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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1998 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______.
Commission File Number: 0-20710
PEOPLESOFT, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0137069
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4460 Hacienda Drive, Pleasanton, CA 94588
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code:
(925) 694-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
CLASS OUTSTANDING AT OCTOBER 31, 1998
----- -------------------------------
Common Stock, par value $.01 233,017,263
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PEOPLESOFT, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of 3
December 31, 1997 and September 30, 1998
Condensed Consolidated Statements of Income for the 4
Three Months Ended September 30, 1997 and September
30, 1998; and Nine Months Ended September 30, 1997
and September 30, 1998
Condensed Consolidated Statements of Cash Flows for 5
the Nine Months Ended September 30, 1997 and
September 30, 1998
Notes to Condensed Consolidated Financial Statements 6
ITEM 2 - Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II OTHER INFORMATION
ITEM 1 - Legal Proceedings 31
ITEM 2 - Changes in Securities and Use of Proceeds 31
ITEM 3 - Defaults upon Senior Securities 31
ITEM 4 - Submission of Matters to a Vote of Security 31
Holders
ITEM 5 - Other Information 31
ITEM 6 - Exhibits and Reports on Form 8 - K 31
SIGNATURES 32
</TABLE>
2
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PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PEOPLESOFT, INC.
----------------
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $267,897 $ 474,905
Short term investments 124,565 150,974
Accounts receivable, net 299,243 351,612
Deferred income taxes 25,320 39,613
Other current assets 9,021 38,504
-------- ----------
Total current assets 726,046 1,055,608
Property and equipment, at cost 195,667 282,633
Less accumulated depreciation and amortization (78,492) (112,236)
-------- ----------
117,175 170,397
Investments 26,783 51,742
Deferred income taxes 7,371 7,371
Capitalized software, less accumulated amortization 9,706 8,878
Other assets 11,255 12,110
-------- ----------
$898,336 $1,306,106
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 63,508 $ 80,894
Accrued compensation and related expenses 67,486 102,584
Income taxes payable 22,370 28,781
Deferred revenue 327,668 397,648
-------- ----------
Total current liabilities 481,032 609,907
Long term deferred revenue
-- 58,537
Long term deferred gain
-- 19,529
Stockholders' equity:
Common stock 2,237 2,502
Additional paid-in capital 219,005 303,767
Accumulated foreign currency translation adjustment (1,292) (2,611)
Retained earnings 197,354 314,475
-------- ----------
417,304 618,133
-------- ----------
$898,336 $1,306,106
======== ==========
</TABLE>
See notes to condensed consolidated unaudited financial statements
3
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PEOPLESOFT, INC.
----------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees $112,977 $147,273 $293,418 $432,732
Services 104,073 204,032 261,662 516,769
-------- -------- -------- --------
Total revenues 217,050 351,305 555,080 949,501
Costs and expenses:
Cost of license fees 6,113 8,184 15,440 30,420
Cost of services 59,805 116,254 158,350 301,206
Sales and marketing 61,495 90,033 155,967 247,302
Product development 34,851 54,478 89,689 148,377
General and administrative 10,978 17,029 30,548 47,608
-------- -------- -------- --------
Total costs and expenses 173,242 285,978 449,994 774,913
-------- -------- -------- --------
Operating income 43,808 65,327 105,086 174,588
Other income, interest expense and other 2,480 5,909 6,955 14,317
-------- -------- -------- --------
Income before income taxes 46,288 71,236 112,041 188,905
Provision for income taxes 17,589 27,070 43,233 71,784
-------- -------- -------- --------
Net income $ 28,699 $ 44,166 $ 68,808 $117,121
======== ======== ======== ========
Basic income per share $ 0.13 $ 0.19 $ 0.31 $ 0.51
======== ======== ======== ========
Shares used in basic per share computation 221,010 231,078 218,793 228,479
======== ======== ======== ========
Diluted income per share $ 0.11 $ 0.17 $ 0.27 $ 0.45
======== ======== ======== ========
Shares used in diluted per share computation 253,830 257,518 250,389 259,439
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated unaudited financial statements
4
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\
PEOPLESOFT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 68,808 $ 117,121
Adjustments:
Depreciation and amortization 28,673 40,953
Provision for doubtful accounts 6,935 29,130
Provision for deferred income taxes 7,952 (14,293)
Changes in operating assets and liabilities:
Accounts receivable (155,371) (245,075)
Cash received from sales of accounts receivable 53,894 163,576
Other current assets and noncurrent assets (3,635) (28,766)
Accounts payable and accrued liabilities 1,808 12,324
Accrued compensation and related expenses 20,930 35,098
Deferred revenue 100,564 128,517
Income taxes payable 7,537 6,411
Tax benefits from employee stock transactions 9,343 24,741
--------- ---------
Net cash provided by operating activities 147,438 269,737
INVESTING ACTIVITIES
Purchase of investments (127,971) (180,728)
Sale of investments 50,044 129,360
Purchase of property and equipment (43,019) (68,090)
Proceeds from sale of property and equipment -- 147
Additions to capitalized software, net (1,557) (2,385)
--------- ---------
Net cash used in investing activities (122,503) (121,696)
FINANCING ACTIVITIES
Net proceeds from sale of common stock and
exercise of common stock options 28,753 60,286
--------- ---------
Net cash provided by financing activities 28,753 60,286
Effect of foreign exchange rate changes on cash (1,194) (1,319)
--------- ---------
Net increase in cash and cash equivalents 52,494 207,008
Cash and cash equivalents at beginning of period 169,875 267,897
--------- ---------
Cash and cash equivalents at end of period $ 222,369 $ 474,905
========= =========
</TABLE>
See notes to condensed consolidated unaudited financial statements
5
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PEOPLESOFT, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The information at September 30, 1997 and 1998 and for the three and
nine month periods then ended is unaudited, but includes all adjustments
(consisting only of normal, recurring adjustments) which the Company's
management believes to be necessary for the fair presentation of the financial
position, results of operations, and changes in cash flows for the periods
presented. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported periods. Despite management's best effort to
establish good faith estimates and assumptions, and to manage the achievement of
the same, actual results may differ. Certain prior period amounts have been
reclassified to conform to the current period presentation.
The accompanying interim financial statements should be read in
conjunction with the financial statements and related notes included in the
Company's Annual Report to Stockholders (Form 10-K) for the year ended December
31, 1997. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the Securities
and Exchange Commission rules and regulations. Interim results of operations for
the nine month period ended September 30, 1998 are not necessarily indicative of
operating results or performance levels that can be expected for the full fiscal
year.
2. PER SHARE DATA
Basic income per share is computed using the weighted average number of
common shares outstanding during the period. Diluted income per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the shares issuable upon the exercise of stock options and warrants
(using the treasury stock method). The following table sets forth the
computation of basic and diluted income per share (in thousands except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income $ 28,699 $ 44,166 $ 68,808 $117,121
======== ======== ======== ========
Denominator:
Denominator for basic income per share -
weighted average shares 221,010 231,078 218,793 228,479
Employee stock options 29,339 23,065 28,692 27,219
Warrants 3,481 3,375 2,904 3,741
-------- -------- -------- --------
Denominator for diluted income per share -
adjusted weighted average shares and
assumed conversions 253,830 257,518 250,389 259,439
======== ======== ======== ========
Basic income per share $ 0.13 $ 0.19 $ 0.31 $ 0.51
======== ======== ======== ========
Diluted income per share $ 0.11 $ 0.17 $ 0.27 $ 0.45
======== ======== ======== ========
</TABLE>
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3. ACCOUNTS RECEIVABLE
Accounts receivable are comprised of billed receivables arising from
recognized and deferred revenues, and unbilled receivables, which include
accrued license fees for payments not yet due and accrued services. The
principal components of accounts receivable at December 31, 1997 and September
30, 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
DEC. 31, SEPT. 30,
1997 1998
--------- ---------
<S> <C> <C>
Billed receivables $ 200,081 $ 304,600
Unbilled receivables 118,655 80,230
--------- ---------
318,736 384,830
Allowance for doubtful accounts (19,493) (33,218)
--------- ---------
$ 299,243 $ 351,612
========= =========
</TABLE>
4. DEFERRED REVENUE
Deferred revenue is comprised of deferrals for license fees,
maintenance, training and other services. Long term deferred revenue represents
amounts received for maintenance and support services to be provided beginning
in periods on or after October 1, 1999. The principal components of deferred
revenue at December 31, 1997 and September 30, 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
DEC. 31, SEPT. 30,
1997 1998
--------- ---------
<S> <C> <C>
License fees $ 71,168 $ 66,217
Maintenance 184,171 262,925
Training 46,201 70,239
Other services 26,128 56,804
--------- ---------
327,668 456,185
Less: Long term deferred revenue -- (58,537)
--------- ---------
$ 327,668 $ 397,648
========= =========
</TABLE>
5. TRANSFER OF FINANCIAL ASSETS
The Company transfers the accounts receivable under certain software
license and service agreements with customers to financing institutions, on a
non-recourse basis. The Company records such transfers as sales of the related
accounts receivable when it is considered to have surrendered control of such
receivables under the provisions of Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The Company typically does not maintain any
servicing obligations under these arrangements and any servicing assets or
liabilities resulting from the arrangements are insignificant.
6. HEDGING OF INTERCOMPANY BALANCES
In the first quarter of 1998, the Company initiated a hedging program
designed to mitigate the potential for future adverse impact on intercompany
balances due to changes in foreign exchange rates. The program uses forward
foreign exchange contracts as the vehicle for hedging these intercompany
balances. In general, these forward foreign exchange contracts have three months
or less to maturity. Gains and losses on hedges are recorded in Other income and
offset against losses and gains on the underlying exposures. Management of the
foreign exchange hedging program is done in accordance with a corporate policy
approved by the Company's Board of Directors.
7. COMMITMENTS AND CONTINGENCIES
During the third quarter of 1998, the Company entered into agreements to
sell one of its Pleasanton, California office buildings and related land, and to
simultaneously lease back a substantial portion of the office space contained
therein. The initial lease term is for 5 years. The Company has options to
terminate up to 50% of the space as early as 4 years and the remaining 50% at
the 5th year; or alternatively, the Company may extend the term of the lease in
five year increments up to 20 years. Fees due upon termination, if applicable,
are not significant to the overall lease payments but are being expensed over
the initial term of the agreement. The sales price of approximately $50.0
million resulted in a book gain of approximately $20.0 million, which will be
amortized over the lease period. The monthly lease charge over the term is
equivalent to prevailing market rates for similar office space in the area. The
Company holds a right of first refusal to additional space within the site as
other tenants' leases expire.
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Additionally, the Company purchased two parcels of land for $50.0
million during the third quarter. The Company has entered into an operating
lease agreement on a building that will be constructed on one of the parcels.
The monthly lease amount will be determined at the end of construction when the
final construction cost is known. The estimated construction costs for the
facilities of $110.0 million includes interest costs during construction that
are added to the lease balance rather than paid by the Company during
construction. The expected interest rate during construction is LIBOR plus
0.75%; this rate may change depending on certain financial ratios. The lease
term is for 5 years with the option to purchase the building for $110.0 million
at the end of the lease term. If at the end of the lease term the Company does
not purchase the property, the Company would guarantee a residual value to the
lessor equal to a specified percentage of the lessor's cost of the facility.
Under this lease, the Company is required to maintain compliance with certain
financial covenants, is prohibited from making certain payments, including cash
dividends, and is subject to various other restrictions.
For tax purposes, the above transactions qualified as a tax deferred
like-kind exchange. There is no impact on immediate cash flow.
In December 1996, the Company entered into a five-year lease for a new
office facility in Pleasanton, California. The lease is structured as an
operating lease and rental payments will begin when the construction on the
facility is completed, which the Company anticipates to be in the fourth quarter
of 1998. The available financing (or the maximum lease balance) for the
construction of the facility totals $70.0 million of which $64.1 million has
been drawn as of September 30, 1998. The interest rate charged on amounts funded
is LIBOR plus .0625% as measured on the date of each funding rollover. At each
funding rollover date, the Company has its choice of term and LIBOR rate (1
month, 2 months, 3 months, 6 months, 9 months or 12 months) applicable to each
tranche at the date the respective funding amount is requested and approved.
Each subsequent funding rollover date is the corresponding maturity of the
chosen LIBOR term. The Company began accruing interest concurrent with the
lessor's first drawdown of the construction commitment in January 1997.
Throughout the construction period, the accrued interest amount, which was
approximately $1.1 million as of December 31, 1997 and $3.5 million as of
September 30, 1998, has been and will continue to be added to the outstanding
lease balance. The Company has the option to renew the lease for an additional
three years, subject to certain conditions, or purchase the building for $70.0
million. If at the end of the lease term the Company does not purchase the
property, the Company would guarantee a residual value to the lessor equal to a
specified percentage of the lessor's cost of the facility. Under this lease, the
Company is required to maintain compliance with certain financial covenants, is
prohibited from making certain payments, including cash dividends, and is
subject to various other restrictions.
Due to the above real estate transactions, the following represents
additional future minimum operating lease payments beyond those presented in the
Company's 1997 Annual Report on Form 10K for the years ending December 31 (in
thousands):
<TABLE>
<S> <C>
1999 $ 10,226
2000 16,868
2001 17,464
2002 18,252
2003 11,278
Thereafter 7,746
--------
$ 81,834
</TABLE>
8. SUBSEQUENT EVENTS
The acquisition of Intrepid Systems, Inc. ("Intrepid") was completed in
early October 1998 with the Company acquiring all of Intrepid's outstanding
equity interests for approximately $45 million in cash and other consideration.
Although initially structured as a stock-for-stock exchange, the transaction was
consummated as a cash-for-stock transaction to facilitate a more rapid close.
The transaction will be recorded in the Company's fourth quarter and will be
accounted for under the purchase method of accounting. Under the purchase method
of accounting, the purchase price is allocated to the net assets acquired,
including in-process research and development, based on their fair values. The
portion of the purchase price allocated to in-process research and development
will be charged to expense during the fourth quarter, the period in which the
transaction closed. The valuation to determine the fair value of the net assets
acquired has not been completed. Accordingly, the Company cannot estimate the
amount of the in-process research and development charge but believes it could
be a significant portion of the purchase price.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Discussion and Analysis of Financial Condition and Results of Operations
contains descriptions of the Company's expectations regarding future trends
affecting its business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The following discussion sets forth certain factors the Company believes
could cause actual results to differ materially from those contemplated by the
forward-looking statements. Forward-looking statements include, but are not
limited to, those items identified with a footnote (1) symbol. The Company
undertakes no obligation to update the information contained herein.
STATEMENT OF FUTURE DIRECTION: THIS DOCUMENT CONTAINS STATEMENTS OF FUTURE
DIRECTION CONCERNING POSSIBLE FUNCTIONALITY FOR THE COMPANY'S SOFTWARE PRODUCTS
AND TECHNOLOGY. ALL FUNCTIONALITY AND SOFTWARE PRODUCTS WILL BE AVAILABLE FOR
LICENSE AND SHIPMENT FROM THE COMPANY ONLY IF AND WHEN GENERALLY COMMERCIALLY
AVAILABLE. THE COMPANY DISCLAIMS ANY EXPRESS OR IMPLIED COMMITMENT TO DELIVER
FUNCTIONALITY OR SOFTWARE UNLESS OR UNTIL ACTUAL SHIPMENT OF THE FUNCTIONALITY
OR SOFTWARE OCCURS. THE STATEMENTS OF POSSIBLE FUTURE DIRECTION ARE FOR
INFORMATIONAL PURPOSES ONLY AND THE COMPANY MAKES NO EXPRESS OR IMPLIED
COMMITMENTS OR REPRESENTATIONS CONCERNING THE TIMING AND CONTENT OF ANY FUTURE
FUNCTIONALITY OR RELEASES.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage of total revenues represented by certain line items in the Company's
statements of operations:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------------
PERCENTAGE OF
TOTAL REVENUES
PERCENTAGE
DOLLAR INCREASE
1997 1998 YEAR OVER YEAR
- ----------------- --------------------- ------------------
<S> <C> <C>
Revenues:
52% 42% License fees 30%
48 58 Services 96
--- --- ---
100 100 Total revenues 62
Costs and expenses:
3 2 Cost of license fees 34
28 33 Cost of services 94
28 26 Sales and marketing 46
16 15 Product development 56
5 5 General and administrative 55
--- --- ---
80 81 Total costs and expenses 65
--- --- ---
20 19 Operating income 49
1 2 Other income 138
--- --- ---
21 21 Income before income taxes 54
8 8 Provision for income taxes 54
--- --- ---
13% 13% Net income 54%
=== === ===
</TABLE>
9
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<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------------
PERCENTAGE OF
TOTAL REVENUES
PERCENTAGE
DOLLAR INCREASE
1997 1998 YEAR OVER YEAR
- ----------------- --------------------- ----------------
Revenues:
<S> <C> <C>
53% 46% License fees 47%
47 54 Services 97
--- --- ---
100 100 Total revenues 71
Costs and expenses:
3 3 Cost of license fees 97
29 32 Cost of services 90
28 26 Sales and marketing 59
16 16 Product development 65
5 5 General and administrative 56
--- --- ---
81 82 Total costs and expenses 72
--- --- ---
19 18 Operating income 66
1 2 Other income 106
--- --- ---
20 20 Income before income taxes 69
8 8 Provision for income taxes 66
--- --- ---
12% 12% Net income 70%
=== === ===
</TABLE>
A substantial portion of the Company's cost structure is employee-related.
The breakdown of employees by functional area is as follows:
<TABLE>
<CAPTION>
EMPLOYEE COUNT PERCENTAGE OF
TOTAL EMPLOYEES
PERCENTAGE
INCREASE
12/31/97 9/30/98 12/31/97 9/30/98 SINCE 12/31/97
-------- ------- -------- ------- --------------
<S> <C> <C> <C> <C> <C>
2,114 3,336 Services 47% 51% 58%
1,006 1,458 Sales and marketing 23 22 45
918 1,211 Product development 21 19 32
414 557 General and
----- ---- administrative 9 8 35
--- --- ---
4,452 6,562 Total 100% 100% 47%
===== ===== === === ===
</TABLE>
REVENUES
The Company generally recognizes revenue when a non-cancelable license
agreement has been signed, the software product has been shipped, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable, and collection is considered probable. For customer license
agreements that meet the Company's revenue recognition policy, the portion
allocated to software license fees will generally be recognized in the current
period, while the portion allocated to services is recognized as the services
are performed. When the Company enters into a license agreement with a customer
requiring significant customization of the software products or is obligated to
perform other substantial implementation efforts, the Company recognizes revenue
related to the license agreement using contract accounting.
Revenues from licensing fees increased by 30% from $113.0 million in the
three month period ended September 30, 1997 to $147.3 million for the same
period in 1998. Year to date, licensing fees increased 47% from $293.4 million
in 1997 to $432.7 million in 1998. The increase in license fee revenues was
attributable to increased market acceptance of, and expanded breadth of, the
Company's software product offerings, the increased capacity created by
continued growth in the Company's sales, marketing and customer service
organizations, and achievement of specific contract related milestones or other
conditions which allowed the Company to recognize more deferred license revenue
than in the prior year period. In the third quarter, the Company's deferred
license revenue declined by $9.8 million versus the prior quarter.
The reported deferred license revenue amounts do not include items which
are both deferred and unbilled. The Company's practice is to net such deferred
items against the related receivables balances. In the third quarter, both the
net deferred license fees and the gross (before netting unbilled items) deferred
license fees declined sequentially from the prior quarter. The decline in gross
deferred license fees is due to all of the following factors: (i) considerable
efforts made by the Company during the third quarter on converting previously
deferred revenue to recognizable revenue through the satisfaction or elimination
of certain contingencies or additional obligations, the existence of which had
previously caused such revenue to be deferred; (ii) a higher than normal
percentage of the Company's current quarter contracting activity qualified for
immediate recognition of revenue, reflecting the Company's increased efforts to
move its business to standard software license terms and conditions; (iii) the
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cancellation during the third quarter of a significant unbilled contract which
was effected consistent with a cancellation clause in the contract, reflecting a
decision made by the customer based entirely on the customer's fiscal spending
constraints. No revenues had previously been recognized under this agreement;
and (iv) the elimination of deferred revenue associated with the SMS
distribution agreement, which was mutually terminated by the parties during the
third quarter.
Revenues from services increased by 96% from $104.1 million in the three
month period ended September 30, 1997 to $204.0 million for the same period in
1998. Year to date, service revenues increased by 97% from $261.7 million in
1997 to $516.8 million in the same period in 1998. The Company's customer
license agreements provide for initial maintenance, training, and installation
services for specified periods or amounts. Therefore increases in customer
licensing agreements have resulted in increases in revenues from these services.
Service revenues as a percentage of total revenues were 48% and 58% for the
quarters ended September 30, 1997 and 1998, respectively and 47% and 54% for the
nine months ended September 30, 1997 and 1998, respectively. The increase in the
relative percentage of service revenues to total revenues in these periods was
attributable to two primary factors: increases in the installed base of
customers receiving ongoing maintenance, training and other support services
from 1,900 customers as of September 30, 1997 to 2,545 as of June 30, 1998 to
3,060 as of September 30, 1998; and a $50.6 million and $110.4 million increase
in consulting revenue, for the three month and nine month periods, respectively,
as a result of expanded demand for the Company's consulting services in
enterprise implementation projects. In response to strong market demand for
single vendor product and implementation service solutions, the Company
continues to expand its service delivery capacity, particularly for consulting
services.
Total revenues increased from $217.1 million in the three month period
ended September 30, 1997 to $351.3 million for the same period in 1998. Year to
date, total revenues increased 71% from $555.1 million in 1997 to $949.5 million
in 1998. Total revenue growth quarter over quarter of 62% exceeded the Company's
previously forecasted growth of 60%, and on a sequential basis, increased
approximately 10% over the total revenues recorded in the second quarter of
1998. The higher than forecasted growth rate over the prior year was due
primarily to service revenues. During each of the quarters ended September 30,
1997 and 1998, the Company's international revenues were approximately 16% of
total revenues. Revenues from international operations increased 58% from $34.8
million in the three month period ended September 30, 1997 to $55.0 million in
the same quarter in 1998. The dollar increase in international revenues resulted
from expanded international operations and the introduction of Release 6 in
December 1996 that incorporated additional global features and functionality.
The Company expects international revenues to continue to grow in absolute
dollar terms during 1998, and accordingly, continues to invest heavily in
international infrastructure, global product functionality and translated
versions of financial and other products(1). PeopleSoft 7.5, which was released
in the second quarter of 1998, provides stronger international functionality for
European businesses, including both new country specific functionality and
support for the European monetary unit. In the event international expansion
and/or product globalization are not successful, the Company's business
operating results and financial condition may be materially adversely affected.
COSTS AND EXPENSES
Cost of license fees increased 34% from $6.1 million in the three month
period ended September 30, 1997 to $8.2 million for the same period in 1998,
representing 3% and 2% of total revenues in each quarter, respectively and 5%
and 6% of license fee revenues in each quarter, respectively. Cost of license
fees in the nine month periods ended September 30, 1997 and 1998 were $15.4
million and $30.4 million, respectively and represented 3% of total revenues for
each quarter and 5% and 7% of license fee revenues in the nine month periods
ended September 30, 1997 and 1998, respectively. Royalty costs in the first
quarter of 1998 included a one time $2.5 million buy out of royalty fees related
to providing certain technology embedded in Release 7.5 to its existing customer
installed base. In addition, cost of license fees has grown as a percentage of
license revenues due to royalty agreements related to OLAP tools embedded within
the Company's products and royalties owed on the Student Administration and
Treasury products. The Company's system solutions are based on a combination of
internally developed technology and application software products, as well as
bundled third party software products and technology. Cost of license fees as a
percentage of license fee revenues may fluctuate from period to period due
principally to the mix of sales of royalty-bearing software products in each
period and seasonal fluctuations in revenues contrasted with certain fixed
expenses such as the amortization of capitalized software. Royalties associated
with certain software products currently under development by joint business
arrangements and charges associated with software products and technologies
acquired from various third party vendors may cause the cost of license fees as
a percentage of license fee revenues to increase in future periods (1).
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(1) Forward-Looking Statement
11
<PAGE> 12
Cost of services consists principally of consulting, account management
field support, training, and product support. These costs increased 94% from
$59.8 million in the three month period ended September 30, 1997 to $116.3
million for the same period in 1998, representing 28% and 33% of total revenues
in each quarter, respectively, and 57% of service revenues in each of those
quarters. Costs increased by 90% from $158.4 million in the nine month period
ended September 30, 1997 to $301.2 million for the same period in 1998,
representing 29% and 32% of total revenues and 61% and 58% of service revenues
in those periods, respectively. The increase in cost of services is due to
significant expansion of the Company's customer service resources across all
categories, including consulting, telephone support, training and account
management staff. In particular, the Company has made a significant investment
in its professional consulting services organization which has grown
substantially over the past two years in response to customer demand. The
Company anticipates cost of services will increase in dollar amount, and may
increase as a percentage of total revenues, in future periods (1).
Sales and marketing expenses increased by 46% from $61.5 million in the
three month period ended September 30, 1997 to $90.0 million for the same period
in 1998, representing 28% and 26% of total revenues in each period,
respectively. These expenses increased by 59% from $156.0 million in the nine
month period ended September 30, 1997 to $247.3 million for the same period in
1998, representing 28% and 26% of total revenues, respectively. The increase in
sales and marketing expenses is largely attributable to the increase in the
Company's direct sales force, both domestic and international. Sales and
marketing expenses as a percentage of total revenues have declined versus the
prior year due to the relatively lower expense levels associated with both
maintenance and other services, both of which are growing more quickly than
license sales. However, such expenses may increase as a percentage of total
revenues in future periods as the Company continues to increase its direct sales
and marketing expenditures to address certain international markets, grow its
industry focused enterprise sales force structure, expand its middle market
sales organization and fund both cross industry and industry specific marketing
and sales activities (1).
Software product development expenses increased by 56% from $34.9
million in the three month period ended September 30, 1997 to $54.5 million for
the same period in 1998, representing 16% and 15% of total revenues in each
quarter, respectively. These expenses increased by 65% from $89.7 million in the
nine month period ended September 30, 1997 to $148.4 million for the same period
in 1998, representing 16% of total revenues in each period. Software product
development expenditure consists of costs related to the Company's staff of
software engineers and consultants, and the associated infrastructure costs
required to support software product development initiatives in the following
areas: (i) expansion and enhancement of the Company's core software product
offerings in the areas of HRMS, Financial Management Systems, and
Distribution/Materials Management Systems and Supply Chain Management software;
(ii) the enhancement of the Company's platform development, certification,
software product testing and overall release management capabilities; (iii) the
continued enhancement of the Company's client/server architecture including its
software development tools and the integration of these tools with various third
party purchased or licensed technologies; (iv) the localization and translation
of certain versions of the Company's software products for specific foreign
markets; and (v) the development of certain industry market products and
versions of its core products suitable to the unique needs of customers within
certain industries. The Company intends to continue to invest significant
resources in upcoming releases, and anticipates software product development
expenditures will significantly increase in future periods due to continued
incremental investment in all of the above areas, and overall development
expenditures may increase as a percentage of revenues (1).
General and administrative expenses increased 55% from $11.0 million in
the three month period ended September 30, 1997 to $17.0 million for the same
period in 1998, representing 5% of total revenues in each quarter. These
expenses increased by 56% from $30.5 million in the nine month period ended
September 30, 1997 to $47.6 million for the same period in 1998, representing 5%
of total revenues in each period. The increase in general and administrative
expenses resulted primarily from the increase in the staffing to support the
Company's growth. These expenses include one-time charges of $3.4 million and
$2.9 million during the second and third quarters of 1998, respectively, related
to a contractual dispute and associated termination of the Company's arrangement
with a distributor. Excluding the one-time charges, general and administrative
expenses would be 4% of total revenues for the three and nine month periods
ended September 30, 1998.
Operating margins for the three month period ended September 30, 1998
decreased to 18.6% compared to 20.2% for the same period last year and increased
slightly from 18.2% for the second quarter of 1998. The year over year decline
in operating margin reflects a comparison with the prior year percentage that
exceeded the Company's target range and normal seasonal level for the third
quarter. By way of illustration, the operating margin for the third quarter of
1996 was 17.7%. Operating margins for the nine month period ended September 30,
1998 decreased slightly to 18.4% compared to 18.9% for the same period in 1997.
- --------
(1) Forward-Looking Statement
12
<PAGE> 13
During the fourth quarter of 1998 the Company formed a new company,
Momentum Business Applications, Inc. ("Momentum"), to select and develop certain
software application products, and to commercialize such products, most likely
through licensing to the Company. In exchange for all of the shares of Momentum
Common Stock outstanding prior to the distribution, the Company will contribute
up to $300.0 million to Momentum to be used for the development of these
software application products. The Company, as the sole holder of the Momentum
Class B Common Stock following the distribution, will have the option to
repurchase all, but not less than all, of the outstanding shares of Momentum
Class A Common Stock under specified conditions. In addition, in exchange for
technology licenses granted by the Company to Momentum and a commitment by the
Company to make specified payments on sales of certain products, the Company
will have the option to license any products and technology developed by
Momentum.
Momentum's software application development activities will take place
under a development and license agreement with the Company. It is anticipated
that substantially all of Momentum's funds will be directed toward developing
the following software application products: (i) electronic business
("e-business") applications; (ii) analytic applications; and (iii) software
applications designed for specific industry segments.
The goal of providing e-business applications, analytic applications and
industry-specific software applications for a number of different industries
involves an ambitious product development effort that requires market specific
domain expertise significantly different from the Company's existing skill base.
The Company believes that it should form Momentum to pursue this opportunity
because of time to market considerations and the unique skills and technologies
needed to develop these new software application products.
Therefore, the Company will contribute up to $300.0 million to Momentum
for development of such new products. Shares of Momentum Class A Common Stock
will be distributed to the Company's stockholders as a taxable dividend. By
creating Momentum and distributing the Momentum Class A Common Stock to the
Company's stockholders, the Company will separate the risks associated with
developing these new software application products from the risks associated
with the Company's traditional cross-industry enterprise resource planning
("ERP") applications. Thus, the transaction will provide an opportunity for the
Company's stockholders to increase or decrease their level of participation in
this new business by varying their level of investment in Momentum.
The Company will file a registration statement with the Securities and
Exchange Commission on behalf of Momentum relating to a proposed special
distribution of callable Class A Common Stock to the Company's stockholders.
Each stockholder will receive one share of callable Class A Common Stock for
every fifty shares of the Company's common stock held as of a specified date.
The Company's stockholders are not required to pay any cash or other
consideration for the Momentum shares received. The distribution is taxable as a
dividend to each holder in the amount of the fair market value of the Momentum
shares distributed to each shareholder.
The Company will record a dividend for the amount of the market value of
Momentum stock on the date of distribution. The remainder of the contribution
will be recorded as a one-time charge against operating income during the fourth
quarter.
Other income, consisting primarily of interest, increased from $2.5
million in the three month period ended September 30, 1997 to $5.9 million for
the same quarter in 1998, and increased from $7.0 million in the nine month
period ended September 30, 1997 to $14.3 million for the same period in 1998.
The increase was due to higher cash balances based upon improved cash
collections and higher pre-tax return on investments based on a shift into
higher yield taxable securities. In January 1998, the Company initiated a
foreign currency transaction hedging program. The hedging transactions were
effective in offsetting foreign currency transaction gains and losses in the
quarter ending September 30, 1998.
PROVISION FOR INCOME TAXES
The Company's income tax provision increased from $17.6 million in the
three month period ended September 30, 1997 to $27.1 million for the same
quarter in 1998 and increased from $43.2 million in the nine month period ended
September 30, 1997 to $71.8 million for the same period in 1998. The provision
for income taxes was 38% of income before taxes for the nine months ended
September 30, 1998, which represents a .5% decline from the 1997 annual
effective income tax rate of 38.5%. The effective tax rate is based on
management's current estimates and forecasts of the Company's taxable income in
multiple domestic and foreign taxing jurisdictions. The estimated annual
effective tax
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<PAGE> 14
rate is relatively sensitive to the results of operations in various
jurisdictions, and because actual results may differ from such projections in
future periods, the actual effective tax rate could differ from this estimate.
As permitted by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", the Company has recorded $47.0 million in net deferred tax
assets as of September 30, 1998.
EARNINGS PER SHARE
The Company's earnings per share are calculated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". This
method requires calculation of both a basic earnings per share and a diluted
earnings per share. The basic earnings per share excludes the dilutive effect of
common stock equivalents such as stock options and warrants, while the diluted
earnings per share includes such dilutive effects. Diluted earnings per share
increased from $0.11 in the three month period ended September 30, 1997 to $
0.17 for the same period in 1998 and from $0.27 for the nine month period ended
September 30, 1997 to $0.45 for the same period in 1998. Earnings per share for
the nine months ended September 30, 1998 increased as a result of the 70%
increase in net income from $68.8 million for the nine month period ended
September 30, 1997 to $117.1 million for the same period of 1998, partially
offset by a 4% increase in the number of shares used in the diluted per share
computation from 250.4 million shares for the nine month period ended September
30, 1997 to 259.4 million shares for the same period in 1998. The increase in
weighted average shares outstanding was due to the exercise of stock options,
the exercise of warrants in the fourth quarter of 1997, and the issuance of
shares under the employee stock purchase plan. Shares outstanding during the
remainder of 1998 will be impacted by the following factors: (i) the ongoing
issuance of common stock associated with stock option exercises; (ii) the
anticipated exercise during the fourth quarter of 1998 of warrants for
approximately 3.2 million shares; (iii) any fluctuations in the Company's stock
price, which could cause changes in the number of common stock equivalents
included in the earnings per share computation; and, (iv) the issuance of common
stock to affect business combinations should the Company enter into such
transactions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $269.7 million
during the nine month period ended September 30, 1998, compared to $147.4
million in the same period in 1997. In both periods, cash provided by operating
activities was due principally to earnings plus non-cash expenses, increases in
deferred revenues and accrued compensation and tax benefits related to employee
stock transactions that were partially offset by increases in other assets and
receivables. From December 31, 1997 to September 30, 1998, net accounts
receivable increased from $299.2 million to $351.6 million, respectively, and
deferred revenues increased from $327.7 million to $456.2 million over the same
period. The increase in net accounts receivable resulted from the growth in
customer licensing and service activity offset by cash collections. The
Company's expanded installed base of customers and emphasis on selling prepaid
maintenance and training contracts has resulted in a significant increase in
deferred revenues related to ongoing maintenance and other services. Increases
in payables and other assets were due to general growth in the Company's
operations.
As discussed under "Cost and Expenses", during the fourth quarter of
1998 the Company formed a new company, Momentum Business Applications, Inc.
("Momentum"), to select and develop certain software application products
outside the Company's core business. The Company will contribute up to $300.0
million during the fourth quarter to Momentum for development of new products.
The Company will file a registration statement with the Securities and Exchange
Commission on behalf of Momentum relating to a proposed special distribution of
callable Class A Common Stock to the Company's stockholders. Each stockholder
will receive one share of callable Class A Common Stock for every fifty shares
of the Company's common stock held as of a specified date. The Company's
stockholders are not required to pay any cash or other consideration for the
Momentum shares received. The distribution is taxable as a dividend to each
holder in the amount of the fair market value of the Momentum shares distributed
to each stockholder. The Company will record a dividend for the amount of the
market value of Momentum stock on the date of distribution. The remainder of the
contribution will be recorded as a one-time charge against operating income
during the fourth quarter.
In November 1995, PeopleSoft issued stock warrants with annual exercise
dates through 1999. The November 1998 maturity consists of 1,600,000 warrants
with an exercise price of $13.75 per share and 1,600,000 warrants with an
exercise price of $16.875 per share. Upon the annual notice of exercise by the
holders of the warrants, the Company, at its option, may settle such exercise by
either issuing the full amount of shares and receiving cash proceeds, issuing a
net amount of shares with no cash proceeds, or purchasing the warrants for an
amount equal to the difference between the then fair market value of the common
stock and the warrant exercise price. The Company has received notice that the
holders intend on exercising their 1998 warrants; by mutual consent of the
Company and the warrant holder, the maturity date for the warrants has been
extended to early December. The Company has elected the gross exercise provision
and thus will receive $49.0 million in the fourth quarter related to these
warrants.
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<PAGE> 15
The Company calculates accounts receivable days sales outstanding
("DSO") as the ratio of a quarter-end accounts receivable to the sum of
quarterly revenues and the net change in quarter-end current deferred revenues,
multiplied by 90. The Company believes this calculation is appropriate because
license fees are typically billable regardless of whether revenue has been
recognized or deferred. Under this method, DSO was 86 days as of September 30,
1997, 88 days as of December 31, 1997 and 84 days as of September 30, 1998.
Since billing terms of the Company's agreements typically are spread out over a
sequence of events (including contract execution through standard acceptance) or
dates that generally span four to nine months, and contracting activity is
concentrated at the end of each quarter, the Company anticipates that its DSO
will continue to be substantial in future periods.
During the first nine months of 1997 and 1998, the Company's principal
use of cash for investing activities included net purchases of investments and
property and equipment, comprised of computer and network equipment, to
accommodate employee and facility expansions and to support the Company's
growing training capacity requirements. As discussed in footnote 7 in the
condensed consolidated unaudited financial statements, during the third quarter
the Company entered into agreements to sell one of its Pleasanton, California
office buildings and related land, and lease back a substantial portion of the
premises. Additionally, the Company purchased two parcels of land for $50.0
million during the quarter. These transactions were structured as a like-kind
exchange for tax purposes and, therefore do not impact immediate cash flow. The
Company is committed to lease a $110.0 million building which will be
constructed on one of the sites. The construction is expected to be completed in
the first quarter of 2000. The lease term is for six years with the option to
purchase the building for $110.0 million at the end of the lease term. The
Company also entered into a five year lease for a new facility in Pleasanton,
California. The lessor has agreed to fund $70.0 million for the construction of
this facility that is expected to be completed in the fourth quarter of 1998.
The Company has an option to purchase the building at the end of the lease term
for $70.0 million. In the event the Company exercises the options to purchase
these buildings, the Company plans on utilizing cash flow from operations to
fund the purchase(s), however there can be no assurance that the Company will
maintain its levels of cash flows from operations. (1)
Financing activity for the first nine months of 1997 and 1998 related to
the proceeds from the exercise of common stock options by employees and stock
issuances under the employee stock purchase program. The Company believes
granting stock options is essential in attracting and retaining key employees
who are critical to the Company's success. The Company anticipates that it will
continue to grant a significant number of options each year. The actual number
of options granted each year is based on a variety of factors including the
Company's historical and anticipated employee count, the level of hiring
activity, competitive factors associated with the labor market, and comparison
of the Company's compensation philosophy and practice to other similar
technology companies. There can be no assurance that employee stock activity
will continue to generate substantial funds in the future.
As of September 30, 1998, the Company had $445.7 million in working
capital, including $474.9 million in cash and cash equivalents, and $151.0
million in short term investments, consisting primarily of high quality
municipal bonds and money market funds. The Company believes that existing cash
and short term investment balances, proceeds from sales of stock under the
employee purchase plan and stock option exercises, potential proceeds from
issuance of stock for warrants, and potential cash flow from operations will be
sufficient to meet its operating cash requirements, at least through September
1999(1).
ACQUISITIONS
The acquisition of Intrepid was completed in early October 1998 with the
Company acquiring all of Intrepid's outstanding equity interests for
approximately $45 million in cash and other consideration. Although initially
structured as a stock-for-stock exchange, the transaction was modified to a
cash-for-stock transaction to facilitate a more rapid close. The transaction
will be recorded in the Company's fourth quarter and will be accounted for under
the purchase method of accounting. Under the purchase method of accounting, the
purchase price is allocated to the net assets acquired, including in-process
research and development, based on their fair values. The portion of the
purchase price allocated to in-process research and development will be charged
to expense during the fourth quarter, the period in which the transaction
closed. The valuation to determine the fair value of the net assets acquired has
not been completed. Accordingly, the Company cannot estimate the amount of the
in-process research and development charge but believes it could be a
significant portion of the purchase price and may result in a significant charge
to earnings in the fourth quarter.
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(1) Forward-Looking Statement
15
<PAGE> 16
During June 1998, the Company entered into a definitive agreement to
acquire all outstanding equity interest of TriMark Technologies, Inc., a leading
provider of software solutions for the life insurance industry. The Company and
TriMark are taking initial steps toward the life insurance industry's first
single-source, integrated enterprise solution. The Company will issue shares of
common stock and options for all of the outstanding equity interests of TriMark
in a transaction that is expected to be accounted for as a pooling of interests.
The transaction is expected to close prior to the end of the first half of 1999.
Prior to closing the transaction, the Company and TriMark will operate
independently within a development, marketing, sales and support relationship
that will streamline the eventual merging of the two companies.
YEAR 2000
The Company has established a Year 2000 Program Management Office
("PMO") to ensure that it has adequately addressed exposures related to the Year
2000 and is Year 2000 Ready. "Year 2000 Ready" means that the performance or
functionality of the Company's internal systems will not be significantly
affected by the dates prior to, during, and after the Year 2000, to include leap
year calculations and specific day-of-the-week calculations. Through an
extensive risk analysis the Company has identified critical processes that will
require Level One Year 2000 Readiness testing. Level One testing will involve
full Year 2000 system and end-to-end testing. In cases where Level One testing
is not feasible, Level Two Readiness testing at the vendor site will be
employed. Additionally, all hardware and software associated with the Company's
identified critical business processes will be subject to Level Three Readiness
certification which consists of verification from the vendor indicating that the
item is Year 2000 Ready. At present, the PMO is in the process of establishing
dedicated test environments for Year 2000 Readiness testing. The building of the
environment and testing is based on a comprehensive methodology, a collaborative
effort between the Company and Compuware. The Year 2000 PMO anticipates that
testing of critical processes will commence during the fourth quarter of 1998.
Costs directly attributed to the Company's internal Year 2000
initiative, are currently estimated at approximately $2 million. This estimate
is comprised primarily of consulting fees and the cost of hardware and software
required to complete Year 2000 testing within the enterprise. This cost estimate
excludes internal resource costs for individuals outside of the PMO, however,
these costs are not considered to be material.
The Company, which was established in 1987, is a relatively new company
that does not have the level of exposure to Year 2000 issues as many older
companies. There are no legacy mainframe applications within the organization.
The Company's commercial application software products generally offered for
license by the Company are also used to develop internal business information
systems within the enterprise. In addition, third party software, hardware, and
telecommunication products are also used for the development of the Company's
systems. As a matter of strategic direction, the Company attempts to utilize the
most recent release versions/models of in-house and third party products. With
respect to embedded systems consisting of facilities, utilities, and third-party
interfaces on which the enterprise is dependent but does not have direct
control, the Company is in the process of developing detailed contingency plans
for its core support centers. The Company currently anticipates that the
approach described above will enable it to achieve Year 2000 readiness with
respect to its critical internal processes and therefore, the Company does not
expect that Year 2000 issues will have a material adverse impact on the
Company's financial condition. However, because of the vast scope of potential
Year 2000 issues, the Company cannot be certain to what extent the Company may
be impacted.
Although the Company feels confident that its internal critical
processes will be Year 2000 Ready, the Company does recognize that it is
vulnerable, as are most organizations, to the inability of significant
suppliers, third-party external interface suppliers, and utility organizations
to achieve Year 2000 Readiness. In light of these possibilities, the Company is
in the process of developing detailed contingency plans for its core support
centers to ensure the continuity of its operations.
FINANCIAL RISK MANAGEMENT
Foreign Exchange
The Company's revenue originating outside the United States was 15% of
total revenues in the first nine months of 1998 and 16% for the same period in
1997. International sales are made mostly from the Company's foreign sales
subsidiaries in the local countries and are typically denominated in the local
currency of each country. These subsidiaries also incur most of their expenses
in the local currency. Accordingly, all foreign subsidiaries use the local
currency as their functional currency.
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<PAGE> 17
The Company's international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors.
The Company's exposure to foreign exchange rate fluctuations arise in
part from intercompany accounts in which cost of software, including certain
development costs, incurred in the United States is charged to the Company's
foreign sales subsidiaries. These intercompany accounts are typically
denominated in the functional currency of the foreign subsidiary in order to
centralize foreign exchange risk with the parent company in the United States.
The Company is also exposed to foreign exchange rate fluctuations as the
financial results of foreign subsidiaries are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact overall expected profitability.
In the first quarter of 1998, the Company initiated a hedging program
designed to mitigate the potential for future adverse impact on intercompany
balances due to changes in foreign exchange rates. The program uses forward
foreign exchange contracts as the vehicle for hedging these intercompany
balances. In general, these forward foreign exchange contracts have three months
or less to maturity. Gains and losses on hedges are recorded in Other income and
offset against losses and gains on the underlying exposures. Management of the
foreign exchange hedging program is done in accordance with a corporate policy
approved by the Company's Board of Directors.
At September 30, 1998, hedge positions totaled U.S. Dollar 11.6 Million
equivalent. All hedge positions are carried at fair value and all hedge
positions had maturity dates within three months.
For the nine month periods ended September 30, 1997 and 1998, the
Company's revenues in the Asia/Pacific region, which includes Far East countries
and Australia and New Zealand, were less than 5% of total revenues. As of
September 30, 1998, less than 5% of the Company's assets are in the Asia/Pacific
region. the Company's operations in the region are relatively new and to date
are generating losses and negative cash flows. As the Asia/Pacific currencies
devalue, the translated loss reported on the consolidated financial statements
decreases. In addition, such currency devaluations cause the Company's cash
funding requirements of these foreign subsidiaries to decrease.
Interest Rates
The Company invests its cash in a variety of financial instruments,
including bank time deposits, and taxable and tax-advantaged variable rate and
fixed rate obligations of corporations, municipalities, and local, state and
national governmental entities and agencies. These investments are denominated
in U.S. Dollars. Cash balances in foreign currencies overseas are operating
balances and are only invested in short term time deposits of the local
operating bank.
Interest income on the Company's investments is recorded in Other
income. The Company accounts for its investment instruments in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). All of the cash
equivalent, short term, and long term investments are treated as
"available-for-sale" under SFAS 115.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations due to changes in interest rates or the Company
may suffer losses in principal if forced to sell securities which have seen a
decline in market value due to changes in interest rates.
The Company's investments are made in accordance with an investment
policy approved by the Board of Directors. At September 30, 1998, the average
maturity of the Company's investment securities was approximately four months.
No investment securities had maturities exceeding two years. The following table
presents certain information about the Company's financial instruments at
September 30, 1998 that are sensitive to changes in interest rates. These
instruments are not leveraged and are held for purposes other than trading. For
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<PAGE> 18
available-for-sale investment securities, the table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
The Company believes its available-for-sale securities, comprised of highly
liquid debt securities of corporations, municipalities, and the U.S. Government,
are similar enough to aggregate. Because of the Company's effective tax rate,
the Company finds it advantageous to invest largely in tax-advantaged
securities, therefore the average interest rates below are most comparable to
tax-exempt interest rates. Below is a tabular presentation of the maturity
profile of the available-for-sale investment securities held by the Company at
September 30, 1998:
INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY
WEIGHTED AVERAGE INTEREST RATE
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1 YEAR OR MORE THAN TOTAL FAIR VALUE
LESS 1 YEAR 9/30/98
- --------------------------------- ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
Available-for-sale securities $324.0 $51.7 $375.7 $376.2
Weighted average interest rate 3.9% 3.9%
</TABLE>
The Company is not an issuer of any corporate debt nor does it have any
bank borrowings outstanding.
BUSINESS OUTLOOK
The following forward-looking statements are based on current
expectations which are subject to material change due to a variety of factors
including but not limited to, those which are listed below and in the section
titled "Factors That May Affect Future Results". These forward-looking
statements and other forward-looking statements made elsewhere in this document
are made in reliance upon safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements include, but are not
limited to, those items identified with a footnote (1) symbol. The Company
undertakes no obligation to update the information contained herein.
o Based on the Company's current expectations of contracting activity, a
review of the Company's deferred license fee revenue position, and an
analysis of the Company's service delivery capacity and the expected
customer utilization of such services, the Company forecasts total revenues
for 1998 to increase approximately 60% over total revenues recorded in the
prior year (1). For the 1999 calendar year, the Company forecasts total
revenues to increase in the range of 25% to 35% over the total revenues
currently expected to be recorded for 1998 (1). As with any forecast, actual
results could vary within a few percentage points on either side of these
estimates even if there are no material changes to the underlying
assumptions, and longer term forecasts can be expected to have relatively
higher variability. The Company's confidence level in its forecasts are
lower than in the recent past due to economic uncertainties, the potential
impact of the Year 2000 problem on the enterprise market, increasing levels
of competition in the enterprise market, and the potential maturation of the
enterprise applications market. Moreover, the Company experienced a
difficult third quarter period for license sales, including a number of
large contracts which were anticipated to close in the quarter but were
pushed out or canceled by the customers due apparently to economic
uncertainties. In addition, the Company opens the fourth quarter with lower
than planned deferred license fees, which reduces the amount to flow into
revenue in future periods. The key assumptions on which this forecast is
based include, but are not limited to, the following: (i) total actual
available market opportunities in the range of those forecasted by certain
major information technology market research firms; (ii) the preservation of
the Company's ability to generate a sufficient number of qualified leads
through its ongoing marketing programs; (iii) an increase in the Company's
direct sales capacity through the successful recruitment, hiring, training
and retention of additional sales and sales support personnel; (iv) a
competitive environment consistent with recent experience rather than a
competitive environment that may increase in intensity of pricing and terms
and conditions; (v) no significant change in U.S. and worldwide IT budgets
and activities versus recent experience as the Year 2000 approaches; and
(vi) no significant deterioration in the global economic environment or
associated general reduction in capital investment due to economic
uncertainty. In addition, the achievement of expected contracting activity
and total revenues is highly dependent upon the Company's ability to
successfully manage the potential risks detailed below in the section titled
"Factors That May Affect Future Results" including, but not limited to,
increasing economic uncertainty across all geographies in which the Company
operates; potential for increasing intensity of market competition, the
potential slowdown to the Year 2000 problem; fluctuations in quarterly
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operating results; changes in customer demand; the timing and complexity of
large transactions including the bundling of significant amounts of
professional services; ability to recognize contracting activity in the
current quarter under revenue recognition accounting rules; success of
international operations; reliance on third parties for sales, marketing and
implementation assistance; timing and acceptance of software products and
product development; and the ability to execute hiring and facility
expansion plans.
o The Company's current operating model is based on a rolling four quarter
target operating margin of between 18% and 20%. The Company forecasts that
the 1998 full year results will fall within this range and that the fourth
quarter operating margin is likely to be at the lower end of this range (1).
These operating margin forecasts exclude the one-time charges associated
with the purchase of Intrepid Systems, Inc. and the Momentum transaction,
both charges are expected to be incurred in the fourth quarter. Due to the
significant operating leverage which is characteristic of the software
industry, any deviation in the expected revenues could significantly impact
the Company's ability to meet the target operating margins. Achievement of
forecasted operating margins is highly dependent upon the Company's ability
to successfully manage the potential risks detailed below in the section
titled "Factors That May Affect Future Results" including, but not limited
to, achievement of revenue forecasts as discussed above; continued
introduction and marketing of new and enhanced versions of software
products; successful penetration of international markets; continued
acceptance of the Company's software products, particularly its proprietary
software development tools; successful porting and acceptance of its
software products on a variety of platforms; continued acceptance of its
application security architecture and intellectual property, preservation of
its proprietary rights and product liability protections; and continued
success in hiring, training and retaining key personnel and completing
expansion of facilities.
o Based on projected cash and investment balances, the expected distribution
of cash to Momentum, current interest rates (which have declined recently)
and no unusual items of other income or expense, the Company expects other
income for the fourth quarter of 1998 to be slightly down compared to the
level of other income recorded in the third quarter of 1998 (1). The
achievement of forecasted other income targets is dependent on: (i) stable
financial markets which preclude a significant overall decline in investment
yields, or a significant fluctuation in foreign currency exchange rates, and
(ii) avoidance of default on any individual significant investment. Should
the Company decide to utilize a significant portion of its current cash and
investments to acquire complementary businesses, products, technologies,
additional facilities through purchase of land and/or buildings, repurchase
shares of stock, or pay dividends, interest income may decline significantly
causing other income to deviate from forecasted amounts.
o Based on current tax law and the Company's present forecast of operating
results by country, the Company expects its effective tax rate in 1998 to be
38%, excluding the impact on this rate, if any, of the purchase of Intrepid
Systems, Inc. and the anticipated Momentum transaction (1). The estimated
annual effective tax rate is relatively sensitive to the results of
operations in various foreign legal entities, and because such projections
may change in future periods, the actual effective tax rate could differ
from this estimate.
Please read the section below titled "Factors That May Affect
Future Results" for additional information and discussion of conditions which
the Company believes could cause actual results to differ materially from those
contemplated by forward-looking statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company has identified certain forward-looking statements in
the Management's Discussion and Analysis of Financial Condition and Results of
Operations (which includes the Business Outlook Section) with a footnote (1)
symbol. The Company may also make oral forward-looking statements from time to
time. Actual results may differ materially from those projected in any such
forward-looking statements due to a number of factors, including those set forth
below and elsewhere in this Form 10-Q.
