conclusion of each such
inspection. Landlord shall perform such maintenance and repair
work as is recommended by such inspectors to the extent such work
is reasonably necessary to keep the roof membrane and roof system
in good order, condition and repair. The costs of the inspection
and any resulting repairs of the Building roof membrane (to the
extent not capital expenditures subject to subparagraph 10.B(i))
shall be considered Operating Expenses reimbursable by Tenant
under Paragraph 4.G and the costs related to the structural roof
system shall be borne exclusively by Landlord without right of
reimbursement from Tenant.
C. Warranties. Landlord shall assign to Tenant for the term of this Lease
the benefit of all warranties available to Landlord which would reduce the
cost of performing the obligations of Tenant pursuant to this Lease.
Landlord shall cooperate with Tenant in the enforcement of such warranties.
D. Condition on Delivery. As of the Effective Date, Tenant is in possession
of the Premises and has accepted the Premises. As of the Renovation
Commencement Date for any given floor of the Premises, Landlord shall
deliver such portion of the Premises in good condition and repair, broom
clean, with all electrical, mechanical, HVAC, plumbing and lighting
equipment, systems and facilities serving the Premises in good working
order.
E. Limitation on Repair Obligation of Landlord. Landlord shall have no
maintenance or repair obligations whatsoever with respect to the Premises
except as expressly provided in Paragraphs 10, 13.D, 16 and 17. Tenant
hereby expressly waives the provisions of Subsection 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 Landlord as provided in Section 1942 of said
Civil Code.
11. Outside Areas. Tenant and its agents shall have the non-exclusive right to
use the Outside Areas in common with other occupants of the Project, which
shall include Tenant's right to not less than three and one-half (3.5)
spaces for automobile parking for each one thousand (1,000) square feet of
Rentable Area in the Premises. This right shall terminate upon the
expiration or earlier termination of this Lease. Landlord may make
non-material changes to the shape, size, location, amount and extent of the
Outside Areas provided that no such change shall reduce the parking rights
granted to Tenant hereunder and shall not in any case unreasonably
interfere with the use of the Premises by Tenant. Unless required by Law or
any governmental agency, Landlord shall obtain Tenant's prior consent to
any material modifications or changes to the Outside Areas. Tenant shall
not abandon any inoperative vehicles or equipment on any portion of the
Outside Areas. Tenant shall make no Alterations to the Outside Areas
without the consent of Landlord. In no event shall Tenant be charged by
Landlord for use of parking spaces in the Outside Areas except to the
extent required by Law or any governmental agency and any revenue received
by Landlord with respect to Tenant's use of such parking spaces, if not
paid to a governmental entity, shall be reimbursed to Tenant, less costs
attributable to Landlord's collection thereof.
12. Amortization of Certain Improvements as Additional Rent. Tenant shall pay
Additional Rent in the amount described in this paragraph in the event
Landlord is required by this Lease to do any of the following: (i) pay the
deductible amount in excess of the limit paid by Tenant pursuant to
Paragraph 8.D and on account of damage caused by any peril to the Premises;
(ii) make replacements to the Premises or to the Building when required
pursuant to Paragraph 10.B.(i); or (iii) make improvements required to be
constructed in order to comply with any Law not in effect or applicable to
the Premises as of the Effective Date, which improvements are not the
responsibility of Tenant pursuant to Paragraph 13.D. The amount of
Additional Rent Tenant is to pay with respect to the amounts spent by
Landlord pursuant to the foregoing sentence shall be determined as follows:
A. All costs paid by Landlord to construct such improvements or make such
restoration (including financing costs but excluding reimbursements
received from insurers or other third parties and any management fee to
Landlord) shall be amortized over the useful life of such improvements or
restoration (determined in accordance with generally accepted accounting
principles) and payable by Tenant, together with interest at the Agreed
Interest Rate, in equal monthly installments. Landlord shall inform Tenant
of the monthly amortization payment required so to amortize such costs and
shall also provide Tenant with the information upon which such
determination is made.
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B. As Additional Rent, Tenant shall pay an amount equal to Tenant's share
of such monthly amortization payment for each month after such improvement
or restoration is completed until the first to occur of (i) the expiration
of the Lease Term (which shall not include the period of any subsequent
option to extend where the Base Monthly Rent is determined based upon the
fair market rental value of the Premises), or (ii) the end of the term of
the useful life over which such costs were amortized. The amount of such
Additional Rent that Tenant is to pay shall be due at the same time as the
Base Monthly Rent is due.
13. Alterations.
A. Trade Fixtures. Throughout the Lease Term, Tenant shall provide, install
and maintain in good condition all Trade Fixtures required in the conduct
of its business in the Premises. All Trade Fixtures shall remain Tenant's
property.
B. Alterations. The following provisions govern Alterations constructed by
Tenant:
(i) Tenant shall not construct any Alterations or otherwise alter the
Premises without Landlord's prior approval if (a) such action
results in the demolition, removal or material alteration of
existing improvements or future Renovation Improvements (including
partitions, wall and floor coverings, ceilings, lighting fixtures
or other utility installations), and (b) the cost of such
construction or alteration exceeds One Hundred Thousand Dollars
($100,000) per work of improvement (as such amount is adjusted
pursuant to Paragraph 41) or if the cost of Alterations done, under
construction, or for which approval is sought during any calendar
quarter exceeds One Hundred Thousand Dollars ($100,000) (as such
amount is adjusted pursuant to Paragraph 41). With respect to any
Alterations which must be approved by Landlord pursuant to the
immediately preceding sentence, Tenant shall not commence
construction of such Alterations until Landlord shall have first
approved the plans and specifications therefor, which approval
shall be deemed given if not denied in writing within ten (10)
working days after Landlord shall have received Tenant's request
for such approval. In no event shall Tenant make any Alterations to
the Premises which could affect the structural integrity or the
exterior design of the Building. Notwithstanding anything contained
herein. Tenant shall have the right to reconfigure demountable
walls and partitions without Landlord's prior consent.
(ii) All Alterations requiring Landlord's approval shall be installed by
Tenant in substantial compliance with the approved plans and
specifications therefor. All construction undertaken by Tenant
shall be done in accordance with all Laws and in a good and
workmanlike manner using materials of good quality. Tenant shall
not commence construction of any Alterations until (a) all required
governmental approvals and permits shall have been obtained, and
(b) all requirements regarding insurance imposed by this Lease have
been satisfied.
(iii) Landlord shall cause to be made available to Tenant all information
maintained by Landlord or Landlord's architect which relate to the
plans for the Building, including any "as-built" plans for the
Building (and mechanical platforms of the Building roof) and/or
Outside Areas, so that Tenant can incorporate such information into
Tenant's files relating to plans for the Renovation Improvements
and for Alterations. At all times during the Lease Term, (a) Tenant
shall maintain and keep updated "as-built" plans for all
Alterations constructed by Tenant which may or may not have
required a building permit or other governmental approval, and (b)
Tenant shall provide to Landlord copies of all such "as-built"
plans and any and all other drawings relating to Tenant's
Alterations in the Premises.
(iv) All Alterations shall remain the property of Tenant during the
Lease Term. Tenant shall have the right to remove any Alterations
so long as it repairs all damage caused by the installation thereof
and returns the Premises to the condition existing prior to the
installation of such Alterations. At the expiration or sooner
termination of the Lease Term, all Alterations that Tenant does not
elect to remove shall be surrendered to Landlord as a part of the
realty and shall then become Landlord's property, and Landlord
shall have no obligation to reimburse Tenant for all or any portion
of the value or cost thereof. Notwithstanding anything contained
herein (but subject to the restrictions set forth in Paragraphs
13.B(iv)(a) and (b)), if Landlord so requires, at the expiration or
earlier termination of the Lease Term, Tenant shall remove any
Alterations designated for removal by Landlord, including those
Alterations for which Landlord's consent was not initially
required, and shall restore the Premises to the condition existing
prior to the installation of such Alterations only to the extent
necessary to return the Premises to a condition that has
substantially the same value to subsequent tenants as existing on
the Commencement Date, ordinary wear and tear excepted. The
following provisions shall qualify the general rule set forth in
the immediately preceding sentence:
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(a) Tenant shall remove and restore all damage caused by the removal of any
specialized Alterations specifically related to the operation of
Tenant's business in the Premises. To the extent Alterations made by
Tenant results in a reduction in the capacity of HVAC, mechanical,
electrical or plumbing systems, Tenant shall restore HVAC, mechanical,
electrical and plumbing systems so that the capacity thereof is
substantially the same as existed as of the Commencement Date, ordinary
wear and tear excepted. If restroom "cores" and fixtures have been
changed, such "cores" shall be moved to their original location and
such "cores" and fixtures shall be restored to substantially the same
condition as existed as of the Commencement Date, ordinary wear and
tear excepted. If Tenant has made any Alterations to the structural
part of the Building (i.e., foundations, load-bearing walls, and
structural roof system, but excluding roof membrane) or the floor slab,
such structural parts of the Building shall be returned to the
condition existing prior to the making of such Alterations by Tenant
(including the filling of any pits, wells or trenches). If Tenant has
made any Alterations to the roof membrane, the roof membrane shall be
returned to the condition existing prior to the making of such
Alterations by Tenant, except that Tenant shall not be obligated to
restore any penetration of the roof membrane that has been made with
the written approval of Landlord. The percentage of dropped ceiling for
each area of the Building (office, research and development, etc.)
shall be substantially the same as existed as of the Commencement Date.
Any Alterations made by Tenant to the fire sprinkler system shall be
restored to substantially the same condition as existed as of the
Commencement Date, ordinary wear and tear excepted.
(b) Tenant shall only be required to remove Alterations for which either of
the following is true, and only if such removal is otherwise required
by all of the preceding provisions of this Paragraph 13.B(iv): (i) such
Alterations were approved in writing by Landlord and, at the time such
approval was given by Landlord, Landlord informed Tenant in writing
that Landlord would require that such Alterations be removed at the
termination of the Lease Term; or (ii) such Alterations were installed
without Landlord's consent.
C. Lien Waiver. Landlord, within thirty (30) days after request from Tenant,
shall execute and deliver any document reasonably required by any supplier,
lessor or lender in connection with the installation in the Premises of
Tenant's personal property or Tenant's Trade Fixtures pursuant to which
Landlord waives any rights it may have with respect to such personal
property or Trade Fixtures provided that the supplier, lessor or lender
agrees in writing that (i) it will remove the personal property and Trade
Fixtures from the Premises before the expiration of the Lease Term or within
five (5) days after termination of the Lease Term, and if it does not remove
the property within such period of time, it shall have waived any rights it
may have had to the property in question; (ii) it shall repair any damage to
the Premises resulting from the removal of the personal property or Trade
Fixtures from the Premises; (iii) it will indemnify Landlord for any loss or
liability resulting from its entry onto the Premises; and (iv) it agrees
that the lien waiver will not be recorded.
D. Legally Required Alterations. If, during the Lease Term, any alteration,
addition or change of any sort to all or any portion of the Premises is
required by Law because of (i) Tenant's particular use or change of use of
the Premises, (ii) Tenant's application for a new permit or governmental
approval, or (iii) Tenant's construction or installation of any Alterations
or Trade Fixtures, Tenant shall promptly make the same at its sole cost and
expense. If during the Lease Term, any alteration, addition, or change to
the Premises is required by any Law and is not made the responsibility of
Tenant pursuant to the immediately preceding sentence, Landlord shall
promptly make the same and the cost of such alteration, addition or change
shall be amortized and Tenant shall pay its share of said cost to Landlord
to the extent provided in Paragraph 12.
14. Delivery of Possession After Renovation Improvements. Following completion
of the Renovation Improvements pursuant to the terms and progress schedule
of the Improvement Agreement, Landlord shall use reasonable efforts to
deliver possession of the applicable portions of the Premises to Tenant. By
taking possession of such portion of the Premises as of the Renovation
Commencement Date, Tenant will accept such Premises as being in good and
sanitary order, condition and repair and will accept that portion of the
Premises in their condition existing as of the date of such entry, subject
to (i) latent defects, and (ii) punch list items as identified during the
inspection to be undertaken pursuant to the Improvement Agreement.
15. Default.
A. Events of Tenant's Default. A breach of this Lease shall exist if any of
the following events (hereinafter referred to as "Event of Tenant's
Default") shall occur:
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(i) Default in the payment when due of any installment of rent or
other payment required to be made by Tenant hereunder, and such
default shall not have been cured within three (3) business days
after written notice of such default is given to Tenant (such
three (3)-day period shall be concurrent with, and not in addition
to, the notice period required by Law prior to the commencement of
an unlawful detainer action);
(ii) Tenant's failure to perform any other term, covenant or condition
contained in this Lease, and with respect to those terms,
covenants, or conditions which are susceptible of cure, such
failure shall have continued for thirty (30) days after written
notice of such failure is given to Tenant; provided, however, that
if the nature of Tenant's failure reasonably requires more than
thirty (30) days to cure, Tenant shall not be deemed in default if
Tenant commences to cure such failure within said thirty (30) day
period and thereafter diligently and in good faith prosecutes such
cure to completion;
(iii) Tenant's vacation or abandonment of the Premises while there
exists an Event of Tenant's Default with regard to the payment of
the Base Monthly Rent or Additional Rent;
(iv) Tenant's assignment of its assets for the benefit of its
creditors;
(v) The sequestration of, attachment of, or execution on any
substantial part of the property of Tenant or on any property
essential to the conduct of Tenant's business shall have occurred,
and Tenant shall have failed to obtain a return or release of such
property within sixty (60) days thereafter or prior to sale
pursuant to such sequestration, attachment or levy, whichever is
earlier.
(vi) Tenant shall commence any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation, dissolution
or composition of it or its debts under any Law relating to
bankruptcy, insolvency, reorganization or relief of debtors or
seek appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its
property;
(vii) Tenant's board of directors shall adopt a resolution to authorize
any of the actions set forth in Paragraph 15.A(vi);
(viii) Any case, proceeding or other action against Tenant shall be
commenced seeking to have an order for relief entered against it
as debtor or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, or seeking appointment of a receiver, trustee,
custodian or other similar official for it or for all or any
substantial part of its property, and such case, proceeding or
other action (a) results in the entry of an order for relief
against it which is not fully stayed within thirty (30) business
days after the entry thereof or (b) remains undismissed for a
period of sixty (60) days; or
(ix) Tenant shall fail to provide financial statements or estoppel
certificates to Landlord in accordance with Paragraph 28 within
two (2) business days after giving of notice by Landlord of
Tenant's delinquency in delivery of such statements.
B. Remedies. Upon any Event of Tenant's Default, Landlord shall have the
following remedies, in addition to all other rights and remedies provided
by Law or in equity, to which Landlord may resort cumulatively or in the
alternative:
(i) Recovery of Rent. Landlord shall be entitled to keep this Lease in
full force and effect (whether or not Tenant shall have abandoned
the Premises) and to enforce all of its rights and remedies under
this Lease, including the right to recover rent and other sums as
they become due, plus interest at the Agreed Interest Rate from
the due date of each installment of rent or other sum until paid.
(ii) Termination. Landlord may terminate this Lease by giving Tenant
written notice of termination. On the giving of the notice all of
Tenant's rights in the Premises shall terminate. Upon the giving
of the notice of termination, Tenant shall surrender and vacate
the Premises in the condition required by Paragraph 34, and
Landlord may re-enter and take possession of the Premises and all
the remaining improvements or property and eject Tenant or any of
Tenant's subtenants, assignees or other person or persons claiming
any right under or through Tenant or eject some and not others or
eject none. This Lease may also be terminated by a judgment
specifically providing for termination. Any termination under this
Paragraph 15.B(ii) shall not release Tenant from the payment of
any sum then due Landlord or from any claim for damages or rent
previously accrued or then accruing against Tenant or relating to
events
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accruing prior to such termination. In no event shall any one or
more of the following actions by Landlord constitute a termination
of this Lease:
(a) maintenance and preservation of the Premises;
(b) efforts to relet the Premises;
(c) appointment of a receiver in order to protect Landlord's
interest hereunder;
(d) consent to any subletting of the Premises or assignment of
this Lease by Tenant, whether pursuant to provisions hereof
concerning subletting and assignment or otherwise; or
(e) any other action by Landlord or Landlord's Agents intended
to mitigate the adverse effects from any breach of this
Lease by Tenant.
(iii) Damages. In the event this Lease is terminated pursuant to
Paragraph 15.B or otherwise, Landlord shall be entitled to damages
in the following sums:
(a) the worth at the time of award of the unpaid rent which has
been earned at the time of termination; plus
(b) 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 Tenant proves could have been reasonably avoided;
plus
(c) the worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided; and
(d) any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease or which in the
ordinary course of things would be likely to result
therefrom, including, without limitation, the following:
(i) expenses for cleaning, repairing or restoring damage to
the Premises for which Tenant is responsible; (ii) real
estate broker's fees, advertising costs and other expenses
of reletting the Premises fairly allocable to the remainder
of the Lease Term; (iii) costs of carrying the Premises
such as Property Taxes and insurance premiums thereon,
utilities and security precautions until the Premises are
released (but only to the extent not included in
calculating damages pursuant to Paragraphs 15.B(iii)(a),
(b) and (c)); (iv) expenses in retaking possession of the
Premises; (v) reasonable attorneys' fees and court costs;
and (vi) any unamortized real estate brokerage commission
paid in connection with this Lease.
The "worth at the time of award" of the amounts referred to in Paragraphs
15.B(iii)(a) and (b) shall be computed by allowing interest at the Agreed
Interest Rate. The "worth at the time of award" of the amounts referred to
in Paragraph 15.B(iii)(c) shall be computed by discounting such amount at
the discount rate of the Federal Reserve Board of San Francisco at the
time of award plus one percent (1%). The term "rent" as used in this
Paragraph shall include all sums required to be paid by Tenant to Landlord
pursuant to the terms of this Lease.
16. Destruction.
A. Landlord's Duty to Restore. If the Premises are damaged by any peril
after the Effective Date, Landlord shall restore the Premises except to
the extent that this Lease is terminated by Landlord pursuant to Paragraph
16.B or by Tenant pursuant to Paragraph 16.C. All insurance proceeds
available from the fire and property damage insurance carried by Landlord
pursuant to Paragraph 8.D shall be paid to and become the property of
Landlord. If this Lease is terminated pursuant to either Paragraph 16.B or
16.C, then all insurance proceeds available from insurance carried by
Tenant which covers loss to the Building that is Landlord's property or
would become Landlord's property on the termination of this Lease shall be
paid to and become the property of Landlord. To the extent this Lease is
not so terminated, then upon Landlord's receipt of the insurance proceeds
(if the loss is covered by insurance) and the issuance of all necessary
governmental permits, Landlord shall commence and diligently prosecute to
completion the restoration of the Premises, to the extent then allowed by
Law, to substantially the same condition in which the Premises were
immediately prior to
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such damage, Landlord's obligation to restore shall be limited to the
Premises and Tenant Improvements constructed by Landlord as they existed
as of the Commencement Date, as modified or improved by Alterations
constructed by Tenant thereafter with Landlord's consent, but shall
exclude any Trade Fixtures and/or personal property installed by Tenant
in the Premises. Tenant shall forthwith replace or fully repair all
Trade Fixtures installed by Tenant and existing at the time of such
damage or destruction to the extent still required by Tenant for its
business operations in the Premises.
B. Landlord's Right to Terminate. Landlord shall have the option to
terminate this Lease in the event any of the following occurs, which
option may be exercised only by delivery to Tenant of a written notice of
election to terminate within sixty (60) days after the date of such
damage:
(i) The Building is damaged by any peril either (a) covered by the
type of insurance Landlord is required to carry pursuant to
Paragraph 8.D, or (b) covered by valid and collectible insurance
actually carried by Landlord and in force at the time of such
damage or destruction and in either event the proceeds of such
insurance are made available to Landlord, to such an extent that
the estimated restoration cost exceeds eighty (80%) of the then
actual replacement cost thereof and there remains less than three
(3) years in the Lease Term; provided, however, that Landlord may
not terminate this Lease pursuant to this subparagraph if Tenant
at the time of such damage has a then valid written option to
extend the Lease Term and Tenant exercises such option to extend
the Lease Term within thirty (30) days following the date of such
damage and such action results in there being more than three (3)
years remaining in the Lease Term (as it has been extended by the
exercise of such option).
(ii) The Building is damaged by any peril both (a) not covered by the
type of insurance Landlord is required to carry pursuant to
Paragraph 8.D, and (b) not covered by valid and collectable
insurance actually carried by Landlord and in force at the time of
such damage or destruction to such an extent that the estimated
restoration cost exceeds five percent (5%) of the then estimated
replacement cost of the Building; provided, however, that Landlord
may not terminate this Lease pursuant to this subparagraph if
Tenant agrees in writing to pay the amount by which the
restoration costs exceed five percent (5%) of the replacement
costs of the Building and deposits an amount equal to the
estimated amount of such costs within thirty (30) days after
Landlord has notified Tenant of its election to terminate this
Lease pursuant to this subparagraph.
(iii) The Building is damaged by any peril during the last twelve (12)
months of the Lease Term; provided, however, that Landlord may not
terminate this Lease pursuant to this subparagraph if Tenant, at
the time of such damage, has previously effectively exercised its
Option to Extend the Lease Term, if any.
(iv) The Building is damaged by any peril and, because of the Laws then
in force, may not be restored to substantially the same condition
in which it was prior to such damage because of a substantial
increase in the cost of restoration directly related to changes in
Laws that have occurred since the Building was constructed, which
substantial increase is not covered by insurance proceeds actually
made available by Landlord; provided, however, that Landlord may
not terminate this Lease pursuant to this subparagraph if (a)
Tenant agrees in writing to pay the additional restoration costs
directly related to changes in Laws that have occurred since the
Building was constructed to the extent it is not covered by
insurance proceeds actually recovered by Landlord, and Tenant
deposits such amount within thirty (30) days after Landlord has
exercised its option to terminate this Lease, or (b) the Building
may be redesigned in a manner that does not materially change its
size, configuration or value, which redesign would result in
Landlord being able to restore the Building at reasonable costs
and would not result in there being insufficient insurance
proceeds actually recovered by Landlord so long as Landlord and
Tenant reach agreement on such redesign within thirty (30) days
after Landlord has exercised its option to terminate the Lease and
any and all Lenders approve such redesign. For purposes of this
subparagraph, a "substantial increase in the costs of restoration"
shall mean an increase of five percent (5%) or more over what the
restoration costs would have been had no changes in Laws occurred
since the damaged Building was originally constructed.
(v) If Tenant elects to make a deposit to avoid a termination of this
Lease pursuant to Paragraph 16.B(ii) or (iv), the following shall
apply to such deposit: (a) the deposit may be in the form of cash
or an irrevocable letter of credit; (b) any irrevocable letter of
credit provided by Tenant to satisfy this requirement must be
payable to Landlord, be in the amount of the required deposit, be
in form reasonably acceptable to Landlord, and provide for the
disbursal of funds to Landlord upon Landlord's certification that
the same are needed to pay for restoration costs actually
incurred; (c) the deposit shall be disbursed to Landlord as it is
needed to pay restoration costs as they come due on a progress
payment basis in accordance with customary commercial bank
construction lending practices, and Tenant
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shall take such action as is necessary to cause the deposit to be
so disbursed; and (d) the deposit, whether in the form of cash or
letter of credit, shall be held in trust for disbursal to pay
restoration costs by any Lender that is an insurance company or
financial institution, or if there is no such Lender or if such
Lender does not agree to act in such capacity, then by a bank,
savings and loan association, or other financial institution
selected by Landlord and approved by Tenant, whose fee shall be
paid by Tenant.
C. Tenant's Right to Terminate. If the Building is damaged by any peril
and Landlord does not elect to terminate this Lease or is not entitled so
to terminate this Lease pursuant to Paragraph 16.B, then as soon as
reasonably practicable, Landlord shall furnish Tenant with the written
opinion of Landlord's architect, contractor or construction consultant as
to when the restoration work required of Landlord may be completed. Tenant
shall have the option to terminate this Lease in the event any of the
following occurs, which option may be exercised only by delivery to
Landlord of a written notice of election to terminate within fifteen (15)
days after Tenant receives from Landlord the estimate of the time needed
to complete such restoration:
(i) The Building is damaged by any peril and, in the reasonable
opinion of Landlord's architect, contractor or construction
consultant, the restoration of the Premises cannot be
substantially completed within the earlier of (a) two hundred
seventy (270) days after the date of issuance of necessary
building permits for such restoration; or (b) three hundred
sixty-five (365) days after the date of such damage.
(ii) The Building is damaged by any peril within twelve (12) months of
the last day of the Lease Term, and, in the reasonable opinion of
Landlord's architect or construction consultant, the restoration
of the Building cannot be substantially completed within ninety
(90) days after the date of such damage.
D. Abatement of Rent. In the event of damage to the Building which does
not result in the termination of this Lease, the Base Monthly Rent and
Tenant's Percentage Share of Property Taxes and Operating Expenses, shall
be temporarily abated from the date of the damage and during the period of
restoration in proportion to the degree to which Tenant's use of the
Building is impaired by such damage and restoration. In the event of any
dispute between Landlord and Tenant concerning the amount of such
abatement, the matter shall be determined by binding arbitration under the
Commercial Rules of the American Arbitration Association. Tenant shall not
be entitled to any compensation from Landlord for loss of Tenant's
property to loss to Tenant's business caused by such damage or
restoration. Tenant hereby waives the provisions of Section 1932,
Subdivision 2, and Section 1933, Subdivision 4, of the California Civil
Code, and the provisions of any similar law, hereafter enacted.
17. Condemnation.
A. Definition of Terms. For the purposes of this Lease, the following
terms shall have the indicated meanings: (1) "Taking" means a taking of
the Premises or damage to the Premises related to the exercise of the
power of eminent domain and includes a voluntary conveyance, in lieu of
court proceedings, to any agency, authority, public utility, person or
corporate entity empowered to condemn property; (2) "Total Taking" means
the taking of the entire Building or so much of the Building or the
Outside Areas as to prevent or substantially impair the use thereof by
Tenant for the uses herein specified; provided, however, in no event shall
a Taking of less than ten percent (10%) of the total Rentable Area of the
Building or Outside Areas be deemed a Total Taking; (3) "Partial Taking"
means the taking of only a portion of the Building or of the Outside Areas
which does not constitute a Total Taking; (4) "Date of Taking" means the
date upon which the title to the Premises or a portion thereof passes to
and vests in the condemnor or the effective date of any order for
possession if issued prior to the date title vests in the condemnor; and
(5) "Award" means the amount of any award made, consideration paid, or
damages ordered as a result of a Taking.
B. Rights. The parties agree that in the event of a Taking all rights
between them or in and to an Award shall be as set forth herein and Tenant
shall have no right to any Award except as set forth herein.
C. Total Taking. In the event of a Total Taking during the Lease Term: (i)
the rights of Tenant under the Lease and the leasehold estate of Tenant in
and to the Premises shall cease and terminate as of the Date of Taking;
(ii) Landlord shall refund to Tenant any prepaid rent; (iii) Tenant shall
pay the Landlord any rent or charges due Landlord under the Lease, each
prorated as of the Date of Taking; (iv) Tenant shall receive from the
Landlord those portions of the Award attributable to Trade Fixtures of
Tenant, the value of any Alterations which Tenant has the right to remove
from the Premises, the unamortized value allocable to the remainder of the
Lease Term of any Alterations installed at Tenant's
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expense which are not removable, and moving expenses of Tenant; and (v)
the remainder of the Award shall be paid to and be the property of
Landlord.
D. Partial Taking. In the event of a Partial Taking during the Lease Term,
the following shall apply: (i) the rights of Tenant under the Lease and
the leasehold estate of Tenant in and to the portion of the Building and
any Outside Areas taken shall cease and terminate as of the Date of
Taking; (ii) from and after the Date of Taking the Base Monthly Rent shall
be reduced to an amount which bears the same relationship to such Base
Monthly Rent before such reduction as the fair market rental value of the
Building which remains after the Partial Taking bears to the fair market
rental value of the Building prior to the Partial Taking; (iii) Tenant
shall receive from the Award the portions of the Award attributable to
Trade Fixtures of Tenant, the value of any Alterations which Tenant has
the right to remove from that part of the Building taken in the Partial
Taking, and the unamortized value allocable to the remainder of the Lease
Term of any Alterations installed at Tenant's expense which are not
removable and which are located in that part of the Building taken in the
Partial Taking; and (iv) the remainder of the Award shall be paid to and
be the property of the Landlord.
E. Temporary Taking. If any portion of the Building or Outside Areas is
temporary taken for two hundred seventy (270) days or less, this Lease
shall remain in effect with no abatement of rent and Tenant shall be
entitled to recover any Award that is made for such Taking. If any portion
of the Building or Outside Areas is temporarily taken by a Taking for a
period which exceeds two hundred seventy (270) days or which extends
beyond the natural expiration of the Lease Term, and such taking prevents
or substantially impairs the use of the remainder of the Building or
Outside Areas by Tenant for the uses herein specified, then Tenant shall
have the right to terminate this Lease effective as of the Date of Taking.
18. Mechanics' Liens. Tenant shall (i) pay for all labor and services
performed for, materials used by or furnished to Tenant or any contractor
employed by Tenant with respect to the Premises, and (ii) indemnify,
defend and hold Landlord and the Premises harmless and free from and shall
promptly cause to be removed 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 Tenant or any contractor employed
by Tenant with respect to the Premises, (iii) give notice to Landlord in
writing five (5) business days prior to employing any laborer or
contractor to perform services related to, or receiving materials for use
upon the Premises, and (iv) permit Landlord to post a notice of
nonresponsibility in accordance with the statutory requirements of
California Civil Code Section 3094 or any amendment thereof. In the event
Tenant is required to post an improvement bond with a public agency in
connection with the above, Tenant agrees to include Landlord as an
additional obligee. Nothing herein shall prohibit Tenant from contesting
any claim for labor, services or materials, provided Tenant complies with
the provisions of this Paragraph 18.
19. Inspection of the Premises. Tenant shall permit Landlord and its Agents to
enter the Premises at any reasonable time for the purpose of inspecting
the same, performing Landlord's maintenance and repair responsibilities,
making alterations or improvements to the Premises or to the Building,
posting notices of nonresponsibility for alterations, additions or repairs
and, if Tenant has not effectively exercised its option to extend the
Lease Term and such extension option has expired, at any time within
eighteen (18) months prior to expiration of this Lease, to place upon the
Premises ordinary "For Lease" or "For Sale" signs, and, to show the
Premises and Building to prospective tenant and brokers, provided that
with respect to any such entry, other than in the case of an emergency,
Landlord shall have given Tenant at least twenty-four (24) hours prior
written notice of intent to enter the Premises, shall be accompanied by a
representative of Tenant (if Tenant requests and provides such
representative), shall comply with any security procedures of Tenant while
therein, and at all times shall use commercially reasonable efforts to
minimize interference with Tenant's use of the Premises.
