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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-20710
PEOPLESOFT, INC.
(Exact name of registrant as specified in its charter)
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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 OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (925) 694-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the Registrant, based upon the closing sale price of common
stock on March 22, 1999 as reported on the Nasdaq National Market, was
approximately $3 billion. Shares of common stock held by each officer and
director and by each person who owns 5% or more of the outstanding common stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of March 22, 1999, Registrant had 238,078,138 outstanding shares of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's 1999 Annual Meeting of
Stockholders to be held May 25, 1999 are incorporated by reference in Part III
of this Form 10-K Report.
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References in this Report to the "Company" or "PeopleSoft" refer to PeopleSoft,
Inc. which was incorporated in Delaware in 1987 and its subsidiaries.
PeopleSoft, the PeopleSoft logo, PeopleTools, PS/nVision, PeopleCode,
PeopleBooks, and Red Pepper are registered trademarks, and PSBN, PeopleTalk, and
"We work in your world." are trademarks of PeopleSoft, Inc. All other company
and product names may be trademarks of their respective owners. References to
beta versions of software products refer to software products delivered to
select customers for testing or evaluation prior to the general commercial
release of such software products.
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PART I
ITEM 1. BUSINESS
This Business section and other parts of this Form 10K contain
forward-looking statements that involve risk and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below and in "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
GENERAL
PeopleSoft designs, develops, markets and supports a family of enterprise
client/server and internet based application software products for use
throughout large and medium sized organizations, including corporations
worldwide, and higher education institutions, and federal, state, provincial and
local government agencies primarily in North America. The Company designs its
products for the client/server and internet models of computing and believes
that its architecture is among the most flexible available for enterprise level
applications software. The Company's strategy is to offer a comprehensive
business portal entitled the PeopleSoft Business Network ("PSBN"). PSBN consists
of an eBusiness Backbone integrated with upcoming eWorkplace self service
communities and ePerformance Management Analytical Applications. The eBusiness
Backbone consists of cross industry transaction processing applications such as
HR management, financial applications, and procurement, including industry
specific versions of these base applications, such as manufacturing,
distribution, student administration, public sector, Federal, financial
services, and others. The eWorkplace communities will consist of self service
applications which integrate third party content with the eBusiness Backbone and
Analytical Applications, allowing users a browser based service environment
which is both productive and easy to use. The self service communities will
include procurement, expenses, benefits, travel booking and processing,
recruitment, and others, the first of which are planned for introduction in
1999. Analytical applications allow customers to perform analysis of data from
the transaction processing applications, both those from PeopleSoft and other
vendors, supporting management decision making. The Activity Based Management,
Risk Weighted Capital, and Funds Transfer Pricing analytical applications began
shipping in the first quarter of 1999, and others are planned for release in
1999 and 2000. The Company believes that its PSBN solutions will enable its
customers to significantly improve the productivity of their employees and
enhance the capability of management to analyze enterprise information in making
essential business decisions. The Company's software products utilize the
Microsoft Windows family of operating systems on the desktop as well as Internet
browser-based products for its clients. The database server runs on a wide
variety of popular relational database management system ("RDBMS"), operating
system and hardware platform choices. There are also several popular options on
the application server, making its software solutions among the most flexible,
scaleable and portable in the application software industry. Application
software products have been primarily developed using PeopleTools, the Company's
integrated rapid application development toolset that is delivered to customers
along with the application software products to facilitate customer modification
and customization.
PeopleSoft was incorporated in Delaware in August 1987 and initially
shipped its first software product suite, a Human Resource Management System
("HRMS") in December 1988. In 1992, PeopleSoft introduced the first of a series
of Financial Management and Accounting System software products, and in 1994,
introduced the first of a series of Distribution and Materials Management
products, rounding out a complete family of cross industry software products.
Since that time, PeopleSoft has introduced several industry specific software
product suites, including a suite of Manufacturing products for manufacturers, a
suite of Public Sector Financial Management products, a suite of Public Sector
HRMS products, a suite of Student Administration products for the higher
education market, and a suite of HRMS products for the U.S. Federal Government
marketplace, and has introduced additional Human Resource and Financial
Management software products. In October 1996, the Company acquired Red Pepper
Software Company ("Red Pepper"), a leader in the supply chain management systems
market. PeopleSoft's strategy is to offer comprehensive enterprise application
software solutions to a variety of industries with best of breed products
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utilized in a wide variety of cross-industry solutions. In the first quarter of
1999, the Company released its first Analytical Applications products to support
management decision making.
SOFTWARE PRODUCT ARCHITECTURE
PeopleSoft's software products are based on a scaleable, multi-tiered,
client/server architecture, and emerging internet architectures. The Company
believes that its architecture provides the system performance required for
intensive record keeping and high volume on-line transaction processing ("OLTP")
business applications, and facilitates faster, easier and less expensive
implementations of the initial system as well as subsequent upgrades. PeopleSoft
applications are designed for ease of use, are integrated with the Microsoft
Windows family of products and are compatible with personal productivity
applications such as word processors and spreadsheets. PeopleSoft applications
also operate over the web using a browser-based client. PeopleSoft software
products are designed specifically for use with RDBMSs, which offer power and
functionality superior to flat files, hierarchical, or other non-relational
databases that are generally used with legacy software applications. The
Company's software products are also scaleable, permitting changes in network
size, server platforms and other architectural components with minimal
disruption. Further, PeopleSoft software products are portable across major
RDBMS software and server hardware platforms. The Company believes that the
intuitive design of its software products reduces end-user training requirements
and allows end-users and decision makers increased access to critical data not
always readily available to them with legacy systems.
Architecture
The Company's application software products support online transaction
management in any of three different modes. In two-tier transaction processing,
the presentation logic and interactive application logic are performed on a
Windows client, while data intensive application logic and data management
functions are carried out on the database server. In three-tier transaction
processing, the presentation logic and selected interactive application logic
operate on a Windows client, while the balance of interactive application logic
and data intensive application logic operates on an application server and data
management functions are carried out on a database server. The two-tier and
three-tier options that use Windows on the desktop are collectively referred to
as the Windows Client. In "three-tier for the Web" transaction processing, the
presentation logic operates on a Java based client in a browser ("Web client"),
while interactive application logic and data intensive application logic
operates on an application server. With the availability of Release 7 and
three-tier transaction processing, the Company's application software products
now take advantage of messaging using remote procedure calls which facilitate
real-time initiation of certain application logic routines on an application
server or database server machine. Customers may implement Release 7 or 7.5
application software products using a single or any combination of the above
processing options in a single local area or wide area network environment. The
Company's future product development will focus heavily on internet centric
computing, including an HTML client for a smaller footprint (thin client),
applications messaging across the internet with XML, internet based APIs and
messages, and web based reporting.
PeopleTools
Today's users are demanding system solutions that address specific business
needs, facilitate the automation of workflow, are quickly adaptable to changing
information requirements and provide for ease of access to information.
PeopleSoft addresses these needs by providing PeopleTools, a set of integrated
development and reporting tools including: (i) Development tools for use by
business process or system analysts to rapidly design and deploy custom
modifications; (ii) Administration tools for use by systems managers and support
staff to improve the efficiency of implementing, operating and upgrading
PeopleSoft's applications; (iii) Reporting and Analysis tools for use by
application users to easily access, summarize and analyze information; (iv)
PeopleSoft Workflow for use by business process or system analysts and
application users to automate business processes in a paperless environment; and
(v) PeopleSoft enterprise application integration tools for use in communicating
between PeopleTools-built applications and externally-built applications.
PeopleTools continues to be used by the Company to develop most of its
application software
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products, and is a runtime environment. Powerful features and functions which
PeopleTools supports include effective date capabilities, extensive security at
both a user and object level, and a tree editor for managing hierarchical
relationships among data elements. PeopleTools is used to build and modify data
tables, design and customize user interface windows, modify user pull-down
menus, define security privileges of individual users and operator access to
system objects, define and build workflow based processes, process online
transactions, and facilitate data importation from other systems into PeopleSoft
applications. PeopleTools simplifies system customization and implementation and
can help reduce the time and cost of implementing the system. Upgrades to new
releases are simplified with a tool, which provides an automated comparison of
the customer's customized systems to base level systems, and helps define how to
install new releases. In addition, PeopleTools provides customers with
significant ongoing flexibility to modify their systems quickly and
inexpensively, so that internal maintenance costs can be reduced significantly.
Relational Database Management Systems
By utilizing relational databases and designing the system from the ground
up, the Company has been able to develop integrated software products with fully
normalized data structures. A fully integrated system provides convenient access
to shared data such as department tables, tax rates and organization charts,
without requiring users to maintain this information redundantly. Collecting and
capturing information once ensures that all data is consistent, readily
available and easier to maintain. Through adherence to ANSI Structured Query
Language ("SQL"), the industry standard data manipulation language for RDBMSs,
and other relational database standards, the Company's software products are
available in a range of environments. PeopleSoft's software products can be
licensed for use with the following RDBMSs: IBM's DB2 (MVS/ESA using DDCS
connectivity products from IBM, and separately on AIX and OS/400), Informix
Corporation's ("Informix") INFORMIX-OnLine Dynamic Server (NT and multiple
versions of Unix), Microsoft Corporation's ("Microsoft") SQL Server, Oracle
Corporation's ("Oracle") Oracle 8 (NT and over 10 versions of Unix), and Sybase,
Inc.'s ("Sybase") System 11 (on multiple versions of Unix). If the customer
decides to switch to other PeopleSoft supported RDBMS or hardware platforms,
user disruption is usually minimized because only the "back-end" database
changes, while the "front-end" application remains the same. No assurance can be
given concerning the successful development of PeopleSoft 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.
Not all software products or release versions of the Company's software
products are currently available on all of the above platforms. Presently,
releases or new software products are initially introduced on Oracle with a
subsequent release supporting other RDBMS versions. As a result of the
complexities inherent in the DB2 environment and the performance demanded by
customers in the DB2 environment, the DB2 version requires more lengthy
development and testing periods to achieve market acceptance. In addition, there
may be future or existing RDBMS platforms which achieve popularity within the
business application marketplace and which PeopleSoft may desire to offer its
applications thereon. Such future or existing RDBMS products may or may not be
architecturally compatible with PeopleSoft's software product design. No
assurance can be given concerning the successful porting to new platforms, the
specific timing of completion of any such ports or their acceptance in the
marketplace.
Graphical User Interface
All PeopleSoft's current software products share a common graphical user
interface ("GUI") based on Microsoft's Windows family of products, which
provides a consistent "look and feel" to the Company's applications, including
similar pull-down menus, error handling, system navigation and point-and-click
mouse-driven functionality. PeopleSoft Release 7.5 operates either in a 32-bit
architecture on Windows 95 and NT or on browsers certified to run the Company's
Web client. The intuitive nature of GUI-based systems increases productivity and
reduces user training requirements. The GUI's ease of use encourages
non-technical users to utilize the information system capabilities more fully.
In addition, the GUI allows users to integrate enterprise applications and data
with other Microsoft Windows-based desktop applications while using the Windows
Client. For example, customers can easily query the system and download data
into either a word processing
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document or a spreadsheet. By leveraging the public's widespread familiarity
with personal computers ("PC"), previously difficult access to enterprise
information is readily available to the casual employee user, resulting in
potentially significant improvements in employee productivity. PeopleSoft's
planned new business portal (PSBN) products to be introduced beginning in 1999
will be internet focused, with extensive use of a Web browser interface.
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.
Electronic Commerce
PeopleSoft's Web client runs applications over the World Wide Web, the
Internet, extranets and intranets. Electronic Data Interchange ("EDI") is
supported by the EDI Manager feature to handle transactions based on EDI
documents utilizing standard X-12 and EDIFACT formats. The transactions can be
passed over the Internet or private extranets. The Message Agent application
programming interface allows initiation of PeopleSoft transactions from sources
such as electronic forms, electronic mail, touch screen information kiosks and
Web browsers. PeopleSoft's planned PSBN internet focused products will also
include electronic bill presentment, supply chain management eCommerce
capability, and electronic storefront functionality.
APPLICATION SOFTWARE PRODUCTS
At December 31, 1998, PeopleSoft delivers commercially available
application software products in product lines of Business Management, Supply
Chain, Industry Solutions, and Product Architecture. Listed below are the
commercially available software products within these product lines. Please note
that products may be shared between product lines and therefore, may appear in
more than one product line. For example, Purchasing is a product that is part of
PeopleSoft Materials Management, as well as PeopleSoft Procurement. This allows
our customers the flexibility to purchase the set of products that best address
their business needs. Listed below are the commercially available software
products for the following software product lines:
BUSINESS MANAGEMENT APPLICATION SOFTWARE PRODUCTS
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PEOPLESOFT HUMAN RESOURCES MANAGEMENT 7.5 PEOPLESOFT ACCOUNTING AND CONTROL 7.5 PEOPLESOFT TREASURY MANAGEMENT 7.5
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Human Resources General Ledger Cash Management
Benefits Administration Receivables Payables
FSA Administration Payables Expenses
Payroll Asset Management Receivables
Payroll Interface Projects Budgets
Pension Administration Budgets Deal Management
Time and Labor Expenses Risk Management
Stock Administration Cash Management
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PEOPLESOFT PERFORMANCE MEASUREMENT 7.5 PEOPLESOFT PROJECT MANAGEMENT 7.5
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Enterprise Warehouse Projects
Activity-Based Management Purchasing
Funds Transfer Pricing Payables
Risk Weighted Capital Expenses
General Ledger Asset Management
Time and Labor Inventory
Billing Time and Labor
Payroll
Budgets
SUPPLY CHAIN APPLICATION SOFTWARE PRODUCTS
PEOPLESOFT SALES AND LOGISTICS 7.5 PEOPLESOFT MATERIALS MANAGEMENT/ PEOPLESOFT SUPPLY CHAIN PLANNING
--------------------------------- PROCUREMENT 7.5 7.5
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Remote Order Entry Purchasing Demand Planning
Order Management Payables Enterprise Planning
Product Configurator Inventory Order Promising
Billing Expenses
Receivables Asset Management
Order Promising
Inventory
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PEOPLESOFT REVENUE MANAGEMENT 7.5
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Time and Labor
Payroll
Projects
Billing
Expenses
Receivables
Payables
Purchasing
INDUSTRY SOLUTIONS APPLICATION SOFTWARE PRODUCTS
PEOPLESOFT HUMAN RESOURCES PEOPLESOFT HUMAN RESOURCES PEOPLESOFT FINANCIAL MANAGEMENT
MANAGEMENT MANAGEMENT FOR EDUCATION AND GOVERNMENT 7
FOR EDUCATION AND GOVERNMENT 7.5 FOR U.S. FEDERAL GOVERNMENT 7 ---------------------------------
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Human Resources Human Resources General Ledger
Benefits Administration Benefits Administration Receivables
FSA Administration Payroll Payables
Payroll Payroll Interface Purchasing
Payroll Interface Time and Labor Budgets
Time and Labor Inventory
Asset Management
Billing
PEOPLESOFT PROFITABILITY PEOPLESOFT MERCHANDISE MANAGEMENT PEOPLESOFT CUSTOMER INFORMATION
MANAGEMENT 7.5 SYSTEM
FOR FINANCIAL SERVICES 7.5 --------------------------------- FOR UTILITIES 7.5
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Enterprise Warehouse Merchandising CIS Plus from SPL WorldGroup
Activity-Based Management
Funds Transfer Pricing
Risk Weighted Capital
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PEOPLESOFT PRODUCT DEVELOPMENT 7.5 PEOPLESOFT PRODUCTION MANAGEMENT 7.5
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Engineering Bills and Routings
Bills and Routings Production Planning
Cost Management Production Management
Inventory Cost Management
Quality
Inventory
PEOPLESOFT STUDENT ADMINISTRATION PEOPLESOFT ADVANCEMENT 7.5
7.5 ---------------------------------
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Recruiting and Admissions Advancement
Student Financials
Financial Aid
Student Records
Academic Advisement
Campus Community
PRODUCT ARCHITECTURE APPLICATION SOFTWARE PRODUCTS
PEOPLETOOLS 7.5: PEOPLETOOLS 7.5: PEOPLETOOLS 7.5:
DEVELOPMENT TOOLS ADMINISTRATION TOOLS REPORTING AND ANALYSIS TOOLS
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Application Designer Data Mover PeopleSoft Query
Application Engine Security Administrator PS/nVision
PeopleCode Mass Change Structured Query Reports
Import Manager Cube Manager
Process Scheduler Tree Manager
Configuration Manager Process Scheduler
Object Security
Transaction Set Editor
PEOPLETOOLS 7.5: PEOPLETOOLS 7.5:
WORKFLOW TOOLS INTEGRATION TOOLS
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Application Designer Message Agent API
Workflow Processor EDI Manager
Workflow Administrator Open Query API
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STATEMENT OF FUTURE DIRECTION: This document contains statements of future
direction concerning possible functionality for PeopleSoft's software products
and technology. All functionality and software products will be available for
license and shipment from PeopleSoft only if and when generally commercially
available. PeopleSoft 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 PeopleSoft makes no express or implied
commitments or representations concerning the timing and content of any future
functionality or releases.
In a comprehensive offering to help organizations improve both efficiency
and effectiveness through business process automation and analysis, PeopleSoft
7.5 includes: (i) global applications and functionality, including global
manufacturing and supply chain management, support for European Economic and
Monetary Union (EMU) and international accounting practices, and additional
global enhancements to support regional and multinational organizations
worldwide; (ii) new applications for increased business process efficiency,
including the Treasury application suite and new Expenses, Stock Administration,
and Quality applications; (iii) strategic applications and functionality with
OLAP capability, including the new Performance Measurement application suite, an
enhanced Budgets application, and new total compensation functionality in the
Human Resources application; (iv) enhancements throughout the entire enterprise
application suite. In addition, PeopleSoft 7.5 marks the introduction of several
new web client-based self-service applications, including employee expenses,
employee time and reporting, and benefits processing; (v) all of the
applications and functionality included in release 7.5 take advantage of the
proven technology delivered with PeopleSoft 7
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in September 1997, including a web client, a high-performance three-tier
processing option, and OLAP integration; (vi) industry-specific solutions for
manufacturing, retail, the federal government, higher education, public sector,
healthcare, financial services, service industries, communications,
transportation and utilities; and (vii) PeopleSoft Express, PeopleSoft's
packaged guidance for rapid implementations and upgrades, is available with
PeopleSoft 7.5.
The Company's software products are generally licensed to end-user
customers under non-exclusive, non-transferable, perpetual license agreements.
In most cases, the Company licenses its software products solely for the
customer's internal operations. License fees for the Company's software products
are a function of the particular combination of PeopleSoft software products
chosen and, the number of employees for HRMS software products, the number of
enrolled students for Higher Education software products or revenues of the
licensing entity for Financial, Supply Chain and Manufacturing software products
and the number of named users for third party workstation based software tools.
All RDBMS platforms are priced the same except for DB2 mainframe versions, which
have a higher price.
PEOPLESOFT BUSINESS MANAGEMENT APPLICATION PRODUCTS: HUMAN RESOURCES MANAGEMENT
PeopleSoft Human Resources Management 7.5 is a family of fully integrated
human resources management application software products available for a variety
of industries. A brief summary of each software product follows:
PeopleSoft Human Resources. The base human resources software product
provides support for the human resource and certain base benefit functions,
including workforce administration (employee biographical and job-related
information), recruitment, position management, training and development, health
and safety monitoring, skills inventory, career and succession. Additional
features include globalization for managing operations and requirements specific
to a country or region, tracking and administration of temporary global
assignments, salary planning and budgets, competency management for identifying
and analyzing job skills or competencies associated with individuals, jobs,
teams and positions, and variable compensation to align the workforce with
strategic business objectives, and the administration and tracking of various
types of incentive compensation plans. This software product also includes the
capability to set up online review by employees of their own selected human
resource and benefits information. With this foundation as a building block, the
following software products can be added to expand the range of system
capabilities.
PeopleSoft Benefits Administration. The benefits administration software
product provides companies with the capability to automate certain of their more
sophisticated benefits management processes, including flexible and non-flexible
benefits programs that require complex eligibility checking, open enrollment
processing, and other automatic enrollment processing capabilities.
PeopleSoft FSA Administration. The flexible spending account administration
(FSA) software product provides the capability for companies to manage employee
flexible spending accounts for healthcare and dependent care benefits plans.
PeopleSoft Payroll. The payroll software product provides a full in-house
payroll administration and production facility.
PeopleSoft Payroll Interface. The payroll interface software product
provides a bridge between the PeopleSoft Human Resources Management application
and third party payroll systems for those companies that use their own payroll
system or a payroll service bureau.
PeopleSoft Pension Administration. The pension administration software
product provides the capability to automate pension administration functions for
qualified, non-qualified, contributory, final pay, career average and cash
balance defined benefit plans.
PeopleSoft Time and Labor. The time and labor software product provides a
single repository for workforce time and labor tracking and reporting, including
exception-only and positive time tracking.
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PeopleSoft Stock Administration. The stock administration product will
enable organizations to efficiently administer stock options and employee stock
purchase programs.
In addition to the above software products, PeopleSoft has extended the
functionality of PeopleSoft Human Resources Management through the integration
of numerous third party software products, including a resume reader from
Restrac, tax reporting and filing from Federal Liaison Services and interactive
voice processing of benefit, time and personal payroll-related information from
TALX Corporation.
PEOPLESOFT BUSINESS MANAGEMENT APPLICATION PRODUCTS: ACCOUNTING AND CONTROL
PeopleSoft Accounting and Control 7.5 is a family of fully integrated
financial management system products available for a variety of industries.
These modules support multiple currencies (including EMU). A brief summary of
each software product follows:
PeopleSoft General Ledger. The general ledger software product provides
financial analysis, flexible management reporting, general ledger accounting and
consolidations that enable the user to collect and report financial information
based on the organization's unique requirements. Features include: unlimited
charts of accounts (ChartFields) with alternate account codes available to
support multinational statutory requirements, unlimited ledger versions
(multibooks) allowing transaction level data capture in an unlimited number of
currencies, gross and net debit and credit balances, currency precision to 15.3
digits, automatic generation of cross-currency exchange rates, customer-defined
ledgers, graphical "tree" maintenance of ChartField elements, flexible
calendars, dynamic budgeting, automated journal entry, multi-currency
capabilities (including support for the European Monetary Unit (EMU)), automated
allocations processing and inter-company journal entries.
PeopleSoft Receivables. The receivables software product manages the
receipt of customer payments, and is designed to improve the organization's
ability to collect payments in a timely fashion.
PeopleSoft Payables. The payables software product provides comprehensive
accounts payable and cash management functions.
PeopleSoft Asset Management. The asset management software product manages
the acquisition, maintenance, transfer, depreciation and retirement of fixed
assets and tax compliance.
PeopleSoft Projects. The projects software product integrates operational
and financial functions, allowing users to perform a variety of tasks, from
managing complex capital projects to calculating revenue for billable projects.
PeopleSoft Budgets. The budgeting software product integrates all aspects
of the budgeting process, combining spreadsheets, workflow processing and
PeopleSoft reporting and query tools into a centralized budgeting solution. In
addition, the budget product offers full online analytical processing (OLAP)
capability utilizing Arbor's Essbase software.
PeopleSoft Expenses. The expenses software product integrates all aspects
of the travel and entertainment reimbursement process providing tight control
over expense management processing while enabling timely and efficient employee
reimbursement. Features include: the flexibility to enable travelers to use
their own PCs to enter expense reports outside of the network and then submit
them for approval and processing later, direct input from credit card companies,
or centralized input of employee receipts submitted by travelers. This software
can be integrated with the General Ledger and Payables for reporting and
disbursements and will contain workflow capabilities for review and approval.
PeopleSoft Cash Management. PeopleSoft Cash Management helps global,
multi-center treasury units to monitor and forecast cash needs, maintain bank
relationship information, and perform bank reconciliation. PeopleSoft Cash
Management at a glance:
More Accurate Forecasting. Track and predict the amount and timing of cash
flows -- including foreign currency exposures -- from operations through
integration with enterprise financial applications, such as accounts
payable and accounts receivable.
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Strategic In-House Banking. Strategically provide short-term cash
availability to business units, and better assess cash requirements for
your organization.
Integrated Bank Statement Processing. Centrally reconcile system data from
internal and third party sources, then transfer the information to the
appropriate applications, such as PeopleSoft Payables, Receivables,
Treasury, and General Ledger.
Bank Relationship Management. Successfully manage relationships with banks
and counterparties, while tracking facilities and fees.
Fully Integrated Enterprise Solution. Simplify the forecasting process,
using the system to gather data from other PeopleSoft applications, such as
PeopleSoft Receivables, Payables, and Budgets.
PEOPLESOFT BUSINESS MANAGEMENT APPLICATION PRODUCTS: TREASURY MANAGEMENT
PeopleSoft Treasury Management 7.5 is a family of fully integrated treasury
management system products available for a variety of industries. A brief
summary of each software product follows:
PeopleSoft Cash Management. See description above.
PeopleSoft Payables. See description above.
PeopleSoft Expenses. See description above.
PeopleSoft Receivables. See description above.
PeopleSoft Budgets. See description above.
PeopleSoft Deal Management. PeopleSoft Deal Management provides treasury
departments with functionality to streamline deal capture, confirmations,
settlement, accounting, and position management. PeopleSoft Deal Management at a
glance:
Quicker Deal Processing. Define financial instruments, save them as
templates, and re-use them for similar types of deals. Simplify
administration with electronic confirmation and matching.
Innovative Instrument Creation. Create financial instruments using a
building block approach. Handle an increasing variety of complex
instruments using the same methods as Wall Street financial engineers.
Enterprise-Wide Foreign Exchange. Quantify the foreign exchange exposures
across different business units in the enterprise. Offset unwanted
exposures by conducting fewer transactions at more favorable rates.
Flexible Transaction Settlement. Settle all transactions on a gross or net
basis by individual deal, financial instrument type, or counterparty for a
particular date and currency.
Automated Workflow. Use workflow to generate printed confirmation letters
and have them faxed to your trade counterparty, or fully automate the
process and use electronic confirmation matching.
Efficient Transaction Tracking. Track the status of the transaction through
the dealing process to determine if there are any backlogs or problems.
Immediate Online Information Access. Use your own market data, or integrate
real-time information using quote vendors such as Reuters and Bloomberg.
Flexible Limits Establishment. Establish limits for counterparties,
currencies, financial instrument types, trader, deal size, or numerous
other criteria. Use workflow to provide online warning of limits being
approached or breached.
PeopleSoft Risk Management. PeopleSoft Risk Management supports the
valuation and analysis of a treasury's portfolio of transactions and exposures.
You can use a variety of reporting tools to provide position, treasury
performance analysis, and value-at-risk reports. PeopleSoft Risk Management at a
glance:
Online Pricing and Analysis. Interface to third party and proprietary
analytical tools for online pricing and analysis. Select same analytics
used by bankers, to more accurately calculate your counterparty
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exposures in terms of market value. And to conform to regulatory
requirements such as those imposed by FASB.
Treasury Performance Tracking. Analyze and report treasury performance. For
example, track treasury performance relative to a policy-defined benchmark.
Hedges Calculation. Calculate the effectiveness of hedges for a single
transaction or across a given portfolio.
Value at Risk Calculation. Quantify market exposures by calculating Value
at Risk (VaR) through an interface to third party analytical tools. Analyze
the risk of alternative strategies, restructure the firm's exposure
profile, or comply with external regulatory reporting guidelines as imposed
by the SEC.
Up-to-Date Market Information. Update market information using feeds from
external quote vendors.
PEOPLESOFT BUSINESS MANAGEMENT APPLICATION PRODUCTS: PERFORMANCE MEASUREMENT
PeopleSoft Performance Measurement 7.5 is a family of fully integrated
performance measurement system products available for a variety of industries.
Enterprise Warehouse, Activity-Based Management, Funds Transfer Pricing and Risk
Weighted Capital became generally available during the first quarter of 1999. A
brief summary of each software product follows:
PeopleSoft Enterprise Warehouse. PeopleSoft Enterprise Warehouse, is a key
component to our Performance Measurement solution. The financial, operational,
and activity-based management data for performance measurement is stored within
the Performance Measurement Warehouse. PeopleSoft Performance Measurement
Warehouse brings together data from diverse operating systems. So you can access
and analyze information at a variety of levels using online analytical
processing (OLAP) tools. PeopleSoft Performance Measurement Warehouse is also
designed to store large amounts of data and is optimized for fast response to
any query. Performance Measurement Warehouse includes a variety of reporting and
OLAP tools, providing an intuitive, navigational interface to your performance
measurement data.
PeopleSoft Activity-Based Management. The activity-based management
software product helps organizations measure performance and support decision
making throughout the enterprise with activity-based costing, economic
value-added calculations, and the capability to determine profitability by
customer, product and channel.
PeopleSoft Funds Transfer Pricing. PeopleSoft Funds Transfer Pricing (FTP)
helps financial institutions integrate systems for risk management, performance,
measurement, and planning. The comparative value of profit contributions is
difficult to measure across a wide range of offices operating in different
financial environments. FTP is an accurate, credible, and fair tool for
measuring and managing profitability across the enterprise. FTP includes the
following:
Accurate Evaluation of Business Units. Evaluate business units according to
factors within their control, including credit quality, pricing, and
product strategy. Evaluate institution components consistently and
determine component impact on overall earnings.
Centralized Risk Management. Transfer interest rate risk from business
units to a centralized reporting unit, where risk management expertise
resides.
Accurate Evaluation of Profit Contributions. Measure profit contributions
at the individual product, customer, and organizational levels.
Profitable Lending Rates. Determine the funding cost for each asset in a
financial institution. Then set profitable lending rates that take credit
risk, operating cost, and accurate funding costs into account.
Asset Generation Measurement. Measure the asset-generating efficiency of
each business unit apart from its funds-generating efficiency.
Employee Motivation. Motivate employees to perform according to the
financial goals of the institution, with accurate financial reporting.
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Enhanced Management Knowledge. Build management knowledge to improve
pricing, tactical, and strategic decisions.
PeopleSoft Risk Weighted Capital. PeopleSoft Risk Weighted Capital (RWC)
measures the return on risk-adjusted capital. RWC helps institutions allocate
appropriate levels of capital to business units on a basis that includes
inherent risk. By measuring the performance of business units, products,
customers, or transactions against perceived levels of risk, RWC provides a
truer picture of profitability.
RWC measures risk-adjusted capital derived from several types of risk,
including: Credit, Interest Rate, Market, Deposit Run-off, Operational, Legal
and Reputation Risk. The advantages of RWC include:
- Provides a basis for calculating and reporting risk-adjusted performance
- Highlights control and improvement opportunities
- Optimally assigns time and resources
- Helps reduce earnings volatility by highlighting diversification
opportunities
- Helps identify areas of equity protection in the event of catastrophic
losses
- Extends the depth to which capital is allocated to the business unit,
product, or customer
- Extends the breadth of risk categories covered in reaching specific
capital allocation decisions
PeopleSoft General Ledger. See description above.
PeopleSoft Time and Labor. See description above.
PeopleSoft Billing. The billing software product offers a flexible, modular
approach for managing billing and adjustments, processing sales taxes,
generating invoices, and creating account distributions. Organizations can
create an enterprise-wide billing information repository, streamline the billing
process, and customize billing requirements. The unique modular approach opens
PeopleSoft Billing to allow the billing process to be driven by any number of
PeopleSoft and non-PeopleSoft billing sources. Features include: integration
with PeopleSoft General Ledger and Order Management, ChartField combination
edits, support of Canadian sales and use taxes and automated RMA credit
generation.
PEOPLESOFT BUSINESS MANAGEMENT APPLICATION PRODUCTS: PROJECT MANAGEMENT
PeopleSoft Project Management 7.5 is a family of fully integrated project
management system products available for a variety of industries. A brief
summary of each software product follows:
PeopleSoft Projects. See description above.
PeopleSoft Purchasing. The purchasing software product automates
requisitioning, purchasing and receiving of raw materials, supplies, services,
products and assets, streamlines purchasing functions through online
requisitioning, automated sourcing, and application integration and enables
buyers to manage vendor selection and ongoing contracts more efficiently and
cost effectively.
PeopleSoft Payables. See description above.
PeopleSoft Expenses. See description above.
PeopleSoft Asset Management. See description above.
PeopleSoft Inventory. The inventory software product provides the ability
to efficiently store and issue stock in response to changing demands, accurately
track the movement of stock on a real-time basis, and automatically replenish
stock as needed.
PeopleSoft Time and Labor. See description above.
PeopleSoft Payroll. See description above.
PeopleSoft Budgets. See description above.
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PEOPLESOFT SUPPLY CHAIN APPLICATION PRODUCTS: SALES AND LOGISTICS
PeopleSoft Sales and Logistics 7.5 is a family of fully integrated
distribution software products providing optimum order management and supply
chain management. A brief summary of each software product follows:
PeopleSoft Remote Order Entry. PeopleSoft Remote Order Entry gives field
sales force the ability to enter configured sales orders and quotes on a
standalone laptop version of our Product Configurator and Order Management
applications. PeopleSoft Remote Order Entry at a glance:
Open Ordering Environment. Support full quotation and order entry, as well
as full pricing and discounting logic.
Enterprise-Wide Synchronization. Ensure accuracy throughout the enterprise.
Remote Order Entry operates with subsets of Order Management
data -- customers, catalogs, and business units -- to efficiently transfer
data.
Sales Force Advantage. Enable the customer's sales force to take orders
outside the office, thereby increasing productivity.
PeopleSoft Order Management. The order management software product handles
the complete range of order processing requirements.
PeopleSoft Product Configurator. The configurator software product is a
highly efficient solution to selling, producing, and tracking individually
configured products in a make-to-order or assemble-to-order environment.
PeopleSoft Billing. See description above.
PeopleSoft Receivables. See description above.
PeopleSoft Order Promising. This event-driven, real-time order promising
application works in concert with other enterprise requirements planning (ERP)
applications to evaluate production capability to meet customer demand.
PeopleSoft Inventory. See description above.
PEOPLESOFT SUPPLY CHAIN APPLICATION PRODUCTS: MATERIALS MANAGEMENT/PROCUREMENT
PeopleSoft Materials Management/Procurement 7.5 is a family of fully
integrated distribution software products providing optimum materials and supply
chain management. From materials procurement through complex outbound logistics,
PeopleSoft Materials Management/Procurement uses the latest technology for the
supply chain to streamline business processes. When dealing with customers in
the Products Industry (e.g. manufacturing, transportation, and utilities),
PeopleSoft refers to this product line as PeopleSoft Materials Management. When
dealing with customers in the Services Industry (e.g. financial services,
healthcare, retail, service industries), PeopleSoft refers to this product line
as PeopleSoft Procurement. Materials Management/Procurement software products
that are currently commercially available are: Purchasing, Payables, Inventory,
Expenses and Asset Management, each of which is described above.
PEOPLESOFT SUPPLY CHAIN APPLICATION PRODUCTS: SUPPLY CHAIN PLANNING
PeopleSoft Supply Chain Planning 7.5 is a family of intelligent planning
and optimization solutions, powered by Red Pepper technology, for supply chain
planning, sales order promising and plant level operations. Supply Chain
optimization technology is embedded in certain PeopleSoft manufacturing and
distribution software products and is also sold separately for integration into
customer environments that incorporate enterprise resource planning (ERP),
material requirement planning (MRP) and distribution requirement planning (DRP)
products from other vendors. A brief summary of each software product follows:
PeopleSoft Demand Planning. PeopleSoft Demand Planning combines advanced
decision support techniques with multi-user collaboration to develop
enterprise-feasible forecasts.
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PeopleSoft Enterprise Planning. This intelligent supply chain optimization
application creates a total view of the enterprise. Beyond just manufacturing
planning, it includes true constraint-based replenishment planning, featuring
sourcing rules, inventory stocking policies, transfer options, and plan
requirements for each location in the supply chain.
PeopleSoft Order Promising. See description above.
PEOPLESOFT SUPPLY CHAIN APPLICATION PRODUCTS: REVENUE MANAGEMENT
PeopleSoft Revenue Management 7.5 is a family of fully integrated
distribution software products providing optimum materials and revenue
management. A brief summary of each software product is listed above.
PEOPLESOFT INDUSTRY SOLUTIONS APPLICATION PRODUCTS: HUMAN RESOURCES MANAGEMENT
FOR EDUCATION AND GOVERNMENT
PeopleSoft Human Resources Management for Education and Government 7.5 is a
family of fully integrated human resources management application software
products available for education and government. This industry solution is based
on our cross-industry Human Resources Management product line and contains
additional capabilities required by education and public sector organizations,
such as encumbrances/commitments, fund-based position management and budgeting,
and contract pay programs. Human Resources Management for Education and
Government software products that are currently commercially available include:
Human Resources, Benefits Administration, FSA Administration, Payroll, Payroll
Interface and Time and Labor. A brief summary of each software product is listed
above.
PEOPLESOFT INDUSTRY SOLUTIONS APPLICATION PRODUCTS: HUMAN RESOURCES MANAGEMENT
FOR U.S. FEDERAL GOVERNMENT
PeopleSoft Human Resources Management for U.S. Federal Government 7 is a
family of fully integrated human resources management application software
products available for the U.S. federal government. This industry solution is
based on our cross-industry Human Resources Management product line and contains
additional capabilities required by U.S. federal government agencies, such as
specific U.S. government terminology, encumbrances/commitments, fund-based
position management and budgeting, and contract pay programs. Human Resources
Management for U.S. Federal Government software products that are currently
commercially available include: Human Resources, Benefits Administration,
Payroll, Payroll Interface and Time and Labor. A brief summary of each software
product is listed above.
PEOPLESOFT INDUSTRY SOLUTIONS APPLICATION PRODUCTS: FINANCIAL MANAGEMENT FOR
EDUCATION AND GOVERNMENT
PeopleSoft Financial Management for Education and Government 7 is a family
of fully integrated financial management system products available for education
and government. This industry solution is based on our cross-industry financial
and distribution product lines and contains additional capabilities required by
education and public sector organizations, such as public sector specific chart
of accounts structures and encumbrances/commitments. Financial Management for
Education and Government software products that are currently commercially
available include: General Ledger, Receivables, Payables, Purchasing, Budgets,
Inventory, Asset Management and Billing. A brief summary of each software
product is listed above.
PEOPLESOFT INDUSTRY SOLUTIONS APPLICATION PRODUCTS: PROFITABILITY MANAGEMENT FOR
FINANCIAL SERVICES
PeopleSoft Profitability Management 7.5 delivers the kind of cost and
profitability information that financial services companies need to remain
competitive. Our solution provides access to timely and accurate data on cost,
profit, and risk. It helps management throughout the organization make decisions
that support overall strategy. PeopleSoft Profitability Management allows
financial services organizations to:
- Identify the right product lines to support with investment -- and the
wrong ones
- Manage the cost of and return on funds for operations
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- Determine profitability for individual products, then rationalize
accordingly
- Determine true product cost and revenue, then price more competitively
- Identify service costs of alternative channels of distribution
Profitability Management for Financial Services software products which
became generally available during the first quarter of 1999 include: Enterprise
Warehouse, Activity-Based Management, Funds Transfer Pricing and Risk Weighted
Capital. A brief summary of each software product is listed above.
PEOPLESOFT INDUSTRY SOLUTIONS APPLICATION PRODUCTS: MERCHANDISE MANAGEMENT
The merchandising software product is a comprehensive retail merchandise
software solution. With PeopleSoft, retailers can enable all users -- novice or
experienced -- to quickly turn transaction data into reports that spur action.
Merchandise Management enhances a retailer's ability to address problems and
capitalize on opportunities across the enterprise. PeopleSoft's Merchandise
Management provides additional benefits such as:
- Streamline administrative practices and work more productively
- Adapt merchandise management system to business changes and growth
- Deploy user-friendly exception based reporting and data surfing tools
enterprise-wide
- Organize and consolidate critical information in a data warehouse for
quick and easy enterprise-wide access
- Consolidate the functionality of disparate information systems onto a
single easy-to-use platform
PEOPLESOFT INDUSTRY SOLUTIONS APPLICATION PRODUCTS: CUSTOMER INFORMATION SYSTEM
FOR UTILITIES
PeopleSoft for Utilities features CIS PLUS(R) the leading customer
management solution from SPL WorldGroup. CIS PLUS is a functionally rich system
designed to meet customer needs quickly and effectively. Benefits include:
- Understand customer purchasing trends and offer them the choices they
want
- Capture comprehensive customer information with flexible parameters
- Customize market offering
- Take advantage of emerging market opportunities
- Capture customer financial data then integrate it into PeopleSoft
financial management applications
PEOPLESOFT INDUSTRY SOLUTIONS APPLICATION PRODUCTS: PRODUCT DEVELOPMENT
PeopleSoft Product Development 7.5 is a family of fully integrated software
products designed for manufacturers. A brief summary of each software product
follows:
PeopleSoft Engineering. The engineering software product provides the
ability to manage product introduction and change processes throughout the
enterprise.
PeopleSoft Bills and Routings. The bills and routings software product
provides all the features and functionality required to dynamically maintain
complex bills of material (BOM), resources, work centers and routings.
PeopleSoft Cost Management. The Cost Management software product provides
control and flexibility to manage costs throughout the supply chain. This
software product focuses on determining, analyzing, and managing product costs
and on accounting transactions that affect inventory balances.
PeopleSoft Inventory. See description above.
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PEOPLESOFT INDUSTRY SOLUTIONS APPLICATION PRODUCTS: PRODUCTION MANAGEMENT
PeopleSoft Production Management 7.5 is a family of fully integrated
software products designed for manufacturers. A brief summary of each software
product follows:
PeopleSoft Bills and Routings. See description above.
PeopleSoft Production Planning. This interactive factory planning system
enables planners to optimize their manufacturing operations.
PeopleSoft Production Management. The production management software
product synchronizes planning and execution throughout the enterprise.
PeopleSoft Cost Management. See description above.
PeopleSoft Quality. The Quality software product provides a structured
quality environment, combining online Statistical Process Control (SPC) data
collection with the power of a relational database for unparalleled quality
analysis and reporting.
PeopleSoft Inventory. See description above.
PEOPLESOFT INDUSTRY SOLUTIONS APPLICATION PRODUCTS: STUDENT ADMINISTRATION
PeopleSoft Student Administration 7.5 is a suite of software applications
tailored to meet the specific needs of higher education institutions. A brief
summary of each software product follows:
PeopleSoft Recruiting and Admissions. The recruiting and admissions
application captures all information relating to specific candidates, admitted
students, recruiter management, event management, concurrent prospect and
applications records, and automated admissions decisions.
PeopleSoft Student Financials. The student financials application unifies
all the rules a college or university has regarding fees and tuition, making
possible innovative tuition calculation, cashiering, third party processing,
collections and profitability tracking.
PeopleSoft Financial Aid. The financial aid application integrates workflow
to streamline applications processing, assignment of student budgets, needs
analysis, fund disbursement, and compliance with federal regulations and grant
applications. This application also allows automated Direct and FFELP Loan
processing and automated aid packaging.
PeopleSoft Student Records. The student records application expedites
complex academic administrative tasks such as catalog and class schedule
maintenance, enrollment requisite and conflict checking, multiple grading
systems, multiple concurrent academic careers and academic programs, wait list
management and tracking, and automated transfer credit evaluation.
PeopleSoft Academic Advisement. The academic advisement application
provides automated analysis of student progress toward completion of academic
requirements. This application allows students and advisors to easily
understand, navigate and track degree progress.
PeopleSoft Campus Community. The campus community application captures and
unifies prospect, applicant, student, alumni and employee records by allowing
for a common database across the institution. This application streamlines
internal communications management and provides complex global searches and
tracking of all individuals and organizations associated with the college or
university.
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PEOPLESOFT INDUSTRY SOLUTIONS APPLICATION PRODUCTS: ADVANCEMENT
PeopleSoft Advancement streamlines and automates key business functions
related to philanthropic and non-profit management. Advancement combines with
other products to provide the higher education community with a comprehensive
institution-wide solution. PeopleSoft Advancement users can:
- Maintain biographic constituent information
- Track and manages all types of commitments
- Maintain detailed prospect information
- Put on events of various sizes and objectives
- Strengthen fundraising efforts
PEOPLESOFT APPLICATION DEVELOPMENT AND PRODUCTIVITY TOOLS -- PEOPLETOOLS
The Company includes a restricted use license to PeopleTools with each
PeopleSoft application software product licensed. PeopleTools 7.5 includes the
following application development tools:
Development Tools: Business process analysts use the following tools to
design, prototype and deliver custom modifications and system extensions:
Application Designer. Application Designer is an integrated development
environment which allows users to view and edit a list of applications objects
through an MDI interface. It also allows modified objects to be moved into
production through PeopleSoft's upgrade process. The Application Designer
integrates the following tools:
Data Designer. Data Designer is used to build new table definitions, to
add, drop or modify fields in existing tables and to facilitate field
editing. In addition, Data Designer includes PeopleCode, a programming
language similar to Visual Basic which is used for custom field-level
calculations, edits, defaults and programming routines which minimizes
complex coding inherent with standard computer languages.
Panel Designer. Panel Designer is used to build or modify GUI-based query
and data entry screens.
Menu Designer. Menu Designer is used to build or modify application windows
and pull-down menus in a graphical user interface environment.
Business Process Designer. Business Process Designer comprises the tools
used to design and build business processes, including workflow rules and
routings.
Application Upgrader. Application Upgrader facilitates customer upgrades to
successive releases of the applications with retention of the function and
feature modifications made by the customer.
Object Security. Object Security allows read or modification access to
individual objects and groups of objects, including tables, panels, menus
or tree structures.
Application Reviewer. Application Reviewer works as a debugger to help
systems analysts perform problem identification and resolution prior to
placing a modified system into production.
Application Processor. Application Processor builds panels from stored
application objects. An image of the objects in memory is written to local
storage for reuse, but is automatically updated if changed on the server.
EDI Manager. EDI Manager is used to define the data mappings for electronic
data interchange.
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Administration Tools: Information systems managers and support staff use
the following tools to improve the efficiency of implementing and operating
PeopleSoft's software applications:
Application Installer. Application Installer automates the application
installation process in various client/server network environments,
facilitating easier navigation through the many hardware, database, and
connectivity variables that affect PeopleSoft applications.
Data Mover. Data Mover archives and retrieves archived data stored in
PeopleSoft application databases.
Operator Security. Operator Security controls the scope and level of data
accessibility provided to individuals and classes of users.
Mass Change. Mass Change is a SQL generator used to develop and perform
custom applications. Through Mass Change, a developer can set up a series
of insert, update or delete SQL statements that the end user can execute to
perform business functions.
Import Manager. Import Manager speeds the loading of data generated by
other systems into the RDBMS server for access by the Company's application
software products.
Process Scheduler. Process Scheduler streamlines the execution of routine
tasks and controls time-based events from distributed clients by running,
on the client or server, batch processes or programs such as journal
creation, payroll processing, voucher posting and other reports without
requiring additional user interaction.
Reporting and Analysis Tools: The following tools are used by application
users to easily access, analyze and report information:
PS/nVision. PS/nVision integrates PeopleSoft applications with Microsoft
Excel in the production of financial statements, responsibility reports and
other ad hoc financial reports and analyses.
Tree Manager. Tree Manager builds hierarchical relationships between
different data elements within a given table, such as among departments or
accounts.
PeopleSoft Query. PeopleSoft Query builds SQL queries which extract and
summarize information from an application's database.
Query Link. Query Link provides a PeopleSoft Query interface to Crystal
Reports Pro, a versatile report designer and formatter from Crystal
Services. Through Query Link, data can be quickly and easily formatted with
a variety of fonts, borders and other special effects or imported into a
spreadsheet such as Microsoft Excel for further analysis.
Cube Manager. Cube Manager is used to map data between PeopleSoft databases
and hyperdimensional cubes using online analytical processing ("OLAP").
Currently Cognos PowerPlay and Arbor Essbase are directly integrated
through the PeopleTools Cube Manager.
PeopleSoft Workflow Tools: PeopleSoft Workflow is a suite of tools that
significantly extends the range of business tasks that can be automated. The
following are PeopleSoft Workflow tools:
Workflow Processor. Workflow Processor is a suite of online agents that run
and control the workflow in business processes. Once business processes are
defined, agents are created which perform the business process tasks.
PeopleSoft Navigator. The Navigator is a graphical browser which provides
application users with a graphical map of the business processes they
participate in and enables them to navigate, or select, application panels
by clicking on activities they need to perform.
Database Agent. The Database Agent monitors the PeopleSoft database to
identify items that need to enter workflow for processing.
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Message Agent. The Message Agent processes messages sent to PeopleSoft by
external systems such as IVR, E-mail such as Lotus Notes or Microsoft
CC-Mail, Internet, intranet, extranet and kiosks. It provides an
Application Program Interface ("API") that enables third party systems to
integrate with PeopleSoft.
Worklists. Worklists are ordered lists of work a person or department has
to process. The list is sent to the correct person in priority order as
defined using the Business Process Designer.
Workflow Administrator. The Workflow Administrator provides capability to
access, monitor, analyze and control workflow applications.
SALES AND MARKETING
The Company markets and licenses its software products in most major world
markets primarily through a direct sales organization of 1,509 employees as of
December 31, 1998. The direct sales organization is based in over 25 field sales
offices located in major metropolitan areas throughout the United States.
International sales activities are managed out of the Company's offices in
Toronto, Vancouver, Ottawa, and Montreal, Canada; Amsterdam, the Netherlands;
Paris, France; Reading, England; Munich, Germany; Brussels, Belgium; Milan,
Italy; Zurich, Switzerland; Mexico City, Mexico; Sydney, Perth and Melbourne,
Australia; Auckland, New Zealand; Buenos Aires, Argentina; Sao Paulo, Brazil;
Tokyo, Japan; Madrid, Spain; Johannesburg, South Africa; Hong Kong and
Singapore. Most of the Company's licenses for PeopleSoft software products to
date have been in the U.S. and Canada, and a significant portion of
international sales have been to overseas affiliates of a customer's U.S. based
enterprise. To augment its direct sales channel, the Company has: (i) a teaming
agreement with Andersen Consulting to address the PeopleSoft HRMS and PeopleSoft
Financials requirements of state and local government agencies; (ii) agreements
for consulting and system integration with Deloitte and Touche LLP, KPMG Peat
Marwick LLP and PriceWaterhouseCoopers LLP, and (iii) agreements with other
third party distributors and system integrators in various countries where it
does not have a direct sales force.
In support of its sales force, the Company conducts comprehensive marketing
programs, which include telemarketing, direct mail, public relations,
advertising, seminars, trade shows and ongoing customer communication programs.
The sales cycle begins with the generation of a sales lead, or often the receipt
of a request for proposal ("RFP") from a prospect, which is followed by
qualification of the lead, an analysis of the customer's needs, response to an
RFP (if solicited by the customer), one or more presentations to the customer,
customer internal sign-off activities, and contract negotiation and
finalization. While the sales cycle from customer to customer varies
substantially, the sales cycle has historically required six to twelve months.
Generally, customers obtain separate licenses for the underlying database
management systems directly from the RDBMS vendors, however, the Company may
also sublicense runtime versions of Oracle's, Sybase's or Informix's RDBMSs and
certain connectivity software products to its customers, and in some cases, has
made royalty prepayments under these agreements. In addition, the Company
incorporates SQRIBE Technology Corporation's ("SQRIBE") SQR, ReportMate,
Seagate's Crystal Report Writer, BEA's Tuxedo and Jolt Middleware, Cognos'
Powerplay, Select Software's data modeling and process modeling tools, and
Rational Software Corporation's SQA Robot with all of its software products. The
Company has sublicensing arrangements with Microsoft, Oracle, Informix, SQRIBE,
Seagate, BEA, Cognos, Select Software, Folio Corporation and Rational and
accordingly, the Company must rely on the strength of such companies'
trademarks, trade secrets, contractual arrangements, copyrights and patents for
protection and continued usage of such intellectual property by the Company.
Termination of the relationship with any of these companies could adversely
affect the Company's software product offerings and ability to generate revenue
software application license sales.
A key aspect of the Company's sales and marketing strategy 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 (such as Informix, Microsoft, Oracle and
Sybase); (ii) hardware vendors (such as Compaq
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Computer Corporation, Hewlett Packard Corporation, IBM, Sequent Computer
Systems, Inc. and Sun Microsystems, Inc.) 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
(such as Andersen Consulting, IBM's ISSC, Deloitte and Touche LLP,
PriceWaterhouseCoopers LLP, and KPMG Peat Marwick LLP) 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 (such as Towers Perrin, Wyatt
Co. and William M. Mercer & Co.) that are active in the implementation of human
resource management systems. The Company believes that its marketing and sales
efforts are enhanced by the worldwide presence of these companies. PeopleSoft
has conducted several joint marketing and sales programs with these vendors and
other technology and software partners, including seminars, direct mail
campaigns and trade show appearances. However, there can be no assurance that
these companies, most of which have significantly greater financial and
marketing resources than PeopleSoft, will not start, or in some cases increase,
the marketing of business application software in competition with PeopleSoft,
or will not otherwise discontinue their relationships with or support of
PeopleSoft. If the Company or its partners are unable to adequately train a
sufficient number of consulting personnel to support the implementation of the
Company's software products, demand for these products could be adversely
affected. In addition, PeopleSoft's software application architecture, including
PeopleTools, may facilitate reduced implementation costs for customers compared
to the competitive alternatives from Oracle and SAP. Therefore, systems
integrators may actually generate lower integration fees when implementing
PeopleSoft applications when compared to competitive offerings.
Due to the foregoing factors, it is possible that in a future quarter or
quarters, the Company's operating results could not meet the published
expectations of certain public market financial analysts. In such an event, the
price of the Company's common stock would very likely be materially adversely
affected.
Relationship with Shared Medical Systems, Inc.
In August 1995, PeopleSoft and Shared Medical Systems, Inc. ("SMS") entered
into a systems integrator agreement whereby PeopleSoft appointed SMS as a
distributor of certain PeopleSoft HRMS and Financials software products. During
the third quarter of 1998, the companies mutually terminated the distribution
agreement. SMS had the right to sublicense selected PeopleSoft software products
in competition with the Company's marketing efforts in the healthcare market.
International Operations
During the years ended December 31, 1996, 1997 and 1998, the Company's
international revenues were approximately 16%, 15% and 16% of total revenues,
respectively. International revenues from each geographic region were less than
10% of total revenues. The Company markets certain of its software products to a
variety of industries through foreign subsidiaries located in Canada, the United
Kingdom, the Netherlands, Germany, France, Spain, Switzerland, Italy, Belgium,
South Africa, Mexico, Argentina, Brazil, Venezuela, Australia, Singapore, Japan,
Malaysia, Hong Kong, and New Zealand. In addition, the Company also markets
through distributors in the Asia/Pacific region.
For the years ended December 31, 1996, 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 December
31, 1998, less than 5% of the Company's assets are in the Asia/Pacific region.
SERVICES AND CUSTOMER SUPPORT
The Company believes that a high level of customer service is required to
be successful in the enterprise software marketplace due to the number of
different hardware and software vendors involved in an implementation and the
inherent complexity of the software. The Company also believes that the
opportunity exists to differentiate itself from competitors on a service level
due to the demanding service requirements of this market. The Company's customer
service staff consisted of 3,601 employees as of December 31, 1998.
19
<PAGE> 22
Service revenue consists primarily of software support (maintenance) fees,
customer training fees, consulting fees, and other miscellaneous fees. Services
revenues constituted 44%, 47% and 56% of the Company's total revenues during the
years ended December 31, 1996, 1997 and 1998, respectively. Service revenue may
fluctuate due to, but not limited to, changes in levels of consulting activity,
the related satisfaction of significant agreement milestones, and satisfaction
of the Company's revenue recognition criteria. In addition, seasonality impacts
training and installation revenue, both of which tend to follow license fees by
approximately one quarter.
Services include the following categories:
Software Maintenance and Support
The Company provides 24-hour hot-line telephone support, staffed with a
group of experienced professionals and supported by a computerized call tracking
and problem reporting system. PeopleSoft has provided internet access to this
hotline as an alternative to telephone bound service since August of 1995. The
Company supports worldwide operations with hubs in North America, Europe and the
Asia/Pacific region. This service provides subscribing customers with company
news, direct access to other PeopleSoft subscribing customers, the ability to
download and apply software product fixes and access to an online
troubleshooting database.
Typically, software product license fees include the first year of
maintenance support. Thereafter, ongoing maintenance contracts are offered to
customers, and are renewable on an annual basis. The maintenance agreement
entitles the customer to software product enhancements or upgrades released
during the term of the maintenance agreement, access to the PeopleSoft Advantage
Customer Care Business Center, and 24-hour hot-line telephone support. Annual
maintenance fees are generally based on 18% of the price of the software
products under license by a customer. To date, well over 90% of all customers
have renewed their maintenance contracts.
Customer Education and Training
The Company offers comprehensive education for key groups affected by the
implementation of PeopleSoft technology (executives, the project team and
application users) with the goal of ensuring each customer's success with the
Company's software products. Training is also available for third party
consultants. The Company's educational programs include instructor-led classes,
computer-based training, and extensive end user training that also serves as an
electronic performance support system. In 1999, PeopleSoft is launching four
significant training initiatives:
PeopleSoft Knowledge Broadcasts: This new subscription service provides
interactive, instructor-led training via satallite broadcasts which are
delivered to the users desktop. The format allows customers to train managers
and members of their implementation teams without incurring travel costs or
office downtime through the use of Interactive Distance Learning (IDL)
technologies.