The Company operates in a dynamic and rapidly changing environment
that involves numerous risks and uncertainties. The following section lists
some, but not all, of these risks and uncertainties that may have a material
adverse effect on the Company's business, financial condition or results of
operations. This section should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements and Notes thereto included
- --------
(1) Forward-Looking Statement
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in Part I -- Item 1 of this Quarterly Report and the audited Consolidated
Financial Statements and Notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations for the year ended December 31,
1997, contained in the Company's 1997 Annual Report to Stockholders (Form 10-K).
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's revenues and operating results can vary substantially from
quarter to quarter. License revenues in any quarter are substantially dependent
on the aggregate contracting activity and the Company's ability to recognize
revenue in that quarter in accordance with its revenue recognition policies.
Contracting activity is difficult to forecast for a variety of reasons
including: (i) increasing economic uncertainty across all geographies in which
the Company operates; (ii) potential maturation of the enterprise software
market; (iii) a significant portion of the Company's license agreements are
completed within the last few weeks of each quarter; (iv) the duration of the
Company's sales cycle is relatively long and increasingly variable because the
Company has broadened its marketing emphasis to encompass software product
solutions for each customer's overall business, thereby increasing the financial
value of individual transactions and the complexity of the customer selection,
negotiation and approval process; (v) the size of license transactions can vary
significantly; (vi) system replacement projects and new system evaluations may
be postponed or canceled at any time due to changes in a customer's project,
customer company management, budgetary constraints or strategic priorities;
(vii) customer evaluations and procurement processes vary significantly from
company to company, and a customer's internal approval and expenditure
authorization process can be arduous, even after selection of a vendor; (viii)
the number, timing and significance of software product enhancements and new
software product announcements by the Company and its competitors; (ix)
potential customer evaluations of their legacy systems and their decisions
whether to repair or replace existing applications which have Year 2000
operability issues; (x) changes in the Company's sales incentive plans have had
and may continue to have an unpredictable impact on seasonal business patterns;
and (xi) changes in economic, political and market conditions can adversely
impact business opportunities without reasonable notice. With respect to
potential customer evaluations of their Year 2000 operability issues, while the
Company believes that such evaluations through early 1998 have, on balance,
increased demand for its applications, such demand is subject to change as the
Year 2000 draws closer since lead times required to complete systems
implementations preclude system replacement as a timely solution to the Year
2000 issue. More recently, and in particular with respect to the third quarter
of 1998, the Company believes that Year 2000 issues have actually decreased
demand for its applications. Given the lack of precedent for an issue of this
magnitude, the Company's ability to accurately forecast the impact of the issue
on quarter to quarter revenue achievement is limited.
The Company's recognition of license fee revenue can be deferred for a
significant period of time after execution of the related license agreements as
a result of several factors, including the following: (i) the license agreement
may be entirely related to then currently undeliverable software products; and
(ii) enterprise transactions may include software products that are then
currently deliverable, as well as software products that are still under
development. To the extent that Company enters into a license agreement for the
provision of both software product categories, the Company must have established
separate values for all elements under the license agreement, and the license
agreement and supporting schedules to the license agreement must contain very
precise contractual provisions consistent with generally accepted accounting
principles to permit any revenue recognition under the license agreement. Other
factors in determining the Company's recognition of license fee revenue include
the following: (i) whether the customer demands services that include
significant modifications, customizations or complex interfaces; (ii) whether
the license agreement includes non-standard acceptance criteria which may
preclude revenue recognition prior to customer acceptance; and (iii) whether the
license agreement includes fees with extended payment terms or fees that are
dependent upon acceptance of services or other contingencies. All of the above
factors, as well as other specific requirements under recently published
generally accepted accounting standards for software revenue recognition, create
circumstances under which the Company must have very precise contractual
agreements in order to recognize revenue upon initial software product delivery.
Although the Company has a standard form of license agreement that meets the
demanding criteria under generally accepted accounting principles, the Company
must often negotiate and revise certain terms and conditions in large enterprise
transactions. Negotiation of mutually acceptable language can extend the sales
cycle, and in certain situations, the Company does not always obtain terms and
conditions that permit recognition of revenue at the time of delivery or even
allow the recognition of revenue using percentage of completion contract
accounting. These factors arising from contract negotiations, coupled with the
reduction of the deferred license fees at the end of the third quarter increase
the Company's dependence on signing contracts in the future that generate
revenue in the same quarter as a means to avoid quarterly fluctuations of
revenue.
Service revenues may vary from quarter to quarter due to variances in
prior quarter contracting activity because service revenue typically lags
license fee revenue. The Company's ability to increase services revenue is
dependent on its ability to increase the number of its licensing agreements that
provide opportunities for consulting,
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training, and subsequent maintenance revenues. Additionally the Company may not
be able to recruit, hire, and train sufficient numbers of qualified consultants
to perform such services.
POSSIBLE ADVERSE IMPACT OF RECENT ACCOUNTING PRONOUNCEMENT
Statement of Position ("SOP") 97-2, "Software Revenue Recognition" and
SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition" were issued by the American Institute of Certified Public
Accountants in October 1997 and March 1998, respectively and address software
revenue recognition matters. These standards supersede SOP 91-1 and are
effective for transactions entered into for fiscal years beginning after
December 15, 1997. The Company believes its current revenue recognition policies
and practices are materially consistent with these standards. However, complete
implementation guidelines for these standards have not yet been issued and a
wide range of potential interpretations is being discussed within the accounting
profession. Once available, such implementation guidance could lead to
unanticipated changes in the Company's current revenue accounting practices, and
such changes could materially adversely affect the Company's future revenue and
net income.
In addition, such implementation guidance may necessitate substantial
changes in the Company's business practices in order for the Company to continue
to recognize a substantial portion of its license fee revenue upon delivery of
its software products. Such changes may reduce demand, extend sales cycles,
increase administrative costs and otherwise adversely affect operations. In
addition, the Company could become competitively disadvantaged relative to
foreign-based competitors not subject to U.S. generally accepted accounting
principles.
An accounting committee of the AICPA is currently considering
implementation guidance for these standards and may issue such guidance in the
near future. Depending on the nature of the guidance issued by the committee,
such guidance may cause adverse changes in the Company's revenue recognition
practices, which may significantly impact the Company's revenues and earnings.
OPERATING LEVERAGE
Like many of its competitors, the Company's business model is
characterized by a very high degree of operating leverage. Employee and facility
related expenditures comprise a significant portion of the Company's operating
costs and expenses, and over the short term are relatively fixed. In addition,
the Company's expense levels and hiring plans are based, in significant part, on
the Company's projections of future revenue. If revenue levels fall below
expectations, net income is likely to be disproportionately adversely affected.
There can be no assurance that the Company will be able to increase or even
maintain its current level of profitability on a quarterly or annual basis in
the future.
FUTURE OPERATING RESULTS UNCERTAIN
Segments of the software industry have experienced significant economic
downturns characterized by decreased product demand, price erosion,
technological shifts, work slowdowns and layoffs. The Company's operations may,
in the future, experience substantial fluctuations from period to period as a
consequence of such industry patterns, general economic conditions affecting the
timing of orders from customers, and other factors affecting capital spending.
There can be no assurance that any one or more of such factors will not have a
materially adverse effect on the Company's business, operating results,
financial condition, or business prospects. Although the Company's 1998
operating budget is based on projections of a material increase in total
revenues over the corresponding actual results for 1997, the Company does not
believe that the percentage increases in revenues achieved in prior periods
should be anticipated in future periods.
The operating results of many software companies reflect seasonal
trends, and the Company has been, and expects to continue to be, affected by
such trends in the future. The Company's seasonal revenue patterns, which are
typically characterized by relatively weak first and second quarters and
relatively strong third and fourth quarters, can be caused by a variety of
factors, including sales incentives, customer demand based on available capital
budgets and release of new technologies. However, there can be no assurance that
the fourth quarter of the current fiscal year will produce stronger revenues or
earnings than those recorded in the first three quarters.
INTERNATIONAL OPERATIONS
The Company has committed, and will continue to commit substantial
resources and funding to build its international service and support
infrastructure. Operating costs in many countries, including many of those in
which the Company operates, are higher than in the United States. In order to
increase international sales in 1998
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and subsequent periods, the Company must continue to globalize its software
product lines, expand existing and establish additional foreign operations, hire
additional personnel, identify suitable locations for sales, marketing, customer
service and development, and recruit international distributors and resellers in
selected territories. If the Company's international expansion and/or product
globalization is not successful, it is likely to have a negative impact on the
Company's operating results.
The Company's sales through its foreign operations are generally
denominated in the functional currency of each of its foreign subsidiaries.
Unexpected changes in the exchange rates for these foreign currencies could
result in significant fluctuations in the foreign currency transaction and
translation gains and losses in future periods. In January 1998, the Company
implemented a hedging program designed to mitigate the potential impact of
exchange rate fluctuations. In addition to hedging existing transaction
exposures, the Company's foreign exchange management policy allows for the
hedging of anticipated transactions, and exposure resulting from the translation
of foreign financial results into U.S. Dollars. Such hedges can only be
undertaken to the extent that the exposures are highly certain, reasonably
estimable, and significant in amount. These hedges will only be undertaken
should the Company deem them necessary to protect the U.S. Dollar value of the
underlying exposure. The Company began hedges of existing foreign currency
transaction exposures in the first quarter of 1998. However, if the Company is
unable to hedge potential significant exposures due to lack of certainty or
ability to reasonably estimate its foreign exchange exposure, there could be a
material adverse impact to the Company's operating results.
COMPETITION
The market for business application software has been intensely
competitive for the past three years and is currently intensifying. The Company
faces competition from a variety of software vendors including enterprise
application software vendors, manufacturing application software vendors,
enterprise resource optimization application software vendors, financial
management systems and HRMS application software vendors and software tools
vendors. Although the Company believes its success has been due in part to its
early emphasis on the client/server architecture, virtually all of the Company's
competitors now offer software products based on a client/server architecture.
Consequently, competitive differentiators now include more subtle architectural
and technological factors, such as web enablement, enterprise software product
breadth and individual product features, service reputation, product
flexibility, ease of implementation, international software product version
availability and support, and price.
Intense competition could potentially lead to increased price
competition in the market, forcing the Company to reduce prices which may result
in reduced gross margins and loss of market share by the Company which in turn,
could materially adversely affect the Company's business, operating results,
financial condition, and business prospects.
In recent quarters, the Company has observed increasingly aggressive
pricing practices and/or unusual terms and conditions offered to customers by or
on the part of its competitors. There can be no assurance that the Company will
continue to compete successfully with its existing competitors or will be able
to compete successfully with all new competitors that may enter into the
enterprise application software market, the Company faces significant
competition from SAP AG and Oracle Corporation, and to a lesser degree, Dun &
Bradstreet Software (now operating as two separate divisions of Geac Computer
Systems, Inc.), Computer Associates International, Inc. and other companies such
as System Software Associates who previously focused primarily on the AS/400
marketplace. In this market, the chief competitive factors include the breadth
and completeness of the enterprise solution offered by each vendor, the extent
of software product integration across the enterprise solution, the viability
and reputation of the software vendors, and the availability of localized
software products and technical support in key markets outside the United
States. Primarily due to their significant worldwide presence and longer
operating and product development history, both SAP and Oracle have certain
competitive advantages over the Company in each of these areas. In addition,
both SAP and Oracle have substantially greater financial, technical and
marketing resources, and a larger installed base than the Company. Furthermore,
Oracle's RDBMS (relational database management system) is a supported platform
underlying a significant share of the Company's installed applications.
The Company entered the manufacturing software application markets in
1996. In these markets, the Company faces competition from several of its
existing competitors including those listed immediately above and others such as
Baan Company N.V., QAD, Ross Systems, J.D. Edwards and a large number of niche
competitors already in the manufacturing market.
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In addition, since its acquisition of Red Pepper Software in the fourth
quarter of 1996, the Company has competed in the emerging enterprise resource
optimization software solutions market. the Company faces several current and
potential competitors in this market including: (i) companies such as i2
Technologies, Manugistics and Numetrix Software which have developed or are
attempting to develop advanced planning and scheduling software products which
complement or compete with MRP (material requirements planning) solutions; (ii)
other companies that provide specialized planning and scheduling software for
niche markets, including Chesapeake Systems, Waterloo Manufacturing Software,
MAPICS, Inc. (formerly Marcam Corporation), Marcam Solutions, Inc. and Cap
Logistics; (iii) other business application software vendors that may broaden
their product offerings by internally developing (such as SAP's initiatives in
this area), acquiring (such as Baan's acquisitions of Berclain Group, Inc. and
Antalys, Inc.) or partnering with independent developers of advanced planning
and scheduling software; (iv) internal development efforts by corporate
information technology departments; and (v) companies offering standardized or
customized products on mainframe and/or mid-range computer systems.
The Company also faces competition from providers of HRMS software
products including Cyborg Systems, Lawson Associates, Integral Systems, Inc.,
InPower, Inc. and Ceridian, and from providers of financial management systems
software products including Computron Software, Inc., Flexiware International,
Hyperion Software, Lawson Associates and other smaller companies. During the
third quarter of 1998, the Company mutually terminated a distribution agreement
with Shared Medical Systems, Inc. ("SMS"). SMS had the right to sublicense
selected the Company's software products in competition with the Company's
marketing efforts in the healthcare market.
In addition, as the year 2000 approaches, potential customers may
consider outsourcing options, including data center outsourcing and service
bureaus, as viable alternatives to purchasing the Company's software products
which in turn may result in increased competition from outsource services such
as Computer Science Corporation (CSC), Electronic Data Systems Corporation
(EDS), IBM, ADP, Ceridian, and other smaller companies. During the third quarter
of 1998, the Company signed agreements with IT service providers CIBER, Inc.,
CSC, Corio, KPMG Peat Marwick, reSOURCE PARTNER, and Usinternetworking to
provide industry-specific outsourcing solutions encompassing software
implementation and management services. Although the Company is pursuing an
outsourcing partner program which the Company believes will address the
potential requirements of the marketplace, no assurance can be given to the
ultimate success, or the significance of any revenue to be generated from such
program
CERTAIN RISKS ASSOCIATED WITH ACQUISITIONS
As part of its overall strategy, the Company plans to continue to
acquire or invest in complementary companies, products, or technologies and to
enter into joint ventures and strategic alliances with other companies. Risks
commonly encountered in such transactions include the difficulty of assimilating
the operations and personnel of the combined companies, the potential disruption
of the Company's ongoing business, the inability to retain key technical and
managerial personnel, the inability of management to maximize the financial and
strategic position of the Company through the successful integration of acquired
businesses, decreases in reported earnings as a result of charges for in-process
research and development and amortization of acquired intangible assets,
decrease in earnings as a result of additional costs associated with the
acquired entity, adverse impact on the Company's annual effective tax rate,
dilution of existing equity holders, difficulty in maintaining controls,
procedures, and policies, and the impairment of relationships with employees and
customers as a result of any integration of new personnel. There can be no
assurance that the Company would be successful in overcoming these risks or any
other problems encountered in connection with such business combinations,
investments, or joint ventures, or that such transactions will not materially
adversely affect the Company's business, financial condition, or operating
results.
In the fourth quarter, the Company completed its acquisition of Intrepid
Systems, Inc., which will be accounted for under the purchase method of
accounting. The Company is currently evaluating the purchase price and the
related accounting treatment. Potential writedowns associated with the
acquisition may significantly impact fourth quarter earnings. In addition,
depreciation and amortization charges associated with Intrepid's acquired assets
may impact earnings in 1999 and thereafter.
RELIANCE ON PROPRIETARY SOFTWARE DEVELOPMENT TOOLS
The Company's software products include a suite of proprietary software
development tools known as "PeopleTools," which are fundamental to the effective
use of the Company's software products. While no industry standard exists for
software development tools, several companies have focused on providing software
development
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tools and are attempting to establish their software development tools as
accepted industry standard. In the event that a software product other than
PeopleTools becomes the clearly established and widely accepted industry
standard, the Company may need to abandon or modify PeopleTools in favor of such
an established standard, may be forced to redesign its software products to
operate with such third party's software development tools, or may be faced with
the potential sales obstacle of marketing a proprietary software product against
other vendors' software products incorporating a standardized software
development toolset. Accordingly, in any of these cases, the Company's results
of operations could be materially adversely affected.
RELIANCE ON THIRD PARTIES FOR SALES AND MARKETING
A key aspect of the sales and marketing strategy for the Company is to
build and maintain strong working relationships with businesses the Company
believes play an important role in the successful marketing of its software
products. The Company's customers and potential customers often rely on third
party system integrators to develop, deploy and manage client/server
applications. These include: (i) RDBMS software vendors; (ii) hardware vendors
which offer both hardware platforms and, in the case of IBM, proprietary RDBMS
products on which the Company's software products run; (iii) technology
consulting firms and systems integrators, some of which are active in the
selection and implementation of large information systems for the
information-intensive organizations that comprise the Company's principal
customer base; and (iv) benefits consulting firms that are active in the
implementation of HRMS. The Company believes that its marketing and sales
efforts are enhanced by the worldwide presence of these companies. However,
there can be no assurance that these companies, most of which have significantly
greater financial and marketing resources than the Company, will not start, or
in some cases increase, the marketing of business application software in
competition with the Company, or will not otherwise discontinue their
relationships with or support of the Company. If the Company or its partners are
unable to recruit and adequately train a sufficient number of consulting
personnel to support the implementation of the Company's software products,
demand for these software products could subsequently be materially adversely
affected. In addition, the Company's software application architecture,
including PeopleTools, may facilitate reduced implementation efforts for
customers compared to the competitive alternatives. Consequently, the Company's
software products may be a less desirable recommendation alternative for
integrators who both provide selection advice and generate consulting fees from
customers by providing implementation services. Due to the foregoing factors,
the Company's results of operations could be materially adversely affected.
DEPENDENCE ON THIRD PARTY TECHNOLOGY
The Company incorporates numerous critical third party software products
into its software product offerings under reseller license agreements with third
parties. In the event that any of the Company's licenses to such software are
terminated, there could be a material adverse effect to the Company including
its products becoming inoperable or their performance being materially reduced.
If any of the third party software vendors change their product offerings, the
Company may need to incur additional engineering costs to ensure continued
performance of its products. In addition, material increases in the cost to
license any of these third party software products could result in a material
adverse change from the Company's historical gross margin levels.
The Company relies on existing partnerships with certain other software
vendors who are also competitors. For example, the Company partners with Oracle
when the Company's customers select an Oracle database to run in conjunction
with the Company's financial package. However, Oracle is a competitor of the
Company in the financial data management area. These partners/competitors may
change their business practices in the future resulting in the Company's need to
find alternative vendors of complementary software.
COMPLEXITY OF SOFTWARE PRODUCTS AND PRODUCT DEVELOPMENT
The market for the Company's software products is characterized by rapid
technological change, evolving industry standards, changes in customer
requirements and frequent new product introductions and enhancements. The
Company's future success will depend in part upon its ability to continue to
enhance and expand its core applications, to continue to provide enterprise
solutions, to enter new markets and to develop and introduce new products that
keep pace with technological developments, satisfy increasingly sophisticated
customer requirements and achieve market acceptance. If the Company is unable to
enhance existing products or develop and introduce new products in a timely
manner, the Company's business and results of operations could be materially
adversely affected.
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The Company's software products can be licensed for use with a variety
of popular industry standard RDBMSs. There may be future or existing RDBMS
platforms which achieve popularity within the business application marketplace
and on which the Company may desire to offer its applications. Such future or
existing RDBMS products may or may not be architecturally compatible with the
Company's software product design. No assurance can be given concerning the
successful development of the Company's software products on additional
platforms, the specific timing of the releases of any future software products,
the performance characteristics of PeopleSoft applications on additional
platforms or their acceptance in the marketplace.
Beginning with Release 6, the Company integrated certain features of
BEA's Tuxedo product into its applications. Over the next several releases,
additional Tuxedo features will be integrated to allow applications to run on a
distributed basis using a multi-tiered client/server architecture. Cognos'
Powerplay product and Arbor's Essbase product will be bundled to incorporate
desktop on-line analytical processing ("OLAP") capabilities. Such enhancements
may be critical to the competitiveness of the Company's software products in the
future. Integration of these and other products is complex and no assurance can
be made that these efforts will be successful or result in significant software
product enhancements.
Software programs as complex as those offered by the Company are likely
to contain a number of undetected errors or "bugs" when they are first
introduced or as new releases are thereafter released. Despite testing by the
Company and by third-parties, errors or system performance issues may arise with
the possible result of reduced acceptance of the Company's software products in
the marketplace. Due to the increasing number of possible combinations of vendor
hardware platforms, operating systems and updated versions, PeopleSoft
application software products and updated versions, and RDBMS platforms and
updated versions, the effort and expense of developing, testing and maintaining
these software product lines in an increasing number of combinations will
increase, and the ability to develop consistent software product performance
characteristics across all of these combinations could place a significant
strain on the Company's development resources and software product release
schedules.
RELIANCE ON CLIENT PLATFORMS
At the present time, the Company supports client platforms utilizing
browsers certified to run Java based Web client, or Microsoft's Windows family
of software products, including Windows 3.1 (PeopleSoft releases prior to
Release 6 only), Windows NT and Windows 95. If Microsoft were to fundamentally
change the architecture of its software product such that users of the Company's
software applications experienced significant performance degradation or were
rendered incompatible with future versions of Microsoft's Windows Operating
System, the Company's results of operations could be materially adversely
affected. The use of a Web browser (running on either a PC or network computer)
to access client/server systems is emerging as an alternative client to the
traditional desktop access through Microsoft Windows based personal computers.
Such client access via the Internet will be subject to numerous risks inherent
in utilizing the Internet including security, availability and reliability.
There may be future or existing client platforms which achieve popularity within
the business application marketplace and on which the Company may desire to
offer its applications. Such future or existing client platforms may or may not
be architecturally compatible with the Company's software product design. No
assurance can be given concerning the Company's successful support for new
client platforms, the specific timing of their availability or their acceptance
in the marketplace.
RELIANCE ON JOINT BUSINESS ARRANGEMENTS
The Company has entered, and may in the future enter, into various
development or joint business arrangements for the purpose of developing new
software products or extensions to existing software products. Under these
development arrangements, the Company is generally the exclusive remarketer of
the developed software products and pays a royalty to the funding entities based
on license fees received from end user licenses of these software products.
Under joint business arrangements, the Company may distribute or jointly sell
with its business partner an integrated software product. While the intent of
such arrangements is to develop business applications that are integrated with
the Company's software products, there can be no assurance that such software
products will in fact be integrated or that an integrated enterprise solution
will be accepted by the market. In addition, should such arrangements require
additional investments from third parties or business partners to complete
development or enhance the software product, there can be no assurance that
investments will be available on terms mutually acceptable to the Company and
the business partner, or the existing or other potential third party funding
source(s). Should the Company acquire title to the software products or
technology from the third party entity, such an acquisition might be accounted
for using the purchase method which is likely to result in either or both of the
following accounting treatments: (i) a charge to earnings for in-process
research and development which would be recorded in the Statement of Income in
the period such acquisition was completed; or (ii) the creation of
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significant intangible assets by virtue of an allocation of a substantial
portion of the purchase price to the acquired technology or other intangible
assets. Such intangible assets would be amortized in future periods as a cost of
operations. Should either of these scenarios occur, the results of operations of
one or more future periods could be materially adversely impacted. For example,
in connection with its acquisition of PMI in 1996, the Company incurred a charge
to earnings of $22.5 million for in-process research and development.
APPLICATION SECURITY ARCHITECTURE
The Company's application software products incorporate extensive
security features designed to protect certain sensitive data managed by these
applications from unauthorized retrieval or modification. The Company has
developed a security architecture utilizing the capabilities of its own
applications, the client operating system software, some of the security
features contained in the RDBMS platforms on which the applications run, as well
as certain third party security products. To date, the Company is not aware of
any violations of its application security architecture within its installed
base. Although these security features are subject to constant review and
enhancement, no assurances can be given concerning the successful implementation
of these security features and their effectiveness within a particular
customer's operating environment. Should a breach of security or a suspected
breach of security occur, the accompanying publicity or any subsequent claims
against the Company could have an adverse impact on the demand for the Company's
software products and/or cause a decline in the market price of the Company's
stock and/or adversely impact the Company's financial results due to lost or
delayed closing of software licensing opportunities.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company regards certain aspects of its internal operations, software
and documentation as proprietary, and relies on a combination of contract,
patent, copyright, trademark and trade secret laws and other measures to protect
its proprietary information. The Company has title to five software patents. In
July of 1998, the Company received title to another software patent relating to
Iterative Repair Optimization. This patent, in addition to an earlier issued
patent relating to the Red Pepper Software, also have pending continuation
applications. There can be no assurance that any issued patents will result from
such applications or that, even if issued, such patents will provide any
meaningful competitive advantage or protection. Existing copyright laws afford
only limited protection. The Company believes that, because of the rapid pace of
technological change in the computer software industry, patent, trade secret and
copyright protection are less significant than factors such as the knowledge,
ability and experience of the Company's employees, frequent software product
enhancements and the timeliness and quality of support services. There can be no
assurance that these protections will be adequate or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. Many customers of the
Company are beneficiaries of a source code escrow arrangement to enable the
customer to acquire a future limited right to use the Company's source code
solely for their internal provision of maintenance services. This possible
access to the Company's source code may increase the likelihood of
misappropriation or other misuse of the Company's intellectual property. In
addition, the laws of certain countries in which the Company's software products
are or may be licensed do not protect the Company's software products and
intellectual property rights to the same extent as the laws of the United
States.
The Company does not believe that its software products, software
products acquired from acquisitions, third party software products the Company
offers under sublicense agreements, Company trademarks or other Company
proprietary rights infringe the property rights of any third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future software
products or that any such assertion may not require the Company to enter into
royalty arrangements or result in costly litigation.
PRODUCT LIABILITY
The Company's license agreements contain provisions designed to limit
the exposure to potential product liability claims. It is possible, however,
that the limitation of liability provisions contained in such license agreements
may not be valid as a result of federal, state, local laws or ordinances or
unfavorable judicial decisions. Although the Company has not experienced any
product liability claims to date, the license and support of its software for
use in mission critical applications creates the risk of a claim being pursued
against the Company. Damage or injunctive relief resulting under such a
successful claim could cause a materially adverse impact on the Company's
business, operating results and financial condition. In addition, as the Company
continues to compete in the manufacturing software application market, the
mission critical nature of such software products may increase the Company's
exposure to product liability claims against the Company.
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<PAGE> 27
GROWTH IN OPERATIONS
The Company has experienced an extended period of significant revenue
growth, growth in the Company's customer base, expansion of its software product
lines and supported platforms, a significant expansion in the number of its
employees, increased pressure on the viability and scope of its operating and
financial systems and expansion in the geographic scope of its operations. This
growth has resulted in new and increased responsibilities for management
personnel and has placed a significant strain upon the Company's management,
operating and financial controls and resources, including its services and
development organizations. To accommodate recent growth, compete effectively and
manage potential future growth, the Company must continue to implement and
improve the speed and quality of its information decision support systems,
management decisions, reporting systems, procedures and controls. There can be
no assurance that the Company's personnel, procedures, systems and controls will
be adequate to support the Company's future operations.
KEY PERSONNEL
The Company believes that its continued success will depend in large
part upon its ability to attract, train and retain highly skilled technical,
managerial and marketing personnel. The Company continues to hire a significant
number of additional sales, services and technical personnel. Competition for
the hiring of such personnel in the software industry is intense, and the
Company from time to time experiences difficulty in locating candidates with
appropriate qualifications within various desired geographic locations, or with
certain industry specific domain expertise. Growth in contracting activity could
be impacted by the Company's ability to attract, train, retain and manage
productive sales and sales support personnel.
The loss of services of one or more of the Company's key employees could
have a materially adverse effect on the Company's business, operating results
and financial condition. The Company has historically experienced a very low
attrition rate amongst all of its employees, especially those in critical
positions. The Company has several retention programs in place to retain such
key personnel including granting of stock with annual vesting periods over five
years. A number of key employees have vested stock options that have a
relatively low price when compared to the Company's current stock price. These
potential gains provide these employees the economic freedom to explore personal
objectives both within and outside the Company which may result in the loss of
one or more key employees during the coming years.
Due to recent declines in the Company's share price, a large portion of
stock options granted over the last two years have exercise prices above the
Company's stock value at the end of the third quarter. As a result, the Company
has increased risk of losing a significant number of key employees.
It is widely held that the technology industry is at or beyond a
condition of full employment. There can be no assurance that the Company will be
successful in attracting, training and retaining the personnel it requires to
develop, market, sell and support new or existing software or to continue to
grow. In addition, the Company's success in penetrating key vertical markets is
dependent upon its ability to attract, train and retain personnel with industry
specific domain expertise.
YEAR 2000 COMPLIANCE
The Company's internal business information systems are primarily
comprised of the same commercial application software products generally offered
for license by the Company to end user customers. These applications have been
tested for Year 2000 compliance and are certified by the Information Technology
Association of America (ITAA) as Year 2000 compliant, therefore the Company does
not expect any Year 2000 compliance issues to arise related to its primary
internal business information systems. Costs directly attributed to the
Company's internal Year 2000 initiative are currently estimated at approximately
$2.0 million. However, the Company utilizes other third party vendor network
equipment, telecommunication products, and other third party software products
that may or may not be Year 2000 compliant. Although the Company is currently
taking steps to address the impact, if any, of the Year 2000 issue surrounding
such third party products, failure of any critical technology components to
operate properly in the Year 2000 may have an adverse impact on business
operations or require the Company to incur unanticipated expenses to remedy any
problems. See the expanded disclosure of the Year 2000 issue under Management's
Discussion and Analysis.
EUROPEAN MONETARY UNION (EMU)
The Company's internal business information systems are primarily
comprised of the same commercial application software products generally offered
for license by the Company to end user customers. The Company's
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<PAGE> 28
latest software release contains EMU functionality that allows for dual currency
reporting and information management. The Company is not aware of any material
operational issues or costs associated with preparing internal systems for the
EMU. However, the Company utilizes other third party vendor network equipment,
and other third party software products that may or may not be EMU compliant.
Although the Company is currently taking steps to address the impact, if any, of
EMU compliance for such third party products, failure of any critical technology
components to operate properly post EMU may have an adverse impact on business
operations or require the Company to incur unanticipated expenses to remedy any
problems.
Furthermore, the company's foreign exchange exposures to legacy
sovereign currencies of the participating countries in the EMU will become
foreign exchange exposures to the Euro upon its introduction. Currently, the
Company has no derivative foreign exchange contracts denominated in legacy
sovereign currencies with maturity of January 1, 1999 or later. To the extent
hedging transactions are entered for exposures after January 1, 1999, they will
be denominated in Euros as applicable. Although the Company is not aware of any
material adverse financial risk consequences of the change from legacy sovereign
currencies to the Euro, conversion may result in problems which may have an
adverse impact on the Company's business because the Company may be required to
incur unanticipated expenses to remedy these problems.
EXPANSION OF FACILITIES
The Company has experienced an extended period of growth that has
resulted in a significant expansion in the number of its employees. Commercial
building vacancy rates have significantly dropped in many of the markets where
the Company has significant operations. As a consequence, the Company may
experience increasing difficulty in obtaining additional space within which to
expand its operations. Failure to either obtain space, or obtain it on
reasonably attractive commercial terms, may inhibit the Company's ability to
grow, or otherwise adversely affect the Company's operations and financial
results.
Additionally, the Company may commit to real estate projects in order to
expand its operations to accommodate expected growth. Such real estate projects
typically have a lead time of over one year from commitment date to occupancy.
There can be no assurance that the anticipated growth projections will be
realized, and therefore, the Company may be subject to increased fixed costs
which cannot be recovered from operations, resulting in material reductions to
net income and cash flows.
VOLATILITY OF STOCK PRICE
As is frequently the case with stock of high technology companies, the
market price of the Company's stock has been and may continue to be quite
volatile. Factors such as quarterly fluctuations in results of operations,
announcements of technological innovations by the Company or its competitors or
the introduction of new software products by the Company or its competitors, and
macroeconomic conditions in the computer hardware and software industries
generally, may have a significant impact on the market price of the stock of the
Company. If revenue or earnings in any quarter fail to meet the expectations
(published or otherwise) of the investment community, there could be an
immediate impact on the Company's stock price. In addition, as described in the
Possible Adverse Effects of Outstanding Warrants and Options section below, the
Company has issued shares, stock options and warrants which, if sold directly or
exercised and sold on the open market in large numbers, could cause the
Company's stock price to decline in the short term. The Company can provide no
assurance as to when and if such a short term stock price decline may recover.
Furthermore, the stock market has from time to time experienced extreme price
and volume fluctuations that have particularly affected the market price for
many high technology companies and which, on occasion, have been unrelated to
the operating performance of those companies. Any such broad market fluctuations
may materially adversely affect the market price of the Company's stock
POSSIBLE ADVERSE EFFECTS OF OUTSTANDING WARRANTS AND OPTIONS
The Company has outstanding warrants to purchase 6,400,000 shares of its
common stock, which have exercise prices below the current market price of the
common stock. The exercise of these warrants and resale of the underlying shares
could adversely affect the market price of the Company's common stock. At
September 30, 1998 the Company had 12,649,078 outstanding exercisable options to
purchase common stock issued pursuant to employee stock plans which could have
exercise prices below the current market price of the common stock. The exercise
of such stock options and sale of a significant number of the underlying shares
could adversely affect the market price of the Company's common stock.
INVESTMENTS AND LIQUIDITY
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<PAGE> 29
The Company's short term and long term investments consist primarily of
high quality municipal bonds, U.S. government securities, corporate debt
securities and tax-advantaged money market funds. Despite favorable credit
ratings on these investments, there can be no assurance the issuers will not
default on their obligations, and any such default may result in the loss of
principal and accrued interest by the Company. While operating activities may
provide cash in certain periods, to the extent the Company experiences growth in
the future, operating and investing activities may use cash, and, consequently,
such growth may require the Company to obtain additional sources of financing.
In addition, material acquisitions of complementary businesses, products or
technologies and capital expenditures may require additional sources of
financing. There can be no assurance that the Company would be able to obtain
additional sources of financing or additional financing at terms favorable to
the Company.
MOMENTUM BUSINESS APPLICATIONS, INC.
The Company expects to distribute up to $300.0 million to Momentum in
the fourth quarter in order to fund certain new product development efforts by
Momentum. Shares of Momentum will be distributed to the Company's stockholders
as a taxable stock dividend. There is no assurance that Momentum's product
development efforts will be successful in creating marketable products or
technologies or that the Company will realize any return on its distribution or
that the Company will recover any of the funds distributed to Momentum.
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<PAGE> 30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to various legal disputes and proceedings arising
from the ordinary course of general business activities. In the opinion of
management, resolution of these matters is not expected to have a material
adverse effect on the financial position, results of operations and cash flows
of the Company. However, depending on the amount and timing, an unfavorable
resolution of some or all of these matters could materially affect the Company's
future results of operations or cash flows in a particular period.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.35 Agreement of Purchase and Sale dated July 22, 1998 between the
Registrant and William Willson & Associates
10.36 Lease dated September 14, 1998 between the Registrant and
Hacienda Plaza Associates, LLC
10.37 Agreement and Plan of Merger dated September 30, 1998 between
the Registrant and Intrepid Systems, Inc.
27.1 Financial Data Schedule - Nine months ended September 30, 1998
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1998.
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<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 14, 1998
PEOPLESOFT, INC.
By: /s/ ALFRED J. CASTINO
---------------------------------------------
Alfred J. Castino
Senior Vice President of Finance and Administration,
Chief Accounting Officer and Corporate Controller
(Principal Accounting Officer)
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PEOPLESOFT, INC.
INDEX OF EXHIBITS
EXHIBIT # EXHIBIT TITLE
--------- -------------
10.35 Agreement of Purchase and Sale dated July 22, 1998 between the
Registrant and William Willson & Associates
10.36 Lease dated September 14, 1998 between the Registrant and
Hacienda Plaza Associates, LLC
10.37 Agreement and Plan of Merger dated September 30, 1998 between
the Registrant and Intrepid Systems, Inc.
27.1 Financial Data Schedule - September 30, 1998
32
<PAGE> 1
AGREEMENT OF PURCHASE AND SALE
This Agreement, dated as of July 22, 1998, is between PeopleSoft Properties,
Inc., a California corporation ("Seller"), and William Wilson & Associates
Investors, Inc., a California corporation ("Buyer").
ARTICLE I
PURCHASE AND SALE OF PROPERTY
Section 1.1 Sale.
Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller,
subject to the terms, covenants and conditions set forth herein, that certain
real property commonly known as 4301, 4305 and 4309 Hacienda Drive, Pleasanton,
California, which real property is more particularly described in Exhibit A
attached hereto and made a part hereof (the "Land"), together with the
following, which together with the Land shall be termed the "Property" herein:
a. a three (3) tower office building, and all fixtures, parking
areas, landscaping and other improvements located upon the Land (the
"Improvements");
b. the machinery, equipment, furnishings and other tangible
personal property owned by Seller and used in connection with the maintenance or
operation of the Land or Improvements (the "Personal Property"), listed on
Exhibit B attached hereto;
c. all easements, rights of way, privileges, licenses,
appurtenances and other rights and benefits of Seller belonging to or in any way
related to the Land to the extent owned and/or transferable by Seller,
specifically excluding, however, Excess FAR (as hereinafter defined) (which,
together with the Land and Improvements, are referred to collectively herein as
the "Real Property");
d. all transferable or assignable certificate(s) of occupancy,
building or equipment permits, consents, authorizations, variances, waivers,
licenses, permits, certificates and approvals from any governmental or
quasi-governmental authority with respect to the Land or the Improvements to the
extent in Seller's possession or control (collectively the "Approvals"); and
e. all architectural, mechanical, engineering, as-built and other
plans, specifications and drawings in Seller's possession or control (the
"Plans"), all surveys and all soil, environmental, engineering, or other reports
or studies in Seller's possession or control (the "Reports"), all trademarks,
service marks, logos and other marks, trade or business names and other
intangible property used in connection with the operations of the Property (the
"Trademarks") to the extent owned by and/or transferable by Seller, specifically
excluding, however, any and all Trademarks referring to or relating to the
Seller, and all transferable or assignable warranties, representations,
guaranties, and miscellaneous rights (the "Warranties") to the extent owned by
or in the possession of Seller relating to the ownership, development, use and
operation of the Land and Improvements.
<PAGE> 2
Notwithstanding the foregoing the parties acknowledge that Seller, or its
affiliates, presently occupy, and will continue to occupy after the Closing
hereunder, all or a substantial portion of the Real Property and that in
connection with such occupancy Seller has on the Real Property substantial
personal property that is not included in the transaction described herein. The
only personal property included in this sale is the Personal Property listed on
Exhibit B.
Section 1.2 Purchase Price.
(a) The purchase price of the Property is Fifty Million Three
Hundred Forty Five Thousand Dollars ($50,345,000) (the "Purchase Price").
(b) The Purchase Price shall be paid as follows:
(1) Within three (3) business days after the mutual execution
of this Agreement, Buyer shall deposit in escrow with Chicago Title Insurance
Company, located in Pleasanton, California ("Title Company") a deposit in the
amount of Two Million Five Hundred Thousand Dollars ($2,500,000) (the
"Deposit").
(2) THE DEPOSIT SHALL BE HELD IN AN INTEREST BEARING ACCOUNT
AND ALL INTEREST THEREON SHALL BE DEEMED A PART OF THE DEPOSIT. IF THE SALE OF
THE PROPERTY AS CONTEMPLATED HEREUNDER IS CONSUMMATED, THEN THE DEPOSIT SHALL BE
PAID TO SELLER AT THE CLOSING AND CREDITED AGAINST THE PURCHASE PRICE. IF THE
SALE OF THE PROPERTY IS NOT CONSUMMATED DUE TO SELLER'S DEFAULT HEREUNDER, THEN,
AS BUYER'S SOLE REMEDIES, BUYER MAY EITHER: (1) TERMINATE THIS AGREEMENT AND
RECEIVE A REFUND OF THE DEPOSIT, IN WHICH EVENT NEITHER PARTY SHALL HAVE ANY
FURTHER RIGHTS OR OBLIGATIONS HEREUNDER EXCEPT AS PROVIDED IN SECTIONS 6.1, 9.3
AND 9.9 BELOW, OR (2) BUYER MAY ENFORCE SPECIFIC PERFORMANCE OF THIS AGREEMENT.
IF THIS TRANSACTION FAILS TO CLOSE FOR ANY REASON OTHER THAN BUYER'S DEFAULT
HEREUNDER, THE DEPOSIT SHALL BE RETURNED TO BUYER. IF BUYER FAILS TO CONSUMMATE
THIS TRANSACTION ON THE SCHEDULED CLOSING DATE ON ACCOUNT OF BUYER'S SOLE
DEFAULT, SELLER SHALL BE ENTITLED TO THE DEPOSIT AS LIQUIDATED DAMAGES. THE
PARTIES HAVE AGREED THAT SELLER'S ACTUAL DAMAGES, IN THE EVENT OF A FAILURE TO
CONSUMMATE THIS SALE DUE TO BUYER'S DEFAULT, WOULD BE EXTREMELY DIFFICULT OR
IMPRACTICABLE TO DETERMINE. AFTER NEGOTIATION, THE PARTIES HAVE AGREED THAT,
CONSIDERING ALL THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS AGREEMENT, THE
AMOUNT OF THE DEPOSIT IS A REASONABLE ESTIMATE OF THE DAMAGES THAT SELLER WOULD
INCUR IN SUCH EVENT. BY PLACING THEIR INITIALS BELOW, EACH PARTY SPECIFICALLY
CONFIRMS THE ACCURACY OF THE STATEMENTS MADE ABOVE AND THE FACT THAT EACH PARTY
WAS REPRESENTED BY COUNSEL WHO EXPLAINED, AT THE TIME THIS AGREEMENT WAS MADE,
THE CONSEQUENCES OF THIS LIQUIDATED DAMAGES PROVISION. THE FOREGOING IS NOT
INTENDED TO LIMIT BUYER'S OBLIGATIONS UNDER SECTIONS 6.1, 9.3 AND 9.9.
INITIALS: SELLER ________ BUYER _______
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<PAGE> 3
(3) The balance of the Purchase Price, shall be paid to
Seller in cash, or readily available funds, at the consummation of the purchase
and sale contemplated hereunder (the "Closing").
ARTICLE II
Intentionally Deleted
ARTICLE III
BUYER'S EXAMINATION
Section 3.1 Representations and Warranties of Seller.
Subject to the provisions of Sections 3.2 and 3.3 below, Seller hereby makes the
following representations and warranties with respect to the Property, provided
that Seller makes no representations or warranties with respect to the matters
(the "Disclosure Items") as set forth on Schedule 1 attached hereto and made a
part hereof. Notwithstanding anything to the contrary contained herein or in any
document delivered in connection herewith, Seller shall have no liability with
respect to the Disclosure Items.
(a) To the best of Seller's knowledge, except as set forth in
Schedule 1 or as may be specifically and expressly disclosed in the contracts,
agreement, leases, documents reports and other materials delivered or made
available to Buyer (the "Due Diligence Materials"), Seller has received no
written notice from any governmental authority that the present use, condition
and operation of the Property is in violation of any applicable law (including,
without limitation, (i) the Americans with Disabilities Act ("ADA"), Title 24 of
the California Administrative Code, and other similar federal, state and local
laws , (ii) building codes and any other laws relating to the construction or
design of the improvements on the Property, including, without limitation, fire,
safety, handicapped access, or seismic design (collectively, "Building Codes"),
and (iii) any laws relating to environmental matters (the "Environmental
Laws")).
(b) Seller has not (i) made a general assignment for the benefit
of creditors, (ii) filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition by Seller's creditors, (iii) suffered the
appointment of a receiver to take possession of all, or substantially all, of
Seller's assets, (iv) suffered the attachment or other judicial seizure of all,
or substantially all, of Seller's assets, (v) admitted in writing its inability
to pay its debts as they come due, or (vi) made an offer of settlement,
extension or composition to its creditors generally.
(c) Seller is not a "foreign person" as defined in Section 1445
of the Internal Revenue Code of 1986, as amended (the "Code") and any related
regulations.
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<PAGE> 4
(d) Seller is a California corporation duly organized, validly
existing and in good standing under the laws of the State of California; this
Agreement and all documents executed by Seller which are to be delivered to
Buyer at the Closing are, or at the time of Closing will be, duly authorized,
executed, and delivered by Seller, and are, or at the Closing will be, legal,
valid, and binding obligations of Seller, and do not, and at the time of Closing
will not, violate any provision of any agreement to which Seller is a party or
to which it is subject or any law, judgment or order applicable to Seller.
Seller has the power and authority to enter into this Agreement and to perform
its obligations hereunder.
(e) Seller has received no written notice from any governmental
authority of any condemnation, environmental, zoning, sewer moratorium, or other
land-use regulation proceedings, either instituted or planned to be instituted,
which would affect the use and operation of the Property, nor has Seller
received written notice of any special assessment proceedings affecting the
Property.
(f) The copies of the leases and contracts delivered or made
available to Buyer by Seller are true and accurate copies of such items.
(g) The rent roll ("Rent Roll") attached to this Agreement as
Exhibit F is a true and accurate statement of the information contained therein
regarding the leases in force for, or otherwise affecting, the Property as of
the date of this Agreement, which information, to the best of Seller's
knowledge, includes the names of all tenants at the Property, the dates of all
leases and amendments thereto, the commencement and expiration dates of all
leases, the square footage covered by each lease, all security deposits paid by
tenants (noting any amounts applied by landlord to the tenants' obligations),
the annual rent per square foot payable by each tenant, the amounts of brokerage
commissions remaining due from the landlord under each lease, the amount of any
tenant improvement payment or other monetary obligation due from landlord under
each lease, and the expansion, extension, right of first refusal or other
similar rights given to tenants under each lease. All tenants or other persons
possessing contractual rights to occupy or persons actually in possession or
occupying a portion of the Property as of the date of this Agreement are set
forth on the Rent Roll or are permitted assignees or subtenants under the
leases.
(h) Seller has not been served in connection with any litigation,
and to the best of Seller's knowledge, there is no litigation or proceeding
pending or threatened, involving Seller or the Property which would materially
and adversely affect the Property or Seller's ability to consummate the
transactions contemplated by this Agreement, including claims of encroachment or
prescriptive easement effecting the Property.
Each of the representations and warranties of Seller contained in this Section
3.1: (1) is true as of the date of this Agreement; (2) shall be deemed remade by
Seller, and shall be true in all material respects as of the date of Closing,
subject to (A) any Exception Matters (as defined below), (B) the Disclosure
Items; and (C) other matters expressly permitted in this Agreement or otherwise
specifically approved in writing by Buyer, including, but not limited to, the
Due Diligence Materials; and (3) shall survive the close of escrow as provided
in Section 3.3 below. All exceptions and qualifications to the foregoing
representations and warranties, as of the date of
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<PAGE> 5
this Agreement, shall be specifically described on Schedule 1 attached to and
made a part of this Agreement.
Section 3.2 No Liability for Exception Matters.
As used herein, the term "Exception Matter" shall refer to a matter disclosed to
Buyer in writing or identified by Buyer before the Closing, that would make a
representation or warranty of Seller contained in this Agreement untrue or
incorrect or that would constitute a material adverse change in the Property or
its future use or operation, including, without limitation, matters specifically
and expressly disclosed in writing to Buyer by Seller or by any other person.
If, prior to the Closing, Seller becomes aware of any Exception Matter, then
Seller shall promptly, and in all events at least five (5) days prior to the
Closing Date (which date shall be extended if and as necessary to give Buyer
five (5) days to review such material change), give written notice of such
changed fact or circumstance to Buyer. If, prior to the Closing, Buyer becomes
aware of any Exception Matter, then Buyer shall promptly, and in all events at
least five (5) days prior to the Closing Date (which date shall be extended if
and as necessary to give Buyer five (5) days to review such material change),
give written notice of such changed fact or circumstance to Seller. Seller shall
have the right, but not the obligation, to cure such Exception Matter within
thirty (30) days after Seller becomes aware of the Exception Matter and Seller
shall provide Buyer with written notice of its election. If Seller cures such
Exception Matter as provided herein, Buyer shall proceed with the acquisition of
the Property and the Closing Date shall be extended for such thirty (30) day
period. If Buyer receives notice of, or identifies, any Exception Matter after
the date hereof, and Seller elects as set forth in the notice to Buyer not to
cure such Exception Matter, Buyer shall have the option of: (i) waiving such
Exception Matter and completing its purchase of the Property pursuant to this
Agreement, and Seller shall have no liability with respect to such Exception
Matter, notwithstanding any contrary provision, covenant, representation or
warranty contained in this Agreement, or (ii) terminating this Agreement and
receiving the return of the Deposit as Buyer's sole remedy prior to Closing.
Upon any such termination of this Agreement, neither party shall have any
further rights or obligations hereunder, except as provided in Sections 6.1, 9.3
and 9.9 below.
Section 3.3 Survival of Representations and Warranties.
The representations and warranties of Seller and Buyer contained herein shall
survive for a period of one (1) year after the Closing. Any claim which Buyer or
Seller may have at any time against the other for a breach of any such
representation or warranty, whether known or unknown, which is not asserted by
written notice to Seller or Buyer within such one (1) year period shall not be
valid or effective, and the party shall have no liability with respect thereto.
Section 3.4 Seller's Knowledge.
For purposes of this Agreement and any document delivered at Closing, whenever
the phrase "to the best of Seller's knowledge" or the "knowledge" of Seller or
words of similar import are used, they shall be deemed to refer to the current
actual knowledge of Bob Finnell, Deborah Oxendine and Brian Griggs, who are
Seller's employees or representatives who are most knowledgeable about the
Property, at the times indicated only and not any implied, imputed or
constructive
5
<PAGE> 6
knowledge, after making such reasonable investigations as Seller deems necessary
in order to make the representations and warranties above on a reasonably
informed basis.
Section 3.5 Representations and Warranties of Buyer.
Buyer represents and warrants to Seller as follows:
(a) Buyer represents and warrants to Seller that this Agreement
and all documents executed by Buyer which are to be delivered to Seller at
Closing do not and at the time of Closing will not violate any provision of any
agreement or judicial order to which Buyer is a party or to which Buyer is
subject.
(b) Buyer represents and warrants to Seller that Buyer has not
(i) made a general assignment for the benefit of creditors, (ii) filed any
voluntary petition in bankruptcy or suffered the filing of any involuntary
petition by Buyer's creditors, (iii) suffered the appointment of a receiver to
take possession of all, or substantially all, of Buyer's assets, (iv) suffered
the attachment or other judicial seizure of all, or substantially all, of
Buyer's assets, (v) admitted in writing its inability to pay its debts as they
come due, or (vi) made an offer of settlement, extension or composition to its
creditors generally.
(c) Buyer is duly formed, validly existing and in good standing
under the laws of the state in which it was formed. Buyer has duly authorized,
executed and delivered this Agreement.
Each of the representations and warranties of Buyer contained in this Section
shall be deemed remade by Buyer as of the Closing and shall survive the Closing
as provided in Section 3.3 above.
Section 3.6 Buyer's Independent Investigation.
(a) Buyer acknowledges and agrees that it has been given a full
opportunity to inspect and investigate each and every aspect of the Property,
including without limitation the items listed on Exhibit E, either independently
or through agents of Buyer's choosing, including, without limitation:
(1) All matters relating to title and survey, together with
all governmental and other legal requirements such as taxes, assessments,
zoning, use permit requirements and building codes.
(2) The physical condition and aspects of the Property,
including, without limitation, the interior, the exterior, the square footage
within the improvements on the Real Property and within each tenant space
therein, the structure, seismic aspects of the Property, the paving, the
utilities, and all other physical and functional aspects of the Property. Such
examination of the physical condition of the Property shall include an
examination for the presence or absence of Hazardous Materials, as defined
below, which shall be performed or arranged by Buyer at Buyer's sole expense.
For purposes of this Agreement, "Hazardous
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Materials" shall mean inflammable explosives, radioactive materials, asbestos,
polychlorinated biphenyls, lead, lead-based paint, under and/or above ground
tanks, hazardous materials, hazardous wastes, hazardous substances, oil, or
related materials, which are listed or regulated in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Sections 6901, et seq.), the Resources Conservation and Recovery Act of
1976 (42 U.S.C. Section 6901, et seq.), the Clean Water Act (33 U.S.C. Section
1251, et seq.), the Safe Drinking Water Act (14 U.S.C. Section 1401, et seq.),
the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, et seq.),
the and Toxic Substance Control Act (15 U.S.C. Section 2601, et seq.), the
California Hazardous Waste Control Law (California Health and Safety Code
Section 25100, et seq.), the Porter-Cologne Water Quality Control Act
(California Water Code Section 13000, et seq.), and the Safe Drinking Water and
Toxic Enforcement Act of 1986 (California Health and Safety Code Section
25249.5, et seq.) and any other applicable federal, state or local laws.
(3) Any easements and/or access rights affecting the
Property.