20. Compliance with Laws.
A. Obligation of Tenant. Tenant shall, at its own cost, comply with all
Laws now in force or which may hereafter be in force pertaining to the use
and occupancy of the Premises by Tenant and its Agents. The judgment of
any court of competent jurisdiction or the admission of Tenant in any
action or proceeding against Tenant, whether Landlord be a party thereto
or not, that Tenant has violated any such Laws in the use and occupancy of
the Premises shall be conclusive of the fact that such violation by Tenant
has occurred.
B. Right to Contest. Tenant shall have the right to contest or otherwise
review by appropriate legal or administrative proceedings the application
of any Law or insurance underwriters requirement to the use by Tenant or
the Premises. If Tenant desires to so contest any such Law or requirement,
Tenant shall give Landlord written notice of its intention to do so and
may conduct such contest or other reviews so long as it pays all costs,
and compliance therewith may be held in
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abeyance pending completion of such proceedings. Tenant shall protect and
indemnify Landlord against any and all expenses or damages resulting from
such contest or other proceeding.
21. Subordination. Tenant shall, upon Landlord's request, promptly execute any
instrument (including an amendment to this Lease) or instruments of
subordination reasonably necessary to subordinate this Lease to any
mortgage or deed of trust to be placed upon the Premises, or any part
thereof, by Landlord, which instrument or instruments may include such
other matters as the Lender customarily requires in connection with such
agreements in comparable transactions, including provisions that the
Lender not be liable for any defaults on the part of Landlord occurring
prior to the time the Lender takes possession of the Premises in
connection with the enforcement of its rights under the mortgage or deed
of trust. Tenant's failure to execute any such instrument within ten (10)
days after written demand therefor shall constitute a default by Tenant
under this Lease. Tenant agrees to attorn to and recognize any mortgagee
or beneficiary of the deed of trust subsequently encumbering the Premises
and any party acquiring title to the Premises, by judicial foreclosure or
a trustee's sale, as a successor to Landlord hereunder. Tenant's
obligation to subordinate this Lease to any mortgage or deed of trust is
conditioned upon the following:
(i) The Lender must consent in writing to this Lease and agree in
writing that, so long as there does not then exist any Event of
Tenant's Default, in the event of foreclosure of the mortgage or
deed of trust the Lender shall recognize the tenancy of Tenant on
the terms contained herein and this Lease shall remain in full
force and effect.
(ii) If the instrument effecting subordination provides that upon
foreclosure of the mortgage or deed of trust the Lender (or any
successor in interest) is not liable for the full and complete
performance of all of the obligations of the Landlord under this
Lease (e.g., the completion of improvements to be constructed by
the Landlord), then such agreement shall provide that if a
foreclosure of such mortgage or deed of trust does occur and the
Lender (or its successor in interest) at any time thereafter
relies upon such provision to avoid performance of any obligation
of the Landlord contained in this Lease thus causing a material
interference with Tenant's use of the Premises, then in that
limited circumstance Tenant shall have the following rights: (i)
Tenant may terminate this Lease; or (ii) Tenant may perform the
obligation that such Lender (or successor in interest) has elected
not to perform and deduct the cost thereof (with interest at the
Agreed Interest Rate from the date of expenditure until
reimbursement) from the payments of the Base Monthly Rent until
Tenant has been fully reimbursed for the cost of such performance.
(iii) With respect to any Lender having a security interest in the
Premises as of the Commencement Date, such Lender shall execute a
non-disturbance agreement in accordance with the aforementioned
terms within ninety (90) days after the Commencement Date. If such
non-disturbance agreement is not executed within such ninety (90)
day period then Tenant shall have the option at any time prior to
the execution by the Lender of such non-disturbance agreement, but
shall not be obligated to do so, to terminate this Lease whereupon
the Previous Lease shall be reinstated and Tenant shall pay to
Landlord the amount by which (i) all sums which would otherwise
have been payable by Tenant under the Previous Lease during the
period commencing April 1, 1992 and continuing through the date of
such termination, exceeds (ii) all amounts actually paid by Tenant
during the same period.
22. Holding Over. This Lease shall terminate without further notice at the
expiration of the Lease Term. Any holding over by Tenant after expiration
shall not constitute a renewal or extension or give Tenant any rights in
or to the Premises except as expressly provided in this Lease. Any holding
over after the expiration with the consent of Landlord shall be construed
to be a tenancy from month to month, at one hundred twenty-five percent
(125%) of the Base Monthly Rent for the last month of the Lease Term, and
shall otherwise be on the terms and conditions herein specified insofar as
applicable.
23. Notices. Any notice required or desired to be given under this Lease shall
be in writing with copies directed as indicated below and shall be
personally served or given upon the earlier of delivery or by mail. Any
notice given by mail shall be deemed to have been given when forty-eight
(48) hours have elapsed from the time which such notice was deposited in
the United States mail, certified and postage prepaid, addressed to the
party to be served with a copy as indicated herein at the last address
given by that party to the other party under the provisions of this
Paragraph. At the date of execution of this Lease, the address of Landlord
is:
c/o Vintage Properties With a Copy To
393 Vintage Park Drive c/o Marina Village
Suite 210 1150 Marina Village Parkway
Foster City, California 94404 Suite 100
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Attn: Joseph R. Seiger Alameda, California 94501
Attn: Property Manager
and the address of Tenant is:
2140 West El Camino Real
Mountain View, California 94039
Attention: Chief Financial Officer.
24. Attorneys' Fees. In the event either party shall bring any action or legal
proceeding for damages for any alleged breach of any provision of this
Lease, to recover rent or possession of the Premises, to terminate this
Lease, or to enforce, protect or establish any term or covenant of this
Lease or right or remedy of either party, the prevailing party shall be
entitled to recover as a part of such action or proceeding reasonable
attorneys' fees and court costs, including attorneys' fees and costs for
appeal, as may be fixed by the court or jury. The term "prevailing party"
shall mean the party who received substantially the relief requested,
whether by settlement, dismissal, summary judgment, judgment or otherwise.
25. Nonassignment.
A. Consent Required. Tenant's interest in this Lease is not assignable, by
operation of law or otherwise, nor shall Tenant have the right to sublet
the Premises, transfer any interest of Tenant therein or permit any use of
the Premises by another party, without the prior written consent of
Landlord to such assignment, subletting, transfer or use, which consent
Landlord agrees not to unreasonably withhold, subject to the provisions of
Paragraph 25.B and Paragraph 37. A consent to one assignment, subletting,
occupancy or use by another party shall not be deemed to be a consent to
any subsequent assignment, subletting, occupancy or use by another party.
Any assignment or subletting without such consent shall be void and shall,
at the option of Landlord, terminate this Lease. Landlord's waiver or
consent to any assignment or subletting hereunder shall not relieve Tenant
from any obligation under this Lease unless the consent shall so provide.
Tenant may, with Landlord's prior written consent, assign this Lease as
security for a bona fide loan; provided, however, that if the lender is an
Institutional Lender or syndicate of lenders headed by an Institutional
Lender (a "Syndicate"), Landlord's prior consent shall not be required. If
the lender taking this Lease as security is an Institutional Lender or a
Syndicate, Landlord shall make such amendments to this Lease or agreements
with such lender as (i) are reasonably requested by such lender, (ii) are
limited to protecting the lender's security interest in the Lease, (iii)
are customarily received by Institutional Lenders in connection with
leasehold mortgage financing, (iv) do not materially and adversely affect
Landlord's rights under the Lease and will not delay Landlord's exercise
of its remedies for an Event of Tenant's Default and in no event change
the Base Monthly Rent, Additional Rent, or Lease Term, and (v) would not
constitute a default under any mortgage or deed of trust encumbering the
Premises. Notwithstanding the foregoing, Landlord shall not be obligated
to make amendments to the Lease or agreements with such lender which would
permit the Lease to be assigned without the prior consent of Landlord.
Without limiting the other instances in which it may be reasonable for
Landlord to withhold its consent to an assignment or subletting, Landlord
and Tenant acknowledge that it shall be reasonable for Landlord to
withhold its consent (i) if the proposed assignee or sublessee is a
governmental agency; (ii) if, in Landlord's reasonable judgment, the use
of the Premises by the proposed assignee or sublessee would entail any
alterations which would materially lessen the value of the leasehold
improvements in the Premises (and Tenant does not provide Landlord with
reasonable assurance that such alterations will be removed and restored
upon termination of the Lease), or would require materially increased
services by Landlord for which reimbursement by Tenant is not sufficient
to cover all costs that Landlord would incur as a result of providing such
additional services; (iii) if, in Landlord's reasonable judgment, the
financial worth of the proposed assignee or sublessee does not meet the
credit standards applied by Landlord for other tenants under leases with
comparable term and the proposed sublease term expiration is within one
(1) year of the expiration of the Lease Term, or the character, reputation
or business of the proposed assignee or sublessee is not consistent with
the quality of the other tenancies in the Project; (iv) in the case of a
subletting of less than the entire Premises, if the subletting would
result in the division of any given floor of the Premises into more than
four subparcels, would create a subparcel of a configuration that is not
suitable for normal leasing purposes, or would require access to be
provided through space leased or held for lease to another tenant or
improvements to be made outside of the Premises and Tenant does not
provide Landlord with reasonable assurance that such alterations to create
such configuration will be removed and restored to the original
configuration upon termination of the Lease; or (v) if, at the time
consent is requested or at any time prior to the granting of consent,
there is an uncured Event of Tenant's Default under the Lease which is
capable of being cured and which has not been cured. As used in this
Paragraph 25, the term "assign" or "assignment" shall include, without
limitation, any sale,
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transfer, or other disposition of all or any position of Tenant's estate
under this Lease, whether voluntary or involuntary, and whether by
operation of law or otherwise including any of the following:
(i) If Tenant is a corporation: (i) any dissolution, merger,
consolidation, or other reorganization of Tenant or (ii) a sale of
more than 50% of the value of the assets of Tenant or (iii) if
Tenant is a corporation with fewer than 50 shareholders, sale or
other transfer of a controlling percentage of the capital stock of
Tenant to one entity or to a group of related entities. The phrase
"controlling percentage" means the ownership of, and the right to
vote, stocks possessing at least 50% of the total combined voting
power of all classes of Tenant's stock issues, outstanding and
permitted to vote for the election of directors;
(ii) If Tenant is a trust the transfer of more than 50% of the
beneficial interest of Tenant, or the dissolution of the trust;
(iii) If Tenant is a partnership or joint venture, the withdrawal, or
the transfer of the interest of any general partner or joint
venturer or the dissolution of the partnership or joint venture;
(iv) If Tenant is composed of tenant-in-common, the transfer of
interest of any cotenants or the partition of dissolution of the
cotenancy.
B. Notice Required. If Tenant desires to assign its interest in this Lease
or sublet the Premises, or transfer any interest of Tenant therein, or
permit the use of the Premises by another party (hereinafter collectively
referred to as a "Transfer"), Tenant shall give Landlord at least fifteen
(15) days prior written notice of the proposed Transfer and of the terms
of such proposed Transfer, including, but not limited to, the name and
legal composition of the proposed transferee, a financial statement of the
proposed transferee, the nature of the proposed transferee's business to
be carried on in the Premises, the payment to be made or other
consideration to be given on account of the Transfer, and such other
pertinent information as may be requested by Landlord, all in sufficient
detail to enable Landlord to evaluate the proposed Transfer and the
prospective transferee.
C. Landlord's Right to Share in Net Subrent Profit. If Landlord consents
to a Transfer proposed by Tenant, Tenant may enter into such Transfer, and
if Tenant does so, the following shall apply to such Transfer (but not to
any Transfer described by Paragraph 25.D):
(i) If Tenant assigns interest in this Lease, then Tenant shall pay to
Landlord fifty percent (50%) of all consideration received by
Tenant over and above (a) the assignee's agreement to assume the
obligations of Tenant under this Lease, and (b) all "Permitted
Transfer Costs" (as defined in Paragraph 25.C(v)). In the case of
assignment, the amount of consideration owed to Landlord shall be
paid to Landlord on the same basis, whether periodic or in lump
sum, that such consideration is paid to Tenant by the assignee.
(ii) If Tenant sublets any part of the Premises, then with respect to
the space so subleased, Tenant shall pay to Landlord fifty percent
(50%) of the positive difference, if any, between (a) all rent and
other consideration paid by the subtenant to Tenant, less (b) all
Permitted Transfer Costs and all payments of the Base Monthly Rent
and Additional Rent fairly allocable to that part of the Premises
affected by such sublease. Such amount shall be paid to Landlord
on the same basis, whether periodic or in lump sum, that such rent
and other consideration is paid to Tenant by its subtenant. In
calculating Landlord's share of any periodic payments, all such
costs permitted to be deducted from the gross consideration
received by Tenant that have been paid by Tenant shall be first
recovered by Tenant.
(iii) Tenant's obligations under this Paragraph 25.C shall survive any
Transfer. At the time Tenant makes any payment to Landlord
required by this Paragraph 25.C, Tenant shall deliver an itemized
statement of the method by which the amount to which Landlord is
entitled was calculated, certified by Tenant as true and correct,
Landlord shall have the right at reasonable intervals to inspect
Tenant's books and records relating to the payments due hereunder.
Upon request therefor, Tenant shall deliver to Landlord copies of
all bills, invoices or other documents upon which its calculations
are based.
(iv) As used in this Paragraph 25.C, the term "consideration" shall
mean any consideration of any kind received by Tenant as a result
of the Transfer if such consideration is paid or given in exchange
for Tenant's interest in this Lease or in the Premises.
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(v) As used herein, the term "Permitted Transfer Costs" shall mean the
following: (a) all reasonable leasing commissions paid to third
parties not affiliated with Tenant in order to obtain the Transfer
in question; (b) all reasonable attorneys' fees incurred by Tenant
with respect to the Transfer in question; (c) the cost of
Alterations that must be made by Tenant in order to obtain the
Transfer in question; (d) the amount of the Base Monthly Rent and
all Additional Rent paid by Tenant with respect to that part of
the Premises affected by the Transfer in question for that period
of time during which such part of the Premises was vacant and
actively being marketed for sublease or assignment so long as at
the commencement of such vacancy previous notice of such vacancy
was delivered to Landlord and Landlord was able to inspect and
verify same; and (e) any of the foregoing types of costs paid or
incurred by Tenant with respect to prior Transfers which Tenant
did not recoup (after first paying the Base Monthly Rent and
Additional Rent fairly allocable to the space affected by such
prior Transfers) from rent and other consideration paid by the
subtenants or assignees that were parties to such prior Transfers.
(vi) In the event Tenant shall assign the Lease or sublet the Premises
or request the consent of Landlord to any assignment or subletting
or if Tenant shall request the consent of Landlord for any act
that Tenant proposes to do then Tenant shall pay Landlord's
reasonable attorney's fees incurred in connection therewith up to
One Thousand Dollars ($1,000) per event, as such amount is
adjusted pursuant to Paragraph 41.
D. Exempt Transfers. Tenant may, without Landlord's prior written consent
and without any participation by Landlord in assignment or subletting
proceeds, assign its interest in the Lease or sublet the Premises or a
portion thereof to (i) an Affiliate of Tenant; (ii) a successor
corporation related to Tenant by merger, consolidation, non-bankruptcy
reorganization or government action, or engage in a merger, consolidation
or other reorganization of Tenant which is defined as an "Assignment"
under Paragraph 25.A(i); or (iii) a purchaser of substantially all of the
Tenant's assets related to the business being operated at the Premises, so
long as the Affiliate and Tenant, combined, under (i), such successor or
the entity which continues as Tenant under (ii), or such purchaser under
(iii), has a net worth equal to or greater than the net worth of Tenant as
of the Effective Date; provided that in all such instances the transferee
assumes the obligations of the Tenant under this Lease in a written
instrument delivered to Landlord and provided further that the transferor
tenant remains liable as a primary obligor for the obligations of Tenant
under this Lease (excluding a transferor corporation which does not
survive a merger or other reorganization).
26. Successors. This Lease shall be binding on the parties hereto and on their
respective heirs, successors and assigns (to the extent the Lease is
assignable).
27. Lender Protection. In the event of any default on the part of
Landlord, Tenant shall give notice by registered or certified mail to any
Lender whose address shall have been furnished it, and shall offer such
Lender a reasonable opportunity to cure the default, including time to
obtain possession of the Premises by power of sale or judicial
foreclosure, if such should prove necessary to effect a cure.
28. Estoppel Certificates and Financial Statements. At all times during the
Lease Term, each party agrees, following any request by the other party,
promptly to execute and deliver to the requesting party an estoppel
certificate (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,
(ii) stating the date to which the rent and other charges are paid in
advance, if any, (iii) acknowledging that there are not, to the certifying
party's knowledge, any uncured defaults on the part of any party hereunder
or, if there are uncured defaults, specifying the nature of such defaults,
and (iv) certifying such other information about the Lease as may be
reasonably required by the requesting party. A failure to deliver an
estoppel certificate within ten (10) days after delivery of a request
therefor shall be a conclusive admission that, as of the date of the
request for such statement, (a) this Lease is unmodified except as may be
represented by the requesting party in said request and is in full force
and effect, (b) there are no uncured defaults in the requesting party's
performance, and (c) no rent has been paid in advance for more than thirty
(30) days. At any time during the Lease Term Tenant shall, upon ten (10)
days prior written notice from Landlord, provide Tenant's most recent
financial statement and financial statements covering the twenty-four (24)
month period prior to the date of such most recent financial statement to
Landlord, any existing Lender or to any potential Lender or buyer of the
Premises. Such statements shall be prepared in accordance with generally
accepted accounting principles and, if such is the normal practice of
Tenant, shall be audited by an independent certified public accountant.
Failure to deliver such statements within ten (10) days after receipt of
written notice from Landlord of delinquency in delivery of such statement
shall be an Event of Tenant's Default under Paragraph 15. Landlord shall
use reasonable efforts to keep confidential all financial statements
delivered to it by Tenant pursuant to this paragraph
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and shall cause any potential Lender or buyer of the Premises to whom such
statements are delivered also to agree to use reasonable efforts to keep
such statements confidential.
29. Surrender of Lease Not Merger. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not work a merger
and shall, at the option of the Landlord, terminate all or any existing
subleases or subtenants or operate as an assignment to Landlord of any or
all such subleases or subtenants.
30. Waiver. The waiver by Landlord or Tenant of any breach of any term,
covenant or condition or any subsequent breach of the same or any other
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.
31. General.
A. Captions. The captions and paragraph headings used in this Lease are
for the purposes of convenience only. They shall not be construed to limit
or extend the meaning of any part of this Lease.
B. Transfers by Landlord; Limitation on Tenant's Recourse for Landlord
Default; Landlord and its successors in interest shall have the right to
transfer their interest in this Lease and the Premises at any time and to
any person or entity. In the event of any such transfer, the Landlord
originally named herein (and, in the case of any subsequent transfer, the
transferor) from the date of such transfer shall be relieved of all
liability for the performance of the obligations of the Landlord hereunder
which may accrue after the date of such transfer except for those relating
to any funds in which Tenant has an interest that are in the hands of
Landlord or the then transferor at the time of such transfer which are not
turned over the transferee; provided, however, that the foregoing release
shall not be effective unless the transferee shall have executed an
assumption agreement by which it agrees to perform all of the obligations
of the Landlord under this Lease which accrue after the date of such
transfer or which are then in default. The release of a transferring
Landlord of its obligations under Paragraph 37.G concerning Hazardous
Materials shall further be conditioned upon the transferee having, at the
time of transfer of title to the Premises, either (i) a net worth
determined in accordance with generally accepted accounting principles of
at least $5,000,000 (as such amount is adjusted pursuant to Paragraph 41)
which net worth is also not less than twenty-five percent (25%) of the
value of all assets of such transferee, or (ii) a net worth determined in
accordance with generally accepted accounting principles of at least
$15,000,000 (as adjusted pursuant to Paragraph 41). In addition, if
Landlord voluntarily transfers fee title to the Premises prior to
completion of the Renovation Improvements, then Landlord or the transferor
shall not be relieved of its obligations to complete the Renovation
Improvements in accordance with the Lease unless Landlord shall upon such
transfer deposit into an escrow under the control of Landlord's transferee
and Tenant, as security for the performance of all obligations under the
Improvement Agreement, an amount equal to Landlord's reasonable estimate of
the Renovation Improvement Costs which will then be required to complete
such Renovation Improvements, or shall deliver to Tenant a surety bond in
such amount as security for the obligation of Landlord's transferee with
respect to the completion of the Renovation Improvements which bond shall
be in form, and be issued by such surety company, as is reasonably
acceptable to Tenant. The obligations of Landlord under this Lease do not
constitute personal obligations of the partners, directors, officers,
shareholders, or trustees of Landlord, or of the partners, directors,
officers, shareholders or trustees of Landlord's partners ("Beneficial
Owners") except with respect to Landlord and its general partners (but not
the partners of its general partners) as provided below. For the
realization of any claims against Landlord arising under this Lease, Tenant
shall have recourse only to the assets of Landlord which are real property
subject to this Lease or proceeds therefrom (e.g. condemnation proceeds,
insurance proceeds, or rent) ( the "Building Assets") for the satisfaction
of such obligations and not against the other assets of Landlord or its
Beneficial Owners. Notwithstanding the foregoing, the following shall apply
only with respect to claims by Tenant directly resulting from any and all
defaults by Landlord of its obligations under the Improvement Agreement
and/or Paragraph 37.G concerning Hazardous Materials ("Special Defaults");
(i) for Special Defaults, Tenant shall first seek recourse against Building
Assets but not to exceed $5,000,000 (as adjusted pursuant to Paragraph 41.)
for each claim and in the aggregate; (ii) to the extent Tenant is unable to
recover all amounts to which it is entitled for Special Defaults from
recourse against Building Assets, Landlord and its general partners (but
not any partners or Beneficial Owners or such general partners) shall be
liable to pay the short fall in Tenant's recovery to the extent necessary
to provide Tenant with an aggregate total recovery from Building Assets and
such additional payments by Landlord and its general partners of the lesser
of $5,000,000 (as that amount is adjusted pursuant to Paragraph 41 hereof)
or the aggregate amount Tenant is entitled to recover from Landlord for
Special Defaults under the following three sentences; and (iii) the
obligation of Landlord and its general partners to make the additional
contribution described in clause (ii) immediately preceding (the "Special
Contribution Obligation") shall be limited as provided in the following
three sentences. The parties acknowledge that concurrently with
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the execution of this Lease, Landlord and Tenant are executing other
leases and option agreements (which, if options are exercised, will lead
to the execution of additional leases) covering facilities in the Project
(the "Other Leases"), and that each of the Other Leases contains a
provision substantially the same as that contained in the immediately
preceding sentence. Notwithstanding anything contained herein, in no event
shall Landlord and its general partners be required to pay more than
$10,000,000 (as such amount as adjusted pursuant to Paragraph 41 hereof)
in discharge of the Special Contribution Obligations described herein or
in the Other Leases. In no event shall Landlord be liable for
consequential damages, such as lost revenues or lost profits, which may
result from Landlord's breach of its obligations to complete the
Renovation Improvements set forth in the Improvement Agreement.
C. Time. Time is of the essence for the performance of each term, covenant
and condition of this Lease.
D. Severability; Governing Law. In case any one or more of the provisions
contained herein, except for the payment of rent, shall for any reason be
held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision of this Lease, but this Lease shall be construed as if such
invalid, illegal or unenforceable provision had not been contained herein.
This Lease shall be construed and enforced in accordance with the laws of
the State of California.
E. Joint and Several Liability. If Tenant is more than one person or
entity, each such person or entity shall be jointly and severally liable
for the obligations of Tenant hereunder.
F. Exhibits. All exhibits attached hereto and referred to herein are
incorporated herein by this reference.
G. Miscellaneous. Any executed copy of this Lease shall be deemed an
original for all purposes. As used herein, "party" shall mean Landlord or
Tenant, as the context implies. The language in all parts of this Lease
shall in all cases be construed as a whole according to its fair meaning,
and not strictly for or against Landlord or Tenant. When the context of
this Lease requires, the neuter gender includes the masculine, the
feminine, a partnership or corporation or joint venture, and the singular
includes the plural. The terms "shall", "will", and "agree" are mandatory.
The term "may" is permissive. When a party is required to do something by
this Lease, it shall do so at its sole cost and expense without right of
reimbursement from the other party unless specific provision is made
therefor. When a party is obligated not to perform any act, that party is
also obligated to restrain any others within its control from performing
said act, including agents, contractors and employees. The use herein of
the word "including," when following any general statement, term or matter
shall not be construed to limit such statement, term or matter to the
specific items or matters set forth immediately following such word or to
similar items or matters, whether or not non-limiting language (such as
"without limitation" or "but not limited to," or word of similar import)
is used with reference thereto, but rather shall be deemed to refer to all
other items or matters that could reasonably fall within the broadest
possible scope of such general statement, term or matter.
H. Survival. The following provisions of this Lease shall survive the
expiration or earlier termination of this Lease (but not if such early
termination results from the exercise by Tenant of any right of rescission
of this Lease as set forth in Paragraph 3.A. above); 4.F.(3) (payment of
Percentage Share of Operating Expenses); 7.B. (payment of Percentage Share
of Property Taxes); 8.A. (Waiver and Indemnity); 9. (Utilities); 13.B.(iv)
(removal of alterations); 22 (Holding Over); 31.B. (Transfers by Landlord;
Limitation on Tenant's Recourse); 34 (Surrender); 37.F. (surrender); and
37.G. (Landlord's Obligation).
32. Signs. Tenant shall be entitled to install signs identifying its business
within the Project and exterior signs on the Building as described and in
accordance with an overall signage program to be approved by Landlord and
Tenant and subject to any Laws; provided, however, Landlord has previously
agreed to (i) allow Tenant its own separate identity signage from that of
the Project, and (ii) include in Tenant's signage program major entry
signage at the entry to Tenant's campus within the Project, secondary
identity signage at secondary entrances and directional signage to all of
Tenant's buildings within the Project. The cost of all exterior signage
shall be paid by Landlord. At the termination of this Lease, Tenant shall
remove any signs which it has placed on the Premises and shall repair any
damage caused by the installation or removal of such signs.
33. Interest on Past Due Obligations. Any amount due to Landlord or Tenant not
paid when due shall bear interest from the due date until paid at the
Agreed Interest Rate. Payment of such interest shall not excuse or cure
any default by Tenant under this Lease.
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34. Surrender of the Premises. On the last day of the Lease Term, or on sooner
termination of this Lease, Tenant shall surrender the Premises to Landlord
in their condition existing as of the Commencement Date, ordinary wear and
tear excepted, with all originally painted interior walls washed and other
interior walls cleaned, all damaged ceiling tiles and lighting lenses
replaced, all carpets shampooed and cleaned, the air conditioning and
heating equipment serviced and repaired by a reputable and licensed
service firm, all floors cleaned and waxed, all to the reasonable
satisfaction of Landlord, subject to the limitations on Tenant's
obligation to remove Alterations and restore the Premises to its prior
condition set forth in Paragraph 13. Nothing contained in this Paragraph
34 shall require Tenant to repair the effects of any condition set forth
in Paragraph 13. Nothing contained in this Paragraph 34 shall require
Tenant to repair the effects of any condemnation, damage or destruction or
any other condition which Tenant is not required to remedy under this
Lease. Tenant shall remove all of Tenant's personal property and Trade
Fixtures from the Premises, and all property not so removed shall be
deemed abandoned by Tenant. Tenant, at its sole cost, shall repair any
damage to the Premises caused by the removal of Tenant's Trade Fixtures,
personal property, machinery and equipment, which repair shall include the
patching and filling of holes and repair of structural damage. If the
Premises are not so surrendered at the termination of this Lease, Tenant
shall indemnify Landlord against loss or liability resulting from delay by
Tenant in so surrendering the Premises, including, without limitation, any
claims made by any succeeding tenant or losses to Landlord due to lost
opportunities to lease to succeeding tenants.
35. Authority. The undersigned parties hereby warrant that they have proper
authority and are empowered to execute this Lease on behalf of Landlord
and Tenant, respectively.
36. Options to Extend.
A. Tenant shall have three (3) options to extend the Lease Term, each for
a period of five (5) years (each of which is referred to herein as an
"Option Term"). Each option may be exercised only by written notice given
to Landlord not earlier than twenty-four (24) months and not later than
eighteen (18) months prior to the expiration of the then existing Lease
Term. Tenant may not exercise any of such options at any time that there
exists an Event of Tenant's Default involving those events described in
Paragraph 15.A.(iv), (vi) or (vii) or there exists an Event of Tenant's
Default that is capable of being cured but has not been cured by Tenant.
In all respects, the terms, covenants and conditions of this Lease shall
remain unchanged during each Option Term, except that the Base Monthly
Rent payable during each Option Term shall be increased in accordance with
Paragraph 36.B, Landlord shall have no obligation to fund additional
tenant improvements in the Premises or pay Tenant's brokerage commission,
if any, and there shall be no further option to extend the Lease Term at
the end of the third Option Term.
B. The Base Monthly Rent payable during each Option Term shall be ninety
percent (90%) of the "Fair Market Rent for the Premises" (as defined in
Paragraph 36.D) as of the first day of the Option Term in question. Base
Monthly Rent during an Option Term may be subject to an adjustment or
adjustments at such times, in such amount or using such formula, as may be
established in connection with determining the Fair Market Rent for the
Premises.
C. Promptly following exercise of each option to extend, the parties shall
meet and endeavor to agree upon the Fair Market Rent of the Premises. If
within fifteen (15) days after exercise of any of the options, the parties
cannot agree upon the Fair Market Rent for the Premises as of the first
day of the Option Term in question, the parties shall submit the matter to
binding appraisal in accordance with the following procedure: Within
thirty (30) days after exercise of the option, the parties shall either
(i) jointly appoint an appraiser for this purpose or (ii) failing this
joint action, separately designate a disinterested appraiser. No person
shall be appointed or designated an appraiser unless he has at least five
(5) years experience in appraising major commercial property in Alameda
County and is a member of a recognized society of real estate appraisers.
If within thirty (30) days after the appointment of the two appraisers
reach agreement on the Fair Market Rent for the Premises as of the first
day of the Option Term in question, that value shall be binding and
conclusive upon the parties. If the two appraisers thus appointed cannot
reach agreement on the question presented within thirty (30) days after
their appointment, then the appraisers thus appointed shall appoint a
third disinterested appraiser having like qualifications. If within thirty
(30) days after the appointment of the third appraiser a majority of the
appraisers agree on the Fair Market Rent of the Premises as of the first
day of the Option Term in question, that value shall be binding and
conclusive upon the parties. If within thirty (30) days after the
appointment of the third appraiser a majority of the appraisers cannot
reach agreement on the question presented, then the three appraisers shall
each submit their independent appraisal to the parties, the appraisal
farthest from the median of the three appraisals shall be disregarded, and
the average of the remaining two appraisals shall be deemed to be the Fair
Market Rent of the Premises as of the first day of the Option Term in
question and shall be binding and conclusive upon the parties. Each party
shall pay the fees and expenses of the appraiser appointed by it and shall
share equally the fees and expenses of the third appraiser. If the two
appraisers
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appointed by the parties cannot agree on the appointment of the third
appraiser, they or either of them shall give notice of such failure to
agree to the parties and if the parties fail to agree upon the selection
of such third appraiser within ten (10) days after the appraisers
appointed by the parties give such notice, then either of the parties,
upon notice to the other party, may request such appointment by the
American Arbitration Association or, on its failure, refusal or inability
to act, may apply for such appointment to the presiding judge of the
Superior Court of Alameda County, California.