The PeopleSoft Knowledge Center: This new Web-based learning and
competency management environment provides Web-based training modules covering
PeopleSoft products, related technology and even soft skills, allowing
customers' end users to develop skills in all areas crucial to their performance
in their jobs.
PeopleSoft Performance Solutions: This consulting team provides services
to help customers manage human performance. Their services include competency
definition, gap analysis, competency management program development, training
recommendations, and professional development program development.
The PeopleSoft Pro Credential Program: This program provides job role
based training recommendations and awards a certificate based on completion of a
prescribed training program. This program, which is open to the public, is
designed to help customers be confident that the individuals who they hire or
contract to assist in an implementation have the requisite skills and training
to make their implementation a success.
Instructor-led training is provided in training facilities leased by the
Company in several major metropolitan areas around the world and can also be
delivered on the customer's site for a fee plus travel
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<PAGE> 23
expenses. The Company's fees for instructor-led, project team training are
generally priced at $450 per training unit (representing approximately one
student day of training). The Company offers price reductions for volume
advanced purchases of training units. The Company's pricing for end user
training varies based on the number of employees at the customer company and the
number of training modules purchased.
Consulting Services
The Company offers a variety of consulting services to its customers
including system product implementation assistance and planning, project
planning and strategy, upgrade implementation, electronic commerce, workflow or
OLAP deployment, and minor software product enhancements. The Company has
several technology labs which currently concentrate on upgrading customers from
one PeopleSoft release to the next. Additionally, the Company has a Year 2000
lab that specializes in rapid customer implementations and the development of
tools, templates and methodologies to assist our customers and partners in
similar efforts. The Company frequently works closely with third party
consulting and systems integration firms such as Andersen Consulting, Deloitte
and Touche LLP, KPMG Peat Marwick LLP and PriceWaterhouseCoopers LLP who provide
the customer with a full range of reengineering, customization and project
management services. These third party consulting firms have also licensed
PeopleSoft applications to develop programs to support customers implementing
the Company's software products. During the past year PeopleSoft significantly
expanded its consulting services group to meet growing customer demands for such
services. There can be no assurance that PeopleSoft will be successful in
further expanding its consulting services group, or that revenues from
consulting services will in fact increase, or be profitable.
To help reduce the time-to-implement and improve a customer's opportunity
to achieve a higher return on investment from licensing a PeopleSoft product,
the Company has created the PeopleSoft Implementation Tool Kit (ITK). This tool
kit is bundled with the product, and provides customers and partners with
specific implementation guidance and facilities. The Implementation Took Kit has
been successfully utilized in a beta setting during 1998. The Company believes
that ITK will significantly reduce the time-to-implement and long-term cost of
ownership for the licensed products, as well as facilitating the overall process
of upgrading and extending applications throughout a customer's enterprise. No
assurance can be given concerning the successful development of enhancements or
new software products, the specific timing of completing new releases or new
software products or the level of their acceptance in the marketplace.
Customer Care Business Center
The Customer Care Business Center (CCBC) is a pool of customer service
resources that are available via 1-800 number access. All PeopleSoft customers
have access to the CCBC personnel. These service professionals are focused on
resolving customer's business issues. The CCBC will also be responsible for all
customer software orders, maintaining customer contracts and the maintenance of
customer service systems such as Vantive.
PeopleSoft Advisor
This group develops and delivers PeopleSoft business information to the
customer base via seminars, conference calls, knowledge broadcasts, etc.,
serving as a communication vehicle for all customers.
COMPETITION
The market for business application software has been intensely competitive
for the past three years and is currently intensifying. The Company currently
competes with a variety of software vendors including: (i) enterprise
application software vendors; (ii) manufacturing application software vendors;
(iii) enterprise resource optimization application software vendors; (iv)
financial management systems and HRMS application software vendors; and (v)
software tools vendors. In addition, the Company's new eWorkplace, analytical
applications, and other internet focused products will compete with companies
offering internet community and portal solutions as well as companies offering
analysis and reporting products. Although PeopleSoft believes its success has
been due in part to its early emphasis on the client/server architecture,
virtually all of
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<PAGE> 24
the Company's competitors now offer software products based on a client/server
architecture. The Company must now differentiate itself in the internet
applications market through solutions that offer customers high productivity for
user self service processes, analysis for strategic decision making, a highly
integrated and easy to use enterprise business portal, and other factors unique
to the internet application market. In addition, the Company must compete
through: (i) enterprise software product breadth and individual product
features; (ii) service reputation; (iii) product flexibility; (iv) ease of
implementation; (v) international software product version availability and
support; and (vi) price. Price competition has increased over the past year and
this trend may continue in the future.
In the enterprise application software market, PeopleSoft faces significant
competition from SAP, Oracle J.D. Edwards, and to a lesser degree, Dun &
Bradstreet Software (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: (i) the
breadth and completeness of the enterprise solution offered by each vendor; (ii)
the extent of software product integration across the enterprise solution; (iii)
the availability of localized software products and technical support in key
markets outside the United States, and (iv) the strength of internet focused
product offerings and vision. Both SAP and Oracle have substantially greater
financial, technical, international and marketing resources, and a larger
installed base than PeopleSoft. Furthermore, Oracle's RDBMS underlies a
significant portion of PeopleSoft's installed applications.
The Company entered the manufacturing software application markets in 1996.
In these markets, the Company's existing competitors include those listed
immediately above and others such as Baan Company N.V. ("Baan") QAD, Ross
Systems and J.D. Edwards, and a large number of niche competitors already in the
manufacturing markets.
In addition, since it acquired Red Pepper Software in the fourth quarter of
1996, PeopleSoft has competed in the enterprise resource optimization software
solutions market. PeopleSoft's current and potential competitors in this market
include:
(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., Marcam Solutions, Inc. and Cap
Logistics;
(iii) other enterprise 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 potential customers' corporate
information technology departments; and
(v) companies offering standardized or customized products on mainframe
and/or mid-range computer systems.
PeopleSoft also competes with (i) providers of HRMS software products
including Cyborg Systems, Lawson Associates, Integral Systems, Inc., InPower,
Inc. and Ceridian and (ii) providers of financial management systems software
products including Computron Software, Inc., Flexiware International, Hyperion
Software, Lawson Associates and other smaller companies.
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 PeopleSoft's software products. This may
result in increased competition from outsource services including Computer
Science Corporation ("CSC"), Electronic Data Systems Corporation ("EDS"), IBM,
ADP, Ceridian, and other smaller companies. During the third quarter of 1998,
PeopleSoft signed agreements with IT service
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<PAGE> 25
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
PeopleSoft is pursuing an outsourcing partner program that it believes will
address the needs of the marketplace, this program may not be successful.
Intense competition could lead to increased price competition in the
market, forcing the Company to reduce prices. As a result, PeopleSoft's gross
margins may decline and it may lose market share, which, in turn, could have a
material adverse effect on the Company's business, financial condition and
results of operations. In recent quarters, PeopleSoft's competitors have
increasingly priced their products aggressively. PeopleSoft may be unable to
continue to compete successfully with its existing competitors or to compete
successfully with new competitors.
SOFTWARE PRODUCT DEVELOPMENT
Since inception, the Company has made substantial investments in research
and software product development. The Company believes that timely development
of new software products, enhancements to existing software products and the
acquisition of rights to sell or incorporate complimentary technologies and
products into its software product offerings, is essential to maintain its
competitive position in the market. The applications software market is
characterized by rapid technological change, frequent introductions of new
products, changes in customer demands and rapidly evolving industry standards.
The Company believes that software product development is most effectively and
expeditiously accomplished by small teams comprised of relatively senior people
who are focused on certain software product areas. Accordingly, the Company's
development organization is comprised of small, focused development groups
assigned to each of the software products within the primary software product
areas: eWorkplace Communities, Enterprise Performance Measurement, various
industry specific applications, PeopleSoft HRMS, PeopleSoft Financials,
PeopleSoft Financials for the Public Sector, PeopleSoft Human Resources for the
Federal Government, PeopleSoft Distribution, PeopleSoft Manufacturing, Supply
Chain Planning, PeopleSoft Student Administration and PeopleTools. This
development is typically undertaken in a single RDBMS environment on a
workstation-based LAN. In addition, the Company utilizes a platforms group that
is responsible for porting and testing the Company's software products on other
RDBMS and hardware server environments. The Company's documentation group
develops the user and system administration documentation for each software
product. The Company utilizes a common technology and technical approach in the
development of all application products. Significant application development is
performed using PeopleTools.
The Company's current focus in application development is to transform its
product offerings into the PeopleSoft Business Network (PSBN), an Enterprise
Information Portal approach to computing, as well as to increase the breadth and
scope of its industry specific offerings. PSBN will consist of a business portal
approach to computing including (i) internet focused enhancements to the base
ERP (the eBackbone), including development of internet focused API's and
internet messaging protocols, an HTML client, and eCommerce capabilities such as
electronic bill presentment and electonric storefront capabilities; (ii)
eWorkplace communities for internet based self service applications that link
the eBackbone, analytical applications, and third party content; and (iii)
analytical applications (Enterprise Performance Management) to support strategic
decision making. In addition the Company will invest in expanded functionality
across all of its software product offerings, including global product
requirements and industry specific requirements. There can be no assurance that
such development efforts will result in products, features or functionality or
that software products, features or functionality that are developed will be
accepted by the market.
The Company's research and development staff consisted of 1,332 employees
as of December 31, 1998. The Company's total research and development expenses
were approximately $70.7 million, $129.6 million, and $209.7 million for the
years ended December 31, 1996, 1997 and 1998, respectively. In addition, the
Company capitalized software development costs of $3.7 million, $2.5 million and
$5.6 million for the years ended December 31, 1996, 1997 and 1998, respectively.
In October 1998, the Company capitalized $27.8 million in software related to
the purchase of Intrepid Systems, Inc. ("Intrepid"). Capitalized software
development and purchased software costs are amortized over the estimated useful
life of the software product beginning with general availability for a period
not to exceed five years. Total capitalized software
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<PAGE> 26
amortization, which is charged to cost of license fees, amounted to $1.6 million
in 1996, $4.0 million in 1997 and $5.7 million in 1998. In addition, in November
1996 and October 1998, the Company recorded one-time charges of $22.5 million
and $13.9 million for in-process research and development related to the
purchases of PeopleSoft Manufacturing, Inc. ("PMI") and Intrepid, respectively.
Throughout 1998, the Company had a significant amount of cash on hand.
Management evaluated options on using the funds to acquire or develop new
technology. During the fourth quarter of 1998 the Company formed a new company,
Momentum Business Applications, Inc. ("Momentum Business Applications"), to
select and develop certain software application products, and to commercialize
such products, most likely through licensing to the Company. The Company
contributed $250 million to Momentum Business Applications. Momentum Business
Applications' software application development activities will take place under
a development and license agreement with the Company. It is anticipated that
substantially all of Momentum Business Applications' 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.
PeopleSoft entered into development arrangements in 1995 and 1997 for the
purpose of developing the Student Administration software applications which
were commercially released in December 1997. Under these agreements, PeopleSoft
is the exclusive remarketer of the Student Administration software products, and
pays a royalty to the third parties based on license fees received from end user
licenses of these software products. All ownership rights and interests in the
software will transfer to the Company, upon the later of five years from the
commercial release of the applications or when $17 million in cumulative
royalties have been paid to the third parties.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS, LICENSES AND PRODUCT LIABILITY
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. There can be no assurance that any issued patents
will result from such applications or that, if issued, such patents will provide
any meaningful competitive advantage. 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 PeopleSoft's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. Many customers of PeopleSoft
are beneficiaries of a source code escrow account 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 its software products, third party software
products the Company offers under sublicense agreements, Company trademarks or
other Company proprietary rights infringe the property rights of 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.
The Company's license agreements with its customers contain provisions
designed to limit the exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in such
license agreements may not be valid as a result of future federal, state or
local laws or ordinances or
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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
successfully 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
PeopleSoft begins to compete in the manufacturing software application market,
the mission critical nature of such software products may increase PeopleSoft's
exposure to product liability claims against the Company.
PERSONNEL
As of December 31, 1998, the Company employed 7,032 people, including 1,509
in sales and marketing, 1,332 in product development, 3,601 in customer
services, and 590 in administration. None of the Company's employees in the
United States are represented by a labor union or are subject to a collective
bargaining agreement. Certain of the international employees are covered by the
customary employment contracts and agreements of the countries in which they are
employed. The Company believes that relations with its employees are good.
The executive officers of the Company as of December 31, 1998, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David A. Duffield 57 Chairman of the Board, Chief Executive Officer, and
President
Albert W. Duffield 54 Senior Vice President of Worldwide Operations, and Director
Margaret L. Taylor 46 Senior Vice President of New Products and Release Management
Aneel Bhusri 32 Senior Vice President of Product Strategy, Business
Development and Marketing, Vice Chairman and Director
James J. Bozzini 32 Senior Vice President of Service Operations
Alfred J. Castino 46 Senior Vice President of Finance and Administration, Chief
Financial Officer, and Chief Accounting Officer
</TABLE>
MR. DAVID A. DUFFIELD is a founder of the Company and has served as
Chairman of the Board, Chief Executive Officer and President since the Company's
incorporation in August 1987. Prior to that time, he was a founder and Chairman
of the Board of Integral, a vendor of human resource and financial applications
software, from April 1972 through April 1987. During a portion of that time, Mr.
Duffield also served as Integral's Chief Executive Officer. Mr. Duffield is also
the co-founder of Information Associates (now a subsidiary of Systems and
Computer Technology), where he was employed between 1968 and 1972. From 1964 to
1968, Mr. Duffield worked at IBM as a marketing representative and systems
engineer. He holds a B.Sc. in Electrical Engineering and an M.B.A. from Cornell
University.
MR. ALBERT W. DUFFIELD joined the Company in June 1990 as Vice President of
Sales. Mr. Duffield was appointed Vice President of Operations in September
1991. In November 1993, he was appointed Senior Vice President of Sales and
Marketing, and, effective January 1994, he was appointed Senior Vice President
of Worldwide Operations. He was elected to the Board of Directors in April 1991.
Prior to joining the Company, Mr. Duffield served as Chief Operating Officer of
Data Design Associates, a division of Integral Systems, from June 1989 through
June 1990. Prior to the acquisition of Data Design Associates by Integral
Systems in September 1989, he served as its Senior Vice President of Sales and
Marketing from October 1981 through June 1989. From 1970 to 1981, Mr. Duffield
worked at IBM in various sales, sales management and staff management positions.
He holds a B.Sc. in Hotel/Business Administration from Cornell University and an
M.B.A. from Rutgers University. Mr. David Duffield and Mr. Albert Duffield are
brothers. Mr. Albert Duffield retired from his position as Senior Vice President
of Worldwide Operations in March 1999. He will continue to work in a strategic
role for the Company.
MS. MARGARET L. TAYLOR joined the Company in January 1989 as Vice President
of Customer Services, and was appointed Vice President of Customer Services and
International in February 1993. In November 1993, she was appointed Senior Vice
President of Customer Services, and, effective January 1994, she was appointed
Senior Vice President of Application Development and Customer Services. In the
third
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quarter of 1995, Ms. Taylor also assumed responsibility for PeopleTools
development. In January 1998, she was appointed Senior Vice President of
Corporate Operations. In January, 1999 she was appointed Senior Vice President
of New Products and Release Management. Ms. Taylor is a Director of the Board of
Directors of Momentum Business Applications, OnDisplay, NightFire Software, and
KiraCom. Ms. Taylor holds a B.A. in Psychology and Communications from Lone
Mountain College.
MR. ANEEL BHUSRI joined PeopleSoft in August 1993 as Director of Strategic
Planning. In April of 1995, he was appointed Vice President of Product Strategy.
In November of 1995, Mr. Bhusri was appointed Senior Vice President of Product
Strategy. In April 1997, he was appointed Senior Vice President of Product
Strategy, Business Development and Marketing. Prior to joining PeopleSoft, Mr.
Bhusri was an associate at Norwest Venture Capital from June 1992 to March 1993.
Mr. Bhusri holds an M.B.A. from Stanford University and a B.Sc. in Electrical
Engineering with a B.A. in Economics from Brown University. In March 1999, Mr.
Bhusri was appointed Vice Chairman of the Company and added to its Board of
Directors.
MR. JAMES J. BOZZINI joined the Company in August 1991 as an account
manager, and was appointed Director of European Operations in December 1992. In
January 1994, he was appointed Director of International Services and in
February 1994 assumed responsibility for the Professional Services group in
North America, in addition to his international responsibilities. In January
1995, he was appointed Vice President of Professional Services, and in January
1997 he was appointed Vice President of Customer Service Operations and assumed
responsibility for Education Services, Product Support, and Customer Service
Strategy, in addition to Professional Services. In January 1998, Mr. Bozzini was
appointed Senior Vice President of Service Operations. In January 1999, Mr.
Bozzini was appointed Senior Vice President of Product Development and Customer
Services. Mr. Bozzini is a Director of the Board of Directors of Personic
Software, Inc. From August 1988 to July 1991, he held various positions at
Andersen Consulting. Mr. Bozzini holds a B.S. in Business from California State
University, Chico.
MR. ALFRED J. CASTINO joined PeopleSoft in September 1997 as Vice President
of Finance, Chief Accounting Officer, and Corporate Controller. In November
1998, he was appointed Senior Vice President of Finance and Administration with
responsibility for Finance, Legal, MIS, Facilities, and Human Resources. In
December 1998, he was promoted to Chief Financial Officer. From April 1996 to
September 1997, Mr. Castino was Vice President and Corporate Controller at
Chiron Corporation, a biotechnology company. From August 1988 to March 1996, he
held finance positions at Sun Microsystems, including Finance Director of U.S.
Operations, Director of Finance and Planning for European Operations, and
Assistant Corporate Controller. His prior experience also includes seven years
at Hewlett-Packard Company in various financial management positions. Mr.
Castino is a Certified Public Accountant. He earned a B.A. in Economics from
Holy Cross College and an M.B.A. from Stanford University.
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<PAGE> 29
ITEM 2. PROPERTIES
FACILITIES
As of December 31, 1998, the Company leased the majority of its facilities
and its principal locations are in or near the following cities:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
LOCATION SQUARE FEET EXPIRATION DATE PRINCIPAL ACTIVITIES
-------- ----------- --------------- --------------------
<S> <C> <C> <C>
Irvine, CA................ 17,513 November 2000 Sales, Marketing and Customer Service
Encino, CA................ 26,000 June 2001 Development
Pleasanton, CA............ 216,000 February 2002 Corporate HQ, Development and Technical
Support
Pleasanton, CA............ 35,000 January 1999 Corporate HQ, Development and Technical
Support
Pleasanton, CA............ 194,490 September 2003 Corporate HQ, Development and Technical
Support
Pleasanton, CA............ 66,000 July 2006 Sales, Marketing and Customer Service
San Mateo, CA............. 29,000 July 2000 Development, Sales, Marketing and
Customer Service
Coral Gables, FL.......... 10,000 July 2002 Sales, Marketing and Customer Service
Atlanta, GA............... 59,000 June 2000 Sales, Marketing and Customer Service
Chicago, IL............... 53,000 December 2001 Sales, Marketing and Customer Service
Boston, MA................ 21,000 November 1999 Sales, Marketing and Customer Service
Bethesda, MD.............. 46,000 August 2000 Sales, Marketing and Customer Service
Detroit, MI............... 14,000 June 2003 Sales, Marketing and Customer Service
Minneapolis, MN........... 13,000 July 2002 Sales, Marketing and Customer Service
Teaneck, NJ............... 47,000 May 2003 Sales, Marketing and Customer Service
Philadelphia, PA.......... 13,000 September 2001 Sales, Marketing and Customer Service
Dallas, TX................ 18,000 July 2000 Sales, Marketing and Customer Service
Melbourne, Australia...... 10,000 January 1999 Sales, Marketing and Customer Service
Sydney, Australia......... 21,000 September 1999 Sales, Marketing and Customer Service
Montreal, Canada.......... 15,000 July 2002 Sales, Marketing and Customer Service
Toronto, Canada........... 43,000 August 2003 Sales, Marketing and Customer Service
Vancouver, Canada......... 16,000 April 2002 Sales, Marketing and Customer Service
Reading, England.......... 15,000 May 2000 Sales, Marketing, Customer Service and
Admin.
Paris, France............. 27,000 March 2005 Sales, Marketing and Customer Service
Munich, Germany........... 12,000 July 2001 Sales, Marketing and Customer Service
Amsterdam, the 27,000 June 2000 Sales, Marketing, Customer Service and
Netherlands............. Admin.
Madrid, Spain............. 7,000 June 1999 Sales, Marketing and Customer Service
Hong Kong................. 11,000 December 2000 Sales, Marketing and Customer Service
Singapore................. 14,000 December 2000.. Sales, Marketing and Customer Service
Tokyo, Japan.............. 15,000 June 1999 Sales, Marketing and Customer Service
</TABLE>
The Company also leases smaller facilities (generally under execusuite
arrangements) for sales, marketing and customer service activities in or near
Phoenix, Arizona; Sacramento, California; Denver, Colorado; Orlando, Florida;
Indianapolis, Indiana; St. Louis, Missouri; Cincinnati and Columbus, Ohio;
Pittsburgh, Pennsylvania; Austin and Houston Texas; Bellevue, Washington;
Milwaukee, Wisconsin; and outside of the United States in Calgary, Ottawa and
Edmonton, Canada; Mexico City and Monterey, Mexico; Buenos Aires, Argentina; Rio
De Janeiro and Sao Paulo, Brazil; Adelaide, Brisbane, Canberra and Perth,
Australia; Wellington and Auckland, New Zealand; Brussels, Belgium; Milan,
Italy; Zurich, Switzerland; Kuala Lumpur, Malaysia; Johannesburg, South Africa;
and Hong Kong.
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<PAGE> 30
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 end of 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
after the initial lease period, 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 gain of
approximately $24.4 million, which will be amortized over the lease period. The
Company holds a right of first refusal to additional space within the site as
other tenants' leases expire.
Additionally, the Company purchased two parcels of land for $50.0 million
during the third quarter of 1998. The Company has entered into an operating
lease agreement for facilities 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 cost 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. The expected
interest rate during construction is LIBOR plus 0.75% as measured on the date of
each funding or rollover; this rate may change depending on certain financial
ratios. At each funding or 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. As of December 31, 1998, the Company had drawn a total of $6.1
million under the lease financing. 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 85% 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.
In December 1996, the Company entered into a five-year lease for a new
office facility in Pleasanton, California. This lease is structured as an
operating lease with rental payments due beginning upon the completion of the
construction, which was during the fourth quarter of 1998. The cost for the
construction of the facility totaled $70.0 million including interest during the
construction period. The rental payments equal the amount of interest under the
agreement. The interest rate charged on amounts funded is LIBOR plus 0.625% as
measured on the date of each funding rollover. At each funding or rollover date,
the Company had 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 was requested and approved. Each subsequent funding
rollover date was 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 and $4.5
million as of December 31, 1997 and the end of the construction phase,
respectively, has been added to the construction cost. The Company has an 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 85% 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.
In 1998, the Company negotiated an amendment to this lease which extends
the term of the lease until February 2003, with an option to renew for an
additional three years. Additionally, the Company negotiated a fixed rate
funding option under which the Company may elect that any or all of the amounts
funded to date be charged a fixed interest rate. The Company has the option of
setting the fixed rate expiration date for any date through the end of the lease
term.
ITEM 3. LEGAL PROCEEDINGS
Securities Class Actions: Beginning on January 29, 1999, a series of class
actions have been filed alleging that the Company and various of its officers
and directors violated Section 10(b) of the Securities Exchange
28
<PAGE> 31
Act of 1934 and Rule 10b-5 promulgated thereunder. As of this date, the Company
is aware of sixteen such actions, all filed in the United States District Court
for the Northern District of California, the first of which is entitled Gulio
Suttovia v. David Duffield et al., No. C 99-0472 MJJ. It is likely that all of
the subsequent actions will be consolidated with Suttovia. There are varying
combinations of defendants named in these actions, but the universe of
defendants named in one or more actions, all of whom are represented by Gibson,
Dunn & Crutcher LLP is: PeopleSoft, Inc., David A. Duffield, Ronald E.F. Codd,
Albert W. Duffield, Kenneth R. Morris, George J. Still, Jr., Margaret L. Taylor,
Aneel Bhusri, Cyril Yansouni and Momentum Business Applications.
The class periods alleged in the complaints vary slightly, but generally
run from early February 1997, when the Company's 1996 financial results were
released, until late January 1999, when its 1998 results were announced. The
allegations of the complaints focus on three general areas. First, the
complaints allege that the Company improperly accounted for the acquisition of
PeopleMan, L.P., which was acquired by the Company in 1996. The complaints
allege that, instead of writing off approximately $22 million of in-process
research and development ("IPR&D") in 1996 as a one-time charge, the Company
should have written off a lesser amount in 1996, capitalized the remainder and
amortized such amount over its useful life, which would have increased reported
earnings in 1996 but reduced reported operating earnings in later years. The
allegations in this regard appear to be based on the Company's announcement, on
January 28, 1999, that the Securities and Exchange Commission was reviewing the
Company's accounting treatment for this transaction (as well as for the
acquisition of Intrepid Systems. Inc. in 1998, which resulted in a $13.9 million
charge for IPR&D in the fourth quarter), and that the Company may be required to
restate its 1996 and 1997 financial statements with respect to the accounting
for IPR&D on the PeopleMan transaction (and take a lesser charge than expected
for the Intrepid acquisition in the fourth quarter of 1998). The Company has
subsequently been advised by the SEC that it will not require restatement of the
1996 or 1997 financial statements with respect to the PeopleMan transaction and
that it does not take exception to the accounting for IPR&D with respect to the
Intrepid transaction.
Second, certain of the complaints allege that the Company has improperly
accounted for (or intends improperly to account for) the spin-off of its
subsidiary, Momentum Business Applications, Inc. ("Momentum Business
Applications"). In late 1998, the Company transferred $250 million to Momentum
Business Applications pursuant to a contract under which Momentum Business
Applications is to conduct research and development. The Company has a right of
first refusal with respect to the products generated by such research and
development and has an option to purchase the outstanding shares of Momentum
Business Applications in the future. Momentum Business Applications has one
employee, the former CFO of the Company, and contracts with the Company to
provide personnel to conduct its operations and for administrative services. On
December 31, 1998, the Company, pursuant to a Registration Statement filed with
the SEC, distributed the shares of Momentum Business Applications to the holders
of the Company's shares which resulted in a dividend of approximately $79
million being segregated in the Company's equity accounts in December 1998. Upon
the election of independent directors of Momentum Business Applications, which
occurred in the first quarter of 1999, Momentum Business Applications no longer
meets the requirements for consolidation with the Company. This resulted in a
one-time charge of approximately $177 million by the Company in the first
quarter of 1999. The complaints allege that this structure is designed to
artificially inflate future operating earnings by allegedly converting what
would be ongoing research and development charges into a one-time write-off.
This structure was disclosed in detail in the above-referenced Registration
statement, and the SEC has not taken exception to the deconsolidation of the
financial statements upon the election of independent Momentum Business
Applications directors.
Third, the complaints allege that the Company misled the investing public
as to the Company's future prospects and failed to disclose facts that it knew
would result in decreased demand for its products and/or decreased operating
margins. The complaints allege further that various officers and directors
intended to profit thereby by artificially inflating the price of the Company's
stock so that they could sell significant amounts of their stock at inflated
prices. The allegations appear to have been triggered by the Company's
announcement, on January 28, 1999, that it expected revenue growth in 1999 to be
in the range of 20 - 30% (whereas it had previously experienced 60 - 65% annual
revenue growth) and that it expected operating
29
<PAGE> 32
margins in 1999 to be in the range of 16 - 18% (whereas it had previously
experienced operating margins of 18 - 20%). The Company also announced that it
was reducing its workforce by approximately 6%.
The Company believes these actions to be without merit and intends to
vigorously defend them. However depending on the amount and timing, an
unfavorable resolution of some or all these matters could materially affect the
Company's future financial position or results of operations or cash flows in a
particular period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the Nasdaq National Market under
the symbol PSFT. The following table lists the high and low closing prices for
the PeopleSoft Common Stock as reported on Nasdaq for the last two years. The
stock prices have been adjusted to reflect 2-for-1 stock splits effected by
PeopleSoft in December 1997.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fourth quarter of 1998...................................... $32.50 $16.81
Third quarter of 1998....................................... $50.88 $27.25
Second quarter of 1998...................................... $55.94 $41.94
First quarter of 1998....................................... $52.69 $31.44
Fourth quarter of 1997...................................... $39.50 $27.19
Third quarter of 1997....................................... $33.19 $26.00
Second quarter of 1997...................................... $28.44 $15.31
First quarter of 1997....................................... $28.38 $18.88
</TABLE>
The trading price of the Company's common stock is subject to wide
fluctuations in response to quarterly variations in contracting activity and
operating results, announcements of technological innovations or new software
products by the Company or its competitors, as well as other events or factors.
In addition, the stock market has from time to time experienced extreme price
and volume fluctuations that have particularly effected the market price of many
high technology companies and which often have been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's common stock.
As of March 22, 1999, the approximate number of common stockholders of
record was 3,486, representing approximately 160,000 shareholder accounts.
The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain any earnings for use in its business and does not
anticipate paying any cash dividends in the foreseeable future. In addition, the
Company's facility lease prohibits the payment of cash dividends without the
other's consent.
In December 1998, the Company declared a stock dividend of one share of
Momentum Business Applications Class A Common Stock for every fifty shares of
PeopleSoft stock held as of December 31, 1998. The Company's stockholders were
not required to pay cash or other consideration for the Momentum Business
Applications shares received. 4.7 million shares were distributed. No fractional
shares were distributed. The distribution is taxable as a dividend to each
holder in the amount of the fair market value of the Momentum Business
Applications shares distributed to each shareholder. The average market value of
the shares on January 16, 1999 (the first day of trading) was $16.75. Prior to
the distribution, the Company contributed $250.0 million to Momentum Business
Applications.
Certain provisions of the Company's Certificate of Incorporation and Bylaws
could delay the removal of incumbent directors and could make a merger, tender
offer or proxy contest involving the Company more
30
<PAGE> 33
difficult, even if such events would be beneficial to the interests of the
stockholders. In addition, the Company has 2,000,000 shares of authorized
Preferred Stock. The Company may issue shares of such Preferred Stock in the
future without further stockholder approval and upon such terms and conditions,
and having such rights, privileges and preferences, as the Board of Directors
may determine. The rights of the holders of common stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. In addition, the
staggered terms of the Company's Board of Directors could have the effect of
delaying or deferring a change in control of the Company.
Under a stockholder rights plan adopted in 1995, each share of the
Company's common stock carries the right ("Right"), under certain circumstances,
to purchase equity securities of the Company or an acquirer. Ten days after a
tender offer or acquisition of 20% or more of the Company's common stock, each
Right may be exercised for $190 ("Exercise Price") to purchase one
one-thousandth of one share of the Company's Series A Participating Preferred
Stock. Each one one-thousandth of each share of Series A Participating Preferred
Stock will generally be afforded economic rights similar to one share of the
Company's common stock. In addition after such rights are triggered, each Right
entitles the holder to purchase common stock of the Company with a fair value of
twice the Exercise Price or, in certain circumstances, securities of the
acquiring company for the Exercise Price. Each Right expires in February 2005,
and, during specified periods, the Company may redeem or exchange each Right for
$.01 or one share of common stock, respectively.
Based on the number of shares of common stock outstanding at March 22,
1999, officers and directors of the Company and persons who may be deemed to be
affiliates, as a group, beneficially owned approximately 22% of PeopleSoft's
outstanding common stock. As a result, officers and directors and their
affiliates may have influence over the election of the Board of Directors and
any matters requiring approval by the stockholders of the Company. In addition,
the Company has entered into agreements with its officers and directors
indemnifying them against losses they may incur in legal proceedings resulting
from their service to the Company.
31
<PAGE> 34
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,(a)
------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues:
License fees............................. $ 68,580 $137,808 $252,799 $433,195 $ 576,467
Services................................. 44,503 94,331 197,253 382,456 737,206
-------- -------- -------- -------- ----------
Total revenues................... 113,083 232,139 450,052 815,651 1,313,673
Costs and expenses:
Cost of license fees..................... 6,817 8,503 12,357 21,635 42,933
Cost of services......................... 26,740 56,789 118,906 229,178 424,234
Sales and marketing...................... 35,844 70,052 135,757 225,498 339,973
Product development...................... 15,318 38,625 70,653 129,553 209,677
General and administrative............... 8,167 16,182 27,162 43,611 61,447
In-process research and development and
merger related costs.................. -- -- 29,393 -- 13,900
-------- -------- -------- -------- ----------
Total costs and expenses......... 92,886 190,151 394,228 649,475 1,092,164
-------- -------- -------- -------- ----------
Operating income........................... 20,197 41,988 55,824 166,176 221,509
Other income, interest expense and other... 2,192 4,149 5,888 9,862 20,067
-------- -------- -------- -------- ----------
Income before income taxes................. 22,389 46,137 61,712 176,038 241,576
Provision for income taxes................. 9,308 18,799 25,851 67,775 98,358
-------- -------- -------- -------- ----------
Net income................................. $ 13,081 $ 27,338 $ 35,861 $108,263 $ 143,218
======== ======== ======== ======== ==========
Basic income per share..................... $ 0.07 $ 0.13 $ 0.17 $ 0.49 $ 0.63
======== ======== ======== ======== ==========
Shares used in basic per share
computation.............................. 194,156 203,689 211,248 219,302 228,479
======== ======== ======== ======== ==========
Diluted income per share................... $ 0.06 $ 0.12 $ 0.15 $ 0.44 $ 0.55
======== ======== ======== ======== ==========
Shares used in diluted per share
computation.............................. 213,644 228,987 239,452 248,321 258,305
======== ======== ======== ======== ==========
BALANCE SHEET DATA:
Working capital............................ $ 72,290 $ 89,437 $109,806 $245,014 $ 495,028
Total assets............................... $173,987 $322,241 $540,080 $898,336 $1,440,605
Long-term obligations...................... $ 958 -- -- -- 107,826
Stockholders' equity....................... $ 94,580 $161,094 $253,248 $417,304 $ 664,292
</TABLE>
- - ---------------
(a) Historical results of operations are not necessarily indicative of future
results. Refer to the Results of Operations -- Risk Factors under Item
7 -- "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for the discussion of factors which may impact future
results.
Note: No cash dividends have been declared or paid in any period presented.
32
<PAGE> 35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This 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 identified with a footnote(1) symbol. The Company undertakes no
obligation to update the information contained in this Item 7.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of total revenues and the percentage of period over period growth represented by
certain line items in the Company's consolidated statements of income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
PERCENTAGE OF
DOLLAR INCREASE PERCENTAGE OF
YEAR OVER YEAR TOTAL REVENUES
---------------- --------------------
97/96 98/97 1996 1997 1998
------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.......................................... 71% 33% 56% 53% 44%
Services.............................................. 94 93 44 47 56
--- --- --- --- ---
Total revenues................................ 81 61 100 100 100
Costs and expenses:
Cost of license fees.................................. 75 98 3 3 3
Cost of services...................................... 93 85 26 28 32
Sales and marketing................................... 66 51 30 28 26
Product development................................... 83 62 16 16 16
General and administrative development................ 61 41 6 5 5
In-process research and development and merger related
costs.............................................. N/A N/A 6 -- 1
--- --- --- --- ---
Total costs and expenses...................... 65 68 87 80 83
--- --- --- --- ---
Operating income........................................ 198 33 13 20 17
Other income, interest expense and other................ 67 103 1 1 2
--- --- --- --- ---
Income before income taxes.................... 185 37 14 21 19
Provision for income taxes.............................. 162 45 6 8 8
--- --- --- --- ---
Net income.............................................. 202% 32% 8% 13% 11%
=== === === === ===
</TABLE>
REVENUES
The Company licenses software under non-cancellable license agreements and
provides services including training, installation, consulting and maintenance,
consisting of product support services and periodic updates. License fee
revenues are generally recognized when a non-cancellable 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, which meet
these recognition criteria, the portion of the fees related to software licenses
will generally be recognized in the current period, while the portion of the
fees related 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, the Company recognizes revenue related
to the license agreement using contract accounting. The Company allocates a
portion of contractual license fees to post-contract support activities covered
under the contract including first year maintenance, installation assistance and
limited training
33
<PAGE> 36
services. Revenues from maintenance agreements are recognized ratably over the
maintenance period, which in most instances is one year.
Revenues from licensing fees increased by 71% from $252.8 million in 1996
to $433.2 million in 1997 and increased by 33% to $576.5 million in 1998. The
increase in license fee revenues was primarily attributable to continued
increased market acceptance of, and expanded breadth of, the Company's software
product offerings and 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. At December 31, 1998, the Company's deferred license revenue had
declined by $3.4 million as compared to December 31, 1997.
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. As of December 31, 1997 and
1998, $78.3 million and $29.2 million in unbilled receivables was netted against
deferred license revenue, respectively. At December 31, 1998, both the net
deferred license fees and the gross (before netting unbilled items) deferred
license fees declined from the prior year. The decline in gross deferred license
fees is due to the following factors: (i) considerable efforts made by the
Company during the third and fourth quarters of 1998 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 and (ii) a higher than normal
percentage of the Company's third and fourth 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.
Revenues from services increased by 94% from $197.3 million in 1996 to
$382.5 million in 1997 and increased by 93% to $737.2 million 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 44%,
47%, and 56% for the years ended December 31, 1996, 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 1,500 customers as of December 31, 1996 to 2,200 customers
as of December 31, 1997 to 2,900 customers as of December 31, 1998; and a $37.3
million, $64.9 million and $162.4 increase each year in consulting revenue for
the years ended December 1996, 1997 and 1998, respectively, as a result of
expanded demand for PeopleSoft's direct assistance during enterprise
implementation projects. There can be no assurance that PeopleSoft will be
successful in further expanding its consulting services group, or that revenues
from consulting services will in fact increase, or be profitable.
Per the terms of the development contract with Momentum Business
Applications, the Company will perform development services on behalf of
Momentum Business Applications. Momentum Business Applications will pay one
hundred and ten percent (110%) of the Company's fully burdened costs relating to
the research and development provided by the Company. The Company will begin
recognizing revenue on this contract during the first quarter of 1999.
Total revenues increased by 81% from $450.1 million in 1996 to $815.7
million in 1997 and increased by 61% to $1,313.7 million in 1998. During the
years ended December 31, 1996, 1997, and 1998, the Company's international
revenues were approximately 16%, 15% and 16% of total revenues, respectively. No
single region had revenues which represented more than 10% of total revenue. The
dollar increases in international revenues in 1997 and 1998 resulted from
expanded international operations and the introduction of Release 6 and later
Release 7.5, which incorporated additional global features and functionality.
The Company expects international revenues to continue to grow in absolute
dollars during 1999, and accordingly, continues to invest heavily in
international infrastructure, global product functionality and translated
versions of financial and other software products.(1) In the
- - ---------------
1Forward-Looking Statement
34
<PAGE> 37
event international expansion and/or product globalization efforts are not
successful, the Company's business operating results and financial condition may
be adversely affected.
COSTS AND EXPENSES
Cost of license fees consists principally of royalties, technology access
fees for certain third party software products and amortization of capitalized
software costs. Cost of license fees increased from $12.4 million in 1996 to
$21.6 million in 1997, and $42.9 million in 1998, representing 3% of total
revenues in each of those years and 5%, 5% and 7% of license fee revenues in
those years, respectively. Royalty costs in 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. Also included in the
1998 cost of license fees amount is $1.4 million amortization of Intrepid
purchased software. The Company expects to amortize approximately $5.6 million
per year for five years for this software. However, in the event the related
forecasted revenues are not realized, the related capitalized amounts may be
expensed over a shorter period. 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 products, as
well as bundled third party 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.
Cost of services consists principally of expenses related to consulting,
account management field support, training, and product support. These costs
increased from $118.9 million in 1996, to $229.2 million in 1997, and $424.2
million in 1998, representing 26%, 28%, and 32% of total revenues and 60%, 60%
and 58% of service revenues in those years, respectively. These increases are
due to the 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.
Sales and marketing expenses increased from $135.8 million in 1996, to
$225.5 million in 1997, and $340.0 million in 1998, representing 30%, 28%, and
26% of total revenues. The increase in sales and marketing expenses is largely
attributable to the Company's continued expansion of its sales and marketing
force, both domestic and international, from approximately 665 employees as of
December 31, 1996 to 1,006 employees as of December 31, 1997 to 1,509 employees
as of December 31, 1998. Additionally, the Company incurred increased commission
expense associated with higher revenue. The commission expense for the years
ended December 31, 1996, 1997 and 1998 was $19.4 million, $39.1 million and
$57.5 million, respectively. Sales and marketing expenses as a percentage of
total revenues have declined versus the prior years 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 and industry specific markets and establish dedicated
sales forces for certain new product areas, particularly eWorkplace Communities
and Enterprise Performance Management.(1)
Software product development expenses increased from $70.7 million in 1996,
to $129.6 million in 1997, and to $209.7 million in 1998, representing 16% of
total revenues in each of those years. In addition, capitalization of internal
software development costs was $3.7 million in 1996, $2.5 million in 1997, and
- - ---------------
1Forward-Looking Statement
35
<PAGE> 38
$5.6 million in 1998. In general, software product development expenditures
consist of costs related to the Company's staff of software developers and
outside 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
eWorkplace Communities, Enterprise Performance Management, internet focused
enhancements to the eBackbone such as eCommerce capabilities and HTML client,
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 and internet focused 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 vertical 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.
General and administrative expenses increased from $27.2 million in 1996 to
$43.6 million in 1997, and to $61.4 million in 1998, representing 6%, 5%, and 5%
of total revenues, respectively. The dollar increase in general and
administrative expenses resulted primarily from increases in staffing and
related infrastructure to support the Company's growth. The 1998 expenses
include one-time charges of $6.3 million related to a contractual dispute and
associated termination of the Company's arrangement with a distributor.
Excluding the one-time charges, the 1998 general and administrative expenses
would be 4% of total revenues.
Other income, consisting primarily of interest, increased from $5.9 million
in 1996 to $9.9 million in 1997, and $20.1 million in 1998. The increase was due
to higher cash and investment balances based upon improved cash collections and
higher pre-tax return on investments due to 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
materially offsetting the related foreign currency transaction gains and losses
for the year ended December 31, 1998.
During the fourth quarter of 1998 the Company formed a new company,
Momentum Business Applications, Inc. ("Momentum Business Applications"), to
select and develop certain software application products, and to commercialize
such products, most likely through licensing to the Company. The Company
contributed $250.0 million to Momentum Business Applications and distributed all
of the outstanding shares of Momentum Business Applications Class A Common Stock
to the Company's shareholders. At December 31, 1998 the Company recorded a
dividend for the stock distribution based on the fair value of Momentum Business
Applications stock on the date of the distribution. Momentum Business
Applications was consolidated with the Company's financial position, results of
operations and cash flows as of December 31, 1998. The Company anticipates
Momentum Business Applications will no longer meet the requirements for
consolidation during the first quarter of 1999. As a result, the Company will
incur a charge of approximately $177.0 million which represents the $250.0
million contribution less the $78.6 million dividend recorded as of December 31,
1998, investment banker fees of $2.9 million and other expenses related to the
formation of Momentum Business Applications, and expenses incurred by Momentum
Business Applications while consolidated with the Company.
In the first quarter of 1999, the Company redeployed resources to new
product development, global product support, and other strategic customer value
added programs. Accordingly, PeopleSoft redeployed 100 employees to these new
strategic areas and eliminated 430 staff from other redundant and unnecessary
positions primarily in the administration, sales and service support, and
marketing support areas. This action will allow the Company to hire more staff
in support of its e-business, analytic applications and ERP development as well
as customer support programs.(1) The reduction in staff represents approximately
6 percent
- - ---------------
1Forward-Looking Statement
36
<PAGE> 39
of the Company's total workforce with over 90 percent of the reductions in North
America. The Company expects to incur a one-time restructuring charge in the
first quarter of 1999 of between $4.0 million and $5.0 million for the
separation arrangements.
PEOPLESOFT MANUFACTURING, INC. ("PMI")
In November 1996, the Company acquired the assets and assumed certain
liabilities of PMI. The Company paid an aggregate purchase price of $30.1
million. The assets acquired consisted of a suite of software applications
products that streamline, automate, and augment business processes for discrete
manufacturing and supply chain management solution for manufacturers and
distributors.
The Company allocated the purchase price to the fair value of the net
tangible assets and identified intangible assets acquired including in-process
research and development. In performing this allocation, the Company considered,
among other factors, intentions for future use of the acquired assets and
analyses of historical financial performance and estimates of future performance
of PMI products and the in process research and development ("IPR&D") projects
present at the date of acquisition. PMI's IPR&D projects included the
incorporation of certain critical planning and optimization functionality which
had not reached technological feasibility at the date of acquisition. The
Company allocated $22.5 million to the PMI IPR&D projects.
With regard to the IPR&D projects, the Company considered, among other
factors, the importance of each project to the overall development plan, and the
projected incremental cash flows from the projects when completed and any
associated risks. The incremental cash flows were discounted at an annual rate
of 40% to determine the value of the IPR&D projects. The discount rate reflects
the risks associated with the inherent difficulties and uncertainties in
completing each project and thereby achieving technological feasibility,
achieving anticipated levels of market acceptance and penetration, market growth
rates, competitive risks, information technology investment trends in the
manufacturing and distribution industry, and risks related to the impact of
potential changes in future target markets.
The Company has also recently recalculated the valuation of PMI's assets in
accordance with recently revised valuation methodologies. Differences between
the old and new methodologies include considering the stage of completion of the
in-process research and development, and excluding cash flows from ancillary
sources such as maintenance, training and consulting. The Company has concluded
that the difference in value allocated to in-process research and development
and the impact of amortization expense were not material to the Company's
financial statements.
The Company completed development of the acquired in-process technology
into commercially viable products in 1997 at a post acquisition cost of $3.3
million. The cost and timing of completing the in-process technology was
consistent with the assumptions used in the valuation model. Estimated revenue
from the purchased in process projects peak in the year 2000 and decline through
2004 as other new products are expected to be introduced. Revenues to date have
also been materially consistent with the revenue assumptions used in the
valuation model. These projections were based on management's estimates of
market size and growth, expected trends in technology and the expected timing of
new product introductions. Should actual growth rates be materially lower in
future periods, the Company would realize a lower return on its investment in
PMI; however, based on the current level of licensing activity, the Company does
not believe that there will be an impairment in the carrying value of
acquisition costs related to PMI's products.
INTREPID SYSTEMS, INC. ("INTREPID")
In October 1998, the Company acquired the assets and assumed certain
liabilities of Intrepid. The Company paid an aggregate purchase price of $51.5
million. The assets acquired included two products: Evolution and Decision
Master. Evolution is a retail management system supporting on-line transaction
processing ("OLTP") systems for merchandise management, store operations
management and financial management for sales systems and retail stock ledgers.
Decision Master is an on-line analytic processing ("OLAP") decision support
system designed to provide better data and analysis tools which may be used to
improve retail operations.
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<PAGE> 40
The Company allocated the purchase price to the fair value of the net
tangible assets and identified intangible assets acquired including the
in-process research and development projects: Evolution and Decision Master. In
performing this allocation, the Company considered, among other factors,
intentions for future use of the acquired assets and analyses of historical
financial performance and estimates of future performance of Intrepid products
and the IPR&D projects present at the date of acquisition. Evolution's IPR&D
activities included the planning, designing and testing for re-writing certain
functionality to improve performance, adding new functionality to better address
competitive offerings, conforming the "look and feel" of the system with
PeopleSoft's standards, and expanding the integration of Evolution with
complementary PeopleSoft products. Decision Master's IPR&D activities included
the planning, designing and testing for the re-writing of nearly the entire
product to support or incorporate several new products and/or technologies
particularly in the areas of extracting, translating and loading data, defining
and creating the data warehouse and "meta" data layer, and accessing and
analyzing the meta data. The Company allocated $4.3 million and $9.6 million to
the Evolution and Decision Master IPR&D projects, respectively.
With regard to the IPR&D projects, the Company considered, among other
factors, the stage of completion of each project, the attainment of
technological feasibility, the importance of each project to the overall
development plan, alternative future uses of the technology and the projected
incremental cash flows from the projects when completed and any associated
risks. The incremental cash flows were discounted at an annual rate of 25% to
determine the value of each IPR&D project. The discount rate reflects the risks
associated with the inherent difficulties and uncertainties in completing each
project and thereby achieving technological feasibility, achieving anticipated
levels of market acceptance and penetration, market growth rates, competitive
risks, information technology investment trends in the retail industry, and
risks related to the impact of potential changes in future target markets. The
Company anticipates that the IPR&D projects will take up to 18 months to
complete and will require an additional $3.2 million and $1.4 million to
complete for Evolution and Decision Master, respectively. Estimated revenue from
the purchased in process projects peak in the year 2002 at $23 million with
respect to the decision support system and 2003 at $11 million with respect to
the merchandise management system, and, thereafter, decline through 2005 as
other new products are expected to be introduced. Revenues and costs to date
related to the completed in-process technology, have been materially consistent
with the assumptions used in the valuation model. These projections were based
on management's estimates of market size and growth, expected trends in
technology and the expected timing of new product introductions. Should actual
growth rates be materially lower in future periods, the Company would realize a
lower return on its investment in Intrepid. The Company will periodically assess
whether there has been an impairment in the carrying value of acquisition costs
related to Intrepid's products based on the then current level of licensing
activity and the Company's assessment of the overall market conditions in the
retail industry. Should the Company determine that there is has been an
impairment, there could be additional charges to operations related to reducing
the carrying value of the impaired assets to their net realizable value.
PROVISION FOR INCOME TAXES
The Company's income tax provision increased from $25.9 million in 1996 to
$67.8 million in 1997 and to $98.4 million in 1998. The effective tax rate was
40.7% in 1998, 38.5% in 1997 and 41.9% in 1996. The 1996 and 1998 tax rates were
higher than the 1997 tax rate primarily due to certain non-deductible one-time
merger related charges and unrecognized benefits of losses of certain foreign
subsidiaries. The net deferred tax assets at December 31, 1998 were $61.2
million, net of a valuation allowance of $11.1 million, primarily related to net
operating loss carryforwards incurred in certain foreign jurisdictions and other
foreign tax benefits. The realization of these net deferred tax assets is based
on historical tax positions and expectations about future taxable income.
EARNINGS PER SHARE
The Company's earnings per share are calculated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" which
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
38
<PAGE> 41
equivalents such as stock options and warrants, while the diluted earnings per
share includes such dilutive effects. Diluted earnings per share increased from
$0.15 in 1996 to $0.44 in 1997 to $0.55 in 1998. Earnings per share for 1998
increased as a result of the 32% increase in net income from $108.3 million for
the year ended December 31, 1997 to $143.2 million for the year ended December
31, 1998, partially offset by a 4% increase in the number of shares used in the
diluted per share computation from 248.3 million shares for the year ended
December 31, 1997 to 258.3 million shares for the year ended December 31, 1998.
The increase in weighted average shares outstanding was due to the exercise of
stock options and the issuance of shares under the employee stock purchase plan.
Shares outstanding during 1999 will be impacted by the following factors: (i)
the ongoing issuance of common stock associated with stock option exercises and
the employee stock purchase plan; (ii) the anticipated exercise during the first
and fourth quarters of 1999 of warrants for up to approximately 4 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 complete
acquisitions of TriMark Technologies, Inc and Distinction Software, both
anticipated to close in 1999, and to affect other business combinations should
the Company enter into such transactions.
BUSINESS OUTLOOK
In a press release dated January 28, 1999, the Company made forecasts
regarding its expected revenue and operating margin for the calendar 1999 first
quarter and year. Based on activity through March 30, 1999, the Company believes
that it will not achieve those forecasts. While the quarter is not yet complete,
the Company now expects that revenue for the first quarter of 1999 will be
approximately between $275 million and $305 million which represents a 0 to 10%
increase in revenue from the first quarter of 1998(1). Lower than expected
revenue will also reduce operating profit margins to levels significantly lower
than the forecast (excluding the effect of charges resulting from the
distribution of shares of Momentum Business Applications, Inc. to the Company
shareholders and the Company's previously announced reduction in workforce).
In the first quarter of 1999, the Company's revenue growth, like that of
the enterprise application software industry as a whole, has been adversely
impacted by the slowdown in customer license sales, in part as a result of Year
2000 projects in process at many organizations, as well as those other factors
described in Business Outlook and Factors That May Affect Future Results
reported in our third quarter 10-Q. Due to the uncertainty associated with the
current market conditions, the Company is suspending its practice of issuing
forecasts for future quarters or years.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $384.5 million during
1998, compared to $230.1 million in 1997, and $130.9 million in 1996. In all
periods, cash provided by operating activities was due to earnings plus non-cash
items, increases in deferred revenue, accrued compensation and related expenses,
and income taxes payable and the tax benefit of employee stock transactions, the
sum of which were partially offset by increases in accounts receivable and other
assets. Net accounts receivable increased from $163.7 million to $299.2 million
and to $385.4 million as of December 31, 1996, 1997 and 1998, respectively, and
deferred revenues increased from $183.3 million to $327.7 million and to $515.5
million over the same period. The increase in net accounts receivable resulted
from the growth in customer licensing activity partially offset by increased
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.
- - ---------------
(1) Forward-looking statement as defined in the Private Securities Litigation
Reform Act of 1995. This forward-looking statement is subject to risks and
uncertainties that could cause actual results to differ materially from those
anticipated. Risks are detailed in the Company's filings with the Securities and
Exchange Commission, including, but not limited to, the 1998 Annual Report to
Shareholders (Form 10-K) and recent Form 10-Q filings.
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<PAGE> 42
The Company calculates accounts receivable days sales outstanding ("DSO")
as the ratio of quarter-end accounts receivable to the sum of quarterly revenues
and the net change in quarter-end 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, accounts receivable days outstanding was 88 days as
of December 31, 1998 which was equal to the DSO as of December 31, 1997. 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 years ended December 31, 1997 and 1998, the Company's principal
use of cash for investing activities included investments and the purchase of
property and equipment comprised of purchases of computer and networking
equipment to accommodate employee and facility expansions and to support the
Company's growing training capacity requirements. During 1998, 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 third quarter of 1998. These transactions were structured as
a like-kind exchange for tax purposes and, therefore did not impact immediate
cash flow. The Company is committed to lease buildings costing approximately
$110.0 million, 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
five years with the option to purchase the buildings 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 funded $70.0 million for the
construction of this facility that was 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.
Financing activity for the years ended December 31, 1997 and 1998 related
to the proceeds from the exercise of common stock options and issuance of stock
under employee stock purchase plans. The Company believes granting stock options
is essential in attracting and retaining key employees who are critical to the
Company's success. In 1996, 1997 and 1998, the Company granted options
aggregating 5.4%, 5.0% and 5.3%, respectively, of the common stock issued and
outstanding at the beginning of each year. 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.
In November 1995, PeopleSoft issued common stock warrants with annual
exercise dates through 1999. 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. In November 1997, the Company issued 942,880
shares of common stock pursuant to the net exercise of warrants to purchase
1,600,000 shares of common stock at $13.75 per share. The Company has received
notice that the holders intend on exercising their 1998 warrants consisting 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. By mutual consent of the
Company and the warrant holder, the maturity date for the warrants has been
extended to March 1999. The Company has elected the net exercise provision and
thus will issue approximately 572,000 shares in the first quarter of 1999
related to these warrants. While the Company has not determined how the exercise
of the remaining 1999 warrants will be satisfied, if exercised, they represent a
significant source of potential liquidity and may provide the
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<PAGE> 43
Company with cash up to $58 million.(1) However, at the time of this filing, the
exercise price for the 1999 warrants was above the fair market value of the
stock.
As of December 31, 1998, the Company had $495.0 million in working capital,
including $480.1 million in cash and cash equivalents and $206.2 million in
short-term investments, consisting principally of investments in
interest-bearing demand deposit accounts with financial institutions,
tax-advantaged money market funds and highly liquid debt and equity securities
of corporations, municipalities and the U.S. Government. Since Momentum Business
Applications was consolidated with the Company's financial position at December
31, 1998, the cash balance includes the $250.0 million in cash related to the
contribution from the Company. The Company anticipates Momentum Business
Applications will no longer meet the requirements for consolidation in the first
quarter of 1999, therefore the cash balance will decrease significantly.
However, the Company believes that the remaining cash and short term investment
balances, proceeds from sale 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 1999.(1)
BUSINESS COMBINATIONS
In June 1998, the Company entered into a definitive agreement to acquire
all outstanding equity interest of TriMark Technologies, Inc. ("TriMark"), 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 a maximum of $25.0 million in common stock and options for all of the
outstanding equity interests of TriMark in a transaction that is expected to
close prior to the end of the first half of 1999. The amount of consideration
which TriMark shareholders will receive may vary depending on several factors.
The accounting treatment of this acquisition will not be determined until the
acquisition is concluded. Prior to closing the transaction, the Company and
TriMark will operate independently within a development, marketing, sales and
support relationship.