(4) The leases and all matters in connection therewith,
including, without limitation, the ability of the tenants to pay the rent and
the economic viability of the tenants.
(5) The service contracts and any other documents or
agreements of significance affecting the Property.
(6) All other matters of material significance affecting the
Property.
(b) BUYER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT SELLER IS
SELLING AND BUYER IS PURCHASING THE PROPERTY ON AN "AS IS WITH ALL FAULTS" BASIS
AND THAT BUYER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND
WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, ITS AGENTS, OR BROKERS AS TO ANY
MATTERS CONCERNING THE PROPERTY EXCEPT AS EXPRESSLY SET FORTH IN SECTION 3.1
ABOVE, INCLUDING WITHOUT LIMITATION: (i) the quality, nature, adequacy and
physical condition and aspects of the Property, including, but not limited to,
the structural elements, seismic aspects of the Property, foundation, roof,
appurtenances, access, landscaping, parking facilities and the electrical,
mechanical, HVAC, plumbing, sewage, and utility systems, facilities and
appliances, the square footage within the improvements on the Real Property and
within each tenant space therein, (ii) the quality, nature, adequacy, and
physical condition of soils, geology and any groundwater, (iii) the existence,
quality, nature, adequacy and physical condition of utilities serving the
Property, (iv) the development potential of the Property, and the Property's
use, habitability, merchantability, or fitness, suitability, value or adequacy
of the Property for any particular purpose, (v) the zoning or other legal status
of the Property or any other public or private restrictions on use of the
Property, (vi) the compliance of the Property or its operation with any
applicable codes, laws, regulations, statutes, ordinances, covenants, conditions
and restrictions of any governmental or quasi-governmental entity or of any
other person or entity, (vii) the presence of Hazardous Materials on, under or
about the Property or the
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adjoining or neighboring property, (viii) the quality of any labor and materials
used in any improvements on the Real Property, (ix) the condition of title to
the Property, (x) the leases, service contracts, or other agreements affecting
the Property and (xi) the economics of the operation of the Property.
Section 3.7 Release.
(a) Without limiting the above, and subject to the
representations and warranties of Seller contained in Section 3.1 hereof, Buyer
on behalf of itself and its successors and assigns waives its right to recover
from, and forever releases and discharges, Seller, Seller's affiliates, Seller's
investment manager, Griggs Resource Group, the partners, trustees,
beneficiaries, shareholders, members, directors, officers, employees and agents
of each of them, and their respective heirs, successors, personal
representatives and assigns (collectively, the "Seller Related Parties"), from
any and all demands, claims, legal or administrative proceedings, losses,
liabilities, damages, penalties, fines, liens, judgments, costs or expenses
whatsoever (including, without limitation, attorneys' fees and costs), whether
direct or indirect, known or unknown, foreseen or unforeseen, that may arise on
account of or in any way be connected with (i) the physical condition of the
Property including, without limitation, all structural and seismic elements, all
mechanical, electrical, plumbing, sewage, heating, ventilating, air conditioning
and other systems, the environmental condition of the Property and Hazardous
Materials on, under or about the Property, or (ii) any law or regulation
applicable to the Property, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Sections 6901, et seq.), the Resources Conservation and Recovery Act of
1976 (42 U.S.C. Section 6901, et seq.), the Clean Water Act (33 U.S.C. Section
1251, et seq.), the Safe Drinking Water Act (14 U.S.C. Section 1401, et seq.),
the Hazardous Materials Transportation Act (49 U.S.C. Section 1801, et seq.),
the and Toxic Substance Control Act (15 U.S.C. Section 2601, et seq.), the
California Hazardous Waste Control Law (California Health and Safety Code
Section 25100, et seq.), the Porter-Cologne Water Quality Control Act
(California Water Code Section 13000, et seq.), and the Safe Drinking Water and
Toxic Enforcement Act of 1986 (California Health and Safety Code Section
25249.5, et seq.) and any other federal, state or local law. The release
provided for in this Section 3.7(a) shall not apply to any liability resulting
from Hazardous Materials brought on to or released from, on, at or about the
Property during the period of Seller's ownership thereof.
(b) In connection with section 3.7(a) above, Buyer expressly
waives the benefits of Section 1542 of the California Civil Code, which provides
as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR EXPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN TO HIM MUST HAVE MATERIALLY AFFECTED THE SETTLEMENT WITH THE
DEBTOR."
Section 3.8 Indemnification.
Each party hereby agrees to indemnify, defend, protect and hold harmless the
other party from and against any and all claims, demands, liabilities, costs and
damages, including, without
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limitation, reasonable attorneys' fees (collectively, "Claims"), resulting from
any misrepresentations or breach of warranty or covenant made by such party in
this Agreement or in any document, certificate, or exhibit given or delivered to
the other party pursuant to or in connection with this Agreement. Each party
further agrees to indemnify, defend, protect and hold harmless the other party
from and against any Claims suffered by the other party and resulting from or
arising out of all third party tort claims of the type that would typically be
insured under a Commercial General Liability Insurance Policy which are based on
actions, facts or circumstances existing or occurring during the indemnifying
party's ownership of the Property, excluding any Claims related to Hazardous
Materials.
Section 3.9 Survival.
The provisions of this Article III shall survive the Closing subject to the
limitations and qualifications contained in such provisions.
ARTICLE IV
TITLE
Section 4.1 Conditions of Title.
At the Closing, Seller shall convey title to the Property to Buyer by grant deed
(the "Deed") subject to no exceptions other than:
(a) Interests of tenants in possession;
(b) The PeopleSoft Lease;
(c) Non-delinquent liens for real estate taxes and assessments;
and
(d) The exceptions disclosed in the proforma title policy
attached hereto as Exhibit D, the public records or the Due Diligence Materials.
All of the foregoing exceptions shall be referred to collectively as the
"Conditions of Title." Notwithstanding the foregoing, the term "Conditions of
Title" shall not include (x) any monetary liens, including, without limitation,
the liens of any deeds of trust or other loan documents secured by the Property,
or (y) any mechanics' liens. By acceptance of the Deed and the Closing of the
purchase and sale of the Property, (i) Buyer agrees it is assuming for the
benefit of Seller all of the obligations of Seller with respect to the
Conditions of Title from and after the Closing, and (ii) Buyer agrees that
Seller shall have conclusively satisfied its obligations with respect to title
to the Property. The provisions of this Section shall survive the Closing.
Section 4.2 Evidence of Title.
Delivery of title in accordance with the foregoing shall be evidenced by the
willingness of the Title Company to issue, at Closing, a title policy in the
form of the proforma title policy attached
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as Exhibit D (the "Title Policy"). Buyer shall have prepared, at Buyer's cost,
the ALTA Survey of the Property necessary to support the issuance of the Title
Policy.
ARTICLE V
RISK OF LOSS AND INSURANCE PROCEEDS
Section 5.1 Insurance
Seller represents to Buyer that the Improvements are presently insured by a fire
and extended coverage policy of insurance in an amount equal to 100% of the
replacement cost of the Improvements. Seller agrees to maintain the policy in
effect through the Closing Date, and upon Buyer's request, to provide Buyer
evidence of such insurance. Seller shall promptly (and in any event prior to
Closing) notify Buyer of any damage or destruction of the Improvements and
Seller's estimate of the cost of repair.
Section 5.2 Minor Loss.
Buyer shall be bound to purchase the Property for the full Purchase Price as
required by the terms hereof, without regard to the occurrence or effect of any
damage to the Property or destruction of any improvements thereon, provided
that: (a) the cost to repair any such damage or destruction does not exceed One
Million Dollars ($1,000,000) or no tenant is entitled to terminate its lease as
a result of such occurrence and (b) upon the Closing, Buyer may elect to either
(i) receive a credit against the Purchase Price due hereunder equal to the
amount of any insurance proceeds collected by Seller as a result of any such
damage or destruction, plus the amount of any insurance deductible or (ii)
receive no credit and require Seller to repair the Property and return the
Property to a condition substantially similar to the condition immediately prior
to such damage or destruction which may be completed after Closing. If the
proceeds have not been collected as of the Closing, then such proceeds shall be
assigned to Buyer.
Section 5.3 Major Loss.
If the amount of the damage or destruction as specified above (i) exceeds One
Million Dollars ($1,000,000) or (ii) is less than One Million Dollars
($1,000,000) and a tenant is entitled to terminate its lease as a result of such
occurrence, then Buyer may, at its option to be exercised within five (5)
business days of Seller's notice of the occurrence of the damage or destruction,
either terminate this Agreement or consummate the purchase for the full Purchase
Price as required by the terms hereof. If Buyer elects to terminate this
Agreement or fails to give Seller notice within such 5-day period that Buyer
will proceed with the purchase, then the Deposit shall be returned to Buyer and
neither party shall have any further rights or obligations hereunder except as
provided in Sections 6.1, 9.3 and 9.9 below. If Buyer elects to proceed with the
purchase, then upon the Closing, there shall be a credit against the Purchase
Price due hereunder equal to the amount of any insurance proceeds collected by
Seller as a result of any such damage or destruction, plus the amount of any
insurance deductible. If the proceeds have not been collected as of the Closing,
then such proceeds shall be assigned to Buyer.
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Section 5.4 Condemnation
If, prior to the Closing, all of the Land and Improvements are taken by eminent
domain, this Agreement shall be deemed terminated. If only part of the Land or
Improvements are so taken, Buyer shall have the option of (a) proceeding with
the Closing and acquiring the Property as affected by such taking, together with
all compensation and damage awarded or the right to receive same, or (b)
terminating this Agreement, in which event the Deposit shall be returned to
Buyer and Seller shall retain the rights to such proceeds or awards. If Buyer
elects option (a) above, Seller agrees to assign to Buyer at the Closing its
rights to such compensation and damages, and will not settle any proceedings
relating to such taking without Buyer's prior written consent which shall not be
unreasonably withheld, conditioned or delayed. Notwithstanding anything to the
contrary contained herein, in the event of an immaterial taking by eminent
domain, such as a widening of a street or similar matter which has no material
effect on the value or use of the Property, Buyer shall proceed with the
purchase of the Property and shall have no right to exercise any of the remedies
set forth in this Section 5.4. Seller shall promptly (and in any event prior to
the Closing) notify Buyer of any actual or threatened condemnation affecting the
Property.
ARTICLE VI
BROKERS AND EXPENSES
Section 6.1 Brokers.
The parties represent and warrant to each other that no broker or finder was
instrumental in arranging or bringing about this transaction except for Griggs
Resource Group ("Seller's Broker"). At Closing, Seller shall pay the commission
due, if any, to Seller's Broker, which shall be paid pursuant to a separate
agreement between Seller and Seller's Broker. If any other person brings a claim
for a commission or finder's fee based upon any contact, dealings or
communication with Buyer or Seller, then the party through whom such person
makes his claim shall defend the other party (the "Indemnified Party") from such
claim, and shall indemnify the Indemnified Party and hold the Indemnified Party
harmless from any and all costs, damages, claims, liabilities or expenses
(including without limitation, reasonable attorneys' fees and disbursements)
incurred by the Indemnified Party in defending against the claim. The provisions
of this Section 6.1 shall survive the Closing or, if the purchase and sale is
not consummated, any termination of this Agreement.
Section 6.2 Expenses.
Except as provided in Section 8.8 below, each party hereto shall pay its own
expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
ARTICLE VII
LEASES, OTHER AGREEMENTS AND OPERATION OF THE PROPERTY
Section 7.1 Buyer's Approval of New Leases and Agreements Affecting
the Property.
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Between the date hereof and the Closing, Seller shall not enter into any new
lease or other agreement affecting the Property, or modify or terminate any
existing lease or other agreement affecting the Property, without first
obtaining Buyer's approval, which will not be unreasonably withheld or delayed.
Buyer shall be entitled to take into account the proposed leasing commissions,
free rent, tenant improvement allowances of other monetary inducements in
determining whether or not to approve or withhold its approval of a new lease or
the modification of an existing lease pursuant to this Section 7.1. If Buyer
fails to give Seller notice of its approval or disapproval of any such proposed
action within five (5) business days after Seller notifies Buyer of Seller's
desire to take such action, then Buyer shall be deemed to have given its
approval. Upon the written request of Buyer, Seller shall terminate prior to
Closing, at no cost and expense to Buyer, service contracts affecting the
Property that are terminable on not more than thirty (30) days prior notice.
Section 7.2 Tenant Improvement Costs, Leasing Commissions and Free
Rent.
With respect to any new lease or lease modification entered into by Seller
between the date of this Agreement and the Closing Date, and with respect to any
renewal or extension of any lease occurring between the date of this Agreement
and the Closing Date, if Seller performs or pays or contracts for any tenant
improvement work or pays or contracts for any leasing commissions before the
Closing or grants any free rent period, then at Closing, Buyer shall reimburse
Seller for all such expenses and shall assume pursuant to an assignment and
assumption agreement acceptable to Seller any and all obligations outstanding
with respect to tenant improvements and leasing commissions; provided, however,
that in the case of lease modifications, renewals or extensions, Buyer shall
have no obligations and Seller shall be responsible for brokerage commissions,
tenant improvement costs and free rent, to the extent such costs would of have
been due or incurred in the absence of such lease modification, renewal or
extension. All such tenant improvement costs, brokerage fees, and free rent
(collectively "New Lease Expenses") shall be prorated between Seller and Buyer
as of the Closing based on the portion of the lease term, if any, occurring
before 12:01 a.m. on the date the Deed is recorded, and the portion of the lease
term occurring on and after such date and time. On and after the Closing, Seller
shall have no future obligations with respect to any leases or other agreements
affecting the Property, including, without limitation, tenant improvement work,
leasing commissions and free rent. The provisions of this Section shall survive
the Closing.
Section 7.3 Tenant Notices.
At the Closing, Seller shall furnish Buyer with a signed notice to be given to
each tenant of the Property. The notice shall disclose that the Property has
been sold to Buyer, that, after the Closing, all rents should be paid to Buyer
and that Buyer shall be responsible for all the tenant's security deposit. The
form of the notice shall be otherwise reasonably acceptable to the parties.
Section 7.4 Operation of the Property.
Between Seller's execution of this Agreement and the Closing, or earlier
termination of this Agreement as permitted hereunder, Seller shall (i) maintain
the Property in the same condition and repair as previously maintained,
reasonable wear and tear excepted; provided, however, Seller shall
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have no obligation to make capital expenditures unless requested by Buyer and at
Buyer's sole cost and expense; (ii) not make any material physical changes to
the Improvements except if an emergency; (iii) continue to manage the Property
in the manner in which it is currently being managed; (iv) not enter into any
contracts or agreements affecting the Property unless such contracts can be
completed or terminated prior to the Closing or Buyer, in its sole discretion,
agrees to assume such contract or agreement as of the Closing Date, in which
case such contracts shall be included within the term "Service Contracts"; (v)
not enter into any lease, amendment of lease or other agreement pertaining to
the Property, or permit any tenant of the Property to enter into any sublease or
assignment of lease, except as provided in Section 7.1; and (vi) after the date
hereof, not offer the Property for sale publicly or otherwise solicit, make,
pursue, negotiate or accept offers for the sale of the Property to or from any
party. From and after the date hereof and up to the Closing, Seller hereby
agrees to perform such work, make such improvements or repairs as reasonably
requested by Buyer, at Buyer's sole cost and expense.
Section 7.5 Ford Motor Credit Company Lease.
In the event Ford Motor Credit Company ("Ford") elects to vacate the space it
occupies at the Property during the period from the date of execution of this
Agreement and the Closing, in accordance with the terms of that certain Lease
dated December 1, 1998, as amended by the First Amendment to Lease dated March
2, 1990, Second Amendment to Lease dated February 11, 1994 and Third Amendment
to Lease dated as of May, 1998 (collectively, the "Ford Lease"), the Purchase
Price shall be reduced by the amount which is required to be paid to Ford
pursuant to Section 3 of the Ford Lease (the "Relocation Cost") and such
Relocation Cost shall be paid by Buyer to Ford. In the event Ford vacates its
space during the period after the Closing and prior to February 17, 1999, Seller
will pay the Relocation Cost to Buyer within ten (10) days after receipt of
written request from Buyer and Buyer will pay such sum to Ford. The obligations
set forth in this Section 7.5 shall survive the Closing.
Section 7.6 Cellular One Lease.
Buyer hereby acknowledges and agrees that at any time during the period after
execution of this Agreement up to the Closing, Seller shall, at the request of
PeopleSoft, Inc., enter into a lease with Cellular One, for space on the roof of
the office building for an initial term of five (5) years with an option to
extend the term for an additional five (5) years, and monthly rent equal to Two
Thousand Dollars ($2000) and upon other terms and conditions as reasonably
approved by Buyer. If such lease has not been entered into by Seller prior to
the Closing, Buyer shall, at the request of PeopleSoft, Inc., enter into such
lease on such terms.
ARTICLE VIII
CLOSING AND ESCROW
Section 8.1 Escrow Instructions.
Upon execution of this Agreement, the parties hereto shall deposit an executed
counterpart of this Agreement with the Title Company, and this instrument shall
serve as the instructions to the
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Title Company as the escrow holder for consummation of the purchase and sale
contemplated hereby. Seller and Buyer agree to execute such reasonable
additional and supplementary escrow instructions as may be appropriate to enable
the Title Company to comply with the terms of this Agreement; provided, however,
that in the event of any conflict between the provisions of this Agreement and
any supplementary escrow instructions, the terms of this Agreement shall
control.
Section 8.2 Buyer's Closing Conditions.
Buyer's obligation to purchase the Property is conditioned upon the satisfaction
of each of the following conditions each of which is for the exclusive benefit
of Buyer. Buyer may, at any time or times before the Closing, waive one or more
of the following conditions, without affecting its rights and remedies with
respect to the remaining conditions:
(a) The performance by Seller of all its obligations hereunder,
and the truth, completeness and accuracy of each representation and warranty
made by Seller as of the date of this Agreement and the Closing.
(b) Buyer's election to accept the Property pursuant to
Section 2.2.
(c) The issuance at Closing of the Title Policy.
(d) No lease that Buyer believed to be in effect as of the date
hereof shall have terminated, nor shall any tenant occupying more than 10,000
square feet under any such lease have vacated its premises after the date hereof
or be more than sixty (60) days in default of paying any rent due thereunder as
of the Closing; provided, however, Seller may elect to remedy any tenant default
upon ten (10) days written notice from Buyer that the condition set forth in
this Section 8.2(e) has not been satisfied (and the Closing Date shall be
extended if and as necessary to permit Seller such ten (10) day cure period) or
add the defaulting tenant's premises to the Premises (as defined in the
PeopleSoft Lease).
Section 8.3 Seller's Conditions to Closing.
Seller's obligation to sell the Property is conditioned upon (a)
the performance by Buyer of all its obligations hereunder, (b) the truth,
completeness and accuracy of each representation and warranty made by Buyer as
of the Contract Date and the Closing and (c) neither party terminating this
Agreement as provided herein.
Section 8.4 Closing.
The Closing hereunder shall be held and delivery of all items to be made at the
Closing under the terms of this Agreement shall be made at the offices of the
Title Company upon not less than twenty (20) days written notice to Buyer from
Seller (the "Closing Date"); provided that the Closing Date shall not occur
sooner than thirty (30) days after the date hereof. If the Closing
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Date has not occurred before October 31, 1998, the notice period shall be
extended from twenty (20) days to thirty (30) days. In no case shall the Closing
Date occur later than March 31, 1999.
Section 8.5 Deposit of Documents.
(a) At or before the Closing, Seller shall deposit into escrow
the following items:
(1) the duly executed and acknowledged Deed conveying the
Real Property to Buyer subject only to the Conditions of Title;
(2) four (4) duly executed counterparts of the Bill of Sale
in the form attached hereto as Exhibit G (the "Bill of Sale");
(3) four (4) duly executed counterparts of an Assignment and
Assumption of Leases, Service Contracts and Warranties in the form attached
hereto as Exhibit H pursuant to the terms of which Buyer shall assume all of
Seller's obligations under the leases identified on the rent roll, new leases
approved by Buyer pursuant to Section 7.1 and the Service Contracts (the
"Assignment of Leases");
(4) four (4) duly executed counterparts of the lease between
PeopleSoft, Inc., an affiliate of Seller, as tenant and Buyer, as landlord
attached hereto as Exhibit C;
(5) an affidavit pursuant to Section 1445(b)(2) of the Code,
and on which Buyer is entitled to rely, that Seller is not a "foreign person"
within the meaning of Section 1445(f)(3) of the Code;
(6) California 590 Certificate;
(7) tenant notice letters for all tenants at the Property
informing them of the sale of the Property and assignment of the Leases to Buyer
in the form of attached Exhibit I;
(8) instructions to Title Company to deduct Seller's share of
the closing costs as described in Section 8.8 from the Purchase Price; and
(12) instructions to Title Company to deduct cash equal to
the amount of all refundable tenant security deposits required under the Leases
from the Purchase Price.
(b) At or before Closing, Buyer shall deposit into escrow the
following items:
(1) funds necessary to close this transaction;
(2) four (4) duly executed counterparts of the Bill of Sale;
(3) four (4) duly executed counterparts of the Assignment of
Leases; and
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(4) four duly executed counterparts of the PeopleSoft Lease.
(c) Buyer and Seller shall each deposit such other instruments as
are reasonably required by the Title Company or otherwise required to close the
escrow and consummate the purchase and sale of the Property in accordance with
the terms hereof, including, without limitation, an agreement (the "Designation
Agreement") designating Title Company as the "Reporting Person" for the
transaction pursuant to Section 6045(e) of the Code and the regulations
promulgated thereunder, and executed by Seller, Buyer and Title Company. The
Designation Agreement shall be in a form reasonably acceptable to the parties,
and, in any event, shall comply with the requirements of Section 6045(e) of the
Code and the regulations promulgated thereunder.
(d) Seller shall deliver to Buyer complete originals of all of
the leases, copies of all of the tenant correspondence files in Seller's
possession or control, and originals of any other items which Seller was
required to furnish Buyer copies of or make available at the Property pursuant
to Section 2.1 above, except for Seller's general ledger and other internal
books or records which shall be retained by Seller, within two (2) business days
after the Closing Date. Seller shall deliver to Buyer a set of keys to the
Property on the Closing Date.
Section 8.6 Estoppel Certificates.
(a) If in accordance with Section 2 of this Agreement Buyer
elects to proceed with the purchase of the Property, then Seller shall use its
reasonable efforts to obtain estoppel certificates from each tenant of the
Property in the form attached hereto as Exhibit J. It shall be a condition to
Buyer's obligation to close the sale and purchase of the Property that on or
before the Closing, Buyer is able to obtain estoppel certificates from all of
the tenants, including, but not limited to Seller (the "Required Estoppels");
provided that in the event that Buyer is unable to obtain one or more of the
Required Estoppels, Seller may, at its sole option, provide and Buyer shall
accept in lieu of the Required Estoppel an estoppel certificate ("Seller's
Estoppel") certifying as to the following items for the applicable lease and
tenant: commencement date and termination date, no uncured defaults under the
lease on the part of landlord or, to the best of the landlord's knowledge, on
the part of tenant, rent and additional charges payable under the lease,
tenant's prorata share of taxes and expenses under the applicable lease.
Notwithstanding the foregoing, the receipt by Buyer of estoppel certificates
from Zenith (in the form of Exhibit K attached hereto and in accordance with the
terms and conditions contained in Section 26 of the Lease between Zenith
Insurance Company and Rosewood Associates dated January 18, 1993) and
PeopleSoft, Inc. shall be a condition to Buyer's obligation to purchase the
Property. Buyer hereby agrees that Buyer may not reject an estoppel in the event
that a tenant strikes out or modifies Sections 16, 17 or 18 or the form estoppel
attached hereto as Exhibit J and makes no other material modifications. Any
Seller's Estoppel delivered in connection with the Closing shall be effective
until the earlier of (i) one (1) year after the Closing, or (ii) the receipt of
an estoppel certificate from the applicable tenant.
(b) If the condition contained in Section 8.6(a) above is not
satisfied, then Buyer may, by written notice given to Seller before the Closing,
elect to terminate this
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Agreement and receive a refund of the Deposit or waive said condition. If Buyer
so elects to terminate this Agreement, neither party shall have any further
rights or obligations hereunder except as provided in Section 6.1 above and
Sections 9.3 and 9.9 below.
Section 8.7 Prorations.
All rents and other sources of income and all expenses for the Property will be
prorated on the Closing Date (based on actual days of the month and a 365-day
year) and the Purchase Price will be adjusted on the following basis:
(a) All rents receivable under the leases attributable to the
period prior to the Closing Date will be paid to or retained by Seller. Rents
attributable to the period beginning on the Closing Date and thereafter will be
paid to Buyer. Buyer will pay over to Seller any rents received by Buyer after
the Closing attributable to the period prior to the Closing Date (determined on
the basis of applying rents received to the most recently accrued rent first),
after deduction by Buyer of all expenses incurred in collecting same.
(b) All sums due for accounts payable which were owing or accrued
by the Property for any period prior to the Closing and for all agreements and
contracts not assumed by Buyer will be paid by Seller. Buyer will furnish to
Seller for payment any bills received after the Closing that apply to any period
prior to the Closing with respect to such accounts, agreements and contracts,
and Buyer will have no further obligation with respect thereto. Payments due
under any Service Contracts shall be prorated as of the Closing Date, and Buyer
shall be liable for all payments accruing thereunder after the Closing.
(c) All real and personal property ad valorem taxes and special
assessments, if any, will be prorated to the Closing Date, based on the latest
available tax rate and assessed valuation. With respect to any property tax
appeal or reassessment filed by Seller for tax years (or portions thereof) prior
to the Closing, Seller shall be entitled to the full amount of any refund or
rebate resulting therefrom applicable to the period before the Closing Date,
except to the extent such amounts are payable to, or otherwise accrue to the
benefit of, the tenants pursuant to the leases.
(d) All utility (including electricity, gas, water, sewer and
telephone) charges will be prorated to the Closing Date. All utility security
deposits, if any, will be retained by Seller.
(e) If the amount of any proration cannot be determined at the
Closing, the adjustments will be made between the parties as soon after Closing
as possible but in no event later than ninety (90) days after Closing.
(f) The provisions of this Section 8.7 shall survive the Closing.
Section 8.8 Closing Costs.
Seller shall pay the transfer taxes applicable to this transaction and one-half
(1/2) of the escrow fee. Buyer shall pay the costs of obtaining the ALTA title
insurance policy, the cost of any
17
<PAGE> 18
endorsements, the costs of obtaining an updated ALTA Survey and one-half (1/2)
of the escrow fee. Recording charges and any other expenses of the escrow for
the sale shall be paid by Buyer and Seller in accordance with customary practice
as determined by the Title Company.
Section 8.9 Possession.
Seller shall deliver possession of the Property to Buyer on the Closing
Date.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Notices.
Any notices required or permitted to be given hereunder shall be given in
writing and shall be delivered (a) in person, (b) by certified mail, postage
prepaid, return receipt requested, (c) by facsimile with confirmation of
receipt, or (d) by a commercial overnight courier that guarantees next day
delivery and provides a receipt, and such notices shall be addressed as follows:
To Buyer: William Wilson & Associates Investors, Inc.
c/o William Wilson & Associates, Inc.
2929 Campus Drive, Suite 450
San Mateo, California 94403
Attention: R. Matthew Moran
Fax No.: (650) 345-7619
with a copy to: Farella Braun & Martell LLP
235 Montgomery Street
San Francisco, CA 94104
Attention: Mary G. Murphy, Esq.
Fax No.: (415) 954-4480
To Seller: PeopleSoft, Inc.
4305 Hacienda Drive
Pleasanton, California 94588
Attention: Director of Real Estate
Fax: (925) 467-7050
with copies to: PeopleSoft, Inc.
4305 Hacienda Drive
Pleasanton, California 94588
Attention: General Counsel
Fax: (925) 467-7184
Griggs Resource Group.
3470 Mt. Diablo Blvd, Suite A-205
18
<PAGE> 19
Lafayette, California 94549
Attention: Brian Griggs
Fax: (925) 299-4872
Orrick, Herrington & Sutcliffe LLP
400 Sansome Street
San Francisco, CA 94111
Attention: William G. Murray, Jr., Esq.
Fax No.: (415) 773-4285
or to such other address as either party may from time to time specify in
writing to the other party. Any notice shall be effective only upon delivery.
Section 9.2 Entire Agreement.
This Agreement, together with the Exhibits hereto, contains all representations,
warranties and covenants made by Buyer and Seller and constitutes the entire
understanding between the parties hereto with respect to the subject matter
hereof. Any prior correspondence, memoranda or agreements are replaced in total
by this Agreement together with the Exhibits hereto.
Section 9.3 Entry and Indemnity.
Seller shall afford Buyer and authorized representatives of Buyer reasonable
access to the Property to conduct inspections for the purpose of determining
whether or not to purchase the Property. In connection with any entry by Buyer,
or its agents, employees or contractors onto the Property, Buyer shall give
Seller reasonable advance notice of such entry and shall conduct such entry and
any inspections in connection therewith so as to minimize, to the greatest
extent possible, interference with Seller's business and the business of
Seller's tenants and otherwise in a manner reasonably acceptable to Seller.
Without limiting the foregoing, prior to any entry to perform any on-site
testing at the Property, Buyer shall give Seller written notice thereof,
including the identity of the company or persons who will perform such testing
and the proposed scope of the testing. Seller shall approve or disapprove, in
Seller's reasonable discretion, the proposed testing within three (3) business
days after receipt of such notice. If Seller fails to respond within such three
(3) business day period, Seller shall be deemed to have approved the proposed
testing. If Buyer or its agents, employees or contractors take any sample from
the Property in connection with any such approved testing, Buyer shall provide
to Seller a portion of such sample being tested to allow Seller, if it so
chooses, to perform its own testing. Seller or its representative may be present
to observe any testing or other inspection performed on the Property. Upon the
request of Seller, Buyer shall promptly deliver to Seller copies of any reports
relating to any testing or other inspection of the Property performed by Buyer
or its agents, employees or contractors. Except for telephonic contact and
written requests for public records, Buyer shall not contact any governmental
authority without first obtaining the prior written consent of Seller thereto,
and Seller, at Seller's election, shall be entitled to have a representative
present at any meeting by Buyer with a governmental authority. Buyer shall
maintain, and shall assure that its contractors maintain, public liability and
property damage insurance in amounts and in form and substance adequate to
insure against all liability of Buyer and its agents,
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<PAGE> 20
employees or contractors, arising out of any entry or inspections of the
Property pursuant to the provisions hereof, and Buyer shall provide Seller with
evidence of such insurance coverage upon request by Seller. Buyer shall
indemnify and hold Seller harmless from and against any costs, damages,
liabilities, losses, expenses, liens or claims (including, without limitation,
reasonable attorney's fees) arising out of or relating to the acts or omissions
of Buyer, its agents, employees or contractors in the course of performing the
inspections, testings or inquiries provided for in this Agreement. The foregoing
indemnity shall survive beyond the Closing, or, if the sale is not consummated,
beyond the termination of this Agreement.
Section 9.4 Time.
Time is of the essence in the performance of each of the parties' respective
obligations contained herein.
Section 9.5 Attorneys' Fees.
In the event of any dispute between the parties, whether based on contract, tort
or other cause of action or involving bankruptcy or similar proceedings, in any
way related to this Agreement, the non-prevailing party shall pay to the
prevailing party all reasonable attorneys' fees and costs and expenses of any
type, without restriction by statute, court rule or otherwise, incurred by the
prevailing party in connection with any action or proceeding (including
arbitration proceedings, any appeal and the enforcement of any judgment or
award), whether or not the dispute is litigated or prosecuted to final judgment.
The "prevailing party" shall be determined based upon an assessment of which
party's major arguments or positions taken in the action or proceeding could
fairly be said to have prevailed (whether by compromise, settlement, abandonment
by the other party of its claim or defense, final decision, after any appeals,
or otherwise) over the other party's major arguments or positions on major
disputed issues.
Section 9.6 Assignment.
Neither party hereto may assign its rights nor delegate its duties under this
Agreement, without the prior written consent of the other party; provided,
however, that Seller agrees that Buyer may, without Seller's consent,
voluntarily or by operation of law, assign all of Buyer's rights and delegate
all of its duties under this Agreement to any corporation, real estate
investment trust or other entity or successor (i) which controls, is controlled
by, or is under common control with Buyer, (ii) resulting from a merger or
consolidation with Buyer, whether or not Buyer is the surviving entity under
such transaction, or (iii) which acquires all or substantially all of the assets
of Buyer. Without limiting the above, in no event shall Buyer have the right to
assign its rights or obligations hereunder to any party which could not make the
representations and warranties contained in subsections 3.5(b) and (c) above.
Provided that William Wilson & Associates, Inc. can make the representations and
warranties contained in subsections 3.5(b) and (c) above, Seller hereby consents
to the assignment of Buyer's rights and duties under this Agreement to William
Wilson & Associates, Inc.
Section 9.7 Counterparts.
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<PAGE> 21
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which taken together shall constitute one and
the same instrument.
Section 9.8 Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of
the State of California (without giving effect to its choice of law principles).
The parties agree that all suits or actions of any kind brought to interpret or
enforce the terms of, or otherwise arising out of or relating to, this Agreement
shall be filed and litigated solely in the state or federal courts in San
Francisco, California. Each party hereby consents to the personal and subject
matter jurisdiction of said courts.
Section 9.9 Confidentiality and Return of Documents.
Buyer and Seller shall each maintain as confidential any and all material
obtained about the other or, in the case of Buyer, about the Property, this
Agreement or the transactions contemplated hereby, and shall not disclose such
information to any third party. This provision shall survive the Closing or any
termination of this Agreement.
Section 9.10 Interpretation of Agreement.
The article, section and other headings of this Agreement are for convenience of
reference only and shall not be construed to affect the meaning of any provision
contained herein. Unless the context clearly requires otherwise, (i) the plural
and singular numbers shall each be deemed to include the other; (ii) the
masculine, feminine, and neuter genders shall each be deemed to include the
others; (iii) "shall," "will," or "agrees" are mandatory, and "may" is
permissive; (iv) "or" is not exclusive; (v) "includes" and "including" are not
limiting; and (vi) "days" means calendar days unless specifically provided
otherwise. The term "person" shall include any individual, partnership, joint
venture, corporation, trust, unincorporated association, any other entity and
any government or any department or agency thereof, whether acting in an
individual, fiduciary or other capacity.
Section 9.11 Limited Liability.
The obligations of Seller and Buyer, other than the representations and
warranties contained in Section 9.24 hereof, are intended to be binding only on
Seller and Buyer and shall not be personally binding upon, nor shall any resort
be had to, the private properties of any of either of Seller's or Buyer's
trustees, officers, beneficiaries, directors, members, or shareholders, or of
its investment manager, the general partners, officers, directors, members, or
shareholders thereof, or any employees or agents of Seller or Buyer or their
respective investment manager. Notwithstanding anything to the contrary
contained herein, after the Closing the maximum aggregate liability of Seller,
and the maximum aggregate amount which may be awarded to and collected by Buyer
under this Agreement (including, without limitation, for any breach or
representation or warranty contained herein), and any and all documents executed
pursuant hereto or in connection herewith (collectively, the "Other Documents")
including, without
21
<PAGE> 22
limitation, the Deed, the Bill of Sale, the Assignment of Leases, shall under no
circumstances whatsoever, exceed Two Million Dollars ($2,000,000).
Section 9.12 Amendments.
This Agreement may be amended or modified only by a written instrument signed by
Buyer and Seller.
Section 9.13 No Recording.
Neither this Agreement or any memorandum or short form thereof may be recorded
by Buyer.
Section 9.14 Drafts not an Offer to Enter into a Legally Binding
Contract.
The parties hereto agree that the submission of a draft of this Agreement by one
party to another is not intended by either party to be an offer to enter into a
legally binding contract with respect to the purchase and sale of the Property.
The parties shall be legally bound with respect to the purchase and sale of the
Property pursuant to the terms of this Agreement only if and when the parties
have been able to negotiate all of the terms and provisions of this Agreement in
a manner acceptable to each of the parties in their respective sole discretion,
including, without limitation, all of the Exhibits and Schedules hereto, and
both Seller and Buyer have fully executed and delivered to each other a
counterpart of this Agreement, including, without limitation, all Exhibits and
Schedules hereto.
Section 9.15 No Partnership.
The relationship of the parties hereto is solely that of Seller and Buyer with
respect to the Property and no joint venture or other partnership exists between
the parties hereto. Neither party has any fiduciary relationship hereunder to
the other.
Section 9.16 No Third Party Beneficiary.
The provisions of this Agreement are not intended to benefit any third parties.
Section 9.17 Survival.
Except as expressly set forth to the contrary herein, no representations,
warranties, covenants or agreements of the Seller contained herein shall survive
the Closing.
Section 9.18 Survival of Article IX.
The provisions of this Article IX shall survive the Closing.
Section 9.19 Exchange.
Buyer acknowledges that it is Seller's present intent to consummate the
transaction contemplated herein pursuant to a like-kind exchange of property
(the "Exchange") pursuant to Section 1031 of
22
<PAGE> 23
the Internal Revenue Code of 1986, and comparable provisions of the California
Revenue and Taxation Code. Buyer agrees, provided that such exchange results in
no additional cost or expense and no liability to Buyer except for those
reasonable costs and expenses reimbursed or paid to Buyer by Seller, to
accommodate the Seller in such Exchange. In the event that Seller desires to
consummate this transaction pursuant to an Exchange, Buyer agrees to perform all
acts necessary to accommodate the Seller in effectuating such Exchange; provided
that, in no event shall the Buyer be required to do any act other than execute
required documentation or to acquire fee title to any property other than the
Property. The Seller shall indemnify the Buyer and hold the Buyer harmless from
and against any and all claims, damages, losses, liabilities, costs and
expenses, including, without limitation, reasonable attorneys fees and costs,
arising out of or in any way connected with the Exchange.
Section 9.20 Assignment of Excess Floor Area Ratio.
Buyer and Seller acknowledge that as of the date hereof the Improvements on the
Property consist of approximately two hundred eighty thousand rentable square
feet and that the former and/or present entitlements, zoning and land use
designation for the Property may allow additional developable allocations
("Excess FAR") to the Property. Buyer in no way represents or warrants that any
such development rights exist or are transferable. The statutes, rules and
regulations of the City of Pleasanton and/or Hacienda Business Park may allow
the excess FAR to be transferred to another site which Seller intends to
purchase within the Hacienda Business Park. At any time up to thirty six (36)
months after Closing, Seller, in its sole and absolute discretion, may purchase
the Excess FAR from Buyer for One Hundred Thousand Dollars ($100,000) (the
"Excess FAR Purchase Price") which may be paid in any manner reasonably agreed
to by Buyer and Seller. Buyer shall use its good faith efforts to cooperate with
Seller and execute such additional documents as are reasonably necessary or file
any applications or requests with the City of Pleasanton, Hacienda Business Park
or other governmental authority to effectuate the intent of this Section 9.20;
provided, however, Buyer shall not be required to incur any liability or incur
additional cost or expense except for those reasonable costs and expenses
reimbursed or paid to Buyer by Seller, in addition to the Excess FAR Purchase
Price.
Section 9.21 IRS Form 1099-S Designation.
In order to comply with information reporting requirements of Section 6045(e) of
the Internal Revenue Code of 1986, as amended, and the Treasury Regulations
thereunder, the parties agree (i) to execute an IRS Form 1099-S Designation
Agreement to designate the Title Company (the "Designee") as the party who shall
be responsible for reporting the contemplated sale of the Property to the
Internal Revenue Service (the "IRS") on IRS Form 1099-S; and (ii) to provide the
Designee with the information necessary to complete Form 1099-S.
Section 9.22 Further Assurances.
The parties hereby agree to execute such other documents and perform such other
acts as may be necessary or desirable to carry out the purposes of this
Agreement, whether before or after Closing.
Section 9.23 Partial Invalidity.
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<PAGE> 24
If any term, covenant or condition of this Agreement or its application to any
person or circumstances shall be held to be illegal, invalid or unenforceable,
the remainder of this Agreement or the application of such term or provisions to
other persons or circumstances shall not be affected, and each term hereof shall
be legal, valid and enforceable to the fullest extent permitted by law, unless
an essential purpose of this Agreement would be defeated by the loss of the
illegal, unenforceable, or invalid provision. In the event of such partial
invalidity, the parties shall seek in good faith to agree on replacing any such
legally invalid provisions with valid provisions which, in effect, will, from an
economic viewpoint, most nearly and fairly approach the effect of the invalid
provision and the intent of the parties in entering into this Agreement.
24
<PAGE> 25
Section 9.24 Authority.
The individuals executing this Agreement on behalf of Seller and Buyer
individually represent and warrant that he or she has been authorized to do so
and has the power to bind the party for whom they are signing.
The parties hereto have executed this Agreement as of the respective dates
written below.
Seller: PEOPLESOFT PROPERTIES, INC.,
a California corporation
By:
-----------------------------------------
Its:
-----------------------------------------
Buyer: WILLIAM WILSON & ASSOCIATES INVESTORS, INC.,
a California corporation
By:
-----------------------------------------
Its:
-----------------------------------------
By:
-----------------------------------------
Its:
-----------------------------------------
25
<PAGE> 26
LIST OF EXHIBITS
EXHIBITS
Exhibit A Real Property Description
Exhibit B Personal Property
Exhibit C PeopleSoft Lease
Exhibit D Title Objection Letter
Exhibit E Due Diligence Items
Exhibit F Rent Roll
Exhibit G Bill of Sale
Exhibit H Assignment of Leases, Service Contracts and Warranties
Exhibit I Form of Tenant Notice
Exhibit J Form of Estoppel Certificate
Exhibit K Form of Zenith Estoppel Certificate
SCHEDULES
Schedule 1 Disclosure Items
<PAGE> 27
EXHIBIT A
REAL PROPERTY DESCRIPTION
A-1
<PAGE> 28
EXHIBIT B
LIST OF PERSONAL PROPERTY
B-1
<PAGE> 29
EXHIBIT C
PEOPLESOFT LEASE
C-1
<PAGE> 30
EXHIBIT D
PROFORMA
D-1
<PAGE> 31
EXHIBIT E
DUE DILIGENCE ITEMS
E-1
<PAGE> 32
EXHIBIT F
RENT ROLL
F-1
<PAGE> 33
EXHIBIT G
BILL OF SALE
----------------------------------------
This Bill of Sale (the "Bill of Sale") is made and entered into ____________,
199__, by and between PeopleSoft Properties, Inc., a California corporation
("Assignor"), and William Wilson & Associates Investors, Inc., a California
corporation ("Assignee").
In consideration of the sum of One Thousand Dollars ($1000) and other good and
valuable consideration paid by Assignee to Assignor, the receipt and sufficiency
of which are hereby acknowledged by Assignor, Assignor does hereby assign,
transfer, convey and deliver to Assignee, its successors and assigns, free and
clear of any liens or encumbrances created by, through or under Assignor, all
items of tangible personal property, if any, owned by Assignor and situated upon
and used exclusively in connection with the land described on the attached
Exhibit A (the "Land") and the improvements located thereon (the
"Improvements"), and described on the attached Exhibit B, but specifically
excluding any and all personal property owned by tenants or otherwise considered
the property of tenants under any leases affecting the Land or Improvements (the
"Personal Property").
This Bill of Sale is made subject, subordinate and inferior to the easements,
covenants and other matters and exceptions set forth on Exhibit C, attached
hereto and made a part hereof for all purposes.
ASSIGNEE ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED IN THAT
CERTAIN AGREEMENT OF PURCHASE AND SALE DATED JULY 21, 1998, BY AND BETWEEN
ASSIGNOR AND ASSIGNEE (THE "AGREEMENT"), ASSIGNOR HAS NOT MADE, DOES NOT MAKE
AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS,
AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR
IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH
RESPECT TO (A) THE NATURE, QUALITY OR CONDITIONS OF THE PERSONAL PROPERTY, (B)
THE INCOME TO BE DERIVED FROM THE PERSONAL PROPERTY, (C) THE SUITABILITY OF THE
PERSONAL PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH ASSIGNEE MAY CONDUCT
THEREON, (D) THE COMPLIANCE OF OR BY THE PERSONAL PROPERTY OR ITS OPERATION WITH
ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL
AUTHORITY OR BODY, (E) THE HABITABILITY, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OF THE PERSONAL PROPERTY, OR (F) ANY OTHER MATTER WITH
RESPECT TO THE PERSONAL PROPERTY. ASSIGNEE FURTHER ACKNOWLEDGES AND AGREES THAT,
HAVING BEEN GIVEN THE OPPORTUNITY TO INSPECT THE PERSONAL PROPERTY, ASSIGNEE IS
RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PERSONAL PROPERTY AND NOT ON ANY
INFORMATION PROVIDED OR TO BE PROVIDED BY ASSIGNOR, EXCEPT AS SPECIFICALLY
PROVIDED IN THE AGREEMENT. ASSIGNEE FURTHER ACKNOWLEDGES AND AGREES THAT ANY
INFORMATION PROVIDED OR TO BE PROVIDED WITH RESPECT TO THE PERSONAL PROPERTY WAS
OBTAINED FROM A VARIETY OF SOURCES AND THAT ASSIGNOR HAS NOT MADE ANY
INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION. ASSIGNEE FURTHER
ACKNOWLEDGES AND AGREES THAT THE SALE OF THE PERSONAL PROPERTY AS PROVIDED FOR
G-1
<PAGE> 34
HEREIN IS MADE ON AN "AS IS, WHERE IS" CONDITION AND BASIS "WITH ALL FAULTS,"
EXCEPT AS SPECIFICALLY PROVIDED IN THE AGREEMENT.
The obligations of Assignor are intended to be binding only on Assignor and
shall not be personally binding upon, nor shall any resort be had to, the
private properties of any of its trustees, officers, beneficiaries, directors,
members, or shareholders, or of its investment manager, the general partners,
officers, directors, members, or shareholders thereof, or any employees or
agents of Assignor or its investment manager.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Bill of Sale to be
executed on the date and year first above written.
Assignor: PEOPLESOFT PROPERTIES, INC.,
a California corporation
By:
----------------------------------------
Its:
----------------------------------------
Assignee: WILLIAM WILSON & ASSOCIATES INVESTORS, INC.,
a California corporation
By:
----------------------------------------
Its:
----------------------------------------
By:
----------------------------------------
Its:
----------------------------------------
G-2
<PAGE> 35
EXHIBIT H
ASSIGNMENT OF LEASES, SERVICE CONTRACTS
AND WARRANTIES
-------------------------------
This Assignment of Lease, Service Contracts and Warranties (this "Assignment")
is made and entered into _______________, 199__, by and between PeopleSoft
Properties, Inc., a California corporation ("Assignor"), and William Wilson &
Associates Investors, Inc., a California corporation ("Assignee").
For good and valuable consideration paid by Assignee to Assignor, the receipt
and sufficiency of which are hereby acknowledged by Assignor, Assignor does
hereby assign, transfer, set over and deliver unto Assignee all of Assignor's
right, title, and interest in (i) those certain leases (the "Leases") listed on
Exhibit A, attached hereto and made a part hereof for all purposes except for
Seller's right to collect delinquent rent and other delinquent sums owing under
such Leases for the period prior to the date hereof, (ii) those certain service
contracts, equipment leases, tenant improvement agreements and leasing
agreements (the "Contracts") listed on Exhibit B, if any, attached hereto and
made a part hereof for all purposes, and (iii) those certain warranties held by
Assignor (the "Warranties") listed on Exhibit C, attached hereto and made a part
hereof for all purposes.
This Assignment is made subject, subordinate and inferior to the easements,
covenants and other matters and exceptions set forth on Exhibit D, attached
hereto and made a part hereof for all purposes.
ASSIGNEE ACKNOWLEDGES AND AGREES, BY ITS ACCEPTANCE HEREOF, THAT, EXCEPT AS
EXPRESSLY PROVIDED IN THAT CERTAIN AGREEMENT OF PURCHASE AND SALE, DATED AS OF
JULY 21, 1998, BY AND BETWEEN ASSIGNOR AND ASSIGNEE (THE "AGREEMENT"), THE
LEASES, THE CONTRACTS AND THE WARRANTIES ARE CONVEYED "AS IS, WHERE IS" AND IN
THEIR PRESENT CONDITION WITH ALL FAULTS, AND THAT ASSIGNOR HAS NOT MADE, DOES
NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES,
COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER
EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO,
CONCERNING OR WITH RESPECT TO THE NATURE, QUALITY OR CONDITION OF THE LEASES,
THE CONTRACTS OR THE WARRANTIES, THE INCOME TO BE DERIVED THEREFROM, OR THE
ENFORCEABILITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE
LEASES, THE CONTRACTS OR THE WARRANTIES.
Except as otherwise expressly provided in the Agreement, by accepting this
Assignment and by its execution hereof, Assignee assumes the payment and
performance of, and agrees to pay, perform and discharge, all the debts, duties
and obligations to be paid, performed or discharged from and after the date
hereof, by (a) the "landlord" or the "lessor" under the terms, covenants and
conditions of the Leases, including, without limitation, brokerage commissions
and compliance with the terms of the Leases relating to tenant improvements and
security deposits, and (b) the owner under the Contracts and/or the Warranties.
H-1
<PAGE> 36
The obligations of Assignor are intended to be binding only on Assignor and
shall not be personally binding upon, nor shall any resort be had to, the
private properties of any of its trustees, officers, beneficiaries, directors,
members, or shareholders, or of its investment manager, the general partners,
officers, directors, members, or shareholders thereof, or any employees or
agents of Assignor or its investment manager.
All of the covenants, terms and conditions set forth herein shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment to be
executed on the day and year first above written.
Assignor: PEOPLESOFT PROPERTIES, INC.,
a California corporation
By:
----------------------------------------
Its:
----------------------------------------
Assignee: WILLIAM WILSON & ASSOCIATES INVESTORS, INC.,
a California corporation
By:
----------------------------------------
Its:
----------------------------------------
By:
----------------------------------------
Its:
----------------------------------------
H-2
<PAGE> 37
EXHIBIT I
FORM OF TENANT NOTICE
_______ ____, 199_
VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED
- ---------------------------
- ---------------------------
- ---------------------------
- ---------------------------
RE: ________________________; LEASE DATED _____________, 199__ BETWEEN
PEOPLESOFT PROPERTIES ("LANDLORD") AND _______________ ("TENANT")
Dear ___________________:
This is to notify you that PEOPLESOFT PROPERTIES, INC., the current landlord
under the above captioned lease has sold its interest in the property commonly
known as PeopleSoft Plaza and located at 4301, 4305 and 4309 Hacienda Drive,
Pleasanton, California and has assigned its interest as landlord under your
lease to the new owner, William Wilson & Associates Investors, Inc. Landlord has
also transferred to William Wilson & Associates Investors, Inc. the security
deposit held by Landlord under the lease in the amount of $__________ (if none,
so state). No claims have been made against the security deposit (if a claim has
been made, so state).
Except as noted below, please direct all future rental and other payments
and communications under your lease to:
William Wilson & Associates Investors, Inc.
---------------------
---------------------
---------------------
Sincerely,
PEOPLESOFT PROPERTIES, INC.,
a California corporation
By:____________________
Its:____________________
I-1
<PAGE> 38
EXHIBIT J
TENANT ESTOPPEL CERTIFICATE
TO: [Buyer ] [Lender ]
_______________________ _________________________
_______________________ _________________________
_______________________ _________________________
Re: Suite ____________, _________________, _________________ (the
"Premises")
This estoppel certificate is delivered by the undersigned ("Tenant") to
___________________________________("Buyer") in connection with its contemplated
purchase of certain real property commonly known as
______________________________, ______________ (the "Property") from
_________________________ ("Landlord") and to _____________________ ("Lender")
in connection with its making of a loan to Buyer to finance Buyer's purchase of
the Property, which loan will be secured by a deed of trust (the "Deed of
Trust") on the Property. Tenant hereby certifies the following information on
which Buyer may rely in connection with its purchase of the Property and Lender
may rely in connection with its making a loan secured by the Property:
1. The undersigned is the tenant in possession of the Premises under a
written lease with Landlord, dated _________________, 19__, [as amended by
________________], which lease [as amended] (the "Lease") is in full force and
effect and each provision of which is binding on Tenant in accordance with its
terms. The Lease has not been modified or amended in writing or orally or by
course of conduct, except as specifically set forth above, and contains the
entire understanding and agreement between Tenant and Landlord concerning the
Premises. A true, complete and accurate copy of the Lease is attached hereto as
Exhibit A.
1. The Premises consist of approximately ___________ [net rentable] or
[gross] square feet of [office] [retail] space.
3. The term of the Lease commenced on _____________ and terminates on
____________.
4. Current monthly base rent under the Lease is ____________.
[Percentage rent of ___________ is due [annually or quarterly]]. Base rent has
been paid through the period ending ____________. The Lease provides for the
monthly rent to increase as follows: ___________. As of the date hereof, Tenant
has no existing right to free rent, partial rent, rent rebate, credit for
improvements, rent abatement, or other rental concessions or any right to
payments from Landlord to Tenant except as follows:____________________________.