D. For purposes of this Paragraph, the term "Fair Market Rent for the
Premises" shall mean the going market rental and any adjustment or
adjustments to such rental at such time(s) and in such amount or using
such formula as is prevailing at the time of the commencement of the
Option Term in question, for comparably equipped space in buildings
containing between 50,000 and 250,000 square feet, located within a five
(5) mile radius of the Premises, and in a condition comparable to the then
condition of the Premises, taking into account all legal uses for which
the Premises could be used without material alteration thereto and the
value of all the improvements in the Premises made by Landlord (but
adjusting for the age and then condition of such improvements) for a
tenant proposing to sign a lease for a similar term and having financial
qualifications similar to Tenant and using as a guide equivalent space in
the size range specified above of similar age, construction, quality, use
and location. There shall be excluded from any determination of "Fair
Market Rent of the Premises" the rental value attributable to any
improvements constructed by Tenant with its own funds, and all Trade
Fixtures and personal property of Tenant located in the Premises. Any
determination of "Fair Market Rent of the Premises" shall take into
account rental concessions then prevailing in the market (e.g., "free
rent," lease assumptions, payment of moving expenses, etc.).
E. If the Base Monthly Rent for any Option Term is established by
appraisal conducted pursuant to Paragraph 36.C hereof and if Tenant does
not, in its sole discretion, approve the Fair Market Rent for the Premises
established for the Option Term in question as so established by
appraisal, then Tenant may rescind its exercise of the option in question
by giving Landlord written notice of such election to rescind within
fifteen (15) days after the Fair Market Rent for the Premises for the
Option Term in question is so established by appraisal. If Tenant so
timely rescinds its exercise of the option in question, then (i) the Lease
shall expire on the later to occur of either five hundred forty (540) days
after Tenant's notice of rescission is delivered to Landlord or on the
date of the Lease would otherwise have expired absent such exercise of the
option in question by Tenant; (ii) if the Lease Term is extended as a
result of Tenant's rescission, then the Base Monthly Rent for the extended
period shall be equal to the Base Monthly Rent in effect prior to Tenant's
rescission; and (iii) Tenant shall pay all costs incurred by Landlord in
participating in any appraisal to establish the Fair Market Rent for the
Premises for the Option Term in question.
37. Hazardous Material.
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 government 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
Administration 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 asbestos, PCB's, petroleum products and all
materials and substances listed under Article 11, or defined as hazardous
or extremely hazardous pursuant to Article 1 of Title 22 of the California
Code of Regulations, Division 4, Chapter 30, as the same shall be amended
from time to time.
B. Use Restriction. Tenant shall not cause or allow anyone else to cause,
any Hazardous Materials (other than commercially reasonable quantities of
cleaning and office supplies for Tenant's use) to be used, generated,
stored, released or disposed of (collectively, "Use") on or about the
Premises, the Building or the Outside Areas without the prior written
consent of Landlord, which consent may be withheld in the sole discretion
of Landlord unless all of the conditions set forth in subparagraphs (i)
through (iii) below are met, in which event such consent shall not
unreasonably be withheld. In the event of any breach by Tenant, which
constitutes an Event of Tenant's Default, of the covenants of conditions
set forth in this Paragraph B, in addition to all of its other remedies
under this Lease, Landlord may revoke any consent previously given with
respect to the Use of Hazardous Materials.
(i) The proposed Hazardous Material does not include freon, TCE,
hydrocarbons or any hydrocarbon-based compounds or any Hazardous
Material that has been detected at any time at levels exceeding
"action levels" of any governmental
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agency in the soil or groundwater of the Premises, and the Use
does not involve: (1) outside or underground storage; (2) storage
of any quantities in excess of those requiring the establishment
of a Business Plan under the Provisions of Health & Safety Code
Section 25503.5; (3) the proposed Use does not involve
manufacturing of commercial quantities of any Hazardous Materials;
or (4) above-ground or inside storage, unless Tenant has made
appropriate provisions for leak protection, leak detection and
leak containment and such provisions are compatible with Building
systems.
(ii) The tangible net worth of Tenant at the time it requests consent
to such Use is at least equal to $5,000,000 (as increased in
accordance with the percentage increase in the Consumer Price
Index from the Effective Date through the month prior to Tenant's
request). "Tangible net worth" shall mean, at any date, the sum of
the capital stock and additional paid-in capital stock and
additional paid-in capital plus retained earnings (or minus
accumulated deficit) of Tenant and its subsidiaries, on a
consolidated basis, minus accumulated deficit) of Tenant and its
subsidiaries, on a consolidated basis, minus all intangible assets
of Tenant and its subsidiaries, including, without limitation: (a)
goodwill, trademarks, patents, patent application, brand names,
copyrights, franchises and deferred charges (including unamortized
debt discount and software development and other research and
development costs), determined in accordance with generally
acceptable accounting principles; (b) treasury stock; (c) cash
held in a sinking or other similar fund established for the
purpose of redemption or other retirement of capital stock; (d) to
the extent not already deducted from total assets, reserves for
depreciation, depletion, obsolescence or amortization of
properties and other reserves or appropriations of retained
earnings which have been or should be established in connection
with the business conducted by the relevant corporation; (e)
purchased intangibles; and (f) any revaluation or other write-up
in book value of assets subsequent to the fiscal year of Tenant
last ended at the date of this Lease. Such tangible net worth
shall be as reported by an independent certified public accountant
according to generally accepted accounting principles.
(iii) Tenant, and/or any subtenant on whose behalf Tenant requests such
consent has not previously been cited or charged by any
governmental authority for improper use, storage or discharge of
any Hazardous Material and is not, and has not previously been
involved, either as a potentially responsible party, or otherwise,
in any remediation or clean-up of a release of Hazardous Material;
provided, however, if Tenant's proposed subtenant is an entity
whose shares are publicly traded, the subtenant explicitly assumes
in writing the obligations of Tenant under this Paragraph 37 with
respect to those Hazardous Materials Used by such subtenant, on a
joint and several basis, and the net worth of such proposed
subtenant, as determined in accordance with generally acceptable
accounting principles, is at least $50,000,000, then this
subparagraph (iii) shall not be applicable.
Upon seeking Landlord's consent, Tenant shall provide a complete list of
all Hazardous Materials proposed to be permitted on the Premises, the
maximum quantities to be used during any one-month period and a
description of the means which will be used to handle, store and remove
such materials from the Premises, Tenant shall obtain Landlord's consent
before using any additional Hazardous Materials on the Premises not
included in Tenant's most recent list, and shall provide written
certificate to Landlord at least once during any twelve month period of
the term, and at any time within five business days of Landlord's request,
but not more often than four times during each twelve month period of the
continued accuracy of Tenant's prior disclosures with respect to the
Hazardous Materials then being used on the Premises. Tenant at its sole
cost shall strictly comply with all Laws relating to the Use by Tenant or
its Agents of Hazardous Materials. Landlord and its Agents may, from time
to time, and without prior notice to Tenant, inspect the Premises for the
purposes of confirming the presence of Hazardous Materials thereon and the
means and methods then being used to handle and dispose of such materials,
but Landlord shall not have an obligation so to do. The costs of
inspections by Landlord's consultants shall be paid by Tenant as an
Operating Expense, and if, as a result of any such inspection, or
otherwise, Landlord determines that any certification by Tenant is
inaccurate, then, promptly following Landlord's request, Tenant shall
cause the proper legal removal from the Premises of Hazardous Materials
not previously disclosed and opposed by Landlord, and shall cease all use
or processes for which Landlord has not previously given its consent. If
the Use of Hazardous Materials on the Premises caused by Tenant or its
Agents results in contamination of the Premises or any soil or groundwater
in, under or about the Premises. Tenant, at its expense, shall promptly
take all actions necessary to remediate such contamination and otherwise
to comply with the requirements of any governmental agency or other
authority having jurisdiction over the Premises. Tenant shall defend, hold
harmless and indemnify Landlord and its Agents and employees with respect
to (i) all claims, damages (including consequential damages such as those
which may result from Landlord's inability obtain financing for the
Building), costs (including attorneys' fees) and liabilities arising out
of or in connection with the Use of any Hazardous Material in or about the
Premises by Tenant or its Agents, and (ii) any disposal or release of any
Hazardous Material on or under the Building emanating from those portions
of the Premises over which Tenant has exclusive control occurring after
the date possession of the Premises, or the portion where such
28
<PAGE> 54
Material is disposed or released, is delivered to Tenant and prior to the
termination of this Lease, and that is not the result of the negligence or
willful misconduct of Landlord or its Agents. In the event of any dispute
between Landlord and Tenant concerning Tenant's indemnification and
defense obligations under this Paragraph B, for so long as Tenant uses the
Premises solely for general office purposes, Landlord shall have the
burden of showing by the preponderance of the evidence that the Use of any
Hazardous Material was caused by Tenant or its Agents. If the Premises has
been used for other than general office purposes by Tenant or its Agents,
then Tenant shall bear the burden of showing by the same burden of proof
that neither it nor any of its Agents caused the contamination of the
Premises or any such soil or groundwater or such claims, damages or
liabilities.
C. Compliance. Tenant, at its sole cost, shall strictly comply with all
Laws relating to the Use by Tenant of Hazardous Materials. If the presence
of Hazardous Materials on the Premises caused by Tenant or its Agents
results in contamination of the Premises or any soil or groundwater in,
under or about the Premises, Tenant, at its expense shall promptly take
all actions necessary to remediate such contamination and otherwise to
comply with the requirements of any governmental agency or other authority
having jurisdiction over the Premises. Tenant shall not suffer any lien to
be recorded against the Premises as a consequence of the disposal of a
Hazardous Material on the Premises by Tenant or its Agents, including any
so-called state, federal or local "super fund" lien related to the
"clean-up" of a Hazardous Material in or about the Premises. Tenant shall
promptly, following Tenant's becoming aware of the same, notify Landlord
of any inquiry, test, investigation or enforcement proceeding by or
against Tenant or the Premises concerning a Hazardous Material. If
Landlord reasonably believes that Tenant has violated the provisions of
this Paragraph 37 and, if following notice by Landlord to Tenant, Tenant
has failed to correct such violation in a timely manner, Landlord shall
have the right to appoint a consultant to conduct an investigation to
determine whether Hazardous Materials are being Used in an appropriate
manner. If Tenant has violated any Law or covenant in this Lease regarding
the Use of Hazardous Materials on or about the Premises, Tenant shall
reimburse Landlord for the cost of such investigation. Tenant, at its
expense, shall comply with all reasonable recommendations of the
consultant required to conform Tenant's Use of Hazardous Materials to the
requirements of applicable Law or to fulfill the obligations of Tenant
hereunder.
D. Assignment and Subletting. In evaluating a proposed Transfer and the
prospective transferee in accordance the Paragraph 25, Landlord may take
into account the proposed transferee's history of compliance with Laws
regulating Hazardous Materials.
E. Notice. Landlord and Tenant shall each give written notice to the other
as soon as reasonably practicable of (i) any communication received from
any governmental authority concerning Hazardous Materials which relates to
the Premises, and (ii) any contamination of the Premises by Hazardous
Materials which constitutes a violation of any Law regulating Hazardous
Materials. At any time during the Lease Term, Tenant shall, within five
(5) days after written request therefor received from Landlord, disclose
in writing all Hazardous Materials that are being used by Tenant on the
Premises, the Use of which requires Tenant to make written reports to any
governmental agency under any Law regulating Hazardous Materials which
disclosure by Tenant shall state the nature of such Use.
F. Surrender. Upon the expiration or earlier termination of the Lease,
Tenant, at its sole cost, shall remove all Hazardous Materials from the
Premises and from the groundwater under the Premises which Tenant
introduced to the Premises to the extent required by Law or to that level
that a prudent owner would do on its own account (taking into account
cost, legal requirements, anticipated changes in legal requirements and
potential threat to groundwater), with disputes settled by binding
arbitration under the Commercial Rules of the American Arbitration
Association. Tenant shall indemnify and hold Landlord harmless from all
claims, liabilities, expenses (including attorney's fees and investigation
costs) penalties, fines, response costs and damages resulting from
Tenant's failure to surrender the Premises as required by this Paragraph,
including, without limitation, any claims or damages in connection with
the condition of the Premises, including damages occasioned by the
inability to relet the Premises or a reduction in the fair market and/or
rental value of the Premises by reason of the existence of any Hazardous
Materials disposed of by Tenant in or around the Premises. Upon the
expiration or earlier termination of the Lease, Landlord, at its option,
may through outside consultants, perform an exit environmental site
assessment of the Premises, the cost of which would be paid by Tenant if
(i) Tenant has not increased the intensity of use of Hazardous Materials
over the Lease Term but there is contamination at the Premises caused by
Tenant, or (ii) Tenant (or a subtenant) has increased the intensity of use
of Hazardous Materials over the Lease Term at the Premises. The foregoing
notwithstanding, Tenant's payment of such assessment shall be limited to
$10,000, as adjusted pursuant to Paragraph 41, unless such assessment
indicates that Tenant has caused such contamination.
29
<PAGE> 55
G. Landlord's Obligations. Landlord represents and warrants that, without
independent investigation, it has no knowledge of any Hazardous Materials
present in, on or under the Premises other than as described in those
reports described in Exhibit "D" (the "Existing Hazardous Materials
Condition"). Landlord, at its sole cost, shall comply with all Laws
(including the federal law known as "CERCLA" and its California
counterpart) which impose liability or responsibility upon either Landlord
or Tenant to investigate, remediate or otherwise take any action with
respect to the following: (i) the Existing Hazardous Materials condition;
and (ii) compliance with all Laws regulating Hazardous Materials affecting
the Premises to the extent that Landlord is legally obligated to do so by
such Laws and such compliance is not made the responsibility of Landlord
pursuant to Paragraph 37.B, 37.C, and 37.F. Landlord shall indemnify,
defend and hold Tenant and its Agents harmless from and against all
liabilities, claims, penalties, fines, response costs, and other expenses
(including reasonable attorneys' fees) which result from Landlord's
failure to perform the obligation stated in the immediately preceding
sentence.
38. Approvals. Whenever this Lease requires an approval, consent, designation,
determination or judgment by either Landlord or Tenant, such approval,
consent, designation, determination or judgment shall not be unreasonably
withheld or delayed.
39. Reasonable Expenditures. Any expenditure by a party provided or required
under the Lease, for which such party is entitled to demand and does
demand reimbursement from the other party, shall be limited to the fair
market value of the goods and services involved, shall be reasonably
incurred, and shall be substantiated by documentary evidence available for
inspection and review by the other party or its representative during
normal business hours.
40. Right to Perform Other Party's Covenants. If either party shall at any
time fail to make any payment or perform any other act on its part to be
made or performed under this Lease, and such failure shall continue for
thirty (30) days following notice to the other party and, in the case of
Landlord, to Landlord's Lender(s), of such failure (unless the nature of
the obligation is such that it cannot be completed within thirty (30)
days, in which event the defaulting party need only commence performance
within the thirty (30) day period and thereafter diligently complete the
same), the other party may, but shall not be obligated to and without
waiving or releasing such party from any obligation of such party under
this Lease, make such payment or perform such other act to the extent the
other party may deem desirable, and in connection therewith pay expenses
and employ counsel. Notwithstanding the above, in the event such failure
to perform shall create any unsafe or other emergency condition, the other
party may take such actions as it deems reasonably necessary for
protection of person and property in and about the Premises and shall
promptly thereafter notify the other party of such actions. All sums so
paid by the other party and all penalties, interest and costs in
connection therewith shall be due and payable to the defaulting party on
the next day after any such payment by the other party, together with
interest at the Agreed Interest Rate from such date to the date of payment
thereof by the defaulting party to the other party. All such sums owed by
Tenant to Landlord under this Paragraph 40 shall be deemed Additional
Rent.
41. CPI Adjustment. Where provisions of this Lease specify dollar amounts and
state that they are to be adjusted pursuant to this Paragraph (e.g.,
Paragraph 13.B(i) and 31.B), at the time such provisions are applied
during the Lease Term the amount in question shall be adjusted to that
amount which is equal to the product obtained by multiplying (i) the
amount originally specified in the provision in question as of the
Effective Date, by (ii) a fraction the numerator of which is the Consumer
Price Index published immediately preceding the date upon which such
provision is to be applied and the denominator of which is the Consumer
Price Index published immediately preceding the Effective Date.
42. Integration and Amendments. Except as expressly provided herein, Tenant
acknowledges that neither the Landlord nor Landlord's Agents has made any
representation or warranty as to the suitability of the Premises to the
conduct of Tenant's business. Any agreements, warranties or
representations not expressly contained herein shall in no way bind either
Landlord or Tenant, and Landlord and Tenant expressly waive all claims for
damages by reason of any statement, representation, warranty, promise or
agreement, if any, not contained in this Lease. This Lease, together with
all Exhibits hereto, constitute the entire understanding between the
parties regarding Tenant's lease of the Premises and no addition to, or
modification of, any term or provision of this Lease shall be effective
until set forth in writing signed by both Landlord and Tenant.
30
<PAGE> 56
43. Memorandum of Lease. Concurrently with the execution hereof, the parties
shall execute, acknowledge and record a Memorandum of Lease referencing
Tenant's options to extend the term in a form approved by Landlord and
Tenant.
44. Non-Discrimination. Tenant covenants for itself, its heirs, executors,
administrators, and assigns, and all persons claiming under or through it,
and this Lease is made and accepted upon it subject to the condition that
there shall be no discrimination against or segregation of any person or
group of persons, on account of race, color, creed, religion, sex, marital
status, national origins, or ancestry in the leasing, subleasing,
transferring, use, occupancy, tenure, or enjoyment of the Premises herein
leased nor shall the Tenant itself, or any person claiming under or
through it, establish or permit any such practice or practices of
discrimination or segregation with reference to the selection, location,
number, use, or occupancy of tenant, subtenants, vendees in the Premises.
45. Brokerage Commissions. Each party hereto represents and warrants to the
other that it has not had any dealings with any real estate brokers,
leasing agents or salesmen, other than Cooper/Brady Commercial Real Estate
and Steven R. Meckfessel (collectively "Brokers"), or incurred any
obligations for the payment of real estate brokerage commissions or
finder's fees which would be earned or due and payable by reason of the
execution of this Lease other than to Brokers. Landlord shall pay any
applicable commission to Brokers in accordance with separate agreements
between Landlord and Brokers.
46. Existing Tenancy. As of the Effective Date, 6,169 square feet of Rentable
Area (the "Prudential Space") located on the fourth floor of the Building
is leased by Landlord to The Prudential Insurance Company of America. The
Lease for such space expires on December 31, 1994, and there are no
options to renew the lease term. As of January 1, 1996, the Prudential
Space shall be added to and become a part of the Premises, the Base
Monthly Rent shall be increased to reflect the addition of such space to
the Premises, and Tenant's Percentage Share shall become one hundred
percent (100%). Prior to January 1, 1996, Landlord shall have completed
Renovation Improvements within the Prudential Space under the terms of the
Improvement Agreement.
IN WITNESS WHEREOF, the parties have executed this Lease on the dates set forth
below.
TENANT: LANDLORD
ASK COMPUTER SYSTEMS, INC. ALAMEDA REAL ESTATE INVESTMENTS,
INVESTMENTS
a Delaware corporation a California limited partnership
By: /s/ Illegible Signature By: Vintage Properties - Alameda Commercial,
------------------------- a California corporation,
Its: VP & General Counsel Managing General Partner
--------------------
By: By: /s/ Joseph R. Seiger
------------------------- ------------------------
Its: Its: President
--------------------- -------------------
Date of Execution Date of Execution
By Tenant: June 26, 1992 By Landlord: 6/26/92
------------------ ---------------
31
<PAGE> 57
EXHIBIT C
OUTLINE OF PROJECT
(Diagram of Property)
<PAGE> 58
EXHIBIT D
EXISTING HAZARDOUS MATERIAL CONDITION
ENVIRONMENTAL REPORTS:
A. "Preliminary Site Environmental Review, Portions of Marina Village,
Alameda, California" prepared by Woodward Clyde Consultants, March
1987.
B. "Toxic Hazardous Assessment Marina Village Development, Alameda,
California" prepared by Applied Geosciences, Inc., December 1987.
C. "Toxic Hazard Assessment, Phase II Field Investigation, Marina Village
Development, Alameda, California" prepared by Applied Geosciences,
Inc., February 1, 1988.
Incorporated into the above "Toxic Hazardous Assessment for Select
Portions of the Marina Village Development, Alameda, California -
Draft Report" prepared by Applied Geosciences Inc., February 26, 1988.
D. "Investigation of Field Area South of Powerhouse, Marina Village, April
25, 1988" prepared by Levine-Fricke.
E. "Removal of Petroleum Affected Soils from the Field Area South of the
Powerhouse, Alameda Marina Village, Alameda, California" prepared by
Levine-Fricke, October 5, 1988.
F. "Investigation of Northwest Area, Marina Village, Alameda, California"
prepared by Levine-Fricke, October 6, 1988.
G. "Phase I Environmental Assessment Report, Vintage Properties/Alameda
Commercial, Alameda, California", prepared by Levine-Fricke, February
16, 1989.
H. "Continued Monitoring and Proposed Remedial Measure in Northwest Study
Area dated June 26, 1989", prepared by Levine-Fricke (Primary Report).
Supplemental to Primary Report: "Continued Soil and Ground-Water
Investigation of Parcel 5 and Implementation of a Ground-Water
Monitoring Program and Proposed Remedial Measures in the Northwest
Study Area, Marina Village, Alameda, California" prepared by
Levine-Fricke, June 6, 1989.
I. "Results of Soil Investigation, Parcel 2, Northwest Study Area",
prepared by Levine-Fricke, dated November 27, 1989.
J. "Results of 3rd Round of Ground Water Sampling, Northwest Area"
prepared by Levine Fricke, April 13, 1990.
PAGE 1 of 1
<PAGE> 59
AMENDMENT NO. 1
TO
MARINA VILLAGE OFFICE LEASE
(1080 MARINA VILLAGE PARKWAY)
THIS AMENDMENT NO. 1 is made and entered into as of January 20, 1993, by and
between ASK COMPUTER SYSTEMS, INC., a Delaware corporation ("Tenant"), and
ALAMEDA REAL ESTATE INVESTMENTS, a California limited partnership ("Landlord").
Landlord and Tenant have entered into that certain Marina Village Lease (1080
Marina Village Parkway) dated June 25, 1992 (the "Lease") with respect to
certain premises within 1080 Marina Village Parkway, Alameda, California.
Landlord and Tenant desire to amend the Lease and therefore do hereby agree as
follows:
1. Amendment of Paragraph 21. Subparagraph (iii) of Paragraph 21 of the
Lease is hereby amended to read as follows:
With respect to any Lender having a security interest in the Premises
as of the Commencement Date, such Lender shall execute either a
non-disturbance agreement in accordance with the aforementioned terms
or an instrument explicitly subordinating its interest in the Premises
to the Lease on or before January 31, 1993. If such subordination
instrument or non-disturbance agreement is not executed on or before
such date, then Tenant shall have the option at any time prior to the
execution by the Lender of such subordination instrument or
non-disturbance agreement, but shall not be obligated to do so, to
terminate this Lease whereupon the Previous Lease shall be reinstated
and Tenant shall pay to Landlord the amount by which (i) all sums which
would otherwise have been payable by Tenant under the Previous Lease
during the period commencing April 1, 1992 and continuing through the
date of such termination, exceeds (ii) all amounts actually paid by
Tenant during the same period.
2. Amendment of Paragraph 31. The following language is hereby added to
Paragraph 31.B of the Lease to read as follows:
Notwithstanding anything in this Paragraph 31.B. to the contrary, the
following shall apply: (i) any Lender that is an Institutional Lender
who acquires title to the Premises by means of foreclosure or deed in
lieu of foreclosure (a "Foreclosing Institutional Lender") shall not be
liable for any default of any predecessor Landlord arising prior to the
date said Foreclosing Institutional Lender acquires title to the
Premises; (ii) a Foreclosing Institutional Lender who acquires the
Premises by foreclosure who subsequently transfers the title to the
Premises to a third party shall, upon the date of transfer, be relieved
of all liability for the performance of the obligations of the Landlord
under this Lease which may accrue after the date of such transfer;
(iii) under no circumstances shall any Foreclosing Institutional Lender
become liable or responsible for the performance of the obligations of
Landlord concerning Hazardous Materials set forth in Paragraph 31 or
Paragraph 37 hereof; (iv) any party who is Landlord who is divested of
title to the Premises by foreclosure or by deed in lieu of foreclosure
shall remain liable for the performance of the obligations of Landlord
under this Lease arising after the date of transfer of title and shall
not be relieved of liability for any default in the obligations of
Landlord arising prior to the date of transfer of title.
3. Ratification. Landlord and Tenant hereby ratify and confirm all of the
terms of the Lease as modified by paragraphs 1 and 2 above.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the
date first above written.
TENANT: LANDLORD:
ASK COMPUTER SYSTEMS, INC. ALAMEDA REAL ESTATE INVESTMENTS
a Delaware corporation a California limited partnership
By: Vintage Properties-Alameda
Commercial, a California corporation,
Managing General Partner
By: /s/ C. Gerald Benton By: /s/ Joseph E. McVeigh
--------------------------- ---------------------------------
Its: C. Gerald Benton Its: Joseph E. McVeigh
Director Operations Vice President
The ASK Group
<PAGE> 60
EXHIBIT A
(Diagram of Property)
<PAGE> 61
EXHIBIT A
(CONTINUED)
(Diagram of Property)
<PAGE> 62
EXHIBIT A
(CONTINUED)
(Diagram of Property)
<PAGE> 63
EXHIBIT A
(CONTINUED)
(Diagram of Property)
<PAGE> 64
EXHIBIT A
(CONTINUED)
(Diagram of Property)
<PAGE> 65
EXHIBIT B
IMPROVEMENT AGREEMENT
FOR 1080 MARINA VILLAGE PARKWAY
INITIAL IMPROVEMENT OF THE BUILDING AND
RENOVATION IMPROVEMENTS
This Exhibit B is incorporated into that certain Lease dated June 25, 1992,
between ASK COMPUTER SYSTEMS, INC., as "Tenant", and ALAMEDA REAL ESTATE
INVESTMENTS, as "Landlord", (the "Lease"). All of the defined terms as used in
the Lease shall have the same meanings herein.
1. Renovation Improvements. Landlord shall cause the renovation of the
Premises in phases as described in this Exhibit. In accordance with the
progress schedule outlined below, Landlord, through its general
contractor, shall furnish and install within the Premises substantially
in accordance with the drawings and specifications finally approved by
Landlord and Tenant and generally consistent with the quantities and
quality of improvement in the plans previously prepared by Burns &
Nettle Architect, entitled Scheme #2, Preliminary Space Plan for Second
Floor, certain interior improvements on a "turn-key" basis, including,
but not limited to, installation of Tenant's voice and data cabling
within the Premises (the "Renovation Improvements"). The quantities,
character and manner of installation of all of the Renovation
Improvements shall be subject to the limitations imposed by any
applicable governmental regulations and shall include Landlord's
standard Building Finishes as set forth in Exhibit B-1 attached hereto.
2. Allocation of Cost. Landlord shall bear the cost of all Renovation
Improvements, permits, architectural and engineering services related
to the Renovation Improvements. Tenant acknowledges that Landlord's
target expenditure, including permits and professional services, for
the Renovation Improvements is $20.00 per Rentable Area of the
Premises, based upon May, 1992, costs with such target amount to be
increased by a factor of 4% compounded annually until such funds are
expended.
3. Drawings and Specifications.
a. Landlord, through its architects and engineers, shall furnish
drawings and specifications required for the pricing and
construction of the Renovation Improvements. At its own
expense and in accordance with the schedule outlined below,
Tenant shall provide Landlord's architects and engineers with
sufficient instructions, as described below, to enable
Landlord's architects and engineers to prepare complete plans
and specifications for the Renovation Improvements.
b. Tenant's instructions to Landlord's architects and engineers
shall include all relevant information, including, without
limitation, Tenant's budget, special floor loadings, floor
openings, air conditioning, plumbing and electrical loads,
location and size of telephone equipment, location and size of
all of the functional requirements and the nature of desired
finishes, casework, millwork, lighting and any special
acoustic treatments. Tenant and Landlord shall diligently
pursue preparation of all such drawings and specifications
which shall be subject to the reasonable approval of both
Landlord and Tenant. If information submitted by Tenant is not
sufficient for Landlord's purposes, Landlord shall so notify
Tenant within fifteen days after receipt of such information
specifying the required additional information. Within five
days thereafter, Tenant shall provide the additional
information to Landlord in a form sufficient to permit
Landlord, its architects and engineers, and general contractor
to proceed with the design and construction of the Renovation
Improvements. Tenant shall approve or disapprove the final
drawings and specifications within the time period provided in
paragraph 6 below. If Tenant disapproves the drawings and
specifications submitted by Landlord, the parties shall meet
within five (5) days of such disapproval and confer to develop
drawings and specifications acceptable to both Landlord and
Tenant. In the event Tenant and Landlord do not resolve all of
Tenant's objections within five (5) days after initially
conferring to resolve such objections, Landlord and Tenant
shall immediately cause Landlord's architect, or a
representative of Landlord's architect, to meet and confer
with Tenant's architect or construction consultant, who shall
apply the standards set forth in this Agreement to resolve
Tenant's objections and incorporate such resolution into the
drawings and specifications for the Renovation Improvements,
which process Landlord and Tenant shall cause to be completed
within five (5) business days after the conclusion of the five
(5) day period referred to in the immediately preceding
sentence. The "standards set forth in this Agreement" to be
applied
<PAGE> 66
by Landlord's architect and Tenant's architect or construction
consultant to resolve objections pursuant to this paragraph
shall be (i) any drawings and specifications that have been
previously approved by Landlord and Tenant, (ii) the
requirement that at each stage of development, drawings and
specifications in question are to be the logical and
reasonable evolution and development of drawings and
specifications previously approved by Landlord and Tenant,
(iii) Landlord and Tenant are obligated to act reasonably and
in good faith, and (iv) unless there is an agreement to the
contrary, Landlord and Tenant have agreed that the improvement
requirements of each shall be evaluated in accordance with
custom prevailing in Alameda County for the development of
comparable facilities.
c. Upon completion and approval of the drawings and
specifications by Landlord and Tenant, Landlord shall obtain a
quotation of the cost of the Renovation Improvements from
Landlord's contractor. Landlord may disapprove such quotation
if the total cost of the Renovation Improvements, permits and
professional services would exceed $20.00 per Rental Area of
the Premises, increased as described above, as a result of
Tenant's request for quantities or quality of construction or
finishes not contemplated in Paragraph 1 above. If
disapproved, within five days following disapproval Tenant
shall provide Landlord with additional information adequate to
permit the revision of the drawings and specifications and
re-pricing of the Renovation Improvements which are consistent
with those contemplated in paragraph 1.