In December 1998, the Company entered into a definitive agreement to
acquire all outstanding equity interest of Distinction Software, Inc.
("Distinction"), a supply chain management software company, by issuing between
$5 million and $10 million in common stock and options. The transaction is
expected to close in the second half of 1999. The accounting treatment of this
acquisition will not be determined until the acquisition is concluded. Prior to
closing the transaction, the Company and Distinction will operate independently
within a development, marketing, sales and support relationship.
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. Testing of critical processes
commenced during the fourth quarter of 1998.
Costs directly attributed to the Company's internal Year 2000 initiative
are currently estimated at approximately $4.0 million. The amount spent to date
is immaterial. This estimate is comprised primarily of
- - ---------------
1Forward-Looking Statement
41
<PAGE> 44
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.(1) 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.
ITEM 7A. FINANCIAL RISK MANAGEMENT
FOREIGN EXCHANGE
PeopleSoft's revenue originating outside the United States was 15% and 16%
of total revenues in 1997 and 1998, respectively. International revenues from
each geographic region were less than 10% of total revenues. 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.
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 January 1998, the Company initiated a foreign exchange 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 terms of
three months or less. The Company currently settles all of its hedges on the
last day of the second month of each quarter and concurrently opens new
- - ---------------
1Forward-Looking Statement
42
<PAGE> 45
contracts to cover the upcoming quarter. Gains and losses on the settled
contracts are recognized as other income or expense in the current period,
consistent with the period in which the gain or loss of the underlying
transaction is recognized. The Company recorded net losses from these settled
contracts and underlying foreign currency exposures of approximately $900,000
for the year ended December 31, 1998. The foreign exchange hedging program is
managed in accordance with a corporate policy approved by the Company's Board of
Directors.
At December 31, 1998, hedge positions totaled $11.0 million equivalent. All
hedge positions are carried at fair value, which approximates book value and all
hedge positions had maturity dates within three months.
For the years ended December 31, 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 December 31, 1998, less than
5% of the Company's assets are in the Asia/Pacific region. To date, the
Company's operations in the region 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 U.S. dollar cash funding requirements of these
foreign subsidiaries to decrease.
INTEREST RATES
The Company invests its cash in a variety of financial instruments,
consisting principally of investments in interest-bearing demand deposit
accounts with financial institutions, tax-advantaged money market funds and
highly liquid debt and equity securities of corporations, municipalities and the
U.S. Government. 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.
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 carries 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 December 31, 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 financial instruments held by the Company
at December 31, 1998 that are sensitive to changes in interest rates. These
instruments are not leveraged and are held for purposes other than trading. For
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. The average interest rates below reflect a weighted average rate for
both taxable investments and tax-exempt investments. Below is a tabular
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<PAGE> 46
presentation of the maturity profile of the available-for-sale investment
securities held by the Company at December 31, 1998:
INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY
WEIGHTED AVERAGE INTEREST RATE
<TABLE>
<CAPTION>
FAIR VALUE
1999 2000 TOTAL 12/31/98
------ ----- ------ ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Available-for-sale securities.......... $290.3 $31.6 $321.9 $322.5
Weighted average interest rate......... 4.0% 4.0%
</TABLE>
The Company is not an issuer of any corporate debt nor does it have any
bank borrowings outstanding.
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 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-K.
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 audited Consolidated
Financial Statements and Notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations for the years ended December
31, 1996, 1997, and 1998 contained elsewhere in this Form 10-K.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
PeopleSoft's revenues and results of operations are difficult to predict
and may fluctuate substantially from quarter to quarter. License fee revenues in
any quarter depend substantially upon PeopleSoft's total contracting activity
and its ability to recognize revenue in that quarter in accordance with its
revenue recognition policies. PeopleSoft's contracting activity is difficult to
forecast for a variety of reasons, including the following:
- a significant portion of PeopleSoft's license agreements are completed
within the last few weeks of each quarter;
- PeopleSoft's sales cycle is relatively long and increasingly variable
since PeopleSoft has broadened its marketing emphasis to include software
product solutions for each customer's overall business, thus increasing
the financial value of individual transactions and the complexity of the
customer selection, negotiation and approval process;
- the size of license transactions can vary significantly;
- customers may postpone or cancel system replacement or new system
evaluations due to changes in their strategic priorities, project
objectives, budgetary constraints or company management;
- customer evaluations and procurement processes vary significantly from
company to company, and a customer's internal approval and expenditure
authorization process can be difficult, even after selection of a vendor;
and
- the number, timing and significance of software product enhancements and
new software product announcements by PeopleSoft and its competitors may
affect purchase decisions;
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In addition, each customer's evaluation of its need to achieve Year 2000
compliance may affect the purchase decision. PeopleSoft believes that, many
customers and potential customers are heavily engaged in testing and correcting
system Year 2000 problems, and therefore such customers may choose to defer
system investments during 1999, negatively impacting the Company's revenues. In
addition, prior year sales may have been increased due to customers' urgent need
to address Year 2000 issues. Such Year 2000 related demand should be eliminated
in 1999 due to the lead time required to implement new systems, negatively
impacting the Company's revenues. In addition, the Company's sales cycles may
lengthen in 1999 and future years due to lessened urgency of customers' system
investment decisions. Because Year 2000 related impacts on customer purchasing
decisions are unprecedented, PeopleSoft has a limited ability to forecast
accurately the impact of the Year 2000 issue on its quarter-to-quarter revenues.
In addition, changes in PeopleSoft's sales incentive plans have had and may
continue to have an unpredictable impact on seasonal business patterns. Finally,
changes in economic, political and market conditions may adversely impact
PeopleSoft's business opportunities at any time.
Several factors may require PeopleSoft to defer recognition of license fee
revenue for a significant period of time after entering into a license
agreement, including:
- whether the license agreement relates entirely to then currently
undeliverable software products;
- whether enterprise transactions include both software products that are
then currently deliverable and software products that are still under
development or other undeliverable elements (If PeopleSoft enters into a
license agreement to provide both software product categories, then, in
order to recognize revenue on currently delivered products under the
license agreement, it must be able to establish separate values for all
elements under the license agreement, and the license agreement and
supporting schedules must contain precise contractual provisions
consistent with generally accepted accounting principles ("GAAP"));
- whether the customer demands services that include significant
modifications, customizations or complex interfaces;
- whether the license agreement includes non-standard acceptance criteria
that may preclude revenue recognition prior to customer acceptance; and
- whether the license agreement includes fees with extended payment terms
or fees that depend upon acceptance of services or other contingencies.
Because of the factors listed above and other specific requirements under
published GAAP standards for software revenue recognition, PeopleSoft must have
very precise terms in its license agreements in order to recognize revenue when
it initially delivers software. Although PeopleSoft has a standard form of
license agreement that meets the criteria under GAAP for current revenue
recognition on delivered elements, it must often negotiate and revise certain
terms and conditions in large enterprise transactions. Negotiation of mutually
acceptable terms and conditions can extend the sales cycle and, sometimes
PeopleSoft does not obtain terms and conditions that permit revenue recognition
at the time of delivery or even as work on the project is completed.
Variances or slowdowns in PeopleSoft's prior quarter contracting activity
may impact its current and future service revenues since service revenues
typically lag license fee revenues. PeopleSoft's ability to increase service
revenue (such as fees derived from consulting, training and maintenance
services) primarily depends on its ability to increase the number of its
licensing agreements. Additionally, PeopleSoft may not be able to recruit, hire
and train sufficient numbers of qualified consultants to perform these services.
DEPENDENCE ON THIRD PARTY TECHNOLOGY
PeopleSoft licenses numerous critical third-party software products that it
incorporates into its own software products. The termination of any of
PeopleSoft's licenses to this third-party software could have a material adverse
effect on PeopleSoft's business, financial condition and results of operations.
These adverse effects include, for example, its products becoming inoperable or
their performance being materially reduced.
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If any of the third-party software vendors change their product offerings,
PeopleSoft may need to incur additional development costs to ensure continued
performance of its products. In addition, if the cost of licensing any of these
third-party software products materially increases, PeopleSoft's gross margin
levels could materially decrease.
PeopleSoft relies on existing partnerships with certain other software
vendors who are also competitors. For example, PeopleSoft partners with Oracle
when PeopleSoft customers select an Oracle database to run in conjunction with
PeopleSoft's financial package. However, Oracle competes with PeopleSoft in the
enterprise software area. If these partners/competitors change their business
practices in the future, PeopleSoft may be compelled to find alternative vendors
of complementary software, which may not be as popular or provide the same
functionality as the software provided by PeopleSoft's existing
partners/competitors.
RISK ASSOCIATED WITH CREATION OF MOMENTUM BUSINESS APPLICATIONS
PeopleSoft faces a number of risks as of a result of the creation of
Momentum Business Applications and the distribution of the Momentum Business
Applications Class A Common Stock to PeopleSoft stockholders. These include:
- PeopleSoft has less control over important research and development
projects. PeopleSoft and Momentum Business Applications must agree on
project selection, budgets, timetables and specifications for each
project and Momentum Business Applications will be responsible for
overseeing the actual product development.
- PeopleSoft contributed a substantial portion of its cash reserves to
Momentum Business Applications. As a result, PeopleSoft's credit rating
may be adversely affected and its ability to raise additional funds may
be impaired. In addition, the Company has increased risk of having
insufficient cash resources to address adverse conditions that may impact
its business results.
- PeopleSoft may lose the tax benefits associated with the research and
development expenditures on the projects pursued by Momentum Business
Applications. Though PeopleSoft may be able to recapture these benefits
if it chooses to acquire Momentum Business Applications, it will likely
face restrictions on the amount and timing of its utilization of these
tax benefits.
- If PeopleSoft chooses to acquire Momentum Business Applications, it will
likely be required to record significant accounting charges relating to
acquisition of in-process research and development and amortization of
capitalized intangible assets.
POSSIBLE ADVERSE IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 97-2, "Software Revenue Recognition", SOP 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition",
and SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions" in October 1997, March 1998, and December 1998,
respectively. These standards address software revenue recognition matters
primarily from a conceptual level and do not include specific implementation
guidance. These standards supersede an earlier Statement of Position and, in
part, are effective for transactions entered into for fiscal years beginning
after December 15, 1997. Based on its reading and interpretation of SOPs 97-2
and 98-4, the Company believes that it's currently in compliance with these
standards. However, the American Institute of Certified Public Accountants has
not issued implementation guidelines for these standards and the accounting
profession is discussing a wide range of potential interpretations. Once
available, these implementation guidelines could lead to unanticipated changes
in PeopleSoft's current revenue accounting practices that could have a material
adverse effect on PeopleSoft's business, financial condition and results of
operations.
The Company has not fully assessed its ability to comply with SOP 98-9
using current contracting and business practices. However, the Company believes
that SOP 98-9 may require significantly more revenue to be deferred for certain
types of transactions. Although this new standard is not effective until the
year 2000, the Company, in accordance with its historical practice of complying
with new revenue recognition standards
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as soon as issued, may choose to adopt the standard in 1999, requiring either
changes in revenue recognition practices or changes in the Company's sales and
contracting practices in order to comply. Such changes may have a significant
adverse impact on revenues and margins in the quarter and year they are
implemented.
The implementation guidelines for these standards, when issued, may also
require PeopleSoft to change significantly its business practices in order to
continue to recognize a substantial portion of its license fee revenue when it
delivers its software products. These changes may reduce demand, extend sales
cycles, increase administrative costs and otherwise adversely affect
PeopleSoft's business, financial condition and results of operations. In
addition, PeopleSoft could become competitively disadvantaged relative to
foreign-based competitors that are not currently subject to U.S. GAAP.
PRICING PRACTICES
The Company may choose in 1999 or a future year to make changes to its
pricing practices, including additional discounts to customers, reduction of
transactions that involve a perpetual use license to its software products,
changes in maintenance pricing, or other changes which may negatively impact
revenues in the quarter and year implemented, and for succeeding quarters and
years. Such changes may have a material adverse impact on revenues, income, and
the statement of financial condition, and such changes may cause the Company to
revise its guidance on future operating results.
HIGH DEGREE OF OPERATING LEVERAGE
Like many of its competitors, PeopleSoft's business model is characterized
by a very high degree of operating leverage. A substantial portion of
PeopleSoft's operating costs and expenses consist of employee and facility
related costs, which are relatively fixed over the short term. In addition,
PeopleSoft's expense levels and hiring plans are based substantially on
PeopleSoft's projections of future revenue. If PeopleSoft's actual revenues fall
below expectations, its net income is likely to be disproportionately adversely
affected. PeopleSoft may be unable to increase or even maintain its current
level of profitability on a quarterly or annual basis in the future.
FUTURE OPERATING RESULTS UNCERTAIN; SEASONALITY
Segments of the software industry have in the past, and are expected in the
future, to experience significant economic downturns characterized by decreased
product demand, price erosion, technological shifts, work slowdowns and layoffs.
PeopleSoft's operations may, in the future, fluctuate substantially from period
to period because of these industry patterns, general economic conditions
affecting the timing of orders from customers and other factors affecting
capital spending.
PeopleSoft has been, and expects to continue to be, affected by seasonal
trends in the software industry. PeopleSoft's revenues historically have
followed a pattern of being relatively weak in the first and second quarters and
relatively strong in the third and fourth quarters. This seasonality has been
caused by a variety of factors, including sales incentives, customer demand
based on available capital budgets and release of new technologies. However,
there is no assurance that results in the third and fourth quarters will be
stronger than, or even equal to, results in the first half of the Company's
fiscal year.
COMPETITION
The market for business application software has been intensely competitive
for the past year and is currently intensifying. PeopleSoft competes with a
variety of software vendors including: (i) enterprise application software
vendors, including emerging new internet software application vendors; (ii)
manufacturing application software vendors; (iii) enterprise resource
optimization application software vendors; (iv) financial management systems and
HRMS application software vendors; and (v) software tools vendors. Although
PeopleSoft believes its success has been due in part to its early emphasis on
the client/server architecture, virtually all of PeopleSoft's competitors now
offer software products based on a client/server architecture. Consequently,
PeopleSoft must differentiate itself through different or more subtle
architectural and technological factors, including: (i) internet focused
application development; (ii) enterprise
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software product breadth and individual product features; (iii) service
reputation; (iv) product flexibility; (v) ease of implementation; (vi)
international software product version availability and support; and (vii)
price. Price competition has significantly increased recently and this trend may
continue in the future.
In the enterprise application software market, PeopleSoft faces significant
competition from SAP and Oracle and, to a lesser degree, J.D. Edwards, 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 addition, the Company faces increasing competition from internet
focused application vendors. In this market, the chief competitive factors
include: (i) the breadth and completeness of the enterprise solution offered by
each vendor, and the competitive advantages the solution offers to its
customers; (ii) the extent of software product integration across the enterprise
solution; and (iii) the availability of localized software products and
technical support in key markets outside the United States. Both SAP and Oracle
have certain competitive advantages over PeopleSoft in these areas primarily due
to their significant worldwide presence and longer operating and product
development history. Both SAP and Oracle have substantially greater financial,
technical and marketing resources than PeopleSoft. In addition, SAP has a larger
installed base that PeopleSoft. Furthermore, Oracle's RDBMS (relational database
management system) underlies a significant portion PeopleSoft's installed
applications.
PeopleSoft entered the manufacturing software application markets in 1996.
In these markets, PeopleSoft's existing competitors include those listed
immediately above, and others such as Baan, QAD, Ross Systems and a large number
of niche competitors already in the manufacturing market.
In addition, since it acquired Red Pepper Software in the fourth quarter of
1996, PeopleSoft has competed in the emerging enterprise resource optimization
software solutions market. PeopleSoft's current and potential competitors in
this market include:
- companies such as i2 Technologies, Manugistics and Numetrix Software,
which have developed or are attempting to develop advanced planning and
scheduling software products that complement or compete with MRP
(material requirements planning) solutions;
- other companies that provide specialized planning and scheduling software
for niche markets, including Chesapeake Systems, Waterloo Manufacturing
Software, MAPICS, Inc., and Marcam Solutions, Inc.;
- 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;
- internal development efforts by potential customers' corporate
information technology departments; and
- companies offering standardized or customized products on mainframe
and/or mid-range computer systems.
PeopleSoft also competes with (i) providers of HRMS software products,
including Cyborg Systems, Lawson Associates, Integral Systems, Inc., InPower,
Inc. and Ceridian, and (ii) providers of financial management systems software
products, including Computron Software, Inc., Flexiware International, Hyperion
Software, Lawson Associates and other smaller companies.
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 PeopleSoft's software products. This 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,
PeopleSoft 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
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services. Although PeopleSoft is pursuing an outsourcing partner program that it
believes will address the needs of the marketplace, this program may not be
successful.
Intense competition could lead to increased price competition in the
market, forcing PeopleSoft to reduce prices. As a result, PeopleSoft's gross
margins may decline and it may lose market share which, in turn, could have a
material adverse effect on PeopleSoft's business, financial condition and
results of operations. During 1998 certain competitors became more aggressive
with their product pricing reductions, payment terms and/or issuance of
contractual implementation terms or guarantees. PeopleSoft may be unable to
continue to compete successfully with its existing competitors or to compete
successfully with new competitors.
RISKS ASSOCIATED WITH BUSINESS COMBINATIONS
As part of its overall strategy, PeopleSoft plans to continue to acquire or
invest in complementary companies, products, and 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 risk that the Company
may not be able to integrate the acquired technologies or products with its
current products and technologies; the potential disruption of PeopleSoft's
ongoing business; the inability to retain key technical and managerial
personnel; the inability of management to maximize the financial and strategic
position of PeopleSoft 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; adverse
impact on PeopleSoft's annual effective tax rate; dilution of existing equity
holders; difficulty in maintaining controls, procedures, and policies; potential
adverse impact on the Company's relationships with partner companies or third
party providers of technology or products; and the impairment of relationships
with employees and customers as a result of any integration of new personnel. In
addition, due to the recent distribution of Momentum Business Applications to
shareholders and to other factors that are used to judge the accounting
treatment of any acquisition, the Company may not qualify for pooling of
interests accounting for acquisitions of companies made in 1999, and thus may
need to account for acquistions of other companies using the purchase method, in
addition to using the purchase method for acquisitions of technologies or
products. The purchase method of accounting for acquisitions may require large
write-offs of any in process research and development costs related to companies
acquired, as well as ongoing amortization costs for goodwill and other
intangible assets valued in the acquisition of companies, products, or
technologies. Such writeoffs and ongoing amortization charges may have a
material adverse impact on operating margins and net income in the quarter of
the acquisition and for several subsequent years. PeopleSoft may not be
successful in overcoming these risks or any other problems encountered in
connection with such transactions.
RELIANCE ON PROPRIETARY SOFTWARE DEVELOPMENT TOOLS
PeopleSoft's software products include a suite of proprietary software
development tools, known as PeopleTools, which are fundamental to the effective
use of PeopleSoft's software products. While no industry standard exists for
software development tools, several companies have focused on providing software
development tools and each of them is attempting to establish its software
development tools as the accepted industry standard. In addition, Microsoft is
attempting to establish several standards in the marketplace, including software
development tools, middleware and OLAP tools. If a software product other than
PeopleTools becomes the clearly established and widely accepted industry
standard, PeopleSoft: (i) may be compelled to abandon or modify PeopleTools in
favor of such an established standard; (ii) may be forced to redesign its
software products to operate with such third party's software development tools;
or (iii) may face the potential sales obstacle of marketing a proprietary
software product against other vendors' software products that incorporate a
standardized software development toolset. PeopleSoft may not be able to respond
appropriately or sufficiently rapidly to the emergence of an industry standard.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
PeopleSoft has committed, and expects to continue to commit, substantial
resources and funding to build its international service and support
infrastructure. Operating costs in many countries, including many of those
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in which PeopleSoft operates, are higher than in the United States. In order to
increase international sales in 1998 and subsequent periods, PeopleSoft 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 PeopleSoft's international expansion and/or product globalization efforts are
not successful, its operating results will likely be negatively affected.
Generally, PeopleSoft's foreign sales are denominated in its foreign
subsidiaries' local currencies. If these foreign currency exchange rates change
unexpectedly, PeopleSoft's could have significant gains or losses. In January
1998, PeopleSoft implemented a hedging program designed to mitigate the
potential impact of exchange rate fluctuations. Under a foreign exchange
management policy approved by the Company's Board of Directors, PeopleSoft may
hedge existing transaction exposures, anticipated transactions and exposure
resulting from the translation of foreign financial results into U.S. Dollars.
PeopleSoft can hedge anticipated transactions and translation exposures only if
they are highly certain, reasonably estimable and significant in amount.
PeopleSoft began hedging of anticipated transactions and translation exposures
in the first quarter of 1998 using forward contracts. PeopleSoft's inability to
hedge potential significant exposures due to uncertainty or inability to
estimate reasonably its foreign exchange exposure could materially adversely
affect its operating results.
RELIANCE ON THIRD PARTIES FOR SALES AND MARKETING
A key aspect of PeopleSoft's sales and marketing strategy is to build and
maintain strong working relationships with businesses that PeopleSoft believes
play an important role in the successful marketing of its software products.
PeopleSoft's customers and potential customers often rely on third-party system
integrators to develop, deploy and manage client/server applications. These
third-party system integrators include: (i) RDBMS software vendors; (ii)
hardware vendors which offer both hardware platforms and, in the case of IBM,
proprietary RDBMS products on which PeopleSoft'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 make up PeopleSoft's principal customer
base; and (iv) benefits consulting firms that are active in the implementation
of HRMS. PeopleSoft believes that its marketing and sales efforts are enhanced
by the worldwide presence of these companies. However, these companies, most of
which have significantly greater financial and marketing resources than
PeopleSoft, may start, or in some cases increase, the marketing of business
application software in competition with PeopleSoft, or may otherwise
discontinue their relationships with or support of PeopleSoft. If PeopleSoft or
its partners are unable to recruit and adequately train a sufficient number of
consulting personnel to support the implementation of PeopleSoft's software
products, demand for these software products could be materially adversely
affected. In addition, integrators who generate consulting fees from customers
by providing implementation services may be less likely to recommend
PeopleSoft's software application architecture, including PeopleTools, if these
products facilitate less implementation effort than competitors' similar product
offerings.
COMPLEXITY OF SOFTWARE PRODUCTS AND PRODUCT DEVELOPMENT
The market for PeopleSoft's software products is characterized by rapid
technological change, evolving industry standards, changes in customer
requirements and frequent new product introductions and enhancements.
PeopleSoft's future success will depend in part upon its ability to; (i)
continue to enhance and expand its core applications; (ii) continue to provide
enterprise solutions; (iii) enter new markets; and (iv) develop and introduce
new products that keep pace with technological developments, including
developments related to the internet, satisfy increasingly sophisticated
customer requirements and achieve market acceptance.
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PeopleSoft may not be able to enhance existing products or develop and introduce
new products in a timely manner.
PeopleSoft's software products can be licensed for use with a variety of
popular industry standard RDBMSs. There may be future or existing RDBMS
platforms that achieve popularity within the business application marketplace
and on which PeopleSoft may desire to offer its applications. These future or
existing RDBMS products may or may not be architecturally compatible with
PeopleSoft's software product design. PeopleSoft may not be able to develop
software products on additional platforms with the specifications and within the
time frame necessary for market success.
Beginning with Release 6, PeopleSoft integrated certain features of BEA's
Tuxedo product into its applications. Over the next several releases, PeopleSoft
will continue to integrate Tuxedo features to allow applications to run on a
distributed basis using a multi-tiered client/server architecture. PeopleSoft
also will bundle Cognos' Powerplay product and Arbor's Essbase product to
incorporate desktop OLAP capabilities, and will bundle products from Informatica
and Information Advantage into its Enterprise Performance Management products.
These third party products may be critical to the competitiveness of
PeopleSoft's software products in the future. Integration of these and other
products is complex and PeopleSoft's efforts may not be successful or may not
result in significant software product enhancements.
Despite testing by PeopleSoft and by third-parties, software programs as
complex as those offered by PeopleSoft are likely to contain a number of
undetected errors or "bugs" when they are first introduced or as new releases
are subsequently released. This may result in reduced acceptance of PeopleSoft's
software products in the marketplace. The effort and expense of developing,
testing and maintaining software product lines will increase with the increasing
number of possible combinations of: (i) vendor hardware platforms; (ii)
operating systems and updated versions; (iii) PeopleSoft application software
products and updated versions; and (iv) RDBMS platforms and updated versions.
Developing consistent software product performance characteristics across all of
these combinations could place a significant strain on PeopleSoft's development
resources and software product release schedules.
RELIANCE ON CLIENT INTERFACES
Currently, PeopleSoft supports client platforms using browsers certified to
run its 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 fundamentally changes the architecture
of its software product so that users of PeopleSoft's software applications
experience significant performance degradation or become incompatible with
future versions of Microsoft's Windows Operating System, it could have a
material adverse effect on PeopleSoft's business, financial condition and
results of operations. The use of a Web client as a primary user interface is
emerging as an alternative to the traditional desktop access through Microsoft
Windows based personal computers. This client access via the Internet or
intranet involves numerous risks inherent in using the Internet, including
security, availability and reliability. PeopleSoft may wish to offer its
applications on future or existing client platforms that achieve popularity
within the business application marketplace. These future or existing client
platforms may or may not be architecturally compatible with PeopleSoft's
software product design. PeopleSoft may not be able to support new client
interfaces and achieve market acceptance of new client interfaces which it does
support.
RELIANCE ON JOINT BUSINESS ARRANGEMENTS
PeopleSoft has in the past entered into, and may in the future enter into,
various development or joint business arrangements to develop new software
products or extensions to its existing software products. Under these
arrangements, PeopleSoft has in the past and expects in the future to be the
exclusive remarketer of the developed software products and pays a royalty to
the business partner based on end user license fees for the developed products.
Under these joint business arrangements, PeopleSoft may distribute or jointly
sell with its business partner an integrated software product. While PeopleSoft
intends to develop business applications that are integrated with its software
products, these software products may not in fact be integrated or the market
may not accept an integrated enterprise solution. Also, these arrangements may
require additional
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investments from third parties or business partners to complete development or
to enhance the software product. These investments may not be available on terms
mutually acceptable to PeopleSoft and its business partner or the existing or
other potential third-party funding source(s). If PeopleSoft acquires title to
the software products or technology from its business partner, it may account
for this acquisition 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 PeopleSoft would record in its
statement of income in the period it completed the acquisition; or (ii)
allocation of a substantial portion of the purchase price to acquired technology
or other intangible assets, creating significant intangible assets. These
intangible assets would be amortized in future periods as a cost of operations.
If either of these scenarios occur, PeopleSoft's results of operations in one or
more future periods could be materially adversely affected.
POTENTIAL SECURITY BREACHES
PeopleSoft's application software products incorporate extensive security
features designed to prevent unauthorized retrieval or modification of sensitive
data. PeopleSoft has developed a security architecture using: (i) the
capabilities of its own applications; (ii) the client operating system software;
(iii) some of the security features contained in the RDBMS platforms on which
the applications run; and (iv) certain third party security products. To date,
PeopleSoft 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, they may not be successfully
implemented or may not be effective within a particular customer's operating
environment. If a breach of security or a suspected breach of security occurs,
the accompanying publicity or any subsequent claims against PeopleSoft could
adversely impact the demand for PeopleSoft's software products and/or could
cause a decline in the market price of PeopleSoft's stock and/or could adversely
impact PeopleSoft's financial results due to lost or delayed closing of software
licensing opportunities.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS; POTENTIAL
INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS
PeopleSoft considers certain aspects of its internal operations, software
and documentation to be proprietary, and relies on a combination of contract,
patent, copyright, trademark and trade secret laws and other measures to protect
this information. Outstanding applications may not result in issued patents and,
even if issued, the patents may not provide any meaningful competitive
advantage. Existing copyright laws afford only limited protection. PeopleSoft
believes that the rapid pace of technological change in the computer software
industry has made patent, trade secret and copyright protection less significant
than factors such as: (i) the knowledge, ability and experience of PeopleSoft's
employees; (ii) frequent software product enhancements; and (iii) the timeliness
and quality of support services. Patent, trade secret and copyright protections
may be inadequate, and PeopleSoft's competitors may independently develop
technologies that are substantially equivalent or superior to PeopleSoft's
technology. Through an escrow arrangement, PeopleSoft has granted many of its
customers a future right to use PeopleSoft's source code solely for internal
maintenance services. This possible access to PeopleSoft's source code may
increase the likelihood of misappropriation or other misuse of PeopleSoft's
intellectual property. Finally, the laws of some countries in which PeopleSoft's
software products are or may be licensed do not protect PeopleSoft's software
products and intellectual property rights to the same extent as the laws of the
United States.
PeopleSoft does not believe that its software products, software products
acquired from previous acquisitions, third party software products PeopleSoft
offers under sublicense agreements, PeopleSoft trademarks or other PeopleSoft
proprietary rights infringe the property rights of any third parties. However,
third parties may assert infringement claims against PeopleSoft with respect to
its products. Any such assertion could require PeopleSoft to enter into royalty
arrangements or could result in costly litigation.
POTENTIAL PRODUCT LIABILITY CLAIMS
PeopleSoft's license agreements contain provisions designed to limit its
exposure to potential product liability claims. However, these provisions could
be invalidated by unfavorable judicial decisions or by federal, state or local
laws or ordinances. Although PeopleSoft has not experienced any product
liability claims to date,
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use of its software in mission critical applications creates the risk that a
third party may pursue a claim against PeopleSoft. If a product liability claim
against PeopleSoft were successful, the resulting damages or injunctive relief
could have a material adverse effect on PeopleSoft's business, financial
condition and results of operations. In addition, as PeopleSoft begins to
compete in the manufacturing software application market, the mission critical
nature of these products may increase PeopleSoft's exposure to product liability
claims.
RISKS ASSOCIATED WITH MANAGING GROWTH
PeopleSoft has experienced an extended period of: (i) significant revenue
growth; (ii) customer base growth; (iii) expansion of its software product lines
and supported platforms; (iv) significant expansion in its number of employees;
(v) increased pressure on the viability and scope of its operating and financial
systems; and (vi) 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 PeopleSoft'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, PeopleSoft must continue to implement and
improve the speed and quality of its information decision support systems,
management decisions, reporting systems, procedures and controls. PeopleSoft's
personnel, procedures, systems and controls may not be adequate to support its
future operations.
DEPENDENCE ON KEY PERSONNEL
PeopleSoft believes that its future prospects will depend in large part
upon its ability to attract, train and retain highly-skilled technical,
managerial, sales and marketing personnel. PeopleSoft continues to hire a
significant number of additional sales, services and technical personnel.
However, competition for personnel in the software industry is intense, and, at
times, PeopleSoft has had difficulty locating candidates with appropriate
qualifications within various desired geographic locations, or with certain
industry-specific domain expertise. If PeopleSoft's competitors increase their
use of non-compete agreements, the pool of available technical personnel may
further narrow in certain jurisdictions, even if the non-compete agreements are
ultimately unenforceable. The failure to attract, train, retain and manage
productive sales and sales support personnel would have a material adverse
effect on PeopleSoft's business, financial condition and results of operations.
If PeopleSoft loses the services of one or more of its key employees, its
business, operating results, financial condition or business prospects could be
materially adversely affected. In the past, PeopleSoft has lost few employees,
especially those in critical positions. PeopleSoft has several programs in place
to retain key personnel, including granting of stock options that vest annually
over four or five years. A number of key employees have vested stock options
with exercise prices lower than PeopleSoft's current stock price. These
potential gains provide these employees the economic freedom to explore personal
objectives both within and outside PeopleSoft, which may result in the loss of
key employees during the coming years.
It is widely recognized that the software industry in which PeopleSoft
competes is at or beyond a condition of full employment. PeopleSoft may not be
able to attract, train and retain the personnel it requires to develop, market,
sell and support new or existing software or to continue to grow. Also, to
penetrate successfully key vertical markets, PeopleSoft must attract, train and
retain personnel with industry-specific domain expertise.
Since the fourth quarter of 1998, PeopleSoft has experienced turnover of
several senior executives. PeopleSoft has hired or promoted qualified candidates
to fill these positions. However, since the employees are new to the positions,
there is no assurance that the newly hired or promoted employees will smoothly
transition into these leadership roles or be able to successfully lead the
Company as it continues to grow.
YEAR 2000 COMPLIANCE
PeopleSoft's internal business information systems are comprised primarily
of the same commercial application software products it generally offers for
license to end user customers. These applications have been tested for Year 2000
compliance and are certified by the Information Technology Association of
53
<PAGE> 56
America ("ITAA") as Year 2000 compliant. Therefore, PeopleSoft does not expect
any Year 2000 compliance issues to arise related to its primary internal
business information systems. PeopleSoft is not aware of any material
operational issues or costs associated with preparing internal systems for the
Year 2000. However, PeopleSoft uses other third party vendor network equipment,
telecommunication products, and software products that may or may not be Year
2000 compliant. PeopleSoft currently is taking steps to address the impact, if
any, of the Year 2000 issue surrounding these third party products. The failure
of any critical technology components to operate properly in the Year 2000 could
have a material adverse effect on PeopleSoft's business, financial condition and
results of operations, and PeopleSoft may be required to incur unanticipated
expenses to remedy any problems.
RISKS ASSOCIATED WITH THE 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 latest software
release (Release 7.5) 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 third party vendor network equipment and
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 adversely affect 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. 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 since the Company may be required to
incur unanticipated expenses to remedy these problems.
RISKS ASSOCIATED WITH FACILITY EXPANSION
PeopleSoft's continued growth has led to a significant increase in its
number of employees. Commercial building vacancy rates have dropped
significantly in many of the markets where PeopleSoft has significant
operations. As a consequence, PeopleSoft expects to experience increasing
difficulty in obtaining additional space within which to expand its operations.
PeopleSoft's failure to either obtain space, or to obtain it on reasonably
attractive commercial terms, may inhibit its ability to grow, or may otherwise
adversely affect its operations and financial results.
Additionally, PeopleSoft may commit to real estate projects in order to
expand its operations to accommodate expected growth. These real estate projects
typically have a lead time of over one year from the commitment date to
occupancy. PeopleSoft's anticipated growth projections may not be realized, and
therefore, PeopleSoft may be subject to increased fixed costs that cannot be
recovered from operations, resulting in material reductions to net income and
cash flows.
VOLATILITY OF STOCK PRICE; RISK OF LITIGATION
The trading price of PeopleSoft Common Stock has in past and may in the
future be subject to wide fluctuations in response to factors such as: (i)
revenue or results of operations in any quarter failing to meet the expectations
(published or otherwise) of the investment community; (ii) announcements of
technological innovations by PeopleSoft or its competitors; (iii) new products
or the acquisition of significant customers by PeopleSoft or its competitors;
(iv) developments with respect to patents, copyrights or other proprietary
rights of PeopleSoft or its competitors; (v) changes in recommendations or
financial estimates by securities analysts; (vi) conditions and trends in the
software industry generally; (vii) adoption of new accounting standards
affecting the software industry; (viii) general market conditions and other
factors. Further, the stock market
54
<PAGE> 57
has experienced in recent months and may continue in the future to experience
extreme price and volume fluctuations that particularly affect the market prices
of equity securities of high technology companies that often are not related to
or are disproportionate to the operating performance of such companies. These
broad market fluctuations, as well as general economic, political and market
conditions, have and may continue to have a material adverse effect on the
trading price of PeopleSoft Common Stock. Fluctuations in the price of
PeopleSoft's Common Stock may expose PeopleSoft to the risk of securities class
action lawsuits. As a result of the significant declines in the price of
PeopleSoft's Common Stock during the second half of fiscal 1998 and the first
quarter of fiscal 1999, several such lawsuits were filed against PeopleSoft.
Though PeopleSoft believes that these lawsuits are without merit, defending
against them could result in substantial costs and a diversion of management's
attention and resources. In addition, any settlement or adverse determination of
these lawsuits could subject PeopleSoft to significant liabilities. There can be
no assurance that there will not be additional lawsuits in the future or that
current or future lawsuits will not have a material adverse effect on the
Company's business, financial condition and results of operations. See Item 3
Legal Proceedings.
POSSIBLE ADVERSE EFFECTS OF RECENT SECURITIES ISSUANCES
If holders of warrants and/or options to purchase PeopleSoft Common Stock
exercise any significant number of these securities and resell the underlying
shares, the market price of PeopleSoft Common Stock could be materially
adversely affected. At December 31, 1998, warrants to purchase 6,400,000 shares
of PeopleSoft Common Stock were outstanding. As of December 31, 1998, these
warrants had exercise prices below the current market price of PeopleSoft Common
Stock. In addition, at December 31, 1998, there were outstanding exercisable
options to purchase 10,006,204 shares of PeopleSoft Common Stock issued under
employee stock plans. As of such date, options to purchase 1,364,836 shares of
PeopleSoft Common Stock had exercise prices below the current market price of
PeopleSoft Common Stock.
INVESTMENTS AND LIQUIDITY
PeopleSoft's short-term and long-term investments consisting principally of
investments in interest-bearing demand deposit accounts with financial
institutions, tax-advantaged money market funds and highly liquid debt and
equity securities of corporations, municipalities and the U.S. Government.
Although these investments have favorable credit ratings, it is possible that
the issuers will default on their obligations, and PeopleSoft may lose principal
and accrued interest. In times of growth, PeopleSoft's operating and investing
activities may use more cash than they provide, thus requiring PeopleSoft to
obtain additional sources of financing. In addition, PeopleSoft may need
additional sources of financing for capital expenditures and material
acquisitions of complementary businesses, products or technologies. PeopleSoft
may be unable to obtain additional sources of financing on favorable terms, if
at all.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included in Part IV Item 14(a)(1)
and (2).
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
Certain information required by Part III is omitted from this Report
because the registrant will file a definitive Proxy Statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information included therein
is incorporated herein by reference.
55
<PAGE> 58
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's officers required by this Item is
included in the section in Part I hereof entitled "Personnel." The information
concerning the Company's directors required by this Item is incorporated by
reference to the Company's Proxy Statement under the heading "Election of
Directors -- Nominees." Information concerning the Company's officers, directors
and 10% shareholders compliance with Section 16(a) of the Securities Exchange
Act of 1934 is incorporated by reference to the information contained in the
Company's Proxy Statement under the heading "Section 16(a) Beneficial Ownership
Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement under the heading "Security Ownership of Certain
Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement under the heading "Certain Transactions with
Management."
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this Report:
1. Consolidated Financial Statements. The following consolidated financial
statements of PeopleSoft, Inc. are filed as part of this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst and Young LLP, Independent Auditors......... F-1
Covered by Report of Ernst and Young LLP, Independent
Auditors:
Consolidated Balance Sheets at December 31, 1997 and
1998................................................... F-2
Consolidated Statements of Income for the years ended
December 31, 1996, 1997 and 1998....................... F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998........... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998....................... F-5
Notes to Consolidated Financial Statements.................. F-6
Not Covered by Report of Independent Auditors:
Supplemental Quarterly Financial Information.............. F-24
</TABLE>
2.Consolidated Financial Statements Schedules. None.
All schedules have been omitted as they are either not required or not
applicable, or the required information is included in the consolidated
financial statements or the notes thereto.
3. Exhibits.
<TABLE>
<S> <C>
2.1(7) Agreement and Plan of Reorganization between PeopleSoft,
Inc. and Red Pepper Company dated as of September 4, 1996.
</TABLE>
56
<PAGE> 59
<TABLE>
<S> <C>
2.2(16) Agreement and Plan of Merger dated September 30, 1998
between the Registrant and Intrepid Systems, Inc.
3.1(11) Restated Certificate of Incorporation of Registrant filed
with the Secretary of State of the State of Delaware on May
25, 1996.
3.2(11) Certificate of Amendment to Certificate of Incorporation of
Registrant, as filed with the Secretary of State of the
State of Delaware on June 17, 1996.
3.3(14) Certificate of Amendment to Certificate of Incorporation of
Registrant, as filed with the Secretary of State of the
State of Delaware on July 3, 1997.
3.4(14) Certificate of Designation as filed with the Secretary of
State of the State of Delaware on March 24, 1998.
3.5 Bylaws of Registrant as amended to date.
4.2(12) First Amended and Restated Preferred Shares Rights Agreement
dated December 16, 1997.
10.1(5)(11) Amended and Restated 1989 Stock Plan and forms of option
agreements thereunder.
10.2(11) 1992 Employee Stock Purchase Plan as amended to date, and
form of subscription agreement thereunder.
10.3(1) 1992 Directors' Stock Option Plan and forms of option
agreements thereunder.
10.4(2)(5) Executive Bonus Plan.
10.5(3) Amendment and Restatement of PeopleSoft, Inc. 401(K) Plan,
dated December 13, 1995, Amendment No. 1 dated December 30,
1994, and Amendment No. 2, dated August 25, 1995.
10.6(1) Form of Indemnification Agreement entered into between the
Registrant and each of its directors and officers.
10.7(3) Loan Agreement between the Registrant and West America Bank,
N.A. dated October 31, 1995.
10.8(1) Office Lease for 1331 North California Boulevard dated July
23, 1990 between the Registrant and 1333 North California
Boulevard, a California limited partnership, as amended by
the First Amendment to Lease dated April 24, 1991 and the
Second Amendment to Lease dated June 17, 1992 and related
Lease Guarantees dated July 26, 1990 and June 14, 1991
between 1333 North California Boulevard and David A.
Duffield.
10.9(1) Lease dated July 24, 1992 between the Registrant and Glen
Pointe Associates.
10.12(1)(6) Software License and Support Agreement dated June 23, 1992
between the Registrant and ADP, Inc., as amended by
Amendment No. 1 dated September 30, 1992.
10.18(2) Lease dated June 23, 1993 between the Registrant and
Westbrook Corporate Center.
10.19(2) Lease dated January 17, 1994 between the Registrant and R-H
Associates Bldg. III Corp.
10.20(2) Lease dated March 10, 1994 between the Registrant and
Rosewood Associates.
10.21(3) Contract of Sale and Escrow Instructions between the Company
and Rosewood Owner of California (B) LLC, a California
limited liability company, dated October 4, 1995.
10.22(4) Warrant Agreement between the Registrant and The First
National Bank of Boston, as Warrant Agent, dated October 30,
1995.
10.23(4) Warrant Purchase Agreement between the Registrant and
Goldman, Sachs & Co. dated October 30, 1995.
</TABLE>
57
<PAGE> 60
<TABLE>
<S> <C>
10.24(4) Registration Rights Agreement between the Registrant and
Goldman, Sachs & Co. dated October 30, 1995.
10.25(8) Amendment No. 2 dated September 28, 1994, Amendment No. 3
dated September 21, 1995 and Amendment No. 4 dated December
28, 1995 to the Software License and Support Agreement dated
June 23, 1992 between the Registrant and ADP, Inc.
(Confidential treatment requested for Amendment No. 2 and
No. 4 only).
10.26(8) Amended Software Development Agreement dated December 22,
1995 between the Registrant and Solutions for Education
Administrators, Inc.
10.27(8) Exclusive Marketing and Distribution Agreement dated
December 22, 1995 between the Registrant and SIS Development
LLC ("SIS").
10.28(13) Amendment No. 1 dated September 19, 1994, Amendment No. 2
dated May 15, 1995 and Amendment No. 3 dated June 19, 1995
to the Lease dated March 10, 1994 between the Registrant and
Rosewood Associates.
10.29(8) Systems Integrator Agreement dated August 25, 1995 between
the Registrant and Shared Medical Systems Corporation.
10.32(13) Lease dated December 4, 1996 between the Registrant and
Lease Plan North America, Inc.
10.33(13) Purchase Agreement dated October 22, 1996 between the
Registrant and Norwest Equity Partners IV, L.P.
10.34(10) Red Pepper Software Company 1993 Stock Option Plan, and
forms of stock option agreement thereunder.
10.35(15) Agreement of Purchase and Sale dated July 22, 1998 between
the Registrant and William Willson & Associates.
10.36(15) Lease dated September 14, 1998 between the Registrant and
Hacienda Plaza Associates, LLC.
10.37 Development and License Agreement dated December 30, 1998
between the Registrant and Momentum Business Applications,
Inc.
10.38 Marketing and Distribution Agreement dated December 30, 1998
between the Registrant and Momentum Business Applications,
Inc.
10.39 Distribution Agreement dated December 30, 1998 between the
Registrant and Momentum Business Applications, Inc.
10.40 First amendment to Participation Agreement and Appendix 1 to
Participation Agreement, Master Lease and Construction Deed
of Trust dated February 20, 1998 between the Registrant and
Lease Plan North America, Inc.
10.41 Second Amendment to Participation Agreement, Master Lease,
Guarantee, Construction Deed of Trust, Cash Collateral
Agreement, Assignment of Lease and Appendix 1 to
Participation Agreement, Master Lease and Construction Deed
of Trust dated September 28, 1998 between the Registrant and
Lease Plan North America, Inc.
10.42 Participation Agreement dated September 28, 1998 between the
Registrant and Wilmington Trust Company, ABN AMRO Leasing,
Inc., ABN AMRO Bank N.V., and Financial Institutions listed
in Schedule I of the Participation Agreement.
10.43 Master Lease dated September 28, 1998 between the Registrant
and Wilmington Trust Company.
10.44 Appendix 1 to the Participation Agreement and Master Lease
dated September 28, 1998.
21.1 Subsidiaries.
</TABLE>
58
<PAGE> 61
<TABLE>
<S> <C>
23.1 Consent of Ernst and Young LLP, Independent Auditors.
24.1 Power of Attorney (see page 61).
27.1 Financial Data Schedule.
</TABLE>
- - ---------------
(1) Incorporated by reference to the exhibit having the same number filed with
the Registrant's Registration Statement on Form S-1 (No. 33-53000) filed
October 7, 1992, Amendment No. 1 thereto filed October 26, 1992, Amendment
No. 2 thereto filed November 10, 1992 and Amendment No. 3 thereto filed
November 18, 1992, which Registration Statement became effective November
18, 1992 and the Registrant's Registration Statement on Form S-1 (No.
33-62356) filed on May 7, 1993, which Registration Statement became
effective May 24, 1993.
(2) Incorporated by reference to the exhibit having the same filed number with
the Company's Annual Report on Form 10-K for the year ended December 31,
1994.
(3) Incorporated by reference to Exhibit 2.1 filed with the Company's Form 8-K
filed with the Securities and Exchange Commission on December 15,1995.
(4) Exhibits 10.22, 10.23, and 10.24 are incorporated by reference to Exhibits
10.1, 10.2, and 10.3, respectively, filed with the Company's Registration
Statement on Form S-3 (No. 33-80755) filed with the Securities and Exchange
Commission on December 22, 1995.
(5) This agreement is a compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c).
(6) Confidential treatment previously granted.
(7) Incorporated by reference to Exhibit 2.1 filed with the Company's Form S-4
filed with the Securities and Exchange Commission on October 4, 1996.
(8) Incorporated by reference to the exhibit having the same filed numbers with
the Company's Annual Report on Form 10K for the year ended December 31,
1995.
(9) Incorporated by reference to Exhibit 2.1 filed with the Company's Form 8-A
filed with the Securities and Exchange Commission on February 15, 1995.
(10) Incorporated by reference to Exhibit 2.1 filed with the Company's Form S-8
filed with the Securities and Exchange Commission on October 24, 1996.
(11) Incorporated by reference to the exhibit filed with the Company's Form S-8
(No.333-08575) filed with the Securities and Exchange Commission on July
22, 1996.
(12) Incorporated by reference to Exhibit 1 filed with the Company's Form 8-A/A
filed with the Securities and Exchange Commission on March 25, 1998.
(13) Incorporated by reference to the exhibit having the same filed number with
the Company's Annual Report on Form 10K for the year ended December 31,
1996.
(14) Incorporated by reference to the exhibit having the same filed number with
the Company's Annual Report on Form 10K for the year ended December 31,
1997.
(15) Incorporated by reference to the exhibit having the same filed number with
the Company's Quarterly Report on Form 10Q for the quarter ended September
30, 1998.
(16) Incorporated by reference to the exhibit 10.37 filed with the Company's
Quarterly Report on Form 10Q for the quarter ended September 30, 1998.
59
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PEOPLESOFT, INC.
By: /s/ ALFRED J. CASTINO
------------------------------------
Alfred J. Castino
Senior Vice President of Finance and
Administration, and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Dated: March 29, 1999
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, David A. Duffield
and Alfred J. Castino, and each one of them, his attorneys-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any and
all amendments to this Annual Report (Form 10-K) and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorneys-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ DAVID A. DUFFIELD President, Chief Executive March 29, 1999
- - ----------------------------------------------------- Officer and Director (Principal
David A. Duffield Executive Officer)
/s/ ALFRED J. CASTINO Senior Vice President of March 29, 1999
- - ----------------------------------------------------- Finance and Administration and
Alfred J. Castino Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ DR. EDGAR F. CODD Director March 29, 1999
- - -----------------------------------------------------
Dr. Edgar F. Codd
/s/ ALBERT W. DUFFIELD Director March 29, 1999
- - -----------------------------------------------------
Albert W. Duffield
/s/ A. GEORGE BATTLE Director March 29, 1999
- - -----------------------------------------------------
A. George Battle
/s/ GEORGE J. STILL, JR. Director March 29, 1999
- - -----------------------------------------------------
George J. Still, Jr.
/s/ CYRIL J. YANSOUNI Director March 29, 1999
- - -----------------------------------------------------
Cyril J. Yansouni
/s/ ANEEL BHUSRI Director March 29, 1999
- - -----------------------------------------------------
Aneel Bhusri
</TABLE>
60
<PAGE> 63
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
PeopleSoft, Inc.
We have audited the accompanying consolidated balance sheets of PeopleSoft,
Inc. at December 31, 1997 and 1998, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PeopleSoft,
Inc. at December 31, 1997 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Walnut Creek, California
January 26, 1999
F-1
<PAGE> 64
PEOPLESOFT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
-------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $215,784 $ 480,086
Short-term investments.................................... 176,678 206,242
Accounts receivable, less allowance for doubtful accounts
of $19,493 in 1997 and $40,001 in 1998................. 299,243 385,413
Deferred income taxes..................................... 25,320 53,346
Other current assets...................................... 9,021 38,428
-------- ----------
Total current assets.............................. 726,046 1,163,515
Property and equipment, at cost:
Computer equipment and software........................... 107,503 181,093
Furniture and fixtures.................................... 35,106 46,329
Leasehold improvements.................................... 27,261 41,277
Building.................................................. 18,310 --
Land...................................................... 7,487 46,066
-------- ----------
195,667 314,765
Less accumulated depreciation and amortization............ (78,492) (128,509)
-------- ----------
117,175 186,256
Investments................................................. 26,783 31,616
Deferred income taxes....................................... 7,371 7,814
Capitalized software, less accumulated amortization......... 9,706 37,393
Other assets................................................ 11,255 14,011
-------- ----------
$898,336 $1,440,605
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 19,882 $ 31,145
Accrued liabilities....................................... 43,626 79,330
Accrued compensation and related expenses................. 67,486 109,284
Income taxes payable...................................... 22,370 22,587
Deferred revenue.......................................... 327,668 426,141
-------- ----------
Total current liabilities......................... 481,032 668,487
Long term deferred revenue.................................. -- 89,393
Other long term liabilities................................. -- 18,433
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized; none issued and outstanding................ -- --
Common stock, $.01 par value, 320,000,000 shares
authorized; shares issued and outstanding:
1997 -- 223,729,000 and 1998 -- 233,881,000............ 2,237 2,339
Additional paid-in capital................................ 219,005 324,332
Cumulative translation adjustment......................... (1,292) (2,951)
Dividend declared of Momentum Business Applications
shares................................................. -- 78,622
Retained earnings......................................... 197,354 261,950
-------- ----------
Total stockholders' equity........................ 417,304 664,292
-------- ----------
$898,336 $1,440,605
======== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE> 65
PEOPLESOFT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Revenues:
License fees.............................................. $252,799 $433,195 $ 576,467
Services.................................................. 197,253 382,456 737,206
-------- -------- ----------
Total revenues.................................... 450,052 815,651 1,313,673
Costs and expenses:
Cost of license fees...................................... 12,357 21,635 42,933
Cost of services.......................................... 118,906 229,178 424,234
Sales and marketing....................................... 135,757 225,498 339,973
Product development....................................... 70,653 129,553 209,677
General and administrative................................ 27,162 43,611 61,447
In-process research and development and merger related
costs.................................................. 29,393 -- 13,900
-------- -------- ----------
Total costs and expenses.......................... 394,228 649,475 1,092,164
-------- -------- ----------
Operating income............................................ 55,824 166,176 221,509
Interest income............................................. 4,864 9,141 18,631
Other income, net........................................... 1,024 721 1,436
-------- -------- ----------
Income before income taxes.................................. 61,712 176,038 241,576
Provision for income taxes.................................. 25,851 67,775 98,358
-------- -------- ----------
Net income.................................................. $ 35,861 $108,263 $ 143,218
======== ======== ==========
Basic income per share...................................... $ 0.17 $ 0.49 $ 0.63
======== ======== ==========
Shares used in basic per share computation.................. 211,248 219,302 228,479
======== ======== ==========
Diluted income per share.................................... $ 0.15 $ 0.44 $ 0.55
======== ======== ==========
Shares used in diluted per share computation................ 239,452 248,321 258,305
======== ======== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 66
PEOPLESOFT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
---------------- PAID-IN TRANSLATION DIVIDEND RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT DECLARED EARNINGS EQUITY
------- ------ ---------- ----------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995......... 206,983 $2,070 $105,579 $ (264) -- $ 53,709 $161,094
Exercise of common stock options and
issuances under stock purchase
plan............................. 7,580 76 15,015 -- -- -- 15,091
Acquisition of PMI.................. 716 7 22,039 -- -- -- 22,046
Tax benefits from employee stock
transactions..................... -- -- 18,981 -- -- -- 18,981
Translation adjustment.............. -- -- -- 175 -- -- 175
Net income.......................... -- -- -- -- -- 35,861 35,861
------- ------ -------- ------- ------- -------- --------
Balances at December 31, 1996......... 215,279 2,153 161,614 (89) -- 89,570 253,248
Exercise of common stock options and
issuances under stock purchase
plan............................. 6,906 69 33,263 -- -- -- 33,332
Acquisitions........................ 601 6 80 -- -- (479) (393)
Exercise of warrants................ 943 9 (9) -- -- -- --
Tax benefits from employee stock
transactions..................... -- -- 24,057 -- -- -- 24,057
Translation adjustment.............. -- -- -- (1,203) -- -- (1,203)
Net income.......................... -- -- -- -- -- 108,263 108,263
------- ------ -------- ------- ------- -------- --------
Balances at December 31, 1997......... 223,729 2,237 219,005 (1,292) -- 197,354 417,304
Exercise of common stock options and
issuances under stock purchase
plan............................. 10,152 102 64,068 -- -- -- 64,170
Tax benefits from employee stock
transactions..................... -- -- 41,259 -- -- -- 41,259
Translation adjustment.............. -- -- -- (1,659) -- -- (1,659)
Dividend declared of Momentum
Business Applications shares..... -- -- -- -- 78,622 (78,622) --
Net income.......................... -- -- -- -- -- 143,218 143,218
------- ------ -------- ------- ------- -------- --------
Balances at December 31, 1998......... 233,881 $2,339 $324,332 $(2,951) $78,622 $261,950 $664,292
======= ====== ======== ======= ======= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 67
PEOPLESOFT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 35,861 $ 108,263 $ 143,218
Adjustments to reconcile net income to net cash provided
(used) by operating activities, net of acquired companies:
Depreciation and amortization............................. 26,691 38,873 58,157
Provision for doubtful accounts, net of write-offs and
recoveries............................................. 2,597 12,070 16,794
Provision for deferred income taxes....................... (25,428) (6,932) (28,026)
In-process research and development and merger related
costs.................................................. 26,509 -- 13,900
Changes in operating assets and liabilities:
Accounts receivable.................................... (99,726) (214,493) (342,828)
Cash received from sales of accounts receivable........ 33,886 66,856 239,792
Other current assets................................... (1,093) (1,318) (20,533)
Other noncurrent assets................................ (7,245) (7,256) 1,814
Accounts payable and accrued liabilities............... 15,214 16,380 31,089
Accrued compensation and related expenses.............. 12,545 29,805 40,911
Deferred revenue....................................... 85,129 144,416 188,807
Income taxes payable................................... 6,992 19,388 181
Tax benefits from employee stock transactions.......... 18,981 24,057 41,259
-------- --------- ---------
Net cash provided by operating activities................... 130,913 230,109 384,535
INVESTING ACTIVITIES
Purchase of available-for-sale investments.................. (18,127) (222,572) (210,461)
Sale of available-for-sale investments...................... 21,434 71,644 176,064
Purchase of property and equipment.......................... (57,086) (55,388) (99,686)
Additions to capitalized software, net...................... (2,568) (2,495) (5,555)
Acquisitions, net of cash acquired.......................... 391 (393) (43,106)
-------- --------- ---------
Net cash used in investing activities....................... (55,956) (209,204) (182,744)
FINANCING ACTIVITIES
Net proceeds from exercise of common stock options and
issuances under stock purchase plan....................... 15,091 33,332 64,170
-------- --------- ---------
Net cash provided by financing activities................... 15,091 33,332 64,170
Effect of foreign exchange rate changes on cash............. 175 (1,203) (1,659)
-------- --------- ---------
Net increase in cash and cash equivalents................... 90,223 53,034 264,302
Cash and cash equivalents at beginning of period............ 72,527 162,750 215,784
-------- --------- ---------
Cash and cash equivalents at end of period.................. $162,750 $ 215,784 $ 480,086
======== ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 68
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The Company
PeopleSoft, Inc. (the "Company") designs, develops, markets, licenses and
supports a family of client/server enterprise application software products,
including manufacturing, distribution, financial, and human resource management
systems. The Company also provides services such as maintenance, training,
installation, consulting and product support services. Customers consist
primarily of large and medium sized organizations including corporations, higher
education institutions, non-profit entities and federal, state and local
government agencies. The Company's business is predominately based in the United
States. It does not have a concentration of credit or operating risk in any one
industry or any one geographic region within or outside of the United States.