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5. The Lease requires Tenant to pay its pro rata share of increases in
real estate taxes and operating expenses for the Property and appurtenant
property over the [base year 199__ real estate taxes and operating expenses of
$________] or [expense stop of $_____________]. Tenant's pro rata share is_____.
For the calendar year 19____, Tenant is obligated to pay monthly estimated
amounts for real estate tax and operating expense increases of $ , and has paid
such estimates through the period ending___________________. Tenant is owed no
refund of real estate taxes or operating expense payments made for prior
calendar years.
6. Tenant has no option to extend or to renew the term of the Lease,
except as follows:______________________________________________________________
_______________________________________________________________________________.
7. The Lease contains no right of first refusal or offer to lease
additional space, option to expand, option to terminate the Lease, or right of
first refusal or offer or option to purchase the Property or any interest
therein, except as follows:_____________________________________________________
_______________________________________________________________________________.
8. The actual cash amount of the security deposit currently held by
Landlord is $______________. Landlord holds no other funds for Tenant's account.
9. Tenant is not, and to the best of Tenant's knowledge Landlord is not,
in default under any provision of the Lease nor has any event occurred which
with the passage of time or giving of notice, or both, would constitute a
default on the part of Tenant or Landlord, both parties having fully performed
the obligations required to be performed by each party thereunder through the
date hereof. Tenant asserts no claim of default against Landlord or any other
person or offset or defense against the payment of rent or other charges payable
by Tenant or the performance of any other obligations by Tenant under the Lease.
10. The Premises have been delivered to Tenant in accordance with the
terms of the Lease, Tenant has accepted the Premises, and Landlord has fully
completed all construction and improvements to the Premises required to be
completed by Landlord under the Lease. Landlord has fulfilled all obligations to
finance or provide an allowance for improvements to the Premises.
11. The Lease entitles Tenant to the [non-exclusive] or [exclusive] use
of ____ parking spaces at the Property.
12. Tenant has not assigned its rights under the Lease or sublet any
portion of the Premises.
13. There are no actions, whether voluntary or otherwise, pending
against Tenant under any insolvency, bankruptcy or other debtor relief laws of
the United States or of any state.
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14. All insurance required of Tenant under the Lease has been obtained
by Tenant and all premiums have been paid.
15. Tenant has no notice of any prior assignment, hypothecation, grant
of security interest, or pledge by Landlord of the Lease or the rents due
thereunder. Tenant has not assigned, hypothecated, granted a security interest
or pledged its interest in the Lease to any person or entity.
16. From the date hereof until the Deed of Trust is reconveyed, Tenant
will not consent to or enter into any modification or termination of the Lease
without the prior written consent of Lender, unless the Deed of Trust does not
require Lender's consent to such modification or termination.
17. From the date hereof until the Deed of Trust is reconveyed, in the
event of a default by Landlord under the Lease, Tenant shall give prompt written
notice to Lender to the address set forth above and a reasonable time (which in
no event shall be less than thirty (30) days or any longer period set forth in
the Lease) to cure or commence cure of such default.
18. If Landlord's interests in the Property are acquired by Lender by
foreclosure, deed in lieu of foreclosure or any other method, Lender shall not
be liable for any act or omission of Landlord or any prior landlord.
19. Tenant's current address for Notices is:
--------------------------------
--------------------------------
--------------------------------
The statements made herein shall be binding upon us, our successors and
assigns, and shall inure to your benefit and the benefit of your successors and
assigns. The officers executing this letter have been duly empowered to do so on
behalf of the undersigned.
Each of you may consider this certificate and the information contained
herein accurate as of any date that is within 45 days after the date hereof set
forth below, except to the extent we notify you in writing at your address set
forth above of changes to the within-described information.
Dated: ____________________
Very truly yours,
By:
--------------------------
Name:
------------------------
Its:
-------------------------
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EXHIBIT K
FORM OF ZENITH ESTOPPEL CERTIFICATE
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<PAGE> 42
Schedule 1-1
Disclosure Items
Seller has disclosed to Buyer the following facts, circumstances,
documents, agreements and matters:
1. Land use, zoning and similar laws, statutes and ordinances applicable to the
Property.
2. All matters shown on the title report for the Property delivered to Buyer.
3. All matters shown on the survey delivered to Buyer.
4. All matters shown on the leases and other Due Diligence Materials delivered
to Buyer.
5. With respect to the representations and warranties contained in Section
3.1(g), there is a lease with the property management company, Voit
Management Company, L.P., that will terminated prior to Closing.
Schedule 1-1
<PAGE> 1
OFFICE LEASE
THIS LEASE (the "Lease"), dated as of September 14, 1998, is
between Hacienda Plaza Associates, LLC, a California limited liability company
("Landlord"), and PeopleSoft, Inc., a Delaware corporation ("Tenant").
Landlord and Tenant hereby covenant and agree as follows:
1. Basic Lease Information.
1.1 Basic Lease Information. The Basic Lease Information is
hereby incorporated into and made a part of this Lease. For convenience of
reference only, defined terms and the sections in which they are defined are set
forth in Exhibit B.
2. Premises.
2.1 Premises Defined. Landlord leases to Tenant and Tenant hires
from Landlord on the terms and conditions contained in this Lease the Premises
specified in the Basic Lease Information. Tenant and Landlord accept the
Rentable Area of the Building, Initial Premises and Committed Expansion
Premises, as specified in the Basic Lease Information as the accurate Rentable
Area of such areas and such areas shall not be subject to recalculation.
Landlord and Tenant agree that the square footage of any additional space that
is added to the Premises over the first one hundred twenty (120) months of the
Lease Term shall be calculated, by Landlord, in accordance with BOMA Standards
[ANSI-Z65.1[1996]] for calculating useable square footage and that a load factor
of fourteen and 41/100 percent (14.41%) shall be added thereto to arrive at the
Rentable Area of such additional area. All areas, other than those specified in
the previous sentence, that are added to this Lease after the over the first one
hundred twenty (120) months of the Lease Term and become a part of the Premises
shall be measured in accordance with then applicable BOMA standards for
measuring rentable square feet. The term "Premises" shall mean all space that is
occupied by the Tenant from time to time during the Term of this Lease or space
which has been tendered to the Tenant by Landlord pursuant to the terms of this
Lease and on which Tenant is obligated to pay Base Rent (subject to any free
rent periods or rental abatement provided for herein) and shall also include any
space added to this Lease over the Term hereof. The term "Initial Premises" is
also used herein to mean all of the space in the Building that is occupied by
the Tenant as of the date hereof. The terms "common area" and "common areas"
shall mean spaces, facilities, and installations such as toilets, janitor,
telephone, electrical, and mechanical rooms and closets, trash facilities,
stairs, public lobbies, corridors and other circulation areas, wherever located
in the Building. The Building, the real property upon which the Building stands,
common areas, drives, parking areas, walkways and other amenities appurtenant to
or servicing the Building, are herein sometimes collectively called the "Real
Property." Without in any way limiting or expanding the definition of Premises,
the Tenant shall have the right during the term of this Lease to use on a
non-exclusive basis and in the manner and to the extent presently used by the
Tenant as of the date hereof, the loading dock in the Building and the reception
desk (which Tenant may use on an exclusive basis) and reception area presently
used by Tenant on the ground floor of the building known as 4305
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Hacienda Drive. The provisions of this Lease that may be applicable thereto will
apply to Tenant's use of any portion of the Building or common area outside the
Premises.
3. Term.
3.1 Term Commencement. The Premises are leased for a term (the
"Term") commencing (i) on the date hereof for the Initial Premises, or (ii) on
the date the Committed Expansion Premises, as defined in the Basic Lease
Information, or the Expansion Premises, as defined in Section 28.18, is tendered
to the Tenant by the Landlord. The Landlord shall notify Tenant as soon as
reasonably possible regarding the date when the Committed Expansion Premises
will be available for occupancy by Tenant. The Term of this Lease shall expire
on the Expiration Date, as defined in Section 3.2 below, or on such earlier date
as is provided for herein. As to all portions of the Premises, other than the
Initial Premises, should Landlord tender possession of such portions of the
Premises to Tenant prior to the date specified for commencement in the Basic
Lease Information with respect to such portion of the Premises and Tenant
accepts such prior tender, this Lease shall commence on the portions so tendered
as of the date the Tenant takes occupancy of such portions. If, for any other
reason whatsoever, Landlord cannot deliver possession of any portion of the
Premises to Tenant on or prior to the date, if any, specified in the Basic Lease
Information or such other date as Landlord may notify Tenant, if no date is
specified in the Basic Lease Information, then (A) the validity of this Lease
and the obligations of Tenant under this Lease shall not be affected except that
the Lease shall commence as to such portion of the Premises upon Landlord's
tender of possession thereof to the Tenant; (B) Tenant shall have no claim
against Landlord on account of such late delivery; and (C) the Expiration Date
of the Term shall not be extended. Within ten (10) days after written request
from Landlord, Tenant shall execute and return to Landlord an acknowledgement of
the commencement date of the term of this Lease as to each applicable portion of
the Premises. Notwithstanding the foregoing, if the term shall not have
commenced for any portion of the Premises for which a date is specified in the
Basic Lease Information on or before six (6) months after the date set forth in
the Basic Lease Information or the date that Landlord notifies Tenant in writing
that such space will be available, if no date is specified in the Basic Lease
Information, this Lease may be terminated (but only as to that portion of the
Premises not delivered) by Tenant or Landlord by written notice to the other
within ten (10) days of such date. Upon a termination of this Lease as to any
portion of the Premises, as provided in the previous sentence, such space shall
become subject to the provisions of Section 28.18 hereof. Landlord shall not
voluntarily agree to the extension of the term of any lease that covers space
that is part of the Committed Expansion Premises without the prior written
consent of Tenant.
3.2 Expiration Date.
(a) The Term of this Lease shall expire as to fifty percent (50%)
of the Initial Premises and Committed Expansion Premises ("Four Year Space") on
September 13, 2002. The Term of this Lease shall expire as to any portion of the
Premises that is not Four Year Space ("Five Year Space") on September 13, 2003.
(b) Tenant shall have the option (the "Four Year Space Option")
to extend the
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term of this Lease for six (6) years, with an Expiration Date of September 13,
2008, as to the Four Year Space by giving notice to Landlord on or before
September 14, 2001. The notice with regard to the Four Year Space Option (the
"Four Year Space Option Notice") shall specify whether or not Tenant elects to
exercise the Four Year Space Option and the portion of the Four Year Space on
which Tenant elects to exercise the Four Year Space Option. In the event that
Tenant fails to give Landlord the Four Year Space Option Notice on or before
September 14, 2001, Tenant shall be deemed to have elected to exercise the Four
Year Space Option with respect to all of the Four Year Space. In the event that
Tenant does not exercise the Four Year Space Option, or exercises, the Four Year
Space Option with respect to less than all of the Four Year Space, any portion
of the Four Year Space for which the Term is not extended (i) shall comply with
the last four sentences of Section 28.16(a) below, and (ii) Tenant shall pay
Landlord upon the termination of the Term for such portion of the Four Year
Space a termination fee calculated in accordance with Section 28.16(c) below.
(c) Tenant shall have the option (the "Five Year Space Option")
to extend the term of this Lease for five (5) years, with an Expiration Date of
September 13, 2008, as to the Five Year Space by giving notice to Landlord on or
before September 14, 2002. The notice with regard to the Five Year Space Option
(the "Five Year Space Option Notice") shall specify whether or not Tenant elects
to exercise the Five Year Space Option and the portion of the Five Year Space on
which Tenant elects to exercise the Five Year Space Option. In the event that
Tenant fails to give Landlord the Five Year Space Option Notice on or before
September 14, 2002, Tenant shall be deemed to have elected to exercise the Five
Year Space Option with respect to all of the Five Year Space. In the event that
Tenant does not exercise the Five Year Space Option, or exercises the Five Year
Space Option with respect to less than all of the Five Year Space, any portion
of the Five Year Space for which the Term is not extended (i) shall comply with
the last four sentences of Section 28.16(a) below, and (ii) Tenant shall pay
Landlord upon the termination of the Term for such portion of the Five Year
Space a termination fee calculated in accordance with Section 28.16(c) below.
Any of the Tenant's right to terminate this Lease pursuant to this Section 3.2
as to any portion of the Five Year Space shall be subject to the limitations of
Section 28.16.
(d) Notwithstanding any other provision of this Section 3.2 (i)
Tenant must exercise both the Four Year Space Option and the Five Year Space
Option as to all of the Four Year Space and all of the Five Year Space unless
that portion of the Premises on which the Lease would be terminated as result of
the Tenant's failure to exercise the Four Year Space Option and/or the Five Year
Space Option is being vacated by Tenant as a result of a move by Tenant of the
personnel or equipment using such space to a building or facility of which
Tenant owns or controls more than thirty three percent (33%) of the fee interest
(or a facility owned or controlled by an entity in which Tenant has not less
than a thirty three percent (33%) interest in capital and profits) or in
connection with a reduction in Tenant's overall space requirements in the
Pleasanton/Dublin area, and (ii) if, as of (y) the date Tenant exercises the
Four Year Space Option and/or the Five Year Space Option for less than all of
the Four Year Space and/or the Five Year Space or fails to exercise the Four
Year Space Option and/or the Five Year Space Option, or (z) the date on which
the Lease would otherwise terminate as to any portion of the Four Year Space
and/or the Five Year Space as a result of any of Tenant's rights under Sections
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<PAGE> 4
3.2(b) or (c) above, an event of default exists under this Lease and all
applicable grace periods have expired, Landlord shall have, in addition to all
of Landlord's other rights and remedies under this Lease, the right to extend
unilaterally the Term of this Lease to September 13, 2008, for that portion of
the Four Year Space or Five Year Space that would have otherwise been terminated
as of such date.
(e) The Base Rent for the Four Year Space during the extension of
the Term resulting from the exercise of the Four Year Space Option and the Base
Rent for the Five Year Space during the extension of the Term resulting from the
exercise of the Five Year Space Option shall be the applicable Base Rent set
forth in the Basic Lease Information.
4. Base Rent; Additional Charges.
4.1 Annual Rental. Tenant shall pay to Landlord during the Term
at the address set forth in the Basic Lease Information, without demand, offset
or deduction, except as otherwise provided herein, Base Rent as set forth in the
Basic Lease Information. Base Rent shall be payable on or before the first day
of each month, in advance, provided that Base Rent for the partial month
commencing on the date hereof shall not be due until three (3) business days
after the date hereof. If the Commencement Date or the Expiration Date should
occur on a day other than the first or last day of a calendar month,
respectively, then the Base Rent for such fractional month shall be prorated on
a daily basis based upon the number of days in such month. Base Rent shall
commence for the Initial Premises on the date hereof. Base Rent shall not
commence on any portion of the Premises provided to Tenant after the date
hereof, until sixty (60) days after the date that Landlord tenders possession to
Tenant of such portion of the Premises (ninety (90) days in the case of space
that Landlord acquires by virtue of the early termination of the prior lease for
such space, whether as a result of the default of the tenant in such space, a
negotiated early termination, or the recapture of such space pursuant to the
terms of the applicable lease "Early Termination Space").
4.2 Additional Charges. Tenant shall pay to Landlord when due all
charges, fees and expenses and other amounts whatsoever as provided in this
Lease ("Additional Charges"). Unless otherwise specifically provided for herein,
all Additional Charges shall be due within thirty (30) days of Tenant's receipt
of Landlord's invoice for the Additional Charges. Landlord shall have the same
remedies for Tenant's failure to pay any item of Additional Charges when due as
for failure to pay any installment of Base Rent when due.
4.3 Late Charges. If Tenant fails to pay any Rent (as defined
below) within five (5) days after the date the same is due, such unpaid amounts
will be subject to a late payment charge equal to four percent (4%) of the
unpaid amounts in each instance. The late payment charge has been agreed upon by
Landlord and Tenant, after negotiation, as liquidated damages and a reasonable
estimate of the additional administrative costs and detriment that will be
incurred by Landlord as a result of any such failure by Tenant, the actual costs
thereof being extremely difficult if not impossible to determine.
Notwithstanding the foregoing, Tenant may be late in making payments of Rent due
under the Lease by up to five (5) days after written notice from Landlord on not
more than one (1) occasion in any twelve (12) consecutive month
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period (two (2) occasions in the first twelve (12) consecutive months of the
Term) without being obligated to pay a late charge.
4.4 Payment of Rent. All amounts payable or reimbursable by
Tenant under this Lease, including Base Rent, Additional Charges, late charges
and interest (collectively, "Rent"), shall constitute rent and shall be payable
and recoverable as rent in the manner provided in this Lease. All sums payable
to Landlord on demand under the terms of this Lease shall be payable within
twenty (20) days after notice from Landlord of the amounts due. All rent shall
be paid without offset, recoupment or deduction, except as otherwise provided
herein, in lawful money of the United States of America to Landlord at
Landlord's Address as set forth in the Basic Lease Information, or to such other
person or at such other place as Landlord may from time to time designate.
5. Expenses and Taxes.
5.1 Definitions. For purposes of this Article 5, the following
terms shall have the following meanings:
(a) "Real Estate Taxes" shall mean all real property taxes and
general and special assessments, transit charges, fees or assessments, housing
fund assessments, fees or charges, payments in lieu of taxes, and any tax, fee,
assessment, charge, imposition or excise levied or assessed (whether at the date
of this Lease or thereafter) (i) on the Real Property, any portion thereof or
Landlord's interest therein, or Landlord's personal property used in the
operation of the Real Property, (ii) on the use or occupancy of the Real
Property or any portion thereof, including, without limitation, any tax or levy
made against Base Rent, Additional Charges, or gross receipts from the Real
Property, (iii) in connection with the business of renting space in the Real
Property, or in connection with entering into this Lease or any other lease with
respect to the Real Property, or (iv) for housing, police, fire, or other
governmental services that are now or hereafter levied or assessed under clauses
(i) through (iii) by any governmental or public entity. Real Estate Taxes shall
also include any other tax, fee, or charge that may be levied or assessed as a
substitute for any other Real Estate Taxes. Real Estate Taxes shall not include
those amounts payable by Tenant pursuant to Section 26.1, or similar amounts
attributable to other tenants of the Building. Real Estate Taxes shall also
include reasonable legal fees, costs and disbursements incurred in connection
with proceedings to contest, determine or reduce Real Estate Taxes but only if
such proceeding results in a reduction of Real Estate Taxes. In the event that
at any time after the date hereof any assessments that are applicable to the
Real Property during the Base Year are satisfied, the amount of such assessments
paid during the Base Year (but excluding any prepayment penalty or late charges
applicable thereto) shall be deducted from any future calculation of Base Year
Real Estate Taxes in computing the Excess Taxes payable in any Comparison Year.
In the event that this Lease commences at any time after January 1, 1999, Real
Estate Taxes for the Base Year shall be adjusted to reflect a full calendar year
of Real Estate Taxes at the fully assessed rate applicable to the Building after
the Commencement Date of this Lease.
(b) "Expenses" shall mean the reasonable and actual costs and
expenses paid
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and/or incurred by Landlord as determined in accordance with generally accepted
accounting principles, consistently applied ("GAAP"), in connection with the
management, operation, maintenance and repair of the Real Property, including,
without limitation, (i) the cost of heating, ventilation, air conditioning,
steam, electricity, gas, water, sewer service, mechanical, elevator and other
systems and all other utilities, and the cost of supplies and equipment and
maintenance and service contracts in connection therewith, (ii) the cost of
repairs, replacements, general maintenance and cleaning, including, without
limitation, the cost of janitorial and other service agreements (provided that
the cost of security services shall be subject to Tenant's direct payment
obligation under Section 18.2 below), trash removal, painting and paving (none
of which shall in any event be considered capital improvements hereunder,
provided that to the extent that the cost of painting and paving in any calendar
year exceeds One Hundred Thousand Dollars ($100,000) it shall, at Landlord's
option, either (y) be allocated over their useful life thereof which shall not
be less than five (5) years), or (z) amounts in excess of said One Hundred
Thousand Dollars ($100,000) shall be treated as Expenses in subsequent calendar
years, provided that such items shall not in an calendar year exceed One Hundred
Thousand Dollars ($100,000), (iii) the cost of property (including coverage for
earthquake and flood if carried by Landlord), liability, rental income and other
insurance relating to the Real Property, and expenditures for deductible amounts
paid under such or similar insurance (provided that Landlord shall only be
entitled to include as an Expense the cost of earthquake or any other type of
insurance to the extent such insurance is reflected in Expenses for the Base
Year, either initially or by subsequent adjustment), (iv) wages, salaries,
payroll taxes and other labor costs and employee benefits (including without
limitation, bonuses and contributions to pension or retirement plans consistent
with industry standards) of all on-site employees, and the allocable share of
all off-site employees to the extent engaged in the operation, management,
maintenance and repair of the Real Property, (v) fees, charges and other costs,
including, without limitation, property management fees (which shall be based on
a percentage of the gross receipts of the Building not in excess of the lesser
of three percent (3%) or the percentage applied in the Base Year) and the fair
market rental value of a that portion of the property management office which
does not exceed eight hundred and six (806) square feet of Rentable Area, and
all such reasonable fees, charged or other costs charged by Landlord if Landlord
performs services in connection with the Real Property, (vi) the cost of
supplying, replacing and cleaning employee uniforms, (vii) the cost of rentals
of capital equipment, (viii) all costs and fees for licenses, inspections or
permits that Landlord may be required to obtain, (ix) exterior and interior
landscaping, (x) depreciation on personal property used by Landlord on the Real
Property, and (xi) reasonable reserves for any periodic items or improvements
that would constitute an Expense when paid (but only to the extent reflected in
the Expenses for the Base Year either initially or by subsequent adjustment). In
addition to the foregoing, Expenses shall include the amortized cost of the
following capital improvements: (x) capital improvements made to the Real
Property after the date of this Lease as a labor-saving measure or to effect
other economies in the operation or maintenance of the Real property (amortized
in accordance with GAAP, or, at the Landlord's option, such items may be treated
as an Expense in any calendar year up to the amount of the cost savings realized
as a result thereof) but only to the extent of any actual reduction in Expenses
resulting therefrom, (y) capital improvements made to the Real Property after
the date of this Lease that are required under any governmental law or
regulation that was not applicable to the Real Property at the date of this
Lease (amortized in accordance with GAAP), and/or (z) other capital improvements
and
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for the general benefit of the Building (amortized over the greater of the
period required by GAAP or five (5) years), provided that the total of all
capital improvements under clause (z) shall not exceed two and one-half percent
(2 1/2%) of all Taxes and Expenses (for the purpose of such calculation, Taxes
shall include the annual amount payable on account of any assessments on the
Building that are paid off by Landlord prior to maturity or are otherwise
retired prior to maturity). Any capital improvements shall be amortized as
provided above with interest in the unamortized balance(s) at the rate as may
have been paid by Landlord on funds borrowed for the purpose of constructing
such capital improvements, provided such rate shall not exceed ten percent (10%)
per annum (or, if Landlord finances such improvements out of Landlord's funds
without borrowing, the rate that Landlord would have paid to borrow such funds,
as reasonably determined by Landlord). Notwithstanding the foregoing, Expenses
shall not include any of the items listed in Section 5.1(c) below.
Notwithstanding anything to the contrary contained in this Section 5, Tenant
shall pay the entire cost of electricity service to the computer rooms located
in the Parking Garage and elsewhere in the Building (and all expenses associated
with any separate metering of such service) and the cost of such electricity
shall not be included as an Expense hereunder. In calculating the Base Year
Expenses, Expenses that would not ordinarily be incurred on an annual, recurring
basis shall be excluded.
(c) "Expenses" shall not include: (i) amortization or
depreciation of the Building or Premises, except as specifically provided for in
this Lease; (ii) interest, points, fees and amortization on mortgages or other
debt costs or ground lease payments, if any; (iii) legal fees in connection with
leasing, tenant disputes or enforcement of leases; (iv) real estate brokers'
commissions or any other costs relating to the leasing or sale of the Premises;
provided, that the reasonable rental cost of Landlord's management office (not
to exceed 806 rentable square feet in area) may be included as an Expense,
provided further that to the extent that such office is used to manage buildings
or properties other than the Building, the cost thereof shall be equitably
apportioned; (v) the cost of any items to the extent Landlord receives
reimbursement therefor from insurance proceeds, any warranty on such item,
pursuant to any other provision of this Lease or from a third party (such
proceeds to be deducted from Expenses in the year in which received); (vi)
capital expenditures, except those permitted under clauses (x)-(z) of Section
5.1(b); provided further that Expenses shall not under any circumstances include
the first Eight Hundred and Fifty Thousand Dollars ($850,000) expended by
Landlord on capital improvements from and after the Commencement Date; (vii) any
costs relating to the development of the Building or any development of
additional improvements on the Real Property; (viii) any costs, including
permit, license and inspection costs, incurred with respect to the installation
of tenant improvements or renovations of existing tenant improvements for any
tenant, including the Tenant, in the Building, provided that the foregoing shall
not in any way limit or modify Tenant's obligation to reimburse Landlord for the
cost of any tenant improvements provided for in the Lease, if any; (ix) any
portion of Landlord's general corporate overhead (such as salaries for
executives of Landlord and any and all affiliated or related entities and
contributions to employee pension plans, except as specifically provided above),
provided that Landlord shall be entitled to charge as an Expense a reasonable
and customary management fee for properties such as the Building, whether paid
to a third party, to Landlord or an affiliate of Landlord; (x) charitable or
political contributions by Landlord; (xi) advertising and promotional costs;
(xii) any costs relating to (a) the correction or repair of any defect in the
Building, other than normal wear
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and tear and customary repair and maintenance items, (b) the correction or
repair of any aspect of the Building that does not comply with applicable
building codes and regulations in effect and being enforced as of the
Commencement Date, or (c) the removal, remediation or disposal in accordance
with applicable laws of any Hazardous Materials (as the term is defined in the
Lease) existing on or under the Premises which were placed on or are introduced
on the Premises by any party other than Tenant, Tenant's invitees, contractors,
employees, invitees, guests, sublessees or assignees; (xiii) costs resulting
from the violation by Landlord of applicable laws, statues and regulations or
covenants, conditions and restrictions affecting the Building or the Premises;
(xiv) any payments for supplies, materials or services provided or rendered by
affiliates of Landlord to the extent that the costs of such supplies, materials
and services exceed the costs that would have been paid had the supplies,
materials, and services been provided or rendered by parties unaffiliated with
Landlord on a competitive basis; (xv) any Expenses paid directly by any tenant
in the Building or reimbursable in full by any tenant in the Building; and (xvi)
except as otherwise specifically provided for in this Lease, any excess cost
resulting from the payment of assessments in other than the maximum number of
installments permitted under applicable law.
(d) "Comparison Year" shall mean each calendar year after the
Base Year.
(e) "Tenant's Share" shall be as provided on the Basic Lease
Information. If the rentable area of the Premises or the rentable area of the
Building is changed for any reason, Tenant's Share shall be recalculated by
dividing the rentable area of the Premises after such occurrence by the Rentable
Area of the entire Building after such occurrence.
(f) "Excess Taxes" with respect to a given Comparison Year shall
mean the excess of Real Estate Taxes for that Comparison Year over Real Estate
Taxes for the Base Year.
(g) "Excess Expenses" with respect to a given Comparison Year
shall mean the excess of Expenses for that Comparison Year over Expenses for the
Base Year.
5.2 Real Estate Taxes and Expense Gross-Up. Real Estate Taxes and
Expenses for any period (including, without limitation, the Base Year) in which
the Building is not one hundred percent (100%) occupied shall be adjusted
according to Landlord's reasonable estimate to reflect the Real Estate Taxes and
Expenses which would be payable if the Building were one hundred percent (100%)
occupied.
5.3 Payment of Tenant's Share of Additional Charges. Commencing
on the later of (i) January 1st of the calendar year following the Base Year or
(ii) one month after receipt of a statement from Landlord which sets forth the
estimated amount of Tenant's Share of Excess Taxes and Expenses, Tenant shall
pay to Landlord, in advance on or before the first day of each month during such
Comparison Year, as Additional Charges one twelfth (1/12th) of Tenant's Share of
Excess Taxes and Excess Expenses for each Comparison Year in an amount
reasonably estimated by Landlord in good faith and billed by Landlord to Tenant.
Tenant's Share of Excess Taxes and Excess Expenses shall be calculated
separately but shall be aggregated. Landlord shall use commercially reasonable
efforts to provide Tenant within one hundred eighty (180) days after the
expiration of each Comparison Year with a statement ("Landlord's Statement")
setting forth the actual amount of Real Estate Taxes and Expenses for such
Comparison Year,
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and Tenant's Share of Excess Taxes and Expenses. In the event that Landlord has
not provided the Landlord's Statement within such one hundred and eighty (180)
period, then Tenant may give Landlord notice of such fact and Landlord must
provide such statement within ninety (90) days of the date of such notice by
Tenant or Landlord shall waive any claim for any additional Excess Taxes or
Excess Expenses for the Comparison Year in question. If the actual amount of
Tenant's Share of Excess Taxes and Expenses due for such Comparison Year differs
from the estimated amount of Tenant's Share of Excess Taxes and Expenses paid by
Tenant for such Comparison Year, the difference shall be paid by Tenant (whether
or not this Lease has terminated) within thirty (30) days after the receipt of
Landlord's Statement, or credited against the next installments of Rent due from
Tenant hereunder, as the case may be; provided, however, that in no event shall
aggregate Excess Taxes and Excess Expenses actually payable for a given
Comparison Year be less than zero. Tenant's Share of Excess Taxes and Excess
Expenses for any Comparison Year that is less than a full year shall be prorated
equitably by Landlord. Notwithstanding any other provision of this Section 5.3,
in the event that Landlord in the Base Year incurs Expenses for the capital
improvements designated on Exhibit C in excess of the eight hundred and fifty
thousand dollars ($850,000) specified in Section 5.1(c), then Tenant shall
immediately upon receipt of an invoice from Landlord therefore, commence paying
on a monthly basis Tenant's Share of the amortized cost of such excess
improvements (amortized in accordance with GAAP and the requirements of Section
5.1(b)).
5.4 Objections to Statements. If Tenant disputes the amount set
forth on the Landlord's Statement, Tenant shall have the right, not later than
one hundred eighty (180) days from the date of the receipt of such Landlord's
Statement, to initiate and complete an audit at Landlord's offices of Landlord's
books and records with respect to the Expenses for such calendar year, subject
to the following terms and conditions: (a) No audit shall be conducted at any
time that Tenant is in default of any of the terms of this Lease; (b) any audit
shall be conducted only by independent certified public accountants practicing
for an accounting firm of national prominence, employed by Tenant on an hourly
or fixed fee basis, and not on a contingency fee basis; and (c) Tenant shall not
audit Landlord's books and records more than one (1) time for any calendar year.
Tenant acknowledges that Tenant's right to inspect Landlord's books and records
with respect to Expenses for the preceding calendar year is for the exclusive
purpose of determining whether Landlord has complied with the terms of the Lease
with respect to Additional Charges. Except as required by law or court or
administrative order, Tenant shall keep the results of any such audit
confidential. The Landlord's Statement shall be appropriately adjusted on the
basis of such audit. Tenant shall pay the costs of the audit except if such
audit discloses an overstatement, in the aggregate, greater than three and
one-half percent (3.5%) of the total Expenses and Real Estate Taxes previously
reported, then the cost of such audit shall be borne by Landlord. In the event
the audit reveals that Tenant has overpaid Expenses, the amount of the
overpayment shall be applied to the next installment of Rent due under the Lease
or paid to Tenant in cash if at the end of the Lease Term. In the event the
audit reveals that Tenant has underpaid Expenses, the difference shall be paid
by Tenant (whether or not this Lease has terminated) within thirty (30) days
after the conclusion of the audit.
6. Acceptance of Premises. Landlord shall have no obligation whatsoever
to construct leasehold improvements for Tenant or to repair or refurbish the
Premises, other than its repair
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and maintenance obligations expressly set forth in this Lease, subject to
Landlord's obligation to pay Tenant the applicable Tenant Improvement
Contribution set forth in the Basic Lease Provisions at the time set forth in
the Basic Lease Provisions. Tenant acknowledges and agrees that neither Landlord
nor Landlord's employees, contractors, or agents have made any representations
or promises with respect to the Building, the Premises or this Lease except as
expressly set forth herein. Subject to Landlord's obligation to pay the Tenant
Improvement Contribution as and when provided in the Basic Lease Provisions, the
taking of possession of the Premises by Tenant shall be conclusive evidence that
Tenant accepts the same "as is" and that the Premises and the Building are
suited for the use intended by Tenant and were in good and satisfactory
condition at the time such possession was taken; provided that for any portion
of the Premises other than the Initial Premises: (i) Landlord shall deliver such
space to Tenant in the condition in which such space was required to be
surrendered to Landlord under the lease for the previous tenant in such space,
and (ii) Tenant may notify Landlord within two (2) weeks of Tenant's taking
occupancy of such portion of the Premises of any matters such as nonworking
lights or electrical outlets, damage to walls or doors or similar matters, that
were not in good, working condition and repair as of the date that Tenant took
occupancy of such portion of the Premises. Tenant represents and warrants to
Landlord that (a) its sole intended use of the Premises is for general office
use, including training, demonstration, non-retail sales, marketing, research
and development for software and related uses, which has no special
requirements, including but not limited to, special security requirements, (b)
it does not intend to use the Premises for any other purpose, and (c) prior to
executing this Lease it has made such investigations as it deems appropriate
with respect to the suitability of the Premises for its intended use and has
determined that the Premises is suitable for such intended use.
7. Common Areas.
7.1 Right to Use Common Areas. Tenant and Tenant's agents shall
have the right to use during the Term the common areas of the Building in common
with other persons approved by Landlord, subject to Landlord's rules and
regulations and the provisions of this Lease.
7.2 Alteration by Landlord. Subject to Landlord's obligation to
make commercially reasonable efforts to minimize interference with Tenant's
business, Landlord hereby reserves the right, at any time and from time to time,
without the consent of or liability to Tenant of any kind whatsoever, to make
alterations or additions to the Real Property, to change, add to, eliminate or
reduce the extent, size, shape, number or configuration of any aspect of the
Real Property; to close to the general public any portion of the Real Property,
to the extent and for the period necessary to avoid any dedication to the
public, to effect any repairs or further construction, or in case of invasion,
mob, riot, public excitement or other circumstances rendering such action
advisable in Landlord's reasonable opinion; to change the arrangement,
character, use or location of entrances or passageways, doors and doorways,
corridors, elevators, stairs, landscaping, toilets, mechanical, plumbing,
electrical or other operating systems of the Real Property.
8. Use.
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8.1 Permitted Use. The Premises shall be used for general office
purposes, training, demonstration, non-retail sales, marketing, research and
development for software, incidental storage and related uses, provided that
such research and development does not involve the use or storage of Hazardous
Materials, as defined below. Notwithstanding the foregoing, no more than
twenty-thousand (20,000) square feet of the Premises may be used for training.
Tenant's change in use shall be subject to the reasonable consent of Landlord.
In addition to the above, Tenant shall be allowed to establish and maintain a
cafeteria on the Premises for its employees, contractors and invitees, provided
that such cafeteria shall not exceed five thousand rentable square feet in size
and shall be only for the distribution of food and beverages and shall not
involve any substantial food preparation activities, without Landlord's prior
approval.
8.2 No Nuisance. Tenant shall not allow, suffer or permit the
Premises or any use thereof to constitute a nuisance or unreasonably interfere
with the safety, comfort or enjoyment of the Building by Landlord or any other
occupants of the Building or their customers, invitees or any others lawfully
in, upon or about the Building or its environs.
8.3 Compliance with Laws. Tenant, at Tenant's expense, shall
comply with and cause all of Tenant's agents to comply with all applicable laws,
ordinances, rules and regulations of governmental authorities applicable to the
Premises and all rest rooms on floors occupied entirely by Tenant, whether or
not a part of the Premises, or the use or occupancy thereof, including, without
limitation, all laws relating to the existence, use, handling, or discharge of
Hazardous Materials (as hereinafter defined) and all access laws or codes,
including, without limitation, the Americans With Disabilities Act and Title 24
of the California Administrative Code (collectively, the "Laws"); provided that
Tenant shall not be obligated to make any alterations to the electrical,
mechanical, heating, ventilation or air conditioning, life safety or plumbing
systems of the Building (collectively the "Building Systems"), structural
elements of the Building or common areas pursuant to this Section 8.3, whether
or not located within the Premises, unless such alterations are (i) caused by
Tenant's activities in or Alterations to the Premises, and are mandated by Laws
that were not in effect or not enforced as of the date hereof, (ii) caused by
any use of the Premises, other than the Initial Premises, by Tenant that is in
excess of or different from normal and customary general office use, or (iii)
caused as a result of any alterations required in connection with any subleasing
of all or any portion of the Premises. In the event that any alterations to (i)
the so-called path of travel, or (ii) any sprinkler or life safety systems in
the Building, are required as a result of any Alterations made by Tenant to the
Premises, Tenant shall pay the cost of such path of travel, sprinkler or life
safety systems alterations. Tenant acknowledges that the Real Property and this
Lease are subject to that certain Declaration of Covenants, Conditions and
Restrictions for Hacienda Business Park (No.2) dated as of April 30,1998, as may
be amended from time to time (the "CC&R's") and that the provisions of the
CC&R's are an integral part of this Lease.
8.4 Hazardous Materials. Tenant shall not cause or suffer or
permit any Hazardous Materials, as defined below, to be brought upon, kept,
used, discharged, deposited or leaked in or about the Premises or the Real
Property by Tenant or any of Tenant's agents (other than Landlord or its agents,
employees or contractors), except to the extent such Hazardous
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Materials are customarily kept or used in customary amounts by typical office
tenants and are kept and used in accordance with all applicable laws. If, during
the Term, Tenant breaches the obligations stated in the preceding sentence, or
if the presence of any Hazardous Material on the Premises or the Real Property
caused or suffered or permitted by Tenant or any of Tenant's agents or by anyone
in the Premises (other than Landlord or its agents, employees or contractors)
results in contamination of the Premises or the Real Property during the Term,
then Tenant shall indemnify, defend and hold Landlord harmless from any and all
claims, damages, costs, liabilities and expenses (including, without limitation,
diminution in value or use of the Real Property, attorneys' fees, consultant
fees and expert fees) which arise during or after the Term as a result of such
contamination. This indemnification shall include, without limitation, costs
incurred in connection with any investigation of site conditions or any
clean-up, remedial, removal or restoration work on or under the Premises and
shall survive the termination of this Lease. "Hazardous Material" means any
hazardous or toxic substance, material or waste which is or becomes regulated by
any local, state or federal governmental authority or by common law decisions,
including without limitation (i) all chlorinated solvents, (ii) petroleum
products or by-products, (iii) asbestos and (iv) polychlorinated biphenyls.
8.5 Building Systems.
(a) Tenant shall not, without the prior consent of Landlord, (i)
bring into the Building or the Premises anything that may cause substantial
noise, odor or vibration, overload the floors in the Premises or the Building or
any of the Building Systems, or jeopardize the structural integrity of the
Building or any part thereof; (ii) connect to the utility systems of the
Building any apparatus, machinery or other equipment other than typical office
equipment; or (iii) connect to any electrical circuit in the Premises any
equipment or other load with aggregate electrical power requirements in excess
of 80% of the rated capacity of the circuit. The provisions of this Section
shall not apply to the uses, configuration of improvements, density, utility
requirements or any other similar matters relating to the Initial Premises, or
any portion of the Premises added to this Lease after the date hereof that is
similarly configured, used, improved and with similar utility requirements as
the initial portion of the Premises.
(b)
(i) In the event that Tenant's use of the Premises or the
configuration of Tenant's tenant improvements in the Premises places
requirements or loads on the Building Systems in excess of that of customary
office tenants in the Pleasanton-San Ramon area, and as a result thereof,
Landlord is required to increase the capacity or otherwise improve the Building
Systems, Tenant shall pay the reasonable cost of such increases in capacity or
improvements that are attributable to Tenant's requirements that are in excess
of customary office tenants in the Pleasanton-San Ramon area. The provisions of
the preceding sentence shall not apply to electrical usage which is dealt with
in Section 8.5(b)(ii) below nor shall it apply to any aspect of the Initial
Premises. Tenant acknowledges that Landlord is making no representation that the
Building Systems are sufficient or adequate for Tenant's use and occupancy of
the Building.
(ii) In the event that at any time during the term hereof
the aggregate
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electrical requirements of the Premises, calculated on a per rentable square
foot basis, exceeds the electrical capacity of the Building calculated on a per
rentable square foot basis, which shall equal the total electrical capacity of
the Building, less the Building System usage, divided by the total rentable
square feet in the Building, then Tenant shall pay all cost to increase the
electrical capacity available to the Premises by a sufficient amount to remedy
such deficiency.
(iii) Subject to the provisions of Section 9.1(c), at any
time from and after the date hereof, Tenant agrees that Tenant shall reimburse
Landlord for any amounts expended by Landlord, up to a maximum of Thirty
Thousand Dollars ($30,000) to repair and correct certain deficiencies identified
by Landlord in the chillers and related calibration and regulation equipment for
the Building. Tenant shall reimburse Landlord for such amount within fifteen
(15) days of Landlord's demand therefore. Notwithstanding the foregoing, Tenant
may do the work described in this Section 8.5(b)(iii) itself prior to the date
hereof, in which case, Tenant shall not be obligated to reimburse Landlord for
any such work as provided in this Section.
9. Alterations and Tenant's Property.
9.1 Alterations.
(a) Tenant shall not before or during the Term make or suffer to
be made any alterations, additions or improvements in or to the Premises (herein
collectively called "Alterations") without first obtaining Landlord's written
consent thereto based on detailed plans and specifications submitted by Tenant;
provided, however, Landlord's consent shall not be required if the Alterations
made by Tenant cost less than One Hundred Thousand Dollars ($100,000) per
Alteration (provided that in no event shall the total Alterations made by Tenant
without Landlord's consent during any calendar year (12) month period exceed the
lesser of (x) Two Hundred Fifty Thousand Dollars ($250,000) or (y) three dollars
($3.00) per rentable square foot of the Premises) and said Alterations do not
materially affect the structural integrity or Building Systems of the Building,
cause Landlord's insurance costs to increase, or violate the provisions of any
insurance policy held by Landlord with respect to the Real Property, and are not
visible from the exterior of the Building. Landlord's consent may be withheld in
Landlord's sole discretion if Alterations will materially affect the structural
integrity of the Building or Building Systems, cause Landlord's insurance costs
to increase, violate the provisions of any insurance policy held by Landlord
with respect to the Real Property, or be visible from the exterior of the
Building; otherwise Landlord's consent shall not be unreasonably withheld;
provided further that, Landlord's consent shall not be unreasonably withheld in
connection with any Alterations that are substantially consistent with the
tenant improvements in the Initial Premises. Notwithstanding any other provision
of this Section 9.1(a), in the event that Tenant seeks to make any Alterations
in connection with a cafeteria in the Premises (i) such Alterations shall be
subject to Landlord's approval, in Landlord's sole and absolute discretion, to
the extent that such Alterations involve any substantial food preparation or
long-term food storage, and (ii) to the extent not subject to clause (i)
Landlord shall have the right in any event to review and reasonably approve or
disapprove the plans therefore.
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(b) If the consent by Landlord to the Alteration is required,
such consent shall be withheld or given by Landlord as soon as reasonably
possible but in any event within fifteen (15) days after request by Tenant and
at the time such consent is given (or, in the case of Alterations for which
Landlord's consent is not required, within fifteen (15) days after receiving
notice of the proposed Alteration), Landlord shall inform Tenant whether or not
Tenant shall be obligated to remove the Alteration upon the expiration or
earlier termination of the Lease; provided that, notwithstanding any other
provision of this Lease, Tenant shall not be obligated to remove the tenant
improvements in the Initial Premises or any similarly configured tenant
improvements constructed after the date hereof and Tenant shall be obligated to
remove any cafeteria improvements. In the event that Landlord fails to inform
Tenant that Tenant will be required to remove such Alteration at the end of the
Term, then Tenant shall not be required to remove such Alteration.
Notwithstanding any other provision hereof, (i) Tenant shall give Landlord not
less than ten (10) days notice of the commencement of work on any Alteration,
and (ii) any Alterations constructed by Tenant in connection with any new space
added to the Premises after the date hereof shall not be subject to, or add to,
the dollar limitation set forth above and shall not require Landlord's consent,
provided that such Alterations do not materially affect the structural integrity
or Building Systems of the Building and provided that such Alterations are
consistent in type and quality with the existing improvements in the Initial
Premises. All work by Tenant shall be performed with new materials, in a good
and workmanlike manner, at Tenant's expense by contractors approved by Landlord,
or in case that such work involves the structural integrity of the Building or
the Building Systems Landlord may designate the contractors. Landlord's right to
review and approve (or withhold approval of) Tenant's plans, drawings,
specifications, contractor(s) and other aspects of construction work proposed by
Tenant is intended solely to protect Landlord, the Real Property and Landlord's
interests. No approval or consent by Landlord shall be deemed or construed to be
a representation or warranty by Landlord as to the adequacy, sufficiency,
fitness or suitability thereof or compliance thereof with applicable Laws or
other requirements.
(c) Within eighteen (18) months of the date hereof Tenant shall
provide written notice to Landlord regarding whether Tenant intends to continue
to occupy any portion of the Premises as a separate raised floor computer room.
In the event that Tenant gives notice within such eighteen (18) month period
that Tenant intends to occupy any portion of the Premises as a separate raised
floor computer room, or in the event that Tenant fails to give such notice
within such eighteen (18) month period but does, in fact, continue to occupy any
portion of the Premises as a separate raised floor computer room, Tenant shall,
subject to compliance with all applicable laws, codes, statutes and regulations
and the requirements of the HBPOA, install and maintain a supplemental air
conditioning unit in the approximate location shown on Exhibit G, or other
location mutually agreeable to Landlord and Tenant, of sufficient size and
capacity to provide all cooling and HVAC needs for the then existing raised
floor computer rooms maintained by Tenant in the Premises. In addition, Tenant
shall have the right to install on the Real Property such piping, conduits,
electrical and other connections as may be necessary to enable such supplemental
air conditioning unit to perform effectively, provided that any such piping,
conduits, electrical and other connections shall either be installed in existing
raceways or in such locations as Landlord may reasonably approve. All plans and
specifications for any portion of the foregoing improvements to be installed
within the Building or the Parking Garage
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shall be subject to Landlord's consent, which shall not be unreasonably
withheld, conditioned or delayed. All work by Tenant shall be performed with new
materials, in a good and workmanlike manner, at Tenant's expense by contractors
approved by Landlord, or in case that such work involves the structural
integrity of the Building or the Building Systems Landlord may designate the
contractors. Tenant and Tenant's contractors shall abide by all of Landlord's
reasonable rules and regulations relating to such construction or installation.
Landlord's right to review and approve (or withhold approval of) Tenant's plans,
drawings, specifications, contractor(s) and other aspects of construction work
proposed by Tenant is intended solely to protect Landlord, the Real Property and
Landlord's interests. Tenant shall take reasonable efforts to minimized
interference with existing tenants in the installation of such unit and related
facilities and shall repair any damage caused as a result of such installation.
Tenant shall maintain such unit and related facilities in good condition and
consistent with the other elements of the Real Property. Upon the termination of
this Lease, Tenant shall remove such unit and related facilities and repair any
damage caused by such removal. In the event that Tenant installs the unit
described in this Section 9.1(c), Tenant shall not be obligated to pay, or if
previously paid (including if Tenant performed such work itself prior to the
date hereof), shall be entitled to a reimbursement for, the sums specified in
Section 8.5(b)(iii) above. Landlord and Tenant acknowledge that Tenant may
perform the work described in this Section 9.1(c) prior to the date of this
Lease, in which case this Section 9.1(c) shall be null and void and Tenant shall
have no obligation to make the reimbursement described in Section 8.5(b)(iii).
9.2 Construction Process. Before making any Alterations (other
than those with respect to which Landlord's consent is not required), Tenant
shall submit to Landlord for Landlord's prior approval reasonably detailed final
plans and specifications prepared by a licensed architect or engineer (to the
extent reasonably required), a copy of the construction contract, including the
name of the contractor and all subcontractors proposed by Tenant to make the
Alterations and a copy of the contractor's license. Tenant shall reimburse
Landlord upon demand for any actual expenses incurred by Landlord in connection
with any Alterations made by Tenant, including actual and reasonable fees
charged by Landlord's contractors or consultants to review plans and
specifications prepared by Tenant and, if reasonable, to update the existing
as-built plans of the Building to reflect the Alterations. Tenant shall obtain
all applicable permits, authorizations and governmental approvals and deliver
copies of the same to Landlord before commencement of any Alterations. Tenant
shall provide Landlord with one set of plans and specifications for all
Alterations, whether or not Landlord's approval of such Alterations is required.
9.3 Removal of Property. All Alterations shall become the
property of Landlord, and shall be surrendered to Landlord, upon the expiration
or earlier termination of this Lease; provided, however, that this provision
shall not apply to movable equipment, trade fixtures, computers and peripheral
equipment and cabling, and personal property or furniture which are owned by
Tenant. Notwithstanding the foregoing, Tenant shall have the affirmative
obligation, to remove Tenant's personal property, trade fixtures and specialty
improvements installed by Tenant, including, but not limited to all computer
rooms, any tenant improvements in connection with any cafeteria use, fiber optic
cabling and satellite dishes; provided that, notwithstanding any other provision
of this Lease, Tenant shall have no obligation to remove (i)
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the tenant improvements in the Initial Premises and any similarly configured
tenant improvements in any other portion of the Premises, or (ii) cabling in the
Initial Premises or in any other portion of the Premises delivered to Tenant
after the date hereof that has cabling in it from a previous tenant when
delivered to Tenant. Tenant waives and releases its rights under Section 1019 of
the California Civil Code, or any similar law, statute or ordinance now or
hereafter in effect, to the extent inconsistent with the provisions of this
Lease. Tenant's obligations under this Section shall survive any termination of
this Lease.
10. Repairs and Other Work.
10.1 Tenant's Obligations. Tenant shall at all times during the
Term maintain the Premises in good, clean and sanitary condition and, at
Tenant's cost and expense, shall make all repairs and replacements as and when
necessary to preserve the Premises in good working order and condition; provided
that the Tenant shall not be obligated to repair or maintain the Building
Systems or the structural elements of the Building located within the Premises
unless such repair or maintenance is necessitated by Tenant's specific use of
the Premises or the Real Property (as opposed to office use generally) or any
act or omission of Tenant, its agents, contractors, employees or invitees;
provided that Tenant shall only be responsible for its invitees while they are
on the Premises. Except as otherwise specifically set forth herein, Landlord
shall not be liable for, and there shall be no abatement of Base Rent or
Additional Charges, with respect to, any injury to or interference with Tenant's
business arising from any repairs, maintenance, alteration or improvement in or
to any portion of the Real Property, including, without limitation, the
Premises, or in or to the fixtures, appurtenances and equipment therein.
10.2 Landlord's Obligations. Landlord shall at all times during
the Term maintain the Building, the structural elements of the Building, and the
common areas in good, clean and sanitary condition and shall make all repairs
and replacements as and when necessary. Landlord shall maintain the Real
Property in compliance with Laws; provided that Landlord shall not be obligated
to make any repairs or do any maintenance that is Tenant's obligations under
Section 10.1. Without limiting the generality of the foregoing and
notwithstanding any other provision of this Lease which may require Tenant to
perform the same or similar work, Landlord shall (i) no later than two (2) years
from the date hereof make the "Mandatory Capital" improvements designated on
Exhibit C, (ii) on the date that such improvements are required under applicable
laws, codes or regulations make the capital improvements designated as "Code
Triggered" capital improvements on Exhibit C, and (iii) on the date that such
improvements are required as a result of Tenant's occupancy of any portion of
the Premises other than the Initial Premises make the capital improvements
designated as "Occupancy Triggered" capital improvements on Exhibit C. All such
work by Landlord shall be done with new materials and in a good and workmanlike
manner. In the event that Landlord fails to make repairs as required hereunder
within ten (10) days after written notice by Tenant, Tenant shall give Landlord
a second notice and if Landlord fails to make such repairs within five (5) days
after such second written notice by Tenant, or fails to commence to make such
repairs within such periods of time and thereafter diligently prosecute such
repairs to completion, Tenant may make the repairs and seek immediate
reimbursement from Landlord. In the event Landlord disputes Tenant's right to
make such repairs, such dispute shall be arbitrated pursuant to Section 28.21
hereof. If such
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arbitration determines that Tenant was entitled to make such repairs and that
Landlord owes Tenant for the cost thereof and Landlord fails to reimburse Tenant
within thirty (30) days of the conclusion of such arbitration, Tenant shall be
entitled to deduct the cost of such repairs from Rent; provided that any such
deduction shall not exceed one hundred thousand dollars ($100,000) in any
calendar year. As a material part of the consideration for this Lease, Tenant
hereby waives any benefits of any applicable existing or future Law, including
the provisions of California Civil Code Sections 1932(1), 1941 and 1942, that
allows a tenant to make repairs at its landlord's expense.