4. Changes to Renovation Improvements. Neither Landlord nor Tenant shall
have the right to order extra work or change orders with respect to the
construction of the Renovation Improvements without the prior written
consent of the other. All extra work or change orders requested by
either Landlord or Tenant shall be made in writing, shall specify any
added or reduced cost and/or construction time resulting therefrom, and
shall become effective and a part of the Renovation Improvement
Drawings once approved in writing by both parties. If a change order
requested by Tenant results in a net increase in the cost to Landlord
of constructing the Renovation Improvements, Tenant shall pay the
amount of such increase caused by the change order requested by Tenant,
together with a fee payable to Landlord equal to 15% of such net
increase (but only if and when Tenant's changes have resulted in a net
increase in the cost of the Renovation Improvements in excess of 5% of
initial construction hard costs as set forth in Landlord's contract
with its construction contractor) upon completion of the Renovation
Improvements, or, at Landlord's option, within fifteen (15) days of
Landlord's request.
5. Tenant's Work.
a. Any items or work beyond the scope of the Renovation
Improvements for which Tenant contracts separately
(hereinafter "Tenant's Work"), shall be subject to Landlord's
and its contractors' policies and schedules and shall be
conducted in such a way as not to unreasonably hinder, cause
any disharmony with or delay work of improvements in the
Building and Tenant shall be allowed early entry access to the
Premises in accordance with the terms and conditions of
Paragraph 3.C. of the Lease and this Paragraph 5. To this end,
Tenant's Work shall conform with a schedule determined by
Landlord's contractor and no work shall be done by Tenant
which would cause Landlord's contractor to be dependent upon
such work for completion of Landlord's contractor's work. All
of Tenant's Work shall be done with union labor in accordance
with the Northern California Master Labor Agreement. In no
event shall work involving the sprinkler, plumbing,
mechanical, electrical power, lighting or life safety systems
of the Building be performed by other than Landlord's approved
subcontractors and all telecommunications and other special
electrical equipment shall be installed under the supervision
of Landlord's electrical subcontractor.
b. Not less than five business days prior to the date Tenant
desires to commence Tenant's Work, it shall give a written
request to Landlord setting forth or accompanied by all of the
following:
1. A description and schedule for the work to be
performed;
2. The names and addresses of all contractors,
subcontractors and material suppliers who will
perform Tenant's Work;
3. The approximate number of individuals, itemized by
trade, who will be present in the Premises;
4. Copies of all drawings and specifications pertaining
to that portion of Tenant's Work;
5. Copies of all licenses and permits which may be
required in connection with the performance of
Tenant's Work;
2
<PAGE> 67
6. Certificates of insurance indicating compliance with
the insurance requirements set forth in the Lease;
and
7. At Landlord's request, evidence of the availability
of funds sufficient to pay for all such Tenant's
Work.
All of the foregoing shall be subject to Landlord's approval, which
approval shall not unreasonably be withheld.
c. Tenant shall be responsible for any hoisting charges incurred
in connection with Tenant's Work and for any expenses incurred
by Landlord due to hindrance or delay to Landlord's
contractors caused by those performing Tenant's Work or
inadequate cleanup by those performing Tenant's Work.
d. If any supplier, contractor or worker performing Tenant's Work
unreasonably hinders or delays any other work of improvement
in the Building or performs any work which may or does
unreasonably impair the quality, integrity or performance of
any portion of the Building, Landlord may give notice to
Tenant. If within one business day after Tenant's receipt of
such notice, such supplier, contractor or worker does not cure
the failure set forth in Landlord's notice to Tenant, Tenant
shall cause such supplier, contractor or worker immediately to
remove all of its tools, equipment and materials and to cease
working in the Building. As Additional Rent under the Lease,
Tenant shall reimburse Landlord for any repairs or corrections
of the Improvements or of any portion of the Building or the
cost of any delays caused by or resulting from the actions or
omissions of anyone performing Tenant's Work.
6. Progress Schedule for Renovation Improvements. Concurrent with the
execution of this Lease and of even date herewith, Landlord and Tenant
have entered into that certain Lease (the "1101 Lease") for premises
located in a two-story, build-to-suit building (the "1101 Premises")
referred to as 1101 Marina Village Parkway, Alameda, California, and
that certain Lease (the "1151 Lease") for premises located in a
one-story, build-to-suit building (the "1151 Premises) referred to as
1151 Marina Village Parkway, Alameda, California. Pursuant to the terms
of the 1101 Lease and 1151 Lease, no later than two weeks after
completion of construction, providing certain other conditions have been
met as described therein, Tenant is to occupy the respective premises.
No later than the expiration of such two week period for the 1101
Premises, Tenant shall vacate three floors of the Premises, one of which
shall be the fourth floor. No later than the expiration of such two week
period for the 1151 Premises, Tenant shall vacate the remaining two
floors of the Premises. Once such portions of the Premises are vacated,
Landlord shall commence construction of the Renovation Improvements
therein as described herein. Additionally, Landlord and Tenant shall
maintain the following progress schedule, with dates and times for
performance for actions as follows, subject to delays for events beyond
the control of either party.
<TABLE>
<CAPTION>
ACTION DATE OR TIME
- ------ ------------
<S> <C>
a. Tenant to vacate three floors of the Premises Two weeks after Term Commencement under the 1101
(including the 4th floor) Lease
b. Landlord to complete Renovation Improvements Three months following Term Commencement under the
in two of vacated floors (not including 4th floor) 1101 Lease
c. Tenant to vacate two floors of the Premises Two weeks after Term Commencement under the 1151
Lease
d. Landlord to complete Renovation Improvements Three months following Term Commencement under 1151
of two floors (not including 4th floor) Lease
e. Landlord to complete Renovation Improvements on fourth floor Fifteen months following Term Commencement under the
1151 Lease
f. Delivery of Instructions by Tenant to Landlord's Three months prior to Landlord's estimated date for
architects under Paragraph 3 above. commencement of Renovation Improvements for any
particular floor
g. Approval or disapproval by Tenant of drawings Ten days after submission or resubmission
and specifications after submission or
resubmission to Tenant by Landlord architect
</TABLE>
3
<PAGE> 68
<TABLE>
<CAPTION>
ACTION DATE OR TIME
- ------ ------------
<S> <C>
h. Approval or disapproval of cost quotation by Ten days after submission or resubmission
Tenant after submission or resubmission to
Tenant
</TABLE>
7. Completion and Rental Commencement Date. Notwithstanding anything to
the contrary contained in the Lease, Tenant's obligation for the
payment of Base Monthly Rent and Additional Rent under the Lease shall
commence two (2) weeks after Tenant receives notice from Landlord that
it has substantially completed the Renovation Improvements, subject
only to the completion of punch list items as determined by Landlord
and Tenant, and the City of Alameda has issued a temporary Certificate
of Occupancy which permits Tenant to legally occupy that portion of the
Premises and to commence the operation of its business thereon. If
Landlord shall be delayed in substantially completing any portion of
the Renovation Improvements as a result of:
a. Tenant's failure to comply with the schedule set forth in
Paragraph 6 above;
b. Tenant's changes to drawings and specifications after approval
thereof pursuant to Paragraph 3(c) above;
c. Changes in the Renovation Improvement at Tenant's request
after commencement of construction in the amount of time of
delay specified in the change order approved by Tenant;
d. Hindrance or disruption of the work of Landlord's contractor
resulting from Tenant's Work or any other reason under
Tenant's control; or
e. Cessation or termination of work in the Premises due to
Tenant's failure to pay when due all amounts payable by Tenant
pursuant to this Exhibit B;
then the commencement date of Tenant's obligation for payment of rental
shall be advanced by the number of days of such delay. Unless otherwise
noted, all time periods referred to in this Exhibit B shall be computed
on a calendar basis with no allowance for holidays or weekends.
Notwithstanding anything to the contrary contained above, Tenant's
obligation for payment of rental shall not be advanced unless within a
reasonable period of time after learning of the occurrence of any delay
caused by Tenant or its contractors, Landlord notifies Tenant in
writing of the fact that such delay has occurred and the known or
anticipated extent of any such delay.
8. Delivery of Possession, Punch List, and Acceptance Agreement. As soon
as the improvements to be constructed by Landlord are substantially
completed, Landlord and Tenant shall together inspect the Renovation
Improvements. After such inspection has been completed, each party
shall sign an acceptance agreement which shall (i) include a list of
all "punch list" items which the parties agree are to be corrected by
Landlord, and (ii) shall state the Rent Commencement Date for the
portion of the Premises in which the Renovation Improvements have been
constructed. As soon as such inspection has been completed and such
acceptance agreement executed, Landlord shall deliver possession of the
portion of the Premises to Tenant. Landlord shall use reasonable
efforts to complete and/or repair such "punch list" items within thirty
(30) days after executing the acceptance agreement. Landlord shall have
no obligation to deliver possession of the portion of the Premises to
Tenant until such procedures regarding the preparation of a punch list
and the execution of the acceptance agreement have been completed.
Notwithstanding anything contained herein, Tenant's obligation to pay
the Base Monthly Rent and the Additional Rent shall commence as
provided in the Lease, regardless of whether Tenant completes such
inspection or executes such acceptance agreement.
4
<PAGE> 69
IN WITNESS WHEREOF, the parties have executed this Exhibit B on the respective
dates they executed the Lease.
TENANT: LANDLORD:
ASK COMPUTER SYSTEMS, INC., ALAMEDA REAL ESTATE INVESTMENTS,
a Delaware corporation a California limited partnership
By: /s/ Scott C. Neely By: Vintage Properties - Alameda Commercial,
----------------------------- a California corporation,
Its: VP & General Counsel Managing General Partner
By: By: /s/ Joseph R. Saiger
----------------------------- ---------------------------------
Its: Its: President
---------------------------
5
<PAGE> 70
RECORDING REQUESTED BY:
WHEN RECORDED MAIL TO:
WELLS FARGO BANK, N.A.
Real Estate Group
420 Montgomery Street, 6th Floor
San Francisco, California 94163
Attention: Mr. Stephen Merchant
Loan No. 5038ZS
- --------------------------------------------------------------------------------
SUBORDINATION, ESTOPPEL, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR LEASE BECOMING SUBJECT TO
AND OF LOWER PRIORITY THAN THE LIEN OF A LATER SECURITY INSTRUMENT.
THIS AGREEMENT is made as of this 1st day of December, 1992, by and
among ASK COMPUTER SYSTEMS, INC., a Delaware corporation ("Lessee"), ALAMEDA
REAL ESTATE INVESTMENTS, a California limited partnership ("Borrower"), and
WELLS FARGO BANK, N.A. ("Lender").
RECITALS
A. Lender has made, or has agreed to make, a loan to Borrower in the
principal amount of FOUR MILLION SEVEN HUNDRED THOUSAND AND NO/100 DOLLARS
(4,700,000.00) ("Loan") which is or will be evidenced by, among other things, a
promissory note executed by Borrower in favor of Lender in the principal amount
of the Loan ("Note").
B. The Note and certain other obligations of Borrower under the Loan
are secured by, among other things, a deed of trust ("Deed of Trust") executed
by Borrower, as Trustor, in favor of Lender, as Beneficiary, covering real
property situated in the County of Alameda, State of California, and more
particularly described on Exhibit A, attached hereto, and incorporated herein by
this reference ("Property"). Said Deed of Trust will be recorded concurrently
herewith in the records of the County Recorder of Alameda County, California
("Official Records").
C. Subject to the terms and provisions of a lease dated June 25, 1992
("Lease"), Borrower granted to Lessee a leasehold estate in and to the Property.
Paragraph 36 of the Lease grants Lessee the option ("Option") to extend the term
of the Lease. Unless otherwise stated herein, all references to the Lease shall
include the Option.
D. The Loan is further secured by, among other things, an Assignment of
Lessor's Interest in Leases ("Assignment"), wherein all of the Borrower's
interest in and to the Lease was assigned to Lender. The assignment will be
recorded concurrently herewith in the records of the County Recorder of the
Official Records. In making the loan, Lender is relying, in part, upon the
statements, acknowledgments, representations and agreements set forth in this
Agreement.
Therefore, for good and sufficient consideration and subject to the
terms and conditions of this Agreement, Lessee acknowledges, represents and
agrees for the benefit of Lender, with knowledge that Lender is relying thereon,
as follows:
<PAGE> 71
AMENDMENT NO. 1
TO
MARINA VILLAGE OFFICE LEASE
(1080 MARINA VILLAGE PARKWAY)
THIS AMENDMENT NO. 1 is made and entered into as of January ___, 1993, by and
between ASK COMPUTER SYSTEMS, INC., a Delaware corporation ("Tenant"), and
ALAMEDA REAL ESTATE INVESTMENTS, a California limited partnership ("Landlord").
Landlord and Tenant have entered into that certain Marina Village Lease (1080
Marina Village Parkway) dated June 25, 1992 (the "Lease") with respect to
certain premises within 1080 Marina Village Parkway, Alameda, California.
Landlord and Tenant desire to amend the Lease and therefore do hereby agree as
follows:
1. Amendment of Paragraph 21. Subparagraph (iii) of Paragraph 21 of the
Lease is hereby amended to read as follows:
With respect to any Lender having a security interest in the Premises
as of the Commencement Date, such Lender shall execute either a
non-disturbance agreement in accordance with the aforementioned terms
or an instrument explicitly subordinating its interest in the Premises
to the Lease on or before January 31, 1993. If such subordination
instrument or non-disturbance agreement is not executed on or before
such date, then Tenant shall have the option at any time prior to the
execution by the Lender of such subordination instrument or
non-disturbance agreement, but shall not be obligated to do so, to
terminate this Lease whereupon the Previous Lease shall be reinstated
and Tenant shall pay to Landlord the amount by which (i) all sums which
would otherwise have been payable by Tenant under the Previous Lease
during the period commencing April 1, 1992 and continuing through the
date of such termination, exceeds (ii) all amounts actually paid by
Tenant during the same period.
2. Amendment of Paragraph 31. The following language is hereby added to
Paragraph 31.B. of the Lease to read as follows:
Notwithstanding anything in this Paragraph 31.B. to the contrary, the
following shall apply: (i) any Lender that is an Institutional Lender
who acquires title to the Premises by means of foreclosure or deed in
lieu of foreclosure (a "Foreclosing Institutional Lender") shall not be
liable for any default of any predecessor Landlord arising prior to the
date said Foreclosing Institutional Lender acquires title to the
Premises; (ii) a Foreclosing Institutional Lender who acquires the
Premises by foreclosure who subsequently transfers the title to the
Premises to a third party shall, upon the date of transfer, be relieved
of all liability for the performance of the obligations of the Landlord
under this Lease which may accrue after the date of such transfer;
(iii) under no circumstances shall any Foreclosing Institutional Lender
become liable or responsible for the performance of the obligations of
Landlord concerning Hazardous Materials set forth in Paragraph 31 or
Paragraph 37 hereof; (iv) any party who is Landlord who is divested of
title to the Premises by foreclosure or by deed in lieu of foreclosure
shall remain liable for the performance of the obligations of Landlord
under this Lease arising after the date of transfer of title and shall
not be relieved of liability for any default in the obligations of
Landlord arising prior to the date of transfer of title.
3. Ratification. Landlord and Tenant hereby ratify and confirm all of the
terms of the Lease as modified by paragraphs 1 and 2 above.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the
date first above written.
TENANT: LANDLORD:
ASK COMPUTER SYSTEMS, INC. ALAMEDA REAL ESTATE INVESTMENTS,
a Delaware corporation a California limited partnership
By: Vintage Properties - Alameda
Commercial, a California corporation,
Managing General Partner
By: /s/ C. Gerald Benton By:
-------------------------- ------------------------
Its: C. Gerald Benton Its:
Director, Operations -----------------------
The ASK Group
<PAGE> 72
SUBORDINATION OF MORTGAGE
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA as owner and holder of a
certain Promissory Note dated March 27, 1987, in the principal sum of Twenty
Eight Million Five Hundred Thousand Dollars ($28,500,000.00) and of a certain
Mortgage or Deed of Trust of even date therewith and securing the said Note,
recorded on March 30, 1987, as No. 87-086477, Official Records, Alameda County,
now a first lien upon the premises known as 1080 Marina Village Parkway,
Alameda, California and particularly demised and described in that certain Lease
dated June 30, 1992, by and between ALAMEDA REAL ESTATE INVESTMENTS, a
California limited partnership, as Lessor, and ASK COMPUTER SYSTEMS, INC., a
Delaware corporation, as Lessee, and upon other property, in consideration of
such leasing and of the sum of One ($1.00) Dollar and other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned, DOES
hereby covenant and agree that the said Mortgage or Deed of Trust shall be and
the same is hereby made SUBORDINATE to the said Lease with the same force and
effect as if the said Lease had been executed, delivered and recorded prior to
the execution, delivery and recording of said Mortgage or Deed of Trust;
EXCEPT, HOWEVER, that this Subordination shall not affect nor be applicable to
and does hereby expressly exclude:
(a) The prior right, claim and lien of said Mortgage or Deed of Trust in,
to and upon any award or other compensation heretofore or hereafter to
be made for any taking by eminent domain of any part of the said
premises, and to the right of disposition thereof in accordance with
the provisions of the said Mortgage or Deed of Trust,
(b) The prior right, claim and lien of the said Mortgage or Deed of Trust
in, to and upon any proceeds payable under all policies of fire and
rent insurance upon the said premises and as to the right of
disposition thereof in accordance with the terms of the said Mortgage
or Deed of Trust, and
(c) Any lien, right, power or interest, if any, which may have arisen or
intervened in the period between the recording of the said Mortgage or
Deed of Trust and the execution of the said lease, or any lien or
judgment which may arise at any time under the terms of such lease.
This Subordination shall inure to the benefit of and shall be binding upon the
undersigned, its successors and assigns.
IN WITNESS WHEREOF, the Subordination has been duly signed and delivered by the
undersigned this 28th day of August, 1992.
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
a New York Corporation
By:
----------------------------------
By: /s/ Margaret Waters
----------------------------------
Assistant Secretary
LESSEE'S AGREEMENT
The undersigned, as Lessee under the lease herein described, does hereby accept
and agree to the terms of the foregoing Subordination, which shall inure to the
benefit of and be binding upon the undersigned and the heirs, executors,
administrators, legal representatives, successors and assigns of the
undersigned.
ASK COMPUTER SYSTEMS, INC.
a Delaware corporation
By: /s/ Scott C. Neely
----------------------------------
SCOTT C. NEELY
Its: VICE PRESIDENT & GENERAL COUNSEL
ASK COMPUTER SYSTEMS, INC.
<PAGE> 73
STATE OF New York )
) ss
COUNTY OF New York )
On this 9 day of February, 1993, before me, a Notary Public in and for said
State, duly commissioned and sworn, personally appeared Margaret Waters and
_________________ personally known to me (or proved to me on the basis of
satisfactory evidence) to be the Assistant Secretary and __________________ of
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation,
the officers executing the within instrument, and acknowledged to me that such
corporation executed the within instrument pursuant to its bylaws or a
resolution of its board of directors.
IN WITNESS WHEREOF, I have hereunder set my hand and affixed my official seal on
the date in this certificate first above written.
/s/ Marie A. Moffett
- ----------------------
Notary Public
MARIE A. MOFFETT
Notary Public, State of New York
No. 31-4917851
Qualified in New York County
Commission Expires Jan. 25, 1994
TENANT
STATE OF CALIFORNIA )
) ss
COUNTY OF Santa Clara )
On this 28th day of August, 1992, before me, a Notary Public in and for said
State, duly commissioned and sworn, personally appeared Scott C. Neely,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the Vice President and General Counsel of ASK COMPUTER SYSTEMS, INC., a
California corporation, the officer executing the within instrument, and
acknowledged to me that such corporation executed the within instrument
pursuant to its bylaws or a resolution of its board of directors, and
acknowledged to me that he subscribed his name on the within instrument.
IN WITNESS WHEREOF, I have hereunder set my hand and affixed my official seal on
the date in this certificate first above written.
/s/ S. E. Musurlian
- ----------------------
Notary Public
[NOTARY SEAL]
<PAGE> 74
GENERAL ACKNOWLEDGMENT No. 20
===============================================================================
State of CALIFORNIA On this the 4th day of January 1995, before me,
} ss. S. E. MUSURLIAN
County of SANTA CLARA the undersigned Notary Public, personally appeared
C. Gerald Benton
[X] personally known to me
------------------------
S. E. MUSURLIAN to be the person whose name is subscribed to the
COMM. #916017 within instrument, and acknowledged that he
Notary Public-California executed it.
SANTA CLARA COUNTY
My comm. expires WITNESS my hand and official seal.
APR 07, 1996
------------------------ /s/ S. E. Musurlian
-------------------------------------------------
Notary's Signature
-----------------------------------------------------------------------------
ATTENTION NOTARY: Although the information requested below is OPTIONAL, it
could prevent fraudulent attachment of this certificate to another document.
Title or Type of Document Subordination, Estoppel,
THIS CERTIFICATE Non-Disturbance & Attornment
MUST BE ATTACHED Agreement
TO THE DOCUMENT
DESCRIBED AT Number of Pages seven Date of Document December 1, 1992
RIGHT:
Signer(s) Other Than Name Above none (to be signed
by 4 other parties)
===============================================================================
7120 019 NATIONAL NOTARY ASSOCIATION - 8236 Remmet Ave. - P.O. Box 7184 -
Canoga Park, CA 91302-718
ALL-PURPOSE ACKNOWLEDGMENT NO. 209
===============================================================================
State of CALIFORNIA CAPACITY CLAIMED BY SIGNER
}
County of SAN MATEO [ ] INDIVIDUAL(S)
On January 19, 1993 before me, [X] CORPORATE Vice President of
---------------- OFFICER(S) General Partners,
DATE -----------------
TITLE(S)
Alice Cy Chan, Notary Public, [ ] PARTNER(S) which is a
----------------------------- Corporation
NAME, TITLE OF OFFICER - E.G. [ ] ATTORNEY-IN-FACT
"JANE DOE, NOTARY PUBLIC"
[ ] TRUSTEE(S)
personally appeared Joseph E. McVegh
-------------------- [ ] SUBSCRIBING WITNESS
NAME(S) OF SIGNER(S)
[ ] GUARDIAN/CONSERVATOR
[x] personally known to me - OR -
[ ] proved to me on the basis of [ ] OTHER: ______________________
satisfactory evidence to be the
person whose name is subscribed _____________________________
to the within instrument and
acknowledged to me that he executed _____________________________
the same in his authorized capacity,
and that by his signature on the SIGNER IS REPRESENTING:
instrument the person or the entity NAME OF PERSON(S) OR ENTITY(IES)
upon behalf of which the person
acted, executed the instrument. Vintage Properties -
Alameda Commercial
Witness my hand and official seal.
----------------------------
ALICE CY CHAN
COMM. # 976528
Notary Public - California
SAN MATEO COUNTY
My Comm. Expires NOV 1, 1996
----------------------------
/s/ Alice Cy Chan
----------------------------------
SIGNATURE OF NOTARY
- -----------------------------------------------------------------------------
ATTENTION NOTARY: Although the information requested below is OPTIONAL, it
could prevent fraudulent attachment of this certificate to another document.
Title or Type of Document Subordination, Estoppel,
THIS CERTIFICATE Non-Disturbance & Attornment
MUST BE ATTACHED Agreement
TO THE DOCUMENT
DESCRIBED AT Number of Pages seven Date of Document December 1, 1992
RIGHT:
Signer(s) Other Than Name Above To be signed by ? and
Wells Fargo Bank and
===============================================================================
<PAGE> 75
EXHIBIT A
1080 MARINA VILLAGE PARKWAY
(Diagram of Property)
<PAGE> 76
EXHIBIT A
1080 MARINA VILLAGE PARKWAY
(CONTINUED)
(Diagram of Property)
<PAGE> 77
EXHIBIT A
1080 MARINA VILLAGE PARKWAY
(CONTINUED)
(Diagram of Property)
<PAGE> 78
EXHIBIT A
1080 MARINA VILLAGE PARKWAY
(CONTINUED)
(Diagram of Property)
<PAGE> 79
EXHIBIT A
1080 MARINA VILLAGE PARKWAY
(CONTINUED)
(Diagram of Property)
<PAGE> 80
EXHIBIT A
(Description of Property)
EXHIBIT A to Subordination, Estoppel, Non-Disturbance and Attornment
Agreement executed by ALAMEDA REAL ESTATE INVESTMENTS, a California limited
partnership, "Borrower", and ASK COMPUTER SYSTEMS, INC., a Delaware corporation,
as "Lessee", in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION, dated as of
December 1, 1992.
REAL PROPERTY in the City of Alameda, County of Alameda, State of California,
described as follows:
Parcel One:
Lot 2, Parcel Map 6346, filed December 14, 1992, Map Book 205, Pages 10-11,
Alameda County Records.
Parcel Two:
Non-exclusive easements appurtenant to Parcel One above for (a) use of the
common area, (b) for pedestrian and vehicular ingress and egress, (c) for the
purpose of accommodating any encroachment over or onto any part of the common
area due to roof overhang or the settlement or shifting of building
improvements, (d) for the purpose of parking, (e) for the purpose of
accommodating private utilities, private storm drain lines and private sanitary
sewer lines which cross the lot lines, all as defined in Article 3, Section
3.02(a), (b), (c), (d) and (e) of that certain document entitled "Declaration of
Reciprocal Easements, Covenants and Restrictions (Office Buildings and
Powerhouse)" recorded February 28, 1989, Series No. 89-56055, Official Records.
Parcel Three:
Non-exclusive easements appurtenant to Parcel One above, for pedestrian and
vehicular ingress and egress and related appurtenances, landscaping and similar
improvements, as defined in that certain document entitled "Roadway Easement
Agreement" recorded April 20, 1987, Series No. 87-107258, Official Records.
A.P. No. 074-1334-050
074-1334-051
074-1334-052
<PAGE> 81
EXHIBIT B
IMPROVEMENT AGREEMENT
FOR 1080 MARINE VILLAGE PARKWAY
INITIAL IMPROVEMENT OF THE BUILDING AND
RENOVATION IMPROVEMENTS
---------------------
This Exhibit B is incorporated into that certain Lease dated June 25, 1992,
between ASK COMPUTER SYSTEMS, INC., as "Tenant", and ALAMEDA REAL ESTATE
INVESTMENTS, as "Landlord", (the "Lease"). All of the defined terms as used in
the Lease shall have the same meanings herein.
1. Renovation Improvements. Landlord shall cause the renovation of the
Premises in phases as described in this Exhibit. In accordance with the
progress schedule outlined below, Landlord, through its general
contractor, shall furnish and install within the Premises substantially in
accordance with the drawings and specifications finally approved by
Landlord and Tenant and generally consistent with the quantities and
quality of improvement in the plans previously prepared by Burns & Nettle
Architect, entitled Scheme #2, Preliminary Space Plan for Second Floor,
certain interior improvements on a "turn-key" basis, including, but not
limited to, installation of Tenant's voice and data cabling within the
Premises (the "Renovation Improvements"). The quantities, character and
manner of installation of all of the Renovation Improvements shall be
subject to the limitations imposed by any applicable governmental
regulations and shall include Landlord's standard Building Finishes as set
forth in Exhibit B-1 attached hereto.
2. Allocation of Cost. Landlord shall bear the cost of all Renovation
Improvements, permits, architectural and engineering services related to
the Renovation Improvements. Tenant acknowledges that Landlord's target
expenditure, including permits and professional services, for the
Renovation Improvements is $20.00 per Rentable Area of the Premises, based
upon May, 1992, costs with such target amount to be increased by a factor
of 4% compounded annually until such funds are expended.
3. Drawings and Specifications.
a. Landlord, through its architects and engineers, shall furnish
drawings and specifications required for the pricing and
construction of the Renovation Improvements. At its own expense
and in accordance with the schedule outlined below, Tenant shall
provide Landlord's architects and engineers with sufficient
instructions, as described below, to enable Landlord's architects
and engineers to prepare complete plans and specifications for the
Renovation Improvements.
b. Tenant's instructions to Landlord's architects and engineers shall
include all relevant information, including, without limitation,
Tenant's budget, special floor loadings, floor openings, air
conditioning, plumbing and electrical loads, location and size of
telephone equipment, location and size of all of the functional
requirements and the nature of desired finishes, casework,
millwork, lighting and any special acoustic treatments. Tenant and
Landlord shall diligently pursue preparation of all such drawings
and specifications which shall be subject to the reasonable
approval of both Landlord and Tenant. If information submitted by
Tenant is not sufficient for Landlord's purposes, Landlord shall
so notify Tenant within fifteen days after receipt of such
information specifying the required additional information. Within
five days thereafter, Tenant shall provide the additional
information to Landlord in a form sufficient to permit Landlord,
its architects and engineers, and general contractor to proceed
with the design and construction of the Renovation Improvements.
Tenant shall approve or disapprove the final drawings and
specifications within the time period provided in paragraph 6
below. If Tenant disapproves the drawings and specifications
submitted by Landlord, the parties shall meet within five (5) days
of such disapproval and confer to develop drawings and
specifications acceptable to both Landlord and Tenant. In the
event Tenant and Landlord do not resolve all of Tenant's
objections within five (5) days after initially conferring to
resolve such objections, Landlord and Tenant shall immediately
cause Landlord's architect, or a representative of Landlord's
architect, to meet and confer with Tenant's architect or
construction consultant, who shall apply the standards set forth
in this Agreement to resolve Tenant's objections and incorporate
such resolution into the drawings and specifications for the
Renovation Improvements, which process Landlord and Tenant shall
cause to be completed within five (5) business days after the
conclusion of the five (5) day period referred to in the
immediately preceding sentence. The "standards set forth in this
Agreement" to be applied
<PAGE> 82
by Landlord's architect and Tenant's architect or construction
consultant to resolve objections pursuant to this paragraph shall
be (i) any drawings and specifications that have been previously
approved by Landlord and Tenant, (ii) the requirement that at each
stage of development, the drawings and specifications in question
are to be the logical and reasonable evolution and development of
drawings and specifications previously approved by Landlord and
Tenant, (iii) Landlord and Tenant are obligated to act reasonably
and in good faith, and (iv) unless there is an agreement to the
contrary, Landlord and Tenant have agreed that the improvement
requirements of each shall be evaluated in accordance with custom
prevailing in Alameda County for the development of comparable
facilities.
c. Upon completion and approval of the drawings and specifications by
Landlord and Tenant, Landlord shall obtain a quotation of the cost
of Renovation Improvements from Landlord's contractor. Landlord
may disapprove such quotation if the total cost of the Renovation
Improvements, permits and professional services would exceed
$20.00 per Rentable Area of the Premises, increased as described
above, as a result of Tenant's request for quantities or quality
of construction or finishes not contemplated in Paragraph 1 above.