Basis of Presentation
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries and Momentum Business Applications, Inc.
("Momentum Business Applications"). All significant intercompany transactions
have been eliminated.
During 1998, PeopleSoft formed Momentum Business Applications, a research
and development company designed to develop e-business, analytic applications
and industry-specific software products. All of the outstanding shares of
Momentum Business Applications Class A Common Stock were transferred to a
custodian on December 31, 1998 and distributed as a dividend to holders of
PeopleSoft Common Stock during January 1999. Prior to the distribution,
PeopleSoft contributed $250.0 million to Momentum Business Applications.
PeopleSoft has consolidated Momentum Business Applications into its financial
statements for the fourth quarter of 1998. However, PeopleSoft plans to exclude
Momentum Business Applications from its financial statements by the end of the
first quarter of 1999 following the election of independent directors by the
Momentum Business Applications Class A Common stockholders at a special
stockholders' meeting. The declared dividend of $78.6 million in the
accompanying financial statements represents the fair value of the Momentum
Business Applications Class A Common Stock distributed based on the average
market value on the day trading commenced. At the time that Momentum Business
Applications is no longer consolidated in the Company's financial statements,
the Company will incur a charge of approximately $177.0 million which represents
the $250.0 million contribution less the amount of the dividend, investment
banker fees of $2.9 million and other expenses related to the formation of
Momentum Business Applications, and expenses incurred by Momentum Business
Applications while consolidated with the Company.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the period. Despite management's best effort to establish good
faith estimates and assumptions, actual results may differ from these estimates.
Cash and Cash Equivalents, Short Term Investments and Long Term Investments
Cash equivalents are highly liquid investments with insignificant interest
rate risk and remaining maturities of three months or less at the date of
purchase and are stated at amounts which approximate fair value, based on quoted
market prices. Cash equivalents consist principally of investments in
interest-bearing demand deposit accounts with financial institutions,
tax-advantaged money market funds and highly liquid
F-6
<PAGE> 69
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
debt and preferred equity securities of corporations, municipalities and the
U.S. Government. All other cash is held in bank demand deposits.
The Company accounts for its cash equivalents and investments under
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Management determines the
appropriate classification of debt and preferred equity securities at the time
of purchase and reevaluates such designation as of each balance sheet date. At
December 31, 1997 and 1998 the Company has classified all of its debt and
preferred equity securities as available-for-sale and has recorded these
securities at amounts which approximate fair value. The components of the
Company's debt and preferred equity securities are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
State and local municipalities debt.................... $216,951 $238,925
U.S. Government debt................................... 6,771 --
Corporate debt......................................... 2,223 19,158
Auction rate preferred stock........................... 54,130 63,828
-------- --------
$280,085 $321,911
======== ========
Recorded as:
Cash equivalents....................................... $ 76,624 $ 84,053
Investments due in one year or less.................... 176,678 206,242
Investments due in one year to 18 months............... 26,783 31,616
-------- --------
$280,085 $321,911
======== ========
</TABLE>
Unrealized gains and losses at December 31, 1997 and 1998 and realized
gains and losses for the years then ended were not material. The cost of
securities sold is based on the specific identification method.
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 Company does not
require collateral for its receivables. Reserves are maintained for potential
losses. For the years ended December 31, 1996, 1997, and 1998 actual loss
experience has been within management's estimates. Future credit losses may
differ from the Company's estimates and could have a material impact on the
Company's future results of operations. The principal components of accounts
receivable were as follows at December 31, (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Billed receivables..................................... $200,081 $306,995
Unbilled receivables................................... 118,655 118,419
-------- --------
318,736 425,414
Allowance for doubtful accounts........................ (19,493) (40,001)
-------- --------
$299,243 $385,413
======== ========
</TABLE>
Depreciation and Amortization
Depreciation and amortization are computed using the straight-line method
over estimated useful lives of two to three years for computer equipment, five
years for telephones and office equipment, seven years for furniture and
fixtures, and 30 years for buildings. Leasehold improvements are depreciated
over the shorter of the lease term or the useful life of the asset. Intangible
assets are amortized over a three to five year life.
F-7
<PAGE> 70
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Capitalized Software
The Company capitalizes software purchased from third parties if the
related software product under development has reached technological feasibility
or if there are alternative future uses for the purchased software provided that
capitalized amounts will be realized over a period not exceeding five years. In
addition, the Company capitalizes costs of materials, consultants, interest, and
payroll and payroll-related costs for employees incurred in developing
internal-use computer software once technological feasibility is attained.
Technological feasibility is attained when software products reach Beta release.
Costs incurred prior to the establishment of technological feasibility are
charged to product development expense. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, anticipated future
revenues, estimated economic life and changes in software and hardware
technologies. Upon the general release of the software product to customers,
capitalization ceases and such costs are amortized (using the straight-line
method) on a product by product basis over the estimated life which is generally
three years. All research and development expenditures are charged to research
and development expense in the period incurred.
Capitalized software costs and accumulated amortization at December 31,
1996, 1997 and 1998 and related software amortization expense (included in cost
of license fees) for the years then ended were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Capitalized software:
Internal development costs................ $10,737 $ 13,232 $ 18,786
Obtained through business combination..... 6,532 6,532 34,332
Purchased from third parties.............. 300 300 300
------- -------- --------
17,569 20,064 53,418
Accumulated amortization.................... (6,396) (10,358) (16,025)
------- -------- --------
$11,173 $ 9,706 $ 37,393
======= ======== ========
Amortization expense........................ $ 1,585 $ 3,962 $ 5,667
======= ======== ========
</TABLE>
As part of the acquisition of PeopleSoft Manufacturing, Inc. ("PMI"), in
1996, the Company allocated $6.5 million to developed software costs, which is
being amortized over the useful life of five years. In October 1998, the Company
acquired Intrepid Systems Inc. ("Intrepid") for $51.5 million (see Note 8). The
Company allocated $27.8 million of the Intrepid acquisition price to developed
software and is amortizing the software over the useful life of five years.
F-8
<PAGE> 71
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 January 1, 2000. The principal components of deferred
revenue at December 31, 1997 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
License fees........................................... $ 71,168 $ 67,765
Maintenance............................................ 184,171 310,049
Training............................................... 46,201 76,696
Other services......................................... 26,128 61,024
-------- --------
327,668 515,534
Less: Long term deferred revenue....................... -- 89,393
-------- --------
$327,668 $426,141
======== ========
</TABLE>
Revenue Recognition
The Company licenses software under non-cancellable license agreements and
provides services including training, installation, consulting and maintenance,
consisting of product support services and periodic updates. License fee
revenues are generally recognized when a non-cancellable 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, which meet
these recognition criteria, the portion of the fees related to software licenses
will generally be recognized in the current period, while the portion of the
fees related 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, the Company recognizes revenue related
to the license agreement using contract accounting. The Company allocates a
portion of contractual license fees to post-contract support activities covered
under the contract including first year maintenance, installation assistance and
limited training services. Revenues from maintenance agreements are recognized
ratably over the maintenance period, which in most instances is one year.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). This statement provides for a liability approach under which deferred
income taxes are provided based upon enacted tax laws and rates applicable to
the periods in which the taxes become payable.
Foreign Currency Translation
The Company has determined that the functional currency of each foreign
operation is the local currency. The effects of translation rate changes related
to assets and liabilities located outside the United States are included as a
component of stockholders' equity. Foreign currency transaction gains and losses
are included in Other income, net on the Consolidated Statements of Income.
Through 1998, such gains and losses have not been significant.
In January 1998, the Company initiated a foreign exchange 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 terms of
three months or less. The Company currently
F-9
<PAGE> 72
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
settles all of its hedge contracts on the last day of the second month of each
quarter and concurrently opens new contracts to cover the upcoming quarter.
Gains and losses on the settled contracts are recognized as other income or
expense in the current period, consistent with the period in which the gain or
loss of the underlying transaction is recognized. The Company recorded net
losses from these settled contracts and underlying foreign currency exposures of
approximately $900,000 for the year ended December 31, 1998. At December 31,
1998, hedge positions totaled $11.0 million. At December 31, 1998, the Company
had three forward foreign exchange contracts denominated in Dutch Guilders,
Singapore dollars and New Zealand dollars. Each of these contracts had a
maturity date in March 1999. The instruments held at the end of the year had
book values that approximated market values at December 31, 1998. The foreign
exchange hedging program is managed in accordance with a corporate policy
approved by the Company's Board of Directors.
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 subsidiary
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. No such hedges have occurred through December 31, 1998.
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 expects
that hedges of such anticipated transactions and translation exposures will be
done in the future using forward and option contracts.
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 does not maintain any servicing
obligations under these arrangements.
Per Share Data
Share amounts for all periods presented reflect restatement for the
two-for-one stock splits in November 1996 and December 1997. In February 1997,
the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per
Share" ("SFAS 128"), requiring public companies to exclude the dilutive effect
of stock options in calculating basic earnings per share as of December 31,
1997. As a result, the Company changed the method used to compute earnings per
share and restated earnings per share for all prior periods. Basic income per
share as required under SFAS 128 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
F-10
<PAGE> 73
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
treasury stock method). The following table sets forth the computation of basic
and diluted income per share for the years ended December 31, (in thousands
except per share amounts):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income............................... $ 35,861 $108,263 $143,218
======== ======== ========
Denominator:
Denominator for basic income per share --
weighted average shares............... 211,248 219,302 228,479
Employee stock options................... 27,386 25,967 26,421
Warrants................................. 818 3,052 3,405
-------- -------- --------
Denominator for diluted income per
share -- adjusted weighted average
shares and assumed exercises.......... 239,452 248,321 258,305
======== ======== ========
Basic income per share..................... $ 0.17 $ 0.49 $ 0.63
======== ======== ========
Diluted income per share................... $ 0.15 $ 0.44 $ 0.55
======== ======== ========
</TABLE>
Stock-based Compensation
In October 1995, the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") was issued and effective
for the year ending December 31, 1996. As permitted by SFAS 123, the Company has
continued to account for employee stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB Opinion No. 25") and has made the pro forma disclosures required by SFAS
123 for each of the three years in the period ending December 31, 1998 in Note
3.
Newly Issued Accounting Standards
Statement of Position ("SOP") 97-2, "Software Revenue Recognition", SOP
98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software
Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Tranasactions", were issued in October
1997, March 1998, and December 1998, respectively and address software revenue
recognition matters primarily from a conceptual level and do not include
specific implementation guidance. These standards supersede SOP 91-1 and, in
part, are effective for transactions entered into for fiscal years beginning
after December 15, 1997. Based on it's reading and interpretation of SOPs 97-2
and 98-4, the Company believes it is currently in compliance with the standards.
Complying with SOP 98-9 or additional detailed implementation guidance, once
issued, could lead to unanticipated changes in the Company's current revenue
accounting practices, and such changes could adversely impact the Company's
ability to recognize revenue consistent with its current practice. Although this
new standard is not effective until the year 2000, the Company, in accordance
with its historical practice of complying with new revenue recognition standards
as soon as issued, may choose to adopt the standard in 1999, requiring either
changes in revenue recognition practices or changes in the Company's sales and
contracting practices in order to comply. PeopleSoft has not fully assessed its
ability to comply with SOP 98-9 using current contracting and business
practices. However, PeopleSoft believes that SOP 98-9 may require significantly
more revenue to be deferred for certain types of transactions.
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS No. 130"), "Reporting Comprehensive Income" as of January 1, 1998. SFAS
130 requires disclosure of the components of total non-stockholder changes in
equity as comprehensive income. The Company's only items that meet the
definition for adjustment to arrive at comprehensive income are changes in
cumulative translation adjustment and unrealized gains and losses on
investments. Changes in cumulative translation adjustment are immaterial
F-11
<PAGE> 74
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for the periods presented and are presented elsewhere in the financial
statement. The unrealized gains and losses on investments were insignificant at
December 31, 1996, 1997 and 1998. Therefore, the Company's net income materially
approximates comprehensive income for all periods presented.
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" in June 1998.
Statement 133 provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. The statement
is effective for years beginning after June 15, 1999. The Company will apply the
new rules prospectively to transactions beginning in the first quarter of 1999.
Based on current circumstances, the Company believes the application of the new
rules will not have a material impact on the consolidated financial statements.
2. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under operating leases which generally
require the Company to pay operating costs, including property taxes, insurance
and maintenance. The Company also leases certain computer equipment under
operating leases. Computer leases require the return of the equipment or payment
of residual values. Such residual values, which approximate fair values, are not
material to the consolidated financial statements.
In December 1996, the Company entered into a five-year lease for a new
office facility in Pleasanton, California. This lease is structured as an
operating lease with rental payments due beginning upon the completion of the
construction, which occurred during the fourth quarter of 1998. The rental
payments related to this lease have been included in the future minimum
operating lease payments schedule below. The cost for the construction of the
facility totals $70.0 million including interest during the construction period.
The rental payments equal the amount of interest under the agreement. The
interest rate charged on amounts funded prior to the commencement of the lease
payments was LIBOR plus 0.625% as measured on the date of each funding rollover.
At each funding or rollover date, the Company had 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 was requested and
approved. Each subsequent funding rollover date was 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 and $4.5 million as of December 31, 1997 and the end
of the construction phase, respectively, has been added to the construction
cost. The Company has an 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
85% 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.
In 1998, the Company negotiated an amendment to this lease which extends
the term of the lease until February 2003, with an option to renew for an
additional three years. Additionally, the Company negotiated a fixed rate
funding option under which the Company may elect that any or all of the amounts
funded to date be charged a fixed interest rate. The Company has the option of
setting the fixed rate expiration date for any date through the end of the lease
term.
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 accrued over the
initial term of the agreement. The sales price of approximately $50.0 million
resulted in a book gain of approximately $24.4 million, which
F-12
<PAGE> 75
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
will be amortized over the lease period. The Company holds a right of first
refusal to additional space within the site as other tenants' leases expire.
Additionally, the Company purchased two parcels of land for $50.0 million
during the third quarter of 1998. The Company has entered into an operating
lease agreement for facilities 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 cost 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. The expected
interest rate during construction is LIBOR plus 0.75% as measured on the date of
each funding or rollover; this rate may change depending on certain financial
ratios. At each funding or 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. As of December 31, 1998, the Company had drawn a total of $6.1
million under the lease financing. 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 85% 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.
Future minimum operating lease payments under all noncancellable leases for
the years ending December 31 are due as follows (in thousands):
<TABLE>
<S> <C>
1999.............................. $ 45,547
2000.............................. 43,410
2001.............................. 39,625
2002.............................. 34,701
2003.............................. 24,664
Thereafter........................ 17,925
--------
$205,872
========
</TABLE>
Rent expense totaled approximately $9.8 million, $19.6 million and $38.2
million in 1996, 1997 and 1998, respectively.
The Company is 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 the 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. (See Note 9
for additional information.)
3. STOCKHOLDERS' EQUITY
Preferred Stock
Under a stockholder rights plan established in 1995, every share of common
stock carries the right (a "Right"), under certain circumstances, to purchase
equity securities of the Company or an acquiring company. Ten days after a
tender offer or acquisition of 20 percent or more of the Company's common stock,
each Right may be exercised for $190 ("Exercise Price") to purchase one
one-thousandth of one share of the Company's Series A Participating Preferred
Stock. Each one one-thousandth of each share of Series A Participating Preferred
Stock will generally be afforded economic rights similar to one share of the
Company's common stock. In addition, each Right entitles the holder to purchase
common stock of the Company with a fair value of twice the Exercise Price or, in
certain circumstances, securities of the acquiring company for the
F-13
<PAGE> 76
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Exercise Price. Each Right expires in February 2005, and, during specified
periods, the Company may redeem or exchange each Right for $.01 or one share of
common stock, respectively.
Common Stock
The Company has never paid cash dividends on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. At December 31,
1998, 62,971,651 authorized but unissued shares of common stock were reserved
for issuance under the Company's stock plans and for outstanding warrants.
Stock Dividend
In December 1998, the Company declared a stock dividend of one share of
Momentum Business Applications Class A Common Stock for every fifty shares of
PeopleSoft stock held as of December 31, 1998, resulting in 4.7 million shares
distributed. The Company's stockholders were not required to pay cash or other
consideration for the Momentum Business Applications shares received. No
fractional shares were distributed. The distribution is taxable as a dividend to
each holder in the amount of the fair market value of the Momentum Business
Applications shares distributed to each shareholder. The average market value of
the shares on January 16, 1999 (the first day of trading) was $16.75.
Stock Plans
1992 Employee Stock Purchase Plan
Under the 1992 Employee Stock Purchase Plan ("ESPP"), eligible employees
may purchase common stock at a price equal to 85 percent of the lower of the
fair market value of the common stock at the beginning or end of each offering
period. Participation in the offering is limited to the lesser of ten percent of
an employee's compensation or $21,250 per year, may be terminated at any time by
the employee and automatically ends upon termination of employment with the
Company. A total of 6,700,000 shares of common stock have been reserved for
issuance under this plan of which 5,288,740 shares have been issued through
December 31, 1998. Under this plan, 869,956 shares, 741,628 shares and 835,166
shares were issued in 1996, 1997 and 1998, respectively. In January 1999,
840,900 shares were issued in connection with the offering period ended December
31, 1998. Subsequent six-month offering periods will commence on each January 1
and July 1.
1989 Stock Plan
Pursuant to the 1989 Stock Plan, incentive and non-qualified stock options
to purchase shares of the Company's common stock may be granted, and 104,600,000
shares have been reserved for issuance under this Plan. The exercise price of
each incentive and non-qualified stock option shall not be less than 100 percent
and 85 percent, respectively, of the fair market value of the stock on the date
the option is granted. The options expire 10 years after the date of grant and
are exercisable to the extent vested. Vesting is established by the Board of
Directors and generally occurs at the rate of 20 percent per year from the date
of grant.
1993 Red Pepper Software Company Plan
In connection with the merger of PeopleSoft and Red Pepper in 1996,
PeopleSoft assumed all of the outstanding stock options of Red Pepper (adjusted
for the exchange ratio). As of the date of the merger, 2,163,388 shares of
PeopleSoft common stock were reserved for issuance upon the exercise of options
assumed in connection with the business combination.
F-14
<PAGE> 77
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1992 Intrepid Systems, Inc. Plan
In connection with the merger of PeopleSoft and Intrepid in 1998,
PeopleSoft assumed all of the outstanding stock options of Intrepid (adjusted
for the exchange ratio). As of the date of the merger, 130,130 shares of
PeopleSoft common stock were reserved for issuance upon the exercise of options
assumed in connection with the business combination.
Combined Option Activity
Option activity under the 1989 Stock Plan, including the 1993 Red Pepper
Software Company Plan and the 1992 Intrepid Systems, Inc. Plan stock options
assumed by PeopleSoft as a result of those mergers and the options canceled and
granted as a result of the December 14, 1998 option repricing, is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE SHARES
---------------- -----------
<S> <C> <C>
Balances at December 31, 1995.................. $ 2.408 35,697,748
Granted...................................... 12.683 11,077,536
Exercised.................................... 1.156 (6,710,906)
Canceled..................................... 9.103 (1,103,748)
------- -----------
Balances at December 31, 1996.................. 5.551 38,960,630
Granted...................................... 21.691 10,870,350
Exercised.................................... 3.264 (6,160,683)
Canceled..................................... 11.918 (975,225)
------- -----------
Balances at December 31, 1997.................. 9.982 42,695,072
Granted...................................... 29.729 25,055,333
Exercised.................................... 4.379 (9,250,808)
Canceled..................................... 41.390 (14,445,441)
------- -----------
Balances at December 31, 1998.................. $12.459 44,054,156
======= ===========
</TABLE>
The exercise prices for the above grants range from $0.001 to $52.6875. At
December 31, 1998, options to purchase 9,899,804 shares were exercisable and
options for 8,776,235 shares were available for grant.
On December 14, 1998, the Company canceled 12,891,917 options, which had
exercise prices greater than $22 per share in exchange for new options with an
exercise price of $17.
1992 Directors' Stock Option Plan
Under the 1992 Directors' Stock Option Plan, directors who are not officers
or employees may receive nonstatutory options to purchase shares of common
stock. A total of 2,400,000 shares of common stock have been reserved for
issuance under this plan and, as of December 31, 1998, options to purchase
594,000 shares with exercise prices of $1.766 to $39.00 per share have been
granted. Under this plan, 48,000, 34,000, and 16,000 options were granted in
1996, 1997 and 1998, respectively. During 1998, options to purchase 66,000 were
exercised. At December 31, 1998, options to purchase 106,400 shares were
exercisable, 524,000 were outstanding and options for 1,806,000 shares were
available for grant. The exercise price of each nonstatutory stock option shall
not be less than 100 percent of the fair market value of the stock on the date
the option is granted. The options expire 10 years after the date of grant and
are exercisable to the extent vested. Vesting is established by the Board of
Directors and generally occurs at the rate of 100 percent on the fifth
anniversary from the date of grant.
F-15
<PAGE> 78
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock-based Compensation
As permitted under SFAS 123, the Company has elected to continue to follow
APB Opinion No. 25 in accounting for stock-based awards to employees. Under APB
Opinion No. 25, the Company generally recognizes no compensation expense with
respect to such awards, since the exercise price of the stock options granted
are equal to the fair market value of the underlying security on the grant date.
Pro forma information regarding net income and earnings per share is
required by SFAS 123 for awards granted after December 31, 1994 as if the
Company had accounted for its stock-based awards to employees under the fair
value method of SFAS 123. The fair value of the Company's stock-based awards to
employees was estimated as of the date of the grant using a Black-Scholes option
pricing model. Limitations on the effectiveness of the Black-Scholes option
valuation model are that it was developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable
and that the model requires the use of highly subjective assumptions including
expected stock price volatility. Because the Company's stock-based awards to
employees have characteristics significantly different from those of traded
options and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. Both of these plans are discussed in this Note
above. The fair value of the Company's stock-based awards to employees was
estimated assuming no expected dividends and the following weighted-average
assumptions:
<TABLE>
<CAPTION>
OPTIONS ESPP
------------------ ------------------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years)...................... 3.51 3.50 3.49 0.49 0.48 0.49
Expected volatility........................... 0.38 0.37 0.37 0.40 0.40 0.40
Risk free interest rate....................... 5.71% 6.33% 5.56% 5.23% 5.45% 5.21%
</TABLE>
For pro forma purposes, the estimated fair value of the Company's
stock-based awards to employees is amortized over the vesting period for options
and the six-month purchase period for stock purchases under the ESPP. The
Company's pro forma information follows (in thousands except for income per
share information):
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Net income
As reported............................... $35,861 $108,263 $143,218
Pro forma................................. $16,072 $ 74,610 $ 80,686
Basic income per share
As reported............................... $ 0.17 $ 0.49 $ 0.63
Pro forma................................. $ 0.08 $ 0.34 $ 0.35
Diluted income per share
As reported............................... $ 0.15 $ 0.44 $ 0.55
Pro forma................................. $ 0.07 $ 0.31 $ 0.31
</TABLE>
Because SFAS 123 is applicable only to stock-based awards granted
subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until approximately 1999.
The weighted-average fair value of all options granted during 1996, 1997
and 1998 was $4.77, $6.66, and $13.12 per share, respectively. The
weighted-average fair value of the ESPP during 1996, 1997 and 1998 was $3.56,
$6.61, and $4.19 per share, respectively.
F-16
<PAGE> 79
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE -----------------------------
REMAINING WEIGHTED WEIGHTED
NUMBER OF CONTRACTUAL AVERAGE NUMBER OF AVERAGE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
------------------------ ---------- ------------ -------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.001 - 2.00................... 4,852,735 4.32 $ 0.46 2,047,225 $ 0.69
2.01 - 5.00................... 5,597,567 4.90 2.80 2,768,795 2.64
5.01 - 12.00................... 5,667,462 6.89 6.90 2,031,170 6.91
12.01 - 20.00................... 27,394,464 8.21 17.25 3,058,417 16.82
20.01 - 24.00................... 801,804 8.21 21.24 60,699 21.12
24.01 - 46.50................... 264,124 8.84 33.67 39,898 30.69
---------- ----------
44,578,156 10,006,204
========== ==========
</TABLE>
Warrants
In November 1995, the Company received $21.8 million through the private
placement of warrants to purchase an aggregate of 8,000,000 shares of the
Company's common stock. Upon 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. In November 1997, the Company issued 942,880 shares of
common stock pursuant to the net exercise of warrants to purchase 1,600,000
shares of common stock at $13.75 per share. 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. By mutual consent of the
Company and the warrant holder, the maturity date for the warrants has been
extended to early March 1999 (see Note 9). The November 1999 maturity consists
of 1,600,000 warrants with an exercise price of $16.875 per share and 1,600,000
warrants with an exercise price of $19.375 per share.
4. INCOME TAXES
The provision for income taxes consisted of the following components for
the years ended December 31, (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- --------
<S> <C> <C> <C>
Current:
Federal................................... $ 37,396 $60,565 $ 97,049
State..................................... 10,545 10,711 12,781
Foreign................................... 3,338 3,431 6,838
-------- ------- --------
51,279 74,707 116,668
-------- ------- --------
Deferred:
Federal................................... (20,240) (7,239) (15,509)
State..................................... (5,188) 307 (2,801)
-------- ------- --------
(25,428) (6,932) (18,310)
-------- ------- --------
Total provision for income tax.... $ 25,851 $67,775 $ 98,358
======== ======= ========
</TABLE>
F-17
<PAGE> 80
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to the Company's income before taxes as
follows for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Income tax provision at federal statutory
rate........................................ $21,599 $61,613 $84,552
State income tax, net of federal tax effect... 3,323 8,849 7,395
Income from tax-advantaged investments........ (1,425) (2,995) (5,480)
Research and development tax credit........... (1,031) (3,211) (4,124)
Non-deductible merger costs................... 1,015 -- --
Change in valuation allowance................. 1,668 2,431 6,687
Acquired in-process technology................ -- -- 4,865
Other......................................... 702 1,088 4,463
------- ------- -------
Provision for income taxes.................... $25,851 $67,775 $98,358
======= ======= =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Deferred tax assets:
Deferred revenue, net................................. $ 595 $ 10,275
Depreciation.......................................... -- 7,466
Research and development costs........................ 8,362 1,895
Accrued compensation.................................. 7,582 9,580
Allowance for doubtful accounts....................... 8,156 26,606
Self insured claims accruals.......................... 2,011 1,566
Deferred compensation................................. 1,355 3,212
Net operating losses and tax credits.................. 7,230 22,329
Allowance for expense reports not yet submitted....... 1,662 --
Acquisition reserves.................................. -- 2,141
Other................................................. 7,767 9,360
------- --------
Total deferred tax assets.......................... 44,720 94,430
Valuation allowance..................................... (4,411) (11,098)
------- --------
Net deferred tax asset.................................. 40,309 83,332
Deferred tax liabilities:
Purchased technology.................................. -- (12,000)
Capitalized software development costs................ (1,973) (2,965)
Depreciation.......................................... (1,720) --
Other................................................. (3,925) (7,207)
------- --------
Total deferred tax liabilities..................... (7,618) (22,172)
------- --------
Total net deferred tax asset.................. $32,691 $ 61,160
======= ========
</TABLE>
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Recorded as:
Current deferred taxes............................... $ 25,320 $ 53,346
Noncurrent deferred taxes............................ 7,371 7,814
-------- --------
Total net deferred taxes..................... $ 32,691 $ 61,160
======== ========
</TABLE>
F-18
<PAGE> 81
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets and liabilities are classified in the consolidated
balance sheet consistent with the classification of the related asset or
liability.
The net valuation allowance increased $6.7 million from December 31, 1997
to December 31, 1998 and $2.4 million from December 31, 1996 to December 31,
1997, primarily as a result of establishing allowances on net operating losses
incurred in foreign jurisdictions and other foreign tax benefits. None of the
allowance at December 31, 1998 is attributable to stock option deductions;
consequently, any reversal of the valuation allowance will be reflected in a
lower tax rate. Management believes future taxable income will be sufficient to
realize the deferred tax benefit of the net deferred tax asset.
At December 31, 1998, as a result of the acquisition of Intrepid, the
Company acquired federal net operating loss carryforwards of approximately $18.7
million. These losses expire in various years between 2008 and 2018 and are
subject to limitations on their utilization. The Company also has net operating
loss carryforwards in certain foreign jurisdictions of approximately $28.0
million, which expire in various years.
5. RETIREMENT PLAN
The Company has two defined contribution savings plans, a qualified plan
(401k Plan) under the provisions of Section 401(k) of the Internal Revenue Code
that covers all full-time employees and a non-qualified plan which covers
employees with earnings over $160,000 per year. Under the terms of the 401k
Plan, member employees may contribute varying amounts of their annual
compensation (to a maximum of $10,000). The Company matches a portion of
qualified employee contributions based upon years of service, up to a maximum of
ten percent of the employee's compensation, subject to certain vesting
provisions based on length of employee service. Company contributions to the
401k Plan totaled $0.7 million in 1996, $2.0 million in 1997, and $4.6 million
in 1998. Under the terms of the non-qualified plan, member employees may
contribute varying amounts of their annual compensation up to 100 percent. The
Company matches a portion of non-qualified employee contributions based upon
years of service, up to a maximum of $10,000, subject to certain vesting
provisions based on length of employee service. Company contributions to the
non-qualified plan totaled $291,000 in 1996, $249,000 in 1997, and $311,000 in
1998.
6. SEGMENT AND GEOGRAPHIC AREAS
The Company adopted Statement of Financial Accounting No. 131, "
Disclosures about Segments of an Enterprise and Related Information," ("SFAS
131") on January 1, 1998. SFAS 131 establishes standards for the way in which
public companies disclose certain information about operating segments in the
Company's financial reports.
Based on the criteria of SFAS 131, the Company identified its operating
committee as the chief operating decision-makers for the period ended December
31, 1998. The Company's operating committee evaluated revenue performance based
on the three segments: domestic, international and middle market. The middle
market segment does not meet the materiality requirements of the statement and
thus is not required to be separately disclosed. Data for the two remaining
segments are presented as part of the geographic disclosures below. Within the
operating committee, employee headcount and operating costs are managed by
functional areas, rather than by revenue segments, and are only reviewed by the
operating committee on a company-wide basis. In addition, the Company does not
account for or report to the operating committee its assets or capital
expenditures by any segment other than the geographic segments, as disclosed
below. Thus, the Company is not required to disclose any additional information
pursuant to SFAS 131. The accounting policies for each of the reportable
segments shown below are the same as those described in the summary of
significant accounting policies.
F-19
<PAGE> 82
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1999, the Company launched three separate business divisions related to
its domestic operations, which are expected to maintain their own operating
results and accountability. Therefore, future reportable segments may change.
International revenues from each geographic region was less than ten
percent total revenues. The following table presents a summary of operating
information and certain year end balance sheet information by geographic region
for the years ended December 31, (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Revenues from unaffiliated customers
Domestic operations..................... $377,782 $690,554 $1,106,736
International operations................ 72,270 125,097 206,937
-------- -------- ----------
Consolidated............................ $450,052 $815,651 $1,313,673
======== ======== ==========
Operating income
Domestic operations..................... $ 48,313 $157,035 $ 227,604
International operations................ 7,511 9,141 (6,095)
-------- -------- ----------
Consolidated............................ $ 55,824 $166,176 $ 221,509
======== ======== ==========
Identifiable assets
Domestic operations..................... $488,206 $782,888 $1,239,179
International operations................ 51,874 115,448 201,426
-------- -------- ----------
Consolidated............................ $540,080 $898,336 $1,440,605
======== ======== ==========
</TABLE>
7. BUSINESS COMBINATIONS
1998 Business Combinations
In October 1998, the Company acquired the assets and assumed certain
liabilities of Intrepid. The acquired products consist of applications that
streamline, automate, and augment business processes and decision support for
the merchandise management and store operations of medium and large retail
companies. The Company paid an aggregate purchase price of $51.5 million. The
acquisition was accounted for under the purchase method of accounting and,
accordingly, the results of operations are included in the financial statements
since the acquisition date, and the assets and liabilities have been recorded
based upon their fair values at the date of acquisition. Significant components
of the $51.5 million purchase price included cash payments of $35.3 million,
assumption of net current liabilities of $8.3 million (which includes $2.2
million to close the Intrepid facility), forgiveness of debt of $6.2 million,
and transaction expenses of $1.7 million.
The Company has allocated the excess purchase price over the fair value of
net tangible assets acquired to the following identifiable intangible assets:
$27.8 million to completed products and technology, $2.2 million to assembled
workforce, $13.9 million to in-process research and development and $7.1 million
to goodwill. As of the acquisition date, technological feasibility of the
in-process technology has not been established and the technology has no
alternative future use; therefore, the Company has expensed the amount of the
purchase price allocated to in-process research and development of approximately
$13.9 million as of the date of the acquisition in accordance with generally
accepted accounting principles. The capitalized intangible assets will be
amortized over their estimated useful lives of five years.
In performing this allocation, the Company considered, among other factors,
its intentions for future use of the acquired assets and analyses of historical
financial performance and estimates of future performance of Intrepid's products
and the research and development projects in process at the date of the
acquisition. With regard to the in-process research and development projects,
the Company considered, among other factors, the stage of completion of each
project, the importance of each project to the overall development plan, and the
F-20
<PAGE> 83
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
projected incremental cash flows from the projects when completed and any
associated risks. The projected incremental cash flows were discounted back to
their present value using discount rates of 20% and 30% for developed and
in-process technology, respectively. These discount rates were determined after
consideration of the Company's cost of capital, the weighted average return on
assets, venture capital rates of return, and revenue growth assumptions.
Associated risks include the inherent difficulties and uncertainties in
completing each project and thereby achieving technological feasibility,
achieving anticipated levels of market acceptance and penetration, market growth
rates and risks related to the impact of potential changes in future target
markets. If these projects are not successfully developed, the Company may not
realize the value assigned to the in-process research and development projects.
In addition, the value of the other acquired intangible assets could also be
impaired.
During June 1998, the Company entered into a definitive agreement to
acquire all outstanding equity interest of TriMark Technologies, Inc.
("TriMark"), 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 a maximum of $25.0 million in common stock and options for
all of the outstanding equity interests of TriMark in a transaction that is
expected to close prior to the end of the first half of 1999. The amount of
consideration which TriMark shareholders will receive may vary depending on
several factors. The accounting treatment of this acquisition will not be
determined until the acquisition is concluded. Prior to closing the transaction,
the Company and TriMark will operate independently within a development,
marketing, sales and support relationship.
In December 1998, the Company entered into a definitive agreement to
acquire all outstanding equity interest of Distinction Software, Inc., a supply
chain management software company, by issuing between $5 million and $10 million
in stock and options. The transaction is expected to close in the second half of
1999. The accounting treatment of this acquisition will not be determined until
the acquisition is concluded. Prior to closing the transaction, the Company and
Distinction will operate independently within a development, marketing, sales
and support relationship.
1996 Business Combinations
In 1996, the Company completed two business combinations: Red Pepper
Software Company (Red Pepper) and PMI. Red Pepper is a leader in the supply
chain management systems market, and PMI developed the Company's Manufacturing
application suite. All of the outstanding shares of Red Pepper were acquired in
exchange for approximately 10.8 million shares of common stock and the
assumption, under the Company's stock option plan, of all outstanding rights to
purchase Red Pepper common stock which approximated 1.1 million shares of
PeopleSoft stock. The Red Pepper transaction was accounted for as a pooling of
interests and the historical consolidated financial statements of PeopleSoft for
the periods prior to the merger have been restated in the accompanying
consolidated financial statements to include the financial position, results of
operations and cash flows of Red Pepper. In addition, merger costs of $2.9
million were charged to operations in 1996.
In November 1996, the Company acquired the assets and assumed certain
liabilities of PMI. The acquired products consist of applications the
streamline, automate, and augment business processes to provide a comprehensive,
global manufacturing and supply chain management solution. The Company paid an
aggregate purchase price of $30.1 million. This transaction has been accounted
for under the purchase method of accounting, and accordingly, the results of the
operations of PMI have been included in the Company's consolidated financial
statements since November 1, 1996, and the assets and liabilities were recorded
based upon their fair values at the date of the acquisition. Significant
components of the $30.1 million purchase price included the issuance of common
stock with a fair value of $14.4 million, issuance of common stock options to
PMI employees with a fair value of $7.6 million, issuance of a note payable of
$4.7 million, and forgiveness of debt and other consideration of $3.4 million.
F-21
<PAGE> 84
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company allocated the excess purchase price over the fair value of net
tangible assets acquired to the following identifiable intangible assets: $6.5
million to completed products and technology, $.3 million to assembled workforce
and $22.5 million to in-process research and development. As of the acquisition
date, technological feasibility of the in-process technology had not been
established and the technology had no alternative future use; therefore, the
Company has expensed the amount of purchase price allocated to in-process
research and development of approximately $22.5 million in accordance with
generally accepted accounting principles. The capitalized intangible assets are
being amortized over their estimated useful lives of five years.
In performing this allocation, the Company considered, among other factors,
that PMI was a development stage enterprise that had generated no revenues, its
intentions for future use of the acquired assets and analyses of historical
financial performance and estimates of future performance of PMI's products and
the research and development projects in process at the date of the acquisition.
With regard to the in-process research and development projects, the Company
considered, among other factors, the importance of each project to the overall
development plan, and the projected incremental cash flows from the projects
when completed and any associated risks. The projected incremental cash flows
were discounted back to their present value using discount rates of 25% and 40%
for developed and in-process technology, respectively. These discount rates were
determined after consideration of the Company's cost of capital, the weighted
average return on assets, venture capital rates of return, and revenue growth
assumptions. Associated risks include the inherent difficulties and
uncertainties in completing each project and thereby achieving technological
feasibility, achieving anticipated levels of market acceptance and penetration,
market growth rates and risks related to the impact of potential changes in
future target markets. The Company completed the development of the acquired
in-process technology into commercially viable products in 1997.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is detailed below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Cash paid for interest........................ $ 264 $ 381 $ 752
======= ======= =======
Cash paid for income taxes.................... $25,306 $30,680 $81,379
======= ======= =======
</TABLE>
Supplemental schedule of non-cash activities is detailed below (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
In conjunction with the land swap:
Land purchased.............................. -- -- $49,018
Less: Building and land sold, net of
accumulated depreciation................. 24,604
-------
Gain........................................ 24,414
Dividend declared of Momentum Business
Applications shares...................... -- -- $78,622
</TABLE>
9. SUBSEQUENT EVENTS (UNAUDITED)
PeopleSoft is taking action in the first quarter of 1999 to redeploy
resources to new product development, global product support, and other
strategic customer value added programs. Accordingly, PeopleSoft will redeploy
100 employees to these new strategic areas and eliminate 430 staff from other
redundant and unnecessary positions primarily in the administration, sales
support, and marketing support areas. This action will allow the Company to hire
more staff in support of its e-business, analytic applications and ERP
F-22
<PAGE> 85
PEOPLESOFT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
development as well as customer support programs. The reduction in staff
represents approximately 6 percent of the Company's total workforce with over 90
percent of the reductions in North America. The Company expects to incur a
one-time restructuring charge of between $4.0 million and $5.0 million for the
separation arrangements.
Following the Company's announcement of it's annual results in January
1999, several class action lawsuits were filed against the Company and certain
of its officers and former officers in the U.S. District Court, Northern
District of California. The complaints are similar and allege violations of
federal and state securities laws and request unspecified monetary damages. The
Company is currently waiting for these complaints to be consolidated and refiled
during the Company's second quarter of 1999. Management believes that the claims
alleged against it in all of the foregoing actions are without merit and intends
to defend against the claims vigorously. In the opinion of management,
resolution of such litigation is not expected to have a material adverse effect
on the financial position of the Company. However, depending on the amount and
timing, an unfavorable resolution of such litigation could materially affect the
Company's future results of operations or cash flows in a particular period.
The Company has received notice that the holders of the warrants (see Note
3) intend on exercising their 1998 warrants consisting 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. By mutual consent of the Company and the
warrant holder, the maturity date for the warrants has been extended to March
1999. The Company has elected the net exercise provision and thus will issue
approximately 572,000 shares in the first quarter of 1999 related to these
warrants.
F-23
<PAGE> 86
PEOPLESOFT, INC.
SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly supplemental consolidated financial information for
1997 and 1998 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
1997
Total revenues.............................. $153,654 $184,376 $217,050 $260,571
Operating income............................ 27,204 34,074 43,808 61,090
Net income.................................. 17,838 22,271 28,699 39,455
Basic income per share...................... $ 0.08 $ 0.10 $ 0.13 $ 0.18
Shares used in basic per share
computation............................... 216,495 218,713 221,010 222,949
Diluted income per share.................... $ 0.07 $ 0.09 $ 0.11 $ 0.16
Shares used in diluted per share
computation............................... 247,693 249,208 253,830 253,052
1998
Total revenues.............................. $277,674 $320,522 $351,305 $364,172
Operating income............................ 50,995 58,266 65,327 46,921
Net income.................................. 33,754 39,201 44,166 26,097
Basic income per share...................... $ 0.15 $ 0.17 $ 0.19 $ 0.11
Shares used in basic per share
computation............................... 225,402 228,001 231,078 233,134
Diluted income per share.................... $ 0.13 $ 0.15 $ 0.17 $ 0.10
Shares used in diluted per share
computation............................... 256,331 258,969 257,518 252,577
</TABLE>
F-24
<PAGE> 87
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT PAGE
-------------- ----------------------------------------------------------- ------------
<S> <C> <C>
2.1(7) Agreement and Plan of Reorganization between PeopleSoft,
Inc. and Red Pepper Company dated as of September 4, 1996.
2.2(16) Agreement and Plan of Merger dated September 30, 1998
between the Registrant and Intrepid Systems, Inc.
3.1(11) Restated Certificate of Incorporation of Registrant filed
with the Secretary of State of the State of Delaware on May
25, 1996.
3.2(11) Certificate of Amendment to Certificate of Incorporation of
Registrant, as filed with the Secretary of State of the
State of Delaware on June 17, 1996.
3.3(14) Certificate of Amendment to Certificate of Incorporation of
Registrant, as filed with the Secretary of State of the
State of Delaware on July 3, 1997.
3.4(14) Certificate of Designation as filed with the Secretary of
State of the State of Delaware on March 24, 1998.
3.5 Bylaws of Registrant as amended to date.
4.2(12) First Amended and Restated Preferred Shares Rights
Agreement dated December 16, 1997.
10.1(5)(11) Amended and Restated 1989 Stock Plan and forms of option
agreements thereunder.
10.2(11) 1992 Employee Stock Purchase Plan as amended to date, and
form of subscription agreement thereunder.
10.3(1) 1992 Directors' Stock Option Plan and forms of option
agreements thereunder.
10.4(2)(5) Executive Bonus Plan.
10.5(3) Amendment and Restatement of PeopleSoft, Inc. 401(K) Plan,
dated December 13, 1995, Amendment No. 1 dated December 30,
1994, and Amendment No. 2, dated August 25, 1995.
10.6(1) Form of Indemnification Agreement entered into between the
Registrant and each of its directors and officers.
10.7(3) Loan Agreement between the Registrant and West America
Bank, N.A. dated October 31, 1995.
10.8(1) Office Lease for 1331 North California Boulevard dated July
23, 1990 between the Registrant and 1333 North California
Boulevard, a California limited partnership, as amended by
the First Amendment to Lease dated April 24, 1991 and the
Second Amendment to Lease dated June 17, 1992 and related
Lease Guarantees dated July 26, 1990 and June 14, 1991
between 1333 North California Boulevard and David A.
Duffield.
10.9(1) Lease dated July 24, 1992 between the Registrant and Glen
Pointe Associates.
10.12(1)(6) Software License and Support Agreement dated June 23, 1992
between the Registrant and ADP, Inc., as amended by
Amendment No. 1 dated September 30, 1992.
10.18(2) Lease dated June 23, 1993 between the Registrant and
Westbrook Corporate Center.
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT PAGE
-------------- ----------------------------------------------------------- ------------
<S> <C> <C>
10.19(2) Lease dated January 17, 1994 between the Registrant and R-H
Associates Bldg. III Corp.
10.20(2) Lease dated March 10, 1994 between the Registrant and
Rosewood Associates.
10.21(3) Contract of Sale and Escrow Instructions between the
Company and Rosewood Owner of California (B) LLC, a
California limited liability company, dated October 4,
1995.
10.22(4) Warrant Agreement between the Registrant and The First
National Bank of Boston, as Warrant Agent, dated October
30, 1995.
10.23(4) Warrant Purchase Agreement between the Registrant and
Goldman, Sachs & Co. dated October 30, 1995.
10.24(4) Registration Rights Agreement between the Registrant and
Goldman, Sachs & Co. dated October 30, 1995.
10.25(8) Amendment No. 2 dated September 28, 1994, Amendment No. 3
dated September 21, 1995 and Amendment No. 4 dated December
28, 1995 to the Software License and Support Agreement
dated June 23, 1992 between the Registrant and ADP, Inc.
(Confidential treatment requested for Amendment No. 2 and
No. 4 only).
10.26(8) Amended Software Development Agreement dated December 22,
1995 between the Registrant and Solutions for Education
Administrators, Inc.
10.27(8) Exclusive Marketing and Distribution Agreement dated
December 22, 1995 between the Registrant and SIS
Development LLC ("SIS").
10.28(13) Amendment No. 1 dated September 19, 1994, Amendment No. 2
dated May 15, 1995 and Amendment No. 3 dated June 19, 1995
to the Lease dated March 10, 1994 between the Registrant
and Rosewood Associates.
10.29(8) Systems Integrator Agreement dated August 25, 1995 between
the Registrant and Shared Medical Systems Corporation.
10.32(13) Lease dated December 4, 1996 between the Registrant and
Lease Plan North America, Inc.
10.33(13) Purchase Agreement dated October 22, 1996 between the
Registrant and Norwest Equity Partners IV, L.P.
10.34(10) Red Pepper Software Company 1993 Stock Option Plan, and
forms of stock option agreement thereunder.
10.35(15) Agreement of Purchase and Sale dated July 22, 1998 between
the Registrant and William Willson & Associates.
10.36(15) Lease dated September 14, 1998 between the Registrant and
Hacienda Plaza Associates, LLC.
10.37 Development and License Agreement dated December 30, 1998
between the Registrant and Momentum Business Applications,
Inc.
10.38 Marketing and Distribution Agreement dated December 30,
1998 between the Registrant and Momentum Business
Applications, Inc.
10.39 Distribution Agreement dated December 30, 1998 between the
Registrant and Momentum Business Applications, Inc.
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT PAGE
-------------- ----------------------------------------------------------- ------------
<S> <C> <C>
10.40 First amendment to Participation Agreement and Appendix 1
to Participation Agreement, Master Lease and Construction
Deed of Trust dated February 20, 1998 between the
Registrant and Lease Plan North America, Inc.
10.41 Second Amendment to Participation Agreement, Master Lease,
Guarantee, Construction Deed of Trust, Cash Collateral
Agreement, Assignment of Lease and Appendix 1 to
Participation Agreement, Master Lease and Construction Deed
of Trust dated September 28, 1998 between the Registrant
and Lease Plan North America, Inc.
10.42 Participation Agreement dated September 28, 1998 between
the Registrant and Wilmington Trust Company, ABN AMRO
Leasing, Inc., ABN AMRO Bank N.V., and Financial
Institutions listed in Schedule I of the Participation
Agreement.
10.43 Master Lease dated September 28, 1998 between the
Registrant and Wilmington Trust Company.
10.44 Appendix 1 to the Participation Agreement and Master Lease
dated September 28, 1998.
21.1 Subsidiaries.
23.1 Consent of Ernst and Young LLP, Independent Auditors.
24.1 Power of Attorney (see page 61).
27.1 Financial Data Schedule.
</TABLE>
- - ---------------
(1) Incorporated by reference to the exhibit having the same number filed with
the Registrant's Registration Statement on Form S-1 (No. 33-53000) filed
October 7, 1992, Amendment No. 1 thereto filed October 26, 1992, Amendment
No. 2 thereto filed November 10, 1992 and Amendment No. 3 thereto filed
November 18, 1992, which Registration Statement became effective November
18, 1992 and the Registrant's Registration Statement on Form S-1 (No.
33-62356) filed on May 7, 1993, which Registration Statement became
effective May 24, 1993.
(2) Incorporated by reference to the exhibit having the same filed number with
the Company's Annual Report on Form 10-K for the year ended December 31,
1994.
(3) Incorporated by reference to Exhibit 2.1 filed with the Company's Form 8-K
filed with the Securities and Exchange Commission on December 15,1995.
(4) Exhibits 10.22, 10.23, and 10.24 are incorporated by reference to Exhibits
10.1, 10.2, and 10.3, respectively, filed with the Company's Registration
Statement on Form S-3 (No. 33-80755) filed with the Securities and Exchange
Commission on December 22, 1995.
(5) This agreement is a compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c).
(6) Confidential treatment previously granted.
(7) Incorporated by reference to Exhibit 2.1 filed with the Company's Form S-4
filed with the Securities and Exchange Commission on October 4, 1996.
(8) Incorporated by reference to the exhibit having the same filed numbers with
the Company's Annual Report on Form 10K for the year ended December 31,
1995.
(9) Incorporated by reference to Exhibit 2.1 filed with the Company's Form 8-A
filed with the Securities and Exchange Commission on February 15, 1995.
(10) Incorporated by reference to Exhibit 2.1 filed with the Company's Form S-8
filed with the Securities and Exchange Commission on October 24, 1996.
<PAGE> 90
(11) Incorporated by reference to the exhibit filed with the Company's Form S-8
(No.333-08575) filed with the Securities and Exchange Commission on July
22, 1996.
(12) Incorporated by reference to Exhibit 1 filed with the Company's Form 8-A/A
filed with the Securities and Exchange Commission on March 25, 1998.
(13) Incorporated by reference to the exhibit having the same filed number with
the Company's Annual Report on Form 10K for the year ended December 31,
1996.
(14) Incorporated by reference to the exhibit having the same filed number with
the Company's Annual Report on Form 10K for the year ended December 31,
1997.
(15) Incorporated by reference to the exhibit having the same filed number with
the Company's Quarterly Report on Form 10Q for the quarter ended September
30, 1998.
(16) Incorporated by reference to the exhibit 10.37 filed with the Company's
Quarterly Report on Form 10Q for the quarter ended September 30, 1998.
(b) Reports on Form 8-K. Stock Option Repricing filed December 17, 1998.
<PAGE> 1
EXHIBIT 3.5
BY-LAWS
OF
PEOPLESOFT, INC.
(As Amended through February 1995)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.1 OTHER OFFICES
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
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<PAGE> 2
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president. No
other person or persons are permitted to call a special meeting. No business may
be conducted at a special meeting other than the business brought before the
meeting by the board of directors or the chairman of the board or the president.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these by-laws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
corporation. An affidavit of the Secretary or an Assistant Secretary or of the
transfer agent of the corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
2.6 QUORUM
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then either (i) the Chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time or place, unless these by-laws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the
-2-
<PAGE> 3
corporation may transact any business that might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of business.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.12 of these by-laws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
by-laws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these by-laws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
-3-
<PAGE> 4
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
-4-
<PAGE> 5
2.13 PROXIES
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(c) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. Such list shall
presumptively determine the identity of the stockholders entitled to vote at the
meeting and the number of shares held by each of them.
2.15 ADVANCE NOTICE OF STOCKHOLDER NOMINEES
Nominations of persons for election to the Board of directors of the
corporation may be made at a meeting of stockholders by or at the discretion of
the board of directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this Section. Such nominations, other than those made by
or at the direction of the board of directors, shall be made pursuant to timely
notice in writing to the Secretary of the corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than twenty (20) days
nor more than sixty (60) days prior to the meeting; provided, however, that in
the event less than thirty (30) days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
mailed or such public disclosure was made. Such stockholder's notice shall set
forth (a) as to each person, if any, whom the stockholder proposes to nominate
for election or re-election as a director: (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment
-5-
<PAGE> 6
of such person, (iii) the class and number of shares of the corporation which
are beneficially owned by such person, (iv) any other information relating to
such person that is required by law to be disclosed in solicitations of proxies
that is required by law to be disclosed in solicitations of proxies for election
of directors, and (v) such person's written consent to being named as a nominee
and to serving as a director if elected; and (b) as to the stockholder giving
the notice: (i) the name and address, as they appear on the corporation's books,
of such stockholder, and (ii) the class and number of shares of the corporation
which are beneficially owned by such stockholder, and (iii) a description of all
arrangements or understandings between such stockholder and each nominee and any
other person or persons (naming such person or persons) relating to the
nomination. At the request of the board of directors any person nominated by the
Board for election as a director shall furnish to the secretary of the
corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this Section. The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
bylaws, and if he should so determine, he shall so declare at the meeting and
the defective nomination shall be disregarded.
2.16 ADVANCE NOTICE OF STOCKHOLDER BUSINESS
At the annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (a) as specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the board of directors, (b) otherwise properly brought before the meeting by or
at the direction of the board of directors, or (c) otherwise properly brought
before the meeting by a stockholder. Business to be brought before an annual
meeting by a stockholder shall not be considered properly brought if the
stockholder has not given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than twenty (20) nor more than sixty (60) days prior to the meeting;
provided, however, that in the event that less than thirty (30) days notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address of the stockholder proposing such business, (iii) the class
and number of shares of the corporation, which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder in such business, and
(v) any other information that is required by law to be provided by the
stockholder in his capacity as a proponent of a stockholder proposal.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this
-6-
<PAGE> 7
Section. The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section, and,
if he should so determine, he shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these by-laws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The Board of Directors shall consist of five (5) persons until changed by a
proper amendment of this Section 3.2.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these by-laws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting unless specified otherwise in the certificate of incorporation.
Directors need not be stockholders unless so required by the certificate of
incorporation or these by-laws, wherein other qualifications for directors may
be prescribed. Each director, including a director elected to fill a vacancy,
shall hold office until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the attention of
the Secretary of the corporation. When one or more directors so resigns and the
resignation is effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have
-7-
<PAGE> 8
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office as provided in this section in the filling of other
vacancies.
Unless otherwise provided in the certificate of incorporation or these
by-laws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these by-laws, or may
apply to the Court of Chancery for a decree summarily ordering an election as
provided in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
by-laws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar
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communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
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3.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
by-laws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these by-laws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
by-laws, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof, may be taken without a meeting
if all members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
by-laws, the board of directors shall have the authority to fix the compensation
of directors.
3.12 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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3.13 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of incorporation
or by these by-laws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors; provided, however, that, so long
as stockholders of the corporation are entitled to cumulative voting, if less
than the entire board is to be removed, no director may be removed without cause
if the votes cast against his or her removal would be sufficient to elect such
director if then cumulatively voted at an election of the entire board of
directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in the by-laws of the corporation, shall
have and may exercise all the powers and authority of the board of directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets,
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(iv) recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or (v) amend the bylaws of the corporation; and,
unless the board resolution establishing the committee, the by-laws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these by-laws, Section 3.5
(place of meetings and meetings by telephone), Section 3.6 (regular meetings),
Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9
(waiver of notice), and Section 3.10 (action without a meeting), with such
changes in the context of those by-laws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the board of directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the board of directors and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
by-laws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, one or more vice presidents, one or
more assistant vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and any such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these by-laws. Any number of
offices may be held by the same person.
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5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these by-laws, shall
be appointed by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these by-laws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these by-laws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these by-laws.
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5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. The
president shall preside at all meetings of the stockholders and, in the absence
or nonexistence of a chairman of the board, at all meetings of the board of
directors. The president shall have the general powers and duties of management
usually vested in the office of president of a corporation and shall have such
other powers and duties as may be prescribed by the board of directors or these
by-laws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these by-laws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these by-laws. The secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these by-laws.
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5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. The chief financial officer shall disburse
the funds of the corporation as may be ordered by the board of directors, shall
render to the president and directors, whenever they request it, an account of
all his or her transactions as chief financial officer and of the financial
condition of the corporation, and shall have other powers and perform such other
duties as may be prescribed by the board of directors or these by-laws.
The chief financial officer shall be the treasurer of the corporation.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as may be
prescribed by the board of directors or these by-laws.
5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the chief financial officer or in the event of his or
her inability or refusal to act, perform the duties and exercise the powers of
the chief financial officer and shall perform such other duties and have such
other powers as may be prescribed by the board of directors or these by-Laws.