10.3 Conditions Applicable to Repairs and Other Work. All
repairs, replacements, and reconstruction (including, without limitation, all
Alterations) made by or on behalf of Tenant or any of Tenant's agents shall be
made and performed (a) at Tenant's cost and expense and at such time and in such
manner as Landlord may reasonably designate, (b) by contractors or mechanics
reasonably approved by Landlord, (c) with new materials and in a good and
workmanlike manner, (d) in accordance with such reasonable requirements as
Landlord may impose with respect to insurance and bonds to be obtained by Tenant
in connection with the proposed work, (e) in accordance with the Rules and
Regulations for the Real Property reasonably adopted by Landlord from time to
time and in accordance with all applicable laws and regulations of governmental
authorities having jurisdiction over the Premises, (f) so as not to interfere
with the use and enjoyment of the Building by Landlord, other tenants of the
Building or any other persons, and (g) in compliance with such other
requirements as Landlord may reasonably impose, including requirements similar
to those specified in Sections 9.1 and 9.2.
11. Liens.
11.1 Tenant shall keep the Premises and the Real Property free
from any liens during the term of the Lease, except to the extent caused by
Landlord. In the event that Tenant shall not, within thirty (30) days following
notice of the imposition of any such lien, cause same to be released of record
by payment or posting of a bond fully satisfactory to Landlord in form and
substance, Landlord shall have, in addition to all other remedies provided
herein and by law, the right (but not the obligation) to cause the lien to be
released by such means as Landlord shall deem reasonably proper, including,
without limitation, payment of the claim giving rise to such lien. All such sums
paid by Landlord and all actual and reasonable expenses incurred by it in
connection therewith shall be considered Additional Charges and shall be payable
by Tenant within thirty (30) days after written demand by Landlord with interest
thereon from the date of expenditure by Landlord at the Interest Rate (as
defined in Section 20.4). Landlord shall have the right at all times to post and
keep posted on the Premises any notices permitted or required by law, or that
Landlord shall deem reasonably proper for the protection of Landlord, the
Premises, the Real Property and any other party having an interest therein, from
mechanics', materialmen's and other liens. In addition to all other requirements
contained in this Lease, Tenant shall give to Landlord at least ten (10) days'
prior written notice of commencement of any construction on the Premises.
12. Subordination.
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12.1 Subordination. Tenant agrees that this Lease shall be
subject and subordinate at all times to (a) all ground leases or underlying
leases that may now exist or hereafter be executed affecting the Real Property
or any portion thereof, and (b) the lien of any mortgage, deed of trust, or
other security instrument that may now exist or hereafter be executed in any
amount for which the Real Property or any portion thereof or interest therein is
specified as security (each, an "Encumbrance"); provided that such prior
interest shall recognize Tenant's rights hereunder so long as Tenant complies
with the terms and conditions of this Lease. Notwithstanding the foregoing,
Landlord shall have the right to subordinate or cause to be subordinated to this
Lease any such ground leases, underlying leases or liens. If any ground lease or
underlying lease terminates for any reason or any mortgage or other security
instrument is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall attorn to and become the tenant of the
successor-in-interest to Landlord at the option of such successor-in-interest
provided that such successor-in-interest shall recognize and agree to be bound
by the terms of this lease. The provisions of this Section shall be
self-operative and no further instrument shall be required to effect the
provisions of this Section. Notwithstanding the foregoing, Tenant covenants and
agrees to execute and deliver, within ten (10) days after demand by Landlord and
in the form reasonably requested by Landlord, any additional documents
evidencing the foregoing.
12.2 Notice to Mortgagee. Tenant agrees to give any holder of any
Encumbrance covering any part of the Real Property ("Mortgagee"), by registered
mail, a copy of any notice of default served upon Landlord, provided that prior
to such notice Tenant has been notified in writing (by way of notice of
assignment of rents and leases, or otherwise) of the address of such Mortgagee.
If Landlord shall have failed to cure such default within thirty (30) days from
the effective date of such notice of default, then the Mortgagee shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time of if possession is required to effect any such
cure, then such additional time as may be necessary to cure such default,
including any period of time required for the Mortgagee to obtain possession of
the Premises by a receiver or other summary remedy; provided that the Mortgagee
is diligently prosecuting the cure thereof to completion and this Lease shall
not be terminated so long as such remedies are being diligently pursued.
13. Surrender. Upon the expiration or termination of this Lease,
Tenant shall surrender the Premises and all tenant improvements and Alterations
to Landlord broom-clean; provided, however, that, except as provided in Section
9.3 above, prior to the expiration or termination of this Lease, Tenant shall
remove all telephone and other cabling installed in the Building by Tenant and
remove from the Premises all Tenant's personal property and any trade fixtures
and all Alterations that Landlord has elected to require Tenant to remove as
provided in Section 9, and repair any damage caused by such removal. If such
removal is not completed before the expiration or termination of the Term,
Landlord shall have the right (but no obligation) to remove the same, and Tenant
shall pay Landlord on demand for all costs of removal and storage thereof and
for the rental value of the Premises for the period from the end of the Term
through the end of the time reasonably required for such removal. Landlord shall
also have the right to retain or dispose of all or any portion of such property
if Tenant does not pay all such costs and retrieve the property within thirty
(30) days after notice from Landlord (in which event title to all
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such property described in Landlord's notice shall be transferred to and vest in
Landlord). Tenant waives all Claims (as defined in Section 20.2) against
Landlord for any damage or loss to Tenant resulting from Landlord's removal,
storage, retention, or disposition of any such property. Upon expiration or
termination of this Lease or of Tenant's possession, whichever is earliest,
Tenant shall surrender keys to the Premises or any other part of the Building
and shall deliver to Landlord keys for or make known to Landlord the combination
of locks on all safes, cabinets and vaults that may be located in the Premises.
Tenant's obligations under this Section shall survive the expiration or
termination of this Lease.
14. Destruction.
14.1 Repair. In the event of any casualty, damage or destruction
("Casualty") to any portion of the Premises and subject to the provisions of
Sections 14.3 and 14.4 below, (i) if the Premises can, in Landlord's reasonable
opinion, be repaired within one (1) year of the date of such Casualty, and if
the portion of the Premises destroyed constitutes no more than forty thousand
(40,000) rentable square feet, such casualty, damage or destruction shall be
deemed a "Minor Casualty," (ii) if the portion of the Premises destroyed is less
than forty thousand (40,000) rentable square feet, but in the Landlord's
reasonable opinion such casualty cannot be repaired in less than one year from
the date of such Casualty such Casualty, shall be deemed a "Medium Casualty."
Any Casualty that is not a Minor or Medium Casualty shall be deemed a "Major
Casualty." In the event of a Minor Casualty, or in the event of a Medium or
Major Casualty with respect to that portion of the Premises, if any, for which
the Lease is not terminated, Landlord shall proceed promptly to make the
necessary repairs in accordance with Section 14.4 below. Landlord's opinion
regarding time to repair shall be delivered to Tenant within sixty (60) days
after the date of the damage in the case of any Casualty. In all cases repairs
shall cover all common areas and paths of travel and, if required to repair,
Landlord shall proceed diligently to commence and complete such repairs. All of
the calculations of percentage of destruction shall be done on the basis of
square footage destroyed.
14.2 Tenant's Right to Terminate.
(a) In the event of a Medium Casualty, Tenant shall have the
right to terminate the Lease as to the portion of the Premises destroyed by such
Medium Casualty by delivery of written notice to Landlord within thirty (30)
days after Tenant receives Landlord's notice of its opinion of the time required
to repair. Upon termination, Base Rent and Additional Charges pursuant to
Article 5 shall be apportioned as of the date of the damage, unless Tenant has
used and occupied the portion of the Premises affected by such Medium Casualty
after the date of damage, in which case the Base Rent and Additional Charges
shall be apportioned as of the date Tenant vacates the applicable portion of the
Premises.
(b) In the event of a Major Casualty Tenant shall have the right
to terminate the Lease by delivery of written notice to Landlord within thirty
(30) days after Tenant receives Landlord's notice of its opinion of the time
required to repair. Upon termination, Base Rent and Additional Charges pursuant
to Article 5 shall be apportioned as of the date of the damage, unless Tenant
has used and occupied the Premises after the date of damage, in which case the
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Base Rent and Additional Charges shall be apportioned as of the date Tenant
vacates the Premises.
14.3 Landlord's Right to Terminate. In the event (i) the
uninsured portion of any damage to or destruction of the Real Property equals or
exceeds twenty-five percent (25%) of the replacement cost of the Building; (ii)
the Term will expire within one (1) year from the date of any material damage to
or destruction of the Premises and Tenant fails to extend the term in accordance
with any right expressly granted in this Lease within thirty (30) days after the
date of damage; (iii) in the reasonable judgment of Landlord, adequate proceeds
(excluding any deductible amounts) are not, for any reason other than Landlord's
gross negligence or willful misconduct, made available to Landlord from
Landlord's insurance policies (and/or from Landlord's funds made available for
such purpose, at Landlord's sole option) to make the required repairs; or (iv)
in the reasonable judgment of Landlord, the Premises and the Real Property
cannot be substantially repaired and restored under applicable laws within one
(1) year from the date of the casualty, Landlord may elect to terminate this
Lease (or in the case of a Medium Casualty the Lease as to the portion of the
Premises destroyed by such Medium Casualty) as hereinafter provided. Landlord
may terminate this Lease for the reason stated in this Section 14.3, by delivery
of written notice to Tenant within sixty (60) days after the date of damage or
destruction.
14.4 Extent of Repair Obligations. If this Lease is not
terminated pursuant to Section 14.2 or 14.3 above, Landlord shall repair the
structure of the Building and, to the extent of available insurance proceeds,
all improvements in the Premises except for Alterations made in the Premises by
Tenant, which are more extensive or costly in any substantial respect from the
tenant improvements existing in the Initial Premises; provided that Landlord
shall not have any obligation to replace the tenant improvements for any
computer rooms. All such repairs shall be performed in a good and workmanlike
manner and shall restore the items repaired to substantially the same or better
usefulness, design and construction as existed immediately before the damage.
All work by Tenant shall be performed in accordance with the requirements of
Section 10.3 above. The Base Rent and Additional Charges payable by Tenant shall
abate in proportion to the portion of the Premises rendered untenantable or
reasonably unusable. In the event of any termination of this Lease, the proceeds
from any insurance paid by reason of damage to or destruction of the Real
Property or any portion thereof shall belong to and be paid to Landlord, except
for proceeds payable under Tenant's insurance policies, to the extent such
proceeds relate to damage or destruction to Tenant's personal property.
14.5 Waiver of Subrogation. As long as their respective insurers
so permit, Landlord and Tenant hereby mutually waive their respective rights of
recovery against each other for any loss insured by fire, extended coverage and
other property insurance policies existing for the benefit of the respective
parties. Each party shall apply to their insurers to obtain said waivers. Each
party shall obtain any special endorsements, if required by their insurer to
evidence compliance with such waiver.
14.6 Non-Application of Certain Statutes. The provisions of this
Lease constitute an express agreement between Landlord and Tenant with respect
to any and all
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damage to, or destruction of, all or any part of the Premises, or any other
portion of the Real Property. Any statute or regulation of the State of
California or any other governmental authority or body, including, without
limitation, Sections 1932(2), 1933(4), 1941 and 1942 of the California Civil
Code, with respect to any rights or obligations concerning any such damage or
destruction, shall have no application to this Lease or any damage or
destruction to all or any part of the Premises or any other portion of the
Building.
15. Insurance.
15.1 Insurance on Tenant's Property. Tenant shall during the Term
provide insurance coverage for all risks of physical loss or damage insuring the
full replacement value of Tenant's Alterations, Tenant's trade fixtures,
furnishings, equipment and all other items of personal property of Tenant.
15.2 Tenant's Liability Insurance. Tenant shall during the Term
of the Lease provide broad form commercial general liability insurance, and
automobile liability insurance, each with a minimum combined single limit of
liability of at least Five Million Dollars ($5,000,000), and statutory worker's
compensation insurance with a Five Million Dollar ($5,000,000) employer's
liability limit covering all of Tenant's employees. Notwithstanding the
foregoing in the event of any permitted assignment or sublease of all or a
portion of the Premises, such assignee or sublessee shall only be required to
provide insurance of the type required by this Section 15.2 in the amount of Two
Million Dollars ($2,000,000). Tenant's liability insurance policy or policies
shall: (i) include premises and operations liability coverage, products and
completed operations liability coverage, broad form property damage coverage
including completed operations, blanket contractual liability coverage
including, to the maximum extent possible, coverage for the indemnification
obligations of Tenant under this Lease, fire legal liability insurance, and
personal and advertising injury coverage; (ii) provide that the insurance
company has the duty to defend all insureds under the policy; (iii) provide that
defense costs are paid in addition to and do not deplete any of the policy
limits; and (iv) cover liabilities arising out of or incurred in connection with
Tenant's use or occupancy of the Premises or the Real Property; (v) extend
coverage to cover liability for the actions of Tenant's agents, contractors,
employees and invitees. Each policy of liability insurance required by this
Section shall: (i) contain a cross liability endorsement or separation of
insureds clause; (ii) provide that any waiver of subrogation rights or release
prior to a loss does not void coverage; (iii) provide that it is primary to and
not contributing with, any policy of insurance carried by Landlord covering the
same loss; (iv) provide that any failure to comply with the reporting provisions
shall not affect coverage provided to Landlord, its partners, property managers
and Mortgagees; and (v) name Landlord, its partners, the property manager of the
Real Property (the "Property Manager"), and such other parties in interest as
Landlord may from time to time reasonably designate to Tenant in writing, as
additional insureds. Such additional insureds shall be provided at least the
same extent of coverage as is provided to Tenant under such policies. All
endorsements effecting such additional insured status shall be at least as broad
as additional insured endorsement form number CG 20 11 11 85 promulgated by the
Insurance Services Office.
15.3 Form of Policies. All insurance policies required to be
carried by Tenant
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under this Lease shall (i) be written by companies having rating classifications
of "A" or better and financial size category ratings of "VII" or better
according to the latest edition of the A.M. Best Key Rating Guide and authorized
to do business in California, (ii) name Landlord, and any other parties
designated by Landlord as additional insureds, (iii) as to liability coverages,
be written on an "occurrences" basis, (iv) provide that Landlord shall receive
thirty (30) days' notice from the insurer before any cancellation or change in
coverage, and (v) contain a provision that no act or omission of Tenant shall
affect or limit the obligation of the insurer to pay the amount of any loss
sustained. Each such policy shall contain 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. Any deductible amounts under any insurance policies
required hereunder shall be subject to Landlord's prior written approval (which
shall not be unreasonably withheld) and in any event Tenant shall be liable for
payment of same in the event of any casualty; provided that in no event shall
such deductible be less than five thousand dollars ($5,000) nor more than fifty
thousand dollars ($50,000), provided that such deductible shall be subject to
reasonable adjustment by Landlord depending on the financial condition of
PeopleSoft. Tenant shall deliver reasonably satisfactory evidence of such
insurance to Landlord on or before the Commencement Date, and thereafter at
least thirty (30) days before the expiration dates of expiring policies; and, in
the event Tenant shall fail to procure such insurance or to deliver reasonably
satisfactory evidence thereof within five (5) business days after written notice
from Landlord of such failure, Landlord may, at its option and in addition to
Landlord's other remedies in the event of a default by Tenant hereunder, procure
such insurance for the account of Tenant, and the cost thereof shall be paid to
Landlord as Additional Charges. Notwithstanding the foregoing, if any such
insurance expires without having been renewed by Tenant, Landlord shall have the
option, in addition to Landlord's other remedies, to procure such insurance for
the account of Tenant immediately and without notice to Tenant, and the cost
thereof shall be paid to Landlord as Additional Charges.
15.4 Landlord's Insurance. During the Term, Landlord shall insure
the Building (including all tenant improvements, excluding Alterations, except
for Alterations constructed by Tenant at the commencement of Tenant's occupancy
of a particular space and excluding any property which Tenant is obligated to
insure) for, at least, ninety percent (90%) of its full replacement cost,
excluding land, foundations, footings and underground installations, subject to
a deductible amount to be agreed upon between Landlord and Tenant but which
shall not be less than five thousand dollars ($5,000) nor more than twenty five
thousand dollars ($25,000) other than with respect to earthquake coverage,
against damage with All-Risk insurance (including earthquake coverage to the
extent available on commercially reasonable terms and with a deductible amount
as would be customary for similar properties) and Commercial General Liability
Insurance. The Commercial General Liability Insurance shall be in the amount of
not less than Two Million Dollars ($2,000,000). Landlord may, but shall not be
obligated to, obtain and carry any other form or forms of insurance as Landlord
and Tenant may mutually agree in writing or as Landlord may be required to carry
by any mortgagee under any mortgage encumbering the Building or the Premises.
15.5 Compliance with Insurance Requirements. Tenant shall not do
anything, or suffer or permit anything to be done, in or about the Premises that
shall invalidate or be in
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conflict with the provisions of any fire or other insurance policies covering
the Building or any property located therein. Tenant, at Tenant's expense, shall
comply with, and shall cause all occupants of the Premises to comply with, all
applicable customary rules, orders, regulations or requirements of any board of
fire underwriters or other similar body.
15.6 Updating Coverage. Tenant shall increase the amounts of
insurance as reasonably required by any Mortgagee, and, not more frequently than
once every three (3) years, as recommended by Landlord's insurance broker, if,
in the commercially reasonable opinion of either of them, the amount of
insurance then required under this Lease is not comparable to that required by
similar owners on similar properties in the Pleasanton-San Ramon area. Any
limits set forth in this Lease on the amount or type of coverage required by
Tenant's insurance shall not limit the liability of Tenant under this Lease.
15.7 Certificates of Insurance. Prior to the Commencement Date,
and not less than thirty (30) days prior to expiration of any policy thereafter,
Tenant shall furnish to Landlord a copy of a certificate of insurance reflecting
that the insurance required by this Section is in force, accompanied by an
endorsement showing the required additional insureds satisfactory to Landlord in
substance and form.
16. Eminent Domain.
16.1 Effect of Taking. If fifty percent (50%) or more of the
Premises is permanently condemned or taken (or any transfer is made in lieu
thereof) before or during the Term for public or quasi-public use, (each of
which events shall be referred to as a "taking"), this Lease shall automatically
terminate as of the date of the vesting of title. If less than fifty percent
(50%) of the Premises is so taken, this Lease shall automatically terminate as
to the portion of the Premises so taken as of the date of the vesting of title
as a result of such taking. If fifty percent (50%) or more of the Real Property
is taken as to render the Building incapable of economically feasible operation
as reasonably determined by Landlord, this Lease may be terminated by Landlord,
as of the date of the vesting of title as a result of such taking, by written
notice to Tenant within sixty (60) days following notice to Landlord of the date
on which said vesting will occur. If any portion of the Premises is permanently
taken as to render the Premises or the remaining portion thereof unusable by
Tenant for the normal operation of Tenant's business or the Premises, this Lease
may be terminated by Tenant as of the date of the vesting of title as a result
of such taking, by written notice to Landlord within sixty (60) days following
notice to Tenant of the date on which said vesting will occur. If this Lease is
not terminated as a result of any taking, Landlord shall restore the Building to
an architecturally whole unit; provided, however, that Landlord shall not be
obligated to expend on such restoration more than the amount of condemnation
proceeds actually received by Landlord nor do more work than that described in
Section 14.3, unless Tenant pays to Landlord in advance the difference between
the cost of such restoration and the amount of the condemnation proceeds
received by Landlord. In no event shall Landlord have any obligation to repair
or replace any of Tenant's personal property, trade fixtures, or Alterations.
16.2 Award. Landlord shall be entitled to the entire award for
any taking,
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including, without limitation, any award made for the value of the leasehold
estate created by this Lease. No award for any partial or entire taking shall be
apportioned, and Tenant hereby assigns to Landlord any award that may be made in
any taking; provided, however, that nothing contained herein shall be deemed to
give Landlord any interest in any separate award made to Tenant for its
relocation expenses, the taking of personal property and fixtures belonging to
Tenant, the unamortized value of improvements made or paid for by Tenant or the
interruption of or damage to Tenant's business, provided that such separate
award does not diminish, in any way, Landlord's award on account of such taking.
16.3 Adjustment of Rent. In the event of a partial taking that
does not result in a termination of this Lease as to the entire Premises, the
Base Rent and Additional Charges shall be adjusted in proportion to the portion
of the Premises taken or rendered untenantable by such taking. Tenant hereby
waives and releases its rights under Sections 1265.120 and 1265.130 of the
California Code of Civil Procedure or any similar statute now or hereafter in
effect.
17. Assignment.
17.1 Consent Required. Notwithstanding the provisions of Section
28.2 below, neither Tenant nor any sublessee or assignee of Tenant shall,
directly or indirectly, voluntarily or by operation of law, sell, assign,
encumber, pledge or otherwise transfer or hypothecate all or any part of the
Premises or Tenant's leasehold estate hereunder (each such act is herein
referred to as an "Assignment"), or sublet the Premises or any portion thereof
or permit the Premises to be occupied by anyone other than Tenant (each such act
is herein referred to as a "Sublease"), without Landlord's prior written consent
in each instance, which consent shall not be unreasonably withheld; provided
that Landlord may withhold its consent in Landlord's sole and absolute
discretion to any proposed Assignment or Sublease to any governmental agency.
Tenant acknowledges and agrees that, among other circumstances for which
Landlord could reasonably withhold consent to a proposed Assignment or Sublease,
it shall be reasonable for Landlord to withhold consent where (i) the proposed
transferee does not intend itself to occupy the entire portion of the Premises
assigned or sublet, (ii) Landlord reasonably disapproves of the proposed
transferee's business operating ability or history, reputation or
creditworthiness or the character of the business to be conducted by the
proposed transferee at the Premises, (iii) the proposed transfer would violate
any "exclusive" rights of any tenants in the Building, (iv) the proposed
transferee is an existing tenant of the Building and the Building has available
for rent space that would be competing with the space proposed for the
Assignment or Sublease, (v) the use by the proposed transferee would increase
the parking requirements for the Building under applicable zoning and land use
laws or applicable covenants relating to the Building, or (vi) Landlord
otherwise reasonably determines that the proposed Assignment or Sublease would
have the effect of decreasing the value of the Building or increasing the
expenses associated with operating, maintaining and repairing the Building. In
no event may Tenant publicly offer or advertise all or any portion of the
Premises for assignment or sublease at a rental less than that then sought by
Landlord for a direct lease (non-sublease) of comparable space in the Building.
Notwithstanding anything contained herein to the contrary, Tenant shall have the
right, without Landlord's consent and without releasing Tenant from any
liability hereunder, to effect an Assignment of this Lease to any entity that is
owned or controlled to the extent of more than fifty
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percent (50%), whether directly or indirectly, by Tenant (each of the foregoing
a "Permitted Assignee") or to Sublease all or any part of the Premises to any
entity that is a direct or indirect parent or subsidiary of Tenant, to any
entity in which any such parent or direct or indirect subsidiary is a partner,
shareholder or member, or to any entity with which Tenant has a written
strategic alliance; provided that any subleases to entities with which Tenant
has a written strategic alliance shall not exceed five thousand (5,000) rentable
square feet for each such strategic alliance entity or thirty thousand (30,000)
rentable square feet for all such strategic alliance entities. In addition, so
long as the stock of Tenant is publicly traded on any nationally recognized
exchange, a transfer of all or any part of such stock in Tenant shall not be
deemed an assignment of this Lease. Any Assignment or Sublease that is not in
compliance with this Article 17 shall be void. The acceptance of Base Rent or
Additional Charges by Landlord from a proposed assignee, sublessee or occupant
of the Premises shall not constitute consent to such Assignment or Sublease by
Landlord.
17.2 Recapture Right.
(a) In the event that Tenant desires to Assign or Sublease all or
portion of the Premises pursuant to an Assignment or Sublease that requires
Landlord's consent hereunder, Tenant shall give notice to Landlord (the
"Assignment or Sublease Notice") of (i) the space to be Assigned or Subleased
(the "Proposed Assignment or Sublease Space"), and (ii) the proposed terms and
conditions, including without limitation rent and similar charges, at which
Tenant proposes to offer the Proposed Assignment or Sublease Space for
Assignment or Sublease. Landlord shall notify Tenant as soon as possible but in
any event within thirty (30) days of the Assignment or Sublease Notice regarding
whether Landlord desires to terminate this Lease as to the Proposed Assignment
or Sublease Space or whether Landlord desires to allow Tenant to proceed to
attempt to Assign or Sublease such the Proposed Assignment or Sublease Space. In
the event that Landlord notifies Tenant within such thirty (30) day period that
Landlord desires to terminate this Lease as to the Proposed Assignment or
Sublease Space, this Lease shall terminate as to the Proposed Assignment or
Sublease Space on the date for commencement of the term therefor as set forth in
the Assignment or Sublease Notice. In the event that Landlord notifies Tenant
within such thirty (30) day period that Landlord does not want to terminate this
Lease as to the Proposed Assignment or Sublease Space or in the event Landlord
fails to give Tenant any notice within such thirty (30) days period, then Tenant
shall be free to seek an assignee or sublessee thereof subject to Landlord's
consent to the extent required hereunder.
(b) In the event that at the time of the receipt of the
Assignment or Sublease Notice, Landlord currently has space available for lease,
or expects to have space available for lease in the next six (6) months (nine
(9) months for blocks of space in excess of 20,000 square feet), in the Building
that may reasonably be considered equivalent or competitive to the Proposed
Assignment or Sublease Space, in terms of size, location, contiguity, term and
similar matters, then Landlord shall not be required to exercise, if Landlord so
desires, the recapture right described above, until Tenant gives Landlord the
notice of specific Assignment or Sublease pursuant to Section 17.3 below;
provided that in such event the time period for Landlord's response to Tenant's
notice shall, in each instance, be ten (10) days and not the thirty (30) days
provided in (a) above.
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17.3 Notice. Any request by Tenant for Landlord's consent to a
specific Assignment or Sublease shall include (a) the name of the proposed
assignee, sublessee or occupant, (b) the nature of the proposed assignee's,
sublessee's or occupant's business to be carried on in the Premises, (c) a copy
of the proposed Assignment or Sublease, and (d) such financial information and
such other information as Landlord may reasonably request concerning the
proposed assignee, sublessee or occupant or its business. Landlord shall respond
in writing, (i) exercising the recapture right described in Section 17.2 above,
if applicable, (ii) giving approval to the proposed Assignment or Sublease, or
(iii) stating the reasons for any disapproval of the proposed Assignment or
Sublease, within ten (10) business days after receipt of all information
reasonably necessary to evaluate the proposed Assignment or Sublease.
17.4 No Release. No consent by Landlord to any Assignment or
Sublease by Tenant, and no specification in this Lease of a right of Tenant's to
make any Assignment or Sublease, shall relieve Tenant of any obligation to be
performed by Tenant under this Lease. The consent by Landlord to any Assignment
or Sublease shall not relieve Tenant or any successor of Tenant from the
obligation to obtain Landlord's express written consent to any other Assignment
or Sublease.
17.5 Cost of Processing Request. Tenant shall pay to Landlord the
reasonable amount of Landlord's cost of processing every proposed Assignment or
Sublease and the reasonable amount of all direct and indirect expenses incurred
by Landlord arising from any assignee, occupant or sublessee taking occupancy;
provided, however, such amount payable to Landlord under this Section 17.4 shall
not exceed one thousand dollars ($1,000) for each proposed Assignment or
Sublease.
17.6 Assumption of Obligations. Each assignee or other transferee
of Tenant's interest hereunder, other than Landlord, shall assume all applicable
obligations of Tenant under this Lease and shall be and remain liable jointly
and severally with Tenant for the payment of Base Rent and Additional Charges,
to the extent applicable, and for the performance of all applicable terms,
covenants, conditions and agreements herein contained on Tenant's part to be
performed for the Term. Prior to the date on which any assignment or sublease
(whether or not requiring Landlord's consent) becomes effective, Tenant shall
deliver to Landlord a counterpart of the fully executed transfer document and
Landlord's standard form of Consent to Assignment or Consent to Sublease
executed by Tenant and the Transferee in which each of Tenant and the assignee
or sublessee confirms its applicable obligations pursuant to this Lease. Failure
or refusal of an assignee or sublessee to execute any such instrument shall not
release or discharge the assignee or sublessee from liability as provided
herein.
17.7 Profit Split. In the event Landlord approves any Assignment
or Sublease for which Landlord's consent is required, fifty percent (50%) of the
excess, after deducting leasing commissions and tenant improvement costs
applicable to such Sublease or Assignment, amortized over the term of such
Sublease or Assignment, of the total amount of rent and other consideration paid
under or in consideration for any such Sublease or Assignment over the Base Rent
and Additional Charges payable hereunder, shall be payable to Landlord as
Additional Charges.
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17.8 Assignment of Sublease Rents. Tenant hereby absolutely and
irrevocably assigns to Landlord any and all rights to receive rent and other
consideration from any sublease and agrees that Landlord, as assignee or as
attorney-in-fact for Tenant for purposes hereof, or a receiver for Tenant
appointed on Landlord's application may (but shall not be obligated to) collect
such rents and other consideration and apply the same toward Tenant's
obligations to Landlord under this Lease; provided, however, that Landlord
grants to Tenant at all times prior to occurrence of any breach or default by
Tenant a revocable license to collect such rents (which license shall
automatically and without notice be and be deemed to have been revoked and
terminated immediately upon any Event of Default).
18. Utilities and Services.
18.1 Landlord to Furnish. Landlord shall furnish during the Term,
subject to reimbursement pursuant to Article 5 above, (a) heating, ventilation
and air conditioning to the Premises during the hours of 7:00 a.m. until 6:00
p.m. Monday through Friday (excluding holidays), (b) automatic elevator service
to the floor or floors where the Premises are located at all times, (c) electric
power consistent with Tenant's usage in the Premises as of the date hereof at
the Building electrical panels of each floor (excluding power for HVAC, lighting
and Building emergency systems), (d) hot and cold water at all current points of
supply in the Initial Premises and reasonable future points of supply, (e)
janitorial service five (5) nights per week (except labor holidays) pursuant to
the janitorial specifications attached hereto as Exhibit D, (f) replacement of
all building standard fluorescent tubes, (g) basic recycling at central
collection points on each floor, (h) at the request of Tenant, guard service at
designated entrances and exits on a twenty four (24) hour a day, seven (7) days
a week basis, and (i) refilling of soap, towel and tissue containers in the
restrooms in the Premises. All services provided by Landlord hereunder shall be
provided at a level and in a manner commensurate with other first class office
buildings in the same geographic area. Notwithstanding anything to the contrary
in this Section 18.1. Landlord shall not be obligated to provide any janitorial
service to the computer rooms and storage space in the Parking Garage or the
Building. Landlord shall at all times provide on-site property management
consistent with similar buildings in the Pleasanton-San Ramon area. For so long
as Tenant leases at least seventy five percent (75%) of the rentable area of the
Building, Tenant shall have the right to approve, which consent shall not be
unreasonably withheld, conditioned or delayed, the property management company
for the Building and the individual manager for the Building. William Wilson &
Associates is approved as a property management company.
18.2 Excess Usage. Tenant shall be entitled to after hours HVAC
service upon reasonable telephonic or verbal notice to Landlord at a cost of
twenty dollars ($20.00) per hour per floor, provided that such cost shall be
billed in a minimum of three (3) hour increments. Said twenty dollars ($20.00)
per hour per floor cost may be reasonably increased upon any increase in the
costs of the components thereof. If Tenant uses excess electric power beyond the
quantity specified in Section 18.1(c), calculated on a square footage basis,
Tenant shall pay for the actual and reasonable cost of such excess power and the
cost of installing any additional risers or other facilities that may be
necessary to furnish such excess power to the Premises. In the event Tenant uses
excess janitorial, water or other services for weekend cleaning or in connection
with
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any cafeteria or other specialized use maintained by Tenant, Tenant shall pay
for the actual and reasonable cost of such excess services. In the event that
Tenant has requested guard service in excess of the hours specified below in
this sentence, Tenant shall pay to Landlord as a direct reimbursement for the
cost of such excess guard service, all sums incurred by Landlord for such excess
guard service that are in excess of the greater of (i) the cost of such guard
service Monday through Friday from 8:00 a.m. to 12:00 midnight and Saturday and
Sunday from 8:00 a.m. to 4:00 p.m., or (ii) one hundred and four thousand
dollars ($104,000) per year.
18.3 Interruption of Service. Landlord reserves the right to stop
the Building Systems when reasonably necessary, provided, however, that (i)
Landlord give Tenant as much notice as reasonably possible in connection with
any interference with or disruption of and take all reasonable efforts to
minimize interference with the Building Systems that service Tenant's computer
rooms or the related chillers, and (ii) Landlord shall give Tenant advance
notice of any such interruption of services when reasonably possible, and shall
restore such services as soon as practical and in a manner so as to cause as
little interference with Tenant's use of the Premises as is practical and
Landlord shall perform such work before or after Tenant's business hours when
reasonably possible. In addition, Landlord reserves the right to limit services
or utilities serving the Premises or the Building, in compliance with the
requirements or requests of federal, state or local governmental agencies or
utilities suppliers in reducing energy or other resources consumption and to
make all alterations to the Real Property reasonably necessary therefor. Any
such actions by Landlord under this Section 18.3, or any other interruption of
services provided for herein (unless caused by Landlord's gross negligence or
willful misconduct) shall not (a) constitute an actual or construction eviction,
in whole or in part, (b) entitle Tenant to any abatement or diminution of Base
Rent or Additional Charges, (c) relieve Tenant from any of its obligations under
this Lease or (d) impose any liability on Landlord or its agents by reason of
inconvenience or annoyance to Tenant or by reason of injury to or interruption
of Tenant's business, or otherwise. Tenant hereby waives and releases its right
to terminate this Lease under Section 1932(1) and Sections 1941 and 1942 of the
California Civil Code or any other similar laws, statutes or ordinances now or
hereafter in effect. Tenant shall cooperate reasonably with any voluntary energy
conservation program initiated by Landlord in cooperation with the efforts of
federal, state or local governmental agencies or utilities suppliers in reducing
the consumption of energy or other resources. In the event of an interruption
in, or failure or inability to provide any of the services or utilities
described in Section 18.1 (a "Service Failure"), such Service Failure shall not,
regardless of its duration, constitute an eviction of Tenant, constructive or
otherwise, or impose upon Landlord any liability whatsoever, including, but not
limited to, liability of consequential damages or loss of business by Tenant or,
except as provided herein, entitle Tenant to an abatement of rent or to
terminate this Lease.
(a) If any Service Failure not caused by Tenant or its agents,
contractors, employees, or invitees, prevents Tenant from reasonably using a
material portion of the Premises and (i) Tenant in fact ceases to use such
portion of the Premises, and (ii) Landlord has rental interruption insurance for
any of the circumstances set forth herein, Tenant shall be entitled to an
abatement of Base Rent and Additional Charges with respect to the portion of the
Premises that Tenant is prevented from using by reason of such Service Failure
if such Service Failure has not been remedied within ten (10) business days
following the occurrence of the Service Failure, and
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such failure has persisted and continuously prevented Tenant from using a
material portion of the Premises during that period, the abatement of rent shall
commence on the eleventh business day following the Service Failure and continue
until Tenant is no longer so prevented from using such portion of the Premises.
In the event that any Service Failure described in the preceding sentence
(exclusive of clause (ii)) continues in any material manner for one (1) year
following the occurrence of the Service Failure and such failure has prevented
Tenant from using a material portion of the Premises during that period, Tenant
shall have the right to terminate this Lease at any time after the expiration of
such one (1) year period.
(b) If a Service Failure is caused by Tenant or its agents,
contractors, employees, or invitees, Landlord shall nonetheless remedy the
Service Failure, at the expense of Tenant, pursuant to Landlord's maintenance
and repair obligations, but Tenant shall not be entitled to an abatement of rent
or to terminate this Lease as a result of any such Service Failure.
(c) Notwithstanding Tenant's entitlement to rent abatement under
the preceding provisions, Tenant shall continue to pay Tenant's then current
rent until such time as Landlord and Tenant agree on the amount of the rent
abatement. If Landlord and Tenant are unable to agree on the amount of such
abatement within ten (10) business days of the date they commence negotiations
regarding the abatement, then either party may submit the matter to binding
arbitration pursuant to Section 28.21 hereof.
18.4 Waiver. Tenant hereby waives the provisions of California
Civil Code Section 1932(1) or any other applicable existing or future law,
ordinance or governmental regulation permitting the termination of this Lease
due to such interruption, failure or inability.
18.5 Security Systems and Programs. The Landlord shall have no
liability for any safety or security devices or services in the Premises or the
Building. The risk that any safety or security device, service or program may
not be effective, or may malfunction or be circumvented, is assumed by Tenant
with respect to Tenant's property and interests except to the extent such
ineffectiveness, malfunction or circumvention is due to the gross negligence or
willful misconduct of Landlord. Tenant shall obtain insurance coverage to the
extent Tenant desires protection against criminal acts and other losses. Tenant
agrees to cooperate with any reasonable safety or security program developed by
Landlord or required by law.
19. Default.
19.1 Events of Default. The occurrence of any one or more of the
following events shall constitute a default or breach of this Lease by Tenant:
(a) Failure of Tenant to pay any installment of Base Rent or
Additional Charges within five (5) days after receipt of notice from Landlord.
(b) Tenant abandons the Premises.
(c) Tenant violates the restrictions on Assignment and Subletting
set forth in Section 17.
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(d) Tenant fails to deliver an estoppel certificate within the
time periods provided in Section 24.
(e) Failure of Tenant to perform any of the provisions of this
Lease to be performed by Tenant, other than as described in Section 19.1(a)-(d),
where such failure shall continue for twenty (20) days after notice of such
failure by Landlord to Tenant; provided however, that if the nature of Tenant's
default is such that more than twenty (20) days are reasonably required for its
cure, then Tenant shall not be deemed to be in default if Tenant commences such
cure within such twenty (20) day period and thereafter diligently proceeds with,
all actions necessary to cure such failure as soon as reasonably possible but in
all events within ninety (90) days of such notice; provided, however, that if
Landlord in Landlord's reasonable judgment determines that such failure cannot
or will not be cured by Tenant within such ninety (90) days, then such failure
shall constitute a default immediately upon such notice to Tenant.
(f) The filing by or against Tenant of any action or proceeding
under any federal or state insolvency, reorganization, bankruptcy or other
debtor relief statute now or hereafter existing, (unless in the case of such
action taken against Tenant, the same is dismissed within sixty (60) days); or
the appointment of a trustee or receiver over or the attachment of Tenant's
leasehold estate in the Premises or Tenant's assets at the Premises that is not
dismissed within thirty (30) days after the filing thereof.
(g) Tenant ceases doing business as a going concern; makes an
assignment for the benefit of creditors; is adjudicated an insolvent, files a
petition (or files an answer admitting the material allegations of a petition)
seeking relief under any state or federal bankruptcy or other statute, law or
regulation affecting creditors' rights; all or substantially all of Tenant's
assets are subject to judicial seizure or attachment and are not released within
30 days, or Tenant consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for Tenant or for all or any substantial part of Tenant's
assets.
19.2 Remedies. Upon the occurrence of a default by Tenant under
this Lease that is not cured by Tenant after receipt of written notice and
within the grace periods specified in Section 19.1, Landlord shall have the
following rights and remedies in addition to all other rights and remedies
available to Landlord at law or in equity:
(a) Landlord may terminate Tenant's right to possession of the
Premises at any time by written notice to Tenant. Tenant expressly acknowledges
that in the absence of such written notice from Landlord, no other act of
Landlord, including re-entry into the Premises, efforts to relet the Premises,
reletting of the Premises for Tenant's account, storage of Tenant's personal
property and trade fixtures, acceptance of keys to the Premises from Tenant or
exercise of any other rights and remedies under this Section, shall constitute
an acceptance of Tenant's surrender of the Premises or constitute a termination
of this Lease or of Tenant's right to possession of the Premises. Upon such
termination in writing of Tenant's right to possession of the Premises, as
herein provided, this Lease shall terminate and Landlord shall be entitled to
recover damages from Tenant as provided in California Civil Code Section 1951.2
and any other applicable existing or future Law providing for recovery of
damages for such breach, including
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the worth at the time of award of the amount by which the rent which would be
payable by Tenant hereunder for the remainder of the Term after the date of the
award of damages, including Additional Charges as reasonably estimated by
Landlord, exceeds the amount of such rental loss as Tenant proves could have
been reasonably avoided, discounted at the discount rate published by the
Federal Reserve Bank of San Francisco for member banks at the time of the award
plus one percent (1%).
(b) Landlord shall have the remedy described in California Civil
Code Section 1951.4 (Landlord may continue this Lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due, if Tenant has the
right to sublet or assign, subject only to reasonable limitations).
(c) Landlord may remove all Tenant's property from the Premises,
and such property may be stored by Landlord in a public warehouse or elsewhere
at the sole cost and for the account of Tenant. If Landlord does not elect to
store any or all of Tenant's property left in the Premises, Landlord may
consider such property to be abandoned by Tenant, and Landlord may thereupon
dispose of such property in any manner deemed appropriate by Landlord. Any
proceeds realized by Landlord on the disposal of any such property shall be
applied first to offset all expenses of storage and sale, then credited against
Tenant's outstanding obligations to Landlord under this Lease, and any balance
remaining after satisfaction of all obligations of Tenant under this Lease shall
be delivered to Tenant.
(d) The right to have a receiver appointed for Tenant, upon
application by Landlord, to take possession of the Premises, and to apply any
rental collected from the Premises.
(e) The right to specific performance of any or all of Tenant's
obligations hereunder, and to damages for delay in or failure of such
performance.
19.3 Remedies Cumulative. The exercise of any remedy provided by
law or the provisions of this Lease shall not exclude any other remedies unless
they are expressly excluded by this Lease. Tenant hereby waives any right of
redemption or relief from forfeiture following termination of, or exercise of
any remedy by Landlord with respect to, this Lease.
20. Fees and Expenses; Indemnity; Payment.
20.1 Landlord's Right to Remedy Defaults. If Tenant shall default
in the performance of any of its obligations under this Lease after notice and
expiration of the applicable cure period, Landlord may remedy such default at
Tenant's expense, without thereby waiving any other rights or remedies of
Landlord with respect to such default. Notwithstanding the foregoing, Landlord
shall have the right to cure any failure by Tenant to perform any of its
obligations under this Lease without notice to Tenant if such failure results in
an immediate threat to life or safety of any person, or impairs the Building or
its operation. If Landlord pays any sum or incurs any expense in curing the
default, Tenant shall reimburse Landlord upon demand for the amount of such
payment or expense with interest at the Interest Rate from the date the sum is
paid or the expense is incurred until Landlord is reimbursed by Tenant.
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20.2 Tenant's Indemnity. Except to the extent caused by the
negligence or willful misconduct of Landlord, Tenant shall indemnify Landlord,
all partners of any partnership constituting Landlord, and their respective
officers, directors, shareholders, employees, and agents (sometimes collectively
referred to herein as "Related Entities") against and save Landlord and Related
Entities harmless from and defend Landlord and Related Entities through
attorneys selected by Landlord and reasonably satisfactory to Tenant from and
against any and all claims, losses, costs, liabilities, damages and expenses
(collectively "Claims") including, without limitation, reasonable attorneys'
fees, to the extent incurred in connection with or arising from (a) any default
by Tenant in the observance or performance of any of the terms, covenants,
conditions or other obligations of this Lease after the expiration of the
applicable grace period, or the failure of any representation made by Tenant in
this Lease, or (b) the acts or omissions of Tenant, its agents, contractors or
employees while on the Real Property, or (c) any construction or other work
undertaken by Tenant on the Premises (including any design defects), or (d) any
loss, injury or damage, howsoever and by whomsoever caused, to any person or
property, occurring in or about the Premises during the Term, excepting only
Claims described in this clause (d) to the extent they are caused by the willful
misconduct or grossly negligent acts or omissions of Landlord or its authorized
representatives.
20.3 Landlord's Indemnification. Landlord shall be responsible
for, shall insure against, and shall defend (through attorneys selected by
Tenant and reasonably satisfactory to Landlord), protect and indemnify Tenant,
and Tenant's officers, directors, shareholders, agents and employees, and hold
them harmless from, any and all liability for any claims, loss, damage,
liabilities or injury to a person or property occurring in, on or about the
Building to the extent the liability is the result of the gross negligence or
willful misconduct of Landlord or Landlord's agents or employees. Landlord's
obligation to indemnify tenant and tenant's officers, directors, shareholders,
agents and employees hereunder shall include the duty to defend against any
claims asserted by reason of any loss, damage or injury, and to pay any
judgments, settlements, costs, fees and expenses, including attorneys' fees,
incurred in connection therewith. Landlord's indemnity shall survive the
expiration or earlier termination of this Lease.
20.4 Interest on Past Due Obligations. Unless otherwise
specifically provided herein, any amount due from Tenant to Landlord under this
Lease which is not paid within five (5) days from the date when due shall bear
interest from the due date until paid at the rate (the "Interest Rate") that is
the lesser of the highest rate then permitted by law or fifteen percent (15%)
per annum between the date such amount was due and the date such payment was
received. The payment of such interest shall not alone excuse or cure any
default under this Lease.
20.5 Tenant's Property. Except as otherwise specifically provided
herein, Landlord shall not be liable to Tenant for any loss, injury or other
damage to Tenant or to Tenant's property in or about the Premises or the
Building from any cause (including defects in the Building or in any equipment
in the Building; fire, explosion or other casualty; bursting, rupture, leakage
or overflow of any plumbing or other pipes or lines, sprinklers, tanks, drains,
drinking fountains or washstands in, above, or about the Premises or the
Building; or acts of other tenants in the Building). Except as otherwise
specifically provided herein, Tenant hereby
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waives all claims against Landlord for any such loss, injury or damage and the
cost and expense of defending against claims relating thereto, including any
loss, injury or damage caused by Landlord's negligence (active or passive) or
willful misconduct. Notwithstanding any other provision of this Lease to the
contrary, in no event shall Landlord be liable to Tenant for any punitive or
consequential damages or damages for loss of business by Tenant.
21. Access to Premises.
21.1 Landlord's Right to Enter. Landlord reserves for itself and
its agents, employees and independent contractors the right to enter the
Premises, subject to Tenant's reasonable requirements for maintaining secure
areas, at all reasonable times and upon twenty-four (24) hours notice, to
inspect the Premises, to supply any service to be provided by Landlord to Tenant
hereunder, to show the Premises to prospective purchasers, mortgagees,
beneficiaries or tenants (during the last twelve (12) months of the Term with
regard to all of the Premises, at any time that Tenant has given a Give Back
Notice under Section 28.16 with regard to the portion of the Premises subject to
such notice, at any time that Tenant has given an Assignment and Sublease Notice
with regard to the space subject to such notice, and at any time with respect to
a portion of the Premises with respect to which Landlord intends to exercise its
right of relocation under Section 28.20), to post notices of nonresponsibility,
to determine whether Tenant is complying with its obligations under this Lease,
and to alter, improve or repair the Premises or any other portion of the
Building. If Landlord has entered the Premises to make alterations, additions,
improvements or repairs, Landlord shall perform such work before or after
Tenant's business hours when reasonably possible. Landlord shall use
commercially reasonable efforts to minimize disruption to Tenant's operation of
its business. In the event of an emergency, Landlord shall have the right to
enter the Premises at any time without notice. Landlord shall have the right to
use any and all means that Landlord may deem necessary or proper to open doors
in an emergency, in order to obtain entry to any portion of the Premises.
22. Notices.
22.1 Except as otherwise expressly provided in this Lease, any
payment required to be made and any bills, statements, notices, demands,
requests or other communications given or required to be given under this Lease
shall be effective only if rendered or given in writing, sent by personal
delivery or registered or certified mail, return receipt requested, or by
overnight courier service or by facsimile transmission with a following copy by
first class mail, addressed (a) to Tenant at the address set forth in the Basic
Lease Information, (b) to Landlord at the address set forth in the Basic Lease
Information or (c) to such other address as either Landlord or Tenant may
designate as its new address in California for such purpose by notice given to
the other in accordance with the provisions of this Section 23.1. Any such bill,
statement, notice, demand, request or other communication shall be deemed to
have been rendered or given on the date of receipt or refusal to accept
delivery.
23. No Waiver.
23.1 No provision of this Lease may be waived, and no breach
thereof shall be waived, except by a written instrument signed by the party
against which the enforcement of the
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waiver is sought. No failure by Landlord to insist upon the strict performance
of any obligation of Tenant under this Lease, no course of conduct between
Landlord and Tenant, and no acceptance of the keys or to possession of the
Premises before the termination of the Term by Landlord or any employee or
representative of Landlord shall constitute a waiver of any breach or a waiver
or modification of any term, covenant or condition of this Lease. No payment by
Tenant of a lesser amount than the aggregate of all Base Rent and Additional
Charges then due under this Lease shall be deemed to be other than on account of
the first items of such Base Rent and Additional Charges then accruing or
becoming due, unless Landlord elects otherwise.
24. Tenant's Certificates.
24.1 Tenant, at any time and from time to time, within fifteen
(15) days after written request, shall execute, acknowledge and deliver to
Landlord, addressed (at Landlord's request) to any prospective purchaser, ground
or underlying lessor or mortgagee or beneficiary of any part of the Real
Property, an estoppel certificate in form and substance reasonably designated by
Landlord. In the event Tenant fails to provide the estoppel certificate within
such fifteen (15) day period, Landlord shall make an additional written request
to Tenant for the execution, acknowledgement and delivery of such estoppel
certificate to Landlord within five (5) days.
25. Rules and Regulations.
25.1 Tenant shall before and during the Term faithfully observe
and comply with, and shall cause all occupants of the Premises to observe and
comply with, the rules and regulations attached to this Lease as Exhibit E and
all reasonable modifications thereof and additions thereto from time to time put
into effect by Landlord (the "Rules and Regulations"). Notwithstanding the
foregoing, in the event of a conflict between the Rules and Regulations and this
Lease, the Lease shall control.
26. Tenant's Taxes.
26.1 In addition to all other sums to be paid by Tenant under
this Lease, Tenant shall pay, before delinquency, any and all taxes levied or
assessed during the Term, whether or not now customary or within the
contemplation of the parties hereto, (a) upon, measured by or reasonably
attributable to Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, including without limitation Tenant's
Alterations, (b) upon or measured by Base Rent or Additional Charges, or both,
payable under this Lease, including without limitation any gross income tax or
excise tax levied by the City of Pleasanton and County of Alameda, the State of
California, the Federal Government or any other governmental body with respect
to the receipt of such rental; (c) upon or with respect to the possession,
leasing, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion thereof; or (d) upon this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises.
27. Corporate Authority.
27.1 If either party signs as a corporation or partnership, each
of the persons
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executing this Lease on behalf of such party does hereby covenant and warrant
that such party is a duly authorized and existing entity, that such party has
and is qualified to do business in California, that the entity has full right
and authority to enter into this Lease, and that each and both of the persons
signing on behalf of the entity are authorized to do so.
28. Miscellaneous.
28.1 Successors and Assigns. The terms, covenants and conditions
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant and, except as otherwise provided herein, their respective personal
representatives and successors and assigns.
28.2 Severability. If any provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall remain in effect and shall be enforceable to the full extent
permitted by law.
28.3 Construction. This Lease shall be governed by and construed
in accordance with the laws of the State of California.
28.4 Integration. The terms of this Lease (including, without
limitation, the Exhibits hereto) are intended by the parties as a final
expression of their agreement with respect to such terms as are included in this
Lease and may not be contradicted by evidence of any prior or contemporaneous
agreement, arrangement, understanding or negotiation (whether oral or written).
28.5 Quiet Enjoyment. Upon Tenant paying the Base Rent and
Additional Charges and performing all of Tenant's obligations under this Lease,
Tenant may peacefully and quietly enjoy the Premises during the Term as against
all persons or entities claiming by or through Landlord; subject, however, to
the provisions of this Lease and to any mortgages or deeds of trust or ground or
underlying leases referred to in Article 12.
28.6 Holding Over. If Tenant (directly or through any assignee,
sublessee or other successor-in-interest of Tenant) remains in possession of the
Premises after the expiration or termination of this Lease, Tenant's continued
possession shall be, at Landlord's election, on the basis of a tenancy at the
sufferance of Landlord, subject to the adjustment of Rent as set forth in this
Section 28.6. No act or omission by Landlord, other than its specific written
consent, shall constitute permission for Tenant to continue in possession of the
Premises, and if such consent is given or declared to have been given by a court
judgment, Landlord may terminate Tenant's holdover tenancy at any time upon
fifteen (15) days written notice. In such event, Tenant shall continue to comply
with or perform all the terms and obligations of Tenant under this Lease, except
that the monthly Base Rent shall be as follows: (i) for the first thirty (30)
days of such holdover, one hundred ten percent (110%) of the Base Rent payable
during the final full lease year (exclusive of abatements, if any), provided
that Tenant shall have given Landlord at least ninety (90) days notice of such
holdover, (ii) for the next sixty (60) days of such holdover one hundred twenty
five percent (125%) of the Base Rent payable during the final full lease year
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(exclusive of abatements, if any), provided that Tenant shall have given
Landlord at least ninety (90) days notice of such holdover, or (iii) if the
Tenant has not given the requisite ninety (90) days notice specified in clauses
(i) and (ii) above, then for the first thirty (30) days of such holdover period
one hundred twenty five percent (125%) of the Base Rent payable during the final
full lease year (exclusive of abatements, if any) and (iv) upon the expiration
of any periods applicable under (i)-(iii) above, one hundred fifty percent
(150%) of the Base Rent payable during the final full lease year (exclusive of
abatements, if any), in each case together with an amount reasonably estimated
by Landlord for the monthly Additional Charges payable under this Lease.