If disapproved, within five days following disapproval Tenant
shall provide Landlord with additional information adequate to
permit the revision of the drawings and specifications and
re-pricing of the Renovation Improvements which are consistent
with those contemplated in paragraph 1.
4. Changes to Renovation Improvements. Neither Landlord nor Tenant shall have
the right to order extra work or change orders with respect to the
construction of the Renovation Improvements without the prior written
consent of the other. All extra work or change orders requested by either
Landlord or Tenant shall be made in writing, shall specify any added or
reduced cost and/or construction time resulting therefrom, and shall
become effective and a part of the Renovation Improvement Drawings once
approved in writing by both parties. If a change order requested by Tenant
results in a net increase in the cost to Landlord of constructing the
Renovation Improvements, Tenant shall pay the amount of such increase
caused by the change order requested by Tenant, together with a fee
payable to Landlord equal to 15% of such net increase (but only if and
when Tenant's changes have resulted in a net increase in the cost of the
Renovation Improvements in excess of 5% of initial construction hard costs
as set forth in Landlord's contract with its construction contractor) upon
completion of the Renovation Improvements, or, at Landlord's option,
within fifteen (15) days of Landlord's request.
5. Tenant's Work.
a. Any items or work beyond the scope of the Renovation Improvements
for which Tenant contracts separately (hereinafter "Tenant's
Work"), shall be subject to Landlord's and its contractors'
policies and schedules and shall be conducted in such a way as not
to unreasonably hinder, cause any disharmony with or delay work of
improvements in the Building and Tenant shall be allowed early
entry access to the Premises in accordance with the terms and
conditions of Paragraph 3.C. of the Lease and this Paragraph 5. To
this end, Tenant's Work shall conform with a schedule determined
by Landlord's contractor and no work shall be done by Tenant which
would cause Landlord's contractor to be dependent upon such work
for completion of Landlord's contractor's work. All of Tenant's
Work shall be done with union labor in accordance with the
Northern California Master Labor Agreement. In no event shall work
involving the sprinkler, plumbing, mechanical, electrical power,
lighting or life safety systems of the Building be performed by
other than Landlord's approved subcontractors and all
telecommunications and other special electrical equipment shall be
installed under the supervision of Landlord's electrical
subcontractor.
b. Not less than five business days prior to the date Tenant desires
to commence Tenant's Work, it shall give a written request to
Landlord setting forth or accompanied by all of the following:
1. A description and schedule for the work to be performed;
2. The names and addresses of all contractors, subcontractors
and material suppliers who will perform Tenant's Work;
3. The approximate number of individuals, itemized by trade,
who will be present in the Premises;
4. Copies of all drawings and specifications pertaining to
that portion of Tenant's Work;
5. Copies of all licenses and permits which may be required in
connection with the performance of Tenant's Work;
2
<PAGE> 83
6. Certificates of insurance indicating compliance with the
insurance requirements set forth in the Lease; and
7. At Landlord's request, evidence of the availability of
funds sufficient to pay for all such Tenant's Work.
All of the foregoing shall be subject to Landlord's approval, which
approval shall not unreasonably be withheld.
c. Tenant shall be responsible for any hoisting charges incurred in
connection with Tenant's Work and for any expenses incurred by
Landlord due to hindrance or delay to Landlord's contractors
caused by those performing Tenant's Work or inadequate cleanup by
those performing Tenant's Work.
d. If any supplier, contractor or worker performing Tenant's Work
unreasonably hinders or delays any other work of improvement in
the Building or performs any work which may or does unreasonably
impair the quality, integrity or performance of any portion of the
Building, Landlord may give notice to Tenant. If within one
business day after Tenant's receipt of such notice, such supplier,
contractor or worker does not cure the failure set forth in
Landlord's notice to Tenant, Tenant shall cause such supplier,
contractor or worker immediately to remove all of its tools,
equipment and materials and to cease working in the Building. As
Additional Rent under the Lease, Tenant shall reimburse Landlord
for any repairs or corrections of the Improvements or of any
portion of the Building or the cost of any delays caused by or
resulting from the actions or omissions of anyone performing
Tenant's Work.
6. Progress Schedule for Renovation Improvements. Concurrent with the
execution of this Lease and of even date herewith, Landlord and Tenant
have entered into the certain Lease (the "1101 Lease") for premises
located in a two-story, build-to-suit building (the "1101 Premises")
referred to as 1101 Marina Village Parkway, Alameda, California, and that
certain Lease (the "1151 Lease") for premises located in a one-story,
build-to-suit building (the "1151 Premises) referred to as 1151 Marina
Village Parkway, Alameda, California. Pursuant to the terms of the 1101
Lease and 1151 Lease, no later than two weeks after completion of
construction, providing certain other conditions have been met as
described therein, Tenant is to occupy the respective premises. No later
than the expiration of such two week period for the 1101 Premises, Tenant
shall vacate three floors of the Premises, one of which shall be the
fourth floor. No later than the expiration of such two week period for the
1151 Premises, Tenant shall vacate the remaining two floors of the
Premises. Once such portions of the Premises are vacated, Landlord shall
commence construction of the Renovation Improvements therein as described
herein. Additionally, Landlord and Tenant shall maintain the following
progress schedule, with dates and times for performance for actions as
follows, subject to delays for events beyond the control of either party.
ACTION
a. Tenant to vacate three floors of the Premises (including the 4th
floor)
b. Landlord to complete Renovation Improvements in two of vacated
floors (not including 4th floor)
c. Tenant to vacate two floors of the Premises
d. Landlord to complete Renovation Improvements of two floors (not
including 4th floor)
e. Landlord to complete Renovation Improvements on fourth floor
f. Delivery of Instructions by Tenant to Landlord's architects under
Paragraph 3 above.
g. Approval or disapproval by Tenant of drawings and specifications
after submission or resubmission to Tenant by Landlord's architect
DATE OR TIME
Two weeks after Term Commencement under the 1101 Lease
Three months following Term Commencement under the 1101 Lease
Two weeks after Term Commencement under the 1151 Lease
Three months following Term Commencement under 1151 Lease
Fifteen months following Term Commencement under the 1151 Lease
Three months prior to Landlord's estimated date for commencement of
Renovation Improvements for any particular floor
Ten days after submission or resubmission
3
<PAGE> 84
ACTION
h. Approval or disapproval of cost quotation by Tenant after
submission or resubmission to Tenant
DATE OR TIME
Ten days after submission or resubmission
7. Completion and Rental Commencement Date. Notwithstanding anything to the
contrary contained in the Lease, Tenant's obligation for the payment of
Base Monthly Rent and Additional Rent under the Lease shall commence two
(2) weeks after Tenant receives notice from Landlord that it has
substantially completed the Renovation Improvements, subject only to the
completion of punch list items as determined by Landlord and Tenant, and
the City of Alameda has issued a temporary Certificate of Occupancy which
permits Tenant to legally occupy that portion of the Premises and to
commence the operation of its business thereon. If Landlord shall be
delayed in substantially completing any portion of the Renovation
Improvements as a result of:
a. Tenant's failure to comply with the schedule set forth in
Paragraph 6 above;
b. Tenant's changes to drawings and specifications after approval
thereof pursuant to Paragraph 3(c) above;
c. Changes in the Renovation Improvements at Tenant's request after
commencement of construction in the amount of time of delay
specified in the change order approved by Tenant
d. Hindrance or disruption of the work of Landlord's contractor
resulting from Tenant's Work or any other reason under Tenant's
control; or
e. Cessation or termination of work in the Premises due to Tenant's
failure to pay when due all amounts payable by Tenant pursuant to
this Exhibit B;
then the commencement date of Tenant's obligation for payment of rental shall be
advanced by the number of days of such delay. Unless otherwise noted, all time
periods referred to in this Exhibit B shall be computed on a calendar basis with
no allowance for holidays or weekends. Notwithstanding anything to the contrary
contained above, Tenant's obligation for payment of rental shall not be advanced
unless within a reasonable period of time after learning of the occurrence of
any delay caused by Tenant or its contractors. Landlord notifies Tenant in
writing of the fact that such delay has occurred and the known or anticipated
extent of any such delay.
8. Delivery of Possession, Punch List, and Acceptance Agreement. As soon as
the improvements to be constructed by Landlord are substantially
completed, Landlord and Tenant shall together inspect the Renovation
Improvements. After such inspection has been completed, each party shall
sign an acceptance agreement which shall (i) include a list of all "punch
list" items which the parties agree are to be corrected by Landlord, and
(ii) shall state the Rent Commencement Date for the portion of the
Premises in which the Renovation Improvements have been constructed. As
soon as such inspection has been completed and such acceptance agreement
executed, Landlord shall deliver possession of the portion of the Premises
to Tenant. Landlord shall use reasonable efforts to complete and/or repair
such "punch list" items within thirty (30) days after executing the
acceptance agreement. Landlord shall have no obligation to deliver
possession of the portion of the Premises to Tenant until such procedures
regarding the preparation of a punch list and the execution of the
acceptance agreement have been completed. Notwithstanding anything
contained herein, Tenant's obligation to pay the Base Monthly Rent and the
Additional Rent shall commence as provided in the Lease, regardless of
whether Tenant completes such inspection or executes such acceptance
agreement.
4
<PAGE> 85
IN WITNESS WHEREOF, the parties have executed this Exhibit B on the respective
dates they executed the Lease.
TENANT: LANDLORD:
ASK COMPUTER SYSTEMS, INC. ALAMEDA REAL ESTATE INVESTMENTS,
a Delaware corporation a California limited partnership
By: /s/ Illegible Signature By: Vintage Properties - Alameda Commercial,
----------------------------- a California corporation,
Its: VP & General Counsel Managing General Partner
By: By: /s/ Joseph R. Seiger
----------------------------- ------------------------------------------
Its: Its: President
--------------------------
5
<PAGE> 86
EXHIBIT B-1
STANDARD OFFICE FINISHES
Appliances/Utilities Specifications
1. Doors 9'0" Plain Sliced Red Oak
2. Hardware Schlage "D" Series Latchset, "Olympiad"
3. Ceiling Tile 2x4 Armstrong "Second Look II"
4. Light Fixtures 2x4 Parabolic Lens, 3 Lamp Florescent
5. Carpet Design Weave "Premiere"
6. Door Frames Western Integrated Series 300, In
Standard Colors
7. Exterior Window Covering 1" Miniblinds
8. Paint 2 Coat Latex System
9. Electrical, Telephone Two Duplex Outlets And One Combination
and Data Telephone/Data Location Per Office
10. Partitioning Metal Studs 5/8 Gypboard
11. Sidelight One 2'0" Sidelight Per Office
12. Cabinets Workroom Upper and Lower Cabinets
PAGE 1 OF 1
<PAGE> 87
1. SUBORDINATION.
(1) The Deed of Trust and the Assignment, and any
modifications, renewals, extensions or replacements thereof, and of the Note
secured thereby, shall unconditionally be and at all times remain liens or
charges on the Property prior and superior to the Lease;
(2) Lessee and Borrower acknowledge and agree that Lender
would not make the Loan to Borrower without this Agreement;
(3) This Agreement shall be the whole and only agreement with
regard to the subordination of the Lease to the liens or charges of the Deed of
Trust and the Assignment and shall supersede and cancel, but only insofar as
would affect the priority between the Deed of Trust and the Assignment and the
Lease, any prior agreements as to such subordination, including, but not limited
to, those provisions, if any, contained in the Lease which provide for the
subordination of the Lease to a deed of trust or to a mortgage or mortgagees;
(4) Lessee consents to and approves (i) all provisions of the
Note, Deed of Trust and Assignment in favor of Lender, and (ii) all other
agreements including but not limited to any loan or other agreements, between
Borrower and Lender relating to the Loan or the disbursement of the proceeds of
the Loan (together with the Note, Deed of Trust and Assignment, "Loan
Documents");
(5) Lender, in making disbursements pursuant to any of the
Loan Documents, is under no obligation or duty to, nor has Lender represented
that it will, see to the application of such proceeds by the person or persons
to whom Lender disburses such proceeds, and any application or use of such
proceeds for purposes other than those provided for in the Loan Documents shall
not defeat the subordination herein made in whole or in part;
(6) Lessee intentionally and unconditionally waives,
relinquishes and subordinates all of Lessee's right, title and interest under
the Lease and in and to the Property to the lien or charge of the Deed of Trust
and the Assignment and understands that in reliance upon and in consideration
of, this waiver, relinquishment and subordination, specific loans and advances
are being and will be made by Lender and, as part and parcel thereof, specific
monetary and other obligations are being and will be entered into which would
not be made or entered into but for said reliance upon this waiver,
relinquishment and subordination; and
(7) Lender may provide future financing to Borrower in
connection with the development, construction and/or holding of the Property.
Lessee agrees that the Lease shall be subject and subordinate to, the lien of
the deed of trust securing any such future financing and all of the terms,
conditions and provisions thereof, and Lender's right in the Property and any
related security, to all advances made thereunder, and any renewals, extensions,
modifications or replacements thereof, in all cases on the same terms and
conditions as provided in this Agreement. Lessee and Borrower agree to execute
and record an agreement confirming the foregoing in substantially the same form
as this Agreement.
2. ESTOPPEL. Lessee acknowledges and represents that:
(a) Lease Effective. The Lease has been duly executed and
delivered by Lessee and that, subject to the terms and conditions thereof, the
Lease is in full force and effect and the obligations of Lessee thereunder are
valid and binding and there have been no modifications or additions, written or
oral, to the Lease;
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<PAGE> 88
(b) No Default. As of the date hereof and to the best of
Lessee's knowledge (i) there exists no breach, default, or event or condition
which, with the giving of notice or the passage of time or both, would
constitute such a breach or default; and (ii) there are no existing claims,
defenses or offsets against rental due or to become due under the terms of the
Lease;
(c) Entire Agreement. The Lease constitutes the entire
agreement between Borrower and Lessee with respect to the Lease and the Property
and Lessee claims no rights with respect to the Property other than as set forth
in the Lease;
(d) No Prepaid Rent. No deposits or prepayments of rent have
been made in connection with the Lease.
(e) Term. The original term of the Lease commences on the Date
provided in Section 3 of the Lease and shall continue for a period ending
September 30, 2004 unless sooner terminated or extended pursuant to any
provision of the Lease thereafter. Lessee has three (3) options to extend the
term of the Lease for five (5) years each.
(f) Rent. The base rent payable under the Lease is an amount
shown pursuant to paragraph 4.B of the Lease. Tenant has provided Borrower with
$ NONE as the security deposit under the Lease;
(g) No Transfer. Tenant has received no notice of any prior
sale, transfer, assignment, hypothecation or pledge of the Lease or the rents
secured thereunder except for the Assignment; and
(h) Pursuant to Section 7.B of the Lease, Lessee is to
reimburse Borrower for all "Property Taxes" assessed in respect of the premises
during the term of the Lease and "Property Taxes" shall mean that definition
shown in paragraph 7.C of the Lease.
3. AGREEMENT. Lessee hereby covenants and agrees that, during all such
times as Lender is the beneficiary under the Deed of Trust:
(a) Modification, Termination and Cancellation. Lessee will
not consent to any modification, termination or cancellation of the Lease unless
Lender first consents thereto in writing;
(b) Notice of Default. Lessee shall notify Lender in writing
concurrently with any notice given to Borrower of any default on the part of
Borrower under the Lease, and Lessee agrees that Lender shall have the right
(but not the obligation) to cure any breach or default specified in such notice
within the time periods set forth below and Lessee shall not declare a default
of the Lease, as to Lender, if Lender cures such default within thirty (30) days
from and after expiration of the time period provided in the Lease for the cure
thereof by Borrower; provided, however, that if such default cannot with
diligence be cured by Lender within such thirty (30) day period, the
commencement of action by Lender within such thirty (30) day period to remedy
the same shall be deemed sufficient so long as Lender pursues such cure with
diligence;
(c) No Advance Rent. Lessee will make no payments or
prepayments of rent more than one (1) month in advance of the time when the same
become due under the Lease; and
(d) Assignment of Rents. Upon receipt by Lessee of written
notice from Lender that Lender has elected to terminate the license granted to
Borrower to collect rents, as provided in the Deed of Trust and Assignment, and
directing the
- 3 -
<PAGE> 89
payment thereof to Lender, Lessee shall comply with such direction to pay and
shall not be required to determine whether Borrower is in default under the
Loan.
4. ATTORNMENT. Lessee hereby agrees for the benefit of Lender (which
term shall include, for purposes of this Section 4 and for purposes of Section 5
hereof, any transferee of Borrower's title in and to the Property by Lender's
exercise of its remedies under the Assignment or Deed of Trust by foreclosure or
otherwise, or any transferee by deed in lieu thereof, and any subsequent
transferee of such title, whether Lender or any other party) as follows:
(a) Payment of Rent. Lessee shall pay to Lender all Rental
payments required to be made by Lessee pursuant to the terms of the Lease for
the duration of the term of the Lease;
(b) Continuation of Performance. Lessee shall be bound to
Lender in accordance with all of the terms of the Lease for the balance of the
term thereof, and Lessee hereby attorns to Lender as its landlord, such
attornment to be effective and self-operative without the execution of any
further instrument immediately upon Lender succeeding to the lessor's interest
in the Lease and giving written notice thereof to Lessee. Lessee agrees to
provide written confirmation of the foregoing upon request of Lender;
(c) No Offset. Lender shall not be liable for, nor subject to,
any offsets or defenses which Lessee may have by reason of any act or omission
of Borrower as prior lessor, nor for the return of any sums which Lessee may
have paid to Borrower as prior lessor as and for security deposits, advance
rentals or otherwise, except to the extent that such sums are actually delivered
by Borrower to Lender; and
(d) Subsequent Transfer. If Lender, by succeeding to the
interest of lessor under the Lease, should become obligated to perform the
covenants of lessor thereunder, then, upon any further transfer of the lessor's
interest by Lender, all of such obligations shall terminate as to Lender.
5. NON-DISTURBANCE. In the event of a foreclosure of the Deed of Trust
or deed in lieu thereof, so long as there shall then exist no breach, default,
or event of default on the part of Lessee under the Lease, nor any event or
condition which, with notice or passage of time or both, would constitute such a
breach, default, or event of default, the leasehold interest of Lessee under the
Lease shall not be extinguished or terminated by reason of such foreclosure, but
rather the Lease shall continue in full force and Lender shall recognize and
accept Lessee as tenant under the Lease subject to the terms and provisions of
the Lease except as modified by this Agreement.
6. MISCELLANEOUS.
(a) Heirs, Successors, Assigns and Transferees. The covenants
herein shall be binding upon, and inure to the benefit of, the heirs, successors
and assigns of the parties hereto;
(b) Notices. All notices or other communications required or
permitted to be given pursuant to the provisions hereof shall be deemed served
upon delivery of, if mailed, upon the first to occur of receipt or the
expiration of seventy-two (72) hours after deposit in the United States Postal
Service, certified mail, postage prepaid and addressed to the address of Lessee
or Lender appearing below:
- 4 -
<PAGE> 90
LESSEE
ASK Computer System, Inc.
2440 West El Camino Real
Mountain View, CA 94039
Attention: Chief Financial Officer
LENDER
Wells Fargo Bank, N.A.
Real Estate Group
420 Montgomery Street, 6th Floor
San Francisco, California 94163
Attention: Mr. Stephen Merchant
BORROWER
Alameda Real Estate Investments
c/o Vintage Properties
393 Vintage Park Drive
Suite 210
Foster City, California 94404-1179
Attention: Joseph E. McVeigh
Provided, however, that any party shall have the right to change its address for
notice hereunder by giving written notice thereof to the other party in the
manner set forth hereinabove;
(c) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed as original, but all of which
together shall constitute and be construed as one and the same instrument;
(d) Remedies Cumulative. All remedies provided herein are
cumulative and shall be in addition to any and all other rights and remedies
provided by law and by other agreements between Lender and Borrower or others;
(e) Paragraph Headings. Paragraph headings in this Agreement
are for convenience only and are not to be construed as part of this Agreement
or in any way limiting or applying the provisions hereof;
(f) Further Assurances. At the request of either party hereto,
the other party shall execute, acknowledge and deliver such other documents
and/or instruments as may be reasonably required by the requesting party in
order to carry out the purpose of this Agreement, provided that no such document
or instrument shall modify the rights and obligations of the parties provided
herein;
(g) Conflicts. In the event of any inconsistency between the
terms of this Agreement and the Lease, the terms of this Agreement shall
control; and
(h) Attorneys' Fees. The prevailing party shall be entitled to
recover from the other party its reasonable costs, including reasonable
attorneys' fees, in any action brought by any party against the other to enforce
any rights or obligations under this Agreement.
NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE OWNER
TO OBTAIN A LOAN THE PROCEEDS OF WHICH MAY BE EXPENDED FOR PURPOSES OTHER THAN
IMPROVEMENT OF THE LAND.
- 6 -
<PAGE> 91
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of this day and year first above written.
"Lender" "Borrower"
WELLS FARGO BANK, N.A., ALAMEDA REAL ESTATE INVESTMENTS,
a national banking a California limited partnership
association
By: C/O DEVELOPMENT ASSOCIATES,
By: /s/ Illegible Signature a Massachusetts general
----------------------- partnership
Its: Vice President
By: Copley/Ohio Associates,
Partner
By: Copley Real Estate
Advisors, Inc.,
its managing Partner
"Lessee"
ASK COMPUTER SYSTEMS, INC., By: /s/ James d. Flynn
a Delaware corporation ------------------------
Authorized Signatory
James D. Flynn
By: /s/ C. Gerald Benton By: New England Mutual Life
----------------------- Insurance Company, Partner
C. Gerald Benton
Its: Director Operations
By: Copley Real Estate
Advisors, Inc.
its asset manager
hereunder duly authorized
By: /s/ James D. Flynn
-----------------------
Authorized Officer
James D. Flynn
By: VINTAGE PROPERTIES - ALAMEDA
COMMERCIAL,
a California corporation
By: /s/ Joseph E. McVeigh
--------------------------
Joseph E. McVeigh
Vice President
(ALL SIGNATURES MUST BE ACKNOWLEDGED)
IT IS RECOMMENDED THAT, PRIOR TO THE EXECUTION OF THIS SUBORDINATION AGREEMENT,
THE PARTIES CONSULT WITH THEIR ATTORNEYS WITH RESPECT THERETO.
<PAGE> 92
EXHIBIT B-1
STANDARD OFFICE FINISHES
Appliances/Utilities Specifications
1. Doors 9'0" Plain Sliced Red Oak
2. Hardware Schlage "D" Series Latchset, "Olympiad"
3. Ceiling Tile 2x4 Armstrong "Second Look II"
4. Light Fixtures 2x4 Parabolic Lens, 3 Lamp Florescent
5. Carpet Design Weave "Premiere"
6. Door Frames Western Integrated Series 300, In
Standard Colors
7. Exterior Window Covering 1" Miniblinds
8. Paint 2 Coat Latex System
9. Electrical, Telephone Two Duplex Outlets And One Combination
and Data Telephone/Data Location Per Office
10. Partitioning Metal Studs 5/8 Gypboard
11. Sidelight One 2'0" Sidelight Per Office
12. Cabinets Workroom Upper and Lower Cabinets
PAGE 1 OF 1
<PAGE> 93
EXHIBIT C
OUTLINE OF PROJECT
(Diagram of Property)
<PAGE> 94
EXHIBIT D
EXISTING HAZARDOUS MATERIAL CONDITION
ENVIRONMENTAL REPORTS:
A. "Preliminary Site Environmental Review, Portions of Marina Village,
Alameda, California" prepared by Woodward Clyde Consultants, March
1987.
B. "Toxic Hazardous Assessment Marina Village Development, Alameda,
California" prepared by Applied Geosciences, Inc., December 1987.
C. "Toxic Hazard Assessment, Phase II Field Investigation, Marina Village
Development, Alameda, California" prepared by Applied Geosciences,
Inc., February 1, 1988.
Incorporated into the above "Toxic Hazardous Assessment for Select
Portions of the Marina Village Development, Alameda, California - Draft
Report" prepared by Applied Geosciences Inc., February 26, 1988.
D. "Investigation of Field Area South of Powerhouse, Marina Village, April
25, 1988" prepared by Levine-Fricke.
E. "Removal of Petroleum Affected Soils from the Field Area South of the
Powerhouse, Alameda Marina Village, Alameda, California" prepared by
Levine-Fricke, October 5, 1988.
F. "Investigation of Northwest Area, Marina Village, Alameda, California"
prepared by Levine-Fricke, October 6, 1988.
G. "Phase I Environmental Assessment Report, Vintage Properties/Alameda
Commercial, Alameda, California", prepared by Levine-Fricke, February
16, 1989.
H. "Continued Monitoring and Proposed Remedial Measure in Northwest Study
Area dated June 26, 1989", prepared by Levine-Fricke (Primary Report).
Supplemental to Primary Report: "Continued Soil and Ground-Water
Investigation of Parcel 5 and Implementation of a Ground-Water
Monitoring Program and Proposed Remedial Measures in the Northwest
Study Area, Marina Village, Alameda, California" prepared by
Levine-Fricke, June 6, 1989.
I. "Results of Soil Investigation, Parcel 2, Northwest Study Area",
prepared by Levine-Fricke, dated November 27, 1989.
J. "Results of 3rd Round of Ground Water Sampling, Northwest Area"
prepared by Levine Fricke, April 13, 1990.
PAGE 1 of 1
<PAGE> 1
EXHIBIT 10.25
BASIC LEASE INFORMATION
Lease Date: July 22, 1996
Tenant: TCSI Corporation
Tenant's Address: 15851 Dallas Parkway, Suite 367 Dallas, TX
75248
Contact: Ron Iannetta, Program Director/U.S. Field Offices
Telephone: (214) 770-5023
Landlord: Tricoho, Ltd., a Texas limited partnership
Landlord's Address: 2200 Ross Avenue, Suite 3700 Dallas, Texas,
75201
Contact: Property Manager: Jim Delamore
Telephone: 214-979-6100
Premises: Suite No. 250-G in the office building (the
"Building") located or to be located on the land
described as being two tracts of land with the first
being a Leasehold estate created by lease recorded in
Volume 85140, Page 4073, and the second tract being an
easement estate created in document recorded in Volume
89030, Page 3183, all in the Deed Records, Dallas
County, Texas in and to a 0.301 acre tract and a 5 024
acre Tract of land out of the Thomas L. Chenoweth
Survey, Abstract No. 273 Deed Records, Dallas County,
Texas, and a part of Greenhill Park Addition, in the
Town of Addison, Dallas County, Texas and known as
Greenhill Park Garden Offices or 14135 Midway Road,
Dallas, Texas 75244(the "Land"). The Premises are
outlined on the plan attached to the Lease as Exhibit
A.
Term: Sixty (60) months, commencing August 1, 1996 (the
"Commencement Date") and ending at 5:00 p.m. July 31,
2001, subject to adjustment and earlier termination as
provided in the Lease.
Basic Rental: $12,727.40 per month, which is based on an annual Basic
Rental of $15.25 per rentable square foot (The initial
three (3) months of Basic Rental shall be waived).
Security Deposit: Intentionally waived.
Rent: Basic Rental, Tenant's Proportionate Share of
Electrical Costs, Tenant's share of Excess, and all
other sums that Tenant may owe to Landlord under the
Lease.
Permitted Use: General office use.
Tenant's 4.00403%, which is the percentage obtained by dividing
Proportionate (a) the 10,015 rentable square feet in
Share: the Premises by (b) the 250,123 rentable square feet
in the Building.
Expense Stop: 1996 Base Year
Initial $2,000,000.00
Liability Insurance
Amount:
Maximum Tenant is taking space in its "As-Is" condition.
Construction
Allowance:
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The foregoing Basic lease Information is incorporated into and made a part of
the Lease identified above. If any conflict exists between any Basic Lease
Information and the Lease, then the Lease shall control.
LANDLORD:
TRICOHO, LTD., a Texas limited partnership
By: Trammell Crow Dallas/Fort Worth, Inc., Its Manager
By: Trammell Crow Dallas/Fort Worth, Ltd.
a Texas limited partnership
By: TCDFW, Inc., a Delaware corporation
its sole general partner
By: /s/ Charles A. Anderson
-------------------------
Name: Charles A. Anderson
Title: Executive Vice President
TENANT:
TCSI Corporation
By: /s/ PAUL FARMER
--------------------------------
Name: Paul Farmer
--------------------------------
Title: CFO
--------------------------------
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TABLE OF CONTENTS
PAGE
DEFINITIONS AND BASIC PROVISIONS .......................... 1
LEASE GRANT ............................................... 1
TERM....................................................... 1
RENT ...................................................... 1
(a) Payment................................................ 1
(b) Electrical Costs....................................... 1
(c) Annual Cost Statement ................................. 1
(d) Adjustments to Electrical Costs ....................... 2
DELINQUENT PAYMENT; HANDLING CHARGES ...................... 2
SECURITY DEPOSIT .......................................... 2
LANDLORD'S OBLIGATIONS .................................... 2
(a) Services .............................................. 2
(b) Excess Utility Use .................................... 2
(c) Discontinuance......................................... 3
(d) Restoration of Services: Abatement .................... 3
IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE ........... 3
(a) Improvements; Alterations ............................. 3
(B) Repairs; Maintenance .................................. 4
(c) Performance of Work ................................... 4
(d) Mechanic's Liens ...................................... 4
USE ....................................................... 4
ASSIGNMENT AND SUBLETTING ................................. 5
(a) Transfers; Consent .................................... 5
(b) Cancellation........................................... 5
(c) Additional Compensation................................ 6
INSURANCE; WAIVERS; SUBROGATION; INDEMNITY ................ 6
(a) Insurance ............................................. 6
(b) Waiver of Negligence Claims; No Subrogation ........... 6
(c) Indemnity.............................................. 6
SUBORDINATION ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE 7
(a) Subordination.......................................... 7
(b) Attornment ............................................ 7
(c) Notice to Landlord'. Mortgagee ........................ 7
RULES AND REGULATIONS ..................................... 7
CONDEMNATION .............................................. 7
(a) Taking - Landlord's and Tenant's Rights ............... 7
(b) Taking - Landlord's Rights............................. 7
(c) Award ................................................. 8
FIRE OR OTHER CASUALTY .................................... 8
(a) Repair Estimate ....................................... 8
(b) Landlord' and Tenant's Rights ......................... 8
(c) Landlord's Rights ..................................... 8
(d) Repair Obligation ..................................... 8
TAXES ..................................................... 8
EVENTS OF DEFAULT ......................................... 9
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LIST OF DEFINED TERMS
Page No.