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations
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standing in the name of this corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
5.14 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (if such settlement is approved
in advance by the corporation, which approval shall not be unreasonably
withheld) actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) and amounts paid in settlement (if such settlement is
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approved in advance by the corporation, which approval shall not be unreasonably
withheld) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if the person acted in good faith
and in manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper. Notwithstanding any other
provision of this Article VI, no person shall be indemnified hereunder for any
expenses or amounts paid in settlement with respect to any action to recover
short-swing profits under Section 16(b) of the Securities Exchange Act of 1934,
as amended.
6.3 SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by the
person in connection therewith.
6.4 DETERMINATION OF CONDUCT
Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court)
shall be made by the corporation only as authorized in the specific case upon a
determination that the indemnification of the director, officer, employee or
agent is proper in the circumstances because the person has met the applicable
standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall
be made (1) by the Board of Directors or the Executive Committee by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding or (2) or if such quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders. Notwithstanding the
foregoing, a director, officer, employee or agent of the Corporation shall be
entitled to contest any determination that the director, officer, employee or
agent has not met the applicable standard of conduct set forth in Sections 6.1
and 6.2 by petitioning a court of competent jurisdiction.
6.5 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending a civil or criminal action, suit or
proceeding, by an individual who may be entitled to indemnification pursuant to
Section 6.1 or 6.2, shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it
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shall ultimately be determined that the individual is not entitled to be
indemnified by the corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE
The indemnification and advancement of expenses provided by or granted
pursuant to the other sections of this Article VI shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in their official
capacity and as to action in another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against the
person and incurred by the person in any such capacity or arising out of the
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the provisions of this
Article VI.
6.8 THE CORPORATION
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under and subject to the provisions of this Article VI (including,
without limitation the provisions of Section 6.4) with respect to the resulting
or surviving corporation as the person would have with respect to such
constituent corporation if its separate existence had continued.
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6.9 EMPLOYEE BENEFIT PLANS
For purposes of this Article VI, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
VI.
6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive officer or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these by-laws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent so to act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
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The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
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8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these by-laws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the chief
financial officer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if the person were such
officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on
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<PAGE> 22
the face or back of the certificate that the corporation shall issue to
represent such class or series of stock; provided, however, that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements there may be set forth on the face or back of
the certificate that the corporation shall issue to represent such class or
series of stock a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, the designations, the preferences,
and the relative, participating, optional or other special rights of each class
of stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these by-laws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained in
(i) the General Corporation Law of Delaware or (ii) the certificate of
incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
corporation's capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
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8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
8.10 TRANSFER OF STOCK
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The by-laws of the corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the corporation may, in
its certificate of incorporation,
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<PAGE> 24
confer the power to adopt, amend or repeal by-laws upon the directors. The fact
that such power has been so conferred upon the directors shall not divest the
stockholders of the power, nor limit their power to adopt, amend or repeal
by-laws.
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<PAGE> 25
CERTIFICATE OF AMENDMENT OF BY-LAWS
OF
PEOPLESOFT, INC.
Certificate by Secretary of Amendment
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of PeopleSoft, Inc. and that the foregoing By-Laws,
comprising twenty-five (25) pages, were ratified as the Amended and Restated
By-Laws of the corporation by the Board of Directors on February 15, 1995.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 15 day of February, 1995.
/s/ Ronald E. F. Codd
---------------------------
Ronald E. F. Codd,
Secretary
<PAGE> 26
CERTIFICATE OF AMENDMENT
TO BYLAWS
OF
PEOPLESOFT, INC.
I, Ronald E.F. Codd, Secretary of PeopleSoft, Inc., a Delaware corporation
(the "Company"), hereby declare and certify that below is a true and correct
copy of the amendment to the Bylaws duly adopted by the board of directors of
the Company on December 15, 1995:
The first sentence of Section 3.2 of Article III of the Bylaws of the
Company is hereby amended, effective December 15, 1995, to read in full as
follows:
"The number of directors of this corporation shall not be less than five
(5) nor more than nine (9), until changed, within the limits specified
above, by an amendment to this Section 3.2 duly adopted by the board of
directors or by the shareholders."
IN WITNESS WHEREOF, I declare under penalty of perjury that the foregoing
statements are true and correct.
/s/ Ronald E.F. Codd
------------------------------
Ronald E.F. Codd, Secretary
[seal]
<PAGE> 1
EXHIBIT 10.37
DEVELOPMENT AND LICENSE AGREEMENT
This Development and License Agreement ("Agreement") is entered into as of
__________, 1998 ("Effective Date") by and between PEOPLESOFT, INC.
("PEOPLESOFT"), a Delaware corporation with a place of business at 4460 Hacienda
Drive, Pleasanton, California 94588 and MOMENTUM BUSINESS APPLICATIONS, INC.
("MOMENTUM"), a Delaware corporation with a principal place of business at 1301
Harbor Bay Blvd., Alameda, California 94502. PeopleSoft and Momentum shall be
collectively referred to herein as the "Parties."
Whereas, the Parties intend to work together to develop software application
products which may be based on PeopleSoft's PeopleTools technology as set forth
herein which shall be known as the Momentum Products;
Whereas, the Parties also entered into the Marketing and Distribution Agreement
("Marketing Agreement") on the Effective Date for PeopleSoft's possible
distribution of the proposed Momentum Products;
Whereas, the Parties have also entered into an agreement for PeopleSoft services
to Momentum ("Services Agreement") as of the Effective Date whereby PeopleSoft
will provide Momentum various services as specified in the Services Agreement;
Whereas, this Agreement, the Services Agreement and the Marketing Agreement are
separate, yet interdependent agreements in the context of the
PeopleSoft/Momentum business relationship; and
Whereas, this Agreement sets forth the manner in which Momentum can use
Available Funds.
The Parties agree as follows:
DEFINITIONS
"Available Funds" means the three hundred million dollars ($300,000,000) in cash
funding that PeopleSoft contributed to Momentum in furtherance of the formation
of Momentum plus any accrued investment income, less any amounts expended under
this Agreement and for related administrative expenses (including expenses under
the Services Agreement).
"Contributed Technology" means any PeopleSoft software products or other
technology that PeopleSoft agrees to provide to Momentum during the work plan
and cost estimate approval process.
"Development Costs" means the fully burdened costs incurred by PeopleSoft
(including costs incurred for third party contractors hired by PeopleSoft) in
developing a Momentum Product.
"Developed Technology" means development tools (other than PeopleTools) which
are developed or otherwise acquired by Momentum for the purpose of developing
Momentum Products.
"Developed Technology Royalties" mean the royalties that PeopleSoft will pay to
Momentum on any software product (other than a Momentum Product) licensed by
PeopleSoft to end users that was developed by PeopleSoft using Developed
Technology.
"Documentation" means only technical publications relating to the use of the
PeopleSoft Technology, such as reference, user, installation, systems
administrator and technical guides, and training curriculum delivered by
PeopleSoft to Momentum.
"Momentum Products" means the software applications, including pre-release
versions, and associated documentation that are proposed by PeopleSoft and
accepted by Momentum for development under this Agreement.
"Net License Fees" means the actual amount of license fees received by
PeopleSoft for an end user's use of any product containing Developed Technology,
net of sales, technology witholding or VAT taxes, imputed fees for Support
Services (such as bundled maintenance), consulting, and any third party
royalties less PeopleSoft's actual fully burdened development costs related to
the Developed Technology.
"PeopleSoft Technology" means PeopleTools, Documentation and all other
Contributed Technology provided by PeopleSoft to Momentum and all corrections or
updates thereto. PeopleSoft Technology includes all third-party software
included in PeopleTools and any Contributed Technology that PeopleSoft has the
right to provide and agrees to provide to Momentum.
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<PAGE> 2
Technology acquired by PeopleSoft after the date of this Agreement shall not be
considered PeopleSoft Technology unless such technology is expressly included in
PeopleTools or provided to Momentum as Contributed Technology.
"PeopleTools" means all or any portion of the underlying technology in object or
source code format, tools and documentation delivered by PeopleSoft to Momentum
under this Agreement and any related extensions or future enhancements all of
which serves as the foundation for all PeopleSoft software products.
"Purchase Option" means PeopleSoft's option to acquire all (but not less than
all) of the outstanding callable Class A common stock of Momentum as set forth
in Momentum's Restated Certificate of Incorporation.
"Support Services" means PeopleSoft's then current technical support and
maintenance services for the PeopleSoft Technology. Support Services for general
customers as of the Effective Date are as set forth in Exhibit B attached
hereto. The Support Services initially provided by PeopleSoft to Momentum under
this Agreement shall be substantially similar to those specified in Exhibit B
and may be modified as required for purposes consistent with this Agreement.
1. LICENSE GRANTS
1.1 PeopleSoft grants Momentum a perpetual (subject to the section entitled
"Default and Termination"), worldwide, non-exclusive, nontransferable
license to use a reasonable number of copies of the PeopleSoft
Technology solely for internal use purposes connected with this
Agreement and solely in conjunction with Momentum's development,
support, demonstration, testing (and any related tasks) of the Momentum
Products; In addition, Momentum may, with PeopleSoft's consent,
sublicense third parties to use the PeopleSoft Technology for the same
purposes.
1.2 To the extent that it has, or in the future obtains, the right to do so,
Momentum hereby grants PeopleSoft a perpetual, non-exclusive,
irrevocable, unrestricted, worldwide right to use, market, manufacture,
reproduce, copy, sublicense, distribute through PeopleSoft's then
current worldwide channel distribution system (under the PeopleSoft name
or otherwise pursuant to PeopleSoft's then current general licensing
policies and methodologies), create derivative works, enhance and modify
the Developed Technology.
1.3 PeopleSoft shall provide Momentum with one copy of PeopleSoft
Technology, with rights to make additional copies as reasonably
necessary for the uses set forth in section 1.1. PeopleSoft shall also
provide Momentum with one printed set of Documentation and Momentum
shall have the option to acquire additional sets of Documentation at
PeopleSoft's then current rates
2. LICENSE EXCLUSIONS
2.1 Except as expressly authorized herein, Momentum shall not:
a. copy or modify the PeopleSoft Technology other than as set forth
in section 1.1;
b. use PeopleSoft Technology to develop any software application
products that compete with PeopleSoft Technology;
c. cause or permit reverse compilation or reverse assembly of all
or any portion of the PeopleSoft Technology;
d. distribute, disclose, market, rent, lease or transfer to any
third party any portion of the PeopleSoft Technology or the
Documentation, or use the PeopleSoft Technology or Documentation
in any service bureau arrangement or third party training other
than to third party consultants under agreement and
non-disclosure as mutually agreed upon between the Parties in
writing;
e. disclose the results of PeopleSoft Technology performance
benchmarks to any third party without PeopleSoft's prior written
notice;
f. export PeopleSoft Technology in violation of U.S. Department of
Commerce export administration regulations; and
g. invoke support libraries other than through documented API
calls.
2.2 No license, right, or interest in any PeopleSoft trademarks, trade name,
or service mark is granted hereunder.
3. DEVELOPMENT OF MOMENTUM PRODUCTS
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<PAGE> 3
3.1 Defining development projects: PeopleSoft shall propose the development
of certain Momentum Products to Momentum and shall submit work plans and
cost estimates for such development initiatives using Exhibit A as a
general outline. Momentum may approve all or any portion of a proposed
work plan and cost estimate or may determine not to approve any proposed
work plan and cost estimate. Notwithstanding the foregoing, Momentum
shall not be obligated to fund development of Momentum Products in
excess of amounts reflected in approved work plans and cost estimates.
3.2 (a) Situations wherein PeopleSoft develops:
If Momentum and PeopleSoft agree that PeopleSoft will do research and
development work with respect to a Momentum Product, Momentum will pay
PeopleSoft 110% of PeopleSoft's Development Costs incurred with respect
to such product. PeopleSoft shall not be required to undertake
activities that would result in Development Costs exceeding those
reflected in approved work plans and cost estimates. Except as agreed to
by the Parties, PeopleSoft shall not be required to devote any specific
amount of time or resources to research and development activities under
this Agreement.
(b) Situations wherein Third Parties develop:
The Parties intend that they will discuss and agree upon the possible
use of third parties to develop Momentum Products during the budget
proposal and approval process. Any agreements between Momentum and third
parties relating to Momentum Products or Developed Technology must
include appropriate provisions for the protection of PeopleSoft
Technology and PeopleSoft's rights under this Agreement, the Marketing
Agreement, and the Services Agreement and as a holder of the Momentum
Class B Common Stock. Subject to the foregoing, the amount and nature of
work to be performed by third parties will be determined by Momentum.
3.3 Momentum hereby grants PeopleSoft a right of first refusal with respect
to any future financing proposed to be conducted by Momentum. If at any
time, Momentum intends to raise more than $100,000 of capital in a
transaction or series of transactions, Momentum shall provide PeopleSoft
with notice of the proposed transaction including a summary of terms of
the proposed transaction. If PeopleSoft desires to provide Momentum with
the financing on the terms proposed by Momentum, it may do so by giving
Momentum notice within 15 days of its receipt of the notice of the
proposed by Momentum. If PeopleSoft does not exercise its rights
hereunder, Momentum shall have 60 days from the expiration of the
foregoing 15 day period to complete the financing on the terms contained
in the notice provided to PeopleSoft. If Momentum does not complete the
financing within said 60 day period, PeopleSoft's rights hereunder shall
be deemed to be revived.
3.4 Momentum shall use diligent efforts to research and develop Momentum
Products in accordance with approved work plans and cost estimates
agreed to by the Parties pursuant to this Agreement. As of the Effective
Date, the Parties contemplate the development of the following Momentum
Products: electronic business, analytic applications and
industry-specific software applications.
3.5 The Parties intend to discuss and agree upon the use of Available Funds
during the work plan and cost estimate approval process. Momentum may
use the Available Funds only to develop or acquire Momentum Products and
related technologies and for related administrative expenses. There are
no restrictions on Momentum's use of its funds other than Available
Funds to conduct its business as it determines.
3.6 Momentum will invest the Available Funds in high quality marketable
securities. Momentum may not encumber, pledge or otherwise take any
action with respect to the Available Funds that could prevent the full
expenditure of such funds under this Agreement. If PeopleSoft reasonably
believes Momentum has or intends to use the Available Fund for purposes
other than those allowed by this Agreement, PeopleSoft will have the
right to require Momentum to make an affirmative pledge of the Available
Funds to performance under this Agreement.
3.7 PeopleSoft agrees to sublicense to Momentum any required third party
software in which PeopleSoft has applicable distribution rights.
Momentum shall be responsible for the payment of any technology access
fees or royalties due third parties for the use of such third party
software.
4. FEES AND PAYMENT TERMS/DEVELOPMENT COSTS
CONFIDENTIAL Page 3 of 11
<PAGE> 4
4.1 PeopleSoft Technology shall be provided by PeopleSoft to Momentum under
this Agreement at no license fee or royalty obligation.
4.2 PeopleSoft shall pay Developed Technology Royalties to Momentum equal to
one percent (1%) of Net License Fees on products (other than Momentum
Products) sold or licensed by PeopleSoft that were developed by
PeopleSoft using Developed Technology. PeopleSoft's obligation to pay
Developed Technology Royalties to Momentum shall cease ten (10) years
after the Developed Technology is acquired or first identified as part
of a work plan related to the development of a Momentum Product.
4.3 Momentum shall reimburse PeopleSoft for its Development Costs under
section 3.2(a) on a monthly basis.
5. SUPPORT SERVICES
5.1 During the period that this Agreement and the Marketing Agreement are in
effect and provided that Momentum is current on all payment obligations
under the Services Agreement, at no fee to Momentum, PeopleSoft shall
provide Momentum with Support Services.
6. TITLE AND PROTECTION/NON-DISCLOSURE
6.1 PeopleSoft (or its third-party providers) retains title to all portions
of the PeopleSoft Technology. Any modifications to the PeopleSoft
Technology made by Momentum or any of its subcontractors (including
PeopleSoft) to develop a Momentum Product in accordance with this
Agreement shall be owned by PeopleSoft. PeopleSoft will not be obligated
to make any royalty or other payments with respect to such PeopleSoft
Technology or modifications.
Title to the Momentum Products shall vest in Momentum, subject to
PeopleSoft's underlying right, title and interest to PeopleSoft
Technology. Title to the Developed Technology shall vest in Momentum,
subject to PeopleSoft's license to use the Developed Technology as set
forth in section 1.2 herein. Except as may be otherwise expressly set
forth in this Agreement, title to any technology developed pursuant to
this Agreement will vest in both PeopleSoft and Momentum and each will
have full right to make, use, license and sublicense such technology
without any obligation to the other.
6.2 Title to the physical media for the PeopleSoft Technology vests in
Momentum upon delivery. The PeopleSoft Technology contains valuable
proprietary information, and Momentum shall not disclose the PeopleSoft
Technology to anyone other than those of its employees or consultants
under nondisclosure obligations who have a need to know for purposes
consistent with this Agreement. Momentum shall affix, to each full or
partial copy of PeopleSoft Technology made by Momentum, all copyright
and proprietary information notices as affixed to the original.
6.3 All information clearly marked "confidential" or which should be
reasonably understood to be confidential by either party under this
Agreement and provided to the other party shall be treated as
confidential and shall not be disclosed, orally or in writing by the
receiving party to any third party without the prior written consent of
the disclosing party.
6.4 The obligations set forth in this section entitled "Title and Protection
/Non-disclosure" shall survive termination of this Agreement.
7. LIMITED WARRANTY
7.1 PeopleSoft represents that the PeopleSoft Technology does not infringe
any patent, copyright or other third party intellectual property rights
when used in accordance with the published specifications. PeopleSoft
represents that the PeopleSoft Technology and all subsequent major
releases thereon will perform substantially in accordance with the
corresponding documentation for a period of one (1) year from the date
of installation. PeopleSoft does not represent that the PeopleSoft
Technology is error-free. In the event the PeopleSoft Technology does
not perform substantially in accordance with the published
specifications, PeopleSoft's sole obligation is limited to repair or
replacement of the defective PeopleSoft Technology in accordance with
its then current Support Services terms and
CONFIDENTIAL Page 4 of 11
<PAGE> 5
conditions, provided Momentum notifies PeopleSoft of the deficiency
within the one-year period and provided Momentum has installed all
PeopleSoft Technology updates provided by PeopleSoft's Support Services.
7.2 PEOPLESOFT DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
8. DISCLAIMER OF CONSEQUENTIAL DAMAGES/LIMITATION OF LIABILITY
8.1 PEOPLESOFT WILL NOT BE LIABLE FOR INDIRECT, INCIDENTAL, SPECIAL, OR
CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST DATA OR LOST
PROFITS, HOWEVER ARISING, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
8.2 EXCLUDING DAMAGES INCURRED UNDER THE ARTICLE ENTITLED "INDEMNIFICATION",
PeopleSoft's liability for damages under this Agreement shall in no
event exceed the then current standard list price for a license to
peopletools by Momentum. the parties agree to the allocation OF
LIABILITY RISK THAT is set forth in this Section.
9. INDEMNIFICATION
9.1 PeopleSoft shall indemnify and defend Momentum against any claims that
the PeopleSoft Technology infringes any patent, copyright or trade
secret; provided that PeopleSoft is given prompt notice of such claim
and is given information, reasonable assistance, and authority to defend
or settle the claim. In the defense or settlement of the claim,
PeopleSoft may obtain for Momentum the right to continue using the
PeopleSoft Technology or replace or modify PeopleSoft Technology so that
it becomes noninfringing while giving substantially equivalent
performance. PeopleSoft shall have no liability if the alleged
infringement is based on: (i) a modification of PeopleSoft Technology by
anyone other than PeopleSoft; or (ii) the use of PeopleSoft Technology
other than in accordance with the Documentation.
9.2 Momentum shall indemnify and defend PeopleSoft against any claims that
the components of the Momentum Products or Developed Technology, that
are developed by Momentum in furtherance of this Agreement and the
Marketing Agreement infringes any patent, copyright or trade secret;
provided that Momentum is given prompt notice of such claim and is given
information, reasonable assistance, and authority to defend or settle
the claim. In the defense or settlement of the claim, Momentum may
obtain for PeopleSoft the right to continue using and marketing the
Momentum Products or Developed Technology or replace or modify the
Momentum Products or Developed Technology so that it becomes
noninfringing while giving substantially equivalent performance.
Momentum shall have no liability if the alleged infringement is based
on: (i) a modification of the Momentum Product or Developed Technology
by anyone other than Momentum or its subcontractors, if any; or (ii) the
use of the Momentum Product or Developed Technology other than in
accordance with the documentation provided by Momentum. To the extent
Momentum elects to provide PeopleSoft with modifications to the
PeopleSoft Technology, in every case and simultaneous with the delivery
of such PeopleSoft Technology modifications, Momentum shall provide
written notice to PeopleSoft that such PeopleSoft Technology
modifications are provided "as-is" and "without any indemnification for
third party infringement claims."
9.3 The obligations set forth in this section entitled "Indemnification"
shall survive the termination of this Agreement.
10. DEFAULT AND TERMINATION
10.1 Any of the following shall constitute an event of default:
a. Momentum fails to perform any of its obligations under the
sections entitled "License Exclusions" or "Title and Protection
/Non-disclosure"; or
b. Either party fails to perform any other material obligation
under this Agreement and such failure remains uncured for more
than thirty (30) days after receipt of written notice thereof.
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<PAGE> 6
10.2 If an event of default occurs, the nondefaulting party, in addition to
any other rights available to it under law or equity, may terminate this
Agreement and all licenses granted hereunder by written notice to the
defaulting party. Remedies shall be cumulative and there shall be no
obligation to exercise a particular remedy. In the event this Agreement
is terminated by PeopleSoft in connection with Momentum's breach of a
material obligation under this Agreement, PeopleSoft shall be entitled
to receive, as liquidated damages, the Available Funds. If PeopleSoft
reasonably believes that such liquidated damages are inadequate, then
PeopleSoft will be entitled to specific performance of Momentum's
obligations under this Agreement in connection with such breach.
10.3 This Agreement will automatically terminate upon the expiration of the
Purchase Option; provided, however that PeopleSoft's obligation to pay
Developed Technology Royalties will continue until the expiration of the
respective royalty terms, even if the Purchase Option expires
unexercised.
10.4 Within fifteen (15) days after termination of this Agreement, except for
copies of PeopleSoft Technology for use solely in connection with an
agreed upon transition plan, Momentum shall certify in writing to
PeopleSoft that all copies of the PeopleSoft Technology in any form,
including partial copies within modified versions, have been destroyed
or returned to PeopleSoft. The Parties shall also meet, discuss in good
faith and agree to a transition plan (which shall not exceed two (2)
years) to enable Momentum to transition the Momentum Products and
customers using Momentum Products from PeopleTools technology to a
different technology.
11. NOTICES
All notices shall be in writing and hand-delivered or sent by first
class mail, overnight mail, courier, or transmitted by facsimile (if
confirmed by such mailing), to the addresses indicated on the first page
of this Agreement, or such other address as either party may indicate by
at least ten (10) days prior written notice to the other party. Notices
to PeopleSoft shall be addressed to the Legal Department.
12. ASSIGNMENT
Momentum may not assign this Agreement (by operation of law or
otherwise) or sublicense PeopleSoft Technology without the prior written
consent of PeopleSoft or as set forth in the event of certain
contingencies as expressed in the Marketing Agreement, and any
prohibited assignment or sublicense shall be null and void.
13. GENERAL
13.1 This Agreement is made in and shall be governed by the laws of the State
of California, excluding choice of law principles. Any actions brought
to enforce any of the provisions of this Agreement shall be fully and
finally resolved by binding arbitration conducted by a mutually
acceptable independent third party. Except for actions for breach of
PeopleSoft's proprietary rights in PeopleSoft Technology or Momentum's
proprietary rights in the Momentum Products, no action regardless of
form, arising out of this Licensing Agreement may be brought by either
party more than one year after the cause of action has accrued.
13.2 The section headings herein are provided for convenience only and have
no substantive effect on the construction of this Agreement. If any
provision of this Agreement is held to be unenforceable, this Agreement
shall be construed without such provision.
13.3 The failure by a party to exercise any right hereunder shall not operate
as a waiver of such party's right to exercise such right or any other
right in the future. Neither party shall be liable to the other for any
failure to perform due to causes beyond its reasonable control.
13.4 No agency, partnership or employment is created by this Agreement.
Momentum shall not use the name of PeopleSoft in any advertising, public
relations or media release without the prior written consent of
PeopleSoft.
13.5 This Agreement replaces and supersedes any prior verbal understandings,
written communications, and constitutes the entire agreement between the
Parties concerning this subject matter. This Agreement may be amended
only by a written document executed by a duly authorized representative
of each of the Parties. This Agreement may be executed in counterparts.
CONFIDENTIAL Page 6 of 11
<PAGE> 7
This Agreement is made as of the Effective Date.
MOMENTUM BUSINESS APPLICATIONS, INC. PEOPLESOFT, INC.
- - ----------------------------------- ------------------------------------
Authorized Signature Authorized Signature
- - ----------------------------------- ------------------------------------
Printed Name and Title Printed Name and Title
CONFIDENTIAL Page 7 of 11
<PAGE> 8
EXHIBIT A
OVERVIEW OF THE DEVELOPMENT EFFORT TO CREATE MOMENTUM PRODUCTS
PHASE 1. PROJECT INITIATION/GENERAL ARCHITECTURE.
(a) DURATION. The approximate duration of Phase 1 shall be the first several
months commencing on the Effective Date.
(b) OBJECTIVES DURING PHASE 1:
(1) defining the project requirements as mutually agreed.
(2) Establish and maintain the development environment.
(3) Evaluate possible future beta sites.
(4) Generally determine the requirements and costs of documentation.
(5) Preparation of the project plans which are expected to include
detailed deliverables, and development milestones.
(6) Preparation of the test plans.
(7) Determination of an appropriate database to be used as a starting
point for the Momentum Product.
PHASE 2. DETAILED DESIGN AND PROTOTYPING.
(a) DURATION. The Parties anticipate that Phase 2 may overlap with Phase 1
and shall commence during the __________ month of the Project and end, depending
on Momentum Product within __________ months of the commencement of the project.
(b) OBJECTIVES DURING PHASE 2
(1) Create all databases.
(2) Develop or create functional prototypes of all modules and
listed functions.
(3) Participate in ongoing beta sites review and feedback. (4)
Refinement of project plans, including definition of detailed
requirements for all functions.
(5) Refinement of test plans.
PHASE 3. DEVELOPMENT.
(a) DURATION. The Parties anticipate that Phase 3 shall commence in the
_________ month of the project and end upon General Availability of the
Momentum Product.
(b) OBJECTIVES DURING PHASE 3
(1) Complete, as set forth in the project plans, the interfaces
between the PeopleSoft Technology and Momentum Products..
(2) Provide the publication expertise reasonably necessary to turn
the Documentation and training guide drafts into final documents
ready for delivery to customers. This effort contemplates limited
textual editing, document formatting and other minor preparations
which are typically expected prior to publication, and which will
otherwise conform the Documentation to PeopleSoft's then current
style guides.
(3) Undertake final testing.
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EXHIBIT B
SOFTWARE SUPPORT SERVICES TERMS AND CONDITIONS
Software Support Services Terms and Conditions ("SUPPORT SERVICES") are
referenced in and incorporated into the Software License and Services Agreement
("Agreement") between PeopleSoft and Licensee. Capitalized terms have the same
meaning as they do in the Agreement.
1. COVERAGE
PeopleSoft provides Licensee with Support Services for the Software at the Site
in exchange for payment of the applicable Support Services fees. Only designated
Licensee employees may contact PeopleSoft for the provision of Support Services.
Licensee may acquire Support Services for additional Licensee sites by paying
PeopleSoft the applicable annual secondary site Support Services fee.
2. SOFTWARE MAINTENANCE
PeopleSoft will periodically issue the following technical and functional
improvements to Software:
(1) Fixes to Errors; (2) Updates; and (3) Enhancements
3. PRIORITY LEVEL OF ERRORS
PeopleSoft shall address Errors in accordance with the following protocols:
Priority 1-Critical Level: PeopleSoft promptly: (1) designates PeopleSoft
specialist(s) to correct Error; (2) provides expanded communication on
correction status; and (3) escalates troubleshooting a Workaround or Fix.
Priority 2-Urgent Level: PeopleSoft promptly: (1) designates PeopleSoft
specialist(s) to correct Error; (2) provides ongoing communication on
correction status; and (3) initiates troubleshooting a Workaround or Fix.
Priority 3-Standard Level: PeopleSoft: (1) assigns PeopleSoft specialist(s) to
commence correction of Error; and (2) exercises all commercially reasonable
efforts to include the Fix for Error in the next Update.
Priority 4-Base Level: PeopleSoft: (1) assigns Error to case management and
tracking; and (2) may include the Fix for Error in the next Update.
4. TELEPHONE SUPPORT
PeopleSoft provides telephone support concerning Software installation and use.
Except for designated holidays, standard telephone support hours are Monday
through Friday, 4:00 a.m. to 6:30 p.m., Pacific Time. Telephone Support is also
available 24-hours-a-day, 7-days-a-week for in-production customers who need to
resolve critical production problems outside of standard support hours.
5. ACCOUNT MANAGER
PeopleSoft assigns an account manager to assist with the support relationship
between PeopleSoft and Licensee. Licensee will reimburse PeopleSoft for the
reasonable travel and living expenses of the account manager for on-site support
activity.
6. PEOPLESOFT CUSTOMER CONNECTION
a. PeopleSoft Customer Connection is an on-line, self-service system that
features postings by PeopleSoft and customers regarding technical and
non-technical topics of interest. Licensee may access PeopleSoft Customer
Connection via Internet access at its own expense.
b. Software Updates, Enhancements, and Fixes may be delivered to Licensee
through PeopleSoft Customer Connection, or by mail from PeopleSoft on
Licensee's written request. PeopleSoft information posted to Customer
Connection is confidential and proprietary and shall only be used in
connection with Licensee's use of the Software and informational
communications with other PeopleSoft Customer Connection participants.
PeopleSoft shall have the right to publish, modify and distribute any
information or software provided by Licensee to Customer Connection in all
languages. Licensee shall not use PeopleSoft Customer Connection for
advertising or public relations purposes and shall only submit information
to PeopleSoft Customer Connection that Licensee owns or has permission to
use in such manner.
c. To diminish exposure to software viruses, PeopleSoft tests and scans all
information entered by PeopleSoft for software viruses prior to submitting
it to PeopleSoft Customer Connection. Licensee shall also use a reliable
virus detection system on any software or information posted to PeopleSoft
Customer Connection, utilize back-up procedures, monitor access to
PeopleSoft Customer Connection, promptly notify PeopleSoft of any virus
detected within Licensee's systems associated with PeopleSoft Customer
Connection and generally exercise a reasonable degree of caution when
utilizing information from PeopleSoft Customer Connection. PeopleSoft does
not warrant that PeopleSoft Customer Connection will operate without
interruption or without errors. PeopleSoft reserves the right to modify or
suspend PeopleSoft
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Customer Connection service in connection with PeopleSoft's provision of
Support Services. PeopleSoft assumes no responsibility for anything posted
by anyone other than PeopleSoft, including, but not limited to, information
about PeopleSoft software, modification code, or portions thereof.
7. FEES
The initial period of Support Services for the Site is indicated in the Schedule
and included in the Software license fee; thereafter, in the event Licensee
elects to continue to receive Support Services, Licensee shall pay PeopleSoft
the annual Support Services fee as set forth in the Schedule. Support Services
are billed on an annual basis, payable in advance. Unless Licensee has provided
proof of tax-exempt status, Licensee is responsible for all taxes associated
with Support Services, excluding taxes based on PeopleSoft's income. Licensee's
payment shall be due within thirty (30) days of receipt of the PeopleSoft
invoice. Should Licensee elect not to renew Support Services and subsequently
requests Support Services, PeopleSoft shall reinstate Support Services only
after Licensee pays PeopleSoft the annual then-current fee plus all cumulative
fees that would have been payable had Licensee not suspended Support Services.
8. TERM AND TERMINATION
Unless otherwise expressly set forth in the Agreement, Support Services shall be
provided for a period of one (1) year from the Schedule Effective Date, and
shall be extended each additional year unless terminated by either party. Each
one (1) year term shall commence on the anniversary of the Schedule Effective
Date.
Either party may terminate the Support Services provisions at the end of any
support term by giving the other party written notice at least ninety (90) days
prior to the end of the term.
If Licensee fails to make payment pursuant to the section titled "Fees", or
Licensee breaches the Support Services provisions and such breach has not been
cured within thirty (30) days of receipt of written notice of breach, PeopleSoft
may suspend or cancel Support Services.
9. EXCLUSIONS
PeopleSoft shall have no obligation to support:
a. Substantially altered, damaged or modified Software;
b. Software that is not the then-current release, or a Previous Sequential
Release;
c. Errors caused by Licensee's negligence, hardware malfunction, or other
causes beyond PeopleSoft's reasonable control;
d. Software installed in a hardware or operating environment not supported
by PeopleSoft; and
e. Third party software not licensed through PeopleSoft.
10. GENERAL
All Updates, Enhancements and Fixes provided to Licensee are subject to the
terms and conditions of the Agreement. PeopleSoft may modify Support Services on
an annual basis to reflect current market condition upon reasonable notice.
11. DEFINITIONS
"ENHANCEMENT" means a technical or functional addition to the Software delivered
with a new Software release to improve functionality and/or operations.
"ERROR" means a Software malfunction that degrades the use of the Software.
"FIX" means the repair or replacement of source, object or executable code
Software versions to remedy an Error.
"PREVIOUS SEQUENTIAL RELEASE" means a Software release for a particular
operating environment that has been replaced by a subsequent Software release in
the same operating environment. PeopleSoft will support a Previous Sequential
Release for a period of eighteen (18) months after release of the subsequent
release. Multiple Previous Sequential Releases may be supported at any given
time.
"PRIORITY 1" means an Error that renders the Software inoperative or causes the
Software to fail catastrophically.
"PRIORITY 2" means an Error that affects performance of the Software and
prohibits Licensee's use of the Software.
"PRIORITY 3" means an Error that affects performance of the Software, but does
not prohibit Licensee's use of the Software.
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"PRIORITY 4" means an Error that causes only a minor impact on the use of the
Software.
"UPDATE" means all published revisions to the Documentation and one (1) copy of
the new Software release not designated by PeopleSoft as new products or
functionality for which it charges separately.
"WORKAROUND" means a change in the procedures followed or data supplied to avoid
an Error without significantly impairing Software performance.
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EXHIBIT 10.38
MARKETING AND DISTRIBUTION AGREEMENT
This marketing and distribution agreement ("Marketing Agreement") is made as of
December ___, 1998 ("Effective Date") by and between PeopleSoft, Inc.
("PEOPLESOFT"), a Delaware corporation having its principal place of business at
4460 Hacienda Drive, Pleasanton, California 94588 and Momentum Business
Applications, Inc., ("MOMENTUM") a Delaware corporation having its principal
place of business at 1301 Harbor Bay Boulevard, Alameda
California 94502.
Whereas the parties have entered into a development and license agreement (the
"DEVELOPMENT AGREEMENT") pursuant to which PeopleSoft has licensed PeopleSoft
Technology to Momentum for the development by Momentum of certain products,
including electronic business applications, analytic applications and
industry-specific applications; and
Whereas, the parties desire to set forth the various marketing and support
requirements for the marketing and distribution of the Momentum Products by
PeopleSoft as set forth herein.
The parties agree as follows:
1. DEFINITIONS
"Development Costs" means the costs incurred by Momentum in developing any
Momentum Product.
"Developed Technology" shall have the meaning assigned to it in the Development
Agreement.
"Documentation" means only technical publications relating to the use of the
PeopleSoft Technology, such as reference, user, installation, training
curriculum, systems administrator and technical guides, delivered by PeopleSoft
to Momentum.
"End User" means any end customer using the Momentum Products.
"Enhancement Costs" means the fully burdened costs (including any costs incurred
for third party contractors hired by PeopleSoft) that PeopleSoft incurs
enhancements, fixes, updates or improvements which improve the functionality and
operations of a Licensed Product.
"Excluded Parties" means those entities that, at the end of the License Option
Term, PeopleSoft reasonably believes are competitors of PeopleSoft. PeopleSoft
shall provide a list of Excluded Parties to Momentum at such time.
"First-Line Support" means only the routing of Momentum Products technical
support telephone inquiries to the Second-Line Support organization. First-Line
Support includes responsibility for handling all PeopleTools technical support
inquiries received from End Users.
"Generally Available Product" means a Momentum Product, which has successfully
completed PeopleSoft release testing (in accordance with PeopleSoft's then
current PeopleSoft release model) with the level of functionality specified in
such product's work plan and which becomes commercially available for production
use.
"License Option" means PeopleSoft's right to acquire an exclusive license for
the commercialization of a Momentum Product pursuant to the section entitled
"License Option" hereof.
"License Option Term" means the period from which a work plan for a product is
approved by Momentum pursuant to the Development Agreement until the end of the
earlier of (i) the thirtieth (30th) day after such Momentum Product becomes a
Generally Available Product or (ii) the expiration of the Purchase Option.
"Licensed Product" means a Momentum Product for which PeopleSoft has exercised
its License Option.
"Momentum Products" shall have the meaning assigned to it in the Development
Agreement.
"Net Revenues" means the actual amount of license fees received by PeopleSoft,
either from an End User or from a third party, for an End User's use of a
Momentum Product or Licensed Product and any Upgrades and Updates
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<PAGE> 2
thereto, net of sales, technology withholding or VAT taxes, imputed fees for
Support Services (such as bundled maintenance), consulting, Enhancement Costs
(if applicable) and any third party PeopleSoft Technology royalties.
"PeopleSoft Technology" shall have the meaning assigned to it in the Development
Agreement.
"PeopleTools" means all or any portion of the underlying technology in object or
source code form, tools and documentation delivered by PeopleSoft to Momentum
under the Development Agreement, and any related extensions or future
enhancements, which serve as the foundation for all PeopleSoft software
products.
"Pre-Release License" means the license granted by Momentum to PeopleSoft in the
section entitled Pre-Release Marketing and Distribution License/
Responsibilities.
"Pre-Release Royalty" means the royalties payable by PeopleSoft as set forth in
Exhibit A (section 2) for any Momentum Product commercialized by PeopleSoft
prior to the exercise of the License Option.
"Pre-Release Term" means the period from which a work plan for a product is
approved by Momentum pursuant to the Development Agreement until the earlier of
(1) PeopleSoft's exercise of the License Option, or (2) the end of the License
Option Term.
"Pricing Addendum" means the separately executed addendum to this Marketing
Agreement which states the commercial terms of this Agreement. The Pricing
Addendum is attached as Exhibit A and is hereby incorporated herein as part of
this Marketing Agreement.
"Product Payments" means the royalties payable by PeopleSoft as set forth in
Exhibit A (section 3(a)) for any Licensed Product.
"Purchase Option" means PeopleSoft's option to acquire all (but not less than
all) of the outstanding Class A Common Stock of Momentum as set forth in
Momentum's Restated Certificate of Incorporation.
"Second-Line Support" means the general level of Support Services without
First-Line Support obligations.
"Support Services" means PeopleSoft's then current technical support and
maintenance services for the PeopleSoft Technology. Support Services for general
customers as of the Effective Date are as set forth in Exhibit B attached
hereto.
"Term" shall mean the exercise or expiration of the Purchase Option.
"Upgrade" means the right to use the Momentum Products on a designated computer
with increased processing power or an increase in the number of users to the
next pricing increment and generally in each case a requirement for a payment of
applicable Upgrade fees to PeopleSoft.
"Updates" means one (1) copy of all published revisions and corrections to the
printed documentation and one (1) copy of corrections and new releases of the
Momentum Products.
2. PRE-RELEASE MARKETING AND DISTRIBUTION LICENSE/RESPONSIBILITIES
2.1 For the Pre-Release Term, Momentum grants to PeopleSoft the exclusive
license to market and distribute pre-release versions of the Momentum
Products to any End Users through its then current worldwide channel
distribution system under the PeopleSoft name or otherwise pursuant to
PeopleSoft's then current general licensing policies and methodologies.
PeopleSoft shall use commercially reasonable efforts to promptly market
and distribute such pre-release versions of Momentum Products to select
customers in accordance with its standard practices. Any customers
licensed by PeopleSoft during the Pre-Release Term must be reasonably
acceptable to Momentum.
2.2 PeopleSoft shall have the right to use a reasonable number of copies of
the Momentum Products, at no royalty to Momentum, for training,
marketing, sales and support purposes.
2.3 PeopleSoft shall have complete responsibility, at its expense, for all
marketing, pre-sales and sales activities associated with the Momentum
Products.
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2.4 PeopleSoft shall establish all then-current commercially reasonable
local country suggested list prices for the Momentum Products and
associated services.
3. ROYALTIES/PAYMENTS FOR PRE-RELEASE TERM
3.1 For each pre-release copy of Momentum Products licensed by PeopleSoft to
an End User, PeopleSoft shall pay Momentum a royalty (the "Pre-Release
Royalty") as set forth in the Pricing Addendum. PeopleSoft may license a
reasonable number of royalty-free copies of the Momentum Products for
End User evaluation purposes.
3.2 PeopleSoft shall pay to Momentum all royalties and fees due to Momentum
under this Marketing Agreement within thirty (30) days of the end of the
calendar quarter in which the Net Revenues are recorded by PeopleSoft.
4. SUPPORT SERVICES FOR PRE-RELEASE TERM
4.1 Momentum and PeopleSoft shall work together to provide joint post-sales
support to End Users.
4.2 PeopleSoft shall provide all support for PeopleTools to End Users,
commensurate with PeopleSoft's then current standard Support Services
terms and conditions. A copy of the Support Services terms and
conditions as of the Effective Date is included as Exhibit B.
4.3 PeopleSoft shall provide the End User with First-Line Support and
Second-Line Support for the Momentum Products and shall retain all
associated support revenues. PeopleSoft's responsibility to provide
Updates and enhancements to End Users is limited only to the
distribution of any releases, Updates and enhancements provided to
PeopleSoft by Momentum, as well as the distribution to End Users of any
new releases, Updates or enhancements of PeopleTools.
5. SUPPORT SERVICES FEES FOR PRE-RELEASE TERM
5.1 As of the Effective Date, PeopleSoft incorporates the first year of
Support Services fees into the license fee. Currently, Support Services
fees are listed at eighteen percent (18%) of the software license fee.
5.2 PeopleSoft shall retain all revenues from such Support Services as set
forth in Exhibit A.
6. LICENSE OPTION
6.1 Momentum hereby grants to PeopleSoft a License Option to acquire a
license to exclusively commercialize each Momentum Product . This
License Option shall be exercisable on a worldwide basis at any time
during the License Option Term. Upon exercise of the License Option,
PeopleSoft shall obtain a perpetual, exclusive license (with the right
to sublicense through multiple tiers of sublicense) to develop, make,
have made, use, support, market, enhance and distribute the Licensed
Product subject to the obligation to make Product Payments as set forth
in Exhibit A (section 3 (a)) hereto. PeopleSoft shall also have the
right to buyout the Product Payments as set forth in Exhibit A (Section
3 (b)).
6.2 Upon exercise of the License Option with respect to a Momentum Product,
sections 2, 3, 4 and 5 above shall no longer apply with respect to such
Momentum Product and PeopleSoft shall assume sole and full
responsibility for any product development, support, training,
consulting, bug fixes, modifications and enhancements with respect to
the Licensed Product.
6.3 At the end of the License Option Term for a Momentum Product, if
PeopleSoft has not exercised its License Option with respect to said
Momentum Product, (1) PeopleSoft shall grant to Momentum a perpetual,
nonexclusive license to market, distribute and sublicense the PeopleSoft
Technology, only to the extent incorporated into such Momentum Product,
to all third parties that are not then Excluded Parties, subject to the
terms and conditions of PeopleSoft's then-standard end user license
agreement. The royalty rate payable by Momentum to PeopleSoft for such
distribution shall be substantially similar to PeopleSoft's then current
royalty rates which PeopleSoft receives from third parties marketing
PeopleSoft Technology; and (2) Momentum shall grant to PeopleSoft a
perpetual, royalty-free, non-exclusive license to (a) license
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the then most recent version of such Momentum Product, and any new
releases, Updates or enhancements thereto, to any End Users granted
licenses by PeopleSoft pursuant to the Pre-Release License, and (b) use
a reasonable number of copies of Momentum Products and any new releases,
Updates or enhancements thereto, for internal use, training and support
purposes.
7. DISTRIBUTION LIMITATION
Regardless of whether PeopleSoft exercises the License Option,
PeopleSoft warrants that it will not, without the prior written consent,
if required, of the U.S. Department of Commerce, export directly or
indirectly Momentum Products to any prohibited country specified in then
current U.S. Department of Commerce Export Administration Regulations.
With regard to the license grant in section 6.3(2) above, Momentum
warrants that it will not, without the prior written consent, if
required, of the U.S. Department of Commerce, export directly or
indirectly PeopleSoft Technology incorporated into Momentum Products to
any prohibited country specified in then current U.S. Department of
Commerce Export Administration Regulations.
8. LICENSE TO USE MOMENTUM TRADEMARKS AND TRADENAMES
Regardless of whether PeopleSoft exercises the License Option, Momentum
provides to PeopleSoft a royalty-free license to use Momentum's
tradenames and trademarks which relate to the Momentum Products in
connection with PeopleSoft's distribution of the Momentum Products or
marketing materials associated with this Marketing Agreement, provided
PeopleSoft clearly identifies Momentum's ownership of such names or
marks.
9. TERM
9.1 This Marketing Agreement shall expire at the Term.
9.2 This Marketing Agreement shall automatically terminate in the event
PeopleSoft acquires all ownership interest to Momentum.
10. RECORDS AND REPORTS/PAYMENTS
10.1 PeopleSoft shall keep full, true and accurate records and accounts in
accordance with generally accepted accounting practices to show the
amount of fees payable to Momentum. These records and accounts shall
include for each copy of Momentum Products distributed:
a. the name and address of the End User;
b. the date of shipment and receipt of payments from End Users;
c. the computation of the net licenses fee; and
d. a copy of each signed end user license agreement.
10.2 PeopleSoft shall keep these records at PeopleSoft's principal place of
business. Momentum shall have the right to conduct an audit of such
records once per calendar year upon the giving of at least five (5)
business days prior written notice to PeopleSoft to determine
PeopleSoft's compliance with this Marketing Agreement. Momentum shall
bear the expenses of the audit, however, in the event any such audit
reveals that PeopleSoft has understated the amount of fees that
PeopleSoft is obligated to pay Momentum under this Marketing Agreement
by more than five percent (5%), PeopleSoft shall pay, in addition to any
fees contractually due, all reasonable costs and fees associated with
the audit.
10.3 Thirty (30) days after the end of each calendar quarter, PeopleSoft
shall develop, implement and provide Momentum with a quarterly royalty
report in accordance with its standard reporting practices that is
structured as a summary report with availability to detailed backup
information. The expectation is that key information concerning the
Momentum Products module(s) licensed, customer name, ship date,
quantity, standard list price, actual fee received, reductions for
bundled services, Net License Fee and actual royalty rate will be
provided in the quarterly report provided to Momentum.
10.4 All payments shall be made in U.S. dollars.
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11. TITLE AND PROTECTION/NON DISCLOSURE
11.1 All right, title and interest to the Momentum Products shall vest in
Momentum, subject to PeopleSoft's underlying right, title and interest
in and to the PeopleSoft Technology.
11.2 PeopleSoft shall affix, to any media containing a copy of all or any
portion of the Momentum Products and to each whole or partial copy of
documentation, all copyright, proprietary information notices and
restricted rights legends as were affixed to the original media or
documents. All Momentum Products Distributed to the federal government
shall contain the correct "Restricted Rights" legend as defined in DFAR
52.227-7013 (c) (1) (ii) or pertinent subsequent citation.
11.3 Title to the physical media for the Momentum Products vests in
PeopleSoft upon delivery. The Momentum Products contains valuable
proprietary information, and other than as set forth herein, PeopleSoft
shall not disclose any such information to anyone other than those of
its employees or consultants under nondisclosure obligations who have a
need to know for purposes consistent with this Marketing Agreement.
PeopleSoft shall affix, to each full or partial copy of Momentum
Products made by PeopleSoft, all copyright and proprietary information
notices as affixed to the original.
11.4 All information (1) clearly marked "confidential" by either party under
this Marketing Agreement and provided to the other party, or (2) which
should reasonably be understood to be confidential in nature by the
receiving party, shall be treated as confidential and shall not be
disclosed, orally or in writing by the receiving party to any third
party without the prior written consent of the disclosing party.
12. LIMITED WARRANTY
12.1 Momentum represents that each of the Momentum Products does not infringe
any patent, copyright or other third party intellectual property rights
when used in accordance with the published specifications for such
Momentum Product. Momentum represents that each of the Momentum Products
and all subsequent major releases thereon will perform substantially in
accordance with the corresponding documentation for such Momentum
Product for a period of one (1) year from the date of installation.
Momentum does not represent that any of the Momentum Products is
error-free. In the event that any of the Momentum Products does not
perform substantially in accordance with the published specifications
for such Momentum Product, Momentum's sole obligation is limited to
repair or replacement of such defective Momentum Product in accordance
with its then current support services terms and conditions, provided
PeopleSoft notifies Momentum of the deficiency within the one-year
period and provided PeopleSoft has installed all Momentum Products
updates provided by Momentum's support services.
12.2 MOMENTUM DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE.
12.3 PeopleSoft represents that the PeopleSoft Technology does not infringe
any patent, copyright or other third party intellectual property rights
when used in accordance with the published specifications. PeopleSoft
represents that the PeopleSoft Technology and all subsequent major
releases thereon will perform substantially in accordance with the
corresponding documentation for a period of one (1) year from the date
of installation at Momentum. PeopleSoft does not represent that the
PeopleSoft Technology is error-free. In the event the PeopleSoft
Technology does not perform substantially in accordance with the
published specifications, PeopleSoft's sole obligation is limited to
repair or replacement of the defective PeopleSoft Technology in
accordance with its then current Support Services terms and conditions,
provided Momentum notifies PeopleSoft of the deficiency within the
one-year period and provided Momentum has installed all PeopleSoft
Technology updates provided by PeopleSoft's Support Services.
12.4 PEOPLESOFT DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
13. DISCLAIMER OF CONSEQUENTIAL DAMAGES/LIMITATION OF LIABILITY
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13.1 NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL,
SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST
DATA OR LOST PROFITS, HOWEVER ARISING, EVEN IF IT HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
13.2 EXCLUDING DAMAGES INCURRED UNDER THE ARTICLE ENTITLED "INDEMNIFICATION",
EACH PARTY'S liability for damages under this MARKETING Agreement shall
in no event exceed the AMOUNT OF ROYALTIES THAT PEOPLESOFT HAS PAID TO
MOMENTUM IN THE PRECEDING TWELVE (12) MONTHS. the parties agree to the
allocation OF LIABILITY RISK WHICH IS SET FORTH IN THIS SECTION.
14. INDEMNIFICATION
14.1 Momentum shall indemnify and defend PeopleSoft against any claims that
the components of the Momentum Products (excluding PeopleSoft
Technology) infringes any patent, copyright or trade secret; provided
that Momentum is given prompt notice of such claim and is given
information, reasonable assistance, and authority to defend or settle
the claim. In the defense or settlement of the claim, Momentum may
obtain for PeopleSoft the right to continue using and marketing the
Momentum Products or replace or modify Momentum Products so that it
becomes noninfringing while giving substantially equivalent performance.
Momentum shall have no liability if the alleged infringement is based
on: (i) a modification of Momentum Products by anyone other than
Momentum or its subcontractors, if any; or (ii) the use of the Momentum
Products other than in accordance with the documentation provided by
Momentum.
14.2 PeopleSoft shall indemnify and defend Momentum against any claims that
the PeopleSoft Technology infringes any patent, copyright or trade
secret; provided that PeopleSoft is given prompt notice of such claim
and is given information, reasonable assistance, and authority to defend
or settle the claim. In the defense or settlement of the claim,
PeopleSoft may obtain for Momentum the right to continue using the
PeopleSoft Technology or replace or modify PeopleSoft Technology so that
it becomes noninfringing while giving substantially equivalent
performance. PeopleSoft shall have no liability if the alleged
infringement is based on: (i) a modification of PeopleSoft Technology by
anyone other than PeopleSoft; or (ii) the use of PeopleSoft Technology
other than in accordance with the Documentation.
15. DEFAULT
15.1 It shall be an event of default if either party (1) fails to perform any
of its material obligations (including any payment obligations) under
this Marketing Agreement or otherwise materially breaches this Marketing
Agreement and such material breach remains uncured for more than thirty
(30) days after receipt of written notice specifying the material breach
thereof, or (2) enters into any proceeding, voluntary or involuntary, in
bankruptcy, reorganization or similar arrangement for the benefit of its
creditors.
15.2 If an event of default occurs, the nondefaulting party in addition to
any other rights available to it under law or equity, may terminate this
Marketing Agreement by written notice to the defaulting party. In the
event this Marketing Agreement is terminated by PeopleSoft in connection
with Momentum's breach of a material obligation under this Marketing
Agreement, PeopleSoft shall be entitled to receive, as liquidated
damages, the Available Funds. If PeopleSoft reasonably believes that
such liquidated damages are inadequate, then PeopleSoft will be entitled
to specific performance of Momentum's obligations under this Marketing
Agreement in connection with such breach. Remedies shall be cumulative
and there shall be no obligation to exercise a particular remedy.
16. TERMINATION
16.1 Any licenses granted pursuant to Sections 6.1, 6.3 and 8 and any
sublicenses granted pursuant to Section 2.1 shall survive the
termination of this Agreement.
16.2 Within thirty (30) days of termination, PeopleSoft shall pay Momentum
all sums due under this Marketing Agreement.
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16.3 Prior to termination, the parties shall meet, discuss and agree on a
transition plan to address technical support plans for existing End
Users and then-current commercially reasonable payments from Momentum to
PeopleSoft for continuing PeopleTools Support Services from PeopleSoft
directly to Momentum.
16.4 In addition to this section, the sections entitled "Distribution
Limitation," "Royalties/Payments," "Records and Reports/Payments,"
"Title and Protection/Non-disclosure," "Limited Warranty," "Disclaimer
of Consequential Damages/Limitation of Liability," and
"Indemnification," shall survive termination of this Marketing
Agreement.
17. NOTICES
All notices shall be in writing and hand-delivered or sent by first
class mail, overnight mail, courier, or transmitted by facsimile (if
confirmed by such mailing), to the addresses indicated on the first page
of this Agreement, or such other address as either party may indicate by
at least ten (10) days prior written notice to the other party. Notices
to PeopleSoft shall be addressed to the Office of the General Counsel,
Corporate Legal Department.
18. GENERAL
18.1 This Marketing Agreement is made in and shall be governed by the laws of
the State of California, excluding choice of law principles. Any actions
brought to enforce any of the provisions of this Marketing Agreement
shall be fully and finally resolved by binding arbitration under the
rules of the American Arbitration Association conducted by a mutually
acceptable independent third party in San Francisco, California. Except
for actions for breach of PeopleSoft's proprietary rights in PeopleSoft
Technology, or Momentum's proprietary rights in the Momentum Products or
Developed Technology, no action regardless of form, arising out of this
Marketing Agreement may be brought by either party more than one year
after the cause of action has accrued.
18.2 The section headings herein are provided for convenience only and have
no substantive effect on the construction of this Marketing Agreement.
If any provision of this Marketing Agreement is held to be
unenforceable, this Marketing Agreement shall be construed without such
provision.
18.3 The failure by a party to exercise any right hereunder shall not operate
as a waiver of such party's right to exercise such right or any other
right in the future. Neither party shall be liable to the other for any
failure to perform due to causes beyond its reasonably foreseeable
control.
18.4 Neither party shall assign this Marketing Agreement, delegate any duty
or assign any right hereunder without the prior written consent of the
other (such consent not to be unreasonably withheld) and any such
attempted assignment or delegation shall be void.
18.5 No agency, partnership or employment is created by this Marketing
Agreement. Momentum shall not use the name of PeopleSoft in any
advertising, public relations or media release without the prior written
consent of PeopleSoft.
CONFIDENTIAL Page 7 of 13
<PAGE> 8
18.6 This Marketing Agreement replaces and supersedes any prior verbal
understandings, written communications, and constitutes the entire
agreement between the parties concerning the subject matter hereof. This
Marketing Agreement may be amended only by a written document executed
by a duly authorized representative of each of the parties. This
Marketing Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Marketing Agreement as of the
Effective Date.
MOMENTUM BUSINESS APPLICATIONS, INC. PEOPLESOFT, INC.
- - ----------------------------------- --------------------------------
Authorized Signature Authorized Signature
- - ----------------------------------- --------------------------------
Printed Name and Title Printed Name and Title
CONFIDENTIAL Page 8 of 13
<PAGE> 9
EXHIBIT A
PRICING ADDENDUM
TO
MARKETING AND DISTRIBUTION AGREEMENT
This pricing addendum ("Pricing Addendum") is part of the Marketing and
Distribution Agreement ("Marketing Agreement") between PeopleSoft and Momentum.
1. DEFINITIONS
Unless otherwise defined herein, capitalized terms used in this Pricing Addendum
shall have the same meaning as those referenced in the Marketing Agreement.