Notwithstanding the foregoing, in the event that any holdover as described above
occurs at the end of the first one hundred twenty (120) months of the Lease
Term, the Base Rent for such holdover period shall be one hundred twenty five
percent (125%) of the Base Rent payable during the final full lease year
(exclusive of abatements, if any) together with an amount reasonably estimated
by Landlord for the monthly Additional Charges payable under this Lease.
Acceptance by Landlord of rent after such termination shall not constitute a
renewal or extension of this Lease; and nothing contained in this provision
shall be deemed to waive Landlord's right of re-entry or any other right
hereunder or at law. Tenant shall indemnify, defend and hold Landlord harmless
from and against all Claims arising or resulting directly from Tenant's failure
to timely surrender the Premises, including (i) any rent payable by or any loss,
cost, or damages claimed by any prospective tenant of the Premises, and (ii)
Landlord's direct, but not consequential, damages as a result of such
prospective tenant rescinding or refusing to enter into the prospective lease of
the Premises by reason of such failure to timely surrender the Premises.
28.7 Time of Essence. Time is of the essence of each and every
provision of this Lease.
28.8 Broker's Commissions. Each party represents and warrants to
the other that it has not entered into any agreement or incurred or created any
obligation which might require the other party to pay any broker's commission,
finder's fee or other commission or fee relating to the leasing of the Premises.
Each party shall indemnify, defend and hold harmless the other and the other's
constituent partners and their respective officers, directors, agents and
employees from and against all claims for any such commissions or fees made by
anyone claiming by or through the indemnifying party.
28.9 Recovery Against Landlord. Tenant shall look solely to
Landlord's interest in the Real Property for the recovery as provided under
applicable law of any judgment against Landlord. Landlord, or if Landlord is a
partnership, its partners whether general or limited, or if Landlord or any
constituent partner of Landlord is a corporation, its directors, officers and
shareholders, shall never be personally liable for any such judgment. In the
event that any Landlord hereunder sells or conveys its interest in the Building,
all liabilities and obligations on the part of such Landlord under this Lease
accruing thereafter shall terminate and all such liabilities and obligations
shall be binding upon the new owner.
28.10 Amendments. No amendments or modifications of this Lease or any
agreements in connection therewith shall be valid unless in writing duly
executed by both
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Landlord and Tenant. No amendment to this Lease shall be binding on any
mortgagee or beneficiary of Landlord (or purchaser at any foreclosure sale)
unless such mortgagee or beneficiary shall have consented thereto in writing.
28.11 Attorneys' Fees. If either party commences an action
against the other party arising out of or in connection with this Lease, or
institutes any proceeding in a bankruptcy or similar court which has
jurisdiction over the other party or any or all of its property or assets, the
prevailing party shall be entitled to have and recover from the losing party
reasonable attorneys' fees and court costs. The fees recoverable, as provided
above, shall include fees incurred on appeal and any other post-judgment
proceeding.
28.12 Parking.
(a) Tenant's Parking Rights. Landlord shall provide Tenant, on an
unassigned and non-exclusive basis, for use by Tenant and Tenant's agents,
contractors, employees and invitees, at the users' sole risk, a minimum of four
(4) parking spaces per one thousand (1000) rentable square feet in the Premises,
in the surface parking areas serving the Building (the "Parking Areas"). If
Tenant leases additional office space pursuant to this Lease, Landlord shall
provide Tenant, also on an unassigned, non-exclusive and unlabelled basis, one
(1) additional parking space in the Parking Areas for each two hundred and fifty
(250) rentable square feet of additional office space leased to Tenant. The
amount of parking allocated to the Tenant shall be similarly decreased in the
event that the area of the Premises decreases. In addition to the unassigned
parking spaces to be made available to Tenant in the Parking Areas, Landlord
shall provide Tenant, for use by Tenant and Tenant's agents, contractors,
employees and invitees, at the users' sole risk, Tenant's Share of the total
parking spaces in the parking garage serving the Building (the "Parking Garage";
the Parking Areas and the Parking Garage are referred to collectively herein as
the "Parking Facility") on a reserved basis. In the event that Landlord is
unable to provide the required number of parking spaces in the Parking Garage as
of the date hereof, Landlord shall provide Tenant with Tenant's Share of the
available parking spaces in the Parking Garage up to the stated maximum, as such
become available. The parking spaces to be made available to Tenant hereunder
may contain a reasonable mix of spaces for compact cars and up to ten percent
(10%) of the unassigned spaces may also be designated by Landlord as Building
visitors' parking. All parking shall be provided free of charge during the first
one hundred twenty (120) months of the Lease Term; provided that if after the
first one hundred twenty (120) months of the Lease Term, a majority of landlords
in similar buildings in the Pleasanton-San Ramon area are charging for such
parking, Landlord shall be entitled to charge a market rate for parking in the
Parking Facility.
(b) Availability of Parking Spaces. Landlord shall take
reasonable actions to ensure the availability of the parking spaces leased by
Tenant, but Landlord does not guarantee the availability of those spaces at all
times against the actions of other tenants of the Building and users of the
Parking Facility. Access to the Parking Facility may, at Landlord's option, be
regulated by card, pass, bumper sticker, decal or other appropriate
identification issued by Landlord. Landlord retains the right to revoke the
parking privileges of any user of the Parking Facility who violates the rules
and regulations governing use of the Parking Facility (and Tenant
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shall be responsible for causing any employee of Tenant or other person using
parking spaces allocated to Tenant to comply with all parking rules and
regulations).
(c) Assignment and Subletting. Notwithstanding any other
provision of the Lease to the contrary, Tenant shall not assign its rights to
the parking spaces or any interest therein, or sublease or otherwise allow the
use of all or any part of the parking spaces to or by any other person, except
in connection with any Assignment or Sublease permitted or allowed under Section
17 above.
28.13 Signage. Throughout the Term, provided Tenant remains the
largest tenant in the Building, Tenant shall have exclusive rights to signage on
the exterior of the Building, all monument signs and the Building name shall
continue as "PeopleSoft Plaza;" provided that Landlord shall have the right to
provide comparable monument signage to any tenant of the Building occupying over
forty thousand (40,000) square feet. Tenant shall maintain such signage good
maintenance and repair, in compliance with all applicable laws and the
requirements of the HBPOA, at Tenant's sole cost and expense. During the Term,
unless required by applicable law, Tenant shall have no obligation to remove or
modify any Building signage existing as of the date of this Lease and Landlord
hereby approves the signage described in Exhibit F, subject to compliance with
all applicable governmental regulations; provided, however, that Tenant, if so
directed by Landlord, shall remove all of its signage on or about the Building
at the expiration of the Term and restore any damage resulting from such
removal, at Tenant's sole cost and expense. No Rent shall be payable by Tenant
for the signage rights granted pursuant to this Section 28.13.
28.14 Use of Roof. Tenant shall have a nonexclusive right to
install, at Tenant's sole cost and expense, communications equipment reasonably
related to Tenant's permitted use of the Premises on the roof of the Building
for Tenant's personal, nonprofit use. Tenant's rights under this Section 28.14:
(a) are personal to Tenant and not assignable without Landlord's express written
consent, which consent shall not be unreasonably withheld provided the assignee
is a permitted sublessee or assignee of Tenant's rights under the Lease and
provided further that Tenant shall be entitled to exercise the rights provided
for in this Section 28.14 by contracting with a third party for the installation
and maintenance of all such rooftop equipment; (b) shall terminate on the
Expiration Date; (c) are subject to the rights of other tenants; and (d) are
subject to the approval of all governmental entities with jurisdiction of such
equipment. Landlord hereby grants to Tenant a nonexclusive license to use
existing and common area passageways in the Building for ingress to and egress
from the roof in connection with the installation and maintenance of the
communications equipment, provided that Tenant coordinates ingress to the roof
with Landlord. Tenant shall obey all reasonable requirements imposed by Landlord
for the protection of the roof and shall, at Tenant's sole cost and expense,
obtain all necessary governmental licenses and permits required for, and comply
with all legal requirements (including recorded covenants and restrictions) in
connection with, the installation and use of the communications equipment,
including, without limitation, the rules and regulations of the Federal
Communications Commission. The communications equipment shall be deemed to be
Tenant's personal property for all purposes under this Lease, and upon
termination of this Lease, Tenant shall remove all of the communications
equipment and related wiring and conduit in
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accordance with the provisions of this Lease and repair any damage to the roof.
Tenant shall (a) prevent its communications equipment and the equipment's
transmission and frequency from interfering with the transmissions and
frequencies of any other antennas or communications systems located on or in the
Building or the Real Property, (b) screen the equipment from view as reasonably
required by Landlord, and (c) cooperate with Landlord or third parties in
maximizing the use of the roof area not used by Tenant. Landlord shall not be
responsible for Tenant's equipment or any interference with its equipment's
transmission, frequency, operation or use. Tenant shall not install any other
facilities or equipment on the roof or make any alteration to the roof without
the prior written consent of Landlord, which shall not be unreasonably withheld
or delayed. Tenant shall be solely responsible for and shall pay and indemnify
Landlord against all costs and expenses incurred in connection with the
installation, removal and use of the communications equipment.
28.15 Force Majeure. If Landlord or Tenant is delayed,
interrupted or prevented from performing any of its obligations under this
Lease, and such delay, interruption or prevention is due to fire, act of God,
governmental act or failure to act, labor dispute, unavailability of materials
or any cause outside the reasonable control of such party, then the time for
performance of the affected obligations of such party shall be extended for a
period equivalent to the period of such delay, interruption or prevention. The
provisions of this Section shall not apply to Section 18.3 or any obligation of
either party to pay money under this Lease.
28.16 Cancellation Rights. Commencing after the forty eighth
(48th) month of the Term through the sixtieth (60th) month of the Term, Tenant
may terminate this Lease with respect to up to one hundred percent of the Four
Year Space, in accordance with the terms of this Section 28.16. Commencing after
the sixtieth (60th) month of the Term and up to the one hundred twentieth
(120th) month of the Term, Tenant may terminate this Lease with respect to the
entire Premises in accordance with the terms of this Section 28.16. If Tenant
elects to terminate any of the Premises under this Section, the exercise of such
termination right will be referred to as a "Give Back" of the Premises and the
date of the termination of the Lease with respect to such portion of the
Premises shall be referred to as the "Termination Date." Tenant shall only
exercise any right to Give Back in connection with a move by Tenant of the
personnel or equipment using such space to a building or facility of which
Tenant owns or controls more than thirty three percent (33%) of the fee interest
(or a facility owned or controlled by an entity in which Tenant has not less
than a thirty three percent (33%) interest in capital and profits) or in
connection with a reduction in Tenant's overall space requirements in the
Pleasanton/Dublin area. Notwithstanding the foregoing, if an uncured event of
default exists and is continuing under this Lease at the time Tenant exercises
the Give Back right or at the applicable Termination Date, Landlord shall have,
in addition to all of Landlord's other rights and remedies under this Lease, the
right to cancel unilaterally Tenant's exercise of such Give Back right. All
rights in this Section 28.16 shall be personal to PeopleSoft, Inc. and its
Permitted Assignees.
(a) Subject to the terms and conditions contained herein, Tenant
shall deliver to Landlord written notice (the "Give Back Notice") not less than
nine (9) months prior to the Termination Date (or twelve (12) months to the
Termination Date if the space in question is greater than forty thousand
(40,000) rentable square feet) for the "Give Back" of any portion of
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the Premises other than portions of the Premises into which Tenant has expanded
pursuant to its exercise of its rights under Section 28.18. Taking into account
the limitations regarding Tenant's right to terminate pursuant to this Section
28.16 set forth in the first two sentences of the preceding paragraph and the
notice periods required by the preceding sentence, the first date on which any
Give Back Notice could be given would be nine (9) months prior to the
commencement of the forty ninth (49th) month of the Term (or twelve (12) months
prior to the forty ninth (49th) month if the space in question is greater than
forty thousand (40,000) rentable square feet). Any Give Back Notice shall be
irrevocable. If Tenant elects to Give Back a portion of the Premises by
providing such Give Back Notice, Tenant shall not be entitled to provide
Landlord with another Give Back Notice for any other part of the Premises until
the Termination Date of the Premises referred to in the prior Give Back Notice.
In addition, if Tenant exercises its rights under Section 28.18 to expand the
Premises, Tenant shall not be entitled to deliver to Landlord a Give Back Notice
with respect to any part of the Premises until the Expansion Premises
Commencement Date for such Expansion Premises (six (6) months after the
Expansion Premises Commencement Date if such Expansion Premises is larger than
twenty thousand (20,000) rentable square feet). Under no circumstances shall a
Give Back Notice apply to less than five thousand (5,000) rentable square feet.
Any Give Back Notice must be either a full floor or separately demised space
accessible by a common area corridor and must comply with all legal ingress and
egress requirements. Tenant will use its reasonable best efforts to make any
space subject to a Give Back Notice contiguous, to the greatest extent possible.
Tenant shall pay the cost of all demising walls and corridors necessary to
separate such space from the remaining Premises and to provide access to such
space via a common corridor. Upon the exercise of any cancellation right
specified in this Section 28.16, the parties shall execute an amendment to this
Lease to evidence the revised Premises, Rent and other changes as a result
thereof.
(b) If total rentable square footage of the portion of the
Premises subject to any Give Back Notice is greater than forty thousand 40,000
rentable square feet, Tenant shall pay a termination fee (the "Termination Fee")
equal to the applicable Termination Fee Rate set forth in Section 28.16(c) below
multiplied by the product of (x) the total number of months (whole and partial)
remaining in the first one hundred twenty (120) months of the Lease Term as of
the Termination Date multiplied by (y) the total rentable area of the Premises
subject to the Give Back Notice. Tenant shall pay the Termination Fee to
Landlord prior to the Termination Date for the portion of the Premises subject
to the Give Back Notice. Notwithstanding anything to the contrary contained in
this Lease there shall be no Termination Fee for any Give Back Notice applicable
to (i) less than forty thousand 40,000 rentable square feet at any time, (ii) up
to fifty percent (50%) of the remaining Premises at any time after the eighty
forth (84th) month of the Term, or (iii) all of the Premises at any time after
the ninety sixth (96th) month of the Term.
(c) The Termination Fee Rate used to determine the Termination
Fee is as follows:
<TABLE>
<CAPTION>
Area of Premises Subject to Give Back Notice Termination Fee Rate
<S> <C>
40,001-80,000 rentable square feet $.10 per rentable square foot
</TABLE>
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<TABLE>
<S> <C>
80,001-160,000 rentable square feet $.20 per rentable square foot
161,001 rentable square feet and over $.30 per rentable square foot
</TABLE>
(d) None of the provisions of this Section 28.16 that relate to
(i) the maximum or minimum square footage of space subject to any Give Back
Notice, (ii) whether any space subject to a Give Back Notice is a whole floor or
separately demised space, (iii) Tenant's percentage ownership in other space to
be occupied by Tenant, (iv) the period within which Tenant is entitled to
deliver a Give Back Notice if Tenant has previously exercised any Expansion
Option and the period within which an Expansion Option can be exercised if
Tenant has delivered a Give Back Notice, (v) the obligation of Tenant to pay for
demising the space subject to a Give Back Notice or constructing any corridors
in connection with the Give Back of such space, or (vi) the payment of any
Termination Fee, shall not apply to any space in the Parking Garage or any
storage space. Nor shall the Give Back of any space in the Parking Garage or any
storage space be included in any calculation of square footage under this
Section 28.16. In addition to the foregoing and notwithstanding any other
provision of this Lease, at any time after the thirty sixth (36th) month of the
Lease Term, Tenant may terminate this Lease as to all or any portion of the
space occupied by Tenant in the Parking Garage upon not less than ninety (90)
days written notice to Landlord, which notice may be given at any time after the
thirty third (33rd) month of the Lease Term, and no termination fee shall be
payable in connection with such termination.
28.17 Property Management. So long as Tenant occupies at least
seventy-five percent (75%) of the Building, Tenant shall have the right to
reasonably approve any changes in the entity providing property management for
the Premises.
28.18 Expansion Rights. Tenant shall have the option (the
"Expansion Option") to expand into all space (the "Expansion Premises") that
becomes available in the Building, subject to the rights of existing tenants as
of the date of this Lease and the rights of any future tenants pursuant to the
leases executed by such tenants at the time they occupy space in the Building,
(excluding any space in the Building which was "Given Back" to Landlord pursuant
to Tenant's exercise of its rights under Section 28.16, above), during the first
one hundred twenty (120) months of the Lease Term. If Landlord learns of the
unconditional availability of Expansion Premises, Landlord shall deliver to
Tenant written notice of such availability as soon as possible, but no less than
three (3) months, nor more than six (6) months, prior to the date on which
Landlord anticipates such Expansion Premises shall become available, if such
Expansion Premises is less than or equal to fifteen thousand (15,000) rentable
square feet, or, not less than six (6) months, nor more than twelve (12) months
prior to the date on which Landlord anticipates such Expansion Premises shall
become available, if such Expansion Premises is greater than fifteen thousand
(15,000) rentable square feet. Notwithstanding the foregoing, if any Expansion
Premises is Early Termination Space, Landlord shall notify Tenant of such
Expansion Premises as soon as possible after Landlord becomes aware that such
Early Termination Space may be available, but in no event earlier than ninety
(90) days and no less than thirty (30) days prior to the date such Early
Termination Space becoming unconditionally available for lease; provided that in
the case of Early Termination Space that is being voluntarily returned to
Landlord, Landlord shall be obligated to give such notice when Landlord
reasonably determines that such
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space will become available but in no event less that thirty (30) days prior to
the date on which such space will become available. The notice from Landlord
shall designate the available Expansion Premises, the rentable area thereof, and
the projected date on which the Expansion Premises will be delivered to Tenant
by Landlord (the "Expansion Premises Commencement Date") but otherwise the terms
and conditions for the Expansion Premises, including, without limitation, the
Base Rent and Additional Charges, and parking allocation shall be the same as
for the Initial Premises. Tenant shall have ten (10) business days from the date
of receipt of such notice in which to deliver written notice to Landlord of its
election to exercise the Expansion Option with respect to all of such Expansion
Premises. During such ten (10) business day period, Landlord shall provide
Tenant with a reasonable opportunity to walk through the proposed space to
review its suitability for Tenant. Any such notice by Tenant shall be
irrevocable. In no event shall Tenant be entitled to take less than all of such
Expansion Premises. If Tenant elects to exercise the Expansion Option, the
Expansion Premises shall be delivered in "as-is" condition, subject to the
obligations of the Landlord under Section 6. The Expansion Premises Commencement
Date shall be the date that Landlord tenders possession of the Expansion
Premises to Tenant. Tenant shall have sixty (60) days (ninety (90) days in the
event of Early Termination Space) following delivery of the Expansion Premises
to Tenant to perform tenant improvements which shall be completed at its sole
cost and expense and during such period no Base Rent or Additional Charges
hereunder shall be due on the Expansion Premises. In the event there shall be
less than thirty-six (36) months remaining in the first one hundred twenty (120)
months of the Lease Term on the Expansion Premises Commencement Date, Tenant
must exercise its Renewal Option pursuant to Section 28.19 as a condition
precedent to the effectiveness of Tenant's exercise of the Expansion Option.
Notwithstanding the foregoing, if an event of default exists under this Lease
and all applicable grace periods have expired at the time Tenant exercises the
Expansion Option or at the applicable Expansion Premises Commencement Date,
Landlord shall have, in addition to all of Landlord's other rights and remedies
under this Lease, the right to cancel unilaterally Tenant's exercise of such
Expansion Option. In addition, if Tenant exercises its rights to Give Back space
pursuant to Section 28.16, (a) Landlord shall not be obligated to notify Tenant
of any Expansion Premises and Tenant shall have no expansion right with respect
to any Expansion Premises until the date twenty-four (24) months after the date
on which Tenant last gave Landlord a Give Back Notice under Section 28.16, and
(b) after the expiration of such twenty-four (24) month period, Landlord shall
be obligated to notify Tenant of any Expansion Premises and Tenant shall be
entitled to exercise its expansion right with respect to such Expansion Premises
only if such Expansion Premises is equal to or greater than the greater of (i)
ten thousand (10,000) rentable square feet more than the space terminated
pursuant to such Give Back notice, or (ii) more than one hundred twenty five
percent (125%) of the rentable square footage of the space terminated pursuant
to such Give Back notice. The rights under this Section 28.18 shall be personal
to PeopleSoft, Inc. and its Permitted Assignees. Upon the exercise of any
Expansion Option the parties shall execute an amendment to this Lease to
evidence the portion of the Premises added by such Expansion Option.
28.19 Renewal Option.
(a) Provided the Tenant exercises the Four Year Space Option
and/or the Five
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Year Space Option, Landlord grants to Tenant the option to extend the Term as to
all or a part of the Premises (provided that each such Renewal Option may not be
exercised for less than fifty thousand (50,000) rentable square feet, all of
which shall be in not more than three reasonably contiguous blocks, and may not
be exercised for more than the entire Premises subject to this Lease as of the
commencement date of the Renewal Term) for two sequential five (5) year periods
(such renewal options are referred to herein individually as the "Renewal
Option" and collectively as the "Renewal Options"). The first Renewal Option
shall run from the expiration of the first one hundred and twenty (120) months
of the Lease Term, for one period of five (5) years and the second Renewal
Option shall run from the expiration of the first Renewal Option for a period of
five (5) years (individually and collectively the "Renewal Term"). Each Renewal
Option shall be exercised, if at all, by notice (the "Renewal Notice") to
Landlord at any time prior to the date nine (9) months (twelve (12) months if
Tenant then occupies more than 100,000 rentable square feet in the Building)
prior to the Expiration Date of the then applicable Term, which notice shall be
irrevocable by Tenant. Notwithstanding the foregoing, if an event of default
exists under this Lease and all applicable grace periods have expired at the
time Tenant exercises the Renewal Option or at the commencement of the Renewal
Term, Landlord shall have, in addition to all of Landlord's other rights and
remedies under this Lease, the right to terminate the applicable Renewal Option
and to cancel unilaterally Tenant's exercise of such Renewal Option, in which
event the Expiration Date of this Lease shall be and remain the then scheduled
Expiration Date, and Tenant shall have no further rights under this Lease to
renew or extend the Term. The provisions of this Section 28.19 shall be personal
to PeopleSoft, Inc. and its Permitted Assignees.
(b) Each Renewal Term shall be upon and subject to all of the
terms, covenants and conditions of this Lease; provided, however, that,
effective as of the first day of the applicable Renewal Term, the Base Rent for
the Renewal Term shall be equal to (y) for the first Renewal Term ninety five
percent (95%), and (z) for the second Renewal Term one hundred percent (100%),
of the Prevailing Market Rental for space comparable to the Premises in Class A
buildings comparable to the Building in the Pleasanton-San Ramon area as of the
date of commencement of the applicable Renewal Term. The term "Prevailing Market
Rental" shall mean the base annual rental for such comparable space (recognizing
that there will be differences between office space, garage space and storage
space), taking into account any additional rental and all other monetary
payments and escalations by tenants under leases of such comparable space, and
any tenant improvements, parking and other concessions, or the lack thereof,
granted to tenants under leases of such comparable space and, for the second
Renewal Term, deducting therefrom the economic value of the fact that the
Landlord will not pay any brokerage commission in connection with such renewal.
Such Base Rent shall be reasonably and in good faith determined by Landlord and
notice thereof shall be given to Tenant not later than six (6) months prior to
the commencement of the applicable Renewal Term. If Tenant disputes Landlord's
determination of the Prevailing Market Rental for the applicable Renewal Term,
Tenant shall send to Landlord a notice, within twenty (20) business days after
the date of Landlord's notice setting forth the Prevailing Market Rental for the
applicable Renewal Term, which notice shall state that Tenant either (x) agrees
with Landlord's determination of Prevailing Market Rental for the applicable
Renewal Term or (y) disagrees with Landlord's determination of Prevailing Market
Rental for the applicable Renewal Term and elects to resolve the
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disagreement as provided below in Section 28.19(c). If Tenant does not send to
Landlord a notice as provided in the previous sentence, Landlord's determination
of the Prevailing Market Rental shall apply until the disagreement is resolved
as provided below, Tenant's monthly payments of Base Rent shall be in an amount
not less than the Base Rent payable for the twelve (12) month period immediately
preceding the commencement of the applicable Renewal Term. Within ten (10)
business days following the resolution of such dispute by the parties or the
decision of the brokers, as applicable, Tenant shall pay to Landlord or Landlord
shall refund to Tenant, as the case may be, the amount of any deficiency or
overpayment in the Base Rent theretofore paid. Tenant shall in any event pay all
applicable additional charges with respect to the Premises, in the manner and at
the times provided in this Lease, effective upon the commencement of the Renewal
Term, and notwithstanding any dispute regarding the Base Rent for the Renewal
Term.
(c) Any disagreement regarding the Prevailing Market Rental as
defined in this Section shall be resolved as follows:
(i) Within the twenty (20) day period after Tenant's
response to Landlord's notice to Tenant of the Prevailing Market Rental,
Landlord and Tenant shall meet no less than two (2) times, at a mutually
agreeable time and place, to attempt to resolve any such disagreement using
their reasonable and good faith efforts.
(ii) If, within the twenty (20) day consultation period,
Landlord and Tenant cannot reach an agreement as to the Prevailing Market
Rental, they shall each select one broker to determine the Prevailing Market
Rental and the two brokers so selected shall select a third broker (the "Neutral
Broker"). Each of the first two brokers shall arrive at independent
determinations of the Prevailing Market Rental and submit their conclusions in
writing to the Neutral Broker within thirty (30) days after the expiration of
the twenty (20) day consultation period.
(iii) If only one determination is submitted within the
requisite time period, it shall be deemed to be the Prevailing Market Rental. If
both determinations are submitted within such time period the Neutral Broker
shall determine in writing which determination of the Prevailing Market Rate is
correct or closest to being correct, and such determination shall be the
Prevailing Market Rate. The determination of the Neutral Broker shall be
conclusive and binding on the parties.
All brokers specified pursuant to this Section shall be real estate brokers
licensed and in good standing with the State of California with not less than
ten (10) years experience in commercial property leasing in the Pleasanton-San
Ramon area. The party that selected the broker whose determination of the
Prevailing Market Rental is not selected pursuant to the procedures of this
Section shall pay the cost of all brokers, including the Neutral Broker,
selected pursuant to this Section and any other costs reasonably incurred by
such brokers in resolving the disagreement pursuant to this Section. Upon the
exercise of any Renewal Option and the establishment of the Base Rent therefore,
the parties shall execute an amendment to the Lease to evidence such facts.
28.20 Relocation Right.
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<PAGE> 45
In the event that Tenant occupies less than forty percent (40%)
of the rentable square feet on any floor (other than the first or second floors)
of any of the individual towers of the Building (or less than 10,000 square feet
on the first or second floors of the Building) and Landlord desires to relocate
all of that portion of the Premises on such floor to accommodate the leasing of
such floor to a tenant taking the entire floor (or twenty five percent (25%) of
the floor in the case of the first or second floors of the Building), Landlord
may relocate that portion of the Premises to another portion of the Building on
not less than sixty (60) days notice (the "Relocation Notice"), provided that
each of the following conditions are met: (i) the rentable and usable area of
the alternative space offered for relocation in the Relocation Notice shall be
of equivalent size to the existing Premises, subject to a variation of up to ten
percent (10%) (the Base Rent and Additional Charges for the alternative space
shall not be any greater than the original space, if the alternative space, is
larger and shall be appropriately reduced if the alternative space is smaller
than the original space), and (ii) Landlord shall pay all reasonable
out-of-pocket costs of Tenant incurred in such relocation, including without
limitation, the cost of tenant improvements necessary to configure the
alternative space in substantially the same configuration and with substantially
the same level of tenant improvements as the original space, all costs of moving
expenses, wiring and cabling, replacement stationary, if applicable, and
installation of computer and telephone equipment. The Relocation Notice shall
designate the space to which Tenant is to be relocated and the timing of the
relocation. Upon receiving the Relocation Notice, Tenant shall have the option
of notifying Landlord within ten (10) days of the receipt of the Relocation
Notice that Tenant elects to cancel this Lease as to the portion of the Premises
that Landlord proposes to relocate in which case this Lease shall terminate as
to such portion of the Premises as of the proposed relocation date specified in
the Relocation Notice, which shall not be less than sixty (60) days from the
date of such notice; provided, however, that if Landlord, within ten (10) days
after receiving written notice of such election to terminate from Tenant, elects
to rescind its Relocation Notice by so notifying Tenant in writing, Tenant's
election to terminate shall be deemed automatically rescinded and of no force or
effect; provided that Landlord shall have no further right to relocate the
particular space in question. In the event of any such relocation, Landlord and
Tenant shall execute an amendment to this Lease to evidence such relocated
space. Landlord shall build all tenant improvements in the alternative space and
shall give Tenant not less than ten (10) days notice of when such alternative
space will be ready for occupancy.
28.21 Arbitration.
(a) Arbitration Panel. In the event that any provision of this
Lease calls for arbitration of any dispute or matter the provisions of this
Section 28.21 shall apply to such arbitration, however, this Section 28.21 shall
only apply to those Sections that specifically so provide. Within ninety (90)
days after delivery of written notice ("Notice of Dispute") of the existence and
nature of any dispute given by any party to the other party, and unless
otherwise provided herein in any specific instance, Landlord and Tenant shall
each: (i) appoint one (1) lawyer actively engaged in the licensed and full-time
practice of law, specializing in real estate, in the County of Alameda and/or
San Francisco for a continuous period immediately preceding the date of delivery
("Dispute Date") of the Notice of Dispute of not less than ten (10) years, but
who has at no time ever represented or acted on behalf of Landlord or Tenant,
and (ii) deliver
45
<PAGE> 46
written notice of the identity of such lawyer and a copy of his or her written
acceptance of such appointment and acknowledgment of and agreement to be bound
by the time constraints and other provisions of this Section ("Acceptance") to
the other parties hereto. The party who selects the lawyer may not consult with
such lawyer, directly or indirectly, to determine the lawyer's position on the
issue which is the subject of the dispute. In the event that any party fails to
so act, such arbitrator shall be appointed pursuant to the same procedure that
is followed when agreement cannot be reached as to the third arbitrator. Within
ten (10) business days after such appointment and notice, such lawyers shall
appoint a third lawyer (together with the first two (2) lawyers, "Arbitration
Panel") of the same qualifications and background and shall deliver written
notice of the identity of such lawyer and copy of his or her written Acceptance
of such appointment to each of the parties. In the event that agreement cannot
be reached on the appointment of a third lawyer within such period, such
appointment and notification shall be made as quickly as possible by any court
of competent jurisdiction, by any licensing authority, agency or organization
having jurisdiction over such lawyers, by any professional association of
lawyers in existence for not less than ten (10) years at the time of such
dispute or disagreement and the geographical membership boundaries of which
extend to the County of Alameda and/or San Francisco or by any arbitration
association or organization in existence for not less than ten (10) years at the
time of such dispute or disagreement and the geographical boundaries of which
extend to the County of Alameda and/or San Francisco, as determined by the party
giving such Notice of Dispute and simultaneously confirmed in writing delivered
by such party to the other party. Any such court, authority, agency, association
or organization shall be entitled either to directly select such third lawyer or
to designate in writing, delivered to each of the parties, an individual who
shall do so. In the event of any subsequent vacancies or inabilities to perform
among the Arbitration Panel, the lawyer or lawyers involved shall be replaced in
accordance with the provisions of this Section 28.21 as if such replacement was
an initial appointment to be made under this Section 28.21 within the time
constraints set forth in the Section 28.21, measured from the date of notice of
such vacancy or inability, to the person or persons required to make such
appointment, with all the attendant consequences of failure to act timely if
such appointed person is a party hereto.
(b) Duty. Consistent with the provisions of this Section 28.21,
the members of the Arbitration Panel shall utilize their utmost skill and shall
apply themselves diligently so as to hear and decide, by majority vote, the
outcome and resolution of any dispute or disagreement submitted to the
Arbitration Panel as promptly as possible, but in any event on or before the
expiration of thirty (30) days after the appointment of the members of the
Arbitration Panel. None of the members of the Arbitration Panel shall have any
liability whatsoever for any acts or omissions performed or omitted in good
faith pursuant to the provisions of this Section 28.21.
(c) Authority. The Arbitration Panel shall (i) enforce and
interpret the rights and obligations set forth in the Lease to the extent not
prohibited by law, (ii) fix and establish any and all rules as it shall consider
appropriate in its sole and absolute discretion to govern the proceedings before
it, including any and all rules of discovery, procedure and/or evidence, and
(iii) make and issue any and all orders, final or otherwise, and any and all
awards, as a court of competent jurisdiction sitting at law or in equity could
make and issue, and as it shall consider appropriate in its sole and absolute
discretion, including the awarding of monetary damages (but
46
<PAGE> 47
shall not award consequential damages to either party and shall not award
punitive damages except in situations involving fraud), the awarding of
reasonable attorneys' fees and costs to the prevailing party as determined by
the Arbitration Panel and the issuance of injunctive relief.
(d) Appeal. The decision of the Arbitration Panel shall be final
and binding, may be confirmed and entered by any court of competent jurisdiction
at the request of any party and may not be appealed to any court of competent
jurisdiction or otherwise except upon a claim of fraud on the part of the
Arbitration Panel, or on the basis of a mistake as to the applicable law. The
Arbitration Panel shall retain jurisdiction over any dispute until its award has
been implemented, and judgment on any such award may be entered in any court
having appropriate jurisdiction.
(e) Compensation. Each member of the Arbitration Panel (i) shall
be compensated for any and all services rendered under this Section 28.21 at
such parties normal
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<PAGE> 48
hourly rate, plus reimbursement for any and all expenses incurred in connection
with the rendering of such services, payable in full promptly upon conclusion of
the proceedings before the Arbitration Panel. Such compensation and
reimbursement shall be borne by the non-prevailing party or by both parties as
determined by the Arbitration Panel in its sole and absolute discretion.
28.22 Interpretation. The provisions of this Lease shall be
construed in accordance with the fair meaning of the language used and shall not
be strictly construed against either party, even if such party drafted the
provision in question. When required by the context of this Lease, the singular
includes the plural. Wherever the term "including" is used in this Lease, it
shall be interpreted as meaning "including, but not limited to" the matter or
matters thereafter enumerated. The captions contained in this Lease are for
purposes of convenience only and are not to be used to interpret or construe
this Lease. This Lease may be signed in counterparts and all such counterparts
taken together shall constitute an original hereof.
[Signatures follow on next page]
48
<PAGE> 49
IN WITNESS WHEREOF, Landlord and Tenant have each caused their
duly authorized representatives to execute this Lease on their behalf as of the
date first above written.
LANDLORD:
HACIENDA PLAZA ASSOCIATES, LLC,
a California limited liability company
WWA Investors, LLC
a California limited liability company
Manager
By:
William Wilson
Manager
TENANT:
PEOPLESOFT, INC.,
a Delaware corporation
By:
--------------------------
Albert J. Castino
Vice President
49
<PAGE> 50
EXHIBIT A
PREMISES
<PAGE> 51
EXHIBIT B
DEFINITIONS
<TABLE>
<CAPTION>
DEFINED TERM LOCATION
- ------------ --------
<S> <C>
As Is Section 6
as-is Section 28.18
Acceptance Section 28.21(a)
Additional Charges Section 4.2
Alterations Section 9.1(a)
Arbitration Panel Section 28.21(a)
Assignment Section 17.1
Assignment or Sublease Notice Section 17.2(a)
Building Systems Section 8.3
Casualty Section 14.1
Claims Section 20.2
Common Areas Section 2.1
Comparison Year Section 5.1(d)
Dispute Date Section 28.21(a)
Early Termination Space Section 4.1
Encumbrance Section 12.1
Excess Expenses Section 5.1(g)
Excess Taxes Section 5.1(f)
Expansion Option Section 28.18
Expansion Premises Section 28.18
Expansion Premises Commencement Date Section 28.18
Expenses Section 5.1(b)
Expiration Date Section 3.2(b)
GAAP Section 5.1(b)
Give Back Section 28.16
Give Back Notice Section 28.16(a)
Given Back Section 28.18
Five Year Space Section 3.2(a)
Five Year Space Option Section 3.2(c)
Five Year Space Option Notice Section 3.2(c)
Four Year Space Section 3.2(a)
Four Year Space Option Section 3.2(b)
Four Year Space Option Notice Section 3.2(b)
Hazardous Materials Section 8.4
Initial Premises Section 2.1
Interest Rate Section 20.4
Landlord's Statement Section 5.3
</TABLE>
51
<PAGE> 52
<TABLE>
<S> <C>
Laws Section 8.3
Mandatory Capital Improvements Section 10.1
Mortgagee Section 12.2
Neutral Broker Section 28.19(c)(ii)
Notice of Dispute Section 28.21(a)
Parking Areas Section 28.12(a)
Parking Facility Section 28.12(a)
Parking Garage Section 28.12(a)
PeopleSoft Plaza Section 28.13
Permitted Assignee Section 17.1
Premises Section 2.1
Prevailing Market Rental Section 28.19(b)
Property Manager Section 15.2
Proposed Assignment or Sublease Space Section 17.2(a)
Real Estate Taxes Section 5.1(a)
Real Property Section 2.1
Related Entities Section 20.2
Relocation Notice Section 28.20
Renewal Notice Section 28.19(a)
Renewal Option Section 28.19(a)
Renewal Options Section 28.19(a)
Renewal Term Section 28.19(a)
Rent Section 4.4
Rules and Regulations Section 25.1
Service Failure Section 18.3
Tenant's Share Section 5.1(e)
Term Section 3.1
Termination Date Section 28.16
Termination Fee Section 28.16(b)
</TABLE>
52
<PAGE> 53
EXHIBIT E
OFFICE LEASE
Rules and Regulations
1. The sidewalks, exits, entrances, elevators, malls, and stairways of the
Building shall not be obstructed by Tenant or any of Tenant's agents or
used by it or any of them for any purpose other than for ingress to or
egress from the Premises. Tenant and its employees and invitees shall
not go upon the roof of the Building, except in areas that Landlord may
designate from time to time or accept as permitted by the Lease.
2. No awning canopy or other projection of any kind over or around the
windows or entrances of the Premises shall be installed by Tenant, and
only such window coverings as are Building standard shall be used in the
Premises
3. Except as provided in the Lease, the Premises shall not be used for
lodging or sleeping, and no cooking shall be done or permitted by Tenant
on the Premises, except that the preparation of food in microwave ovens
and coffee, tea, hot chocolate and similar items for Tenant and its
employees shall be permitted.
4. Landlord will furnish Tenant with two (2) keys per floor of the
Premises, free of charge. Tenant shall not have any new keys made.
Landlord may make a reasonable charge equal to Landlord's cost for any
additional keys. No additional locking devices shall be installed
without the prior written consent of Landlord. Landlord may make
reasonable charges for the removal of any additional lock or any bolt
installed on any door of the Premises without the prior consent of
Landlord. Tenant shall in each case furnish Landlord with a key for any
such lock. Tenant, upon the termination of its tenancy, shall deliver to
Landlord all keys to doors in the Building and the Premises.
5. Landlord shall have the right to prescribe the method of reinforcement
or weight distribution (as Landlord shall determine in its sole
discretion) for all equipment, materials, supplies, furniture or other
property brought into the Building that will impose a load of more than
seventy (70) pounds per square foot. Landlord will not be responsible
for loss of or damage to any such property from any cause (except to the
extent resulting from the gross negligence or willful misconduct of
Landlord or its agents, employees or contractors), and all damage done
to the Building by moving or maintaining Tenant's property shall be
repaired at the reasonable expense of Tenant.
6. Tenant shall not use or suffer to be used or kept in the Premises or the
Building any kerosene, gasoline or flammable or combustible fluids or
materials except as customarily used in offices or use any method of
heating or air conditioning other than that supplied by Landlord.
7. Tenant shall use reasonable efforts to ensure that all doors and windows
of the Premises
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<PAGE> 54
are closed and securely locked and all water faucets, water apparatus
and utilities are shut off at such time as Tenant's employees leave the
Premises.
8. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be
deposited therein, and any damage resulting to such facilities from
misuse by Tenant or its employees or invitees shall be paid for by
Tenant.
9. Except as permitted in Tenant's Lease, Tenant shall not sell, or permit
the sale from the Premises of, or use or permit the use of any sidewalk
or mall area adjacent to the Premises for the sale of, newspapers,
magazines, periodicals, theater tickets or any other goods, merchandise
or service, nor shall Tenant carry on, or permit or allow any employee
or other person to carry on, business in or from the Premises for the
service or accommodation of occupants of any other portion of the
Building, nor shall the Premises be used for manufacturing of any kind,
or for any business or activity other than that specifically provided
for in Tenant's Lease.
10. Tenant and Tenant's agents shall not use in any space, or in the common
areas of the Building, any handtrucks except those equipped with rubber
tires and side guards or such other material-handling equipment as
Landlord may approve, and Tenant shall use reasonable efforts to cause
its invitees to comply with the provisions of this sentence. No other
vehicles of any kind shall be brought by Tenant or its employees or
invitees into the Building or kept in or about the Premises.
11. Tenant shall store all its trash and garbage within the Premises until
removal. All trash placed in any portion of the Real Property for
pick-up shall be placed in locations and containers approved by
Landlord.
12. All loading, unloading and delivery of merchandise, supplies, materials,
garbage and refuse shall be made only through such entryways and
elevators and at such times as Landlord shall reasonably designate.
While loading and unloading, Tenant and its employees and invitees shall
not obstruct or permit the obstruction of the entryways to the Building
or any tenant's space therein.
13. Canvassing, soliciting, peddling or distribution of handbills or any
other written material in the Building is prohibited, and Tenant shall
cooperate to prevent such acts.
14. Landlord may direct the use of all pest extermination and scavenger
contractors to eliminate pests caused or introduced into the Premises by
Tenant or any of Tenant's agents at such intervals as Landlord may
reasonably require, at Tenant's sole cost and expense.
15. Tenant shall immediately, upon request from Landlord (which request need
not be in writing), reduce its lighting in the Premises for temporary
periods designated by Landlord (but not more than one-third (1/3) of the
total lighting in the Premises for more than two (2) hours in any
twenty-four (24) hour period), when required in Landlord's
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<PAGE> 55
judgment to prevent overloads of the mechanical or electrical systems of
the Building.
16. The requirements of Tenant will be attended to only upon application in
writing or by telephone or in person by Tenant's designated
representative at the office of the Building. Employees of Landlord
shall not perform any work or do anything outside of their regular
duties unless under special instructions from Landlord.
17. Except as otherwise provided in the Lease, Landlord reserves the right
to select the name of the Building and the buildings therein and to make
such change or changes of name as it may deem appropriate from time to
time, and Tenant shall not refer to the Building and the buildings
therein by any name other than (i) the name as selected by Landlord (as
it may be changed from time to time), or (ii) the postal address,
approved by the United States Port Office. Tenant shall not use the name
of the Building and the buildings therein in any respect other than as
an address of its operation in the Building without the prior written
consent of the Landlord.
18. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of these Rules and Regulations
in favor of any other tenant or tenants, nor prevent Landlord from
thereafter enforcing any Rule or Regulation against any or all of the
tenants of the Building.
19. These Rules and Regulations shall not be construed in any way to modify,
alter or amend, in whole or part, the terms, covenants, agreements and
conditions of any lease of premises in the Building.
20. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building, and for the preservation
of good order therein.
21. Tenant shall be entitled to its proportionate share (based on rentable
area) of listings in the Building lobby directory. All signage,
lettering or other writing or decoration on or visible from the exterior
of the Premises shall require Landlord's prior written approval, which
shall not be unreasonably withheld or delayed.
55
<PAGE> 56
BASIC LEASE INFORMATION
Building:
PeopleSoft Plaza
4301, 4305 and 4309 Hacienda Drive
Pleasanton, California 94588
Landlord's Address:
Hacienda Plaza Associates, LLC
4301 Hacienda Drive
Pleasanton, California 94588
Attn: Property Manager
With a copy to:
William Wilson & Associates, Inc.
2929 Campus Drive, Suite 450
San Mateo, California 94403
Attention: R. Matthew Moran
Telephone: (650) 358-5314
Fax No.: (650) 345-7619
Tenant's Address:
4305 Hacienda Drive
Pleasanton, California 94588
Attn: Director of Real Estate
Telephone: 925-694-3000
Facsimile: 925-694-7050
With a copy to:
4305 Hacienda Drive
Pleasanton, California 94588
Attn: General Counsel
Telephone: 925-694-7180
Facsimile: 925-694-7184
56
<PAGE> 57
Commencement Date: Initial Premises: Date hereof
Committed Expansion Premises:
Suite C-400: November 16, 1998
Suite A-550: September 1, 1999
Termination Date: See Section 3.1
Rentable Area of Initial Premises: 192,859 rentable square of
office space; 5,169 of usable and rentable square feet of garage computer rooms;
3,003 of usable and rentable square feet of garage storage space. (2.1)
Rentable Area of Committed Expansion Premises:
Suite C-400: 13,037 rentable square feet
Suite A-550: 4,884 rentable square feet
Rentable Area of Building: 279,931 rentable square feet
Premises: See Exhibit A
Base Rent:
<TABLE>
<CAPTION>
Months Office Space Garage computer Garage Storage
room
<S> <C> <C> <C>
1-60 $2.25 per $2.00 per square $1.00 per square
rentable square foot foot
foot
61-84 $2.40 per $2.00 per square $1.00 per square
rentable square foot foot
foot
85-108 $2.50 per $2.00 per square $1.00 per square
rentable square foot foot
foot
109-120 $2.60 per $2.00 per square $1.00 per square
rentable square foot foot
foot
</TABLE>
(4.1)
57
<PAGE> 58
Tenant's Tax Share: 68.90% (192,859 divided by 279,931 (total
Rentable Area of Building)) (5.1)
Tenant's Expense Share: 68.90% (192,859 divided by 279,931
(total Rentable Area of Building)) (5.1)
Base Year: Calendar year 1999
Use: See Section 8.1
Tenant Improvement Contribution for Committed Expansion Premises
(payable on applicable Committed Expansion Premises Commencement Date):
Suite C-400: $325,000
Suite A-550: $120,000
<TABLE>
<S> <C>
1. Basic Lease Information.
1
1.1 Basic Lease Information.
1
2. Premises.
1
2.1 Premises Defined.
1
3. Term.
2
3.1 Term Commencement.
2
3.2 Expiration Date.
2
4. Base Rent; Additional Charges.
4
4.1 Annual Rental.
4
4.2 Additional Charges.
4
4.3 Late Charges.
4
4.4 Payment of Rent.
5
5. Expenses and Taxes.
5
5.2 Real Estate Taxes and Expense Gross-Up.
8
</TABLE>
58
<PAGE> 59
<TABLE>
<S> <C>
5.3 Payment of Tenant's Share of Additional Charges.
8
5.4 Objections to Statements.
9
6. Acceptance of Premises.
10
7. Common Areas.
10
7.1 Right to Use Common Areas.
10
7.2 Alteration by Landlord.
10
8. Use.
11
8.1 Permitted Use.
11
8.2 No Nuisance.
11
8.3 Compliance with Laws.
11
8.4 Hazardous Materials.
11
8.5 Building Systems
12
9. Alterations and Tenant's Property.
13
9.1 Alterations.
13
9.3 Removal of Property.
15
10. REPAIRS AND OTHER WORK.
16
10.1 Tenant's Obligations.
16
10.2 Landlord's Obligations.
16
10.3 Conditions Applicable to Repairs and Other Work.
17
11. Liens.
17
12. Subordination.
17
12.1 Subordination.
</TABLE>
59
<PAGE> 60
<TABLE>
<S> <C>
18
12.2 Notice to Mortgagee.
18
13. Surrender.
18
14. Destruction.
19
14.1 Repair.
19
14.2 Tenant's Right to Terminate.
19
14.3 Landlord's Right to Terminate.
20
14.4 Extent of Repair Obligations.
20
14.5 Waiver of Subrogation.
20
14.6 Non-Application of Certain Statutes.
20
15. Insurance.
21
15.1 Insurance on Tenant's Property.
21
15.2 Tenant's Liability Insurance.
21
15.3 Form of Policies.
22
15.4 Landlord's Insurance.
22
15.5 Compliance with Insurance Requirements.
23
15.6 Updating Coverage.
23
15.7 Certificates of Insurance
23
16. Eminent Domain.
23
16.1 Effect of Taking.
23
16.2 Award.
24
16.3 Adjustment of Rent.
24
</TABLE>
60
<PAGE> 61
<TABLE>
<S> <C>
17. Assignment.
24
17.1 Consent Required.
24
17.2 Recapture Right.
25
17.3 Notice.
26
17.4 No Release.
26
17.5 Cost of Processing Request.
26
17.6 Assumption of Obligations.
26
17.7 Profit Split.
26
17.8 Assignment of Sublease Rents.
27
18. Utilities And Services.
27
18.1 Landlord to Furnish.
27
18.2 Excess Usage.
27
18.3 Interruption of Service.
28
18.4 Waiver.
29
18.5 Security Systems and Programs.
29
19. Default.
29
19.1 Events of Default.
29
19.2 Remedies.
30
19.3 Remedies Cumulative.
31
20. Fees And Expenses; Indemnity; Payment.
31
20.1 Landlord's Right to Remedy Defaults.
31
20.2 Tenant's Indemnity.
</TABLE>
61
<PAGE> 62
<TABLE>
<S> <C>
32
20.3 Landlord's Indemnification.
32
20.4 Interest on Past Due Obligations.
32
21. Access To Premises.
33
21.1 Landlord's Right to Enter.
33
22. Notices.
33
23. No Waiver.
34
24. Tenant's Certificates.
34
25. Rules And Regulations.
34
26. Tenant's Taxes.
34
27. Corporate Authority.
35
28. Miscellaneous.
35
28.1 Successors and Assigns.
35
28.2 Severability.
35
28.3 Construction.
35
28.4 Integration.
35
28.5 Quiet Enjoyment.
35
28.6 Holding Over.
35
28.7 Time of Essence.
36
28.8 Broker's Commissions.
36
28.9 Recovery Against Landlord.
36
28.10 Amendments.
37
</TABLE>
62
<PAGE> 63
<TABLE>
<S> <C>
28.11 Attorneys' Fees.
37
28.12 Parking.
37
28.13 Signage.
38
28.14 Use of Roof.
38
28.15 Force Majeure.
39
28.16 Cancellation Rights.
39
28.17 Property Management.
41
28.18 Expansion Rights.
41
28.19 Renewal Option.
43
28.20 Relocation Right.
45
28.21 Arbitration.
45
28.22 Interpretation.
48
EXHIBIT A PREMISES 1
EXHIBIT B DEFINITIONS 1
EXHIBIT E OFFICE LEASE 1
EXHIBIT D JANITORIAL SPECIFICATIONS 1
EXHIBIT E RULES AND REGULATIONS 1
EXHIBIT F SIGNAGE 1
EXHIBIT G LOCATION OF CHILLER UNIT 1
</TABLE>
63
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 30, 1998
BY AND AMONG
PEOPLESOFT, INC.,
PEOPLESOFT RETAIL CORPORATION
AND
INTREPID SYSTEMS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE MERGER
1.1. THE MERGER............................................................................. 1
1.2. EFFECTIVE TIME......................................................................... 2
1.3. EFFECT OF THE MERGER................................................................... 3
1.4. EFFECT ON COMPANY CAPITAL STOCK; TREATMENT OF STOCK OPTIONS............................ 3
1.5. ACCOUNTING TREATMENT................................................................... 4
1.6. DISSENTING SHARES...................................................................... 4
1.7. SURRENDER OF CERTIFICATES.............................................................. 5
1.8. NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK................................... 6
1.9. LOST, STOLEN OR DESTROYED CERTIFICATES................................................. 6
1.10. TAX CONSEQUENCES....................................................................... 6
1.11. TAKING OF NECESSARY ACTION; FURTHER ACTION............................................. 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES RELATING TO
THE COMPANY AND CERTAIN OTHER MATTERS
2.1. ORGANIZATION OF THE COMPANY............................................................ 7
2.2. COMPANY CAPITAL STRUCTURE.............................................................. 7
2.3. SUBSIDIARIES........................................................................... 8
2.4. AUTHORITY.............................................................................. 8
2.5. COMPANY FINANCIAL STATEMENTS........................................................... 9
2.6. NO UNDISCLOSED LIABILITIES............................................................. 9
2.7. NO CHANGES............................................................................. 9
2.8. TAX AND OTHER RETURNS AND REPORTS...................................................... 11
2.9. RESTRICTIONS ON BUSINESS ACTIVITIES.................................................... 15
2.10. TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES................................. 15
2.11. INTELLECTUAL PROPERTY.................................................................. 16
2.12. AGREEMENTS, SCHEDULED CONTRACTS AND COMMITMENTS........................................ 18
2.13. INTERESTED PARTY TRANSACTIONS.......................................................... 20
2.14. COMPLIANCE WITH LAWS................................................................... 20
2.15. LITIGATION............................................................................. 20
2.16. INSURANCE.............................................................................. 21
2.17. MINUTE BOOKS........................................................................... 21
2.18. ENVIRONMENTAL MATTERS.................................................................. 21
2.19. BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES....................................... 22
2.20. EMPLOYEE MATTERS AND BENEFIT PLANS..................................................... 22
2.21. NON-COMPETITION, NON-SOLICITATION AND NON-HIRE AGREEMENTS.............................. 26
2.22. REPRESENTATIONS COMPLETE............................................................... 26
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PEOPLESOFT, INC.