Additional Space ..................... F-1
Affiliate ............................ 6
AS-IS................................. D-1
Basic Cost ........................... C-1
Building.............................. i
Casualty.............................. 8
Collateral............................ 10
Commencement Date .................... i
Damage Notice ........................ 8
Electrical Costs ..................... 1
Excess ............................... C-1
Expense Stop ......................... C-1
Land ................................. i
Landlord ............................. 1
Landlord's Mortgagee ................. 7
Lease................................. 1
Loss.................................. 6
Mortgage ............................. 7
Offer Notice.......................... F-1
Parking Garage ....................... G-1
Permitted Transferee ................. 5
Permitted Transfer ................... 5
Primary Lease ........................ 7
Substitution Notice .................. 11
Substitution Space ................... 11
Taking ............................... 7
Taxes ................................ C-l
Tenant................................ 1
Transfer.............................. 5
UCC .................................. 10
Substitution Effective Date .......... 12
Event of Death ....................... 9
Basic Lease Information .............. 1
Initial Liability Insurance Amount ... 6
Annual Cost Statement ................ 2
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REMEDIES ............................. 9
PAYMENT BY TENANT; NON-WAIVER ........ 10
(a) Payment by tenant ................ 10
(b) No Waiver ........................ 10
LANDLORD'S LIEN ...................... 10
SURRENDER OF PREMISES ................ 10
HOLDING OVER ......................... 11
CERTAIN RIGHTS RESERVED BY LANDLORD .. 11
SUBSTITUTION SPACE ................... 11
MISCELLANEOUS......................... 12
(a) Landlord Transfer................ 12
(b) Landlord's Liability............. 13
(c) Force Majeure.................... 13
(d) Brokerage........................ 13
(e) Estoppel Certificates............ 13
(f) Notices.......................... 13
(g) Separability..................... 13
(h) Amendments; and Binding Effect... 13
(i) Quiet Enjoyment.................. 14
(j) Joint and Several liability...... 14
(k) Captions......................... 14
(l) No Merger........................ 14
(m) No Offer ........................ 14
(n) Exhibits ........................ 14
(o) Entire Agreement ................ 14
SPECIAL PROVISIONS ................... 14
<PAGE> 6
LEASE
THIS LEASE AGREEMENT (this "Lease") is entered into as of
the 22 day of July, 1996, between Tricoho, Ltd., a Texas
limited partnership ("Landlord"), and TCSI Corporation, a
Nevada corporation (.Tenant.).
DEFINITIONS AND BASIC
PROVISIONS
1. The definitions and basic provisions set forth in
the Basic Lease Information (the "Basic Lease Information")
executed by Landlord and Tenant contemporaneously herewith are
incorporated herein by reference for all purposes.
LEASE GRANT
2. Subject to the terms of this Lease, Landlord
leases to Tenant, and Tenant leases from Landlord, the
Premises.
TERM
3. If the Commencement Date is not the first day of a
calendar month, then the Term shall be extended by the time
between the Commencement Date and the first day of the next
month. If this Lease is executed before the Premises become
vacant or otherwise available and ready for occupancy by
Tenant, or if any present occupant of the Premises holds over
and Landlord cannot acquire possession of the Premises before
the Commencement Date, then (a) Tenant's obligation to pay
Rent hereunder shall be waived until Landlord tenders
possession of the Premises to Tenant, (b) the Term shall be
extended by the time between the scheduled Commencement Date
and the date on which Landlord tenders possession of the
Premises to Tenant (which Date will then be defined as the
Commencement Date), (c) Landlord shall not be in default
hereunder or be liable for damages therefor, and (d) Tenant
shall accept possession of the Premises when Landlord tenders
possession thereof to Tenant. By occupying the Premises,
Tenant shall be deemed to have accepted the Premises in their
condition as of the date of such occupancy, subject to the
performance of punch-list items that remain to be performed by
Landlord, if any. Tenant shall execute and deliver to
Landlord, within ten days after Landlord has requested same, a
letter confirming (1) The Commencement Date, (2) that Tenant
has accepted the Premises, and (3) that Landlord has performed
all of its obligations with respect to the Premises (except
for punch-list items specified in such letter).
RENT
4 (a) Payment. Tenant shall timely pay to Landlord
The Basic Rental and all additional sums to be paid by Tenant
to Landlord under this Lease, including the amounts set forth
in Exhibit C, without deduction or set off, at Landlord's
Address (or such other address as Landlord may from time to
time designate in writing to Tenant). Basic Rental, adjusted
as herein provided, shall be payable monthly in advance. The
first monthly installment of Basic Rental due hereunder (i.e.:
the installment for the fourth month of the Lease Term) shall
be payable contemporaneously with the execution of this Lease;
thereafter, monthly installments of Basic Rental shall be due
on the first day of the fifth full calendar month of the Term
and continuing on the first day of each succeeding calendar
month during the Term. Basic Rental for any fractional month
at the beginning of the Term shall be prorated based on 1/365
of The current annual Basic Rental for each day of the partial
month this Lease is in effect, and shall be due on the
Commencement Date.
(b) Electrical Costs. Tenant shall pay to Landlord an
amount equal to the product of (1) the cost of all electricity
used by the Building ("Electrical Costs"), multiplied by (2)
Tenant's Proportionate Share. Such amount shall be payable
monthly based on Landlord's estimate of the amount due for
each month, and shall be due on the Commencement Date and on
the first day of each calendar month thereafter unless
Landlord has theretofore furnished Tenant with information
indicating the amount due, in which event such amount shall be
due within ten business days after Landlord has delivered to
Tenant an invoice therefor.
(c) Annual Cost Statement. By April 1 of each
calendar year, or as soon thereafter as practicable, Landlord
shall furnish to Tenant a statement of Landlord's actual
Electrical Costs (The "Annual Cost Statement") for the
previous year adjusted as provided in Section 4.(d). If the
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Annual Cost Statement reveals that Tenant paid more for
Electrical Costs than Tenant's Proportionate Share of
Electrical Costs the year for which such statement was
prepared, then Landlord shall reimburse or credit Tenant for
such excess within 30 days after delivery of the Annual Costs
Statement in question; likewise, if Tenant paid less than
Tenant's Proportionate Share of Electrical Costs, then Tenant
shall pay Landlord such deficiency within 30 days after
delivery of the Annual Cost Statement in question.
(d) Adjustments to Electrical Costs. With respect to
any calendar year or partial calendar year in which the
Building is not occupied to the extent of 95% of the rentable
area thereof, the Electrical Costs for such period shall, for
the purpose thereof, be increased to the amount which would
have been incurred had the Building been occupied to the
extent of 95% of the rentable area thereof.
DELINQUENT PAYMENT; HANDLING
CHARGES
5. All delinquent payments required of Tenant
hereunder shall bear interest from the date due until paid at
twelve percent (12%). Alternatively, Landlord may charge
Tenant a fee equal to 10% of the delinquent payment to
reimburse Landlord for its cost and inconvenience incurred as
a consequence of Tenant's delinquency. In no event, however,
shall the charges permitted under this Section 5 or elsewhere
in this Lease, to the extent the same are considered to be
interest under applicable law, exceed the maximum lawful rate
of interest.
SECURITY DEPOSIT
6. Intentionally deleted.
LANDLORD'S OBLIGATIONS
7. (a) Services. Provided no Event of Default exists,
Landlord shall use all reasonable efforts to furnish to Tenant
(1) water (hot and cold) at those points of supply provided
for general use of tenants of the Building; (2) heated and
refrigerated air conditioning as appropriate, at such times as
Landlord normally furnishes these services to all tenants of
the Building, and at such temperatures and in such amounts as
are reasonably standard; (3) janitorial service to the
Premises on weekdays other than holidays for Building-standard
installations (Landlord reserves the right to bill Tenant
separately for extra janitorial service required for
non-standard installations) and such window washing as may
from time to time be reasonably required; (4) elevators for
ingress and egress to the floor on which the Premises are
located, in common with other tenants, provided that Landlord
may reasonably limit the number of elevators to be in
operation at times other than during customary business hours
and on holidays; (5) replacement of Building-standard light
bulbs and fluorescent tubes (if such replacement is requested
by tenant) provided that Landlord's standard change for such
bulbs and tubes shall be paid by Tenant; and (6) electrical
current during normal business hours other than for equipment
whose electrical energy consumption exceeds normal office
usage. Landlord Shall maintain the common areas of the
Building in order and condition customary of a first class
office building, except for damage occasioned by Tenant, or
its employees, agents or invitees. If Tenant desires any of
the services specified in this Section 7.(a) at any time other
than times herein designated, such services shall be supplied
to Tenant upon the written request of Tenant delivered to
Landlord before 3:00 p.m. on the business day preceding such
extra usage, and Tenant shall pay to Landlord the cost of such
services within ten business days after Landlord has delivered
to Tenant an invoice therefor.
(b) Excess Utility Use. Landlord shall use reasonable
efforts to furnish electrical current for equipment that
requires more than 110 volts, or other equipment whose
electrical energy consumption exceeds normal office usage
through the then-existing feeders and risers serving the
Building and the Premises, and Tenant shall pay to Landlord
Landlord's actual of such service within ten days after
Landlord has delivered to Tenant an invoice therefor. Landlord
may determine the amount of such additional consumption and
potential consumption, by either or both: (1) a survey of
standard or average tenant usage of electricity in the
Building performed by a reputable consultant selected by
Landlord and paid for by Tenant if there is additional
consumption, or paid for by Landlord if no additional
consumption has been found; or (2) a separate meter in the
Premises installed, maintained, and read by Landlord, at
Tenant's expense. Tenant shall not install any electrical
equipment requiring special wiring or requiring voltage in
excess of 110 volts
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or otherwise exceeding Building capacity unless
approved in advance by Landlord. The use of
electricity in the Premises shall not exceed the
capacity of existing feeders and risers to or wiring
in the Premises. Any risers or wiring required to
meet Tenant's excess electrical requirements shall
upon Tenant's written request, be installed by
Landlord, at Tenant's cost, if, in Landlord's sole
and absolute judgment, the same are necessary and
shall not cause permanent damage or injury to the
Building or the Premises, cause or create a dangerous
or hazardous condition, entail excessive or
unreasonable alterations, repairs, or expenses, or
interfere with or disturb other tenants of the
Building. If Tenant uses machines or equipment
(other than general office machines) in the Premises
which affect the temperature otherwise maintained by
the air conditioning system or otherwise overload any
utility, Landlord may install supplemental air
conditioning units or other supplemental equipment in
the Premises, and the cost thereof, including the
cost of installation, operation, use, and
maintenance, shall be paid by Tenant to Landlord
within ten business days after Landlord has delivered
to Tenant an invoice therefor.
(c) Discontinuance. Landlord's obligation to
furnish services under Section 7.(a) shall be subject
to the rules and regulations of the supplier of such
services and governmental rules and regulations.
Landlord may as a result of following such
governmental rules and regulations, upon not less
than 30 days' prior written notice to Tenant,
discontinue any such service to the Premises,
provided Landlord first arranges for a direct
connection thereof through the supplier of such
service. Tenant shall however, be responsible for
contracting with the supplier of such service and for
paying all deposits for, and costs related to, such
service.
(d) Restoration of Service Abatement.
Landlord Shall use reasonable efforts to restore any
service that becomes unavailable; however, that so
long as such unavailability does not result from
Landlord's gross negligence, such unavailability
shall not render Landlord liable for any damages
caused thereby, be a constructive eviction of Tenant,
constitute a breach of any implied warranty, or,
except as provided in the next sentence, entitle
Tenant to any abatement of Tenant's obligations
hereunder. However, if Tenant is prevented from
making reasonable use of the Premises for more than
five (5) constructive business days because of the
unavailability of any such service, Tenant shall, as
its exclusive remedy therefor, be entitled to a
reasonable abatement of Rent for each consecutive day
(after such 5-day period) that Tenant is so prevented
from making reasonable use of the Premises.
IMPROVEMENTS; ALTERATIONS
REPAIRS, MAINTENANCE
8. (a) Improvements; Alterations. Improvements
to the Premises shall be installed at the expense of
Tenant only in accordance with plans and
specifications which have been previously submitted
to and approved in writing by Landlord. After the
initial Tenant improvements are made, no alterations
or physical additions in or to the Premises may be
made without Landlord's prior written consent, which
consent shall not be unreasonably withheld or
delayed. Tenant shall not paint or install lighting
or decorations, signs, window or door lettering, or
advertising media of any type on or about the
Premises without the prior written consent of
landlord. Notwithstanding the foregoing, provided
that Tenant provides Landlord with prior written
notice in advance, Tenant may, without first
obtaining Landlord's consent, make alterations to the
interior of the Premises, to the extent such
alterations do not exceed $5,000.00 and do not affect
the Building's structure, HVAC, plumbing, systems,
the appearance and/or security of the building, or
materially affect the buildings electrical systems.
All alterations, additions, or improvements (whether
temporary or permanent in character, and including
without limitation all air-conditioning equipment and
all other equipment that is in any manner connected
to the Building's plumbing system) made in or upon
the Premises (other than trade fixtures), either by
Landlord or Tenant, shall be Landlord's property at
the end of the Term and shall remain on the Premises
without compensation to Tenant. Approval by Landlord
of any of Tenant drawings and plans and
specifications prepared in connection with any
improvements in the Premises shall not constitute a
representation or warranty of Landlord as to the
adequacy or sufficiency of such drawings, plans and
specifications or the improvements to which they
relate, for any use, purpose, or condition, but such
approval shall merely be the consent of
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Landlord as required hereunder. Notwithstanding in
this Lease to the contrary, Tenant shall be
responsible for the cost of all work required to
comply with the retrofit requirements of the Americans
with Disabilities Act of 1990, and all rules,
regulations, and guidelines promulgated thereunder, as
the same may be amended from time to time,
necessitated by any installations additions, or
alterations made to or to the Premises at the request
of or by Tenant or by Tenant's use of the Premises
(other than retrofit work whose cost has been
particularly identified as being payable by Landlord
in an instrument signed by Landlord and Tenant),
regardless of whether such cost is incurred in
connection with retrofit work required in the Premises
(including the Work described to Exhibit D) or in
other areas of the Building (other than in the common
areas of the Building or any structural portion of the
Building).
(b) Repairs; Maintenance. Tenant shall
maintain the Premises in a clean, safe, operable,
attractive condition, and shall not permit or allow to
remain any waste or damage to any portion of the
Premises. Tenant shall repair or replace, subject to
Landlord's direction and supervision, any damage to
the outside the Premises caused by the negligence or
misconduct of Tenant or Tenant's agents, contractors,
or invitees. Notwithstanding the foregoing, Tenant
shall have no obligation to remediate any condition
resulting from the presence of hazardous substance on
or about the Premises unless the presence of such was
caused by, directly or indirectly, Tenant or Tenant's
agents, contractors, or invitees. If Tenant fails to
make such repairs or replacements within 15 days after
the occurrence of such damage, then Landlord may make
the same at Tenant's cost. In lieu of having Tenant
repair any such damage outside of the Premises,
Landlord may repair such damage at Tenant's cost. The
cost of any repair or replacement work performed by
Landlord under this Section 8 shall be paid by Tenant
to Landlord within ten business days after Landlord
has delivered to Tenant an invoice therefor.
(c) Performance of Work. All work described
in this Section 8 shall be performed only by Landlord
or by contractors and subcontractors approved in
writing by Landlord. Tenant shall cause all
contractors and subcontractors to procure and
maintain insurance coverage against such risks, in
such amounts, and with such companies as Landlord may
reasonably require, and to procure payment and
performance bonds reasonably satisfactory to Landlord
covering the cost of the work. All such work shall be
performed in accordance with all legal requirements
and in a good and workmanlike manner so as not to
damage the Premises, the primary structure or
structural qualities of the Building, or plumbing,
electrical lines, or other utility transmission
facility. All such work which may affect the HVAC,
electrical system, or plumbing must be approved by
the Building's engineer of record.
(d) Mechanic's Liens. Tenant shall not permit
any mechanic's liens to be filed against the Premises
or the Building for any work performed, materials
furnished, or obligation incurred by or at the request
of Tenant. If such a lien is filed, then Tenant shall,
within ten days after Landlord has delivered notice of
the filing to Tenant, either pay the amount of the
lien or diligently contest such lien and deliver to
Landlord a bond or other security reasonably
satisfactory to Landlord. If Tenant fails to timely
take either such action, then Landlord may pay the
lien claim without inquiry as to the validity thereof,
and any amounts so paid, including expenses and
interest, shall be paid by Tenant to Landlord within
ten days after Landlord has delivered to Tenant an
invoice therefor.
USE
9. Tenant shall use the Premises only for
the Permitted Use and shall comply with all laws,
orders, rules, and regulations relating to the use,
condition, and occupancy of the Premises. The
Premises shall not be used for any use which is
disreputable or creates extraordinary fire hazards or
result in an increased rate of insurance on the
Building or its contents or the storage of any
hazardous materials or substances. If, because of
Tenant's acts, the rate of insurance on the Building
or its contents increases, then such acts shall be an
Event of Default, Tenant shall pay to Landlord the
amount of such increase on demand, and acceptance of
such payment shall not constitute a waiver of any of
Landlord's other rights. Tenant shall conduct its
business
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and control its agents, employees, and invitees in
such a manner as not to create any nuisance or
interfere with other tenants or Landlord in its
management of the building
ASSIGNMENT AND SUBLETTING
10. (a) Transfer; Consent. Tenant shall not,
without the prior written consent of Landlord (which
Landlord may grant or deny in its sole discretion),
(1) assign, transfer, or encumber this Lease or any
estate or interest herein, whether directly or by
operation of law, (2) if Tenant is an entity other
than a corporation whose stock is publicly traded,
permit the transfer of an ownership interest in
Tenant so as to result in a change in the current
control of Tenant, (3) sublet any portion of the
Premises, (4) grant any license, concession, or other
right of occupancy of any portion of the Premises, or
(5) permit the use of the Premises by any parties
other than Tenant (any of the events listed in
Sections 10.(a)(2) through 10.(a)(7) being a
"Transfer"). If Tenant requests Landlord's consent to
a Transfer, then Tenant shall provide Landlord with a
written description of all terms and conditions of
the proposed Transfer, copies of the proposed
documentation, and the following information about
the proposed transferee: name and address; reasonably
satisfactory information about its business and
business history; its proposed use of the Premises;
banking, financial, and other credit information; and
general references sufficient to enable Landlord to
determine the proposed transferee's creditworthiness
and character. Tenant shall reimburse Landlord for
its attorneys' fees (which shall not exceed $1,000)
and other expenses incurred in connection with
considering any request for its consent to a
Transfer. If Landlord consents to a proposed
Transfer, then the proposed transferee shall deliver
to Landlord a written agreement whereby it expressly
assumes the Tenant's obligations hereunder; however,
any transferee of less than all of the space in the
Premises shall be liable only for obligations under
this Lease that are properly allocable to the space
subject to the Transfer, and only to the extent of
the rent it has agreed to pay Tenant therefor.
Landlord's consent to a Transfer, and any Permitted
Transfer shall not release Tenant from performing its
obligations under this Lease, but rather Tenant and
its transferee shall be jointly and severally liable
therefor. Landlord's consent to any Transfer shall
not waive Landlord's rights as to any subsequent
Transfers. Notwithstanding the foregoing, Tenant may
Transfer all or part (a "Permitted Transfer") of its
interest in this Lease or all or part of the Premises
to the following types of entities (a "Permitted
Transferee") without the written consent of Landlord.
(i) any person or entity who or which
controls, is controlled by, or is under common
control with Tenant;
(ii) any corporation in which or with which
Tenant, or its corporation successors or assigns, is
merged or consolidated, in accordance with applicable
statutory provisions governing merger and
consolidation of corporations, so long as a) Tenant's
obligations hereunder are assumed by the corporation
surviving such merger or created by such
consolidation; and b) the net worth of the surviving
or created corporation is not less than the net worth
of Tenant as of the date hereof, or
(iii) any corporation acquiring all or
substantially all of Tenant's assets if such
corporation's net worth after such acquisition is not
less than the net worth or Tenant as of the date
hereof.
Tenant shall promptly notify Landlord of any such
Permitted Transfer. If an Event of Default occurs
while the Premises or any part thereof are subject to
a Transfer, then Landlord, in addition to its other
remedies, may collect directly from such transferee
all rents becoming due to Tenant and apply such rents
against Rent. Tenant authorizes its transferees to
make payments of rent directly to Landlord upon
receipt of notice from Landlord to do so.
(b) Cancellation. Landlord may, within 30
days after submission of Tenant's written request for
Landlord's consent to a Transfer, cancel this Lease
as of the date the proposed Transfer was to be
effective. Thereafter, Landlord may lease to a
prospective transferee (or to any other person)
without liability to Tenant.
(c) Additional Compensation. Tenant shall
pay to Landlord, immediately upon receipt thereof,
all net compensation received by Tenant for a
Transfer that exceeds the Basic Rental and Tenant's
share of Electrical Costs and Excess allocable to the
portion of the Premises covered
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thereby and costs associated with acquiring a
Transferee or Subtenant including Tenant Improvements
and commissions.
INSURANCE; WAIVERS;
SUBROGATION; INDEMNITY
11. (a) Insurance. Tenant shall at its
expense procure and maintain throughout the Term the
following insurance policies: (1) comprehensive
general liability insurance in amounts of not less
than a combined single limit of $2,000,000 (the
"Initial Liability Insurance Amount") or such other
amounts as Landlord may from time to time reasonably
require, insuring Tenant, Landlord, Landlord's agents
and their respective affiliates against all liability
for injury to or death of a person or persons or
damage to property arising from the use and occupancy
of the Premises, (2) contractual liability insurance
coverage efficient to cover Tenant's indemnity
obligations hereunder, (3) insurance covering
Tenant's property and improvements, and other
property (including property of others which is not
already covered), in the Premises, (4) workman's
compensation insurance, containing a waiver of
subrogation endorsement reasonably acceptable to
Landlord. Tenant's insurance shall provide primary
coverage to Landlord when any policy issued to
Landlord provides duplicate or similar coverage, and
in such circumstance Landlord's policy will be excess
over Tenant's policy. Tenant shall furnish
certificates of such insurance and such other
evidence satisfactory to Landlord of the maintenance
of all insurance coverages required hereunder, and
Tenant shall obtain a written obligation on the part
of each insurance company to notify Landlord at least
30 days before cancellation or a material change of
any such insurance. All such insurance policies shall
be in form, and issued by companies, reasonably
satisfactory to Landlord. The term "affiliate" shall
mean any person or entity which, directly or
indirectly, controls,is controlled by, or is under
common control with the party in question.
(b) Waiver of Negligence Claims: No
Subrogation. Landlord shall not be liable to Tenant or
those claiming by, through, or under Tenant for any
injury to or death of any person or persons or the
damage to or theft, destruction, loss, or loss of use
of any property or inconvenience (a "Loss",) caused by
casualty, theft, fire, third parties,or any other
matter (including Losses arising through repair or
alteration of any part of the Building, or failure to
make repairs, or from any other cause), regardless of
whether the negligence of any party caused such Loss
in whole or in part except to the extent such Loss has
been caused solely by Landlord's gross negligence or
willful misconduct. Landlord and Tenant each waives
any claim it might have against the other for any
damage to or theft, destruction, loss, or loss of use
of any property, to the extent the same is insured
against under any insurance policy that covers the
Building, the Premises, Landlord's or Tenant's
fixtures, personal property, leasehold improvements,
or business, or, in the ease of Tenant's waiver, is
required to be insured against under the terms hereof,
regardless of whether the negligence or fault of the
other party caused such loss; however, Landlord's
waiver shall not include any deductible amounts on
insurance policies carried by Landlord or apply to any
coinsurance penalty which Landlord might sustain. Each
party shall cause its insurance carrier to endorse all
applicable policies waiving the carrier's rights of
recovery under subrogation or otherwise against the
other party.
(c) Indemnity. Subject to Section 11.(b),
Tenant shall defend, indemnify, and hold harmless
Landlord and its agents from and against all claims,
demands, liabilities, causes of action, suits,
judgments, and expenses (including attorneys' fees)
for any Loss arising from any occurrence on the
Premises or from Tenant's failure to perform its
obligations under this Lease (other than a Loss
arising from the sole or gross negligence of Landlord
or its agents), even though caused or alleged to be
caused by the joint, comparative, or concurrent
negligence or fault of Landlord or its agents, and
even though any such claim, cause of action, or suit
is based upon or alleged to be based upon the strict
liability of Landlord or its agents. This indemnity
provision is intended to indemnify Landlord and its
agents against the consequences of their own
negligence or fault as provided above when Landlord or
its agents are jointly, comparatively, or concurrently
negligent with Tenant. This indemnity provision shall
survive termination or expiration of this Lease.
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SUBORDINATION ATTORNMENT; 12. (a) Subordination. The Lease shall be
NOTICE TO LANDLORD'S subordinate to any deed of trust, mortgage, or other
MORTGAGEE security instrument (a "Mortgage"), or any ground
lease, master lease, or primary lease (a "Primary
Lease"), that now or hereafter covers all or any
part of the Premises (the mortgagee under any
Mortgage or the lessor under any Primary Lease is
referred to herein as "Landlord's Mortgagee").
(b) Attornment. Tenant shall attorn to any
party succeeding to Landlord's interest in the
Premises, whether by purchase, foreclosure, deed in
lieu of foreclosure, power of sale, termination of
lease, or otherwise, upon such party's request, and
shall execute such agreements confirming such
attornment as such party may reasonably request.
(c) Notice to Landlord's Mortgagee. Tenant
shall not seek to enforce any remedy it may have for
any default on the part of the Landlord without first
giving written notice by certified mail, return
receipt requested, specifying the default in
reasonable detail, to any Landlord's Mortgagee whose
address has been given to Tenant, and affording such
Landlord's Mortgage a reasonable opportunity (not to
exceed 30 days) to perform Landlord's obligations
hereunder.
RULES AND REGULATIONS 13. Tenant shall comply with the rules and
regulations of the Building which are attached hereto
as Exhibit B. Landlord may, from time to time, change
such rules and regulations for the safety, care, or
cleanliness of the Building and related facilities,
provided that such changes are applicable to all
tenants of the Building and will not unreasonably
interfere with Tenant's, use of the Premises. Tenant
shall be responsible for the compliance with such
rules and regulations by its employees, agents, and
invitees.
CONDEMNATION 14. (a) Taking - Landlord's and Tenant's
Rights. If any part of the Building is taken by right
of eminent domain or conveyed in lieu thereof (a
"Taking"), and such Taking prevents Tenant from
conducting its business in the Premises in a manner
reasonably comparable to that conducted immediately
before such Taking, then Landlord may, at its expense
(which such expense shall include moving Tenant's
furniture, equipment, systems, communications, and
supplies), relocate Tenant to office space reasonably
comparable to the Premises, provided that Landlord
notifies Tenant of its intention to do so within 30
days after the Taking. Such relocation may be for a
portion of the remaining Term or the entire Term.
Landlord shall complete any such relocation within
180 days after Landlord has notified Tenant of its
intention to relocate Tenant. If Landlord does not
elect to relocate Tenant following such Taking, then
Tenant may terminate this Lease as of the date of
such Taking by giving written notice to Landlord
within 60 days after the Taking, and Rent shall be
apportioned as of the date of such Taking. If
Landlord does not relocate Tenant and Tenant does not
terminate this Lease, then Rent shall be abated on a
reasonable basis as to that portion of the Premises
rendered untenantable by the Taking.
(b) Taking - Landlords Rights. If any
material portion, but less than all, of the Building
becomes subject to a Taking, or if Landlord is
reduced to pay any of the proceeds received for a
Taking to Landlord's Mortgagee, then this Lease, at
the option of Landlord, exercised by written notice
to Tenant within 30 days after such Taking, shall
terminate and Rent shall be apportioned as of the
date of such Taking. If landlord does not so
terminate this Lease and does not elect to relocate
Tenant, then this Lease will continue, but if any
portion of the Premises has been taken, Basic Rental
shall abate as provided in the last sentence of
Section 14.(a).
(c) Award. If any Taking occurs, then
Landlord shall receive the entire award or other
compensation for the Land, the Building, and other
improvements taken, and Tenant may separately pursue
a claim against the condemnor for the value of
Tenant's personal property which Tenant is entitled
to remove under this Lease, moving costs, loss of
business, and other claims it may have.
FIRE OR OTHER CASUALTY
15. (a) Repair Estimate. If the Premises or
the Building are damaged by fire, material latent
defect in the Building's structure, HVAC, plumbing,
electrical or mechanical systems, or other casualty
(a "Casualty"),
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Landlord shall, within 30 days after such Casualty,
deliver to Tenant a good faith estimate (the "Damage
Notice") of the time needed to repair the damage
caused by such Casualty.
(b) Landlord and Tenant's Rights. If a
material portion of the Premises or the Building is
damaged by Casualty such that Tenant is prevented
from conducting its business in the Premises in a
manner reasonably comparable to that conducted
immediately before such Casualty and landlord
estimates that the damage caused thereby cannot be
repaired within 60 days after the commencement of
repair, then Landlord may, at its expense (which
expense shall include Tenant's furniture, equipment,
systems, communications, and supplies), relocate
Tenant to office space reasonably comparable to the
Premises, provided that Landlord notifies Tenant of
its intention to do so in the Damage Notice. Such
location may be for a portion of the remaining Term
or the entire Term. Landlord shall complete any such
relocation within 90 days after Landlord has
delivery the Damage Notice to Tenant. If landlord
does not elect to relocate Tenant following such
Casualty, and Tenant is prevented from conducting its
business in the Premises in a manner reasonably
comparable to that conducted immediately before such
Casualty, then Tenant may terminate this Lease by
delivering written notice to Landlord of its election
to terminate within 30 days after the Damage Notice
has been delivered to Tenant. If Landlord does not
relocate Tenant and Tenant does not terminate this
Lease, and Tenant is prevented from conducting its
business in the Premises in a manner reasonably
comparable to that conducted immediately before such
Casualty, then (subject to Landlord's rights under
Section 15.(c)) Landlord Shall repair the Building or
the Premises, as the case may be, as provided below,
and Rent for the portion of the Premises rendered
untenantable by the damage Shall be abated on a
reasonable basis from the date of damage until the
completion of the repair, unless Tenant caused such
damage, in which case, Tenant shall continue to pay
Rent without abatement.
(c) Landlord's Rights. If a Casualty
damages a material portion of the Building, and
Landlord makes a good faith determination that
restoring the Premises would be uneconomical, or if
Landlord is required to pay any insurance proceeds
arising out of the Casualty to Landlord's Mortgagee,
then Landlord may terminate this Lease by giving
written notice of its election to terminate within 15
days after the Damage Notice has been delivered to
Tenant, and Basic Rental hereunder shall be abated as
of the date of the Casualty.