2. PRE-RELEASE ROYALTY
THE FOLLOWING SECTION SHALL APPLY ONLY TO MOMENTUM PRODUCTS COMMERCIALIZED BY
PEOPLESOFT PRIOR TO ITS EXERCISE OF THE LICENSE OPTION.
PeopleSoft shall establish competitive list prices for the Momentum Products in
accordance with then-current market conditions.
For each Momentum Product commercialized by PeopleSoft or its channel partners
for use by End Users, prior to the exercise or the License Option with respect
to such Momentum Product, PeopleSoft shall pay Momentum SIX PERCENT (6%) of Net
Revenues.
If PeopleSoft products and Momentum Products are licensed under the same license
agreement as a packaged solution for use by an End User, the Net Revenues
payable to Momentum will be appropriately pro-rated based on the associated
weight of each component's respective list price.
3. PRODUCT PAYMENTS AND PRODUCT PAYMENTS BUYOUT OPTION
THE FOLLOWING SECTION SHALL APPLY ONLY TO MOMENTUM PRODUCTS COMMERCIALIZED BY
PEOPLESOFT SUBSEQUENT TO ITS EXERCISE OF THE LICENSE OPTION.
(a) Product Payments.
PeopleSoft will make Product Payments to Momentum with respect to each Licensed
Product equal to the sum of (i) 1% of Net Revenues plus (ii) an additional 0.1%
of such Net Revenues for each $1 million of Development Costs with respect to
such Licensed Product; provided, however, that the royalty rate shall not exceed
six percent (6%) of Net Revenues. Subject to PeopleSoft's product payment
buy-out option described in section 3(b) below, Product Payments will be payable
until 10 years after General Availability of the Licensed Product.
The parties agree that if PeopleSoft chooses to have a third party
distribute a Licensed Product, the parties will negotiate an appropriate
increase in the royalty rate paid by PeopleSoft.
(b) Product Payments Buyout Option
PeopleSoft will have the right to buy-out Momentum's right to receive Product
Payments for any Licensed Product. The buy-out option may be exercised for any
Licensed Product at any time beginning twelve months after the Licensed Product
is declared a Generally Available Product. The buy-out price will be 15 times
the payment made by or due from PeopleSoft to Momentum with respect to sales of
such Licensed Product for the four quarters immediately preceding the quarter in
which the buy-out option is exercised or, in the event that such Licensed
Product has not been a License Product for all of each of such four quarters,
the buy-out price will be 15 times the annualized payment for such Licensed
Product.
4. SUPPORT SERVICES FEES
CONFIDENTIAL Page 9 of 13
<PAGE> 10
As of the Effective Date, the parties' expectation is that as PeopleSoft
collects Support Services revenue from its End Users, (either on a stand-alone
basis or as part of the license fee revenue) and PeopleSoft retains all such
revenues.
5. PRECEDENCE AND AMENDMENT
In the event of conflict, this Pricing Addendum shall take precedence over the
Marketing Agreement. This Pricing Addendum and the Marketing Agreement and
associated Exhibits are the entire agreement between the parties concerning the
subject matter herein and may only be modified by a written amendment executed
by the parties authorized signatories. This Pricing Addendum is effective as of
the Effective Date.
MOMENTUM BUSINESS APPLICATIONS, INC. PEOPLESOFT, INC.
- - ------------------------------------ --------------------------------
Authorized Signature Authorized Signature
- - ----------------------------------- --------------------------------
Printed Name and Title Printed Name and Title
CONFIDENTIAL Page 10 of 13
<PAGE> 11
EXHIBIT B
SOFTWARE SUPPORT SERVICES TERMS AND CONDITIONS
Software Support Services Terms and Conditions ("SUPPORT SERVICES") are
referenced in and incorporated into the Software License and Services Agreement
("Agreement") between PeopleSoft and Licensee. Capitalized terms have the same
meaning as they do in the Agreement.
1. COVERAGE
PeopleSoft provides Licensee with Support Services for the Software at the Site
in exchange for payment of the applicable Support Services fees. Only designated
Licensee employees may contact PeopleSoft for the provision of Support Services.
Licensee may acquire Support Services for additional Licensee sites by paying
PeopleSoft the applicable annual secondary site Support Services fee.
2. SOFTWARE MAINTENANCE
PeopleSoft will periodically issue the following technical and functional
improvements to Software:
(1) Fixes to Errors; (2) Updates; and (3) Enhancements
3. PRIORITY LEVEL OF ERRORS
PeopleSoft shall address Errors in accordance with the following protocols:
Priority 1-Critical Level: PeopleSoft promptly: (1) designates
PeopleSoft specialist(s) to correct Error; (2) provides expanded
communication on correction status; and (3) escalates troubleshooting a
Workaround or Fix.
Priority 2-Urgent Level: PeopleSoft promptly: (1) designates PeopleSoft
specialist(s) to correct Error; (2) provides ongoing communication on
correction status; and (3) initiates troubleshooting a Workaround or
Fix.
Priority 3-Standard Level: PeopleSoft: (1) assigns PeopleSoft specialist(s) to
commence correction of Error; and (2) exercises all commercially
reasonable efforts to include the Fix for Error in the next Update.
Priority 4-Base Level: PeopleSoft: (1) assigns Error to case management
and tracking; and (2) may include the Fix for Error in the next Update.
4. TELEPHONE SUPPORT
PeopleSoft provides telephone support concerning Software installation and use.
Except for designated holidays, standard telephone support hours are Monday
through Friday, 4:00 a.m. to 6:30 p.m., Pacific Time. Telephone Support is also
available 24-hours-a-day, 7-days-a-week for in-production customers who need to
resolve critical production problems outside of standard support hours.
5. ACCOUNT MANAGER
PeopleSoft assigns an account manager to assist with the support relationship
between PeopleSoft and Licensee. Licensee will reimburse PeopleSoft for the
reasonable travel and living expenses of the account manager for on-site support
activity.
6. PEOPLESOFT CUSTOMER CONNECTION
a. PeopleSoft Customer Connection is an on-line, self-service system that
features postings by PeopleSoft and customers regarding technical and
non-technical topics of interest. Licensee may access PeopleSoft Customer
Connection via Internet access at its own expense.
b. Software Updates, Enhancements, and Fixes may be delivered to Licensee
through PeopleSoft Customer Connection, or by mail from PeopleSoft on
Licensee's written request. PeopleSoft information posted to Customer
Connection is confidential and proprietary and shall only be used in
connection with Licensee's use of the Software and informational
communications with other PeopleSoft Customer Connection participants.
PeopleSoft shall have the right to publish, modify and distribute any
information or software provided by Licensee to Customer Connection in all
languages. Licensee shall not use PeopleSoft Customer Connection for
advertising or public relations purposes and shall only submit information
to PeopleSoft Customer Connection that Licensee owns or has permission to
use in such manner.
c. To diminish exposure to software viruses, PeopleSoft tests and scans all
information entered by PeopleSoft for software viruses prior to submitting
it to PeopleSoft Customer Connection. Licensee shall also use a reliable
virus detection system on any software or information posted to PeopleSoft
Customer Connection, utilize back-up procedures, monitor access to
PeopleSoft Customer Connection, promptly notify PeopleSoft of any virus
detected within Licensee's systems associated with PeopleSoft Customer
Connection and generally exercise a reasonable degree of caution when
utilizing information from PeopleSoft Customer Connection. PeopleSoft does
not warrant that PeopleSoft Customer Connection will operate without
interruption or without errors.
CONFIDENTIAL Page 11 of 13
<PAGE> 12
PeopleSoft reserves the right to modify or suspend PeopleSoft Customer
Connection service in connection with PeopleSoft's provision of Support
Services. PeopleSoft assumes no responsibility for anything posted by anyone
other than PeopleSoft, including, but not limited to, information about
PeopleSoft software, modification code, or portions thereof.
7. FEES
The initial period of Support Services for the Site is indicated in the Schedule
and included in the Software license fee; thereafter, in the event Licensee
elects to continue to receive Support Services, Licensee shall pay PeopleSoft
the annual Support Services fee as set forth in the Schedule. Support Services
are billed on an annual basis, payable in advance. Unless Licensee has provided
proof of tax-exempt status, Licensee is responsible for all taxes associated
with Support Services, excluding taxes based on PeopleSoft's income. Licensee's
payment shall be due within thirty (30) days of receipt of the PeopleSoft
invoice. Should Licensee elect not to renew Support Services and subsequently
requests Support Services, PeopleSoft shall reinstate Support Services only
after Licensee pays PeopleSoft the annual then-current fee plus all cumulative
fees that would have been payable had Licensee not suspended Support Services.
8. TERM AND TERMINATION
Unless otherwise expressly set forth in the Agreement, Support Services shall be
provided for a period of one (1) year from the Schedule Effective Date, and
shall be extended each additional year unless terminated by either party. Each
one (1) year term shall commence on the anniversary of the Schedule Effective
Date.
Either party may terminate the Support Services provisions at the end of any
support term by giving the other party written notice at least ninety (90) days
prior to the end of the term.
If Licensee fails to make payment pursuant to the section titled "Fees", or
Licensee breaches the Support Services provisions and such breach has not been
cured within thirty (30) days of receipt of written notice of breach, PeopleSoft
may suspend or cancel Support Services.
9. EXCLUSIONS
PeopleSoft shall have no obligation to support:
a. Substantially altered, damaged or modified Software;
b. Software that is not the then-current release, or a Previous Sequential
Release;
c. Errors caused by Licensee's negligence, hardware malfunction, or other
causes beyond PeopleSoft's reasonable control;
d. Software installed in a hardware or operating environment not supported
by PeopleSoft; and
e. Third party software not licensed through PeopleSoft.
10. GENERAL
All Updates, Enhancements and Fixes provided to Licensee are subject to the
terms and conditions of the Agreement. PeopleSoft may modify Support Services on
an annual basis to reflect current market condition upon reasonable notice.
11. DEFINITIONS
"ENHANCEMENT" means a technical or functional addition to the Software delivered
with a new Software release to improve functionality and/or operations.
"ERROR" means a Software malfunction that degrades the use of the Software.
"FIX" means the repair or replacement of source, object or executable code
Software versions to remedy an Error.
"PREVIOUS SEQUENTIAL RELEASE" means a Software release for a particular
operating environment that has been replaced by a subsequent Software release in
the same operating environment. PeopleSoft will support a Previous Sequential
Release for a period of eighteen (18) months after release of the subsequent
release. Multiple Previous Sequential Releases may be supported at any given
time.
"PRIORITY 1" means an Error that renders the Software inoperative or causes the
Software to fail catastrophically.
"PRIORITY 2" means an Error that affects performance of the Software and
prohibits Licensee's use of the Software.
CONFIDENTIAL Page 12 of 13
<PAGE> 13
"PRIORITY 3" means an Error that affects performance of the Software, but does
not prohibit Licensee's use of the Software.
"PRIORITY 4" means an Error that causes only a minor impact on the use of the
Software.
"UPDATE" means all published revisions to the Documentation and one (1) copy of
the new Software release not designated by PeopleSoft as new products or
functionality for which it charges separately.
"WORKAROUND" means a change in the procedures followed or data supplied to avoid
an Error without significantly impairing Software performance.
CONFIDENTIAL Page 13 of 13
<PAGE> 1
EXHIBIT 10.39
DISTRIBUTION AGREEMENT
This Distribution Agreement (the "Agreement") is made as of the __ day
of December 1998 between PeopleSoft, Inc., a Delaware corporation
("PeopleSoft"), and Momentum Business Applications, Inc. a Delaware corporation
("Momentum").
B A C K G R O U N D
A. PeopleSoft is the holder of all of the issued and outstanding shares
of capital stock of Momentum. PeopleSoft intends to contribute $300 million to
Momentum, to license certain technology to Momentum, and to make other
arrangements in order to establish Momentum as a separate enterprise for the
purpose of developing certain software products and commercializing such
products, most likely through licensing to PeopleSoft.
B. PeopleSoft intends to distribute all of the Momentum Shares (as
defined below) to the holders of its Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
1.1 "Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency or commission or any arbitration tribunal.
1.2 "Agent" shall mean Boston EquiServe, L.P., as distribution
agent, appointed by PeopleSoft to distribute certificates representing the
Momentum Shares pursuant to the Distribution.
1.3 "PeopleSoft/Momentum Agreements" shall mean this Agreement,
the Development Agreement, the Marketing Agreement, the Services Agreement and
the Purchase Option.
1.4 "PeopleSoft Common Stock" shall mean the Common Stock, par
value $0.01 per share, of PeopleSoft.
1.5 "Commission" shall mean the Securities and Exchange
Commission.
1.6 "Momentum Shares" shall mean the Class A Common Stock, par
value $0.001 per share, of Momentum.
<PAGE> 2
1.7 "Development Agreement" shall mean the Development and
License Agreement dated as of the date hereof between PeopleSoft and Momentum.
1.8 "Distribution" shall mean the distribution of Momentum Shares
to holders of record on December __, 1998 of PeopleSoft Common Stock immediately
following completion of the transactions contemplated in Sections 2 and 3
hereof.
1.9 "Distribution Date" shall mean the proposed date of effecting
the Distribution, which is anticipated to occur on or about December __, 1998.
1.10 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.11 "Form 8-A" shall mean the registration statement on Form 8-A
to be filed by Momentum with the Commission to effect the registration of the
Momentum Shares pursuant to the Exchange Act.
1.12 "Marketing Agreement" shall mean the Marketing and
Distribution Agreement dated as of the date hereof between PeopleSoft and
Momentum.
1.13 "Momentum Registration Statement" shall mean the
registration statement on Form S-1 registering the issuance of Momentum Shares
pursuant to the Distribution.
1.14 "PeopleSoft Registration Statement" shall mean the
Registration Statement on Form S-3 registering shares of PeopleSoft Common Stock
which may be issued upon exercise of the Purchase Option.
1.15 "Prospectus" shall mean the joint prospectus to be
distributed to the holders of PeopleSoft Common Stock in connection with the
Distribution relating to the PeopleSoft Registration Statement and the Momentum
Registration Statement.
1.16 "Purchase Option" shall mean that certain option contained
in Momentum's Restated Certificate of Incorporation pursuant to which PeopleSoft
has the right to purchase all, but not less than all, of the outstanding
Momentum Shares.
1.17 "Record Date" shall mean the close of business on December
__, 1998 or such other date as is determined by the PeopleSoft Board of
Directors or any committee thereof.
1.18 "Registration Statement" shall mean the registration
statement on Form S-1 registering the issuance of Momentum Shares pursuant to
the Distribution.
1.19 "Services Agreement" shall mean the Services Agreement dated
as of the date hereof between PeopleSoft and Momentum.
1.20 "Securities Act" shall mean the Securities Act of 1933, as
amended.
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<PAGE> 3
2. Preliminary Action.
2.1 Registration Statement and Prospectus. Momentum has prepared
and filed the Momentum Registration Statement with the Commission, and
PeopleSoft has prepared and filed, the PeopleSoft Registration Statement with
the Commission. Subject to the conditions set forth herein, PeopleSoft and
Momentum shall use reasonable efforts to cause the both registration statements
to become effective under the Securities Act. Momentum and PeopleSoft have
prepared, and PeopleSoft shall cause to be mailed, the Prospectus to the record
holders on the Record Date of PeopleSoft Common Stock and PeopleSoft.
2.2 Form 8-A. Momentum has prepared and filed with the Commission
a Form 8-A which includes or incorporates by reference relevant portions of the
Registration Statement. Subject to the conditions set forth herein, Momentum
shall use reasonable efforts to cause the Form 8-A to become effective under the
Exchange Act.
2.3 Blue Sky. Momentum shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the
Distribution to permit the Momentum Shares to be distributed as described in the
Prospectus.
2.4 Listing. Momentum has prepared and filed an application to
effect the listing of the Momentum Shares on the Nasdaq National Market.
Momentum shall use reasonable efforts to cause the Momentum Shares to be so
listed.
2.5 No Representations or Warranties; Consents. Each party hereto
understands and agrees that no party hereto is, in this Agreement or in any
other agreement or document contemplated by this Agreement or otherwise,
representing or warranting in any way that the obtaining of any consents or
approvals, the execution and delivery of any agreements or the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable laws. Notwithstanding the foregoing, the
parties shall use reasonable efforts to obtain all consents and approvals, to
enter into all agreements and to make all filings and applications which may be
required for the consummation of the transactions contemplated by this
Agreement, including, without limitation, all applicable regulatory filings or
consents under federal or state laws and all necessary consents, approvals,
agreements, filings and applications.
3. Issue and Sale of Momentum Shares.
3.1 Purchase of Momentum Class A Common Stock. Prior to the
Distribution Date, in consideration of, among other things, a $300 million
capital contribution to Momentum by PeopleSoft, Momentum will issue to
PeopleSoft that number of Momentum Shares such that PeopleSoft may distribute to
holders of PeopleSoft Common Stock one Momentum Share for every 50 shares of
PeopleSoft Common Stock held on the Record Date. PeopleSoft and Momentum
acknowledge that all of the Momentum Shares held by PeopleSoft will be
distributed by PeopleSoft to the holders of outstanding shares of PeopleSoft
Common Stock.
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<PAGE> 4
4. The Distribution.
4.1 The Distribution. Momentum shall take all steps required by
PeopleSoft or the Agent to effect the Distribution. Prior to the Distribution,
and upon receipt of the capital contribution described in Section 3 hereof,
Momentum shall cause to be issued to PeopleSoft a certificate or certificates
representing a sufficient number of Momentum Shares so that PeopleSoft may
distribute one Momentum Share for every 50 shares of PeopleSoft Common Stock
held on the Record Date.
4.2 Expenses of Distribution. All expenses related in any way to
the Distribution, including without limitation all legal, financial advisory and
accounting fees of PeopleSoft and Momentum, shall be borne by PeopleSoft.
5. Additional Assurances: Indemnification.
5.1 Mutual Assurances. PeopleSoft and Momentum agree to cooperate
with respect to the implementation of the PeopleSoft/Momentum Agreements and to
execute such further documents and instruments as may be necessary to confirm
the transactions contemplated thereby.
5.2 Indemnification. If PeopleSoft exercises the Purchase Option,
from and after such exercise, PeopleSoft shall indemnify, defend and hold
harmless Momentum's officers and directors to the same extent as provided in
Momentum's Restated Certificate of Incorporation.
5.3 Notice. Any person entitled to indemnification pursuant to
Section 5.2 shall give PeopleSoft prompt notice in writing, in the manner set
forth in Section 7.7 below, of any claim or demand made against such person for
which such person may be entitled to indemnification under Section 5.2.
6. Conditions to Effectiveness of Distribution. The Distribution shall
be subject to the satisfaction or waiver by PeopleSoft of the following
conditions and the satisfaction or waiver by Momentum of the conditions in
Sections 6.8 and 6.9:
6.1 Board Approval. The PeopleSoft/Momentum Agreements (including
exhibits and schedules) shall have been approved by the Board of Directors of
PeopleSoft and Momentum and shall have been executed and delivered by
appropriate officers of PeopleSoft and Momentum, and the PeopleSoft Board of
Directors (or a committee thereof) shall have declared a dividend of the
Momentum Shares as of the Record Date to the holders of record of the PeopleSoft
Common Stock.
6.2 Securities Law Compliance. The transactions contemplated
hereby shall be in compliance with applicable federal and state securities laws,
and the Momentum Registration Statement and PeopleSoft Registration Statement
shall have been declared effective and no stop orders shall have been instituted
with respect thereto under the Securities Act.
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<PAGE> 5
6.3 Restated Certificate of Incorporation. The Restated
Certificate of Incorporation of Momentum shall have been adopted by the Board of
Directors, approved by PeopleSoft as sole stockholder of Momentum, and filed
with the Delaware Secretary of State.
6.4 Form 8-A Effective. The Form 8-A shall have become effective
under the Exchange Act.
6.5 Listing Application Approved. The Momentum Shares shall be
approved for quotation on the Nasdaq National Market.
6.6 Fairness Opinion. PeopleSoft shall have received an opinion
of Merrill Lynch, Pierce, Fenner & Smith Incorporated, investment advisor to
PeopleSoft, in form and substance satisfactory to PeopleSoft, to the effect that
(i) from a financial point of view, the Distribution provides a reasonable
structure to pursue the financial objectives described in the Prospectus of
PeopleSoft and (ii) from a financial point of view, the Distribution is fair to
the stockholders of PeopleSoft.
6.7 Permits and Licenses. Momentum shall have received such
permits and licenses as may be necessary for the purpose of commencing
operations contemplated by the PeopleSoft/Momentum Agreements.
6.8 Consents. Each of PeopleSoft and Momentum shall have received
such consents, and shall have received executed copies of such agreements or
amendments of agreements, as it shall deem necessary in connection with the
completion of the transaction contemplated by this Agreement.
6.9 Other Instruments. All actions and other documents and
instruments deemed necessary or advisable in connection with the transactions
contemplated hereby shall have been taken or executed, as the case may be, in
form and substance satisfactory to PeopleSoft and Momentum.
6.10 Legal Proceedings. No legal proceedings affecting or arising
out of the transactions contemplated hereby or which could otherwise affect
PeopleSoft or Momentum in a materially adverse manner shall have been commenced
or threatened against PeopleSoft, Momentum or the directors or officers of
either PeopleSoft or Momentum.
6.11 Material Changes. No material adverse change shall have
occurred with respect to PeopleSoft or Momentum, the securities markets (either
generally or with respect to PeopleSoft or Momentum) or general economic or
financial conditions which shall, in the reasonable judgment of PeopleSoft, make
the transactions contemplated by this Agreement inadvisable.
6.12 Other Conditions. Such other conditions as may be set by the
PeopleSoft Board of Directors or any committee thereof in the resolutions
authorizing the Distribution shall have been satisfied.
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7. Miscellaneous.
7.1 Waiver, Remedies and Amendment. Any waiver by either party
hereto of a breach of any provisions of this Agreement shall not be implied and
shall not be valid unless such waiver is recited in writing and signed by such
party. Failure of any party to require, in one or more instances, performance by
the other party in strict accordance with the terms and conditions of this
Agreement shall not be deemed a waiver or relinquishment of the future
performance of any such terms or conditions or of any other terms and conditions
of this Agreement. A waiver by either party of any term or condition of this
Agreement shall not be deemed or construed to be a waiver of such term or
condition for any other term. All rights, remedies, undertakings, obligations
and agreements contained in this Agreement shall be cumulative and none of them
shall be a limitation of any other remedy, right, undertaking, obligation or
agreement of either party. This Agreement may not be amended except in a writing
signed by both parties.
7.2 Assignment. Neither party may assign its rights and
obligations hereunder without the prior written consent of the other party,
which consent may not be unreasonably withheld; provided, however, that
PeopleSoft may assign such rights and obligations hereunder to an Affiliate of
PeopleSoft or to an Affiliate of PeopleSoft or to any person or entity with
which PeopleSoft is merged or consolidated or which acquires all or
substantially all of the assets of PeopleSoft.
7.3 Arbitration.
(a) All disputes which may arise under, out of or in
connection with this Agreement shall be settled by arbitration conducted in the
city of San Francisco, state of California, in accordance with the then existing
rules of the American Arbitration Association, and judgment upon the award
rendered by the Arbitrators may be entered in any court having jurisdiction
thereof. The parties hereby agree that service of any notices in the course of
such arbitration at their respective addresses as provided for in Section 7.7 of
this Agreement shall be valid and sufficient.
(b) In any arbitration pursuant to this Section 7.3, the
award shall be rendered by a majority of the members of a board of arbitration
consisting of three members who shall be appointed by the parties jointly, or if
the parties cannot agree as to three arbitrators within 30 days after the
commencement of the arbitration proceeding, then one arbitrator shall be
appointed by PeopleSoft and one arbitrator shall be appointed by Momentum within
60 days after the commencement of the arbitration proceeding. The third
arbitrator shall be appointed by mutual agreement of such two arbitrators. In
the event of failure of the two arbitrators to agree within 75 days after
commencement of the arbitration proceeding upon the appointment of the third
arbitrator, the third arbitrator shall be appointed by the American Arbitration
Association in accordance with its then existing rules. Notwithstanding the
foregoing, in the event that any party shall fail to appoint an arbitrator it is
required to appoint within the specified time period, such arbitrator and the
third arbitrator shall be appointed by the American Arbitration Association in
accordance with its then existing rules. For purposes of this Section 7.3, the
"commencement of the
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<PAGE> 7
arbitration proceeding" shall be deemed to be the date upon which a written
demand for arbitration is received by the American Arbitration Association from
one of the parties.
7.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
7.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of California as applied to
residents of that state entering into contracts to be performed in that state.
7.6 Headings. The headings set forth at the beginning of the
various sections of this Agreement are for convenience and form no part of the
Agreement between the parties.
7.7 Notices. Notices required under this Agreement shall be in
writing and sent by registered or certified mail, postage prepaid.
If to PeopleSoft: PeopleSoft, Inc.
4660 Hacienda Drive
Pleasanton, California 94588
Attention: General Counsel
If to Momentum: Momentum Business Applications, Inc.
1301 Harbor Bay Blvd.
Alameda, California 94502
Attention: President
All notices shall be deemed to be effective five days after the
date of mailing. Either party may change the address at which notice is to be
received by written notice pursuant to this Section 7.7.
7.8 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, it shall be
modified, if possible, to the minimum extent necessary to make it valid and
enforceable or, if such modification is not possible, it shall be stricken and
the remaining provisions shall remain in full force and effect.
7.9 Relationship of the Parties. For all purposes of this
Agreement, Momentum and PeopleSoft shall be deemed to be independent contractors
and anything in this Agreement to the contrary notwithstanding, nothing herein
shall be deemed to constitute Momentum and PeopleSoft as partners, joint
venturers, co-owners, an association or any entity separate and apart from each
party itself, nor shall this Agreement constitute any party hereto an employee
or agent, legal or otherwise, of the other party for any purposes whatsoever.
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Neither party hereto is authorized to make any statements
or representations on behalf of the other party or in any way to obligate the
other party, except as expressly authorized in writing by the other party.
Anything in this Agreement to the contrary notwithstanding, no party hereto
shall assume nor shall be liable for any liabilities or obligations of the other
party, whether past, present or future.
7.10 Survival. The provisions of Sections 1, 5, 7.1, 7.3, 7.5,
7.7, 7.8 and this Section 7.10 shall survive the termination for any reason of
this Agreement. Any payments due under this Agreement with respect to any period
prior to its termination shall be made notwithstanding the termination of this
Agreement. Neither party shall be liable to the other due to the termination of
this Agreement as provided herein, whether in loss of good will, anticipated
profits or otherwise.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PEOPLESOFT, INC.
By:
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Title:
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MOMENTUM BUSINESS APPLICATIONS, INC.
By:
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Title:
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-9-
<PAGE> 1
EXHIBIT 10.40
FIRST AMENDMENT TO PARTICIPATION AGREEMENT
AND APPENDIX 1
This FIRST AMENDMENT TO PARTICIPATION AGREEMENT and APPENDIX 1 TO
PARTICIPATION AGREEMENT, MASTER LEASE AND CONSTRUCTION DEED OF TRUST (this
"Amendment"), dated as of February 20, 1998, is by and among PEOPLESOFT, INC., a
Delaware corporation, as Lessee (together with its permitted successors and
assigns, the "Lessee"); LEASE PLAN NORTH AMERICA, INC., an Illinois corporation,
as Lessor (together with its permitted successors and assigns, the "Lessor");
ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL BRANCH, as a Participant, CREDIT
LYONNAIS LOS ANGELES BRANCH, as a Participant, THE INDUSTRIAL BANK OF JAPAN,
LIMITED SAN FRANCISCO AGENCY, as a Participant, KEYBANK NATIONAL ASSOCIATION, as
a Participant, MELLON BANK, N.A., as a Participant, THE DAI-ICHI KANGYO BANK,
LIMITED SAN FRANCISCO AGENCY, as a Participant (together with their permitted
successors and assigns, each a "Participant" and collectively the
"Participants"); and ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL BRANCH, as
Agent (in such capacity, together with its successors in such capacity, the
"Agent") for the Participants.
RECITALS:
A. The Lessee, the Lessor, the Participants and the Agent are parties to
that certain Participation Agreement dated as of December 4, 1996 (as amended,
restated, supplemented or otherwise modified from time to time, the
"Participation Agreement");
B. Appendix 1 to Participation Agreement, Master Lease and Construction
Deed of Trust (as amended, restated, supplemented or otherwise modified from
time to time,"Appendix 1") is part of the Participation Agreement, the Lease and
the Mortgage and contains defined terms and rules of construction applicable to
the Operative Documents;
C. The parties desire to amend certain provisions of the Participation
Agreement and Appendix 1, all on the terms and conditions set forth in this
Amendment; and
D. Each capitalized term used in this Amendment and not otherwise
defined in this Amendment shall have the meaning ascribed thereto in Appendix 1;
this Amendment shall constitute an Operative Document; and these Recitals shall
be construed as part of this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. Amendments to the Participation Agreement. The Participation
Agreement is hereby amended as follows:
<PAGE> 2
(a) The Participation Agreement is hereby amended by deleting
Section 3.4 in its entirety and replacing it with the following:
"SECTION 3.4. Procedures for Advances.
(a) Funding Request. With respect to each funding of an Advance,
the Lessee shall give the Lessor and the Agent prior written notice not
later than 11:00 a.m., New York time, four (4) Business Days (in the
case of a Fixed Rate Advance) or three (3) Business Days in the case of
a Eurodollar Rate Advance) prior to the proposed Funding Date, pursuant,
in each case, to a Funding Request substantially in the form of Exhibit
B-1 (a "Funding Request"), specifying (i) the proposed Funding Date,
(ii) the amount and purpose of the Advance requested, (iii) whether such
Advance is to be comprised of a Eurodollar Rate Advance or a Fixed Rate
Advance, (iv) the initial Interest Period for any such Eurodollar Rate
Advance, (v) the payee of such Advance, and (vi) the allocation of such
Advance to the respective Land Interest Acquisition Cost and Property
Improvements Costs of the Property (and pro rata portions of the related
remittances from the Participants shall likewise be deemed to be so
allocated). The Agent shall promptly forward a copy of such Funding
Request to each Participant. The Lessee shall not request more than one
Funding Date during any calendar month. Each Eurodollar Rate Advance
(other than an Interest Payment Advance) shall be in a minimum amount of
$1,000,000 or in amounts of $100,000 in excess thereof. Subject to the
satisfaction or waiver of the conditions precedent to such Advance set
forth in Section 3.4 and Section 6, each Participant shall purchase its
Participation Interest in such Advance by making available to the Lessor
its proportionate share of such Advance in immediately available federal
funds by wire transfer to the Agent for deposit to the Lessee's demand
deposit account with the Agent not later than 1:00 p.m. New York time,
on the applicable Funding Date. Upon (i) the Lessee's receipt of the
funds provided by the Participants with respect to an Advance, and (ii)
satisfaction or waiver of the conditions precedent to such Advance set
forth in Section 6, the Lessee shall (1) in the case of an Advance for
the acquisition of the Land Interest, pay the acquisition price for such
Land Interest to the Existing Owner, and (2) in the case of other
Advances, pay or retain as payment or reimbursement of, Property
Improvements Costs, in each case from the funds provided by the
Participants for such Advance.
(b) Procedure for Fixed Rate Advances.
(i) When the Lessee wishes to request the Lessor to make, and the
Participants to submit through the Agent an offer to purchase
Participation Interests in, a Fixed Rate Advance or convert a
Eurodollar Rate Advance to a Fixed Rate Advance or continue a
Fixed Rate Advance as another Fixed Rate Advance, it shall
transmit to the Agent by facsimile transmission a request in
substantially the form of Exhibit B-2 (a "Fixed Rate Request") so
as to be received no later than 12:00 noon (New York
<PAGE> 3
time) four (4) Business Days prior to the date of the proposed
Fixed Rate Advance, conversion or continuation specifying:
(1) the proposed date of such Advance, conversion or
continuation, which shall be a Business Day and,
(A) if a conversion from a Eurodollar Rate Advance,
shall be the last day of the applicable Interest
Period with respect to the Advance to be converted
or (B) if a continuation of a Fixed Rate Advance,
shall be the last day of the Fixed Rate Period
applicable thereto;
(2) the aggregate amount of such Fixed Rate Advance,
conversion or continuation, which shall be a
minimum amount of $5,000,000; and
(3) the maturity date with respect thereto (the "Fixed
Rate Maturity Date"), which shall be a Business Day
not later than the Maturity Date.
(ii) Upon receipt of a Fixed Rate Request from the Lessee, the
Agent will promptly forward such Fixed Rate Request to the
Participants by facsimile transmission.
(iii) (1) Each Participant, upon receipt of a Fixed Rate
Request, shall submit an offer (a "Fixed Rate
Offer") to purchase its Participation Interest in
the applicable Fixed Rate Advance, convert its
Participation Interest in the applicable Eurodollar
Rate Advance to the requested Fixed Rate Advance or
continue its Participation Interest in the
applicable Fixed Rate Advance to the requested
Fixed Rate Advance in response to such Fixed Rate
Request. Each Fixed Rate Offer must comply with the
requirements of this subsection (iii) and must be
submitted to the Agent by facsimile transmission
not later than 11:00 a.m. (New York time) three (3)
Business Days prior to the proposed Funding Date,
conversion date or continuation date.
(2) Each Fixed Rate Offer shall specify:
(A) the proposed date of the Advance, conversion
or continuation;
(B) the principal amount of such Participant's
Participation Interest in the Advance,
conversion or continuation for which such
Fixed Rate Offer is being made, which
principal amount must be equal
<PAGE> 4
to such Participant's pro rata share of the
aggregate amount requested;
(C) the fixed rate per annum (rounded upward to
the nearest 1/100th of 1%) offered for such
Fixed Rate Advance; and
(D) the Fixed Rate Maturity Date with respect to
such Fixed Rate Advance (which shall be the
date requested by the Lessee) (the period
from the date any Fixed Rate Advance is made
to its Fixed Rate Maturity Date is referred
to as a "Fixed Rate Period").
(iv) Promptly on receipt on the third Business Day prior to the
proposed Funding Date or conversion or continuation date, the
Agent will notify the Lessee of the terms of all Fixed Rate
Offers submitted by the Participants with respect to the Fixed
Rate Request. The Agent's notice to the Lessee shall specify (1)
the aggregate amount for which offers have been received; and (2)
the respective amounts and interest rates, as the case may be,
and the weighted average interest rate so offered. Subject only
to the provisions of Section 6 and to the Lessee's right to
reject all Fixed Rate Offers set forth in Section 3.4(b)(v), any
Fixed Rate Offer shall be irrevocable.
(v) Not later than 11:30 a.m. (New York time) on the proposed
Funding Date or conversion or continuation date, the Lessee shall
notify the Agent of its acceptance or non-acceptance of the Fixed
Rate Offers which it has received pursuant to Section 3.4(b)(iv).
The Lessee shall be under no obligation to accept any offer, but
if any offer is rejected, all Fixed Rate Offers with respect to
the same Fixed Rate Request must be rejected. If the Lessee
accepts any Fixed Rate Offer, the Lessee must accept all Fixed
Rate Offers with respect to the same Fixed Rate Request only in
whole. If the Fixed Rate Offers are rejected or if no response is
received from the Lessee, the Lessee may elect to have the
applicable Advance be a Eurodollar Rate Advance pursuant to
Section 3.4(a) or (c) hereof provided the conditions thereto are
met. Otherwise, the Advance that was the subject of such Fixed
Rate Request shall be a Eurodollar Rate Advance with an Interest
Period of one month commencing on the applicable Funding Date or
proposed conversion date, provided, that no Interest Period shall
commence or terminate on or after the Maturity Date.
(c) Conversion and Continuation Procedures. The Lessee may (i)(A)
on the last day of any Fixed Rate Period, convert all or any part of any
Fixed Rate Advance to a Eurodollar Rate Advance or (B) on the last day
of any Interest Period, continue the applicable Eurodollar Rate Advance
as a Eurodollar Rate Advance for a successive Interest Period, by giving
notice to the Agent by 12:00
<PAGE> 5
noon, New York time, on a day which is at least three Business Days
prior to the proposed date of such conversion or continuation or (ii) on
the last day of any Fixed Rate Period, continue all or any part of any
Fixed Rate Advance as another Fixed Rate Advance by giving the notice
and following the procedure set forth in Section 3.4(b). Each such
notice with respect to the conversion into or continuation of a
Eurodollar Rate Advance shall be irrevocable, shall be effective upon
receipt by the Agent, shall be in writing (or by telephone to be
confirmed in writing by the Lessee on the Business Day such telephonic
notice was given), shall specify the Type, the date and amount of the
conversion or continuation, the Advances to be converted or continued
and the Interest Period applicable thereto. If the Lessee fails to give
appropriate notice pursuant to this Section 3.4(c) or Section 3.4(b),
such Advance shall automatically become a Eurodollar Rate Advance with
an Interest Period of one month at the end of its then current Fixed
Rate Period or Interest Period, provided, that no Interest Period shall
commence or terminate on or after the Maturity Date. Promptly upon
receipt of each notice of conversion or continuation, the Agent shall
advise each Participant thereof. No Fixed Rate Advance shall be
converted or continued on any day other than the last day of the Fixed
Rate Period relating to such Advance.
(b) The Participation Agreement is further amended by deleting
Section 3.8 in its entirety and replacing it with the following:
"SECTION 3.8. Types of Advances; Interest Rates; Procedures.
(a) Each Advance shall be comprised of either a Fixed Rate
Advance or a Eurodollar Rate Advance (each being herein called a "Type"
of Advance), as the Lessee shall specify in the related Funding Request
or notice of conversion or continuation pursuant to Section 3.4. Each
Fixed Rate Advance shall bear interest for each day during the Fixed
Rate Period with respect thereto at a rate per annum equal to the Fixed
Rate determined with respect to such Fixed Rate Period plus the
Applicable Margin.
(b) Each Eurodollar Rate Advance shall bear interest for each day
during each Interest Period with respect thereto at a rate per annum
equal to the Eurodollar Rate determined for such day plus the Applicable
Margin; provided, however, that:
(i) each Advance outstanding during the period beginning on the
Closing Date and ending on the date three (3) Business Days
thereafter shall bear interest during such period at a rate per
annum equal to the Alternate Base Rate plus the Applicable
Margin; and
(ii) an Advance shall bear interest at a rate per annum equal to
the Alternate Base Rate plus the Applicable Margin to the extent
expressly required by the terms hereof.
<PAGE> 6
The Lessee shall give irrevocable written notice to the Agent, in
accordance with Section 3.4 and the applicable provisions of the term
"Interest Period" set forth in Appendix 1, of the length of each
Interest Period to be applicable to each Eurodollar Rate Advance, such
notice to be given (i) for the initial Interest Period for each
Eurodollar Rate Advance, in the Acquisition Request or Funding Request,
as the case may be, for such Eurodollar Rate Advance and (ii) for each
subsequent Interest Period for each Eurodollar Rate Advance, at least
three (3) Business Days prior to the last day of the immediately
preceding Interest Period.
(c) If all or a portion of (i) the amount of any Advance,
(ii) any interest payable thereon or (iii) any other amount payable
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a
rate per annum which is equal to the Overdue Rate.
(d) Interest shall be payable in immediately available
funds (except as provided in paragraph (e) below) in arrears on each
Scheduled Payment Date, provided that (i) interest accruing pursuant to
paragraph (c) of this Section 3.8 shall be payable from time to time on
demand and (ii) each prepayment of Advances shall be accompanied by
accrued interest to the date of such prepayment on the amount of
Advances so prepaid plus amounts payable under Section 13.6 hereof. The
Lessor shall provide the Lessee with not less than five (5) days' notice
of the amount of Basic Rent due on any Scheduled Payment Date.
(e) On each date which is three (3) Business Days prior to
each Scheduled Payment Date during the Construction Period, unless the
Lessee notifies the Lessor prior to such date that the Lessee desires to
pay in cash on the Schedule Payment Date the accrued interest on
Advances allocated to Property Improvement Costs during the Construction
Period and makes such cash payment on the Scheduled Payment Date, the
Lessee shall be deemed to have requested an Advance comprised of an
Interest Payment Advance pursuant to Section 3.4 and the Lessor shall be
deemed to have requested a purchase pursuant to Section 3.2 of
Participation Interests in such Advance in an amount equal to the
aggregate amount of the Basic Rent due and payable on such date with
respect to accrued interest on outstanding Advances. Each Interest
Payment Advance shall initially be deemed to be a Eurodollar Rate
Advance having a one month Interest Period. The Funding Date with
respect to any such Interest Payment Advance and purchase of
Participation Interests therein shall be the relevant Scheduled Payment
Date (provided that such Advance and the purchase of such Participation
Interests shall be subject to satisfaction of the applicable conditions
precedent set forth in Section 6) and the proceeds of such payment shall
be applied to pay such accrued interest. On each such Funding Date, the
Property Cost shall be increased by an amount equal to the Basic Rent
paid on such date with respect to such Property with the proceeds of
such payment, and the Land Interest Acquisition Cost and Property
Improvements Costs shall be increased by their pro rata portions of such
Advance. The Lessor shall provide the Lessee on a monthly
<PAGE> 7
basis with a detailed statement or other form of confirmation showing
all deemed Interest Payment Advances made to the Lessee pursuant to this
Section 3.8(e)."
(c) The Participation Agreement is further amended by
deleting Section 3.9 in its entirety and replacing it with the
following:
"SECTION 3.9. Computation of Interest. (a) Whenever it is
calculated on the basis of the Alternate Base Rate, interest shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year
for the actual days elapsed; and when ever it is calculated on the basis
of a Eurodollar Rate or a Fixed Rate, interest shall be calculated on
the basis of a 360-day year for the actual days elapsed. The Agent shall
as soon as practicable after the commencement of each Interest Period or
Fixed Rate Period notify the Lessor, the Lessee and the Participants of
each determination of a Eurodollar Rate or a Fixed Rate. Any change in
the interest rate on an Advance resulting from a change in the Alternate
Base Rate, the Eurocurrency Reserve Requirements or the Applicable
Margin shall become effective as of the opening of business on the day
on which such change becomes effective. The Agent shall as soon as
practicable notify the Lessor, the Lessee and the Participants of the
effective date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Agent
pursuant to any provision of this Agreement shall be conclusive and
binding on the Lessor, the Lessee and the Participants in the absence of
manifest error. The Agent shall, at the request of such parties, deliver
to such parties a statement showing the quotations used by the Agent in
determining any interest rate pursuant to Section 3.9(a)."
(d) The Participation Agreement is further amended by
deleting Section 11.4 in its entirety and replacing it with the
following:
"SECTION 11.4.Refusal to Give Consents or Fund. If any
Participant declines to consent to any amendment, modification, waiver,
release or consent for which such Participant's consent is requested or
required by reason of this Agreement, or if any Participant fails to pay
any amount owed by it hereunder, the Lessor shall have the right, but
not the obligation and without limiting any other remedy of the Lessor,
to terminate such Participant's rights to receive any further payments
under Section 3 of this Agreement (other than payments required because
of the Lessor's collection of any Rent applied by the Lessor as
reimbursement for a Defaulted Amount or interest on a Defaulted Amount)
by paying such Participant a termination fee equal to the total of:
(i) all amounts actually advanced by such Participant to the
Lessor under Section 3.4 hereof before the termination;
excluding, however, any such amounts that were repaid to such
Participant before the
<PAGE> 8
termination by actual payments made to such Participant by the
Lessor of, or the Lessor's offset against, sums representing:
(A) Such Participant's Commitment Percentage
times any payments of the principal of any
Advance received by the Lessor under the
Lease; plus
(B) Such Participant's Commitment Percentage
times any sales proceeds received by the
Lessor under the Lease; and
(ii) such Participant's Participation Interest in any accrued but
unpaid Basic Rent owing with respect to Fixed Rate Advances and
such Participant's Commitment Percentage, times:
(A) the then accrued but unpaid Basic Rent owing
with respect to Eurodollar Rate Advances or
Advances bearing interest based upon the
Alternate Base Rate and Commitment Fees due
under the Lease and hereunder; plus
(B) interest on past due amounts described in
the preceding clauses (ii) and (ii)(A)
computed at the Federal Funds Effective
Rate; plus
(C) interest on any amounts (other than interest
itself) past due from the Lessee or its
designees under the Operative Documents,
computed at the Federal Funds
Effective Rate.
Such Participant's rights to receive payments equal to such
Participant's Commitment Percentage of or participation interest in any
Rent applied by the Lessor as reimbursement for a Defaulted Amount or
interest on a Defaulted Amount shall not be impaired or affected by any
termination contemplated in this Section 11.4; accordingly, the Lessor
shall not, as a condition to such a termination, be required to
reimburse such Participant for any payments such Participant has made in
connection with Defaulted Amounts pursuant to Section 3.3."
(e) The Participation Agreement is further amended by
deleting Section 13.6 in its entirety and replacing it with the
following:
"SECTION 13.6.Funding Losses. If any payment of any Eurodollar
Rate Advance or any portion of any Participation Interest therein is
made on any day other than the last day of an Interest Period applicable
thereto, or if any payment of any Fixed Rate Advance or any portion of
any Participation Interest therein is made on any day other than the
last day of the Fixed Rate Period
<PAGE> 9
applicable thereto, or if the Lessee fails to utilize the proceeds of
any purchase of Participation Interests after notice has been given to
any Participant in accordance with Section 3 or 4, the Lessee shall
reimburse each Participant within fifteen (15) days after demand for any
resulting loss, expense, breakage costs or swap breakage costs incurred
by it, including (without limitation) any loss incurred in obtaining,
liquidating or employing deposits from third parties, provided that in
the case of a Eurodollar Rate Advance or a Fixed Rate Advance, such
Participant shall have delivered to the Lessee a certificate as to the
amount of such loss, expense or costs, which certificate shall be
conclusive in the absence of manifest error, and provided further that
in the case of a Eurodollar Rate Advance, such loss shall in no event
exceed the interest on such Advance which would have been payable for
the balance of such Interest Period, less the amount actually earned by
such Participant on such Advance."
(f) The Participation Agreement is further amended by
deleting Sections 13.11 and 13.12 in their entirety and replacing them
with the following:
"SECTION 13.11. Notice and Mitigation. Each demand for payment of
Supplemental Rent pursuant to Sections 13.6, 13.7, 13.9 or 13.10 must be
accompanied by a certificate of the Person claiming compensation (an
"Affected Person") setting forth in reasonable detail the computation of
such compensation (including the reasons therefor), which certificate
shall be conclusive and binding for all purposes absent manifest error.
Prior to demand by an Affected Person for Supplemental Rent pursuant to
Sections 13.6 (other than a demand relating to Fixed Rate Advances),
13.7, 13.9 or 13.10, such Affected Person agrees that it will use its
reasonable efforts to reduce and eliminate any claim for compensation
including, subject to Applicable Law, a change in applicable lending
office for this transaction; provided, however, that nothing herein
shall obligate an Affected Person to take any action which, in the
opinion of such Affected Person, is unlawful, or results in any
unreimbursed costs or expenses to such Affected Person, which costs or
expenses would not have been incurred but for such action. No Affected
Person shall be entitled to any compensation under this Section 13.11
with respect to Sections 13.6 (other than a demand relating to Fixed
Rate Advances), 13.7, 13.9 or 13.10 unless at the time it requests such
compensation it is the policy or general practice of such Affected
Person to demand compensation for comparable costs in similar
circumstances under comparable provisions of documents to which it is a
party.
SECTION 13.12.Substitution of Participant. If (i) the obligation
of any Participant to purchase or maintain its Participation Interest
has been suspended pursuant to this Section 13, or (ii) any Participant
has demanded compensation or given notice of its intention to demand
compensation under Section 13.11 with respect to Sections 13.6 (other
than a demand relating to Fixed Rate Advances), 13.7, 13.9 or 13.10, the
Lessee shall have the right, with the assistance of the Agent, to seek
one or more mutually satisfactory substitute banks
<PAGE> 10
or financial institutions (which may be one or more of the Participants)
to replace such Participant under the Operative Documents."
(g) The Participation Agreement is further amended by
deleting Exhibit B in its entirety and replacing it with Exhibit B-1 in
the form attached hereto as Exhibit A.
(h) The Participation Agreement is further amended by
adding a new Exhibit B-2 thereto in the form attached as Exhibit B.
(i) The Participation Agreement is further amended by (i)
deleting in the Table of Contents and list of Exhibits references to the
titles of Sections, Subsections and Exhibits deleted under this
Amendment and (ii) replacing them with the titles of the Sections,
Subsections and Exhibits added under this Amendment.
2. Amendments to Appendix 1. Appendix 1 is hereby amended as
follows (and each of the Lease, the Mortgage and each other Operative Document
incorporating Appendix 1 shall be deemed to be so amended):
(a) The following defined terms are hereby deleted in their
entirety and replaced with the corresponding terms set forth in Section
2(b) hereof: "Expiration Date," "Interest Period," "Maturity Date,"
"Participation Interest," "Renewal Term" and "Scheduled Payment Date."
(b) Appendix 1 is further amended by adding the following terms
in alphabetical order:
" 'Eurodollar Rate Advance' means any Advance bearing interest at a rate
per annum equal to the sum of (i) the Eurodollar Rate applicable to such Advance
plus (ii) the Applicable Margin.
'Expiration Date' means February 27, 2003, or the scheduled expiration
of the Renewal Term, if any.
'First Amendment' means the First Amendment to Participation Agreement,
Master Lease and Construction Deed of Trust dated as of the First Amendment
Effective Date, by and among the Lessee, the Lessor, the Participants and the
Agent.
'First Amendment Effective Date' means February 20, 1998.
'Fixed Rate' means, as to any Advance as to which the Lessee has elected
the application of the Fixed Rate pursuant to Section 3.4(b) of the
Participation Agreement, the weighted average fixed rate of interest accepted by
the Lessee and applicable to such Advance pursuant to Section 3.4(b) of the
Participation Agreement.
<PAGE> 11
'Fixed Rate Advance' means any Advance bearing interest at a rate per
annum equal to the sum of (i) the Fixed Rate applicable to such Advance as
determined pursuant to Section 3.4(b) of the Participation Agreement plus (ii)
the Applicable Margin.
'Fixed Rate Offer' is defined in Section 3.4(b) of the Participation
Agreement.
'Fixed Rate Period' is defined in Section 3.4(b) of the Participation
Agreement.
'Fixed Rate Request' is defined in Section 3.4(b) of the Participation
Agreement.
'Interest Period' means, with respect to any Eurodollar Rate Advance:
(a) during the Syndication Period:
(i) initially, the period commencing on the funding with respect
to such Advance and ending one month thereafter; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Advance and
ending one month thereafter; and
(b) subsequent to the Syndication Period, each period commencing
on the last day of the next preceding Interest Period applicable to such
Advance, or the date such Advance is made or converted from a Fixed Rate
Advance, and ending one, two, three, six, nine or twelve months
thereafter, as selected by the Lessee by irrevocable notice to the
Lessor and the Agent not less than three (3) Business Days prior to the
first day of such Interest Period; provided that, the foregoing
provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless the result of such extension
would be to carry such Interest Period into another calendar
month in which event such Interest Period shall end on the
immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond the
Expiration Date shall end on the Expiration Date;
(iii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of the
Interest Period) shall end on the last Business Day of a calendar
month; and
(iv) The Lessee shall select Interest Periods so as not to
require a payment or prepayment of any Advance during an Interest
Period for such Advance.
<PAGE> 12
'Maturity Date' means February 27, 2003, as such date may
be accelerated or extended pursuant to Section 3.7 of the
Participation Agreement.
'Participation Interest' means, as to each Participant, a
participation interest in the Lease and the right to receive that
percentage of the following payments actually received by the
Lessor from or on behalf of the Lessee as is set forth on
Schedule I to the Participation Agreement, subject to the
provisions of Sections 3.11 - 3.21 and Section 11 of the
Participation Agreement: (i) Basic Rent, provided, that each
Participant's participation interest in any Fixed Rate Advance
shall bear interest at the fixed rate offered by such Participant
in its Fixed Rate Offer delivered with respect thereto under the
Participation Agreement plus the Applicable Margin, (ii)
Supplemental Rent, (iii) Asset Termination Value, (iv) Purchase
Option Price, (v) Net Sales Proceeds, (vi) Residual Value
Guarantee Amount, (vii) the Shortfall Amount, and (viii) other
payments in respect of indemnities or pursuant to the Guarantee
or the exercise of remedies under the Operative Documents,
excluding, however, (x) any Excepted Payments and (y) as to a
particular Participant, any payments on account of any Advances
and any Required Supplemental Payments (and interest thereon) for
which the Lessor has not received payment from such Participant
of such Participant's Commitment Percentage thereof. For example,
if the Lessor elects to pay for insurance required of the Lessee
by the Lease because of the Lessee's failure to obtain such
insurance, the Lessor's receipt of reimbursement for the cost of
such insurance from the Lessee shall be included within
"Participation Interest" for purposes of this Agreement only if
such Participant has paid to the Lessor such Participant's
Commitment Percentage of such cost pursuant to Section 11.6 or
Section 11.7 of the Participation Agreement.
'Renewal Term' means the three-year period which
immediately follows February 27, 2003, if the Lessee has
exercised its Renewal Option pursuant to Section 21.1 of the
Lease.
'Scheduled Payment Date' means (a) as to interest on any
Eurodollar Rate Advances having an Interest Period of three
months or less, the last day of each month, (b) as to interest on
any Eurodollar Rate Advances having an Interest Period longer
than three months, each day which is three months, or a whole
multiple thereof, after the first day of such Interest Period and
the last day of such Interest Period, (c) as to interest on Fixed
Rate Advances, the last day of each March, June, September and
December of each year and the maturity date of such Advance, and
(d) as to the principal amount of the Advances, each date
indicated on Schedule 1 to the Lease as being a payment date with
respect to such portion of the Property Improvements Cost, if
any.
<PAGE> 13
'Type' is defined in Section 3.8(a) of the Participation
Agreement."
3. Reference to and Effect on the Participation Agreement,
Appendix 1 and Other Operative Documents.
3.1 Except as specifically amended above, the Participation
Agreement, Appendix 1 and the other Operative Documents, and each of the
Schedules, Exhibits and Appendices thereto, shall remain in full force and
effect and the Participation Agreement, Appendix 1 and the other Operative
Documents, each as amended by this Amendment, are hereby ratified and confirmed
in all respects.
3.2 Upon the effectiveness of this Amendment each reference in
the Participation Agreement, Appendix 1 and the other Operative Documents to
"this Agreement," "hereunder," "hereof," or words of similar import, shall, in
each case, mean and be a reference to the Participation Agreement, Appendix 1
and the other Operative Documents, as applicable, as amended hereby.
4. Miscellaneous.
4.1 Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
4.2 Counterparts. This Amendment may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.
4.3 Effective Date. This Amendment shall be effective as of the
date first above written when executed by all of the parties hereto.
4.4 GOVERNING LAW. THIS AMENDMENT SHALL IN ALL RESPECTS BE
GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING ANY CONFLICT-OF-LAW OR
CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF
ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
* * * *
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, each party hereto has caused this First
Amendment to be duly executed and delivered as of the date first written above.
PEOPLESOFT, INC.
as Lessee
<PAGE> 14
By: ________________________________
Title: _____________________________
LEASE PLAN NORTH AMERICA, INC.,
as Lessor
By: ________________________________
Title: _____________________________
ABN AMRO BANK N.V., SAN FRANCISCO
BRANCH, as a Participant
By: ________________________________
Title: _____________________________
By: ________________________________
Title: _____________________________
ABN AMRO BANK N.V., SAN FRANCISCO
BRANCH, as Agent
By: ________________________________
Title: _____________________________
By: ________________________________
Title: _____________________________
CREDIT LYONNAIS LOS ANGELES
BRANCH, as a Participant
By: ________________________________
Title: _____________________________
THE INDUSTRIAL BANK OF JAPAN,
<PAGE> 15
LIMITED SAN FRANCISCO AGENCY,
as a Participant
By: _______________________________
Title: ____________________________
KEYBANK NATIONAL ASSOCIATION,
as a Participant
By: _______________________________
Title: ____________________________
MELLON BANK, N.A.,
as a Participant
By: _______________________________
Title: ____________________________
THE DAI-ICHI KANGYO BANK,
LIMITED SAN FRANCISCO AGENCY,
as a Participant
By: _______________________________
Title: ____________________________
EXHIBIT A
"EXHIBIT B-1
TO PARTICIPATION AGREEMENT
FORM OF FUNDING REQUEST
<PAGE> 16
TO: ABN AMRO Bank N.V., San Francisco International Branch,
as Agent, and Lease Plan North America, Inc., as Lessor
Reference is hereby made to the Participation Agreement dated as of
December 4, 1996, as it may be amended from time to time (the "Participation
Agreement"), among PeopleSoft, Inc., a Delaware corporation (the "Lessee"), as
Lessee, Lease Plan North America, Inc., as Lessor, ABN AMRO Bank N.V., San
Francisco International Branch, as Agent and Participant, and the other
Participants a party thereto. Capitalized terms not otherwise defined herein are
used herein as defined in the Participation Agreement.
The Lessee hereby notifies you that:
(i) The Lessee requests the making of an Advance in the aggregate
amount of $__________ on ____________, allocated to the Tranche A
Participation Interests as $________ and the Tranche B Participation
Interests as $_________;
(ii) such Advance is to be comprised of a [Eurodollar Rate
Advance][Fixed Rate Advance];1/
[(iii) the initial Interest Period for such Eurodollar Rate
Advance will begin on ______________ and end on _________________]1/ ;
and
(iv) the Advance will be allocated to the respective Land
Interest Acquisition Cost and Property Improvements Costs of the
Property as set forth on Schedule A hereto.