3.1. ORGANIZATION, STANDING AND POWER....................................................... 26
3.2. AUTHORITY.............................................................................. 27
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1. CONDUCT OF BUSINESS OF THE COMPANY..................................................... 27
4.2. NO SOLICITATION........................................................................ 30
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. EMPLOYEE MATTERS....................................................................... 30
5.2. ACCESS TO INFORMATION.................................................................. 31
5.3. EXPENSES............................................................................... 32
5.4. PUBLIC DISCLOSURE...................................................................... 32
5.5. CONSENTS............................................................................... 32
5.6. REASONABLE EFFORTS..................................................................... 32
5.7. NOTIFICATION OF CERTAIN MATTERS........................................................ 33
5.8. ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES............................................ 33
5.9. INDEMNIFICATION........................................................................ 33
5.10. NOTICE TO HOLDERS OF COMPANY PREFERRED STOCK........................................... 33
5.11. GRANT OF STOCK OPTIONS BY THE COMPANY.................................................. 33
5.12. CONFIDENTIALITY........................................................................ 34
ARTICLE VI
CONDITIONS TO THE MERGER
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER........................... 35
6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY.................................... 35
6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT..................................... 36
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1. INDEMNIFICATION/SURVIVAL OF REPRESENTATIONS AND WARRANTIES............................. 37
7.2. NOTICE AND DETERMINATION OF CLAIMS..................................................... 38
7.3. THIRD PARTY CLAIMS..................................................................... 40
7.4. NO LIMITATIONS ON DAMAGES.............................................................. 40
7.5. EXCLUSIVE REMEDY....................................................................... 40
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1. TERMINATION............................................................................ 41
8.2. EFFECT OF TERMINATION.................................................................. 42
8.3. AMENDMENT.............................................................................. 42
8.4. EXTENSION; WAIVER...................................................................... 42
ARTICLE IX
GENERAL PROVISIONS
9.1. NOTICES................................................................................ 42
9.2. INTERPRETATION......................................................................... 43
9.3. COUNTERPARTS........................................................................... 43
9.4. ENTIRE AGREEMENT; ASSIGNMENT........................................................... 44
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
9.5. SEVERABILITY........................................................................... 44
9.6. OTHER REMEDIES......................................................................... 44
9.7. GOVERNING LAW.......................................................................... 44
9.8. RULES OF CONSTRUCTION.................................................................. 44
9.9. SPECIFIC PERFORMANCE................................................................... 44
</TABLE>
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EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
Exhibit A Form of Legal Opinion of Counsel to Parent and Acquisition
Exhibit B Form of Legal Opinion of Counsel to the Company
Exhibit C Forms of Non-Competition, Non-Solicitation and Non-Hire
Agreement and Amendment No.1 to Non-Competition,
Non-Solicitation and Non-Hire Agreement
Exhibit D By-Laws of Surviving Corporation
Exhibit E Form of Certificate of Merger
Exhibit F Form of Agreement of Merger
</TABLE>
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<PAGE> 6
SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
1.1(g) Officers
1.4(b) Outstanding Options
2.2(a) Shareholder List
2.2(b) Options, Warrants, Rights
2.3 Subsidiaries
2.4 Conflicts/Other Filings and Consents
2.5 Company Financials
2.6 Undisclosed Liabilities
2.7 Certain Transactions
2.8(b) Certain Tax Matters
2.8(c) Tax Elections and Returns
2.9 Restrictions on Business Activities
2.10(a) Leases, Lessors, Lease Dates & Amendments
2.10(b) Liens
2.11(b) Software
2.11(c) Certain Intellectual Property Rights
2.11(f) Intellectual Property Assets
2.12(a) Scheduled Contracts
2.12(b) Contract Breach/Default
2.12(c) Ownership Interest of Intellectual Property Assets
2.12(d) Customer Surveys
2.13 Interested Party Transactions
2.15 Litigation
2.16 Insurance
2.20(b) Employee Benefit Plans and Employees
2.20(d) Employee Plan Compliance
2.20(g) Post-Employment Obligations
2.20(j) Employees with Visas
2.20(k) Collective Bargaining Agreements
2.20(l) Employment at Will
3.2 Parent Consents
4.1 Disclosed Actions
5.11 Company Stock Option Grants
6.2(c) Third Party Consents Required of Parent
6.3(c) Third Party Consents Required of Company
</TABLE>
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<PAGE> 7
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Section Defined
- ------------ ---------------
<S> <C>
"Affiliate" Appendix A
"Aggregate Purchase Price" Appendix A
"Applicable Law" Appendix A
"Agreement" Introduction
"Agreement of Merger" Section 1.2.
"Balance Sheet" Section 2.5
"Business Day" Appendix A
"California Law" Section 1.1
"Certificates" Section 1.7(c)
"Certificate of Merger" Section 1.2
"Closing" Section 1.2
"Closing Date" Section 1.2
"Code" Section 1.4(b)(1)
"Common Per Share Price" Appendix A
"Company" Appendix A
"Company Capital Stock" Appendix A
"Company Common Stock" Appendix A
"Company Preferred Stock" Appendix A
"Company Employee Plan" Section 2.20(a)(iii)
"Company Financials" Section 2.5
"Company Indemnities" Section 7.1(c)
</TABLE>
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<TABLE>
<CAPTION>
Defined Term Section Defined
- ------------ ---------------
<S> <C>
"Company Option" Section 1.4(b)(1)
"Continuing Employee" Section 5.1(b)
"Copyrights" Section 2.11(a)(i)(3)
"Damages" Appendix A
"Delaware Law" Section 1.1
"Development Environments" Section 2.11(m)
"Disclosure Schedules" Section 2
"Dissenting Shares" Section 1.6(a)
"DOL" Section 2.20(c)
"Effective Time" Section 1.2
"Employee" Section 2.20(a)(iv)
"Employee Agreement" Section 2.20(a)(v)
"Environmental Laws" Appendix A
"Environmental Liabilities" Appendix A
"ERISA" Section 2.20(a)(ii)
"Exchange Act" Section 3.4
"Exchange Agent" Section 1.7(a)
"Exchange Ratio" Appendix A
"Expiration Date" Section 7.1(c)
"GAAP" Appendix A
"Governmental Authority" Appendix A
"HSR Act" Appendix A
"Hazardous Substance" Appendix A
"Incentive Plan" Section 5.1(c)
"Intellectual Property Assets" Section 2.11(a)(ii)
</TABLE>
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<TABLE>
<CAPTION>
Defined Term Section Defined
- ------------ ---------------
<S> <C>
"Intellectual Property Rights" Section 2.11(a)(i)
"IRS" Section 2.20(a)(vi)
"ISOs" Section 2.8(c)(xxiv)
"Key Employees" Appendix A
"Knowledge" Appendix A
"Liability" Appendix A
"Lien" Appendix A
"Marks" Section 2.11(a)(i)(1)
"Material Adverse Change" Appendix A
"Materials" Section 2.11(m)
"Merger" Recitals
"Multiemployer Plan" Section 2.20(a)(vii)
"Noncompete Agreements" Section 2.22
"Option Plan" Section 1.4(b)
"Other Management Employees" Appendix A
"Parent" Introduction
"Parent Common Stock" Recitals
"Parent Employee" Section 5.1(b)
"Parent Employee Plans" Section 5.1(b)
"Parent Financial Statements" Section 3.4
"Parent Indemnities" Section 7.1(a)
"Patents" Section 2.11(a)(i)(2)
"Pension Plan" Section 2.20(a)(viii)
"Person" Appendix A
"Primary Purchase Price" Appendix A
</TABLE>
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<TABLE>
<CAPTION>
Defined Term Section Defined
- ------------ ---------------
<S> <C>
"Proceeding" Appendix A
"Return" Section 2.8(a)(ii)
"Returns" Section 2.8(a)(ii)
"Scheduled Contract" Section 2.12(b)
"Section 1103 Certificates" Section 1.2.
"Series A Per Share Price" Appendix A
"Series B Per Share Price" Appendix A
"Series C Per Share Price" Appendix A
"Series A Preferred Stock" Appendix A
"Series B Preferred Stock" Appendix A
"Series C Preferred Stock" Appendix A
"Series A Preferred Stock Price" Appendix A
"Series B Preferred Stock Price" Appendix A
"Series C Preferred Stock Price" Appendix A
"SEC" Section 3.4
"SEC Documents" Section 3.4
"Shareholder Vote" Section 5.14(b)
"Software" Section 2.11(b)
"Subsidiaries" Appendix A
"Surviving Corporation" Section 1.1
"Tax" Section 2.8(a)(i)
"Taxes" Section 2.8(a)(i)
"Technology" Section 2.11(a)(i)(5)
"Third Party Expenses" Section 5.3
"Trade Secrets" Section 2.11(a)(i)(4)
</TABLE>
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<TABLE>
<CAPTION>
Defined Term Section Defined
- ------------ ---------------
<S> <C>
"Welfare Plan" Section 2.20(a)(ix)
</TABLE>
x
<PAGE> 12
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of September 30, 1998, by and among PeopleSoft, Inc., a Delaware
corporation ("Parent"), PeopleSoft Retail Corporation, a Delaware corporation
and wholly-owned subsidiary of Parent ("Acquisition"), and Intrepid Systems,
Inc., a California corporation (the "Company"). All capitalized terms not
otherwise defined herein shall have the meanings ascribed to such terms in
Appendix A hereto, which is incorporated herein by this reference.
RECITALS
A. Acquisition has no assets, has had no operations and has been formed
for the purpose of the transactions contemplated by this Agreement.
B. The parties hereto desire that Acquisition be merged into the
Company, with the result that each of the issued and outstanding shares of
Company Common Stock, the Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock be converted into the right to receive the
Common Per Share Price, the Series A Per Share Price, the Series B Per Share
Price and the Series C Per Share Price, respectively.
C. Concurrently with such conversion of outstanding shares of the
Company Capital Stock, the outstanding shares of Common Stock of Acquisition
shall be converted into shares of Common Stock of the Company such that the
Company shall become a wholly-owned subsidiary of Parent, on the terms and
conditions set forth herein.
D. The Company and Parent desire to make certain representations and
warranties and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing recitals, the
covenants, promises and representations set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1. The Merger. At the Effective Time (as defined in Section 1.2), the
merger of the Company and Acquisition contemplated by this Agreement (the
"Merger"), subject to and upon the terms and conditions of this Agreement and
the applicable provisions of the Delaware General Corporation Law ("Delaware
Law") and the California Corporations Code ("California Law"), shall occur and
consist of the following:
(a) Acquisition shall merge into the Company;
(b) The separate existence of Acquisition shall cease;
<PAGE> 13
(c) The outstanding shares of common stock, $.01 par value per
share ("Acquisition Common Stock"), of Acquisition shall be converted into 1,000
shares of Company Common Stock;
(d) The Company, as the surviving corporation, (the "Surviving
Corporation") shall continue to exist as a wholly-owned subsidiary of Parent,
but shall be renamed "PeopleSoft Retail Corporation";
(e) The Articles of Incorporation of the Company shall be amended
and restated in the manner set forth in the Agreement of Merger filed with the
California Secretary of State, the form of which shall be approved by the
parties hereto, and the Bylaws attached hereto as Exhibit D shall become the
Bylaws of the Company, as the surviving corporation;
(f) The director of Acquisition immediately prior to the Merger
shall become the director of the Surviving Corporation;
(g) The officers of the Surviving Corporation shall be those
persons listed on Schedule 1.1(g), each of whom shall hold the office or offices
listed opposite his or her respective name;
(h) The outstanding shares of Company Common Stock, except for
shares of Company Capital Stock canceled pursuant to Section 1.1(j) hereof,
shall be converted into the right to receive the Common Per Share Price in
accordance with Section 1.4(a)(1);
(i) The outstanding shares of Company Preferred Stock, except for
shares of Company Capital Stock canceled pursuant to Section 1.1(j) hereof,
shall be converted into the right to receive the Series A Per Share Price,
Series B Per Share Price, or Series C Per Share Price, as applicable, in
accordance with Section 1.4(a)(2) and
(j) Each share of Company Capital Stock issued and outstanding
immediately prior to the Merger and owned either (A) directly or indirectly by
the Company as treasury stock, or (B) owned by Parent, will be canceled and
extinguished and no consideration will be delivered in exchange therefor.
1.2. Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than five (5) Business Days,
following satisfaction or waiver of the conditions set forth in Article VI, at
the offices of Gibson, Dunn & Crutcher LLP, San Francisco, California, unless
another place or time is agreed to by Acquisition, Parent and the Company. The
date upon which the Closing actually occurs is herein referred to as the
"Closing Date". On the Closing Date, the parties hereto shall cause the Merger
to be consummated by (i) executing and filing a Certificate of Merger,
substantially in the form of Exhibit E hereto, with the Secretary of State of
the State of Delaware (the "Certificate of Merger"), in accordance with the
relevant provisions of Delaware Law, (ii) executing and filing with the
Secretary of State of the State of California an agreement of merger,
substantially in the form of Exhibit F hereto, (the "Agreement of Merger") and
the certificates required by Section 1103 of California Law (the
2
<PAGE> 14
"Section 1103 Certificates"), in accordance with the relevant provisions of
California Law (the time of acceptance by the Secretary of State of the State of
California of such filing being referred to herein as the "Effective Time"), and
(iii) executing and filing such other documents as shall be necessary or
appropriate to effect the Merger.
1.3. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law and
California Law. Without limiting the generality of the foregoing, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Acquisition shall vest in the Company as the surviving
corporation of the Merger, and all debts, Liabilities and duties of the Company
and Acquisition shall become debts, Liabilities and duties of the Company as the
surviving corporation of the Merger.
1.4. Effect on Company Capital Stock; Treatment of Stock Options.
(a) Effect on Company Capital Stock. Subject to the terms and
conditions of this Agreement, as of the Effective Time, by virtue of the Merger
and without any action on the part of Parent, the Company or the holder of any
shares of Company Capital Stock, the following shall occur:
(1) Conversion of Company Common Stock. Each share of
Company Common Stock, except for shares of Company Common Stock canceled
pursuant to Section 1.1(j) hereof, issued and outstanding immediately prior to
the Effective Time (other than Dissenting Shares (as defined and to the extent
provided in Section 1.6(a)) will be canceled and extinguished and be converted
automatically into the right to receive an amount equal to the Common Per Share
Price, and each holder of Company Common Stock shall be entitled to receive,
upon surrender of the certificates set forth on Schedule 2.2(a) evidencing the
shares of Company Common Stock held by such shareholder, an aggregate amount
equal to the Common Per Share Price multiplied by the number of such shares of
Company Common Stock so held by such shareholder.
(2) Conversion of Company Preferred Stock. Each share of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
except for shares of Company Preferred Stock canceled pursuant to Section 1.1(j)
hereof, issued and outstanding immediately prior to the Effective Time (other
than Dissenting Shares (as defined and to the extent provided in Section 1.6(a))
will be canceled and extinguished and be converted automatically into the right
to receive an amount equal to the Series A Per Share Price, Series B Per Share
Price or Series C Per Share Price, as applicable, and each holder of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall be
entitled to receive, upon surrender of the certificates set forth on Schedule
2.2(a) evidencing the shares of Preferred Stock held by such shareholder, an
aggregate amount equal to the Series A Per Share Price, Series B Per Share Price
or Series C Per Share Price, as applicable, multiplied by the number of such
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as applicable, so held by such shareholder.
3
<PAGE> 15
(b) Treatment of Options. At the Effective Time, subject to
Section 5.11 hereof, all options to purchase shares of the Company's Common
Stock then outstanding under the Intrepid Systems, Inc. 1992 Stock Option Plan,
as amended (the "Option Plan") as set forth on Schedule 1.4(b) shall be assumed
by Parent in accordance with the provisions described below.
(1) At the Effective Time, each outstanding option to
purchase shares of the Company's Common Stock (a "Company Option") under the
Option Plan or otherwise, whether vested or unvested, shall be, as a consequence
of the Merger, assumed by Parent. Each Company Option so assumed under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Option Plan and/or as provided in the respective
option agreements governing such Company Option immediately prior to the
Effective Time, except that (i) such Company Option shall be exercisable for
that number of whole shares of Parent Common Stock equal to the product of the
number of shares of Company Common Stock underlying such Company Option
immediately prior to the Effective Time, and the Exchange Ratio, rounded to the
nearest whole number of shares of Parent Common Stock, and (ii) the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
such assumed Company Option shall be equal to the quotient determined by
dividing the exercise price per share of Company Common Stock at which such
Company Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded to the nearest whole cent; provided, however, that
Parent may make but is not required to make such adjustments to the number of
shares of Parent Common Stock or the exercise price of such assumed Company
Option, as Parent reasonably deems necessary, in order to prevent any such
Company Option that is characterized by the Company as an "incentive stock
option" immediately prior to Closing from failing to so qualify solely by reason
of Sections 424(a)(1) or 424(a)(2) of the Internal Revenue Code of 1986, as
amended (the "Code").
(2) Promptly following the Effective Time, Parent shall
issue to each holder of an outstanding Company Option a document evidencing the
foregoing assumption of such Company Option.
(c) Adjustments. The Exchange Ratio, the Vested Unexercised
Options and any other similar and related items shall be adjusted to reflect
fully the effect of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock or Company Capital Stock), reorganization, recapitalization or
other like change with respect to Parent Common Stock or Company Capital Stock
occurring after the date hereof and prior to the Effective Time.
1.5. Accounting Treatment. Notwithstanding any provision of this
Agreement to the contrary, it is the intention of the parties that the Merger
qualify for treatment as, and be accounted for as, a purchase under Accounting
Principles Board Opinion No. 16.
1.6. Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, each share of Company Capital Stock held by a holder who has demanded
and perfected appraisal or
4
<PAGE> 16
dissenters' rights for such shares in accordance with the applicable
requirements of California Law, and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal or dissenters' rights ("Dissenting
Shares"), shall not be converted into or represent a right to receive the Common
Per Share Price, the Series A Per Share Price, the Series B Per Share Price, or
the Series C Per Share Price, as applicable, pursuant to Sections 1.4 and 1.7,
but the holder thereof shall only be entitled to such rights as are granted by
California Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of shares of Company Capital Stock who demands appraisal of such shares
under California Law shall at any time effectively withdraw or lose (through
failure to perfect or otherwise) the right to appraisal, then, as of the later
of the Effective Time and the occurrence of such event, each of such holder's
shares shall automatically be converted into and represent only the right to
receive the Common Per Share Price, the Series A Per Share Price, the Series B
Per Share Price or the Series C Per Share Price, as applicable, as provided in
Section 1.4, without interest thereon, upon surrender of the certificate
representing such shares.
(c) The Company shall give Parent (i) prompt notice of any
written demands for appraisal of any shares of Company Capital Stock,
withdrawals of such demands, and any other instruments served pursuant to
California Law and received by the Company and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under California Law. The Company shall not, except with the prior
written consent of Parent, voluntarily make any payment with respect to any
demands for appraisal of Company Capital Stock or offer to settle or settle any
such demands.
1.7. Surrender of Certificates.
(a) Exchange Agent and Exchange. Prior to the Effective Time,
Parent shall designate a bank or trust company reasonably acceptable to the
Company to act as exchange agent (the "Exchange Agent") in the Merger. Promptly
after the Effective Time, the Exchange Agent shall mail to each holder set forth
on Schedule 2.2(a) a letter of transmittal which shall, among other things,
specify that delivery of the Certificates shall be effected, and risk of loss
and title to certificates representing Company Capital Stock (the
"Certificates") shall pass, only upon actual receipt by the Exchange Agent of
the Certificates and instructions for use in effecting the surrender of the
Certificates in exchange for the Common Per Share Price, the Series A Per Share
Price, the Series B Per Share Price or the Series C Per Share Price,
respectively, due to such holder for each share of Company Capital Stock held by
such holder. Upon surrender of a certificate for cancellation to the Exchange
Agent together with such letter of transmittal duly executed, the holder of such
certificate shall be entitled to receive promptly in exchange therefor a check
in the amount (after giving effect to any required tax withholdings) of the
Common Per Share Price, the Series A Per Share Price, the Series B Per Share
Price or the Series C Per Share Price due and payable in respect of each of such
holder's shares of Company Capital Stock, and the certificate so surrendered
shall forthwith be canceled. No interest will be paid or accrued on any amount
payable upon due surrender of the Certificates. Upon delivery to each
shareholder of the Company of the amount specified by this Clause (a), such
payment shall be deemed to have been made in full satisfaction of all rights
pertaining to such shares of Company Capital Stock,
5
<PAGE> 17
all rights of such shareholder pertaining to such Company Capital Stock shall
cease, and there will be no further registration of transfers on the stock
transfer books of the Company.
(b) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, Parent and the Company shall be
liable to a holder of shares of Company Capital Stock for any amount properly
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law.
(c) Aggregate Purchase Price. The aggregate of (i) the Common Per
Share Price multiplied by the number of shares of Company Common Stock
outstanding at the Effective Time, not including any such shares owned by
PeopleSoft, (ii) the Common Per Share Price multiplied by the number of shares
of Company Common Stock issuable pursuant to Vested Unexercised Options, (iii)
the Series A Per Share Price multiplied by the number of shares of Series A
Preferred Stock outstanding as of the Effective Time, not including any such
shares owned by PeopleSoft, (iv) the Series B Per Share Price multiplied by the
number of shares of Series B Preferred Stock outstanding as of the Effective
Time, not including any such shares owned by PeopleSoft, and (v) the Series C
Per Share Price multiplied by the number of shares of Series C Preferred Stock
outstanding as of the Effective Time, not including any such shares owned by
PeopleSoft, shall not exceed the Aggregate Purchase Price.
1.8. No Further Ownership Rights in Company Capital Stock. The Aggregate
Purchase Price shall constitute satisfaction in full of all rights pertaining to
such Company Capital Stock. Upon the Effective Time, there shall be no further
registration of transfers on the records of Parent or the Company of shares of
Company Capital Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to Parent for any
reason, they shall be canceled and an amount equal to the number of shares
represented by such Certificates multiplied by the Common Per Share Price, the
Series A Per Share Price, the Series B Per Share Price or the Series C Per Share
Price, as applicable, shall be paid to the holder of such Certificates as
provided in this Article I.
1.9. Lost, Stolen or Destroyed Certificates. In the event any
Certificates are lost, stolen or destroyed, the Exchange Agent shall pay in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, the proportionate amount of the
Aggregate Purchase Price, as may be required pursuant to Section 1.4; provided
that, as a condition precedent to the payment thereof, the owner of such lost,
stolen or destroyed Certificates shall enter into an indemnification agreement
satisfactory to Parent as indemnity against any claim that may be made against
Parent or the Exchange Agent with respect to the Certificates alleged to have
been lost, stolen or destroyed.
1.10. Tax Consequences. It is intended by the parties hereto that
exchange of the Company Capital Stock by the Company's shareholders pursuant to
Section 1.4 hereof shall be a sale of stock of the Company to Parent for income
tax purposes.
1.11. Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest in Parent full right and title to and
possession of all assets, property, rights, privileges,
6
<PAGE> 18
powers and franchises of the Company, the officers and directors of Parent are
hereby fully authorized in the name of Parent, the Company and otherwise to take
all such lawful action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES RELATING TO THE
COMPANY AND CERTAIN OTHER MATTERS
Subject to such exceptions as are clearly disclosed in the separate
Disclosure Schedule of even date herewith ("Disclosure Schedules"), the Company
hereby represents and warrants to Parent, as follows:
2.1. Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power to own its properties and to
carry on its business as now being conducted and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would result in a Material Adverse
Change on the Company. The Company has delivered a true and correct copy of its
Articles of Incorporation and Bylaws, each as amended to date, to Parent.
2.2. Company Capital Structure.
(a) The authorized capital stock of the Company (exclusive of its
Subsidiaries) consists solely of (i) 20,000,000 shares of authorized Company
Common Stock, 6,875,007 shares of which are issued and outstanding on the date
hereof, and (ii) 1,514,310 shares of authorized preferred stock, of which (w)
525,490 shares of which have been authorized and designated as the Series A
Preferred Stock, all of which are issued and outstanding on the date hereof, (x)
747,000 shares of which have been authorized and designated as the Series B
Preferred Stock, 502,195 shares of which are issued and outstanding on the date
hereof, (y) 241,820 shares of which have been authorized and designated as the
Series C Preferred Stock, 146,578 shares of which are issued and outstanding on
the date hereof, and (z) no other shares of which have been authorized or
designated as a series or are issued and outstanding as of the date hereof. On
the date hereof, the Company Common Stock, the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock is held of record and
beneficially by the persons, with the addresses of record and in the amounts
with the corresponding certificate numbers set forth on Schedule 2.2(a). All
outstanding shares of Company Capital Stock are duly authorized, validly issued,
fully paid and non-assessable and not subject to preemptive rights created by
statute, the Articles of Incorporation or Bylaws of the Company, any agreement
to which the Company is a party or by which it is bound or otherwise. None of
the shares of Company Capital Stock is subject to any right of repurchase by the
Company.
(b) Except as set forth on Schedule 2.2(b) and except as
otherwise permitted by the terms of this Agreement, on the date hereof there are
not outstanding, and on the Closing Date there will not be outstanding (i) any
options, warrants or other rights to purchase from the Company any capital stock
or other securities of the Company, (ii) any securities convertible into or
exchangeable for shares of such capital stock or securities or (iii) any other
commitments or
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rights of any kind for the Company to issue additional shares of capital stock,
options, warrants or other securities. Such schedule sets forth a correct and
complete list of each of the foregoing as of the date hereof, including the
record and beneficial holder thereof, a description of the nature of such
security, the amount of securities held, the exercise, conversion or exchange
rights relating thereto, including a schedule of vesting, and the type and
amount of securities into which such securities are exercisable, convertible or
exchangeable. No Company Option shall accelerate solely as a consequence of the
Merger or the other transactions contemplated by this Agreement.
2.3. Subsidiaries. Except as set forth on Schedule 2.3, the Company has
no Subsidiaries and does not have any ownership interest in any securities of
any kind in any Person. Each Subsidiary is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization. Each
Subsidiary has the corporate (or other equivalent) power to own its properties
and to carry on its business as now being conducted and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would result in a Material Adverse
Change on such Subsidiary. The Company has delivered a true and correct copy of
each Subsidiary's organizational documents, each as amended to date, to Parent.
2.4. Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The vote required of the Company's shareholders to duly
approve the Merger and this Agreement is that number of shares as would
constitute a majority of the outstanding shares of each class of the Company
Capital Stock. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate and shareholder action on the part of the Company as
provided by California Law and the Company's Articles of Incorporation and
Bylaws. The Company's Board of Directors has unanimously approved the Merger,
this Agreement and the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and, assuming due execution and
delivery by the Parent and Acquisition, constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
such enforceability may be limited by principles of public policy and subject to
laws relating to bankruptcy, insolvency and the relief of debtors and to rules
of law governing specific performance, injunctive relief and other equitable
remedies. Except as set forth on Schedule 2.4, the execution and delivery of
this Agreement by the Company does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit under (i) any
provision of the Articles of Incorporation or Bylaws of the Company or (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree or Applicable Law
applicable to the Company or its respective properties or assets. No consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, or notice to, any court, administrative agency or commission or
other Governmental Authority or any third party is required by or with respect
to the Company in connection with the
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<PAGE> 20
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Certificate of Merger with
the Delaware Secretary of State, (ii) the filing with the Secretary of State of
the State of California of the Agreement of Merger and the certificates required
by Section 1103 of the California Law, (iii) such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and (iv) such other
consents, waivers, authorizations, filings, approvals and registrations that are
set forth on Schedule 2.4.
2.5. Company Financial Statements. Schedule 2.5 sets forth the Company's
audited balance sheet as of December 31, 1997 and the related audited statements
of operations and cash flows for the year then ended and the Company's unaudited
balance sheet as of August 31, 1998 (the "Balance Sheet") and the related
unaudited statements of operations and cash flows for the eight-month period
then ended (collectively, all such financial statements are referred to as the
"Company Financials"). The Company Financials are correct in all material
respects and have been prepared in accordance with GAAP applied on a basis
consistent throughout the periods indicated and consistent with each other. The
Company Financials present fairly the financial condition and operating results
of the Company as of the dates and during the periods indicated therein,
subject, in the case of the Balance Sheet and other Company Financials for the
eight month period ended August 31, 1998, to normal year-end adjustments, which
will not be material in amount or significance for such period.
2.6. No Undisclosed Liabilities. Except as set forth in Schedule 2.6,
the Company does not have any Liability in excess of Five Thousand Dollars
($5,000) that (i) has not been reflected in the Balance Sheet or (ii) has not
arisen in the ordinary course of the Company's business since August 31, 1998,
consistent with past practices. Except as disclosed in Schedule 2.6, no customer
of the Company has a right of refund or set off from the Company.
2.7. No Changes. Except as set forth in Schedule 2.7 and Schedule
2.12(a), since March 31, 1998, there has not been, occurred or arisen any:
(a) material transaction (other than the transactions
contemplated by this Agreement) by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company of
Twenty-Five Thousand Dollars ($25,000) in any individual case or Seventy-Five
Thousand Dollars ($75,000) in the aggregate;
(d) destruction of, damage to or loss of any asset, business or
customer of the Company (whether or not covered by insurance) that resulted or
could reasonably be expected to result in losses to the Company of more than Ten
Thousand Dollars ($10,000);
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<PAGE> 21
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock other than pursuant to the exercise of repurchase rights under
stock option agreements;
(i) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person;
(j) sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of business
as conducted on that date and consistent with past practices;
(k) amendment or termination of any Scheduled Contract (as
defined in Section 2.12);
(l) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(m) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company, where such waiver, release, write-off or compromise involves an amount
in excess of Five Thousand Dollars ($5,000);
(n) commencement or notice or threat of commencement of any
Proceeding against or investigation of the Company or its affairs;
(o) notice of any claim of ownership by a third party of the
Company's Intellectual Property Rights (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property Rights;
(p) issuance or sale by the Company of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities;
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(q) change in pricing or royalties set or charged by the Company
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Intellectual Property to the Company;
(r) event or condition of any character, or group of the
foregoing, that has or is reasonably likely to have a Material Adverse Change on
the Company;
(s) mortgage, pledge, Lien, charge, security interest or any
other encumbrance or restriction relating to any of the Company's property,
business or assets, tangible or intangible;
(t) agreement to enter into a strategic alliance, including
marketing or distribution arrangements or other similar arrangements, or grant
of third party royalty rights or development agreements, or sub-licensing of any
rights; or
(u) agreement by the Company to do any of the things described in
the preceding clauses (a) through (t) (other than negotiations with Parent and
Acquisition and their representatives regarding the transactions contemplated by
this Agreement).
The Company shall not be deemed to be in breach of the representations and
warranties of this Section 2.7 for any matters arising after the date hereof so
long as such matters are permitted by Section 4.1, and the Company provides
Parent with written notice of all such matters at least three (3) Business Days
prior to the Closing.
2.8. Tax and Other Returns and Reports.
(a) For purposes of this Agreement:
(i) the term "Taxes" means (A) all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, value added, intangible, unitary, capital gain, transfer, franchise,
profits, license, lease, service, service use, withholding, backup withholding,
payroll, employment, estimated, alternative minimum, excise, severance, stamp,
occupation, premium, property, environmental, self-dealing, prohibited
transactions, windfall or excess profits, customs duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts with respect thereto, (B)
any Liability for payment of amounts described in clause (A) whether as a result
of transferee Liability, of being a member of an affiliated, consolidated,
combined or unitary or other similar group for any period, or otherwise through
operation of Applicable Law and (C) any Liability for the payment of amounts
described in clauses (A) or (B) as a result of any tax sharing, tax indemnity or
tax allocation agreement or any other express or implied agreement to indemnify
any other person; and the term "Tax" means any one of the foregoing Taxes; and
(ii) the term "Returns" means all returns, declarations,
reports, statements and other documents filed or required to be filed in respect
of Taxes; and the term "Return" means any one of the foregoing Returns.
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(b) Schedule 2.8(b) sets forth a list of the taxable years of the
Company for which examinations of income or franchise tax returns by the IRS and
the state, local or foreign taxing authority have been completed, those years
for which examinations by such agencies are presently being conducted, those
years for which notice of pending or threatened examination or adjustment has
been received. Except to the extent indicated in Schedule 2.8(b), all
deficiencies asserted or assessments made as a result of any examinations by the
IRS or state, local or foreign Tax authority have been fully paid, or are fully
described in Schedule 2.8(b), are being contested in good faith and an adequate
reserve therefor has been established and are fully reflected in the Balance
Sheet. Except as described in Schedule 2.8(b), there are no Returns that are
presently under examination with respect to Taxes, there are no proposed
(whether oral or written) or final adjustments, assessments or deficiencies with
respect to Taxes currently pending, and there are no outstanding notices of
proposed or actual audit, examination or investigation with respect to Taxes.
(c) Except as described in Schedule 2.8(c):
(i) The Company has properly filed, or has had properly
filed on its behalf, on a timely basis, all Returns required to have been filed
and all Taxes required to be shown thereon as due have been paid on a timely
basis. All such Returns were, when filed, and continue to be, true, complete and
correct in all material respects. No Liability for Taxes has been incurred, and
no taxable income has been realized, by the Company since January 1, 1997 other
than in the ordinary course of business. No director, officer or employee of the
Company or any Affiliate or thereof having responsibility for Tax matters is in
discussions with Tax authorities or has reason to believe that any Tax authority
has valid grounds to claim or assess any additional Tax with respect to the
Company materially in excess of the amounts shown on the Balance Sheet for the
period ending on such date and amounts incurred in the ordinary course of
business since that date;
(ii) The Company is not, and has not been at any time, a
member of an affiliated group as defined in Section 1504 of the Code. The
Company has no Liability for Taxes of any other Person;
(iii) With respect to all amounts in respect of Taxes and
with respect to all taxable periods or portions of periods ending on or before
the Closing, all applicable Tax laws and agreements have been fully complied
with, and all amounts required to be paid by the Company to Tax authorities or
others have been paid;
(iv) None of the Returns contains, or was required to
contain (in order to avoid the imposition of a penalty), a disclosure statement
under Section 6662 (or any predecessor provision) of the Code, or any similar
provision of state, local or foreign law, with respect to the income, gain,
loss, deduction or credit of the Company;
(v) All amounts that were required to be collected or
withheld by or in respect of the Company in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
third party have been duly collected or withheld, and all
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<PAGE> 24
amounts that were required to be remitted to any Governmental Authority by or in
respect of the Company have been duly remitted;
(vi) The Company has not requested an extension of time to
file any Company Return not yet filed, and has not granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax. No power of attorney with respect to Taxes is in force;
(vii) The Company has not taken any action not in
accordance with past practice that would have the effect of deferring any
material Tax Liability of the Company from any taxable period or portion thereof
ending on or before Closing to any subsequent taxable period or portion thereof;
(viii) There are no actual or deemed elections under
Section 338 of the Code, protective carryover basis elections, offset
prohibition elections or similar elections applicable to the Company;
(ix) The Company is not required to include in its income
any adjustment pursuant to Sections 481 or 263A of the Code (or similar
provisions of other Applicable Law) by reason of a change in accounting method
or otherwise, following the Closing, and to Company's knowledge the IRS (or
other Governmental Authority) has not proposed, and is not considering
proposing, any such change in accounting method or other adjustment;
(x) There are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of the Company;
(xi) The Company is not a party to any agreement,
contract, arrangement or plan that has resulted or would result, separately or
in the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code, whether by reason of the Closing or
otherwise;
(xii) The Company does not have and has not had a
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States of America and such foreign
country; the Company has not engaged in a trade or business within any foreign
country;
(xiii) The Company is not party to any joint venture,
partnership, or other arrangement or contract that could be treated as a
partnership for federal income Tax purposes;
(xiv) The Company has never filed an election pursuant to
Section 1361 of the Code (or any similar provision for state or local tax
purposes). The Company has not filed a consent pursuant to the collapsible
corporation provisions of Section 341(f) of the Code (or any corresponding
provision of state, local or foreign income Tax law) or agreed to have
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Section 341(f)(2) of the Code (or any corresponding provision of state, local or
foreign income Tax law) apply to any disposition of any asset owned by the
Company;
(xv) The Company has not participated in an international
boycott within the meaning of Section 999 of the Code;
(xvi) The Company is not, and has not been, a party to a
Tax sharing agreement. The Company has no current or contingent contractual
obligation to indemnify any Person with respect to Taxes, other than obligations
to indemnify a lessor for property taxes, sales/use taxes or gross receipts
taxes (but not income or franchise Taxes) imposed on lease payments arising from
terms that are customary for leases of similar property;
(xvii) The Company is not a party to or bound by any
closing agreement, offer in compromise or other contractual or similar
arrangement with any Tax Governmental Authority;
(xviii)No material election with respect to Taxes incurred
by the Company has been made from and after the date of this Agreement;
(xix) [Intentionally Omitted];
(xx) Schedule 2.8(c) sets forth, with respect to the
Company, as of December 31, 1997, the tax basis in its assets (by type), and the
amount of any net operating loss, net capital loss, and unused tax credit
carryovers (and type thereof), for federal and applicable state income tax
purposes.
(xxi) The Company currently uses the accrual method of
accounting for United States federal and state income Tax purposes and has not
changed to or from such method of accounting during the preceding five years;
(xxii) The Company has provided to representatives of
Parent copies of all federal and state income and franchise Returns for all
taxable years beginning with the taxable year ended December 31, 1994, and other
written correspondence, filed or submitted by the Company with or to the
relevant Tax authorities in connection with any audit, examination or accounting
method or tax year change, and has produced for Parent's inspection all sales
Tax, use Tax, property Tax, and other Tax and information returns filed by the
Company;
(xxiii)The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code;
(xxiv) All outstanding options to acquire equity of the
Company that purport to be or were otherwise intended (when issued) to be
treated as "incentive stock options" ("ISOs") within the meaning of Section 422
of the Code (and any predecessor provision and any similar provision applicable
under state, local or other Tax law) were issued in compliance with such
section. All such outstanding options currently qualify for treatment as ISOs,
and are held by persons who are employees of the Company;
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(xxv) None of the assets of the Company is property that
the Company is required to treat as being owned by any other person pursuant to
the so-called "safe harbor lease" provisions of former Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended; none of the assets of the Company
directly or indirectly secures any debt the interest on which is tax exempt
under Section 103(a) of the Code; none of the assets of the Company is
"tax-exempt use property" within the meaning of Section 168(h) of the Code; and
(xxvi) The Company has not redeemed Company Capital Stock
or made an "extraordinary distribution" within the meaning of Treasury
Regulation Section 1.368-1T(e)(1)(ii).
2.9. Restrictions on Business Activities. Except as set forth on
Schedule 2.9, there is no agreement (noncompete or otherwise), judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company that has or is reasonably likely to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company. Without limiting the foregoing, the Company has not entered into
any agreement under which the Company is restricted from selling, licensing or
otherwise distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
2.10. Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property, nor has it ever owned any
real property. Schedule 2.10(a) sets forth a list of all real property currently
leased by the Company, the name of the lessor and the date of the lease and each
amendment thereto. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing material default or event of default (or
event which with notice or lapse of time, or both, would constitute a default).
Complete and correct copies of such leases have been delivered to Parent.
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its
properties and assets, tangible and intangible (including Intellectual Property
Assets), real, personal and mixed, used or held for use in its business, free
and clear of any Liens, except as reflected in the Company Financials except for
Liens for Taxes not yet due and payable and such imperfections of title, if any,
that do not materially interfere with the present value of the subject property
or as may be reflected in Schedule 2.10(b).
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2.11. Intellectual Property.
(a) Certain Definitions.
(i) The term "Intellectual Property Rights" means all
United States and foreign:
(1) fictional business names, trade names,
registered and unregistered trademarks and
service marks, and applications therefor
(collectively, "Marks");
(2) patents, patent rights and patent applications
(collectively, "Patents");
(3) copyrights in both published works and
unpublished works and all registrations and
applications therefor (collectively,
"Copyrights");
(4) know-how, trade secrets, confidential
information and other proprietary information,
including customer lists (collectively, "Trade
Secrets"); and
(5) rights in and to any and all inventions,
discoveries, concepts, ideas, drawings,
designs, refinements, extensions, improvements,
software (including object and source code),
computer software programs or applications (in
both source code and object code form), data,
databases, mask works, know-how, research and
development, techniques, modifications, and
other proprietary and intellectual property
rights (whether or not patentable or subject to
copyright, mask work or trade secret
protection) not included in the foregoing
subparagraphs (2), (3) or (4) (collectively,
"Technology").
(ii) The term "Intellectual Property Assets" means all
Intellectual Property Rights owned or licensed by the Company and used or usable
in or necessary to the conduct of the Company's business and all further uses of
the terms Marks, Patents, Copyrights, Trade Secrets and Technology in this
Section shall mean Marks, Patents, Copyrights, Trade Secrets and Technology that
are Intellectual Property Assets.
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(b) Ownership of Software. The term "Software" means all of the
Company's software, modules, design documents, flow charts and other related
development documents, and all patents and copyrights to each of those items and
specifically excluding those items prepared for customers in the operation of
the Company's business for which the customer contractually has vested title.
The Company's Software (excluding software that is available through commercial
distributors or in consumer retail stores and are subject to "shrink-wrap"
agreements) is listed on Schedule 2.11(b) . The Company has not assigned,
transferred or encumbered any of its rights to the Software.
(c) Certain Intellectual Property Assets. The Company does not
own any Marks or Patents, except as set forth on Schedule 2.11(c).
(d) Copyrights. The Company is the owner of all right, title and
interest in and to each of the Copyrights in the Software, free and clear of all
Liens and other adverse claims. None of the Copyrights has been registered with
the U.S. Copyright Office or, if foreign, with the appropriate foreign
Governmental Authority.
(e) Trade Secrets. The Company has taken all reasonable
precautions to protect the secrecy, confidentiality and value of all Trade
Secrets relating to the Company's business.
(f) Intellectual Property Scheduled Contracts. Schedule 2.11(f)
contains a complete and accurate list of all Scheduled Contracts relating to the
Intellectual Property Assets to which the Company is a party or by which the
Company is bound, except for any license for common publicly retailed software
programs that are currently distributed with a value of less than Five Thousand
Dollars ($5,000). There are no outstanding and, to the Company's knowledge, no
threatened disputes or disagreements with respect to any such Scheduled
Contract.
(g) Ownership of Intellectual Property Assets. The Company is the
owner of all right, title, and interest in and to each of the Intellectual
Property Assets, free and clear of all Liens, and has the right to use without
payment to a third party all of the Intellectual Property Assets.
(h) Employee Agreements. All employees and independent
contractors of the Company involved with the development of products or the
Software for the Company have executed written agreements with the Company that
appropriately protect the Intellectual Property Assets. To the best knowledge of
the Company, no employee of the Company has entered into any contract or other
agreement with any Person (other than the Company) that restricts or limits in
any way the scope or type of work in which the employee may be engaged or
requires the employee to transfer, assign, or disclose information concerning
the employee's work to anyone other than the Company.
(i) Infringement Generally. The Company is not, nor has it during
the three (3) years preceding the date of this Agreement been, a party to any
Proceeding, nor is any Proceeding threatened, that involves or involved a claim
of infringement by the Company or any
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other Person of any Intellectual Property Asset. No Intellectual Property Asset
of the Company is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by the Company or, in the
case of any Intellectual Property Asset licensed to others, restricting the
sale, transfer, assignment or licensing thereof by the Company to any Person. To
the Company's knowledge, its use of any Intellectual Property Assets does not
conflict with, infringe upon or violate any Intellectual Property Right or other
right of any Person.
(j) Use of Intellectual Property. The Company owns, or is
licensed or otherwise possesses legally enforceable rights to use, all
Intellectual Property Assets that are used in the business of the Company as
currently conducted.
(k) Software. The portion of the Software developed by the
Company does not contain any Materials or Development Environments (each as
defined below) that embody Intellectual Property Rights of any Person other than
the Company, except for such Materials or Development Environments obtained by
the Company from other Persons who make such Materials or Development
Environments generally available to all interested purchasers or end-users on
standard commercial terms, other than Intellectual Property Rights obtained from
Parent. For purposes of this Agreement, (i) the term "Materials" means computer
programming code (including both object code and source code versions thereof),
databases, documentation (including user manuals and other written materials
that relate to particular code or databases), and other materials useful for
design (for example, logic manuals, flow charts, and principles of operation),
and (ii) the term "Development Environments" means any device, programming,
documentation, media and other objects, including compilers, "workbenches,"
tools, and higher-level or "proprietary" languages, used by the Company for the
development, maintenance and implementation of the Materials, to the extent such
objects may be necessary for any subsequent maintenance or enhancement of the
same, similar or related Materials by Parent after the Closing or the
comprehension by reasonably competent programmers of the operation of such
Materials in their business context.
2.12. Agreements, Scheduled Contracts and Commitments.
(a) Except as set forth on Schedule 2.12(a), the Company does not
have, is not a party to nor is it bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, sales compensation
plan, pension, profit sharing or retirement plans, or any other employee benefit
plans or arrangements or agreements to change any such plans whether written or
oral;
(iv) any employment or consulting agreement with an
employee or individual consultant, or any consulting or sales agreement under
which a firm or other organization provides services to the Company;
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(v) any agreement or plan, including any stock option
plan, stock appreciation rights plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value
individually in excess of Twenty-Five Thousand Dollars ($25,000);
(viii) any agreement of indemnification or guaranty other
than customary intellectual property indemnifications made in the ordinary
course of business;
(ix) any agreement pursuant to which the Company has
granted or may grant in the future, to any party a source-code license or option
or other right to use or acquire source-code, other than the license agreements
for "Evolution" (which involve the source code) and "Decisionmaster" (where the
source code is escrowed in certain circumstances)
(x) any agreement relating to capital expenditures and
involving future payments in excess of Twenty-Five Thousand Dollars ($25,000);
(xi) any agreement relating to the disposition or
acquisition of assets or any interest in any business enterprise outside the
ordinary course of the Company's business;
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (viii) of this Section 2.12;
(xiii) any purchase order or contract for the purchase of
raw materials or services involving Fifteen Thousand Dollars ($15,000) or more;
(xiv) any construction contracts;
(xv) any distribution, joint marketing or development
agreement;
(xvi) any other agreement that involves Twenty-Five
Thousand Dollars ($25,000) or more or is not cancelable without penalty within
thirty (30) days; and
(xvii) each other material agreement or commitment,
whether written or oral; without in any way limiting the foregoing, Schedule
2.12(a) lists all agreements, amendments, supplements, addenda, modifications
and side letters with Andersen Consulting or any of its affiliates.
The Company shall not be deemed to be in breach of the representations and
warranties of this Section 2.12(a) for any matters arising after the date hereof
so long as such matters are permitted
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by Section 4.1, and the Company provides Parent with written notice of all such
matters at least three (3) Business Days prior to the Closing.
(b) Except for such alleged breaches, violations and defaults,
and events that would constitute a breach, violation or default with the lapse
of time, giving of notice, or both, as are all noted in Schedule 2.12(b), the
Company has not in any material respect breached, violated or defaulted under,
or received notice that it has breached, violated or defaulted under, any of the
terms or conditions of any agreement, contract or commitment required to be set
forth on Schedule 2.9, Schedule 2.12(a) or Schedule 2.11(f) (any such agreement,
contract or commitment, regardless of whether it is set forth on such schedule,
a "Scheduled Contract"). Each Scheduled Contract is in full force and effect
and, except as otherwise disclosed in Schedule 2.12(b), is not subject to any
default thereunder of which the Company has knowledge by any party obligated to
the Company pursuant thereto.
(c) With respect to the consulting agreements of the Company
listed on Schedule 2.12(a), (i) all of the agreements and understandings of the
Company and each of the respective third parties are set forth in the copies of
such agreements provided to Parent, (ii) there are no other agreements, written
or oral, changing the rights or obligations of Parent thereunder and (iii)
except as set forth in Schedule 2.12(c), the Company has retained all rights to
its Intellectual Property Assets related to such agreements and the third
parties do not have any ownership interest, jointly or otherwise, in the
Intellectual Property Assets.
(d) Schedule 2.12(d) contains a complete and correct list of the
serial numbers of the customer surveys returned to the Company in connection
with the surveys conducted by Pacific Consulting Group.
2.13. Interested Party Transactions. Except as set forth on Schedule
2.13, to the Company's knowledge, no officer, director or Affiliate of the
Company (nor any ancestor, sibling, descendant or spouse of any of such persons,
or any trust, partnership or corporation in which any of such persons has or has
had an economic interest), has or has had, directly or indirectly, (i) an
economic interest in any entity which furnished or sold, or furnishes or sells,
services or products that the Company furnishes or sells, or proposes to furnish
or sell, or (ii) an economic interest in any entity that purchases from or sells
or furnishes to, the Company, any goods or services or (iii) a beneficial
interest in any Scheduled Contract; provided, that ownership of no more than one
percent (1%) of the outstanding voting stock of a publicly traded corporation
shall not be deemed an "economic interest in any entity" for purposes of this
Section 2.13.
2.14. Compliance with Laws. The Company has complied in all material
respects with, is not in any material respect in violation of, and has not
received any notices of violation with respect to, any Applicable Law.
2.15. Litigation. Except as set forth in Schedule 2.15, there is no
Proceeding of any nature pending or to the Company's knowledge threatened
against the Company, its properties or any of its officers, directors or
employees, in their respective capacities as such. Except as set forth in
Schedule 2.15, to the Company's knowledge, there is no investigation pending or
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threatened against the Company, its properties or any of its officers, directors
or employees by or before any Governmental Authority. Schedule 2.15 sets forth,
with respect to any such pending or threatened Proceeding or investigation, the
forum, the parties thereto, the subject matter thereof and the amount of damages
claimed or other remedy requested. No Governmental Authority has at any time
challenged or questioned the legal right of the Company to manufacture, offer or
sell any of its products in the present manner or style thereof. There is no
Proceeding pending, or as to which the Company has received any notice of
assertion against the Company, that in any manner challenges or seeks, or
reasonably could be expected, to prevent, enjoin, alter or materially delay any
of the transactions contemplated by this Agreement.
2.16. Insurance. Schedule 2.16 sets forth a list and description of each
insurance policy currently in effect where the Company is the beneficiary. Such
schedule lists the name of the insurer, policy coverage, coverage amounts and
premiums payable. With respect to the insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company, there is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in material compliance with the terms of such policies and bonds
(or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
premium increase with respect to, any of such policies. The Company does not
have any key-man life insurance policies or any other policies under which any
shareholder is a beneficiary, other than any policies set forth on Schedule 2.16
under which shareholders may be beneficiaries in their capacities as employees
of the Company.
2.17. Minute Books. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all actions taken at meetings of directors (or
committees thereof) and shareholders or actions by written consent since the
time of incorporation of the Company.
2.18. Environmental Matters.
(a) No approval, authorization, certificate, consent, license,
order, permit and any other similar authorization of any Governmental Authority,
or from any other Person, is required under any Environmental Laws applicable to
the Company or any of its assets or operations. The Company is in compliance in
all material respects with all limitations, restrictions, conditions, standards,
requirements, schedules and time tables required or imposed under all
Environmental Laws.
(b) There is no Proceeding, citation or notice of violation under
any Environmental Law actually pending or, to the Company's knowledge,
threatened, relating to the Company or any of its assets or operations.
(c) There are no past or present events, conditions,
circumstances, activities, practices, incidents, actions, omissions or plans
that may interfere with or prevent continued
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compliance with any Environmental Law by the Company, or that may give rise to
any Environmental Liability to the Company or that otherwise may form the basis
of any Proceeding, hearing, study or investigation relating to the Company or
any of its assets or operations (1) under any Environmental Law, (2) based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release or
threatened release, of any Hazardous Substance, or (3) resulting from exposure
to work place hazards. No survey, analysis or review relating to the Company and
any of its assets or operations has been performed or prepared at any time by or
for the Company, or of which the Company has a copy, that discuss or relate to
any existing or potential Environmental Liability.
(d) The Company is not required or obligated to make any capital
or other expenditure in excess of Ten Thousand Dollars ($10,000) to comply with
any Environmental Law nor is there any reasonable basis on which any
Governmental Authority would take any action that would require any such capital
or other expenditure.