(d) Repair Obligation. If neither party
elects to terminate this Lease following a Casualty,
then Landlord shall, within a reasonable time after
such Casualty, commence to repair the Building and
the Premises and Shall proceed with reasonable
diligence to restore the Building and Premises to
substantially the same condition as they existed
immediately before such Casualty, however, Landlord
shall not be required to repair or replace any part
of the furniture, equipment, fixtures, and other
improvements which may have been placed by, or at the
request of, Tenant or other occupants in the
Building or the Premises.
TAXES
16. Tenant shall be liable for all taxes
levied or assessed against personal property,
furniture, or fixtures placed by Tenant in the
Premises. If any taxes for which Tenant is liable are
levied or assessed against Landlord or Landlord's
property and Landlord elects to pay the same, or if
the assessed value of Landlord's property is
increased by inclusion of such personal property,
furniture or fixtures and Landlord elects to pay the
taxes based on such increase, then Tenant shall pay
to Landlord, upon demand, that part of such taxes for
which Tenant is primarily liable hereunder.
EVENTS OF DEFAULT
17. Each of the following occurrences shall
constitute an of "Event of Default":
(a) Tenant's failure to pay Rent when due
and the continuances of such failure for a period of
ten (10) days after Landlord has delivered to Tenant
written notice thereof; however, an Event of Default
Shall occur hereunder without any obligation of
Landlord to give any notice if Landlord has given
Tenant written notice under this Section 17.(a) on
more
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than two occasions during the twelve-month interval
preceding such failure by Tenant;
(b) Tenant's failure to perform, comply
with, or observe any other agreement or obligation of
Tenant under this Lease (or any other lease executed
by Tenant for space to the Building) and the
continuance of such failure for a period of thirty
(30) days after the date Landlord delivers to Tenant
written notice thereof; however, if such failure
cannot be cured within such thirty day period and
Tenant commences to cure such failure within such
thirty day period and thereafter diligently pursues
such cure to completion, then such failure shall not
be an Event of Default unless it is not fully cured
within an additional thirty days after the expiration
of the thirty day period;
(c) the filing of a petition by or against
Tenant (the term "Tenant" shall include, for the
purpose of this Section 17.(c), any guarantor of the
Tenant's obligations hereunder) (1) in any bankruptcy
or other insolvency proceeding; (2) seeking any
relief under any state or federal debtor relief law,
(3) for the appointment of a liquidate or receiver
for all or substantially all of Tenant's property or
for Tenant's interest in this Lease; or (4) for the
reorganization or modification of Tenant's capital
structure;
(d) Tenant shall desert or vacate the entire
premises for a period of more than sixty (60) days;
and
(e) the admission by Tenant that it cannot
meet its obligations as they become due or the making
by Tenant of an assignment for the benefit of its
creditors.
REMEDIES
18. Upon any Event of Default; Landlord may,
in addition to all other rights and remedies afforded
Landlord hereunder or by law or equity, take any of
the following actions:
(a) Terminate this Lease by giving Tenant
written notice thereof, in which event, Tenant shall
pay to Landlord the sum of (1) all Rent accrued
hereunder through the date of termination, (2) all
amounts due under Section 19.(a), and (3) an amount
equal to (A) the total Rent that Tenant would have
been required to pay for the remainder of the Term
discounted to present value at a per annum rate equal
to the "Prime Rate" as published on the date
this Lease is terminated by The Wall Street Journal,
Southwest Edition in its listing of "Money Rates",
minus (B) the then present fair rental value of the
Premises for such period, similarly discounted; or
(b) Terminate Tenant's right to possession
of the Premises without terminating this Lease by
giving written notice thereof to Tenant, in which
event Tenant shall pay to Landlord (1) all Rent and
other amounts accrued hereunder to the date of
termination of possession (2) all amounts due from
time to time under Section 19.(a), and (3) all Rent
and other sums required hereunder to be paid by
Tenant during the remainder of the Term, diminished
by any net sums thereafter received by Landlord
through reletting the Premises during such period.
Landlord shall use renewable efforts to relet the
Premises on commercially reasonable terms and
conditions as Landlord in its sole discretion may
determine (including a term different from the Term,
rental concessions, and alterations to, and
improvement of, the Premises); however, Landlord
shall not be obligated to relet the Premises before
leasing other portions of the Building. Landlord
shall not be liable for, nor shall Tenant's
obligations hereunder be diminished because of,
Landlord's failure to relet the Premises or to
collect rent due for such reletting. Tenant Shall not
be entitled to the excess of any consideration
obtained by reletting over the Rent due hereunder.
Reentry by Landlord in the Premises shall not affect
Tenant's obligations hereunder for the unexpired
Term; rather, Landlord may, from time to time, bring
action against Tenant to coiled amounts due by
Tenant, without the necessity of Landlord's waiting
until the expiration of the Term. Unless Landlord
delivers written notice to Tenant expressly dating
that it has elected to terminate this Lease, all
actions taken by Landlord to exclude or dispossess
Tenant of the Premises shall be deemed to be taken
under this Section 18.(b). If Landlord elects to
proceed under this Section 18.(b), it may at any time
elect to terminate this Lease under Section 18.(a).
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(c) LOCKS. Additionally, without notice,
Landlord may alter locks or other security devices at
the Premises to deprive Tenant of access thereto, and
Landlord shall not be required to provide a new key
or right of access to Tenant.
PAYMENT BY TENANT; NON-
WAIVER
19. (a) Payment by Tenant. Upon any Event of
Default, Tenant shall pay to Landlord all costs
incurred by Landlord (including court costs and
reasonable Attorneys' fees and expenses) in (1)
obtaining possession of the Premises, (2) removing
and storing Tenant's or any other occupant's
property, (3) repairing, and/or restoring the
premises to the original condition except for usual
wear and tear, (4) if Tenant is dispossessed of the
Premises and this Lease is not terminated, reletting
all or any part of the Premises (including brokerage
commissions, and other commercially reasonable costs
incidental to such reletting), (5) performing
Tenant's obligations which Tenant failed to perform,
and (6) enforcing, or advising Landlord of, its
rights, remedies, and recourses arising out of the
Event of Default.
(b) No Waiver. Landlord's acceptance of Rent
following an Event of Default shall not waive
Landlord's rights regarding such Event of Default. No
waiver by Landlord of any violation or breach of any
of the terms contained herein shall waive Landlord's
rights regarding any future violation of such term or
violation of any other term.
LANDLORD'S LIEN
20. In addition to the statutory landlord's
Lien, Tenant grants to Landlord, to secure
performance of Tenant's obligations hereunder, a
security interest in all equipment, fixtures,
furniture, improvements, and other personal property
of Tenant now or hereafter situated on the Premises,
and all proceeds therefrom (the 'Collateral'), and
the Collateral shall not be removed from the Premises
without the consent of Landlord until all Obligations
of Tenant have been fully performed. Upon the
occurrence of an Event of Default, Landlord may, in
addition to all other remedies, without notice or
demand except as provided below, exercise the rights
afforded a secured party under the Uniform Commercial
Code of the State in which the Building is located
(the UCC). In connection with any public or private
sale under the UCC, Landlord shall give Tenant
five-days' prior written notice of the time and place
of any public sale of the Collateral or of the time
after which any private sale or other intended
disposition Thereof is to be made, which is agreed to
be a reasonable notice of such sale or other
disposition. Tenant grants to Landlord a power of
attorney to execute and fee any financing statement
or other instrument necessary to perfect Landlord's
security interest under this Section 20, which power
is coupled with an interest and shall be irrevocable
during the Term. Landlord may also fee a copy of this
Lease as a financing statement to perfect its
security interest in the Collateral. Landlord hereby
subordinates its statutory lien, as well as the
security interest granted to it under this Section
20, to all 'purchase money security interests' (as
such term is defined in the UCC) ID the Collateral,
and the Landlord shall, at Tenant's expense, execute
such documentation to evidence such subordination as
the owner of any such purchase money security
interest may reasonable request.
SURRENDER OF PREMISES
21. No act by Landlord shall be deemed an
acceptance of a surrender of the Premises, and no
agreement to accept a surrender of the Premises shall
be valid unless the same is mate in writing and
signed by Landlord. At the expiration or termination
of this Lease, Tenant shall deliver to Landlord the
Premises with all improvements located thereon in
good repair and condition, reasonable wear and tear
(and condemnation and fire or other casualty damage
not caused by Tenant, as to which Sections 14 and 15
shall control) excepted, and shall deliver to
Landlord all keys to the Premises. Provided that
Tenant has performed all of its obligations
hereunder, Tenant may remove all unattached trade
fixtures, furniture, and personal property placed in
the Premises by Tenant (but Tenant shall not remove
any such item which was paid for, in whole or in
part, by Landlord). additionally, Tenant shall remove
such allocations, additions, improvements, trade
fixtures, equipment, wiring, and furniture as
Landlord may request. Tenant shall repair all damage
caused by such removal. All items not so removed
shall be deemed to have been abandoned by Tenant and
may be appropriated, sold, stored, destroyed, or
otherwise disposed of by Landlord
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without notice to Tenant and without any obligation
to account for such items. The provisions of this
Section 21 shall survive the end of the Term.
HOLDING OVER
22. If Tenant fails to vacate the Premises
at the end of the Term, then Tenant shall be a tenant
at will and, in addition to all other damages and
remedies to which Landlord may be entitled for such
holding over, Tenant shall pay, in addition to the
other Rent, a daily Basic Rental equal to 150% of the
daily Basic Rental payable during the last month of
the Term.
CERTAIN RIGHTS RESERVED BY
LANDLORD
23. Provided that the exercise of such
rights does not unreasonably interfere with Tenant's
occupancy, use or enjoyment of the Premises, Landlord
shall have the following rights:
(a) to decorate and to make inspections,
repairs alterations, additions, changes, or
improvements, whether structural or otherwise, in and
about the Building, or any part thereof; for such
purposes, to enter upon the Premises and, during the
continuance of any such work, to temporarily close
doors, entryways, public space, and corridors in the
Building; to interrupt or temporarily suspend
Building services and facilities; and to change the
arrangement and location of entrances or passageways,
doors, and doorways, corridors, elevators, stairs,
restrooms, or other public parts of the Building;
(b) to take such reasonable measures as
Landlord deems advisable for the security of the
Building and its occupants, including without
limitation searching all persons entering or leaving
the Building; evacuating the Building for cause,
suspected cause, or for drill purposes; temporarily
denying access to the Building; and closing the
Building after normal business hours and on
Saturdays, Sundays, and holidays, subject, however,
to Tenant's right to enter when the Building is
closed after normal business hours under such
reasonable regulations as Landlord may prescribe from
time to time which may include by way of example, but
not of limitation, that persons entering or leaving
the Building, whether or not during normal business
hours, identify themselves to a security officer by
registration or otherwise and that such persons
establish their right to enter or leave the Building;
(c) to change the name by which the Building
is designated; and
(d) to enter the Premises at all reasonable
hours to show the Premises to prospective purchasers,
lenders, or tenants.
SUBSTITUTION SPACE
24.
Landlord may, one time during the initial
Term at Landlord's expense, relocate Tenant within
the Building in space which is comparable in size to
the Premises and is reasonably suited for Tenant's
use. If Landlord relocates Tenant, Landlord will
reimburse Tenant for Tenant's reasonable out-
of-pocket expenses for moving Tenant's furniture,
equipment, systems, communication set up, and
supplies from the Premises to the relocation space
and for reprinting Tenant's stationery of the same
quality and quantity as Tenant's stationery supply on
hand immediately before Landlord's notice to Tenant
of the exercise of this relocation right. The
aforementioned is to insure Tenant that all costs
associated with the relocation will enable Tenant to
operate its business in a manner comparable to its
operation at the time Tenant is given notice by
Landlord of its intent to relocate Tenant. Upon such
relocation, the relocation space shall be deemed to
be the Premises and the terms of this Lease shall
remain in full force and shall apply to the
relocation space.
MISCELLANEOUS
25. (a) Landlord Transfer. Landlord may
transfer, in whole or in part, the Building and any of
its rights under this Lease. If Landlord assigns its
rights under this Lease, then Landlord shall thereby
be released from any further obligations hereunder,
arising following the date of transfer.
(b) Landlord's Liability. The liability of
Landlord to Tenant for any default by Landlord under
the terms of this Lease shall be limited to Tenant's
actual direct, but not consequential, damages
therefor and shall be recoverable from the interest
of Landlord in the Building and the
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section shall not be deemed to limit or deny any
remedies which Tenant may have in the event of
default by Landlord hereunder which do not involve
the personal liability of Landlord.
(c) Force Majeure. Other than for Tenant's
monetary obligations under this Lease and obligations
which can be cured by the payment of money (e.g.,
maintaining insurance), whenever a period of time is
herein prescribed for action to be taken by either
party hereto, such party shall not be liable or
responsible for, and there shall be excluded from the
computation for any such period of time, any delays
due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws,
regulations, or restrictions, or any other causes of
any kind whatsoever which are beyond the control of
such party.
(d) Brokerage. Landlord and Tenant each
warrant to the other that it has not dealt with any
broker or agent in connection with the negotiation or
execution of this Lease except The Staubach Company.
Tenant and Landlord shall each indemnify the other
against all costs, expenses, attorneys' fees, and
other liability for commissions or other compensation
claimed by any broker or agent claiming the same by,
through, or under the indemnifying party.
(e) ESTOPPEL CERTIFICATES. From time to
time, Tenant shall furnish to any party designated by
Landlord, within ten days after Landlord has made a
request therefor, a certificate signed by Tenant
confirming and containing such factual certifications
and representations as to the terms of this Lease as
Landlord may reasonably request. Notwithstanding the
forgoing, Tenant shall have no obligation to assume
or incur any additional obligations to any person or
entity (including without limitation any obligations
to lenders conditioned upon Lender succeeding to
Landlord's interest in the Premises or the Building)
not set forth in the Lease, nor shall the estoppel
certificate require Tenant to waive or release any
benefit of Tenant provided in the Lease.
(f) Notices. All notices and other
communications given pursuant to this Lease shall be
in writing and shall be (1) mailed by first class,
United States Mail, postage prepaid, certified, with
return receipt requested, and addressed to the
parties hereto at the address specified in the Basic
Lease Information, (2) hand delivered to the
intended address, or (3) sent by prepaid telegram,
cable, facsimile transmission or telex followed by a
confirmatory letter. Notice sent by certified mail,
postage prepaid, shall be effective three business
days after being deposited in the United States Mail;
all other notices shall be effective upon delivery
to the address of the addressee. The parties hereto
may change their addresses by giving notice thereof
to the other in conformity with this provision.
(g) Separability. If any clause or provision
of this Lease is illegal, invalid, or unenforceable
under present or future laws, then the remainder of
this Lease shall not be affected thereby and in lieu
of such clause or provision there shall be added as a
part of this Lease a clause or provision as similar
in terms to such illegal, invalid, or unenforceable
clause or provision as may be possible and be legal,
valid, and enforceable.
(h) Amendments; and Binding Effect. This
Lease may not be amended except by instrument in
writing signed by Landlord and Tenant. No provision
of this Lease shall be deemed to have been waived by
Landlord unless such waiver is in writing signed by
Landlord, and no custom or practice which may evolve
between the parties in the administration of the
terms hereof shall waive or diminish the right of
Landlord to insist upon the performance by Tenant in
strict accordance with the terms hereof. The terms
and conditions contained in this Lease shall inure to
the benefit of and be binding upon the parties
hereto, and upon their respective successors in
interest and legal representatives, except as
otherwise herein expressly provided. This Lease is
for the sole benefit of Landlord and Tenant, and,
other than Landlord's Mortgagee, no third party shall
be deemed a third party beneficiary hereof.
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(i) Quiet Enjoyment. Provided Tenant has
performed all of the terms and conditions of this
Lease to be performed by Tenant, Tenant shall
peaceably and quietly hold and enjoy the Premises
for the Term, without hindrance from Landlord or any
party claiming by, through, or under Landlord,
subject to the terms and conditions of this Lease.
(j) Joint and Several Liability. If there is
more than one Tenant, then the obligations hereunder
imposed upon Tenant shall be joint and several. If
there is a guarantor of Tenant's obligations
hereunder, then the obligations hereunder imposed
upon Tenant shall be the joint and several
obligations of Tenant and such guarantor, and
Landlord need not first proceed against Tenant before
proceeding against such guarantor nor shall any such
guarantor be released from its guaranty for any
reason whatsoever.
(k) Captions. The captions contained in this
Lease are for convenience of reference only, and do
not limit or enlarge the terms and conditions of this
Lease.
(l) No Merger. There shall be no merger of
the leasehold estate hereby created with the fee
estate in the Premises or any part thereof if the
same person acquires or holds, directly or
indirectly, this Lease or any interest in this Lease
and the fee estate in the leasehold Premises or any
interest in such fee estate.
(m) No Offer. The submission of this Lease
to Tenant shall not be construed as an offer, nor
shall Tenant have any rights under this Lease unless
Landlord executes a copy of this Lease and delivers
it to Tenant.
(n) Exhibits. All exhibits and attachments
attached hereto are incorporated herein by this
reference.
Exhibit A - Outline of Premises
Exhibit B - Building Rules and Regulations
Exhibit C - Operating Expense Escalator
Exhibit D - Tenant Improvements - As-Is
Exhibit E - Cancellation Option
Exhibit F - Right of First Refusal
Exhibit G - Parking
(o) Entire Agreement. This Lease constitutes
the entire agreement between Landlord and Tenant
regarding the subject matter hereof and supersedes
all oral statements and prior writings relating
thereto. Except for those set forth in this Lease, no
representations, warranties, or agreements have been
made by Landlord or Tenant to the other with respect
to this Lease or the obligations of Landlord or
Tenant in connection therewith.
SPECIAL PROVISIONS
26. ADDENDUM. Landlord and Tenant have
executed simultaneously with this Lease an Addendum,
the terms of which substantially and materially
modify certain terms contained herein. In the event
of any conflict between the terms of this Lease and
the terms of the Addendum, the terms of the Addendum
shall be controlling.
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE, AND TENANT'S OBLIGATION
TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF THE PREMISES OR THE
PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER, AND, EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, TENANT SHALL CONTINUE TO PAY THE RENT, WITHOUT
ABATEMENT, SETOFF, DEDUCTION, NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS
DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR IMPLIED. NOTHING IN THIS
PARAGRAPH SHALL DIMINISH THE OBLIGATIONS OF THE LANDLORD OR THE RIGHTS OF THE
TENANT THAT ARE EXPRESSLY SET FORTH ELSEWHERE IN THIS LEASE.
13
<PAGE> 19
DATED as of the date first written above.
LANDLORD:
TRICOHO, LTD., a Texas limited partnership
By: Trammell Crow Dallas/Fort Worth, Inc., Its Manager
By: Trammell Crow Dallas/Fort Worth, Ltd.
a Texas limited partnership
By: TCDFW, Inc., a Delaware corporation
it's sole general partner
By: /s/ Charles A. Anderson
----------------------------
Name: Charles A. Anderson
Title: Executive Vice President
TENANT:
TCSI Corporation
By :
-------------------------
Name:
------------------------
Title:
-----------------------
14
<PAGE> 20
EXHIBIT A
Premises
SUITE 250 GARDEN OFFICE
10,015 RSF
A-1
<PAGE> 21
EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply to the Premises, the
Building, the parking garage associated therewith, the Land and the
appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or deposited therein. Damage resulting to any such fixtures or
appliances from misuse by a tenant or its agents, employees or invitees, shall
be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on or
to any windows or doors or other part of the Building without the prior written
consent of Landlord. No curtains or other window treatments shall be placed
between the glass and the Building standard window treatments.
4. Landlord shall provide and maintain an alphabetical directory for all
tenants in the main lobby of the Building.
5. Landlord shall provide all door locks in each tenant's leased
premises, at the cost of such tenant, and no tenant shall place any additional
door locks in its leased premises without Landlord's prior written consent.
Landlord shall furnish to each tenant a reasonable number of keys to such
tenant's leased premises, at such tenant's cost, and no tenant shall make a
duplicate thereof.
6. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by tenants of any bulky material, merchandise or
materials which require use of elevators or stairways, or movement through the
Building entrances or lobby shall be conducted under Landlord's supervision at
such times and in such a manner as Landlord may reasonably require. Each tenant
assumes all risks of and shall be liable for all damage to articles moved and
injury to persons or public engaged or not engaged in such movement, including
equipment, property and personnel of Landlord if damaged or injured as a result
of acts in connection with carrying out this service for such tenant.
7. Landlord may prescribe weight limitations and determine the locations
for safes and other heavy equipment or items, which shall in all cases be placed
in the Building so as to distribute weight in a manner acceptable to Landlord
which may include the use of such supporting devices as Landlord may require.
All damages to the Building caused by the installation or removal of any
property of a tenant, or done by a Tenant's property while in the Building,
shall be repaired at the expense of such tenant.
8. Corridor doors, when not in use, shall be kept closed. Nothing shall
be swept or thrown into the corridors, halls, elevator shafts or stairways. No
bird or animals shall be brought into or kept in, on or about any tenant's
leased premises. No portion of any tenant's leased premises shall at any time be
used or occupied as sleeping or lodging quarters.
9. Tenant shall cooperate with Landlord's employees in keeping its
leased premises neat and clean. Tenants shall not employ any person for the
purpose of such cleaning other than the Building's cleaning and maintenance
personnel.
10. Tenant shall not make or permit any improper, objectionable or
unpleasant noises or odors in the Building or otherwise interfere in any way
with other tenants or persons having business with them.
11. No machinery of any kind (other than normal office equipment) shall
be operated by any tenant on its leased area without Landlord's prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance.
12. Landlord will not be responsible for lost or stolen personal
property, money or jewelry from tenant's leased premises or public or common
areas regardless of whether such loss occurs when the area is locked against
entry or not.
13. All mail chutes located in the Building shall be available for use
by Landlord and all tenants of the Building according to the rules of the United
States Postal Service.
B-1
<PAGE> 22
EXHIBIT C
OPERATING EXPENSE ESCALATOR
1. Tenant shall pay an amount (per each rentable square foot in the
Premises) equal to the excess ("Excess") from time to time of actual Basic Cost
per rentable square foot in the Building over 1996 Base Year (the "Expense
Stop"). Landlord may collect such amount in a lump sum, to be due within 30 days
after Landlord furnishes to Tenant the Annual Cost Statement. Alternatively,
Landlord may make a good faith estimate of the Excess to be due by Tenant for
any calendar year or part thereof during The Term, and, unless Landlord delivers
to Tenant a revision of the estimated Excess, Tenant shall pay to Landlord, on
the Commencement Date and on the first day of each calendar month thereafter, an
amount equal to the estimated Excess for such calendar year or part thereof
divided by the number of months in such calendar year during the Term. From time
to time during any calendar year, Landlord may estimate and re-estimate the
Excess to be due by Tenant for that calendar year and deliver a copy of the
estimate or re-estimate to Tenant. Thereafter, the monthly installments of
Excess payable by Tenant shall be appropriately adjusted in accordance with the
estimations so that, by the end of the calendar year in question, Tenant shall
have paid all of the Excess as estimated by Landlord. Any amounts paid based on
such an estimate shall be subject to adjustment pursuant to paragraph 3 of this
Exhibit when actual Basic Cost is available for each calendar year.
2. For the purposes of this Exhibit, the term "Basic Cost" shall mean all
expenses and disbursements of every kind (subject to the limitations set forth
below) which Landlord incurs, pays or becomes obligated to pay in connection
with the ownership, operation, and maintenance of the Building (including the
associated parking facilities), determined in accordance with generally accepted
federal income tax basis accounting principles consistently applied, including
but not limited to the following:
(a) Wages and salaries (including management fees) of all
employees engaged in the operation, repair, replacement, maintenance, and
security of the Building, including taxes, insurance and benefits relating
thereto;
(b) All supplies and materials used in the operation, maintenance,
repair, replacement, and security of the Building;
(c) Annual cost of all capital improvements made to the Building
which although capital in nature can reasonably be expected to reduce the normal
operating costs of the Building, as well as all capital improvements made to
cause the Building to be in compliance with any legal requirement that was not
applicable to the Premises as of the date of this Lease. as amortized over the
useful economic life of such improvements as determined by Landlord in its
reasonable discretion (without regard to the period over which such improvements
may be depreciated or amortized for federal income tax purposes);
(d) Cost of all utilities, other than the cost of utilities
actually reimbursed to Landlord by the Building's tenants (inducing Tenant under
Section 7.(b) of this Lease);
(e) Cost of any insurance or insurance related expense applicable
to the Building and Landlord's personal property used in connection therewith;
(f) All taxes and assessments and governmental charges whether
federal, state, county or municipal, and whether they be by taxing or management
districts or authorities presently taxing or by others, subsequently created or
otherwise, and any other taxes and assessments attributable to the Building (or
its operation), and the grounds, parking areas, driveways, and alleys around the
Building, excluding, however, federal and state taxes on income (collectively,
"taxes"); if the present method of taxation changes so that in lieu of the whole
or any part of any Taxes levied on the Land or Building, there is levied on
Landlord a capital tax directly on the rents received therefrom or a franchise
tax, assessment, or charge based, in whole or in part, upon such rents for the
Building, then all such taxes, assessments, or charges, or the part thereof so
based, shall be deemed to be included within the term "Taxes" for the purposes
hereof;
(g) Cost of repairs, replacements, and general maintenance of the
Building, other than repair, replacement, and general maintenance of the roof,
foundation and exterior walls of the Building;
(h) Cost of service or maintenance contracts with independent
contractors for the operation, maintenance, repair, replacement, or security of
the Building (including, without limitation, alarm service, window cleaning, and
elevator maintenance); and
(i) The amount of basic rent payable under and pursuant to any
ground lease pertaining to the land on which the Building is located.
There are specifically excluded from the definition of the term "Basic Cost"
costs (1) for capital improvements made to the Building, other than capital
improvements described in subparagraph 2(c) of this Exhibit and except for
items which, though capital for accounting purposes, are properly considered
maintenance and repair items,
C-1
<PAGE> 23
EXHIBIT C (Continued)
such as painting of common areas, replacement of carpet in elevator lobbies, and
the like; (2) for repair, replacements and general maintenance paid by proceeds
of insurance or by Tenant or other third parties, and alterations or special
services attributable solely to tenants of the Building other than Tenant; (3)
for interest amortization or other payments on loans to Landlord; (4) for
depreciation of the Building; (5) for leasing commissions; (6) for legal
expenses and fines, other than those incurred for the general benefit of the
Building's tenants (e.g., tax disputes); (7) for renovating or otherwise
improving space for occupants of the Building or vacant space in the Building;
(8) for correcting defects in the construction of the Building; (9) for overtime
or other expenses of Landlord in curing defaults or performing work expressly
provided in this Lease to be borne at Landlord's expense; (10) for federal
income taxes imposed on or measured by the income of Landlord from the operation
of the Building; (11) for accounting expenses relating solely to Landlord and
not related to the ownership or operations of the Building; (12) for costs to
comply with any law to the extent of violations that existed prior to the date
of this Lease (including costs to bring the common areas of the Building into
compliance with the ADA); (13) for costs directly or solely resulting from the
gross negligence or willful misconduct of Landlord or Landlord's agents after
the Commencement Date; and (14) for costs directly incurred in connection with
or the presence or condition of any hazardous substances in the Premises not
caused by Tenant or Tenant's agents, contractors or invitees.
3. The Annual Cost Statement shall include a statement of Landlord's
actual Basic Cost for the previous year adjusted as provided in paragraph 4 of
this Exhibit. If the Annual Cost Statement reveals that Tenant paid more for
Basic Cost than the actual Excess in the year for which such statement was
prepared, then Landlord shall credit or reimburse Tenant for such excess within
30 days after delivery of the Annual Cost Statement; likewise, if Tenant paid
less than the actual Excess, then Tenant shall pay Landlord such deficiency
within 30 days after delivery of the Annual Cost Statement.
4. With respect to any calendar year or partial calendar year in which
the Building is not occupied to the extent of 95% of the rentable area thereof,
the Basic Cost for such period shall, for the purposes hereof, be increased to
the amount which would have been incurred had the Building been occupied to the
extent of 95% of the rentable area thereof.
Tenant may, after giving Landlord forty-five (45) days prior written notice
thereof, inspect or have an independent firm of certified public accountants
audit Landlord's records relating to Electrical Costs and the Basic Cost for any
periods of time within twelve (12) months before the audit or inspection;
however, no audit or inspection shall extend to periods of time before the
Commencement Date. Tenant's audit or inspection shall be conducted only during
business hours reasonably designated by Landlord. Tenant shall pay the cost of
such audit or inspection including the Landlord's overhead costs reasonably
allocable to the inspection or audit unless the Annual Cost Statement for the
time period in question is determined to be in error by more than five percent
(5%) and, in which case Landlord shall pay the audit cost. Tenant may not
conduct an inspection or have an audit performed more than once during any
calendar year. If such inspection or audit reveals that an error was made in the
Electrical Costs or Basic Cost previously charged to Tenant, then Landlord shall
refund to Tenant any overpayment of any such costs, or Tenant shall pay to
Landlord any underpayment of any such costs, as the case may be within 30 days
after notification thereof. Landlord's good faith judgment regarding the proper
interpretation of this Lease and the proper accounting for Electrical Costs and
Basic Cost shall be binding on Tenant in connection with any such audit or
inspection. Tenant shall maintain the results of each such audit and inspection
confidential and shall not be permitted to use any third party to perform such
audit and inspection unless such third party is reasonably acceptable to
Landlord and agrees with Landlord in writing to maintain the results of such
audit or inspection confidential.
C-2
<PAGE> 24
EXHIBIT C (Continued)
such as painting of common areas, replacement of carpet in elevator lobbies, and
the like; (2) for repair, replacements and general maintenance paid by proceeds
of insurance or by Tenant or other third parties, and alterations or special
services attributable solely to tenants of the Building other than Tenant; (3)
for interest, amortization or other payments on loans to Landlord; (4) for
depreciation of the Building; (5) for leasing commissions; (6) for legal
expenses and fines, other than those incurred for the general benefit of the
Building's tenants (e.g., tax disputes); (7) for renovating or otherwise
improving space for occupants of the Building or vacant space in the Building;
(8) for correcting defects in the construction of the Building; (9) for overtime
or other expenses of Landlord in curing defaults or performing work expressly
provided in this Lease to be borne at Landlord's expense; (10) for federal
income taxes imposed on or measured by the income of Landlord from the operation
of the Building; (11) for accounting expenses relating solely to Landlord and
not related to the ownership or operations of the Building; (12) for costs to
comply with any law to the extent of violations that existed prior to the date
of this Lease (including costs to bring the common areas of the Building into
compliance with the ADA); (13) for costs directly or solely resulting from the
gross negligence or willful misconduct of Landlord or Landlord's agents after
the Commencement Date; and (14) for costs directly incurred in connection with
or the presence or condition of any hazardous substances in the Premises not
caused by Tenant or Tenant's agents, contractors or invitees.