In connection with such requested Advance, the Lessee hereby represents
and warrants to you as follows:
(a) on the requested Funding Date the representations and
warranties of the Lessee contained in each of the Operative Documents
shall be true and correct [in all material respects 2/ as though made on
and as of such date;
(b) on the requested Funding Date title to the Property shall
conform to the representations and warranties set forth in Section
8.4(c) of the Participation Agreement;
(c) on the requested Funding Date there shall not have occurred
and be continuing any Event of Default or, to the knowledge of the
Lessee, Default under any of the Operative Documents and no Event of
Default or, to the knowledge of the Lessee, Default under any of the
Operative Documents will have occurred after giving effect to the making
of the Advance; and
<PAGE> 17
(d) after giving effect to the Advance requested hereby, the
Available Commitments of the Participants will not be exceeded.
Please wire transfer the proceeds of the Advance as set forth in the
letter of direction attached as Schedule B hereto.
The Lessee has caused this Funding Request to be executed and delivered
by its duly authorized Responsible Officer this ___ day of _____________, ______
[TO BE DELIVERED NOT LATER THAN 11:00 A.M., NEW YORK TIME, FOUR (IN CASE OF A
FIXED RATE ADVANCE) OR THREE (IN CASE OF A EURODOLLAR RATE ADVANCE) BUSINESS
DAYS PRIOR TO THE REQUESTED FUNDING DATE].
PEOPLESOFT, INC.
By:________________________________
Name:______________________________
Title:_____________________________"
EXHIBIT B
"EXHIBIT B-2
TO PARTICIPATION AGREEMENT
FORM OF FIXED RATE REQUEST
______________, ____
TO: ABN AMRO Bank N.V., San Francisco International Branch,
as Agent, and Lease Plan North America, Inc., as Lessor
Reference is hereby made to the Participation Agreement dated as of
December 4, 1996, as it may be amended from time to time (the "Participation
Agreement"), among PeopleSoft, Inc., a Delaware corporation (the "Lessee"), as
Lessee, Lease Plan North America, Inc., as Lessor, ABN AMRO Bank N.V., San
Francisco International Branch, as Agent and Participant, and the other
Participants a party thereto. Capitalized terms not otherwise defined herein are
used herein as defined in the Participation Agreement.
This is a Fixed Rate Request for a Fixed Rate Advance pursuant to
Section 3.4(b) of the Participation Agreement as follows:
1. Funding Date or date of conversion or continuation:
_______________, ____.
<PAGE> 18
2. The aggregate amount of the proposed Fixed Rate Advance is
$____________.
3. Fixed Rate Maturity Date: _________, ______.
PEOPLESOFT, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
DOCUMENT NUMBER: 283140.6
FEBRUARY 20, 1998
<PAGE> 1
EXHIBIT 10.41
SECOND AMENDMENT TO PARTICIPATION AGREEMENT,
MASTER LEASE, GUARANTEE, CONSTRUCTION DEED OF TRUST, CASH
COLLATERAL AGREEMENT, ASSIGNMENT OF LEASE AND APPENDIX 1
This SECOND AMENDMENT TO PARTICIPATION AGREEMENT, MASTER LEASE,
GUARANTEE, CONSTRUCTION DEED OF TRUST, CASH COLLATERAL AGREEMENT, ASSIGNMENT OF
LEASE and APPENDIX 1 TO PARTICIPATION AGREEMENT, MASTER LEASE AND CONSTRUCTION
DEED OF TRUST (this "Amendment"), dated as of September 28, 1998, is by and
among PEOPLESOFT, INC., a Delaware corporation, as Lessee (together with its
permitted successors and assigns, the "Lessee"); LEASE PLAN NORTH AMERICA, INC.,
an Illinois corporation, as Lessor (together with its permitted successors and
assigns, the "Lessor"); ABN AMRO BANK N.V., SAN FRANCISCO INTERNATIONAL BRANCH,
as a Participant, CREDIT LYONNAIS LOS ANGELES BRANCH, as a Participant, THE
INDUSTRIAL BANK OF JAPAN, LIMITED SAN FRANCISCO AGENCY, as a Participant,
KEYBANK NATIONAL ASSOCIATION, as a Participant, MELLON BANK, N.A., as a
Participant, THE DAI-ICHI KANGYO BANK, LIMITED SAN FRANCISCO AGENCY, as a
Participant (together with their permitted successors and assigns, each a
"Participant" and collectively the "Participants"); and ABN AMRO BANK N.V., SAN
FRANCISCO INTERNATIONAL BRANCH, as Agent (in such capacity, together with its
successors in such capacity, the "Agent") for the Participants.
RECITALS:
A. The Lessee, the Lessor, the Participants and the Agent are parties to
that certain Participation Agreement dated as of December 4, 1996, as amended on
February 20, 1998 (as amended, restated, supplemented or otherwise modified from
time to time, the "Participation Agreement");
B. Appendix 1 to Participation Agreement, Master Lease and Construction
Deed of Trust (as amended, restated, supplemented or otherwise modified from
time to time,"Appendix 1") is part of the Participation Agreement, the Lease and
the Mortgage and contains defined terms and rules of construction applicable to
the Operative Documents;
C. The parties desire to amend certain provisions of the Participation
Agreement, Master Lease, Guarantee, Construction Deed of Trust, Cash Collateral
Agreement, Assignment of Lease and Appendix 1, all on the terms and conditions
set forth in this Amendment; and
D. Each capitalized term used in this Amendment and not otherwise
defined in this Amendment shall have the meaning ascribed thereto in Appendix 1;
this Amendment shall constitute an Operative Document; and these Recitals shall
be construed as part of this Amendment.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. Amendments to the Participation Agreement. The Participation
Agreement is hereby amended as follows:
(a) Section 3.4(b)(i) of the Participation Agreement is hereby
amended by adding the following at the end of said section:
"The Lessee shall pay to the Agent a fee of $1,000 for
each Fixed Rate Request."
(b) Section 3.4(b)(v) of the Participation Agreement is hereby
amended by deleting the words "Not later than 11:30 a.m. (New York time)
on" and substituting therefor the following: "Promptly upon receipt of
the Agent's notice referred to in Section 3.5(b)(iv) above, on the third
Business Day prior to".
(c) Section 3.8(e) of the Participation Agreement is hereby
amended by deleting the word "Schedule" in the third line thereof and
substituting therefor the word "Scheduled".
(d) Section 10.1(f) of the Participation Agreement is hereby
amended by adding the following at the end of said section:
", provided that the Consolidated Quick Ratio shall be
reduced to .95 to 1.0 solely for the fiscal quarter in
which the Momentum Distribution is made."
(e) Section 10.1(g) of the Participation Agreement is hereby
amended by deleting the words "at September 30, 1996" in the third line
thereof and substituting in their place the following "at the end of the
fiscal quarter ending June 30, 1998 (as adjusted for the fiscal quarter
in which the Momentum Transaction is consummated)".
(f) Section 10.1(j) of the Participation Agreement is hereby
amended by deleting "or" in the second line thereof and substituting in
its place the word "and".
(g) Section 10.1(l) of the Participation Agreement is hereby
amended by deleting the figure "$20,000,000" in the second line of
clause (v) thereof and substituting in its place the figure
"$50,000,000".
(h) Section 10.1(m) of the Participation Agreement is hereby
amended (i) by adding the following after the word "California" in the
second line of clause (iv): ", Lot 56 and the Dublin Parcel", (ii) by
deleting the word "and" at the end of
<PAGE> 3
clause (v) and (iii) by adding the following at the end of clause (vi):
"and (vii) the Lessee may make the Momentum Distribution."
(i) Section 10.1(o) of the Participation Agreement is hereby
amended (i) by deleting the second "and" in the third line thereof and
substituting a comma therefor and (ii) by adding the following at the
end of said section: "and (iii) the Lessee may make the Restricted
Payments contemplated by the Momentum Transaction."
(j) Section 10.1(p) of the Participation Agreement is hereby
amended by adding at the end of said section the following: "and the
investment contemplated by the Momentum Transaction."
(k) Exhibit R (Form of Compliance Certificate) is hereby amended
(i) by adding the following at the end of Section 1(f): "(or .95 solely
for the fiscal quarter in which the Momentum Distribution is made)",
(ii) by deleting the words "at September 30, 1996" in Section 2(b)(i)
and substituting therefor the following "at the end of the fiscal
quarter ending June 30, 1998 (as adjusted for the fiscal quarter in
which the Momentum Transaction is consummated)" and (iii) by deleting
the word "or" in Section 5(f) and substituting therefor the word "and".
2. Amendments to Master Lease. The Master Lease is hereby amended as
follows:
(a) Section 12.4 of the Master Lease is hereby amended by
deleting the words "and the Ground Lease" in the second line thereof.
(b) Section 14.2 of the Master Lease is hereby amended by
deleting clauses (i) and (ii) in their entirety and substituting in
their place the following:
"(i) first, to the exclusion of other facilities covered by
such policy other than the New Property, to the repair,
rebuilding and restoration of any damage to the Property and
the New Property covered by such policy on a pro rata basis,
if so required in order to complete such repair, rebuilding
or restoration, up to the lesser of (A) the extent of the
loss suffered and (B) $23,000,000 per occurrence, and (ii)
second, if the loss suffered is in excess of $23,000,000 per
occurrence, any such proceeds in excess of $23,000,000 per
occurrence shall be shared between the loss payees under this
Lease and the lease referred to in the New Participation
Agreement, on the one hand, and other parties having an
insured interest with respect to such event covered by such
policy, on the other hand, based on the proportion that the
loss suffered with respect to the Property and the New
Property, on the one hand, bears to the aggregate loss
suffered by the Property, the New Property and all other
properties insured by such policy, on the other hand."
<PAGE> 4
(c) Section 17.1(h) of the Master Lease is hereby amended by
deleting the reference to "$2,500,000" in line one thereof and
substituting therefor "$10,000,000".
(d) Section 17.1(k) of the Master Lease is hereby deleted in its
entirety and replaced with the following:
"(k) Intentionally Omitted;"
(e) Section 17.2(j) of the Master Lease is hereby deleted in its
entirety.
(f) Section 20.3 of the Master Lease is hereby amended by
deleting the following at the end of said section:
"other than a Financial Covenant Event of Default (except as
provided in Section 17.2(j))."
3. Amendments to Guarantee. The Guarantee is hereby amended as follows:
(a) The definition of the term "Obligations" is hereby amended by
deleting the following proviso from clause (i):
"provided, however, the term "Obligations" shall not
include the Lessor's obligation under the Participation
Agreement to pay the Tranche B Participation Interest
Balances following the occurrence of a Lease Event of
Default constituting a Financial Covenant Event of Default
(unless the Lessee would be required to pay Asset
Termination Value under the circumstances contemplated in
Section 17.2(j) of the Lease, in which event the term
"Obligations" shall include the obligation of the Lessor
to pay the Tranche B Participation Interest Balances of
all Tranche B Participants)".
(b) Section 11.1(e) of the Guarantee is hereby amended by
deleting the reference to "$2,500,000" in line one thereof and
substituting therefor $10,000,000".
4. Amendments to Construction Deed of Trust, Security Agreement, Fixture
Filing and Financing Statement. The Construction Deed of Trust, Security
Agreement, Fixture Filing and Financing Statement is hereby amended as follows:
(a) Section B1 of the Construction Deed of Trust is hereby
amended by deleting the words "(other than a Financial Covenant Event of
Default)" in the second line thereof.
<PAGE> 5
(b) Section C11 of the Construction Deed of Trust is hereby
amended by deleting the words "and the Ground Lease" in the fourth line
thereof.
5. Amendment to Cash Collateral Agreement. The Cash Collateral Agreement
is hereby amended by deleting the following proviso from Section 8 thereof:
"provided, however, that (i) if the only Event of Default
which has occurred is a Financial Covenant Event of Default,
neither Agent nor Depositary Bank may exercise the foregoing
rights and remedies against that portion of the Collateral
representing the Tranche B Participation Interests in the
Advances while Lessee is properly exercising its right to
remarket the Property pursuant to Section 17.2(j) of the
Lease; and (ii) if, following the occurrence of such a
Financial Covenant Event of Default, the Lessor thereafter
becomes entitled under such Section 17.2(j) to recover the
entire Asset Termination Value remaining unpaid due to the
occurrence of an Event of Default that is not a Financial
Covenant Event of Default, Agent or Depositary Bank may
collect, proceed against or realize upon any or all of the
Collateral without the limitation contained in clause (i) of
this proviso."
6. Amendment to Assignment to Lease. The Assignment of Lease is hereby
amended by deleting the words "or the Ground Lessor" in the third line of
Section 10(b) thereof.
7. Amendments to Appendix 1. Appendix 1 is hereby amended as follows
(and each of the Lease, the Mortgage and each other Operative Document
incorporating Appendix 1 shall be deemed to be so amended):
(a) The definition of the term "Event of Default" is deleted in
its entirety and replaced with the following:
" 'Event of Default' means a Lease Event of Default, a
Construction Agency Agreement Event of Default or a Guarantee
Event of Default."
(b) The definition of the term "Financial Covenant Event of
Default" is deleted in its entirety.
(c) Appendix 1 is further amended by adding the following defined
terms in alphabetical order:
" 'Dublin Parcel' means an approximately 49.0744 acre parcel
forming a portion of that certain real property located in the
City of Dublin,
<PAGE> 6
California, south of Dublin Boulevard, west of Hacienda
Drive, north of I-580 and east of Arnold Road."
" 'Lot 56' means an approximately 20.538 acre parcel commonly
known as Lot 56C in the Hacienda Business Park, Pleasanton,
California."
" 'Momentum Distribution' is defined in the definition of the
term 'Momentum Transaction.'"
" 'Momentum Transaction' means a transaction to be
consummated by the Lessee consisting of (i) the establishment
of a new entity ("Momentum") for the purpose of developing
enterprise application software for selected industry
markets, (ii) distribution by the Lessee to Momentum of an
amount not to exceed $300,000,000 (the "Momentum
Distribution") and (iii) the distribution of the shares of
callable common stock of Momentum to the stockholders of the
Lessee."
" 'New Participation Agreement' means the Participation
Agreement dated as of September 28, 1998, as amended among
the Lessee, Wilmington Trust Company, as Owner Trustee, as
Lessor, ABN AMRO Bank N.V., as Indenture Trustee, ABN AMRO
Leasing, Inc., as Certificate Purchaser, and the Note
Purchasers identified on Schedule I thereto."
" 'New Property' means the property subject to the New
Participation Agreement."
8. Reference to and Effect on the Participation Agreement, Master Lease,
Guarantee, Construction Deed of Trust, Cash Collateral Agreement, Assignment of
Lease, Appendix 1 and Other Operative Documents.
8.1 Except as specifically amended above, the Participation Agreement,
Master Lease, Guarantee, Construction Deed of Trust, Cash Collateral Agreement,
Assignment of Lease, Appendix 1 and the other Operative Documents, and each of
the Schedules, Exhibits and Appendices thereto, shall remain in full force and
effect and the Participation Agreement, Master Lease, Guarantee, Construction
Deed of Trust, Cash Collateral Agreement, Assignment of Lease, Appendix 1 and
the other Operative Documents, each as amended by this Amendment, are hereby
ratified and confirmed in all respects.
8.2 Upon the effectiveness of this Amendment each reference in the
Participation Agreement, Master Lease, Guarantee, Construction Deed of Trust,
Cash Collateral Agreement, Assignment of Lease, Appendix 1 and the other
Operative Documents to "this Agreement," "hereunder," "hereof," or words of
similar import, shall, in each case, mean and be a reference to the
Participation Agreement, Master Lease, Guarantee, Construction Deed of Trust,
Cash Collateral Agreement, Assignment of
<PAGE> 7
Lease, Appendix 1 and the other Operative Documents, as applicable, as amended
hereby.
9. Miscellaneous.
9.1 Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9.2 Counterparts. This Amendment may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.
9.3 Effective Date. This Amendment shall be effective as of the date
first above written when executed by all of the parties hereto.
9.4 GOVERNING LAW. THIS AMENDMENT SHALL IN ALL RESPECTS BE GOVERNED BY
THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING ANY CONFLICT-OF-LAW OR
CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF THE INTERNAL LAWS OF
ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
* * * *
[SIGNATURE PAGE FOLLOWS]
DOCUMENT NUMBER: 357594.7
DECEMBER 9, 1998
IN WITNESS WHEREOF, each party hereto has caused this Second
Amendment to be duly executed and delivered as of the date first written above.
<PAGE> 8
PEOPLESOFT, INC.
as Lessee
By: ________________________________
Title: _____________________________
LEASE PLAN NORTH AMERICA, INC.,
as Lessor
By: ________________________________
Title: _____________________________
ABN AMRO BANK N.V., SAN FRANCISCO
INTERNATIONAL BRANCH, as a Participant
By: ________________________________
Title: _____________________________
By: ________________________________
Title: _____________________________
ABN AMRO BANK N.V., SAN FRANCISCO
INTERNATIONAL BRANCH, as Agent
By: ________________________________
Title: _____________________________
By: ________________________________
Title: _____________________________
CREDIT LYONNAIS LOS ANGELES
BRANCH, as a Participant
By: ________________________________
Title: _____________________________
<PAGE> 9
THE INDUSTRIAL BANK OF JAPAN,
LIMITED SAN FRANCISCO AGENCY,
as a Participant
By: ________________________________
Title: _____________________________
KEYBANK NATIONAL ASSOCIATION,
as a Participant
By: ________________________________
Title: _____________________________
MELLON BANK, N.A.,
as a Participant
By: ________________________________
Title: _____________________________
THE DAI-ICHI KANGYO BANK,
LIMITED SAN FRANCISCO AGENCY,
as a Participant
By: ________________________________
Title: _____________________________
<PAGE> 1
EXHIBIT 10.42
PARTICIPATION AGREEMENT
dated as of September 28, 1998
among
PEOPLESOFT, INC.,
as Lessee,
WILMINGTON TRUST COMPANY,
not in its individual capacity,
except as expressly stated herein, but solely as Owner Trustee,
as Lessor,
ABN AMRO LEASING, INC.,
as Certificate Purchaser,
ABN AMRO BANK N.V.,
not in its individual capacity,
except as expressly stated herein, but solely as Indenture Trustee
and
THE FINANCIAL INSTITUTIONS LISTED ON SCHEDULE I,
as Note Purchasers
PeopleSoft Hacienda II Lease Facility
TABLE OF CONTENTS
<PAGE> 2
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS; INTERPRETATION 2
SECTION 2. CLOSING DATE 2
SECTION 3. ACQUISITION OF THE PROPERTY; FUNDING OF ADVANCES 2
SECTION 3.1. Owner Trustee Commitment 2
SECTION 3.2. Certificate Purchasers' Commitments 3
SECTION 3.3. Note Purchasers' Commitments 3
SECTION 3.4. Procedures for Acquisition of the Ground Lease Interest 3
SECTION 3.5. Procedures for Advances 3
SECTION 3.6. Allocation of Commitments 6
SECTION 3.7. Use of Commitments 6
SECTION 3.8. Termination, Reduction or Extension of Participants' Commitments 7
SECTION 3.9. Types of Advances; Interest and Certificate Yield Rates; Procedures 9
SECTION 3.10. Computation of Interest and Certificate Yield 11
SECTION 4. FEES 12
SECTION 4.1. Commitment Fees 12
SECTION 4.2. Underwriting Fee 12
SECTION 4.3. Administrative Fee 12
SECTION 4.4. Overdue Fees 12
SECTION 4.5. Extension Fee 12
SECTION 5. CERTAIN INTENTIONS OF THE PARTIES 12
SECTION 5.1. Nature of Transaction 12
SECTION 5.2. Amounts Due Under Lease 14
SECTION 6. CONDITIONS PRECEDENT TO CLOSING DATE,ACQUISITION OF GROUND LEASE INTEREST AND
ADVANCES 15
SECTION 6.1. Conditions Precedent Documentation 15
(a) Acquisition and Funding Request 15
(b) Closing Date; Operative Documents 15
(c) Environmental Certificate 16
(d) Appraisal 16
(e) Ground Lease 16
(f) Lease Supplement; Equipment Schedule 16
(g) Survey and Title Insurance 16
(h) Evidence of Recording and Filing 17
(i) Evidence of Insurance 17
(j) Evidence of Use of Proceeds 17
(k) Taxes 17
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(l) Opinions of Counsel 17
(m) Approvals 18
(n) Litigation 18
(o) Requirements of Law 18
(p) Responsible Officer's Certificate of the Lessee 18
(q) The Lessee's Resolutions and Incumbency Certificate, etc 18
(r) Responsible Officer's Certificate of the Guarantor 19
(s) The Guarantor's Resolutions and Incumbency Certificate, etc 19
(t) Ground Lease Interest Acquisition Date 19
(u) No Material Adverse Effect 19
(v) Officer's Certificate of the Lessor 19
(w) The Lessor's Resolutions and Incumbency Certificate, etc 19
(x) Construction Budget; Plans and Specifications 20
(y) Sale of All Notes and Certificates 20
(z) Legal Fees and Expenses 20
SECTION 6.2. Further Conditions Precedent 20
(a) Representations and Warranties 20
(b) Performance of Covenants 20
(c) Title 20
(d) No Default 21
SECTION 6.3. Conditions Precedent to Closing Date 21
(a) Operative Documents 21
(b) Representations and Warranties 21
(c) Performance of Covenants 21
(d) No Default 21
SECTION 7. COMPLETION DATE CONDITIONS 21
SECTION 7.1. Conditions 21
(a) Construction Completion 21
(b) Architect's Certificate; DateDown Endorsement 22
(c) Lessee Certification 22
SECTION 8. REPRESENTATIONS 22
SECTION 8.1. Representations of the Bank and the Lessor 22
(a) Due Organization, etc 22
(b) Authorization; No Conflict 23
(c) Enforceability, etc 23
(d) Litigation 23
(e) Assignment 23
(f) Defaults 23
(g) Use of Proceeds 24
(h) Securities Act 24
(i) Chief Place of Business 24
(j) Federal Reserve Regulations 24
(k) Investment Company Act 24
(l) No Plan Assets 24
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
SECTION 8.2. Representations of the Participants 24
(i) Due Organization, etc 26
(ii) Authorization; No Conflict 26
(iii) Enforceability, etc 26
(iv) Litigation 27
(v) Defaults 27
(vi) Securities Act 27
(vii) Investment Company Act 27
SECTION 8.3. Representations of the Lessee 27
(a) Corporate Status 27
(b) Corporate Power and Authority 27
(c) No Violation 28
(d) Litigation 28
(e) Governmental Approvals 28
(f) Investment Company Act 28
(g) Public Utility Holding Company Act 28
(h) Information 29
(i) Taxes 29
(j) Compliance with ERISA 29
(k) Environmental and Other Regulations 29
(l) Offer of Securities, etc 29
(m) Financial Statements 30
(n) No Material Adverse Change 30
(o) No Defaults 30
(p) Properties; Leases 30
(q) Licenses, Permits, etc 31
(r) Year 2000 31
SECTION 8.4. Representations of the Lessee With Respect to the Property
on the Ground Lease Interest Acquisition Date 31
(a) Representations 31
(b) Property 31
(c) Title 33
(d) Insurance 33
(e) Lease 33
(f) Protection of Interests 33
(g) Flood Hazard Areas 33
(h) Conditions Precedent 33
SECTION 8.5. Representations of the Lessee With Respect to Each
Advance 34
(a) Representations 34
(b) Improvements 34
(c) No Liens 34
(d) Advance 34
(e) Lease 34
(f) Protection of Interests 34
(g) Title Insurance Date Down Endorsement 35
SECTION 8.6. Representations and Warranties of the Indenture Trustee 35
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(a) Due Organization 35
(b) Due Authorization; Enforceability 35
(c) No Violation 35
(d) Litigation 36
SECTION 9. PAYMENT OF CERTAIN EXPENSES 36
SECTION 9.1. Transaction Expenses 36
SECTION 9.2. Brokers' Fees and Stamp Taxes 37
SECTION 9.3. Obligations 37
SECTION 10. OTHER COVENANTS AND AGREEMENTS 37
SECTION 10.1. Covenants of the Lessee 37
(a) Information 37
(b) Compliance with Laws 39
(c) Further Assurances 39
(d) Existence; Franchises; Businesses 39
(e) Books and Records 39
(f) Minimum Consolidated Quick Ratio 39
(g) Minimum Consolidated Tangible Net Worth 40
(h) Maximum Consolidated Debt to Consolidated Total Capital Ratio 40
(i) Minimum Consolidated Fixed Charge Ratio 40
(j) Minimum Consolidated Cash Balances 40
(k) Liens 40
(l) Mergers, Acquisitions, Etc 41
(m) Asset Dispositions 41
(n) Transactions with Affiliates 42
(o) Restricted Payments 42
(p) Investments 42
(q) Maintenance and Repair 43
(r) Payment of Taxes 43
(s) Insurance 43
SECTION 10.2. Cooperation with the Lessee 43
SECTION 10.3. Covenants of the Owner Trustee, the Certificate Holders,
and the Bank 43
(a) Discharge of Liens 43
(b) Trust Agreement 43
(c) Successor Owner Trustee 44
(d) Indebtedness; Other Business 44
(e) Instructions 44
(f) Change of Chief Place of Business 44
(g) Performance of Covenants 44
SECTION 11. LESSEE DIRECTIONS 45
SECTION 12. TRANSFERS OF PARTICIPANTS' INTERESTS 45
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SECTION 12.1. Restrictions on and Effect of Transfer by Participants 45
(a) Transfer of Notes 45
(b) Note Transfer Procedures 45
(c) Transfers of Certificates 46
(d) Effect 48
(e) Arranger's Fee 48
SECTION 12.2. Covenants and Agreements of Participants 48
(a) Participations 48
(b) Transferee Indemnities 49
SECTION 12.3. Future Participants 49
SECTION 13. INDEMNIFICATION 49
SECTION 13.1. General Indemnification 49
SECTION 13.2. End of Term Indemnity 51
SECTION 13.3. Environmental Indemnity 52
SECTION 13.4. Proceedings in Respect of Claims 54
SECTION 13.5. General Impositions Indemnity 55
(a) Indemnification 55
(b) Payments 56
(c) Reports and Returns 56
(d) Income Inclusions 57
(e) Withholding Taxes 57
(f) Contests of Impositions 57
(g) Documentation of Withholding Status 59
(h) Limitation on Tax Indemnification 60
SECTION 13.6. Funding Losses 60
SECTION 13.7. Regulation D Compensation 60
SECTION 13.8. Basis for Determining Interest Rate or Certificate Yield Rate
Inadequate or Unfair 61
SECTION 13.9. Illegality 61
SECTION 13.10. Increased Cost and Reduced Return 62
SECTION 13.11. Notice and Mitigation 63
SECTION 13.12. Substitution of Participant 63
SECTION 13.13. Indemnity Payments in Addition to Residual Value Guarantee Amount 64
SECTION 13.14. Limitations on Indemnification 64
SECTION 13.15. Lessor Indemnification 64
(a) Indemnified Losses 64
(c) No Indemnification for Certain Matters. 65
(d) Limitations on Indemnification by Lessor. 65
(d) Repayment to the Lessor. 65
(f) Survival, Reinstatement. 66
(g) Indemnification Procedures 66
SECTION 14. THE INDENTURE TRUSTEE 66
</TABLE>
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SECTION 15. MISCELLANEOUS 66
SECTION 15.1. Survival of Agreements 66
SECTION 15.2. No Broker, etc 67
SECTION 15.3. Notices 67
SECTION 15.4. Counterparts 67
SECTION 15.5. Amendments 67
SECTION 15.6. Headings, etc 68
SECTION 15.7. Parties in Interest 68
SECTION 15.8. GOVERNING LAW 69
SECTION 15.9. Severability 69
SECTION 15.10. Liability Limited 69
SECTION 15.11. Further Assurances 69
SECTION 15.12. Submission to Jurisdiction 70
SECTION 15.13. Confidentiality 70
SECTION 15.14. WAIVER OF JURY TRIAL 70
SECTION 15.15. Usury Savings Clause 70
SCHEDULES
SCHEDULE I Participants' Commitments
SCHEDULE II Notice Information and Funding Offices
SCHEDULE III Environmental Matters
SCHEDULE IV Intellectual Property Matters
APPENDICES
APPENDIX 1 Definitions and Interpretation
EXHIBITS
EXHIBIT A Form of Acquisition Request
EXHIBIT B-1 Form of Funding Request
EXHIBIT B-2 Form of Fixed Rate Request
EXHIBIT C Form of Environmental Certificate
EXHIBIT D Opinion of Special Counsel to Lessee
EXHIBIT E Opinion of Special Counsel to Owner Trustee
EXHIBIT F Opinion of Special Counsel to Co-Trustee
EXHIBIT G Ground Lease
EXHIBIT H Form of Architect's Completion Certificate
EXHIBIT I Form of Lessee's Completion Certificate
EXHIBIT J Form of Assignment and Acceptance
EXHIBIT K Form of Participant's Letter
</TABLE>
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EXHIBIT L Assignment of Lease and Consent to Assignment
EXHIBIT M Construction Agency Agreement
EXHIBIT N Construction Agency Agreement Assignment
EXHIBIT O Guarantee
EXHIBIT P Cash Collateral Agreement
EXHIBIT Q Leasehold Construction Deed of Trust
EXHIBIT R Form of Financial Covenant Compliance Certificate
</TABLE>
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of September 28, 1998 (this
"Participation Agreement"), is entered into by and among PEOPLESOFT, INC., a
Delaware corporation, as Lessee (together with its permitted successors and
assigns, the "Lessee"); WILMINGTON TRUST COMPANY, a Delaware banking
corporation, not in its individual capacity, except as expressly stated herein,
but solely as Owner Trustee (together with its successors in such capacity, the
"Owner Trustee" or the "Lessor"); ABN AMRO LEASING, INC., as Certificate
Purchaser (the "Certificate Purchaser"); ABN AMRO BANK N.V., not in its
individual capacity except as expressly stated herein, but solely as Indenture
Trustee (together with its successors in such capacity, the "Indenture
Trustee"); and the financial institutions listed on Schedule I, as Note
Purchasers (the "Note Purchasers").
PRELIMINARY STATEMENT
In accordance with the terms of the Trust Agreement, this Participation
Agreement, the Lease, the Indenture and the other Operative Documents,
A. the Trust under the Trust Agreement has been created for
the purpose of providing financing for the construction of two office buildings,
one common building containing a cafeteria and fitness center, a parking
structure and the Data Center, on the real property located in Pleasanton,
California to be owned by the Ground Lessor, leased to the Lessor and subleased
to the Lessee, and the Improvements to be constructed and owned by the Lessor
and leased to the Lessee;
B. the Lessor contemplates acquiring a leasehold interest in
such parcel of land by leasing the Land, as lessee, from the Ground Lessor, as
ground lessor;
C. using Advances from the Lessor, the Lessee contemplates
building, as Construction Agent, certain Improvements on such Land for the
Lessor, acquiring certain items of Equipment, if any, to be used in connection
with such Improvements, and subleasing as Lessee, the Land and leasing the
Improvements and Equipment from the Lessor under the Lease;
D. the Certificate Purchasers are willing to provide a portion
of the funding of the costs of construction of the Property and acquisition of
the Equipment;
<PAGE> 9
E. the Lessor wishes to obtain, and the Note Purchasers are
willing to provide, limited recourse financing of the remaining portion of the
funding of the costs of construction of the Property and acquisition of the
Equipment;
F. concurrently with the execution and delivery of this
Agreement, the Indenture Trustee is entering into the Indenture, pursuant to
which Indenture, among other things, (i) the Owner Trustee creates a security
interest in the Property for the benefit of the Participants, and (ii) provision
is made for the issuance of Notes to the Note Holders as evidence of the
participation of each Note Holder in the Advances for the Property; and
G. concurrently with the execution and delivery of this
Agreement, the Owner Trustee is entering into (i) the Mortgage, pursuant to
which Mortgage the Owner Trustee grants a mortgage on the Property, and (ii) the
other Security Documents, in each case for the benefit of the Participants.
In consideration of the mutual agreements contained in this
Participation Agreement and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1.
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix 1 hereto
for all purposes hereof; and the rules of interpretation set forth in Appendix 1
hereto shall apply to this Participation Agreement.
SECTION 2.
CLOSING DATE
The closing date (the "Closing Date") shall occur on such date as the
parties may agree, which shall be the earliest date on which all the conditions
precedent thereto set forth in Sections 6.1, 6.2 and 6.3 hereof shall have been
satisfied or waived by the applicable parties as set forth therein.
SECTION 3.
ACQUISITION OF THE PROPERTY; FUNDING OF ADVANCES
<PAGE> 10
SECTION 3.1. Owner Trustee Commitment. Subject to the conditions and
terms hereof, the Owner Trustee shall take the following actions at the written
request of the Lessee from time to time during the Commitment Period:
(a) enter into the Ground Lease and the other Operative Documents to
which it is to be a party;
(b) make Advances (out of funds provided by the Participants) for the
purpose of financing the construction of the Improvements and the acquisition of
the Equipment, if any;
(c) lease the Land pursuant to the Ground Lease; and
(d) sublease the Land and lease the Improvements and Equipment, if any,
as Lessor to the Lessee under the Lease.
SECTION 3.2. Certificate Purchasers' Commitments. Subject to the terms
and conditions hereof, each Certificate Purchaser severally shall make available
to the Lessor at the request of the Lessee from time to time during the
Commitment Period on each Funding Date an amount (each a "Certificate Purchaser
Amount") in immediately available funds equal to such Certificate Purchaser's
Commitment Percentage of the amount of the Advance being funded on such Funding
Date. Notwithstanding any other provision hereof, no Certificate Purchaser shall
be obligated to make available any Certificate Purchaser Amount if, after giving
effect to the proposed Certificate Purchaser Amount, the outstanding aggregate
amount of Certificate Purchaser Amounts of such Certificate Purchaser would
exceed such Certificate Purchaser's Commitment.
SECTION 3.3. Note Purchasers' Commitments. Subject to the terms and
conditions hereof, each Note Purchaser severally shall make Loans to the Lessor
at the request of the Lessee from time to time during the Commitment Period on
each Funding Date in an amount in immediately available funds equal to such Note
Purchaser's Commitment Percentage of the amount of the Advance being funded on
such Funding Date. Notwithstanding any other provision hereof, no Note Purchaser
shall be obligated to make any Loan if, after giving effect to the proposed
Loan, the outstanding aggregate amount of such Note Purchaser's Loans would
exceed such Note Purchaser's Commitment.
SECTION 3.4. Procedures for Acquisition of the Ground Lease Interest.
The Lessee shall give the Owner Trustee and the Indenture Trustee prior written
notice not later than 10:00 a.m., San Francisco time, three Business Days prior
to the proposed Ground Lease Interest Acquisition Date, pursuant to an
Acquisition Request substantially in the form of Exhibit A (an "Acquisition
Request"), specifying with respect to such Ground Lease Interest: (i) the
proposed Ground Lease Interest Acquisition Date, (ii) the Ground Lease Interest
to be acquired and (iii) the Property Improvements Costs to be funded in
connection with the acquisition of the Ground Lease Interest. The Indenture
Trustee shall promptly forward a copy of such Acquisition Request to each
Certificate Purchaser and each Note Purchaser.
<PAGE> 11
SECTION 3.5. Procedures for Advances.
(a) Funding Request. With respect to each funding of an Advance, the
Lessee shall give the Lessor and the Indenture Trustee prior written notice not
later than 11:00 a.m., New York time, four (4) Business Days (in the case of a
Fixed Rate Advance) or three (3) Business Days in the case of a Eurodollar Rate
Advance) prior to the proposed Funding Date, pursuant, in each case, to a
Funding Request substantially in the form of Exhibit B-1 (a "Funding Request"),
specifying (i) the proposed Funding Date, (ii) the amount and purpose of the
Advance requested, (iii) whether such Advance is to be comprised of a Eurodollar
Rate Advance or a Fixed Rate Advance, (iv) the initial Interest Period for any
such Eurodollar Rate Advance, (v) the payee of such Advance and (vi) that the
Advance will be utilized to fund Property Improvements Costs. The Indenture
Trustee shall promptly forward a copy of such Funding Request to each
Participant. The Lessee shall not request more than one Funding Date during any
calendar month. Each Eurodollar Rate Advance (other than an Interest Payment
Advance or an amount to be capitalized pursuant to Section 3.9(f)) shall be in a
minimum amount of $1,000,000 or in amounts of $100,000 in excess thereof.
Subject to the satisfaction or waiver of the conditions precedent to such
Advance set forth in Section 3.5 and Section 6, each Participant shall fund its
pro rata share of such Advance by making available to the Lessor its
proportionate share of such Advance as Loans or Certificate Purchaser Amounts,
as the case may be, in immediately available federal funds by wire transfer to
the Agent for deposit to the Lessee's demand deposit account with the Indenture
Trustee not later than 1:00 p.m. New York time, on the applicable Funding Date.
Upon (i) the Lessee's receipt of the funds provided by the Participants with
respect to an Advance, and (ii) satisfaction or waiver of the conditions
precedent to such Advance set forth in Section 6, the Lessee shall pay or retain
as payment or reimbursement of Property Improvements Costs, in each case from
the funds provided by the Participants for such Advance.
(b) Procedure for Fixed Rate Advances.
(i) When the Lessee wishes to request the Lessor to make, and the
Participants to submit through the Agent an offer to fund, Loans and
Certificate Purchaser Amounts with respect to a Fixed Rate Advance or
convert a Eurodollar Rate Advance to a Fixed Rate Advance or continue a
Fixed Rate Advance as another Fixed Rate Advance, it shall transmit to
the Indenture Trustee by facsimile transmission a request in
substantially the form of Exhibit B-2 (a "Fixed Rate Request") so as to
be received no later than 12:00 noon (New York time) four (4) Business
Days prior to the date of the proposed Fixed Rate Advance, conversion
or continuation specifying:
(1) the proposed date of such Advance, conversion or continuation,
which shall be a Business Day and, (A) if a conversion from a
Eurodollar Rate Advance, shall be the last day of the
applicable Interest Period with respect to the Advance to be
converted or (B)
<PAGE> 12
if a continuation of a Fixed Rate Advance, shall be the last
day of the Fixed Rate Period applicable thereto;
(2) the aggregate amount of such Fixed Rate Advance, conversion or
continuation, which shall be a minimum amount of $5,000,000;
and
(3) the maturity date with respect thereto (the "Fixed Rate
Maturity Date"), which shall be a Business Day not later than
the Maturity Date.
The Lessee shall pay to the Indenture Trustee a fee of $1,000 for each
Fixed Rate Request.
(ii) Upon receipt of a Fixed Rate Request from the Lessee, the
Indenture Trustee will promptly forward such Fixed Rate Request to the
Participants by facsimile transmission.
(iii)(1) Each Participant, upon receipt of a Fixed Rate Request, shall
submit an offer (a "Fixed Rate Offer") to fund its Loans or
Certificate Purchaser Amounts with respect to the applicable
Fixed Rate Advance, convert its Loans or Certificate Purchaser
Amounts with respect to the applicable Eurodollar Rate Advance
to the requested Fixed Rate Advance or continue its Loans or
Certificate Purchaser Amounts with respect to the applicable
Fixed Rate Advance to the requested Fixed Rate Advance in
response to such Fixed Rate Request. Each Fixed Rate Offer
must comply with the requirements of this subsection (iii) and
must be submitted to the Indenture Trustee by facsimile
transmission not later than 11:00 a.m. (New York time) three
(3) Business Days prior to the proposed Funding Date,
conversion date or continuation date.
(2) Each Fixed Rate Offer shall specify:
(A) the proposed date of the Advance, conversion or
continuation;
(B) the principal amount of such Participant's Loans or
Certificate Purchaser Amounts with respect to the
Advance, conversion or continuation for which such
Fixed Rate Offer is being made, which principal
amount must be equal to such Participant's pro rata
share of the aggregate amount requested;
(C) the fixed rate per annum (rounded upward to the
nearest 1/100th of 1%) offered for such Fixed Rate
Advance; and
<PAGE> 13
(D) the Fixed Rate Maturity Date with respect to such
Fixed Rate Advance (which shall be the date requested
by the Lessee) (the period from the date any Fixed
Rate Advance is made to its Fixed Rate Maturity Date
is referred to as a "Fixed Rate Period").
(iv) Promptly on receipt on the third Business Day prior to the
proposed Funding Date or conversion or continuation date, the Indenture
Trustee will notify the Lessee of the terms of all Fixed Rate Offers
submitted by the Participants with respect to the Fixed Rate Request.
The Indenture Trustee's notice to the Lessee shall specify (1) the
aggregate amount for which offers have been received; and (2) the
respective amounts and interest rates, as the case may be, and the
weighted average interest rate so offered. Subject only to the
provisions of Section 6 and to the Lessee's right to reject all Fixed
Rate Offers set forth in Section 3.5(b)(v), any Fixed Rate Offer shall
be irrevocable.
(v) Promptly upon receipt of the Indenture Trustee's notice referred to
in Section 3.5(b)(iv) above, on the third Business Day prior to the
proposed Funding Date or conversion or continuation date, the Lessee
shall notify the Indenture Trustee of its acceptance or non-acceptance
of the Fixed Rate Offers which it has received pursuant to Section
3.5(b)(iv). The Lessee shall be under no obligation to accept any
offer, but if any offer is rejected, all Fixed Rate Offers with respect
to the same Fixed Rate Request must be rejected. If the Lessee accepts
any Fixed Rate Offer, the Lessee must accept all Fixed Rate Offers with
respect to the same Fixed Rate Request only in whole. If the Fixed Rate
Offers are rejected or if no response is received from the Lessee, the
Lessee may elect to have the applicable Advance be a Eurodollar Rate
Advance pursuant to Section 3.5(a) or (c) hereof provided the
conditions thereto are met. Otherwise, the Advance that was the subject
of such Fixed Rate Request shall be a Eurodollar Rate Advance with an
Interest Period of one month commencing on the applicable Funding Date
or proposed conversion date, provided, that no Interest Period shall
commence or terminate on or after the Maturity Date.
(c) Conversion and Continuation Procedures. The Lessee may (i)(A) on
the last day of any Fixed Rate Period, convert all or any part of any Fixed Rate
Advance to a Eurodollar Rate Advance or (B) on the last day of any Interest
Period, continue the applicable Eurodollar Rate Advance as a Eurodollar Rate
Advance for a successive Interest Period, by giving notice to the Indenture
Trustee by 12:00 noon, New York time, on a day which is at least three Business
Days prior to the proposed date of such conversion or continuation or (ii) on
the last day of any Fixed Rate Period, continue all or any part of any Fixed
Rate Advance as another Fixed Rate Advance by giving the notice and following
the procedure set forth in Section 3.5(b). Each such notice with respect to the
conversion into or continuation of a Eurodollar Rate Advance shall be
irrevocable, shall be effective upon receipt by the Indenture Trustee, shall be
in writing (or by telephone to be confirmed in writing by the Lessee on the
Business Day such telephonic notice was given), shall specify the Type, the date
and amount of the conversion or
<PAGE> 14
continuation, the Advances to be converted or continued and the Interest Period
applicable thereto. If the Lessee fails to give appropriate notice pursuant to
this Section 3.5(c) or Section 3.5(b), such Advance shall automatically become a
Eurodollar Rate Advance with an Interest Period of one month at the end of its
then current Fixed Rate Period or Interest Period, provided, that no Interest
Period shall commence or terminate on or after the Maturity Date. Promptly upon
receipt of each notice of conversion or continuation, the Indenture Trustee
shall advise each Participant thereof. No Fixed Rate Advance shall be converted
or continued on any day other than the last day of the Fixed Rate Period
relating to such Advance.
SECTION 3.6. Allocation of Commitments. Schedule I hereto contains an
allocation for each Participant of (i) the amount of its Commitment representing
its Tranche A Loan Commitment ("Tranche A Loan Commitment"), (ii) the amount of
its commitment representing its Tranche B Loan Commitment ("Tranche B Loan
Commitment"), (iii) the amount of its commitment representing its Certificate
Purchaser Commitment ("Certificate Commitment"), (iv) the amount of its
Commitment (and allocation to its Tranche A Loan Commitment and Tranche B Loan
Commitment) allocated to the 364 Day Commitment, and (v) the amount of its
Commitment (and allocation to its Tranche A Loan Commitment, Tranche B Loan
Commitment and Certificate Commitment) allocated to the Eighteen Month
Commitment. The Lessee, the Lessor and the Participants have approved all such
allocations and commitments. Schedule I shall be amended as required to reflect
changes in the allocations set forth thereon due to the addition of additional
Participants pursuant to Section 12.1.
SECTION 3.7. Use of Commitments. (a) All remittances by each
Participant to the Lessor to fund Advances shall be allocated first, to the 364
Day Commitment of such Participant, and second, to the Eighteen Month Commitment
of such Participant. Unless extended as provided in this Section 3.7, the 364
Day Commitment shall terminate on the day which is 364 days after the Closing
Date and the unused portion thereof shall not be available to the Lessor
thereafter. The Lessee shall notify the Lessor, the Indenture Trustee and each
Participant not less than forty-five (45) days prior to the expiration date of
the 364 Day Commitment whether it wishes to extend the availability of the
unused portion of the 364 Day Commitment to the Six Month Extension Termination
Date. The availability of the unused portion of the 364 Day Commitment shall not
be extended unless the Indenture Trustee and each Participant, in its sole
discretion, has notified the Lessor and the Indenture Trustee within fifteen
(15) days prior to such termination date that it will permit the unused portion
of its 364 Day Commitment to be extended to the Six Month Extension Termination
Date commencing on the Extension Date. The Indenture Trustee shall notify the
Lessee whether the Participants have agreed to permit the extension of such
unused portion of the 364 Day Commitment to the Six Month Extension Termination
Date. Any portion that is so extended shall bear Commitment Fees from and after
the Extension Date at a rate applicable to the 364 Day Commitment. The parties
hereto shall amend Schedule I hereto in connection with any such extension.
<PAGE> 15
(b) If the 364 Day Commitment is extended pursuant to Section 3.7(a),
the Lessee shall pay to each Participant its pro rata share of the Extension Fee
on the Extension Date.
SECTION 3.8. Termination, Reduction or Extension of Participants'
Commitments. (a) The Lessor shall have the right, upon not less than five (5)
Business Days' written notice to the Indenture Trustee, to terminate the
Participants' Commitments or, from time to time, to reduce the amount of the
Participants' Commitments, provided that (i) after giving effect to such
reduction, the aggregate outstanding principal amount of the Tranche A Loans
shall not exceed the aggregate Tranche A Loan Commitments, (ii) after giving
effect to such reduction, the aggregate outstanding principal amount of the
Tranche B Loans shall not exceed the aggregate Tranche B Loan Commitments, (iii)
after giving affect to such reduction, the aggregate principal amount of the
Certificates shall not exceed the aggregate Certificate Commitments, and (iv)
any such reduction shall be made pro rata among the Participants' Commitments
within each tranche. At any time other than during the continuance of an Event
of Default the Lessor shall exercise such right only as directed by the Lessee
and after the occurrence and during the continuance of an Event of Default the
Lessor shall exercise such right only as directed by the Required Participants.
(b) The Lessee may, by written request to the Lessor and Indenture
Trustee (which the Indenture Trustee shall promptly forward to each Participant)
given at any time from time to time after six (6) months after the Closing Date,
request (an "Extension Request") that the Maturity Date be extended to the date
that is five (5) years after the date requested by the Lessee (the "Extension
Effective Date"). No later than the date (the "Extension Response Date") which
is (30) days after such request has been delivered to each of the Participants,
each Participant will notify the Lessor in writing (with a copy to the Indenture
Trustee and the Lessee) whether or not it consents to such Extension Request
(which consent may be granted or denied by each Participant in its sole
discretion and may be conditioned on receipt of such financial information or
other documentation as may be specified by such Participant including without
limitation satisfactory appraisals of the Property), provided that any
Participant that fails to so advise the Lessor on or prior to the Extension
Response Date shall be deemed to have denied such Extension Request. The
extension of the Maturity Date contemplated by any Extension Request shall
become effective as of the Extension Effective Date on or after the Extension
Response Date on which all of the Participants (other than non-consenting
Participants (each a "Non-Consenting Participant") which have been replaced by
Replacement Participants in accordance with Section 3.8(c)) shall have consented
to such Extension Request; provided that:
(A) on both the date of the Extension Request and the
Extension Effective Date, (x) each of the
representations and warranties made by the Lessee and
the Lessor in or pursuant to the Operative Documents
shall be true and correct in all material respects as
if made on and as of each such date, except for
representations and warranties made as of a specific
date,
<PAGE> 16
which shall be true and correct in all material
respects as of such date, (y) no Event of Default
shall have occurred and be continuing, and (z) on
each of such dates the Indenture Trustee shall have
received a certificate of the Lessee and the Lessor,
each as to itself, as to the matters set forth in
clause (x) above and from the Lessee as to the
matters set forth in clause (y) above, and
(B) the Indenture Trustee and the Required Participants
shall have received satisfactory evidence that the
Expiration Date shall, after giving effect to any
extension thereof which has become effective on or
prior to such Extension Effective Date, occur on the
Maturity Date as so extended.
(c) The Lessee shall be permitted to replace any Non-Consenting
Participant under this Section 3.8 with a replacement bank or other financial
institution (a "Replacement Participant") at any time on or prior to the date
which is thirty (30) days after the relevant Extension Response Date; provided
that (i) such replacement does not conflict with any Requirement of Law, (ii)
the Replacement Participant shall purchase, at par, all of the Notes and/or
Certificates of such Non-Consenting Participant on or prior to the date of
replacement, (iii) the Lessee shall be liable to such Non-Consenting Participant
under Section 13 of this Agreement if any Advance (or Loan or Certificate
Purchaser Amount with respect thereto) shall be prepaid (or purchased) other
than on the last day of the Interest Period or Interest Periods relating
thereto, (iv) the Replacement Participant, if not already a Participant, shall
be reasonably satisfactory to the Required Participants, (v) such replacement
shall be made in accordance with the provisions of Section 12 of this Agreement
(provided that the Lessee or the relevant Replacement Participant shall be
obligated to pay or cause to be paid the Transaction Expenses arising in
connection therewith), (vi) the Replacement Participant shall have agreed to be
subject to all of the terms and conditions of this Agreement (including the
extension of the Maturity Date contemplated by the relevant Extension Request)
and the other Operative Documents, and (vii) at any time other than during the
continuance of an Event of Default, the Lessee shall have the exclusive right to
designate the Replacement Participant. The Indenture Trustee hereby agrees to
cooperate with the Lessee in the Lessee's efforts to arrange one or more
Replacement Participants as contemplated by this Section 3.8(c).
SECTION 3.9. Types of Advances; Interest and Certificate Yield Rates;
Procedures.
(a) Each Advance shall be comprised of either a Fixed Rate Advance or a
Eurodollar Rate Advance (each being herein called a "Type" of Advance), as the
Lessee shall specify in the related Funding Request or notice of conversion or
continuation pursuant to Section 3.5. Each Fixed Rate Advance (and Loan and
Certificate Purchaser Amount with respect to such Fixed Rate Advance) shall bear
interest or, with respect to a Certificate Purchaser Amount, yield ("Certificate
Yield"), as the case may be, for each
<PAGE> 17
day during the Fixed Rate Period with respect thereto at a rate per annum equal
to the Fixed Rate determined with respect to such Fixed Rate Period plus the
Applicable Margin.
(b) Each Eurodollar Rate Advance (and Loan and Certificate Purchaser
Amount with respect to such Eurodollar Rate Advance) shall bear interest or
Certificate Yield, as the case may be, for each day during each Interest Period
with respect thereto at a rate per annum equal to the Eurodollar Rate determined
for such day plus the Applicable Margin; provided, however, that:
(i) each Advance and related Loan and Certificate Purchaser Amount
outstanding during the period beginning on the Closing Date and ending
on the date three (3) Business Days thereafter shall bear interest or
Certificate Yield during such period at a rate per annum equal to the
Alternate Base Rate plus the Applicable Margin; and
(ii) an Advance and related Loan and Certificate Purchaser Amount shall
bear interest or Certificate Yield, as the case may be, at a rate per
annum equal to the Alternate Base Rate plus the Applicable Margin to
the extent expressly required by the terms hereof.
The Lessee shall give irrevocable written notice to the Indenture Trustee, in
accordance with Section 3.5 and the applicable provisions of the term "Interest
Period" set forth in Appendix 1, of the length of each Interest Period to be
applicable to each Eurodollar Rate Advance.
(c) If all or a portion of (i) the amount of any Loans or Certificate
Purchaser Amounts with respect to any Advance, (ii) any interest or Certificate
Yield payable thereon or (iii) any other amount payable hereunder shall not be
paid when due (whether at the stated maturity, by acceleration or otherwise),
such overdue amount shall bear interest at a rate per annum which is equal to
the Overdue Rate.
(d) Interest and Certificate Yield shall be payable in immediately
available funds (except as provided in paragraph (e) below) in arrears on each
Scheduled Payment Date, provided that (i) interest accruing pursuant to
paragraph (c) of this Section 3.9 shall be payable from time to time on demand
and (ii) each prepayment of Advances shall be accompanied by accrued interest to
the date of such prepayment on the amount of Advances so prepaid plus amounts
payable under Section 13.6 hereof. The Indenture Trustee shall provide the
Lessee with not less than five (5) days' notice of the amount of Basic Rent due
on any Scheduled Payment Date.
(e) On each date which is three (3) Business Days prior to each
Scheduled Payment Date during the Construction Period, unless the Lessee
notifies the Lessor prior to such date that the Lessee desires to pay in cash on
the Scheduled Payment Date the accrued interest and Certificate Yield on Loans
and Certificate Purchaser Amounts, respectively, with respect to Advances
allocated to Property Improvement Costs during the Construction Period and makes
such cash payment on the Scheduled Payment Date,
<PAGE> 18
the Lessee shall be deemed to have requested an Advance comprised of an Interest
Payment Advance pursuant to Section 3.5 and the Lessor shall be deemed to have
requested a funding of Loans and Certificate Purchaser Amounts pursuant to
Sections 3.2 and 3.3 with respect to such Advance in an amount equal to the
aggregate amount of the Basic Rent due and payable on such date with respect to
accrued interest and Certificate Yield on Loans and Certificate Purchaser
Amounts, respectively, with respect to outstanding Advances. Each Interest
Payment Advance shall initially be deemed to be a Eurodollar Rate Advance having
a one month Interest Period. The Funding Date with respect to any such Interest
Payment Advance (and related Loans and Certificate Purchaser Amounts and with
respect thereto) shall be the relevant Scheduled Payment Date (provided that
such Advance and such funding shall be subject to satisfaction of the applicable
conditions precedent set forth in Section 6) and the proceeds of such payment
shall be applied to pay such accrued interest and Certificate Yield. On each
such Funding Date during the Construction Period, the Property Cost and Property
Improvements Cost shall be increased by an amount equal to the Basic Rent paid
on such date with respect to such Property with the proceeds of such payment.
The Indenture Trustee shall provide the Lessee on a monthly basis with a
detailed statement or other form of confirmation showing all deemed Interest
Payment Advances made to the Lessee pursuant to this Section 3.9(e).
(f) Capitalization of Certain Amounts During Construction Period.
(i) On each date during the Construction Period that any amount is
payable by the Lessee under the Operative Documents on account of (A)
Basic Rent (to the extent provided in Section 3.9(e)), (B) fees
pursuant to Section 4 or (c) Supplemental Rent consisting of amounts
payable by the Lessor as rent or otherwise under the Ground Lease, such
amounts shall be capitalized by automatically treating such amount as
an Advance and related Loans and Certificate Purchaser Amounts made on
such date.
(ii) If any Lessor Party shall request the Lessor to capitalize the
amount of (A) any Claims or Taxes pursuant to Section 13.1(z) or
13.5(a), (B) any increased costs or reduced amounts pursuant to clause
(2) of Section 13.10(a) or (C) any loss or liability pursuant to
Section 24.1 of the Lease, any such amount shall be capitalized by
automatically treating such amount as an Advance and related Loans and
Certificate Purchaser Amounts (funded by such Lessor Party); provided,
however, that the Lessee shall have no obligation to pay any such
amounts if the Lessee exercises the Remarketing Option or is otherwise
required to pay the Residual Value Guarantee Amount in accordance with
the Lease and the other Operative Documents, except to the extent such
amounts may be included in the Residual Value Guarantee Amount. If any
such capitalized amounts are included in the Asset Termination Value,
Lease Balance or Participant Balance (the "3.9(f)(ii) portion" of the
Asset Termination Value, Lease Balance or Participant Balance), all the
Lessee payments and other amounts applied to the Asset Termination
Value, Lease Balance or Participant Balance shall be applied as
follows:
<PAGE> 19
(1) If any 3.9(f)(ii) portion is outstanding when a payment is
to be applied to the Asset Termination Value, Lease Balance or
Participant Balance, such payment shall first be applied to
the 3.9(f)(ii) portion of the Asset Termination Value, Lease
Balance or Participant Balance and shall be shared by the
Lessor Parties that funded such 3.9(f)(ii) portion of the
Asset Termination Value, Lease Balance, or Participant Balance
pro rata based on the amounts so funded by and owed to such
Lessor Parties.