2.19. Brokers' and Finders' Fees; Third Party Expenses. The Company has
not incurred, nor will it incur, directly or indirectly, any Liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.20. Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.20(a)(i) below (such definition shall only
apply to this Section 2.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with the Company within the meaning of Section 414(b), (c),
(m) or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether formal or informal, funded or unfunded, written or
unwritten, including each "employee benefit plan," within the meaning of Section
3(3) of ERISA that is or has been maintained, contributed to, or required to be
contributed to, by the Company or any Affiliate for the benefit of any
"Employee" (as defined below), and pursuant to which the Company or any
Affiliate has or may have any Liability contingent or otherwise;
(iv) "Employee" shall mean any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
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(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan"
(as defined below) which is a "multiemployer plan", as defined in Section 3(37)
of ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee
Plan which is an "employee pension benefit plan", within the meaning of Section
3(2) of ERISA.
(ix) "Welfare Plan" shall refer to each Company Employee
Plan which is a welfare plan as defined in ERISA Section 3(1).
(b) Schedule. Schedule 2.20(b) contains an accurate and complete
list of each Company Employee Plan and each Employee Agreement, together with a
schedule of all liabilities, whether or not accrued, under each such Company
Employee Plan or Employee Agreement. The Company does not have any stated plan
or commitment to establish any new Company Employee Plan or Employee Agreement,
to modify any Company Employee Plan or Employee Agreement (except to the extent
required by Applicable Law or to conform any such Company Employee Plan or
Employee Agreement to the requirements of any Applicable Law or as required by
this Agreement), or to enter into any additional Company Employee Plan or
Employee Agreement.
(c) Documents. The Company has made available to Parent (i)
correct and complete copies of all documents embodying or relating to each
Company Employee Plan (including a written description of each Company Employee
Plan which is not otherwise set forth in writing) and each Employee Agreement
(or standard forms thereof which do not differ in any material respect from the
final versions of such Employment Agreements) including all amendments thereto
and any written communications provided to Employees in connection therewith;
(ii) the most recent annual actuarial valuations, if any, prepared for each
Company Employee Plan; (iii) the three most recent annual reports (Series 5500
and all schedules thereto), if any, required under ERISA or the Code in
connection with each Company Employee Plan or related trust; (iv) if Company
Employee Plan is funded, the most recent annual and periodic accounting of
Company Employee Plan assets; (v) the most recent summary plan description
together with the most recent summary of material modifications, if any,
required under ERISA with respect to each Company Employee Plan; (vi) all IRS
determination letters and rulings relating to Company Employee Plans and copies
of all applications and correspondence to or from the IRS or the Department of
Labor ("DOL") with respect to any Company Employee Plan; (vii) all
communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plan, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any Liability to the
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Company; and (viii) all registration statements and prospectuses prepared in
connection with each Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
2.20(d), (i) the Company and its Affiliates have performed in all material
respects all obligations required to be performed by it under each Company
Employee Plan and each Company Employee Plan has been established and maintained
in all material respects in accordance with its terms and in compliance with all
Applicable Laws, including ERISA and the Code; (ii) no "prohibited transaction",
within the meaning of Section 4975 of the Code or Section 406 of ERISA, has
occurred with respect to any Company Employee Plan; (iii) there are no
Proceedings pending, or, to the Knowledge of the Company or its Affiliates,
threatened or anticipated (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan; (iv)
each Company Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without Liability to the
Company, Parent or any of its Affiliates (other than amounts accrued to be paid
to the plan in the Company Financials and ordinary administration expenses
incurred in a termination event); (v) there are no inquiries or Proceedings
pending or, to the Knowledge of the Company or any Affiliates, threatened by the
IRS or DOL with respect to any Company Employee Plan; (vi) neither the Company
nor any Affiliate is subject to any penalty or tax with respect to any Company
Employee Plan under Section 4975 through 4980 of the Code; and (vii) each
Company Employee Plan that is intended to be qualified under Section 401(a) of
the Code is and has always been so qualified and has received a favorable
determination letter with respect to such status from the IRS, and no act or
omission has occurred since the date of the most recent favorable determination
issued with respect to a Company Employee Plan which resulted or is likely to
result in the revocation of the Company Employee Plan's qualified status.
(e) Pension Plans. The Company and its Affiliates do not now, nor
have they ever, maintained, established, sponsored, participated in, or
contributed to, any Pension Plan that is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time have the Company or its
Affiliates contributed to or been requested to contribute to any Multiemployer
Plan.
(g) No Post-Employment Obligations. Except as set forth in
Schedule 2.20(g), no Company Employee Plan provides, or has any Liability to
provide, life insurance, medical or other employee welfare benefits to any
Employee upon his or her retirement or termination of employment for any reason,
except as may be required by statute, benefits the full cost of which are borne
by Employees of the Company (or such Employees' beneficiaries or dependents),
death or disability benefits under any of the Company Employee Plans, and life
insurance benefits for any Employee who dies while in service with the Company.
The Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
that such Employee(s) would be provided with life insurance, medical or other
employee welfare benefits upon their retirement or termination of employment,
except to the extent required by statute.
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(h) Welfare Plans. With respect to any Welfare Plans maintained
by the Company or its Affiliates, whether or not for the benefit of the
Company's employees, the Company and its Affiliates have complied in all
material respects with the provisions of Sections 4980B and 9801 of the Code.
(i) Effect of Transaction.
(i) The execution of this Agreement and the consummation
of the transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under any
Company Employee Plan, Employee Agreement, trust or loan that will or may result
in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by
the Company or Parent or any of their respective affiliates with respect to any
Employee will be characterized as an "excess parachute payment", within the
meaning of Section 280G(b)(1) of the Code.
(j) Employment Matters. The Company (i) is in compliance in all
material respects with all Applicable Laws respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all amounts required by Applicable
Law or by agreement to be withheld from the wages, salaries and other payments
to Employees; (iii) is not liable for any arrears of wages, commissions, bonuses
or any other type of compensation or any taxes or any penalty for failure to
comply with any of the foregoing; (iv) is not liable for any payment to any
trust or other fund or to any Governmental Authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice) and (v) is not liable for
nor has been threatened with any claim for discrimination or sexual harassment.
Schedule 2.20(j) sets forth a complete and correct list of all employees holding
visas issued by the United States, listing each such employee by name and type
of visa. Except as set forth on Schedule 2.20(j), all other employees of the
Company are citizens of the United States. With respect to the two immediately
preceding sentences, the Company shall not be deemed to be in breach of such
representations and warranties for any matters arising after the date hereof so
long as such matters are permitted by Section 4.1, and the Company provides
Parent with written notice of all such matters at least three (3) Business Days
prior to the Closing.
(k) Labor. No work stoppage or labor strike against the Company
is pending or, to the Knowledge of the Company, threatened. Except as set forth
in Schedule 2.20(k), the Company is not involved in or, to the Knowledge of the
Company, threatened with, any labor dispute, grievance, or litigation relating
to labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in Liability to the Company. Neither the Company nor any of
its subsidiaries has engaged in any
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unfair labor practices within the meaning of the National Labor Relations Act
which would, individually or in the aggregate, directly or indirectly result in
a Liability to the Company. Except as set forth in Schedule 2.20(k), the Company
is not presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees and
no collective bargaining agreement is being negotiated by the Company.
(l) Employment at Will. Except as set forth in Schedule 2.20(l),
the Company is not bound by any agreement, nor has it taken or omitted to take
any action, that restricts its ability to terminate the employment of any of its
employees at any time without payment or other Liability.
2.21. Non-competition, Non-solicitation and Non-hire Agreements. Each
Key Employee and Other Management Employee has executed and delivered to Parent
a Non-competition, Non-solicitation and Non-hire Agreement as amended by
Amendment No. 1 to Non-competition, Non-solicitation and Non-hire Agreement in
substantially the form of Exhibit C hereto (the "Noncompete Agreements") with a
term of two years, in the case of Key Employees, and one year, in the case of
Other Management Employees, and all of the Noncompete Agreements are in full
force and effect and are enforceable in accordance with their terms against each
Key Employee and each Other Management Employee, except as such enforceability
may be limited by principles of public policy and subject to laws relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief and other equitable remedies.
2.22. Representations Complete. None of the representations or
warranties made by the Company nor any statement made in any Schedule or
certificate furnished by the Company pursuant to this Agreement, or furnished in
or in connection with documents mailed or delivered to the shareholders in
connection with soliciting their consent to this Agreement and the Merger,
contains or will contain at the Effective Time, any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PEOPLESOFT, INC.
Parent represents and warrants to the Company as follows:
3.1. Organization, Standing and Power. Each of Parent and Acquisition is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of Parent and Acquisition has the corporate
power to own its properties and to carry on its business as now being conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified would result in a Material
Adverse Change on Parent.
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3.2. Authority. Each of Parent and Acquisition has all requisite
corporate power and authority to enter into this Agreement and consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and
Acquisition. This Agreement has been duly executed and delivered by Parent and
Acquisition and, assuming due execution and delivery by the Company, constitutes
the valid and binding obligation of Parent and Acquisition, enforceable in
accordance with its terms, except as such enforceability may be limited by
principles of public policy and subject to laws relating to bankruptcy,
insolvency and the relief of debtors and to rules of law governing specific
performance, injunctive relief and other equitable remedies. Except as set forth
on Schedule 3.2, the execution and delivery of this Agreement by Parent and
Acquisition does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit under (i) any provision of the
Certificate of Incorporation or Bylaws of Parent or Acquisition or (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree or Applicable Law
applicable to Parent or Acquisition or their properties or assets that could
reasonably be expected to have a Material Adverse Change on Parent. No consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
Governmental Authority or any third party is required by or with respect to
Parent or Acquisition in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the Certificate of Merger with the Delaware Secretary of
State, (ii) the filing with the Secretary of State of the State of California of
the Agreement of Merger and the certificates required by Section 1103 of the
California Law, (iii) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws, and (iv) such other consents, waivers,
authorizations, filings, approvals and registrations that are set forth on
Schedule 3.2.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1. Conduct of Business of the Company. During the period from June 3,
1998, and continuing until the earlier of the termination of this Agreement and
the Effective Time, the Company agrees (except to the extent that Parent shall
otherwise consent in writing, which consent will not be unreasonably withheld or
delayed) to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay its debts and
Taxes when due, to pay or perform other obligations when due, and, to the extent
consistent with such business, to use all reasonable efforts consistent with
past practice and policies to preserve intact its present business organization,
keep available the services of its present officers and key employees and
preserve their relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, all with the goal of
preserving unimpaired its goodwill and ongoing businesses at the Effective Time.
The Company
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shall promptly notify Parent of any Material Adverse Change related to the
Company or its business. Except as expressly contemplated by this Agreement or
disclosed in Schedule 4.1, the Company shall not, without the prior written
consent of Parent, which consent will not be unreasonably withheld or delayed:
(a) Enter into any commitment or transaction (other than pursuant
to or as contemplated by this Agreement) not in the ordinary course of business
consistent with past practice.
(b) Transfer to any Person any rights to the Intellectual
Property Rights, except in the ordinary course of business consistent with past
practice;
(c) Enter into or amend any agreements pursuant to which any
Person is granted marketing, distribution or similar rights of any type or scope
or any third party royalty rights with respect to any products of the Company,
or enter into or amend any strategic alliance, license or sub-license agreement,
or joint development agreement;
(d) Amend or otherwise modify, except in the ordinary course of
business consistent with past practice, any of the Scheduled Contracts;
(e) Violate the terms of any of the Scheduled Contracts in any
material manner;
(f) Commence any litigation or any binding dispute resolution
process (other than in respect of any breach of or claim arising under this
Agreement);
(g) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for, shares of its capital stock, or repurchase, redeem or
otherwise acquire, directly or indirectly, any shares of its capital stock,
except repurchases of unvested shares in connection with terminations of
employment in the ordinary course of business consistent with past practice;
(h) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire (including but not limited
to Company Options), or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, except
(i) the issuance of Company Common Stock upon the exercise of Company Options,
and (ii) the grant of Company Options to new hires in the ordinary course of
business and in accordance with written guidelines approved by Parent;
(i) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
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(j) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets (other than assets, immaterial in amount, in the
ordinary course of business consistent with past practice) or equity securities
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets;
(k) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(l) Incur any indebtedness for borrowed money other than from
Parent or guarantee any such indebtedness or issue or sell any debt securities
of the Company or guarantee any debt securities of others;
(m) Enter into or amend any employment agreements, oral or
written, increase the compensation payable or to become payable by it to any of
its officers, directors, or consultants over the amount payable as of March 31,
1998, or adopt or amend any employee benefit plan or arrangement (oral or
written) (including any amendment to the Option Plan or the agreements
thereunder), or increase the salaries or wage rates of its employees, except in
the ordinary course of the Company consistent with past practice;
(n) Terminate the employment of any executive officer or vice
president (including any Key Employee or Other Management Employee) or grant any
severance or termination pay (i) to any director or officer or (ii) to any other
employee except payments made pursuant to written agreements or other legally
binding commitments disclosed to Parent in writing outstanding on the date
hereof;
(o) Revalue any of its assets, including writing down the value
of inventory or writing off notes or accounts receivable, other than in the
ordinary course of business;
(p) Pay, discharge or satisfy, in an amount in excess of $50,000
(in any one case) or $100,000 (in the aggregate), any Liability, other than the
payment, discharge or satisfaction in the ordinary course of business of
Liabilities (1) reflected or reserved against in the Company Financial
Statements (or the notes thereto) or (2) that arose in the ordinary course of
business consistent with past practice subsequent to March 31, 1998 and which
are expenses not prohibited by the provisions of this Agreement;
(q) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any material claim or assessment in respect of Taxes,
or consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(r) Amend or otherwise take any action that would permit or cause
any Company Option to accelerate in contemplation of or as a consequence of the
Merger or the other transactions contemplated by this Agreement;
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(s) Enter into or modify any new or existing agreements for the
lease or purchase of real property; or
(t) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (s) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2. No Solicitation. Until the earlier of the Effective Time or the
date of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, employees, agents, representatives or Affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, conduct discussions with or engage
in negotiations with any person, relating to the possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any portion of its or their
capital stock or assets, (b) provide information with respect to it to any
Person, other than Parent, relating to the possible acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any portion of its or their capital stock or assets, (c) enter
into an agreement with any Person, other than Parent or Acquisition, providing
for the acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any portion of its or their
capital stock or assets or (d) make or authorize any statement, recommendation
or solicitation in support of any possible acquisition of the Company or any of
its subsidiaries (whether by way of merger, purchase of capital stock, purchase
of assets or otherwise) or any portion of its or their capital stock or assets
by any Person, other than by Parent or Acquisition. In addition to the
foregoing, if the Company receives prior to the Effective Time or the
termination of this Agreement any offer or proposal relating to any of the
above, the Company shall promptly notify Parent thereof, including information
as to the identity of the offeror or the party making any such offer or proposal
and the specific terms of such offer or proposal, as the case may be, and such
other information related thereto as Parent may reasonably request.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. Employee Matters.
(a) Employees. The parties currently contemplate that
substantially all employees of the Company will be offered employment with
Parent on terms to be proposed by Parent, subject to execution of Parent's
standard forms of offer letters and non-disclosure agreements. All such
employees of the Company desirous of becoming employees of Parent will be
subject to employment at the will of Parent. Employees who do not receive an
offer of employment from Parent shall be eligible for the severance benefits
agreed upon in writing by Parent and the Company; provided, however, that in
order to be eligible for receipt of such severance benefits, each such employee
must first execute a written release, in form and substance reasonably
acceptable to Parent releasing Parent from all claims arising out of their
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employment with the Company or with Parent. Notwithstanding the foregoing,
nothing contained herein shall be interpreted or construed to create a contract
of employment between such employee and Parent.
(b) Eligibility for Parent Employee Plans. Upon the Closing, each
of the employees of the Company who becomes an employee of Parent upon the
Effective Time ("Parent Employee") shall cease to participate in or accrue
benefits under the Company Employee Plans (except to the extent contemplated by
Section 1.4(b) under the Option Plan) and shall be eligible to participate in
the Parent employee benefit plans generally applicable to employees of Parent,
and if the Parent determines to be appropriate, such enhanced plans appropriate
to such employee's position with Parent (the "Parent Employee Plans"), provided,
that upon the Closing, each of the employees of the Company who remains an
employee of Surviving Corporation upon the Effective Time ("Continuing
Employee") shall continue to participate in or accrue benefits under the Company
Employee Plans in accordance with the terms of each such plan and shall not be
eligible to participate in the Parent Employee Plans until Parent shall freeze
or terminate the Company Employee Plans. Parent shall freeze or terminate the
Company Employee Plans on or before January 1, 1999 and at such time such
Continuing Employees shall be deemed to be Parent Employees for the purposes of
this Agreement. For purposes of the Parent Employee Plans (with the exception of
the Parent vision plan) the years of service of each Parent Employee that were
recognized by the Company as of the Effective Time of the Merger for a Company
Employee Plan shall be recognized by Parent for purposes of each Parent Employee
Plan that Parent determines to be a corresponding plan, in each case to the
extent allowed under the provisions of each of the applicable Parent Employee
Plans. Pursuant to the terms of Parent's 401(k) plan, any matching contributions
by Parent under the 401(k) plan for any Parent Employee shall be only with
respect to such Parent Employee's contributions after the Effective Time (or, in
the case of a Continuing Employee, the time at which such Continuing Employee
become eligible to participate in the Parent Employee Plans) and not with
respect to contributions made by the Parent Employee to the Company's 401(k)
plan prior to the Effective Time(or, in the case of a Continuing Employee, the
time at which such Continuing Employee become eligible to participate in the
Parent Employee Plans).
(c) Eligibility for Parent Incentive Compensation Plans. Parent
shall take all actions necessary to cause all Parent Employees whose date of
hire by the Company is on or before July 1, 1998 to become eligible to
participate in Parent's Employee Incentive Bonus (the "Incentive Plan")
commencing on October 1, 1998, and to cause all Parent Employees whose date of
hire by the Company is after July 1, 1998 to become eligible to participate in
Parent's incentive compensation plan commencing on January 1, 1998. This Section
5.1(c) shall not apply with respect to any Parent Employee who participates in
any variable compensation plan of Parent other than the Incentive Plan.
5.2. Access to Information. The Company shall afford to Parent and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, agreements and records, and (b) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by Applicable Law) of it as Parent may reasonably
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request. No information or knowledge obtained in any investigation pursuant to
this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger. Parent shall provide the Company copies of such publicly
available information about Parent as the Company may reasonably request and
shall provide the Company with reasonable access to appropriate members of
management in this regard.
5.3. Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger, including all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby ("Third Party Expenses"), shall be the obligation of the
respective party incurring such fees and expenses; provided, however, that if
the Merger is consummated, the Company shall cause its Third Party Expenses, and
any Third Party Expenses incurred on behalf of any shareholders, to be invoiced
at or before Closing and not to exceed Two Hundred Ninety-Five Thousand Dollars
($295,000).
5.4. Public Disclosure. Unless otherwise required by Applicable Law
(including securities laws) or, as to Parent, by the rules and regulations of
the Nasdaq National Market, prior to the Effective Time, Parent and the Company
shall consult with each other before making any disclosure (whether or not in
response to an inquiry) of the subject matter of this Agreement or the
transactions contemplated hereby, and no public announcement or press release
regarding the subject matter of this Agreement or the transactions contemplated
thereby shall be made by any party hereto unless approved by Parent and the
Company prior to release, provided that such approval shall not be unreasonably
withheld. Parent and the Company shall cooperate in good faith to prepare and
agree upon any press release or other public announcement that either of them
may determine is necessary or in its best interests.
5.5. Consents. The Company on the one hand, and Parent, on the other
hand, shall cooperate with one another in determining whether any action by or
in respect of, or filing with, or notice, to any Governmental Authority is
required or reasonably appropriate, or any action, consent, approval or waiver
from any party to any Contract is required or reasonably appropriate, in
connection with the consummation of the transactions contemplated by this
Agreement, and shall take all actions necessary or reasonably requested by the
Company or Parent, as the case may be, in connection therewith.
5.6. Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under Applicable Laws to
consummate and make effective the transactions contemplated hereby, to obtain
all necessary waivers, consents and approvals, to effect all necessary
registrations and filings and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement and the satisfaction
of the conditions herein; provided that Parent shall not be
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required to agree to any divestiture by Parent or the Company or any of Parent's
Affiliates of shares of capital stock or of any business, assets or property of
Parent or its Affiliates or the Company or its Affiliates, or the imposition of
any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.7. Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event or group of the foregoing, the
occurrence or non-occurrence of which is likely to cause any representation or
warranty of the Company and Parent, respectively, contained in this Agreement to
be untrue or inaccurate in any material respect at or prior to the Effective
Time except as contemplated by this Agreement (including the Disclosure
Schedules) and (ii) any failure of the Company or Parent, as the case may be, to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.7 shall not limit or
otherwise affect any remedies available to the party receiving such notice.
5.8. Additional Documents and Further Assurances. Each party hereto, at
the request of any other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
reasonably requested for effecting completely the consummation of this Agreement
and the transactions contemplated hereby.
5.9. Indemnification. The provisions with respect to indemnification of
directors, officers, employees and agents as set forth in the Company's Articles
of Incorporation and Bylaws as currently in effect shall not be amended,
repealed or otherwise modified in any manner that would adversely affect the
rights of the directors, officers, employees and agents of the Company on the
date hereof with respect to matters arising prior to the Closing. From and after
the Effective Time, Parent shall indemnify, defend and hold harmless the present
and former directors and officers of the Company and its subsidiaries against
all Damages incurred in connection with any Proceeding, occurring at or prior to
the Effective Time to the fullest extent that the Company would have been
permitted to indemnify such person under Applicable Law and the Articles of
Incorporation and Bylaws of the Company in effect on the date hereof.
Notwithstanding the foregoing provisions of this Section 5.9, no such director,
officer, employee or agent shall be entitled to any indemnification to the
extent any such Damages arise out of facts or circumstances constituting a
breach of this Agreement.
5.10. Notice to Holders of Company Preferred Stock. The Company shall
provide the required written notice, if any, to each holder of Company Preferred
Stock required by Article III, Section B(g) of the Company's Articles of
Incorporation.
5.11. Grant of Stock Options by the Company. Prior to the Effective
Time, the Company shall grant to each person set forth on Schedule 5.11 hereto,
in exchange for the cancellation of the Company Option described on such
schedule, a new option to purchase an equivalent number of shares of Company
Common Stock at an exercise price equal to the approximate fair market value per
share of Company Common Stock.
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5.12 Confidentiality. Each party hereto shall maintain the confidential
nature of, and shall not use in any way detrimental to any other party,
including directly or indirectly in the conduct of such party's business, all
confidential financial, technical, marketing, research, commercial or other
information concerning the other parties hereto. In the event of the termination
of this Agreement for any reason, upon written request of any party, each party
receiving such request agrees to return to the requesting party any and all
materials containing any such confidential information relating to such
requesting party. The restrictions contained herein and in any Schedules and
Exhibits hereto shall not apply to any information that (a) is or becomes
generally available to the public other than as a result of a disclosure in
violation of the provisions hereof, (b) is or becomes available to such party
that has received such request on a non-confidential basis from a source other
than the requesting party, (c) is independently derived by the party to whom
such information was disclosed, or (d) is derived from information that is not
confidential and does not contain any confidential information. In the event
that any party hereto receives a request to disclose all or any part of any
confidential information under the terms of a subpoena, order, civil
investigative demand or similar process issued by a court of competent
jurisdiction or by another Governmental Authority, such party agrees to: (i)
immediately notify the party to whom such confidential information relates of
the existence, terms and circumstances surrounding such request, (ii) consult
with such party to whom the information relates on the advisability of taking
legally available steps to resist or narrow such request and (iii) if disclosure
of such information is required, furnish only that portion of the confidential
information that, in the opinion of counsel to the party who has received the
request, such party is legally compelled to disclose and advise the party to
whom such confidential information relates as far in advance of such disclosure
as possible so that such party to whom the confidential information relates may
seek an appropriate protective order or other reliable assurance that
confidential treatment will be accorded such confidential information. In any
event, the party who receives the request shall not oppose actions by the party
to whom the confidential information relates to obtain an appropriate protective
order or other reliable assurance that confidential treatment will be accorded
such confidential information.
5.13. Company Shareholder Approval. The Company has submitted the form
of this Agreement to its shareholders for approval and adoption as provided by
California Law and its Articles of Incorporation and Bylaws. The Company shall
use its best efforts to solicit and obtain the consent of all of its
shareholders to approve the Merger and this Agreement and to enable the Closing
to occur as promptly as practicable. The materials submitted to the Company's
shareholders shall be subject to reasonable review and approval by Parent and
include information regarding the Company, the terms of the Merger and this
Agreement and the unanimous recommendation of the Board of Directors of the
Company in favor of the Merger and this Agreement.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1. Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Closing Date. The Closing Date shall be on or before October
31, 1998.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(c) Shareholder Approval. This Agreement and the Merger shall
have been approved by the shareholders of the Company by the requisite votes
under the California Law.
(d) Merger Filings. The Certificate of Merger shall have been
accepted for filing by the Secretary of State of the State of Delaware and the
Agreement of Merger and the Section 1103 Certificates shall have been accepted
for filing by the Secretary of State of the State of California. The Merger
shall be effective under the laws of the States of California and Delaware.
6.2. Additional Conditions to Obligations of the Company. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent contained in this Agreement shall be true and correct in
all material respects as of June 3, 1998, the date hereof and, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct in all material respects as of such date), as of the
Closing Date with the same force and effect as if made on and as of the Closing
Date; and the Company shall have received a certificate to such effect signed on
behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent shall have performed or
complied (which performance or compliance shall be subject to Parent's ability
to cure as provided in Section 8.1(e) below) in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by it on or prior to the Closing Date, and the Company shall have received
a certificate to such effect signed on behalf of Parent by a duly authorized
officer of Parent.
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(c) Third Party Consents. The Company shall have been furnished
with evidence satisfactory to it that Parent has obtained the consents,
approvals and waivers set forth in Schedule 6.2(c).
(d) Legal Opinion. The Company shall have received a legal
opinion from Gibson Dunn & Crutcher LLP, counsel to Parent, in substantially the
form attached hereto as Exhibit A.
(e) Additional Actions. Parent shall take such additional
actions, including the execution of such additional documents, as shall be
reasonably requested by the Company in connection with the consummation of the
transactions contemplated by this Agreement.
6.3. Additional Conditions to the Obligations of Parent. The obligations
of Parent to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects as of June 3, 1998, the date hereof and, except for
changes contemplated by this Agreement (including the Disclosure Schedules) and
except for those representations and warranties which address matters only as of
a particular date (which shall remain true and correct in all material respects
as of such date), with the same force and effect as if made on and as of the
Closing Date, and Parent shall have received a certificate to such effect signed
on behalf of the Company by a duly authorized officer of the Company; provided,
however, that any representation or warranty that was complete and correct in
all material respects as of June 3, 1998 and the date hereof, but shall no
longer be complete and correct in all material respects as of the Closing Date
due to facts or circumstances occurring after the date hereof, shall be subject
to the Company's ability to cure as provided in Section 8.1(d) below.
Notwithstanding the foregoing, in the case of any failure to the foregoing
condition to be satisfied as a result of facts and circumstances arising after
the date hereof of which the Company has no knowledge on the date hereof, the
foregoing condition shall be deemed to be satisfied unless the failure of any
representation or warranty, or group of representations or warranties, to be
correct would, in Parent's good faith judgment, materially have affected
Parent's decision to enter into this Agreement on the date hereof if Parent had
been aware of such facts and circumstances; provided, however, that nothing set
forth in this sentence shall affect Parent's ability to seek indemnification
under Article VII as a result of the failure of any such representation or
warranty, or group of representations or warranties, to remain true and correct
after the date hereof;
(b) Agreements and Covenants. The Company shall have performed or
complied (which performance or compliance shall be subject to the Company's
ability to cure as provided in Section 8.1(d) below) in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date, and Parent shall have
received a certificate to such effect signed on behalf of the Company by a duly
authorized officer of the Company;
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(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c) and the Parent shall have
obtained the consents, approvals and waivers set forth in Schedule 6.2(c).
(d) Legal Opinion. Parent shall have received the legal opinions
from Wilson, Sonsini, Goodrich & Rosati, legal counsel to the Company, in
substantially the form attached hereto as Exhibit B.
(e) Material Adverse Change. There shall not have occurred any
Material Adverse Change with respect to the Company after March 31, 1998,
provided, however, that for the purposes of this Section 6.3(e), a Material
Adverse Change shall not be deemed to have occurred if such change or effect was
principally caused by, or as a result of, (1) the execution and delivery of this
Agreement, (2) the failure of Parent to approve any action requested by the
Company pursuant to Section 4.1 hereof, (3) operational changes approved in
writing by Parent, or (4) employee attrition at the Company; provided, however,
that the Company represents and warrants to Parent that it is not aware of any
employee who intends to terminate his or her employment with Company as a result
of the Merger.
(f) Dissenters' Rights. Holders of more than ten percent (10%) of
the Company Capital Stock shall not have exercised, nor shall they have any
continued right to exercise, appraisal, dissenters' or similar rights under
Applicable Law with respect to their shares by virtue of the Merger.
(g) Intentionally Omitted.
(h) Tax Certifications. Parent shall have received from the
Company (A) a certification of non-foreign status described in Treasury
Regulation Section 1.1445-2(b)(2)(i) and (B) a certification pursuant to
Treasury Regulation Section 1.1445-2(c)(3)(i) that the Company Capital Stock is
not a U.S. real property interest, in each case in form and substance reasonably
satisfactory to Parent.
(i) Additional Actions. The Company shall take such additional
actions, including the execution of such additional documents, as shall be
reasonably requested by Parent in connection with the consummation of the
transactions contemplated by this Agreement.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
7.1. Indemnification/Survival of Representations and Warranties.
(a) Parent and each of its Affiliates (including Acquisition),
officers, employees, directors and representatives (collectively, the "Parent
Indemnities") shall be indemnified and held harmless by the Company (provided
that, at the Effective Time, the Company shall cease to have any indemnity
obligations under this Section 7.1(a)), in respect of
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any and all Damages incurred by any Parent Indemnitee as a result of any
misrepresentation and/or breach of any representation, warranty, covenant or
agreement made by the Company in this Agreement. The Company (subject to the
parenthetical in the preceding sentence) shall be liable in full with respect to
any such misrepresentation or breach. Nothing set forth in this Section 7.1(a)
shall be deemed to prohibit or limit any Parent Indemnitee's right at any time
before the Effective Time to seek injunctive or other equitable relief, in lieu
of or in addition to Damages, for the failure of the Company to perform any
covenant or agreement contained herein.
(b) The Company and their respective Affiliates, officers,
employees, directors and representatives and shareholders (collectively, the
"Company Indemnities") shall be indemnified and held harmless by Parent in
respect of any and all Damages reasonably and proximately incurred by any
Company Indemnitee as a result of any misrepresentation and/or breach of any
representation, warranty, covenant or agreement made by Parent in this
Agreement; provided, however, that, at the Effective Time, Parent shall cease to
have any indemnity obligations under this Section 7.1(b). Nothing set forth in
this Section shall be deemed to prohibit or limit any Company Indemnitee's right
at any time before the Effective Time to seek injunctive or other equitable
relief, in lieu of or in addition to Damages, for the failure of Parent to
perform any covenant or agreement contained herein.
(c) All of the representations and warranties in this Agreement
shall survive and continue until the Effective Time.
(d) The amount of any indemnification payment required to be made
pursuant to Section 7.1(a) of this Agreement with respect to a particular claim
for indemnification shall be reduced by: (1) the after-tax amount of insurance
proceeds or recoveries from third parties actually received as a result of the
events giving rise to such claim; provided that if such proceeds or recoveries
will be (or are) received after the date on which such indemnification payment
is due, such indemnification payment shall be paid when due by the Company, when
such proceeds are received, the Parent Indemnities shall pay to the Company, the
amount of such proceeds promptly following receipt, and (2) the amount of any
tax savings actually realized by the Parent Indemnities prior to the receipt of
such indemnification payment, either in the form of a refund of taxes previously
paid or a reduction in tax that otherwise would have become payable prior to
such time (in each case net of the present value of any tax cost of the
indemnification payment and any costs (including but not limited to professional
fees) incurred in obtaining such savings). For purposes of this clause (2), tax
savings shall only be taken into account to the extent they are not otherwise
required to be paid to the Company Indemnities and would not have arisen but for
the event giving rise to the indemnification obligation.
7.2. Notice and Determination of Claims.
(a) If any Parent Indemnitee or Company Indemnitee (each, an
"Indemnitee") shall believe that such Indemnitee is entitled to indemnification
pursuant to Section 7.1 , prior to the Closing, from the Company, with respect
to a Parent Indemnitee, or from Parent, with respect to a Company Indemnitee, as
the case may be (the "Indemnitors"), in respect of any Damages,
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such Indemnitee shall give all potential Indemnitors prompt written notice
thereof. Any such notice shall set forth in reasonable detail and, if and to the
extent then known, the amount of Damages (or an estimate thereof) arising from
such claim and the basis for such claim for indemnification. The failure of such
Indemnitee to give notice of any claim for indemnification promptly shall not
adversely affect such Indemnitee's right to indemnity hereunder except to the
extent that such failure adversely affects the rights of the Indemnitor to
assert any reasonable defense to such claim. The Indemnitors shall have fifteen
(15) Business Days following their receipt of such notice either (i) to
acquiesce in such claim by giving such Indemnitee written notice of such
acquiescence or (ii) to object to the claim by giving such Indemnitee written
notice of the objection. If any Indemnitor acquiesces in such claim, such
Indemnitee shall be entitled to be indemnified by the acquiescing Indemnitor for
such Indemnitor's share (which may be the entire amount if so provided in this
Agreement) of the Damages incurred by such Indemnitee in respect of such claim.
If no such agreement can be reached after good faith negotiation, either
Indemnitee or the Indemnitor may, by written notice to the other demand
arbitration (the "Demand") of the matter unless the amount of the Damages is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three arbitrators. Indemnitee and the Indemnitor shall each select
one arbitrator within fifteen (15) Business Days following the Demand, and the
two arbitrators so selected shall select a third arbitrator within fifteen (15)
Business Days thereafter, each of which arbitrators shall be independent. In the
event that either Indemnitee or the Indemnitor fails to appoint an arbitrator
within the period prescribed, or such appointed arbitrators fail to appoint the
third arbitrator within the period prescribed, any such arbitrators that have
not been so appointed shall be appointed by the American Arbitration Association
following written request of either Indemnitee or the Indemnitor. The
arbitrators shall set a limited time period (not to exceed 90 days) and
establish procedures designed to reduce the cost and time for discovery while
allowing the parties an opportunity, adequate in the sole judgment of the
arbitrators, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrators shall rule upon motions to
compel or limit discovery and shall have the authority to impose sanctions,
including attorneys fees and costs, to the same extent as a competent court of
law or equity, should the arbitrators determine that discovery was sought
without substantial justification or that discovery was refused or objected to
without substantial justification. The decision of a majority of the three
arbitrators as to the validity and amount of any claim shall be binding and
conclusive upon the parties to this Agreement. Such decision shall be written
and shall be supported by written findings of fact and conclusions which shall
set forth the award, judgment, decree or order awarded by the arbitrators.
(b) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Alameda County, California under the rules then in effect of the Judicial
Arbitration and Mediation Services, Inc. For purposes of this Section 7.2(b), in
any arbitration hereunder in which any claim or the amount thereof is at issue,
Indemnitee shall be deemed to be the Non-Prevailing Party in the event that the
arbitrators award Indemnitee less than the sum of one-half (1/2) of the disputed
amount; otherwise, the Indemnitor shall be deemed to be the "Non-Prevailing
Party." The "Non-Prevailing Party" to an arbitration shall pay its own expenses,
the fees of each arbitrator, the
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administrative costs of the arbitration, and the expenses, including reasonable
attorneys' fees and costs, incurred by the other party to the arbitration.
7.3. Third Party Claims. In connection with any claim that may give rise
to indemnity under this Section 7 resulting from or arising out of any claim or
Proceeding against an Indemnitee by a person that is not a party hereto, the
Indemnitors may, upon notice to the relevant Indemnitee, assume the defense of
any such claim or Proceeding if the Indemnitors jointly acknowledge in writing
to the relevant Indemnitee the right of such Indemnitee to indemnity pursuant
hereto in respect of the entirety of such claim and provide written evidence
reasonably satisfactory to such Indemnitee that such Indemnitors have the
financial wherewithal to defend and pay such claim in full. If the Indemnitors
assume the defense of any such claim or Proceeding, the Indemnitors shall select
counsel reasonably acceptable to such Indemnitee to conduct the defense of such
claim or Proceeding, shall take all steps necessary in the defense or settlement
thereof and shall at all times diligently and promptly pursue the resolution
thereof. If the Indemnitors shall have assumed the defense of any claim or
Proceeding in accordance with this Section 7.3, the Indemnitors shall be
authorized to consent to a settlement of, or the entry of any judgment arising
from, any such claim or Proceeding, without the prior written consent of such
Indemnitee; provided, however, that the Indemnitors shall have paid or caused to
be paid all amounts arising out of such settlement or judgment concurrently with
the effectiveness thereof; provided further, that the Indemnitors shall not be
authorized to encumber any of the assets of any Indemnitee or to agree to any
restriction that would apply to any Indemnitee or to the conduct of such
Indemnitee's business; and provided further, that a condition to any such
settlement shall be a complete release of such Indemnitee with respect to such
claim. Such Indemnitee shall be entitled to participate in (but not control) the
defense of any such action, with its own counsel and at its own expense. Each
Indemnitee shall, and shall cause each of its Affiliates and representatives to,
cooperate fully with the Indemnitors in the defense of any claim or Proceeding
being defended by the Indemnitors pursuant to this Section 7.3. If the
Indemnitors do not assume the defense of any claim or Proceeding resulting
therefrom in accordance with the terms of this Section 7.3, such Indemnitee may
defend against such claim or Proceeding in such manner as it may deem
appropriate, including settling such claim or Proceeding after giving notice of
the same to the Indemnitors, on such terms as such Indemnitee may deem
appropriate. If the Indemnitors seek to question the manner in which such
Indemnitee defended such claim or Proceeding or the amount of or nature of any
such settlement, the Indemnitors shall have the burden to prove by a
preponderance of the evidence that such Indemnitee did not defend such claim or
Proceeding in a reasonably prudent manner.
7.4. No Limitations on Damages. Nothing herein shall limit the Liability
of the Company to any Parent Indemnitee for any breach of any representation,
warranty or covenant if the Merger does not close.
7.5. Exclusive Remedy. The remedies provided for in this Section 7 are
exclusive and shall be in lieu of all other remedies for breach of this
Agreement; provided, however, that the foregoing clause of this sentence shall
not be deemed a waiver by any party of any right to specific performance or
injunctive relief, or any remedy arising by reason of any claim of fraud with
the respect to this Agreement.
40
<PAGE> 52
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1. Termination. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Closing has not occurred
by October 31, 1998 (provided that the right to terminate this Agreement under
this clause 8.1(b)(i) shall not be available to any party whose failure to
fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date); (ii) there shall be a
final nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Authority that would make consummation of the Merger
illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Authority that would: (i) prohibit Parent's or
the Company's ownership or operation of any material portion of the business of
the Company or (ii) compel Parent or the Company to dispose of or hold separate,
as a result of the Merger, any material portion of the business or assets of the
Company or Parent;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and as a result of such breach the conditions set forth in Section
6.3(a) or 6.3(b), as the case may be, would not then be satisfied; provided,
however, that if such breach is curable by the Company within thirty (30) days
through the exercise of its commercially reasonable efforts, then for so long as
the Company continues to exercise such commercially reasonable efforts Parent
may not terminate this Agreement under this Section 8.1(d) unless such breach is
not cured within thirty (30) days (but no cure period shall be required for a
breach which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent and as a result of such breach the conditions set forth in
Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied;
provided, however, that if such breach is curable by Parent within thirty (30)
days through the exercise of its commercially reasonable efforts, then for so
long as Parent continues to exercise such commercially reasonable efforts the
Company may not terminate this Agreement under this Section 8.1(e) unless such
breach is not cured within thirty (30) days (but no cure period shall be
required for a breach which by its nature cannot be cured); and
41
<PAGE> 53
(f) by Parent, in its sole and absolute discretion, if the
conditions set forth in Section 6.3(i) hereof are not satisfied.
8.2. Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no Liability or obligation on the part of Parent or the
Company, or their respective officers, directors or shareholders under this
Agreement, provided that each party hereto shall remain liable for any Damages
arising out of any breaches of this Agreement prior to such termination or for
the wrongful termination of this Agreement. Without limiting the generality of
the foregoing, to the extent that any such termination results from the breach
by any party hereto of any of its representations, warranties, or covenants set
forth in this Agreement, the non-breaching party shall be entitled to receive
from the breaching party all of its Third Party Expenses, any expenses incurred
in connection with any dispute arising from such willful breach and any other
Damages incurred as a result of such breach. Notwithstanding the foregoing, the
provisions of Section 5.3, 5.12 and Article IX of this Agreement shall remain in
full force and effect and survive any termination of this Agreement (but the
arbitration provisions of Article VII shall not).
8.3. Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
8.4. Extension; Waiver. At any time prior to the Effective Time, Parent,
on the one hand, and the Company, on the other, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations of
the other party hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1. Notices. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the addresses set forth below or to such other address as the party
to whom notice is to be given may have furnished to the other parties hereto in
writing in accordance herewith. Any such notice or communication shall be deemed
to have been delivered and received (A) in the case of personal delivery or
delivery by telecopier, on the date of such delivery, (B) in the case of a
nationally-recognized overnight courier, on the next business day after the date
when sent and (C) in the case of mailing, on the third business day following
that on which the piece of mail containing such communication is posted:
42
<PAGE> 54
(a) IF TO PARENT OR, AFTER THE EFFECTIVE TIME, TO THE
COMPANY, TO:
PeopleSoft, Inc.
4440 Rosewood Drive
Pleasanton, California 94588
Attention: Ronald E.F. Codd, Chief Financial Officer
Telephone No.: (925) 694-7114
Facsimile No.: (925) 694-7184
with a copy to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Suite 2600
San Francisco, California 94104
Attention: Kenneth R. Lamb
Telephone No.: (415) 393-8200
Facsimile No.: (415) 986-5309
(b) IF TO THE COMPANY IF PRIOR TO THE EFFECTIVE TIME, TO:
Intrepid Systems, Inc.
1301 Harbor Bay Parkway
Alameda, California 94502
Attention: Richard White, President
Telephone No.: (510) 769-4887
Facsimile No.: (510) 769-5128
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Michael J. Danaher
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
9.2. Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The word "agreement" when used herein shall be deemed in
each case to mean any contract, commitment or other agreement, whether oral or
written, that is legally binding. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
9.3. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one
43
<PAGE> 55
or more counterparts have been signed by each of the parties and delivered to
each of the other parties, it being understood that all parties need not sign
the same counterpart.
9.4. Entire Agreement; Assignment. This Agreement, the schedules and
exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other Person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Parent may assign its rights but not delegate its obligations hereunder to
a wholly-owned subsidiary of Parent.
9.5. Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6. Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such Persons and
waives and covenants not to assert or plead any objection that they might
otherwise have to such jurisdiction and such process.
9.8. Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state
44
<PAGE> 56
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
45
<PAGE> 57
IN WITNESS WHEREOF, Parent, Acquisition, and the Company have caused
this Agreement to be signed by their duly authorized respective officers, all as
of the date first written above.
PEOPLESOFT, INC. INTREPID SYSTEMS, INC.
BY: BY:
-------------------------- ----------------------------
NAME: RONALD E.F. CODD NAME: RICHARD WHITE
TITLE: SENIOR VICE PRESIDENT AND TITLE: PRESIDENT
CHIEF FINANCIAL OFFICER
BY: BY:
-------------------------- ----------------------------
NAME: ROBERT FINNELL NAME: JON BOND
TITLE: ASSISTANT SECRETARY TITLE: SECRETARY
46
<PAGE> 58
PEOPLESOFT RETAIL CORPORATION
BY:
--------------------------
NAME: RONALD E.F. CODD
TITLE: PRESIDENT
BY:
--------------------------
NAME: ROBERT FINNELL
TITLE: SECRETARY
47
<PAGE> 59
APPENDIX A
DEFINITIONS
The following terms, as used in the Agreement, have the following
meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such other Person.
"Aggregate Purchase Price" means Thirty-Three Million Eight Hundred
Forty-Four Thousand Nine Hundred Eighty-Four Dollars ($33,846,849).
"Applicable Law" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, law, ordinance, rule, regulation,
order, writ, injunction, judgment, decree or other requirement of any
Governmental Authority existing as of the date hereof or as of the Closing Date
applicable to such Person or any of its respective properties, assets, officers,
directors, employees, consultants or agents.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in San Francisco, California are authorized or required
by law to close.
"Common Per Share Price" means an amount equal to (a) the Primary
Purchase Price less the sum of (x) Series A Preferred Stock Price, (y) Series B
Preferred Stock Price, and (z) Series C Preferred Stock Price, divided by (b)
sum of (1) the number of shares of Company Common Stock outstanding as of the
Effective Time, and (2) the number of shares of Company Common Stock issuable
upon exercise of the Vested Unexercised Options.
"Company" means Intrepid Systems, Inc. and each of its Subsidiaries.
"Company Capital Stock" means, collectively, the Company Common Stock
and the Company Preferred Stock.
"Company Common Stock" means the series of the Company's capital stock
designated as its Common Stock, no par value.
"Company Preferred Stock" means, collectively, the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock.
"Damages" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement, including
(y) interest on cash disbursements in respect of any of the foregoing at a rate
per annum equal to the prime rate as published by Bank of America, NT&SA,
compounded quarterly, from the later to occur of (i) ninety (90) days from the
date of demand for payment hereunder, or (ii) the date each such cash
disbursement is made until the Person incurring the same shall have been
indemnified in respect thereof and (z) reasonable costs, fees and expenses of
attorneys (including allocation costs of in house counsel), experts,
accountants, appraisers, consultants, witnesses, investigators and any other
agents of such Person.
48
<PAGE> 60
"Environmental Laws" means all Applicable Laws relating to the
protection of human health, safety or the environment from Hazardous Substances
including: (i) all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of Hazardous Substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid or
gaseous in nature; and (ii) all requirements pertaining to the protection of the
health and safety of employees or the public from exposure to Hazardous
Substances.
"Environmental Liabilities" means all Liabilities of a Person, whether
such Liabilities are owed by such Person to Governmental Authorities, third
parties or otherwise, whether presently in existence or arising hereafter, that
arise under or relate to any Environmental Law.
"Exchange Ratio" means the fraction obtained where the numerator is the
Common Per Share Price at the Effective Time and the denominator is the closing
price for Parent Common Stock on the Closing Date.
"GAAP" means generally accepted accounting principles.
"Governmental Authority" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Hazardous Substance" means any chemical substance: (i) the presence of
which requires investigation or remediation under any Environmental Law; (ii)
which is defined as a "hazardous waste" or "hazardous substance" under any
Environmental Law; (iii) that is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic or mutagenic or otherwise hazardous and is
regulated by any Governmental Authority having or asserting jurisdiction over
the business or any assets of the Company; or (iv) without limitation, that
contains gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated
biphenols (PCBs) or asbestos.
"Key Employees" means Richard White, Jim Kelly and Brian Kelly.
"Knowledge" or "knowledge" means (i) with respect to the Company, at any
given date of determination, the knowledge of all executive officers, vice
presidents and members of the Board of Directors, including all Key Employees
and Other Management Employees of the Company, and (ii) with respect to Parent,
at any given date of determination, the knowledge of any executive officer or
director of Parent. For purposes hereof, a Person shall be deemed to
49
<PAGE> 61
have knowledge of the contents of all books and records with respect to which
such Person has reasonable access and all facts and circumstances to which such
Person reasonably should have been aware after due inquiry or was aware in the
performance of such Person's duties as an employee, officer or director.
"Liability" means, with respect to any Person, any liability or
obligation of, or claims against, such Person of any kind, character or
description, absolute or contingent, known or unknown, accrued or unaccrued,
liquidated or unliquidated, secured or unsecured, joint or several, due or to
become due, vested or unvested, executory, determined, determinable or otherwise
and whether or not the same is required to be accrued on the financial
statements of such Person.
"Lien" means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, easement, security interest, hypothecation,
encumbrance, adverse claim or charge of any kind in respect of such asset.
"Material Adverse Change" means, with respect to any entity, a change
in, or effect on, the operations, affairs, prospects, financial condition,
assets, Liabilities, reserves or any other aspect of such entity that results,
or will result, in a material adverse effect on, or a material adverse change
in, such entity or its operations. Any loss in net income for the Company for
any quarter after the quarter ended March 31, 1998, shall not be deemed a
Material Adverse Change in the Company unless such loss exceeds the Company's
loss for the quarter ended March 31, 1998.
"Other Management Employees" means Lee Kunkle and Jack Harbaugh.
"Person" means an individual, corporation, partnership, association,
trust, limited liability company, limited liability partnership, estate or other
entity or organization, including a Governmental Authority.
"Primary Purchase Price" means Thirty-Seven Million Five Hundred
Thousand Dollars ($37,500,000).
"Proceeding" means any action, suit, hearing or arbitration,
investigation or other proceeding (whether public or private).
"Series A Per Share Price" means the amount of the distribution required
to be delivered, as set forth in the Company's Articles of Incorporation, to a
holder of a share of Series A Preferred Stock upon consummation of the Merger.
"Series B Per Share Price" means the amount of the distribution required
to be delivered, as set forth in the Company's Articles of Incorporation, to a
holder of a share of Series B Preferred Stock upon consummation of the Merger.
50
<PAGE> 62
"Series C Per Share Price" means the amount of the distribution required
to be delivered, as set forth in the Company's Articles of Incorporation, to a
holder of a share of Series C Preferred Stock upon consummation of the Merger.
"Series A Preferred Stock" means the series of the Company's capital
stock designated as its Series A Preferred Stock.
"Series B Preferred Stock" means the series of the Company's capital
stock designated as its Series B Preferred Stock.
"Series C Preferred Stock" means the series of the Company's capital
stock designated as its Series C Preferred Stock.
"Series A Preferred Stock Price" means an amount equal to the product of
(a) Series A Per Share Price and (b) the number of shares of Series A Preferred
Stock outstanding as of the Effective Time.
"Series B Preferred Stock Price" means an amount equal to the product of
(a) Series A Per Share Price and (b) the number of shares of Series B Preferred
Stock outstanding as of the Effective Time.
"Series C Preferred Stock Price" means an amount equal to the product of
(a) Series A Per Share Price and (b) the number of shares of Series C Preferred
Stock outstanding as of the Effective Time.
"Subsidiary" means a corporation, partnership, joint venture, limited
liability company or other Person the majority of the shares of the capital
stock or other equivalent ownership interests of which are directly or
indirectly owned of record or beneficially by the Company, or any corporation,
partnership, joint venture, limited liability company or other Person for which
the Company has the ability to direct or control voting with respect to fifty
percent (50%) or more of the capital stock or other equivalent ownership
interests.
"Vested Unexercised Options" means all options to purchase Company
Common Stock, to the extent such options will have vested prior to September 1,
1998.
51
<PAGE> 63
SCHEDULE 1.1(G)
OFFICERS OF THE SURVIVING CORPORATION AFTER THE MERGER
Ronald E.F. Codd: President
Steven Hill: Chief Financial Officer
Robert Finnell: Secretary
<PAGE> 64
SCHEDULE 3.2
PARENT CONSENTS
Consents will be required from third parities under the following agreement(s):
Participation Agreement, dated as of December 4, 1996, among Parent, Lease Plan
North America, Inc., ABN Amro Bank N.V., and San Francisco International Branch.
2
<PAGE> 65
SCHEDULE 6.2(C)
THIRD PARTY CONSENTS REQUIRED OF PARENT
Consents will be required from third parities under the following agreement(s):
Participation Agreement, dated as of December 4, 1996, among Parent, Lease Plan
North America, Inc., ABN Amro Bank N.V., and San Francisco International Branch.
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS AND RELATED NOTES
CONTAINED IN THIS FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL INFORMATION.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 474,905
<SECURITIES> 150,974
<RECEIVABLES> 384,830
<ALLOWANCES> 33,218
<INVENTORY> 0
<CURRENT-ASSETS> 1,055,608
<PP&E> 282,633
<DEPRECIATION> 112,236
<TOTAL-ASSETS> 1,306,106
<CURRENT-LIABILITIES> 609,907
<BONDS> 0
0
0
<COMMON> 2,502
<OTHER-SE> 615,631
<TOTAL-LIABILITY-AND-EQUITY> 1,306,106
<SALES> 0
<TOTAL-REVENUES> 949,501
<CGS> 0
<TOTAL-COSTS> 774,913
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29,130
<INTEREST-EXPENSE> 145
<INCOME-PRETAX> 188,905
<INCOME-TAX> 71,784
<INCOME-CONTINUING> 117,121
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,121
<EPS-PRIMARY> .51
<EPS-DILUTED> .45
</TABLE>