3. The Annual Cost Statement shall include a statement of Landlord's
actual Basic Cost for the previous year adjusted as provided in paragraph 4 of
this Exhibit. If the Annual Cost Statement reveals that Tenant paid more for
Basic Cost than the actual Excess in the year for which such statement was
prepared, then Landlord shall credit or reimburse Tenant for such excess within
30 days after delivery of the Annual Cost Statement; likewise, if Tenant paid
less than the actual Excess, then Tenant shall pay Landlord such deficiency
within 30 days after delivery of the Annual Cost Statement.
4. With respect to any calendar year or partial calendar year in which
the Building is not occupied to the extent of 95% of the rentable area thereof,
the Basic Cost for such period shall, for the purposes hereof, be increased to
the amount which would have been incurred had the Building been occupied to the
extent of 95% of the rentable area thereof.
Tenant may, after giving Landlord forty-five (45) days prior written notice
thereof, inspect or have an independent firm of certified public accountants
audit Landlord's records relating to Electrical Costs and the Basic Cost for any
periods of time within twelve (12) months before the audit or inspection;
however, no audit or inspection shall extend to periods of time before the
Commencement Date. Tenant's audit or inspection shall be conducted only during
business hours reasonably designated by Landlord. Tenant shall pay the cost of
such audit or inspection including the Landlord's overhead costs reasonably
allocable to the inspection or audit unless the Annual Cost Statement for the
time period in question is determined to be in error by more than five percent
(5%) and, in which case Landlord shall pay the audit cost. Tenant may not
conduct an inspection or have an audit performed more than once during any
calendar year. If such inspection or audit reveals that an error was made in the
Electrical Costs or Basic Cost previously charged to Tenant, then Landlord shall
refund to Tenant any overpayment of any such costs, or Tenant shall pay to
Landlord any underpayment of any such costs, as the case may be within 30 days
after notification thereof. Landlord's good faith judgment regarding the proper
interpretation of this Lease and the proper accounting for Electrical Costs and
Basic Cost shall be binding on Tenant in connection with any such audit or
inspection. Tenant shall maintain the results of each such audit and inspection
confidential and shall not be permitted to use any third party to perform such
audit and inspection unless such third party is reasonably acceptable to
Landlord and agrees with Landlord in writing to maintain the results of such
audit or inspection confidential.
C-2
<PAGE> 25
EXHIBIT D
TENANT FINISH-WORK: AS-IS
Tenant hereby accepts the Premises in their "AS-IS" condition, and
Landlord shall have no obligation to perform any work therein (including,
without limitation, demolition of any improvements existing therein or
construction of any tenant finish-work or other improvements therein), and shall
not be obligated to reimburse Tenant or provide an allowance for any costs
related to the demolition or construction of improvements therein. Before Tenant
may occupy the Premises to conduct its business therein, Tenant shall, at its
expense, obtain and deliver to Landlord a certificate of occupancy from the
appropriate governmental authority for the Premises. Nothing in this paragraph
shall diminish the obligations of Landlord or the rights of Tenant that are
expressly set forth elsewhere in this Lease.
D-l
<PAGE> 26
EXHIBIT E
CANCELLATION OPTION
Provided Tenant is not in default, Tenant may terminate this Lease upon the
third anniversary of the Term by giving Landlord six months written notice of
this intent to cancel the Lease and paying the Landlord a termination fee equal
to $58,036.94. Such termination fee shall be payable prior to Tenant's vacating
the Premises. If Tenant fails to give Landlord the appropriate notice, Tenant's
right to terminate shall be waived.
E-1
<PAGE> 27
EXHIBIT F
RIGHT OF FIRST REFUSAL
1. After the initial leasing of the space designated on Exhibit A (the
"Additional Space") to third parties and subject to then-existing renewal or
expansion options of other tenants, Landlord shall first offer to lease to
Tenant the Additional Space in an "as is" condition; such offer shall be in
writing and specify the then market rent to be paid for the Additional Space and
the date on which the Additional Space shall be included in the Premises (the
"Offer Notice"). Tenant shall notify Landlord in writing whether Tenant elects
to lease the entire Additional Space at the rental rate set forth in The Offer
Notice, within 10 days after Landlord delivers to Tenant the Offer Notice. If
Tenant timely elects to lease the Additional Space, then Landlord and Tenant
shall execute an amendment to this Lease, effective as of the date the
Additional Space is to be included in the Premises, on the same terms as this
Lease except that (a) the rentable area of the Premises shall be increased by
the rentable area in the Additional Space (and Tenant's Proportionate Share
shall be adjusted accordingly), (b) The Basic Rental shall be increased by the
amount specified for such space in the Offer Notice, and (c) Landlord shall not
provide to Tenant any allowances (e.g., moving allowance, construction
allowance, and the like) or other tenant inducements. If Tenant fails or is
unable to timely exercise its right hereunder, then such right shall lapse, time
being of the essence with respect to the exercise thereof, and Landlord may
lease the Additional Space to third parties on such terms as Landlord may elect.
Tenant may not exercise its rights under this Exhibit if an Event of Default
exists or Tenant is not then occupying the entire Premises.
2. Tenant's rights under this Exhibit shall terminate if (a) this Lease
or Tenant's right to possession of the Premises is terminated or (b) Tenant
assigns (except to a Permitted Transferee) any of its interest in this Lease or
sublets the entire Premises.
3. Please see addendum attached hereto and made a part hereof for all purposes.
F-1
<PAGE> 28
EXHIBIT G
PARKING
Tenant shall be permitted to use 1:330 or thirty (30) undesignated
vehicular parking spaces in the parking garage associated with the Building (the
"Parking Garage") during the initial Term at no cost. If Tenant sublets any
portion of the Premises or assigns any of its interest in this Lease, then the
parking spaces allocated to Tenant hereunder shall be reduced to the extent the
ratio between the rentable square feet of the Premises and the parking spaces
granted to Tenant hereunder exceeds the Building standard ratio of parking space
per rentable square foot as established by Landlord from time to time.
G-1
<PAGE> 29
ADDENDUM TO LEASE
G-2
<PAGE> 1
EXHIBIT 10.26
TCSI CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the TCSI Corporation
Employee Stock Purchase Plan (the "Plan") of TCSI Corporation (the "Company").
1. Purpose. The purpose of the Plan is to provide employees of
the Company and its subsidiaries with an opportunity to purchase Common Stock of
the Company through payroll deductions. It is the intention of the Company that
the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan shall, accordingly, be construed so as to extend and limit participation in
a manner consistent with the requirements of that section of the Code, as
amended from time to time.
2. Definitions.
(a) "Compensation," unless otherwise determined by the Board
of Directors of the Company, means total cash compensation from employment
reportable on Form W-2 including, without limitation, regular straight-time
gross earnings, overtime pay, shift premium, incentive compensation, bonuses,
and commissions, but expressly excluding relocation benefits, expense
reimbursements, gains realized in connection with the exercise of stock options
or participation in a stock option or purchase program and contributions by the
Company to qualified deferred compensation plans.
(b) "Employee" means any person, including an officer, who is
customarily employed for at least 20 hours per week by the Company or its
subsidiaries.
(c) "Subsidiary" means any corporation described in Section
424 of the Code in which the Company owns, directly or indirectly, 50% or more
of the voting shares.
(d) "Offering Date" means the first business day of an
Offering period of the Plan.
(e) "Termination Date" means the last business day of an
Offering period of the Plan.
3. Eligibility.
(a) General Rule. Any Employee, as defined in Section 2, who
shall have completed at least 30 days of continuous employment by the Company or
its Subsidiaries on the date his or her participation in the Plan is effective
shall be eligible to participate in the Plan, subject to the limitations imposed
by Section 423(b) of the Code.
(b) Exceptions. Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan if:
(i) immediately after the grant, such Employee (or any
other person whose stock ownership would be
attributed to such Employee pursuant to Section
424(d) of the Code) would own shares and/or hold
outstanding options to purchase
1
<PAGE> 2
shares possessing five percent or more of the total
combined voting power or value of all classes of
shares of the Company or of any Subsidiary of the
Company; or
(ii) such option would permit the Employee's rights to
purchase shares under all employee stock purchase
plans of the Company and its Subsidiaries to accrue
(i.e., become exercisable) at a rate which exceeds
$25,000 of fair market value of such shares
(determined at the time such option is granted) for
each calendar year in which such option is
outstanding at any time.
4. Offerings. The plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after February 1 and August 1 each year, or on such other date as the
Board shall determine, and continuing thereafter until terminated in accordance
with Section 20 hereof. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation. An eligible Employee may become a participant
in one or more Offerings under the Plan by completing and signing a subscription
agreement authorizing payroll deductions on a form provided by the Company (the
"Subscription Agreement") and by filing it with the Company's payroll office not
less than three business days prior to the start of the Offering period with
respect to which it is to be effective unless a different time for filing the
Subscription Agreement has been set by the Company with respect to a given
Offering. An Employee's authorization and participation in the Plan shall become
effective on the first Offering Date following the timely filing of his or her
Subscription Agreement and shall remain effective until revoked by the
participant by the filing of a Payroll Deduction Authorization Change or
Withdrawal form as described in Section 10(a) hereof or until changed by the
filing of a Payroll Deduction Authorization Change or Withdrawal form providing
for a change in the participant's payroll deduction rate; provided, however, the
Company's Board of Directors may, in its discretion, limit the number of
participation rate changes during any offering. An Employee who becomes eligible
to participate in the Plan after the commencement of an Offering period may not
become a participant in the Plan until the commencement of the next Offering.
6. Payroll Deductions.
(a) At the time a participant files his or her Subscription
Agreement, he or she shall elect to have payroll deductions made on each payday
during the next Offering period at a percentage rate equal to a positive whole
number not exceeding 15%, or such other maximum rate as may be determined from
time to time by the Company's Board of Directors (herein sometimes referred to
as the "Board") subject to the provisions of Section 19 hereof, of the
Compensation which would otherwise be payable to such participant on each such
payday; provided, however, that the maximum amount withheld on behalf of a
participant with respect to an Offering period shall not exceed the maximum
amount that a participant might be required to pay upon the exercise of his or
her option determined as of the first day of an Offering period.
(b) Payroll deductions for a participant shall commence on the
first payday following the date when a participant's payroll deduction
authorization becomes
2
<PAGE> 3
effective and shall automatically continue from Offering period to Offering
period until changed or terminated by the participant in accordance with the
terms hereof.
(c) All payroll deductions authorized by a participant shall
be credited to the participant's individual account under the Plan. A
participant may not make any additional payments into such account.
(d) A participant may terminate his or her participation in
the Plan at any time prior to the Termination of the Offering period as provided
in Section 10, but may not change the rate of his or her payroll deductions with
respect to an Offering period during such Offering period.
7. Grant of Option.
(a) On each Offering Date with respect to which a
participant's payroll authorization is effective, each participant in the Plan
shall automatically be granted an option to purchase (at the option price as
provided in Section 7(b) hereof) up to the number of whole shares of the
Company's Common Stock arrived at by dividing (i) $12,500 by (ii) 100% of the
fair market value of one share of the Company's Common Stock at the Offering
Date, subject to the limitations set forth in Sections 3(b) and 12 hereof. The
fair market value of a share of the Company's Common Stock shall be determined
as provided in Section 7(c) hereof.
(b) The option price per share of the shares to be sold during
each Offering shall be the lesser of (i) 85% of the fair market value as defined
in 7(c) hereof, of one share of the Common Stock of the Company at the Offering
Date or (ii) 85% of the fair market value, as defined in 7 (c) hereof, of one
share of the Common Stock of the Company at the Termination Date.
(c) The fair market value of the Company's Common Stock shall
be determined by the Company's Board of Directors, acting in its sole
discretion, and based upon such factors as the Board determines relevant;
provided, however, that if there is a public market for the Common Stock, the
fair market value of a share of Common Stock on a given date shall be the mean
of the closing bid and asked prices for the Common Stock on such date, as
reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by The Nasdaq Stock Market), or, in the event the Common Stock is
listed on a national securities exchange or on the Nasdaq National Market, the
fair market value per share shall be the mean of the closing bid and asked price
on such exchange or on The Nasdaq Stock Market as of the date of grant of the
option, as reported in The Wall Street Journal.
8. Exercise of Option. Unless a participant cancels his or her
option and withdraws from the Plan as provided in Section 10, his or her option
for the purchase of shares shall be exercised automatically at the Termination
Date of the Offering period, and the accumulated payroll deductions credited to
a participant's account on the Termination Date will be applied to purchase
whole shares of the Company's Common Stock (up to the maximum number subject to
option as determined in Section 7(a) hereof) at the applicable option price. Any
amount credited to a participant's account and not applied to the purchase of
Common Stock by reason of the limitation on the number of shares subject to
option shall be refunded promptly to such participant after the Termination
Date, provided that any amount remaining in a participant's account and
representing a fractional share shall be carried over and applied to the
purchase of shares in the subsequent Offering period if the participant
participates in the subsequent Offering. During his or her lifetime, a
participant's option to purchase shares hereunder is exercisable only by such
participant.
3
<PAGE> 4
9. Delivery. As promptly as practicable after the end of each
Offering period, the Company shall arrange for the issuance and delivery to, or
credit to the account of, each participant, as appropriate, of the shares
purchased upon exercise of his or her option. At the election of the Company,
the issuance and delivery of the shares purchased upon exercise of a
participant's option may be effected by transfer (electronic or otherwise in the
discretion of the Company) of such shares to a securities account maintained in
such participant's name.
10. Withdrawal; Termination of Employment.
(a) A participant may terminate his or her participation in an
Offering under the Plan and withdraw all, but not less than all, the payroll
deductions credited to his or her account under the Plan at any time prior to a
Termination Date by giving written notice of withdrawal to the Company on a
Payroll Deduction Authorization Change or Withdrawal form provided for such
purpose. In such case, all of the participant's payroll deductions credited to
his or her account shall be paid to him or her promptly after receipt of his or
her notice of withdrawal, his or her option for the current period shall be
automatically canceled, and no further payroll deductions for the purchase of
shares shall be made except pursuant to a new Subscription Agreement filed in
accordance with Section 5 hereof.
A participant may terminate his or her participation in the
Plan effective as of the first day of the next Offering period by giving written
notice of withdrawal to the Company on a Payroll Deduction Authorization Change
or Withdrawal form provided for such purpose. In such case, the participant's
payroll deductions will continue through the end of the Offering period in which
the notice of withdrawal is given, all amounts deducted from the participant's
Compensation during such Offering period will be applied to the purchase of
Common Stock pursuant to the Plan, and following the completion of such Offering
period no further payroll deductions for the purchase of shares shall be made
except pursuant to a new Subscription Agreement filed in accordance with Section
5 hereof.
(b) Upon Termination of a participant's employment for any
reason, including retirement or death, as soon as practicable after such
Termination the payroll deductions credited to his or her account shall be
returned to him or her or, in the case of his or her death, to the person or
persons entitled thereto under Section 14, and his or her option shall be
automatically canceled.
(c) In the event an Employee fails to remain in the continuous
employ of the Company or its Subsidiaries for at least 20 hours per week during
the Offering period in which the Employee is a participant, he or she will be
deemed to have elected to withdraw from the Plan and the payroll deductions
credited to his or her account will be returned to him or her and his or her
option will be canceled.
(d) A participant's withdrawal from an Offering shall not have
any effect upon his or her eligibility to participate in a subsequent Offering
or in any similar plan which may hereafter be adopted by the Company except as
noted in Section 5.
11. Interest. No interest shall accrue on the payroll deductions
of a participant in the Plan.
4
<PAGE> 5
12. Stock.
(a) Subject to Section 18, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 500,000 shares plus an annual increase to be added on each anniversary
date of the adoption of the Plan equal to the lesser of (i) 100,000 shares, (ii)
one percent of the outstanding shares on such date or (iii) a lesser amount
determined by the Board. The shares to be sold to participants in the Plan will
be authorized but unissued shares. Upon the cancellation of any option granted
under the Plan, the shares subject thereto shall return to the Plan and become
available for options thereafter granted under the Plan. If the total number of
shares which would otherwise be subject to options granted pursuant to Section
7(a) hereof at the Offering Date exceeds the number of shares then available
under the Plan (after deduction of all shares for which options have been
exercised or are then outstanding), the Company shall make a pro rata allocation
of the shares remaining available for option grant in as uniform and equitable a
manner as is practicable. In such event, the Company shall give written notice
of such reduction of the number of shares subject to the options to each
participant affected thereby and shall reduce the rate of payroll deductions, if
necessary.
(b) A participant will have no interest or voting right in
shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall, as specified in the participant's Subscription Agreement, be registered
in the name of the participant or in the name of the participant and his or her
spouse.
13. Administration. The plan shall be administered by the Board or
a committee of members of the Board appointed by the Board. The committee shall
have full and exclusive discretionary authority to construe, interpret and apply
the terms of the plan, to determine eligibility and to adjudicate all disputed
claims filed under the plan. Every finding, decision and determination made by
the Board or its committee shall, to the fullest extent permitted by law, be
final and binding upon all parties.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the Termination Date of an Offering period but prior to delivery
to him or her of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to the Termination Date of an Offering period.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a valid designation of a beneficiary who is
living at the time of such participant's death, the Company shall deliver such
shares and/or cash to the executor or administrator of the estate of the
participant; or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
shares and/or cash to the spouse or to any one or more dependents or relatives
of the participant; or if no spouse, dependent or relative is known to the
Company, then to such other person as the Company may designate.
5
<PAGE> 6
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution, pursuant to a qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder, or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by
the Company on behalf of a participant under the Plan may be used by the Company
for any corporate purpose, and the Company shall not be obligated to segregate
such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Individual statements of account will be given to
participating Employees semiannually as promptly as practicable following the
Termination Date of an Offering period, which statements shall set forth the
amounts of payroll deductions, the per share option price, the number of shares
purchased and the remaining cash balance, if any, in a participant's account.
18. Adjustments upon Changes in Capitalization or Control.
(a) Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each option under the
Plan which has not yet been exercised and the number of shares of Common Stock
which has been authorized for issuance under the Plan but has not yet been
placed under option or which has been returned to the Plan upon the cancellation
of an option, as well as the option price per share of Common Stock covered by
each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, stock dividend, spin-off,
reorganization, recapitalization, merger, consolidation, exchange of shares or
the like. Such adjustment shall be made by the Board, whose determination in
that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to option.
(b) In the event of a proposed sale of all or substantially
all of the assets of the Company, or the merger or consolidation of the Company
with or into another corporation, or in the event of a proposed dissolution or
liquidation of the Company, the offering then in progress shall be shortened by
setting a new Termination Date (the "New Termination Date"). The New Termination
Date shall be before the date of the Company's proposed dissolution,
liquidation, sale or merger. The Board shall notify each participant in writing,
at least ten (10) business days prior to the New Termination Date, that the
Termination Date for the participant's option has been changed to the New
Termination Date and that the participant's option shall be exercised
automatically on the New Termination Date, unless prior to such date the
participant has withdrawn from the offering as provided in Section 10 hereof.
(c) No fractional shares of Common Stock shall be issuable on
account of any adjustment described herein, and the aggregate number of shares
into which shares then covered by an option, when changed as the result of such
adjustment, shall be reduced to the largest number of whole shares resulting
from such adjustment, unless the Board, in
6
<PAGE> 7
its sole discretion, shall determine to issue scrip certificates in respect to
any fractional shares, which scrip certificates, in such event, shall be in a
form and have such terms and conditions as the Board in its discretion shall
prescribe.
19. Amendment or Termination. The Board of Directors of the
Company may at any time terminate or amend the Plan in such respects as the
Board may deem advisable. No such Termination will affect options previously
granted, nor may an amendment make any change in any option theretofore granted
which adversely affects the rights of any participant without the prior written
consent of such participant, nor may an amendment be made without prior approval
of the shareholders of the Company if such amendment would increase the number
of shares that may be issued under the Plan.
20. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board or its approval by vote of a
majority of the outstanding shares of the Company entitled to vote on the
adoption of the Plan. The Plan shall continue in effect until the Board
terminates it pursuant to Sections 19 or 22 of the Plan.
21. Notices. All notices or other communications (i) by a
participant to the Company in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof
and (ii) by the Company to a participant in connection with the Plan shall be
deemed to have been duly given when received by the participant or, if earlier,
five days after deposit in the United States mail by certified or registered
mail, return receipt requested, first class postage prepaid, addressed to the
participant at his or her address as shown on the records of the Company or as
such participant may request by written notice to the Company hereunder.
22. Shareholder Approval. Notwithstanding anything to the
contrary herein, the continuance of the Plan and the effectiveness of any option
granted hereunder shall be subject to approval by the affirmative vote of the
holders of a majority of the outstanding shares of stock of the Company present
or represented and entitled to vote thereon at a meeting of shareholders duly
held in accordance with the laws of the State of Nevada, within 12 months before
or after the date the Plan is adopted by the Board. No options granted before
such shareholder approval has been obtained shall be exercisable unless such
shareholder approval is obtained. If the Plan is not approved by the
shareholders of the Company within the above-referenced 12-month period, the
Plan and any options granted hereunder shall terminate and all payroll
deductions credited to a participant's account shall be promptly returned to him
or her.
23. No Enlargement of Employee Rights. The Plan is purely
voluntary on the part of the Company, and the continuance of the Plan shall not
be deemed to constitute a contract between the Company and any Employee, or to
be consideration for or a condition of the employment of any Employee. Nothing
contained in this Plan shall be deemed to give any Employee the right to be
retained in the employ of the Company, its parent, Subsidiary or a successor
corporation, or to interfere with the right of the Company or any such
corporations to discharge or retire any Employee thereof at any time. No
Employee shall have any right to or interest in options authorized hereunder
prior to the grant of an option to such Employee, and upon such grant he or she
shall have only such rights and interests as are expressly provided herein,
subject to, however, all applicable provisions of the Company's Articles of
Incorporation, as the same may be amended from time to time.
7
<PAGE> 8
24. Information to Participants. The Company shall provide without
charge to each participant in the Plan copies of such annual and periodic
reports as are provided by the Company to its shareholders generally.
25. Governing Law. To the extent that Federal laws do not otherwise
control, the Plan and all determinations made or actions taken pursuant hereto
shall be governed by the laws of the State of Nevada, without regard to the
conflicts of laws rules thereof.
26. Tax Withholding. If at any time the Company or any Subsidiary is
required, under applicable laws and regulations, to withhold, or to make any
deduction of, any taxes or take any other action in connection with any exercise
of an option made hereunder or transfer of shares of Common Stock, the Company
or such Subsidiary shall have the right to deduct from all amounts paid in cash
any taxes required by law to be withheld therefrom, and in the case of shares of
Common Stock, the participant or his or her estate or beneficiary shall be
required to pay the Company or such Subsidiary the amount of taxes required to
be withheld or, in lieu thereof, the Company or such Subsidiary shall have the
right to retain, or sell without notice, a sufficient number of shares of Common
Stock to cover the amount required to be withheld, or to make other arrangements
with respect to withholding as it shall deem appropriate.
27. Securities Law Compliance. No shares of Common Stock may be issued
upon the exercise of any option under the Plan until all requirements of
applicable Federal, state, foreign or other securities laws with respect to the
purchase, sale and issuance of shares of Common Stock shall have been satisfied.
If any action must be taken because of such requirements, then the purchase,
sale and issuance of shares shall be postponed until such action can reasonably
be taken. Upon request by the Company, an Employee shall deliver to the Company
such information, representations or undertakings as the Company may reasonably
request in order to comply with any registration requirements or exemptions
therefrom of applicable securities laws. The Company may require any securities
so issued to bear a legend, may give its transfer agent instructions, and may
take such other steps as in its judgment are reasonably required to prevent any
violation of applicable securities laws.
8
<PAGE> 9
TCSI CORPORATION
CERTIFICATE OF SECRETARY
I hereby certify that I am the duly elected, qualified and
acting Secretary of TCSI Corporation, a Nevada corporation (the "Company"); that
the foregoing plan is a true and correct copy of the Company's Employee Stock
Purchase Plan; and that the Plan has been duly authorized, adopted and approved
by the Board of Directors of the Company.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed
the corporate seal this 19 day of January, 1996.
/s/ PAUL A. FARMER
------------------------------
Paul A. Farmer, Secretary
[SEAL]
9
<PAGE> 10
TCSI CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
FORM OF
SUBSCRIPTION AGREEMENT
Instructions: Please print or type all information except your signature.
Name:___________________________________________________________________________
First Middle Last
Address:________________________________________________________________________
Social Security No.: __ __ __ - __ __ __ - __ __ __ __
Employee No.:_______________________ Employee Start Date:_______________________
ORIGINAL APPLICATION
28. I hereby elect to participate in the TCSI Corporation ("TCSI") Employee
Stock Purchase Plan (the "Plan") in accordance with this Subscription
Agreement and subject to the terms and conditions of the Plan.
29. I hereby authorize TCSI Corporation ("TCSI") to make regular payroll
deductions, at the rate indicated below and in accordance with the
terms of the Plan, from the total Compensation (as defined in the Plan)
including overtime, bonuses, commissions and other earnings, if any,
paid to me during each Offering period during which I remain a
participant in the Plan:
(circle one) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% of compensation
30. I understand that payroll deductions at the indicated rate will
continue from Offering period to Offering period unless I become
ineligible to participate in the Plan or I file the Payroll Deduction
Authorization Change or Withdrawal portion of this form below.
31. I understand that the deducted amounts will be applied automatically to
the purchase of share of TCSI Common Stock at the end of each Offering
period unless I elect to cancel my option and withdraw from the Plan by
filing the Payroll Deduction Authorization Change or Withdrawal portion
of this form below.
32. I hereby acknowledge that I have received and read a copy of TCSI's
most recent Prospectus describing the terms and provisions of the Plan
and understand the information therein and the risks of participating
in the Plan.
33. Shares purchased for me under the Plan should be issued in the name(s)
of:
_______________________________________________________________________
Name (Please Print)
34. I hereby agree to be bound by the terms of the Plan. The effectiveness
of this subscription Agreement is dependent upon my eligibility to
participate in the Plan.
10
<PAGE> 11
35. In the event of my death before the end of an Offering period, I hereby
designate as my beneficiary(ies) to receive all payments and shares due
me under the Plan:
Name: (Please print)____________________________________________________________
First Middle Last
________________________________________________________________________________
Relationship Address
________________________________________________________________________________
City State Zip Code
Name: (Please print)____________________________________________________________
First Middle Last
________________________________________________________________________________
Relationship Address
________________________________________________________________________________
City Sate Zip Code
________________________________________________________________________________
Date: Signature of Employee
11
<PAGE> 12
ELECTION NOT TO PARTICIPATE
I hereby acknowledge receipt of a copy of TCSI's most recent Prospectus
which describes the TCSI Corporation Employee Stock Purchase Plan and elect not
to participate in the Plan. I understand that my decision not to participate in
the next Offering under the Plan will not affect my eligibility to participate
in subsequent Offerings under the Plan.
________________________________________________________
Date Signature of Employee
(TO BE COMPLETED BY TCSI)
Date Received:________________________Copy to: [ ] Plan Administrator
Approved by:____________________________________________
Payroll
TCSI CORPORATION
12
<PAGE> 13
EMPLOYEE STOCK PURCHASE PLAN
FORM OF PAYROLL DEDUCTION
AUTHORIZATION CHANGE OR WITHDRAWAL
I am now a participant in the TCSI Employee Stock Purchase Plan (the
"Plan") and I wish to make the change indicated below (circle one):
A. CHANGE IN PAYROLL DEDUCTION RATE: I hereby authorize the following new
rate of payroll deduction, effective as of the first payday of the next
Offering period (such change must be filed with the Company at least
three days prior to the start of the Offering period with respect to
which it is to be effective):
(circle one) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% of compensation
B. WITHDRAWAL FROM PLAN AND CANCELLATION OF OPTION: I hereby elect to
cancel my participation in the Plan effective immediately and to cancel
my option to purchase TCSI Common Stock under the Plan and request that
all amounts withheld from me through payroll deductions relating to the
canceled option be refunded to me. I understand that cancellation of my
option will be effective only if this form is filed with the Company
prior to the close of the current Offering period. I understand that if
I wish to participate in the Plan following my cancellation and
withdrawal from the Plan, I must re-enroll by filing a new Subscription
Agreement with the Company at least three days prior to the start of
the Offering period with respect to which it is to be effective.
C. WITHDRAWAL FROM PLAN WITHOUT CANCELLATION OF OPTION. I hereby elect to
cancel my participation in the plan effective as of the first day of
the next Offering period. However, I request that my previously
authorized payroll deductions continue through the end of the current
Offering period and that all amounts deducted from my Compensation
during the current Offering period be applied to the purchase of TCSI
Common Stock pursuant to the Plan. I understand that if I wish to
participate in the Plan following my cancellation and withdrawal from
the Plan, I must re-enroll by filing a new Subscription Agreement with
the Company at least three days prior to the start of the Offering
period with respect to which it is to be effective.
_____________________________________________________________
DATE SIGNATURE OF EMPLOYEE
(TO BE COMPLETED BY TCSI)
Date Received:________________________Copy to: [ ] Plan Administrator
Approved by:_________________________________________________
Payroll
13
<PAGE> 1
TCSI CORPORATION
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average shares of common stock outstanding 20,514,000 18,069,000 17,524,000
Common stock equivalents (treasury stock method) 1,028,000 1,155,000 692,000
----------- ----------- -----------
Shares used in calculation of earnings per share 21,542,000 19,224,000 18,216,000
=========== =========== ===========
Net income $ 294,000 $ 8,070,000 $ 5,430,000
=========== =========== ===========
Earnings per share $ 0.01 $ 0.42 $ 0.30
=========== =========== ===========
</TABLE>
<PAGE> 1
TCSI CORPORATION
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8) pertaining to the 1991 Stock Incentive Plan (No. 33-57540
and 333-8353), as amended, Equity Sharing Plan (No. 33-41808), as amended, and
1994 Board of Directors Stock Option Plan (No. 33-98842), as amended, and in the
related Prospectuses, of TCSI Corporation of our report dated January 23, 1997,
with respect to the consolidated financial statements and financial statement
schedule of TCSI Corporation included in this annual report (Form 10-K) for the
year ended December 31, 1996.
ERNST & YOUNG LLP
San Francisco, California
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statement as of December 31, 1996 of TCSI Corporation and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000875315
<NAME> TCSI CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 30,880
<SECURITIES> 21,727
<RECEIVABLES> 14,564
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 64,282
<PP&E> 9,234
<DEPRECIATION> 0
<TOTAL-ASSETS> 87,175
<CURRENT-LIABILITIES> 13,565
<BONDS> 0
0
0
<COMMON> 2,122
<OTHER-SE> 71,488
<TOTAL-LIABILITY-AND-EQUITY> 87,175
<SALES> 0
<TOTAL-REVENUES> 60,233
<CGS> 0
<TOTAL-COSTS> 62,648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 446
<INCOME-TAX> 152
<INCOME-CONTINUING> 294
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