(2) If any amount of such payment then remains, such remaining
amount shall be applied to all other amounts included in the
Asset Termination Value, Lease Balance or Participant Balance
(the "project costs portion" of the Asset Termination Value,
Lease Balance or Participant Balance) and shall be shared by
the Participants as provided in Section 6.2 to Section 6.10 of
the Indenture.
The Indenture Trustee shall notify the Lessee, the Lessor and each
Participant of each amount capitalized and treated as an Advance (and related
Loans and Certificate Purchaser Amounts) under this Section 3.9(f)(ii) within
fifteen (15) days after each such Advance.
(iii) Transaction Expenses incurred during the Construction Period
shall be funded as Advances and related Loans and Certificate Purchaser
Amounts and capitalized to the extent set forth in Section 9.1.
SECTION 3.10. Computation of Interest and Certificate Yield. (a) For
purposes of determining the Alternate Base Rate, interest and Certificate Yield
shall be calculated on the basis of a 365- (or 366-, as the case may be) day
year for the actual days elapsed; and for purposes of determining a Eurodollar
Rate or a Fixed Rate, interest and Certificate Yield shall be calculated on the
basis of a 360-day year for the actual days elapsed. The Indenture Trustee shall
as soon as practicable after the commencement of each Interest Period or Fixed
Rate Period notify the Lessor, the Lessee and the Participants of each
determination of a Eurodollar Rate or a Fixed Rate. Any change in the interest
rate on an Advance and related Loans and Certificate Purchaser Amounts resulting
from a change in the Alternate Base Rate, the Eurocurrency Reserve Requirements
or the Applicable Margin shall become effective as of the opening of business on
the day on which such change becomes effective. The Indenture Trustee shall as
soon as practicable notify the Lessor, the Lessee and the Participants of the
effective date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Indenture Trustee
pursuant to any provision of this Agreement shall be conclusive and binding on
the Lessor, the Lessee and the Participants in the absence of manifest error.
The Indenture Trustee shall, at the request of such parties, deliver to such
parties a statement showing the quotations used by the Indenture Trustee in
determining any interest rate pursuant to Section 3.9(a).
<PAGE> 20
SECTION 4.
FEES
SECTION 4.1. Commitment Fees. The Lessee shall pay to the Indenture
Trustee for the account of each Participant a commitment fee (the "Commitment
Fees") for the period from and including the Closing Date to the earlier of (i)
the Completion Date or (ii) the Outside Completion Date, computed in the case of
each Participant at a rate per annum equal to the Commitment Fee Rate applicable
to the 364 Day Commitment or the Eighteen Month Commitment, as the case may be,
on the amount of the Available Commitment of such Participant, in each case
during the period for which payment is made, payable on each Commitment Fee
Payment Date. Commitment Fees shall be calculated on the basis of a 365- (or
366-, as the case may be) day year for the actual days elapsed.
SECTION 4.2. Underwriting Fee. The Lessee shall pay to the Arranger the
underwriting fee (the "Underwriting Fee") referred to in, and at such times as
provided in, the Arranger Fee Letter.
SECTION 4.3. Administrative Fee. The Lessee shall pay an administrative
fee (the "Administrative Fee") to the Arranger for its own account as provided
in, and at such times as provided in, the Arranger Fee Letter.
SECTION 4.4. Overdue Fees. If all or a portion of any fee due hereunder
shall not be paid when due, such overdue amount shall bear interest, payable by
the Lessee on demand, at a rate per annum equal to the Overdue Rate from the
date of such nonpayment until such amount is paid in full (as well after as
before judgment).
SECTION 4.5. Extension Fee. The Lessee shall pay the Extension Fee to
the Indenture Trustee for the account of each Participant agreeing to an
extension of the 364 Day Commitment if any portion of the 364 Day Commitment is
extended pursuant to Section 3.7. The Extension Fee shall be payable on the
Extension Date.
SECTION 5.
CERTAIN INTENTIONS OF THE PARTIES
SECTION 5.1. Nature of Transaction. (a) It is the intent of the parties
hereto that: (i) the Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, for purposes of
Lessee's financial reporting, and (ii) for purposes of federal, state and local
income or franchise taxes and for any other tax imposed on or measured by
income, the transaction contemplated hereby is a financing arrangement and
preserves ownership in the Property in the Lessee.
<PAGE> 21
Accordingly, and notwithstanding any provision of this Participation Agreement
to the contrary, the parties hereto agree and declare that: (i) the transactions
contemplated by the Lease are intended to have a dual, rather than single, form;
and (ii) all references in this Participation Agreement to the "lease" of the
Property which fail to reference such dual form do so as a matter of convenience
only and do not reflect the intent of parties hereto as to the true form of such
arrangements. Nevertheless, the Lessee acknowledges and agrees that neither the
Indenture Trustee, the Lessor nor any Participant has made any representations
or warranties to the Lessee concerning the tax, accounting or legal
characteristics of the Operative Documents and that the Lessee has obtained and
relied upon such tax, accounting and legal advice concerning the Operative
Documents as it deems appropriate.
(b) Anything to the contrary in the Operative Documents
notwithstanding, the parties hereto intend and agree that with respect to the
nature of the transactions evidenced by the Lease in the context of the exercise
of remedies under the Operative Documents, including, without limitation, in the
case of any proceedings under commercial or real estate law, any insolvency or
receivership proceedings or a petition under the United States bankruptcy laws
or any other applicable insolvency laws or statute of the United States of
America or any State or Commonwealth thereof affecting the Lessee, the Lessor,
or any Participant or any enforcement or collection actions, (i) the
transactions evidenced by the Lease are loans made by the Lessor and the
Participants as unrelated third party lenders to the Lessee secured by the
Property, (ii) the obligations of the Lessee under the Lease to pay Basic Rent
and Supplemental Rent or Asset Termination Value in connection with a purchase
of the Property pursuant to the Lease shall be treated as payments of interest
on and principal of, respectively, loans from the Lessor and the Participants to
the Lessee, and (iii) the Lease grants a security interest and mortgage or deed
of trust or lien, as the case may be, in the Property to the Lessor and the
Participants to secure the Lessee's performance under and payment of all amounts
under the Lease and the other Operative Documents.
(c) Specifically, without limiting the generality of subsection (b) of
this Section 5.1, the parties hereto further intend and agree that, for the
purpose of securing the Lessee's obligations for the repayment of the
above-described loans from the Lessor and the Participants to the Lessee, (i)
the Lease shall also be deemed to be a security agreement and financing
statement within the meaning of Article 9 of the Uniform Commercial Code (and
specifically, a construction mortgage, as said term is defined in Section
9-313(1)(c) of the Uniform Commercial Code) and a real property mortgage or deed
of trust; (ii) the conveyance provided for in Article II of the Lease shall be
deemed to be a grant by the Lessee to the Lessor and the Participants of a
mortgage lien and security interest in all of the Lessee's right, title and
interest in and to the Property and all proceeds of the conversion, voluntary or
involuntary, of the foregoing into cash, investments, securities or other
property, whether in the form of cash, investments, securities or other property
(it being understood that Lessee hereby mortgages and warrants and grants a
security interest in the Property to Lessor and the Participants to secure such
loans); (iii) the possession by the Lessor or any of its agents of notes and
such other items of property as constitute instruments, money, negotiable
documents or
<PAGE> 22
chattel paper shall be deemed to be "possession by the secured party" for
purposes of perfecting the security interest pursuant to Section 9-305 of the
Uniform Commercial Code; and (iv) notifications to Persons holding such
property, and acknowledgments, receipts or confirmations from financial
intermediaries, bankers or agents (as applicable) of the Lessee shall be deemed
to have been given for the purpose of perfecting such security interest under
Applicable Law. The Lessor and the Lessee shall, to the extent consistent with
the Lease, take such actions and execute, deliver, file and record such other
documents, financing statements, mortgages and deeds of trust as may be
reasonably necessary to ensure that, if the Lease were deemed to create a
security interest in the Property in accordance with this Section, such security
interest would be deemed to be a perfected security interest of first priority
under Applicable Law and will be maintained as such throughout the Term.
(d) Specifically, without limiting the generality of subsections (a),
(b) and (c) of this Section 5.1, the parties hereto intend and agree that, for
purposes of filing federal, state and local returns, reports and other
statements relating to income or franchise taxes, or any other taxes imposed
upon or measured by income, (i) the Lessee shall be entitled to take any
deduction, credit, allowance or other reporting position consistent with its
status as owner of the Property; and (ii) neither the Lessor nor any Participant
shall take an initial position on its federal, state and local returns, reports
and other statements relating to income or franchise taxes that is inconsistent
with the Lessee's status as owner of the Property.
(e) If the transaction evidenced by this Agreement and the other
Operative Documents can no longer be treated as an operating lease pursuant to
GAAP for accounting purposes, all provisions in the Operative Documents limiting
the Lessee's obligation to pay the Lease Balance or Asset Termination Value
(including the Remarketing Option) shall no longer apply. If any such change in
accounting treatment shall occur, the Lessee shall enter into such amendments to
the Operative Documents as the Lessor or the Required Participants may
reasonably request to reflect the foregoing.
SECTION 5.2. Amounts Due Under Lease. Anything else herein or elsewhere
to the contrary notwithstanding, it is the intention of the Lessee, the Lessor,
the Participants and the Indenture Trustee that: (i) the amount and timing of
installments of Basic Rent due and payable from time to time from the Lessee
under the Lease shall be equal to the aggregate payments due and payable as
interest and principal on the Notes and Certificate Yield on, and the
Certificate Purchaser Amounts with respect to, the Certificates on each Payment
Date; (ii) if the Lessee elects the Purchase Option or becomes obligated to
purchase the Property under the Lease, the Notes, the Certificate Purchaser
Amounts, all interest and Certificate Yield, thereon and all other obligations
of the Lessee owing to the Certificate Holders, the Owner Trustee, the Note
Holders and the Indenture Trustee shall be paid in full by the Lessee; (iii) if
the Lessee properly elects the Remarketing Option, the Lessee shall only be
required to pay to the Lessor the proceeds of the sale of the Property, the
Residual Value Guarantee Amount and any amounts due pursuant to Section 13 of
this Participation Agreement and Section 22.1 of the Lease; and (iv) upon an
Event of Default resulting in an acceleration of the Lessee's obligation to
purchase the
<PAGE> 23
Property under the Lease, the amounts then due and payable by the Lessee under
the Lease shall include all amounts necessary to pay in full the Asset
Termination Value, plus all other amounts then due from the Lessee to the Note
Holders, the Indenture Trustee, the Certificate Holders and the Owner Trustee
under the Operative Documents.
SECTION 6.
CONDITIONS PRECEDENT TO CLOSING DATE,
ACQUISITION OF GROUND LEASE INTEREST AND ADVANCES
SECTION 6.1. Conditions Precedent -- Documentation. The obligation of
the Lessor to acquire the Ground Lease Interest by ground lease on the Ground
Lease Interest Acquisition Date, the obligation of the Lessor to make an Advance
to finance the acquisition of Equipment or the construction of any Improvements
or the funding of any Interest Payment Advance or other Section 3.9(f)(ii)
portion on any Funding Date, and the obligation of each Participant to purchase
its respective Notes and/or Certificates on the Closing Date and to make
available to the Lessor its related portion of each such Advance on such Funding
Date are subject to satisfaction or waiver of the following conditions precedent
and the conditions precedent set forth in Section 6.2 and Section 6.3 (it being
understood that the Lessor's obligation to acquire such Ground Lease Interest or
to finance such Equipment, if any, or Improvements shall not be subject to the
conditions precedent set forth in this Section 6.1, Section 6.2 or Section 6.3
to the extent such conditions are actions required of the Lessor) on or prior to
the Closing Date, Ground Lease Interest Acquisition Date or such Funding Date,
as the case may be:
(a) Acquisition and Funding Request. Prior to the Ground Lease Interest
Acquisition Date or applicable Funding Date, the Indenture Trustee and the
Lessor shall have received a fully executed counterpart of the Acquisition
Request or Funding Request, as the case may be, appropriately completed by the
Lessee, in accordance with Sections 3.4 and 3.5, respectively; provided, that
this condition shall be deemed to have been satisfied in connection with an
Interest Payment Advance or funding of a Section 3.9(f)(ii) portion pursuant to
Section 3.9 hereof.
(b) Closing Date; Operative Documents. The Closing Date shall have
occurred and each of the Operative Documents to be entered into on the Closing
Date shall have been duly authorized, executed and delivered by the parties
thereto, and shall be in full force and effect, including, without limitation,
(i) this Participation Agreement, (ii) the Lease, (iii) the Indenture, (iv) the
Notes, (v) the Trust Agreement, (vi) the Certificates, (vii) the Guarantee,
(viii) the Cash Collateral Agreement, (ix) the Construction Agency Agreement,
(x) the Construction Agency Agreement Assignment, (xi) the Mortgage, (xii) the
Assignment of Lease, (xiii) the Consent to Assignment, (xv) the Ground Lease and
(xvi) the Appointment of Co-Trustee. No Default or Event of Default shall exist
thereunder (both before and after giving effect to the transactions contemplated
by the Operative Documents), and the Lessor, the Indenture Trustee and each
Participant shall each have received a fully executed copy of each of such
Operative
<PAGE> 24
Documents (other than (A) the Lease and Lease Supplement, of which the Indenture
Trustee shall receive the originals and the Lessor and the Certificate
Purchasers shall receive specimens, (B) the Certificates, of which each
Certificate Purchaser shall receive its original and the Lessee, the Indenture
Trustee and the Note Purchasers shall receive specimens), and (C) the Notes, of
which each Note Purchaser shall receive its original and the other parties shall
receive specimens. On or prior to the Closing Date or the Ground Lease Interest
Acquisition Date, as applicable, the Operative Documents (or memoranda thereof),
any supplements thereto and any financing statements in connection therewith
required under the Uniform Commercial Code shall have been recorded, registered
and filed, if necessary, in such manner as to enable the respective counsel to
render their opinions referred to in clauses (l) below.
(c) Environmental Certificate. The Indenture Trustee, each Participant
and the Lessor shall have received an Environmental Certificate substantially in
the form of Exhibit C (an "Environmental Certificate") with respect to the
Property, provided that such Environmental Certificate shall be delivered not
less than five (5) Business Days prior to the Ground Lease Interest Acquisition
Date and accompanied by the Environmental Audit for the Property, each of which
shall have been approved by the Indenture Trustee, the Required Participants and
the Lessor, it being understood and agreed that the Lessee agrees to provide a
Phase II environmental site assessment with respect to any Recognized
Environmental Conditions (as defined in the certificate) shown on such
certificate or indicated in the Environmental Audit within ninety (90) days
following the Ground Lease Interest Acquisition Date if requested by the
Required Participants, to remedy any such conditions within two hundred seventy
(270) days following the Ground Lease Interest Acquisition Date and to deliver
to the Indenture Trustee, the Lessor and each Participant upon completion of
such remedial action a written statement by the consultant who prepared the
Environmental Audit indicating that all such exceptions have been remedied in
compliance with Applicable Law.
(d) Appraisal. On or prior to the Ground Lease Interest Acquisition
Date, the Indenture Trustee, the Lessor and the Participants shall have received
an Appraisal of the Property, which Appraisal shall (i) show as of the projected
Completion Date the Fair Market Sales Value of the Ground Lease Interest and the
Improvements to be constructed thereon in accordance with the Plans and
Specifications, and (ii) meet the other applicable requirements set forth in the
definition of the term "Appraisal" contained in Appendix 1.
(e) Ground Lease. As of the Ground Lease Interest Acquisition Date, the
conditions to commencement of the lease term under the Ground Lease shall have
been satisfied to satisfaction of, or waived by, the Ground Lessor, the Lessor
and the Participants, the Ground Lease shall have been duly executed and shall
be in full force and effect and the lease term thereunder shall have commenced
as of such date.
(f) Lease Supplement; Equipment Schedule. The Lessee and the Lessor
shall have delivered (i) on or prior to the Ground Lease Interest Acquisition
Date, the original counterpart of the Lease Supplement executed by the Lessee
and the Lessor to the
<PAGE> 25
Indenture Trustee and (ii) on or prior to the applicable Funding Date, a duly
executed Equipment Schedule covering any Equipment, if any, being acquired with
the proceeds of such Advance by the Lessor.
(g) Survey and Title Insurance. On or prior to the Ground Lease
Interest Acquisition Date, the Lessee shall have delivered (i) an ALTA/ACSM
(1992)(Urban) Survey of the Property, including Table A numbers 1, 2, 3, 4, 6,
8, 9, 10 and 11, certified to the Lessor, the Indenture Trustee, the
Participants and the title company and otherwise in form reasonably acceptable
to the Participants, (ii) an ALTA (1992) owners title insurance policy with
extended coverage over the general exceptions, insuring leasehold title in the
Lessor to the Ground Lease and the Ground Lease Interest and fee title in the
Lessor to the Improvements, subject only to the Permitted Exceptions, (iii) an
ALTA (1992) Loan Policy insuring the Indenture Trustee that the Lien of the
Mortgage is a first and primary lien in the Lessor's interest in the Lease, in
the leasehold title to the Ground Lease Interest and in the fee title to the
Improvements, subject only to pending disbursements for construction and the
Permitted Exceptions, and (iv) an ALTA (1992) Loan Policy insuring the Indenture
Trustee that the Lien of the Lease is a first and primary Lien in the Lessee's
interest in the Property; such policies each in an amount not less than the
estimated Property Cost and to be reasonably satisfactory to the Lessor, the
Indenture Trustee and the Participants with extended coverage, access, tax
parcel, survey identicality, variable rate, future advances, usury,
comprehensive, fraudulent conveyances, doing business, mechanics liens and
zoning endorsements and such other endorsements as and to the extent available
in such jurisdiction where the Property is located, if requested by the Required
Participants.
(h) Evidence of Recording and Filing. On or prior to the Ground Lease
Interest Acquisition Date, the Indenture Trustee shall have received evidence
reasonably satisfactory to it that each of the Ground Lease, the Lease
Supplement, the Assignment of Lease and Supplement to Assignment of Lease, the
Consent to Assignment and the Mortgage shall have been or are being recorded
with the appropriate Governmental Authorities in the order in which such
documents are listed in this clause, and the UCC Financing Statements with
respect to the Property being acquired shall have been or are being filed with
the appropriate Governmental Authorities.
(i) Evidence of Insurance. On or prior to the Ground Lease Interest
Acquisition Date, copies of the Lessee's insurance policies with respect to the
Property required to be maintained pursuant to the Lease shall have been
delivered to the insurance consultant of the Lessor and the Participants and
such policies shall be reasonably satisfactory to such insurance consultant, the
Lessor and the Participants.
(j) Evidence of Use of Proceeds. On or prior to the applicable Funding
Date, the Indenture Trustee and each Participant shall have received evidence
reasonably satisfactory to the Indenture Trustee and each Participant as to the
use of the proceeds of the Advance in accordance with the provisions of Section
8.1(g).
<PAGE> 26
(k) Taxes. On or prior to the Ground Lease Interest Acquisition Date,
all taxes, fees and other charges in connection with the execution, delivery,
recording, filing and registration of the Operative Documents shall have been
paid or provisions for such payment shall have been made to the satisfaction of
the Indenture Trustee, each Participant and the Lessor.
(l) Opinions of Counsel. On or prior to the Closing Date, (i) the
Lessee shall have delivered to the Indenture Trustee, each Participant and the
Lessor an opinion of Orrick, Herrington & Sutcliffe LLP, counsel to the Lessee,
as to the matters set forth in Exhibit D (with an appropriate update on the
Ground Lease Interest Acquisition Date (if different than the Closing Date) with
respect to the Property and the Mortgage); (ii) the Owner Trustee shall have
delivered to the Indenture Trustee, the Lessee and each Participant an opinion
of counsel reasonably satisfactory to the Indenture Trustee, each Participant
and the Lessee in the form set forth on Exhibit E; and (iii) Dorsey & Whitney,
counsel to the Co-Trustee, shall have issued to the Lessor, the Indenture
Trustee, the Lessee and the Participants its opinion to the effect and in the
form set forth on Exhibit F.
(m) Approvals. All necessary (or, in the reasonable opinion of the
Lessor, the Participants or the Indenture Trustee or any of their respective
counsel, advisable) Governmental Actions and covenants and approvals of or by
any Governmental Authority or other Person, in each case required by any
Requirement of Law, covenant or restriction affecting the Property or the
transactions contemplated thereby shall have been obtained or made and be in
full force and effect prior to the time required to be in effect.
(n) Litigation. No action or proceeding shall have been instituted, nor
shall any action or proceeding be threatened, before any Governmental Authority,
nor shall any order, judgment or decree have been issued or proposed to be
issued by any Governmental Authority (i) to set aside, restrain, enjoin or
prevent the full performance of this Participation Agreement, the Lease or any
other Operative Document or any transaction contemplated hereby or thereby or
(ii) which is reasonably likely to have a Material Adverse Effect.
(o) Requirements of Law. In the reasonable opinion of the Lessor, the
Participants, the Indenture Trustee and their respective counsel, the
transactions contemplated by the Operative Documents do not and will not violate
any Requirement of Law and do not and will not subject the Lessor, the Indenture
Trustee or any Participant to any adverse regulatory or tax prohibitions or
constraints.
(p) Responsible Officer's Certificate of the Lessee. The Lessor, each
Participant and the Indenture Trustee shall each have received a Responsible
Officer's Certificate, dated as of the Closing Date, of the Lessee stating that
(i) each and every representation and warranty of the Lessee contained in the
Operative Documents to which it is a party is true and correct on and as of the
Closing Date; (ii) no Default or Event of Default under the Lease, the Ground
Lease or the Construction Agency Agreement has occurred and is continuing; (iii)
each Operative Document to which the Lessee is a party is in full force and
effect with respect to it; and (iv) the Lessee has duly
<PAGE> 27
performed and complied with all covenants, agreements and conditions contained
herein or in any Operative Document required to be performed or complied with by
it on or prior to the Closing Date.
(q) The Lessee's Resolutions and Incumbency Certificate, etc. On or
prior to the Closing Date, the Lessor, each Participant and the Indenture
Trustee shall each have received (i) a certificate of the Secretary or an
Assistant Secretary of the Lessee attaching and certifying as to (A) the
resolutions of the Board of Directors of the Lessee, duly authorizing the
execution, delivery and performance by the Lessee of documents and agreements of
the type represented by each Operative Document to which it is or will be a
party, (B) its articles of incorporation and bylaws, and (C) the incumbency and
signature of persons authorized to execute and deliver on its behalf the
Operative Documents to which it is a party, and (ii) a good standing certificate
from the appropriate officer of the state in which the Property is located.
(r) Responsible Officer's Certificate of the Guarantor. The Lessor,
each Participant and the Indenture Trustee shall each have received a
Responsible Officer's Certificate, dated as of the Closing Date, of the
Guarantor stating that (i) each and every representation and warranty of the
Guarantor contained in the Operative Documents to which it is a party is true
and correct on and as of the Closing Date; (ii) no Default or Event of Default
under the Guarantee has occurred and is continuing; (iii) each Operative
Document to which the Guarantor is a party is in full force and effect with
respect to it; and (iv) the Guarantor has duly performed and complied with all
covenants, agreements and conditions contained herein or in any Operative
Document required to be performed or complied with by it on or prior to the
Closing Date.
(s) The Guarantor's Resolutions and Incumbency Certificate, etc. On or
prior to the Closing Date, the Lessor, each Participant and the Indenture
Trustee shall each have received a certificate of the Secretary or an Assistant
Secretary of the Guarantor attaching and certifying as to (i) the resolutions of
its Board of Directors duly authorizing the execution, delivery and performance
by the Guarantor of documents and agreements of the type represented by each
Operative Document to which it is or will be a party (ii) its articles of
incorporation and by-laws, and (iii) the incumbency and signature of persons
authorized to execute and deliver on its behalf the Operative Documents to which
it is a party.
(t) Ground Lease Interest Acquisition Date. The Ground Lease Interest
Acquisition Date shall occur on or prior to September 28, 1998.
(u) No Material Adverse Effect. As of each Funding Date, there shall
not have occurred any Material adverse change in the Lessee's or the Guarantor's
capital structure, ownership or consolidated assets, liabilities, results of
operations, or financial condition from that set forth or contemplated in the
most recent financial statements delivered pursuant to Section 8.4(m) or Section
10.1(a), and no event or condition shall have occurred that would result in a
Material Adverse Effect, provided that for purposes of this condition precedent,
the Momentum Transaction shall not be deemed to constitute a Material adverse
change or result in a Material Adverse Effect.
<PAGE> 28
(v) Officer's Certificate of the Lessor. The Lessee, the Indenture
Trustee and each Participant shall have received a certificate of an Authorized
Officer of the Lessor, dated as of the Closing Date, stating that (i) each and
every representation and warranty of the Lessor contained in the Operative
Documents to which it is a party is true and correct on and as of the Closing
Date, (ii) each Operative Document to which the Lessor is a party is in full
force and effect with respect to it, (iii) the Lessor has duly performed and
complied with all covenants, agreements and conditions contained herein or in
any Operative Document required to be performed or complied with by it on or
prior to the Closing Date, and (iv) the Lessor has the capacity to act as a
trustee and hold the Property in the jurisdiction in which the Property is
located.
(w) The Lessor's Resolutions and Incumbency Certificate, etc. On or
prior to the Closing Date, the Lessee, the Indenture Trustee and each
Participant shall have received a certificate of the Secretary or an Assistant
Secretary of the Lessor attaching and certifying as to (i) the resolutions of
the Board of Directors duly authorizing the execution, delivery and performance
by the Lessor of documents and agreements of the type represented by each
Operative Document to which it is or will be a party, (ii) the pertinent
provisions of its by-laws and (iii) the incumbency and signature of persons
authorized to execute and deliver on its behalf the Operative Documents to which
it is a party.
(x) Construction Budget; Plans and Specifications. On or prior to the
Ground Lease Interest Acquisition Date, each Participant shall have received a
copy of the "Design Review" Plans and Specifications and Budget, each in a form
reasonably satisfactory to each Participant. The Chief Financial Officer of the
Lessee shall certify that the "Final" Plans and Specifications will conform to
the "Design Review" Plans and Specifications in all Material respects and the
Budget was prepared based on the "Design Review" Plans and Specifications.
(y) Sale of All Notes and Certificates. On the Closing Date, each of
the Notes and Certificates shall have been purchased by the other Note
Purchasers and Certificate Purchasers, as applicable.
(z) Legal Fees and Expenses. The Lessee shall have caused to be paid as
provided in Section 9 all reasonable fees and expenses of attorneys for the
Owner Trustee, the Indenture Trustee and any Participant (which attorneys may be
employees of such Person) paid or incurred in connection with the preparation,
negotiation, execution and delivery of the Operative Documents.
SECTION 6.2. Further Conditions Precedent. The obligation of the Lessor
to acquire the Ground Lease Interest on the Ground Lease Interest Acquisition
Date or to make an Advance on any Funding Date and the obligation of each
Participant to make available its related portion of such Advance on such
Funding Date are subject to satisfaction or waiver of the following conditions
precedent and to satisfaction on or before the Ground Lease Interest Acquisition
Date, the Closing Date or such Funding
<PAGE> 29
Date, as the case may be, of the conditions precedent set forth in Section 6.1
(it being understood that the Lessor's obligations to acquire the Ground Lease
Interest and each Participant's obligation to fund an Advance shall not be
subject to the conditions precedent set forth in Section 6.1, Section 6.3 and
this Section 6.2 to the extent such conditions are actions required of the
Lessor or such Participant, as the case may be):
(a) Representations and Warranties. On such date the representations
and warranties of the Lessee, the Guarantor, the Lessor, the Indenture Trustee
and each Participant contained herein and in each of the other Operative
Documents shall be true and correct as though made on and as of such date,
except to the extent such representations or warranties relate solely to an
earlier date, in which case such representations and warranties shall have been
true and correct on and as of such earlier date.
(b) Performance of Covenants. The parties hereto shall have performed
their respective agreements contained herein and in the other Operative
Documents to be performed by them on or prior to such date.
(c) Title. Title to the Property shall conform to the representations
and warranties set forth in Section 8.4(c).
(d) No Default. There shall not have occurred and be continuing any
Default or Event of Default under any of the Operative Documents, and no Default
or Event of Default under any of the Operative Documents will have occurred
after giving effect to the acquisition of the Property and/or the making of the
Advance requested by such Funding Request, as the case may be.
SECTION 6.3. Conditions Precedent to Closing Date. The obligation of
the Lessor, the Indenture Trustee, each Participant, the Lessee and the
Guarantor to execute and deliver the Operative Documents referred to in Section
6.3(a) hereof on the Closing Date and to consummate the closing on the Closing
Date are subject to satisfaction or waiver of the following conditions precedent
(it being understood that such Person's obligations under this Section 6.3 shall
not be subject to the conditions precedent set forth in this Section 6.3 to the
extent such conditions are actions required of such Person):
(a) Operative Documents. Each of the Operative Documents to be entered
into on the Closing Date shall have been duly authorized, executed and delivered
by the parties thereto, and shall be in full force and effect
(b) Representations and Warranties. On such date the representations
and warranties of the Lessee, the Guarantor, the Lessor, the Indenture Trustee
and each Participant contained herein and in each of the other Operative
Documents shall be true and correct as though made on and as of such date.
<PAGE> 30
(c) Performance of Covenants. The parties hereto shall have performed
their respective agreements contained herein and in the other Operative
Documents to be performed by them on or prior to such date.
(d) No Default. There shall not have occurred and be continuing any
Default or Event of Default under any of the Operative Documents, and no Default
or Event of Default under any of the Operative Documents will have occurred
after giving effect to the execution and delivery of the Operative Documents.
SECTION 7.
COMPLETION DATE CONDITIONS
SECTION 7.1. Conditions. The occurrence of the Completion Date shall be
subject to the fulfillment to the satisfaction of, or waiver by, the Required
Participants of the following conditions precedent at which time "Completion"
shall be deemed to have occurred:
(a) Construction Completion. The construction of the Improvements shall
have been completed substantially in accordance with the Plans and
Specifications and all Applicable Law and Insurance Requirements, and the
Property shall be ready for occupancy and use as a facility described in Recital
A of this Agreement. This shall require, without limiting the generality of the
preceding sentence, that (i) all utilities required to adequately service the
Improvements for their intended use are available and "tapped on" and hooked up
pursuant to adequate permits (including any that may be required under
applicable Environmental Laws) and (ii) access to the Improvements for
pedestrians and motor vehicles from publicly dedicated streets and public
highways is available.
(b) Architect's Certificate; Date-Down Endorsement. The Lessee shall
have furnished to the Lessor and the Indenture Trustee a (i) certificate of the
Architect (substantially in the form of Exhibit H) dated at or about the
Completion Date and stating that (a) the Improvements have been completed
substantially in accordance with the Plans and Specifications and the Property
is ready for occupancy, (b) the Property, as so completed, complies in all
material respects with all Applicable Laws, and certifying that attached thereto
are true and complete copies of an "as built" or "record" set of the Plans and
Specifications, and a plat of survey of the Property "as built" showing all
paving, driveways, fences and exterior improvements; and (ii) a date-down
endorsement to or amendment and restatement of the title insurance policies
described in Section 6.1(g).
(c) Lessee Certification. The Lessee shall have furnished the Lessor
and the Indenture Trustee with a certification of the Lessee (substantially in
the form of Exhibit I) as follows:
<PAGE> 31
(i) The representations and warranties of the Lessee with respect to
the Property set forth in Section 8.4(b) are true and correct as of the
Completion Date. All amounts owing to third parties for the
construction of the Improvements have been paid in full.
(ii) No changes or modifications were made to the related Plans and
Specifications after the Closing Date that have had a Material adverse
effect on the value, use or useful life of the Property.
SECTION 8.
REPRESENTATIONS
SECTION 8.1. Representations of the Bank and the Lessor. Bank, in its
individual capacity and the Owner Trustee, each as to itself, represents and
warrants to each of the other parties hereto as follows, provided that the
representations in the following paragraphs (f), (g), (h), (i), (j), (k) and (l)
are made solely in its capacity as the Owner Trustee:
(a) Due Organization, etc. It is a Delaware banking corporation duly
organized and validly existing and in good standing under the laws of the United
States and has the corporate power and authority to enter into and perform its
obligations under the Trust Agreement and (assuming due authorization, execution
and delivery of the Trust Agreement by the Certificate Purchasers) has the
corporate and trust power and authority to act as the Owner Trustee and to enter
into and perform the obligations under each of the other Operative Documents to
which the Bank or the Owner Trustee, as the case may be, is or will be a party
and each other agreement, instrument and document to be executed and delivered
by it in connection with or as contemplated by each such Operative Document to
which the Bank or the Owner Trustee, as the case may be, is or will be a party.
(b) Authorization; No Conflict. The execution, delivery and performance
of each Operative Document to which it is or will be a party, either in its
individual capacity or (assuming due authorization, execution and delivery of
the Trust Agreement by the Certificate Purchasers) as the Owner Trustee, as the
case may be, has been duly authorized by all necessary action on its part and
neither the execution and delivery thereof, nor the consummation of the
transactions contemplated thereby, nor compliance by it with any of the terms
and provisions thereof (i) does or will require any approval or consent of any
trustee or holders of any of its indebtedness or obligations, (ii) does or will
contravene any current United States law, governmental rule or regulation
relating to its banking or trust powers, (iii) does or will contravene or result
in any breach of or constitute any default under, or result in the creation of
any Lien upon any of its property under, its articles of association or by-laws,
or any indenture, mortgage, deed of trust, conditional sales contract, credit
agreement or other agreement or instrument to which it is a party or by which it
or its properties may be bound or affected or (iv) does or will
<PAGE> 32
require any Governmental Action by any Governmental Authority of the United
States and regulating its banking or trust powers.
(c) Enforceability, etc. The Trust Agreement and, assuming the Trust
Agreement is the legal, valid and binding obligation of the Certificate
Purchasers, each other Operative Document to which the Bank or the Owner
Trustee, as the case may be, is or will be a party have been, or on or before
the Closing Date or Ground Lease Interest Acquisition Date will be, duly
executed and delivered by the Bank or the Owner Trustee, as the case may be, and
the Trust Agreement and each such other Operative Document to which the Bank or
the Owner Trustee, as the case may be, is a party constitutes, or upon execution
and delivery will constitute, a legal, valid and binding obligation enforceable
against the Bank or the Owner Trustee, as the case may be, in accordance with
the terms thereof, except as the same may be limited by insolvency, bankruptcy,
reorganization or other laws relating to or affecting creditors' rights or by
general equitable principles.
(d) Litigation. There is no action or proceeding pending or, to its
knowledge, threatened to which it is or will be a party, either in its
individual capacity or as the Owner Trustee, before any Governmental Authority
that, if adversely determined, would materially and adversely affect its
ability, in its individual capacity or as Owner Trustee, to perform its
obligations under the Operative Documents to which it is a party, would have a
material adverse effect on the financial condition of the Owner Trustee or would
question the validity or enforceability of any of the Operative Documents to
which it is or will become a party.
(e) Assignment. It has not assigned or transferred any of its right,
title or interest in or under the Lease except in accordance with the Operative
Documents.
(f) Defaults. No Default or Event of Default under the Operative
Documents attributable to it has occurred and is continuing.
(g) Use of Proceeds. The proceeds of the Notes and the Certificates
shall be applied solely in accordance with the Operative Documents.
(h) Securities Act. Neither the Owner Trustee nor any Person authorized
by the Owner Trustee to act on its behalf has offered or sold any interest in
the Trust Estate or the Notes, or in any similar security relating to the
Property, or in any security the offering of which for the purposes of the
Securities Act would be deemed to be part of the same offering as the offering
of the aforementioned securities to, or solicited any offer to acquire any of
the same from, any Person other than the Certificate Purchasers, the Note
Purchasers and other accredited investors, and neither the Owner Trustee nor any
Person authorized by the Owner Trustee to act on its behalf will take any action
which would subject the issuance or sale of any interest in the Trust Estate or
the Notes to the provisions of Section 5 of the Securities Act or require the
qualification of any Operative Document under the Trust Indenture Act of 1939,
as amended.
(i) Chief Place of Business. The Owner Trustee's chief place of
business, chief executive office and office where the documents, accounts and
records relating to
<PAGE> 33
the transactions contemplated by this Participation Agreement and each other
Operative Document are kept are located at Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust
Administration.
(j) Federal Reserve Regulations. The Owner Trustee is not engaged
principally in the business of extending credit for the purpose of purchasing or
carrying any margin stock (within the meaning of Regulation U of the Board), and
no part of the proceeds of the Notes or the Certificates will be used by it to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any such margin stock or for any purpose that
violates, or is inconsistent with, the provisions of Regulation G, T, U, or X of
the Board.
(k) Investment Company Act. The Owner Trustee is not an "investment
company" or a company controlled by an "investment company" within the meaning
of the Investment Company Act.
(l) No Plan Assets. The Owner Trustee is not acquiring its interests in
the Property with the assets of any Plan (or its related trust).
SECTION 8.2. Representations of the Participants. (a) Representations
of each Participant. Each Participant severally as to itself represents to the
other parties hereto as follows:
(i) The Notes or Certificates to be purchased by it are being acquired
by it for its own account and for investment and not with a view to any
distribution thereof, but without prejudice to the rights of such
Participant at all times to sell or otherwise dispose of all or any
part of its Notes or Certificates in accordance with the terms hereof
and of the Operative Documents and under an exemption from the
Securities Act and otherwise in compliance with all applicable state
securities laws, subject, nevertheless to any requirement of law that
the disposition of such Participant's Notes or Certificates at all
times shall be within its control.
(ii) Each Participant, by its purchase and acceptance of a Note or
Certificate, hereby represents and warrants to each of the other
parties hereto that at least one of the following statements is an
accurate representation as to the source of funds to be used by such
Participant to make its investment hereunder:
(A) If such Participant is an insurance company, no part
of such funds constitutes assets allocated to any
separate account maintained by it in which any Plan
(or its related trust) has any interest; or
(B) If such Participant is an insurance company, to the
extent that any part of such funds constitutes assets
allocated to any separate account maintained by it,
it has disclosed in writing to
<PAGE> 34
the Lessee, the other Participants, the Owner
Trustee, and the Indenture Trustee the names of each
Plan whose assets in such account exceed ten percent
of the total assets or are expected to exceed ten
percent of the total assets of such account as of the
date of such investment (for the purposes of this
subdivision (B), all Plans maintained by the same
employer or employee organization are deemed to be a
single plan); or
(C) If such Participant is a bank, to the extent that any
part of such funds constitutes assets allocated to
any bank collective investment vehicle maintained by
it, it has disclosed in writing to the Lessee, the
Participants, the Owner Trustee, and the Indenture
Trustee the names of each Plan whose assets in such
vehicle exceed ten percent of the total assets or are
expected to exceed ten percent of the total assets of
such vehicle as of the date of such investment (for
the purpose of this subdivision (C), all Plans
maintained by the same employer or employee
organization are deemed to be a single plan); or
(D) If such Participant is other than an insurance
company, no part of such funds constitutes assets of
any Plan (other than a governmental plan exempt from
the coverage of ERISA); or
(E) If such Participant is an insurance company, such
funds constitute assets allocated to a general
account and such general account is an "insurance
company general account" as such term is defined in
Section V(e) of Department of Labor Prohibited
Transaction Exemption ("PTE") 95-60 (issued July 12,
1995) and such investment is eligible for and
satisfies the requirements of PTE 95-60; or
(F) If such funds constitute assets of a specific Plan,
complete and correct information as to the identity
of which such Participant has disclosed in writing to
the Lessee, the other Participants, the Owner Trustee
and the Indenture Trustee; or
(G) The source of funds is an "investment fund" managed
by a "qualified professional asset manager" or "QPAM"
(as defined in Part V of PTE 84-14, issued March 13,
1984), provided that no other party to the
transactions described in this Agreement and no
"affiliate" of such other party (as defined in
Section V(C) of PTE 84-14) has at this time, and
during the immediately preceding one year, exercised
the authority to appoint or terminate said QPAM as
manager of the assets of any plan identified in
writing pursuant to clause (F) or to
<PAGE> 35
negotiate the terms of said QPAM's management
agreement on behalf of any such identified plans.
(b) Representations of each Certificate Purchaser. Each Certificate
Purchaser severally as to itself represents and warrants to each of the other
parties hereto as follows:
(i) Due Organization, etc. It is a duly organized and validly existing
corporation in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to execute,
deliver and carry out the terms and provisions of the Operative
Documents to which it is or will be a party.
(ii) Authorization; No Conflict. The execution, delivery and
performance of each Operative Document to which it is or will be a
party has been duly authorized by all necessary action on its part and
neither the execution and delivery by it thereof, nor the consummation
of the transactions by it contemplated thereby, nor compliance by it
with any of the terms and provisions thereof (A) does or will require
any approval or consent of any trustee or holders of any of its
indebtedness or obligations, (B) does or will contravene any current
United States law, governmental rule or regulation specifically
applicable to it, (C) does or will contravene or result in any breach
of or constitute any default under, or result in the creation of any
Lien upon any of its property under, its certificate of incorporation
or bylaws, or any indenture, mortgage, deed of trust, conditional sales
contract, credit agreement or other agreement or instrument to which it
is a party or by which it or its properties may be bound or affected
which would have a material adverse effect on the ability of such
Certificate Purchaser to perform its obligations under the Operative
Documents to which it is a Party or (D) based upon the representations
of the Lessee contained in Section 8.4(j), does or will require on its
behalf any Governmental Action by any Governmental Authority not
already expressly provided for in the Operative Documents.
(iii) Enforceability, etc. Each Operative Document to which such
Certificate Purchaser is or will be a party has been or on or before
the Closing Date or Ground Lease Interest Acquisition Date will be,
duly executed and delivered by such Certificate Purchaser and each such
Operative Document to which such Certificate Purchaser is a party
constitutes, or upon execution and delivery will constitute, a legal,
valid and binding obligation enforceable against such Certificate
Purchaser in accordance with the terms thereof, except as the same may
be limited by insolvency, bankruptcy, reorganization or other laws
relating to or affecting creditors' rights or by general equitable
principles.
(iv) Litigation. There is no action or proceeding pending or, to its
knowledge, threatened to which it is a party on the Closing Date before
any Governmental Authority that, if adversely determined, would
materially and adversely affect its ability to perform its obligations
under the Operative Documents to which it is a party, would have a
material adverse effect on the financial condition of such
<PAGE> 36
Certificate Purchaser or would question the validity or enforceability
of any of the Operative Documents to which it is or will become a
party.
(v) Defaults. No Default or Event of Default under the Operative
Documents attributable to it has occurred and is continuing.
(vi) Securities Act. Neither such Certificate Purchaser nor any Person
authorized by such Certificate Purchaser to act on its behalf has
offered or sold any interest in the Trust Estate, or in any similar
security relating to the Property, or in any security the offering of
which for the purposes of the Securities Act would be deemed to be part
of the same offering as the offering of the aforementioned securities
to, or solicited any offer to acquire any of the same from, any Person
and neither such Certificate Purchaser nor any Person authorized by
such Certificate Purchaser to act on its behalf will take any action
which would subject the issuance or sale of any interest in the Trust
Estate to the provisions of Section 5 of the Securities Act or require
the qualification of any Operative Document under the Trust Indenture
Act of 1939, as amended.
(vii) Investment Company Act. Such Certificate Purchaser is not an
"investment company" or a company "controlled" by an investment company
within the meaning of the Investment Company Act.
SECTION 8.3. Representations of the Lessee. The Lessee represents and
warrants to each of the other parties hereto that:
(a) Corporate Status. The Lessee (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and (ii) has duly qualified and is authorized to do business and has obtained a
certificate of authority to transact business as a foreign corporation in the
jurisdiction where the Property is located and in each other jurisdiction where
the failure to so qualify is reasonably likely to be Material.
(b) Corporate Power and Authority. The Lessee has corporate power and
authority to execute, deliver and carry out the terms and provisions of the
Operative Documents to which it is or will be a party and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Operative Documents to which it is or will be a party and has or will
have duly executed and delivered each Operative Document required to be executed
and delivered by it and, assuming the due authorization, execution and delivery
thereof on the part of each other party thereto, each such Operative Document
constitutes or will constitute a legal, valid and binding obligation enforceable
against it in accordance with its terms, except as the same may be limited by
insolvency, bankruptcy, reorganization or other laws relating to or affecting
the enforcement of creditors' rights or by general equitable principles.
(c) No Violation. Neither the execution, delivery and performance by
the Lessee of the Operative Documents to which it is or will be a party nor
compliance with
<PAGE> 37
the terms and provisions thereof, nor the consummation by the Lessee of the
transactions contemplated therein (i) will result in a violation by the Lessee
of any applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality having
jurisdiction over the Lessee or the Property that would (x) adversely affect the
validity or enforceability of the Operative Documents to which the Lessee is a
party, or the title to, or value or condition of, the Property, or (y) have a
Material Adverse Effect on the consolidated financial position, business or
consolidated results of operations of the Lessee, or (z) have an adverse effect
on the ability of the Lessee to perform its obligations under the Operative
Documents, (ii) will conflict with or result in any breach under, or (other than
pursuant to the Operative Documents) result in the creation or imposition of (or
the obligation to create or impose) any Lien upon any of the property or assets
of Lessee pursuant to the terms of, any indenture, loan agreement or other
agreement for borrowed money to which the Lessee is a party or by which it or
any of its property or assets is bound or to which it may be subject (other than
Permitted Liens), or (iii) will violate any provision of the certificate or
articles of incorporation or bylaws of the Lessee.
(d) Litigation. There are no actions, suits or proceedings pending or,
to the knowledge of the Lessee, threatened (i) that are reasonably likely to
have a Material Adverse Effect or (ii) that question the validity of the
Operative Documents or the rights or remedies of the Lessor, the Indenture
Trustee or the Participants with respect to the Lessee or the Property under the
Operative Documents.
(e) Governmental Approvals. No Governmental Action by any Governmental
Authority having jurisdiction over the Lessee or the Property is required to
authorize or is required in connection with (i) the execution, delivery and
performance by the Lessee of any Operative Document or (ii) the legality,
validity, binding effect or enforceability against the Lessee of any Operative
Document, except for the filing or recording of the Operative Documents listed
in Section 8.4(f) hereof with the appropriate Governmental Authorities, all of
which will have been completed on or prior to the Ground Lease Interest
Acquisition Date.
(f) Investment Company Act. The Lessee is not an "investment company"
or a company "controlled" by an "investment company," within the meaning of the
Investment Company Act.
(g) Public Utility Holding Company Act. The Lessee is not a "holding
company, or a "subsidiary company," or an "affiliate" of a "holding company, or
of a "subsidiary company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(h) Information. The information and materials regarding the Lessee and
the Property which were provided by the Lessee to one or more of the
Participants prior to the Closing Date or the Ground Lease Interest Acquisition
Date are true and accurate in all material respects on the date as of which such
information and materials are dated or certified and not incomplete by omitting
to state any material fact necessary to make such
<PAGE> 38
information not misleading at such time in light of the circumstances under
which such information was provided.
(i) Taxes. All United States federal income tax returns and all other
Material tax returns which are required to have been filed have been or will be
prepared in accordance with applicable law and filed by or on behalf of the
Lessee by the respective due dates, including extensions, and all taxes due with
respect to the Lessee pursuant to such returns or pursuant to any assessment
received by the Lessee have been or will be paid. The charges, accruals and
reserves on the books of the Lessee in respect of taxes or other governmental
charges are, in the opinion of the Lessee, adequate.
(j) Compliance with ERISA. Each member of the ERISA Group has fulfilled
its obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan and is in compliance in all Material respects with the
presently applicable provisions of ERISA and the Code with respect to each Plan.
No member of the ERISA Group has (i) sought a waiver of the minimum funding
standard under Section 412 of the Code in respect of any Plan, (ii) failed to
make any contribution or payment to any Plan or Multiemployer Plan or in respect
of any Benefit Arrangement, or made any amendment to any Plan or Benefit
Arrangement, which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security under ERISA or the Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA. The execution and delivery of
this Agreement, including the issuance and sale of the Notes and the
Certificates and the consummation of the transactions contemplated hereby and
thereby under the Operative Documents on the Closing Date will not involve any
prohibited transactions, within the meaning of Section 406 of ERISA or in
connection with which a tax could be imposed pursuant to Section 4975 of the
Code, involving the use of "Plan assets" (as defined in Regulation Section
2510.3-010 of ERISA). The representation by the Lessee in the preceding sentence
is made in reliance upon the subject to the correctness of the representations
by the Participants in Section 8.2(a) hereof.
(k) Environmental and Other Regulations. Except as set forth in
Schedule III attached hereto, the Lessee is in compliance with, and the Property
is in compliance in all material respects with, all Environmental Laws in the
jurisdiction in which the Property is located and in all other domestic
jurisdictions, other than, with respect to such other jurisdictions, those
Environmental Laws the non-compliance with which would not have a Material
Adverse Effect.
(l) Offer of Securities, etc. Neither the Lessee nor any Person
authorized to act on its behalf has, directly or indirectly, offered (i) any
interest in the Property, the Lease or the Trust Estate or any other interest
similar thereto (the sale or offer of which would be integrated with the sale or
offer of such interest in the Property, the Lease or the Trust Estate), for sale
to, or solicited any offer to acquire any of the same from, any Person other
than the Participants, the Owner Trustee, the Indenture Trustee and other
"accredited investors" (as defined in Regulation D of the Securities and
Exchange Commission) or (ii) any Notes or any other similar securities (the sale
or offer of which
<PAGE> 39
would be integrated with the sale or offer of the Notes, for sale to, or
solicited any offer to acquire any of the same from, any Person other than the
Participants and other "accredited investors" (as defined in Regulation D of the
Securities and Exchange Commission)).
(m) Financial Statements.
(i) The audited consolidated statement of financial position of the
Lessee and its consolidated Subsidiaries as of December 31, 1997 and
the related consolidated statements of income, stockholders equity and
cash flows for the fiscal year then ended, reported on by Ernst & Young
LLP, a copy of which has been delivered to each of the Lessor, the
Participants and the Indenture Trustee, present fairly in all material
respects, in conformity with generally accepted accounting principles,
the financial position of the Lessee as of such date and its results of
operations and cash flows for such fiscal year.
(ii) The unaudited consolidated statement of financial position of the
Lessee and its consolidated Subsidiaries as of June 30, 1998 and the
related unaudited consolidated statements of income, stockholders
equity and cash flows for the year to date, a copy of which has been
delivered to each of the Lessor, the Participants and the Indenture
Trustee, present fairly in all material respects, in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with the financial statements referred to in
clause (i) of this subsection (m), the consolidated financial position
of the Lessee as of such date and its consolidated results of
operations and cash flows for such year-to-date period (subject to
normal year-end adjustments).
(n) No Material Adverse Change. Since December 31, 1997, there has been
no Material adverse change in the condition (financial or otherwise), business,
operations, assets, liabilities or properties of the Lessee and its consolidated
Subsidiaries taken as a whole, and there has been no damage, destruction or loss
of the physical property (whether or not covered by insurance) of the Lessee and
its consolidated Subsidiaries which taken as a whole materially and adversely
affects their business or operations or the ability of the Lessee to perform its
obligations under the Operative Documents to which it is a party, provided that
for purposes of this representation and warranty, the Momentum Transaction shall
not be deemed to constitute a Material adverse change or result in a Material
Adverse Effect.
(o) No Defaults. Neither the Lessee nor any of its Subsidiaries is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement to which it is a party or by
which it is bound, which default, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(p) Properties; Leases. The Lessee and its respective Subsidiaries have
good and sufficient title to their respective properties that individually or in
the aggregate are
<PAGE> 40
Material, including all properties reflected in the Lessee's most recent audited
financial statements referred to in Section 8.3(m) or purported to have been
acquired by the Lessee or any of its Subsidiaries after the date of such audited
financial statements (except as sold or otherwise disposed of in the ordinary
course of business), in each case free and clear of Liens prohibited in any
Operative Document other than Permitted Liens. All leases that individually or
in the aggregate are Material are valid and subsisting and are in full force and
effect in all material respects.
(q) Licenses, Permits, etc. Except as disclosed in Schedule IV,
(i) The Lessee and its Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, service
marks, trademarks and trade names, or rights thereto, that individually
or in the aggregate are Material, without known conflict with the
rights of others;
(ii) To the best knowledge of the Lessee, no product of the Lessee or
any of its Subsidiaries infringes in any material respect any license,
permit, franchise, authorization, patent, copyright, service mark,
trademark, trade name or other right owned by any other Person; and
(iii) To the best knowledge of the Lessee, there is no Material
violation by any Person of any right of the Lessee or any of its
Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the Lessee or any
of its Subsidiaries.
(r) Year 2000. The Lessee and its Subsidiaries have reviewed or are
reviewing the areas within their business and operations which could be
adversely affected by, and have developed or are developing a program to address
on a timely basis, the "Year 2000 problem" (that is, the risk that computer
applications used by the Lessee and its Subsidiaries may be unable to recognize
and perform properly date-sensitive functions involving certain dates prior to
and any date after December 31, 1999), and have made related appropriate inquiry
of material suppliers and vendors. Based on such review and program, the Lessee
believes that the "Year 2000 Problem" will not have a Material Adverse Effect on
the Lessee.
SECTION 8.4. Representations of the Lessee With Respect to the Property
on the Ground Lease Interest Acquisition Date. The Lessee hereby represents and
warrants as follows as of the Ground Lease Interest Acquisition Date:
(a) Representations. The representations and warranties of the
Construction Agent and the Lessee set forth in the Operative Documents are true
and correct. The Construction Agent and the Lessee are in compliance in with
their respective obligations under the Operative Documents and there exists no
Default or Event of Default.
(b) Property. The Property consists of the Ground Lease Interest on
which facilities of the type described in Recital A of this Agreement will be
constructed
<PAGE> 41
pursuant to the Construction Agency Agreement. The Property is located in the
State of California. The Property as improved substantially in accordance with
the related Plans and Specifications and the anticipated use thereof by the
Lessee and its agents, assignees, employees, invitees, lessees, licensees,
contractors and tenants will comply in all material respects with all
Requirements of Law (including, without limitation, Title III of the Americans
with Disabilities Act, all zoning and land use laws and Environmental Laws) and
Insurance Requirements, except for such Requirements of Law as the Lessee shall
be contesting in good faith by appropriate proceedings. The related Plans and
Specifications have been or will be prepared in all material respects in
accordance with applicable Requirements of Law (including, without limitation,
Title III of the Americans with Disabilities Act, applicable Environmental Laws
and building, planning, zoning and fire codes) and upon completion of the
facility substantially in accordance with the Plans and Specifications, such
facility and the other Improvements on such Property will not encroach in any
manner onto any adjoining land (except as permitted by express written easements
or as insured by appropriate title insurance) and such facility and other
Improvements will comply in all Material respects with all applicable
Requirements of Law (including, without limitation, Title III of the Americans
with Disabilities Act, all applicable Environmental Laws and building, planning,
zoning and fire codes). Upon completion of such facility substantially in
accordance with the related Plans and Specifications, the Improvements
including, without limitation, structural members, the plumbing, heating, air
conditioning and electrical systems thereof, and all water, sewer, electric,
gas, telephone and drainage facilities will be completed in a workmanlike manner
and will be in first class working condition and fit for use as a suburban
office facility, and all other utilities required to adequately service the
Improvements for their intended use are or will be available and "tapped on" and
hooked up pursuant to adequate permits (including any that may be required under
applicable Environmental Laws). There is no action, suit or proceeding
(including any proceeding in condemnation or eminent domain or under any
Environmental Law) pending or, to the best of the Lessee's knowledge, threatened
with respect to the Lessee, its Affiliates or such Property which adversely
affects the title to, or the use, operation or value of, the Property. No fire
or other casualty with respect to the Property has occurred. The Property has
available all material services of public facilities and other utilities
necessary for use and operation of such facility and the other Improvements for
their primary intended purposes, including, without limitation, adequate water,
gas and electrical supply, storm and sanitary sewerage facilities, telephone,
other required public utilities and means of access to such facility from
publicly dedicated streets and public highways for pedestrians and motor
vehicles. All utilities serving such Property, or proposed to serve such
Property in accordance with the related Plans and Specifications, are located
in, and vehicular access to the Improvements on such Property is provided by,
either public rights-of-way abutting such Property or Appurtenant Rights. All
material licenses, approvals, authorizations, consents, permits (including,
without limitation, building, demolition and environmental permits, licenses,
approvals, authorizations and consents), easements and rights-of-way, including
proof and dedication, required for (x) the use, treatment, storage, transport,
disposal or disposition of any Hazardous Substance on, at, under or from such
Property during the construction of the Improvements thereon, and (y)
construction of such Improvements in accordance with the related Plans and
Specifications and the
<PAGE> 42
Construction Agency Agreement have either been obtained from the appropriate
Governmental Authorities having jurisdiction or from private parties, as the
case may be, or will be obtained from the appropriate Governmental Authorities
having jurisdiction or from private parties, as the case may be, prior to
commencing any such construction or use and operation, as applicable and will in
each case be maintained by the Lessee during the periods for which they are
required by Applicable Law or such Governmental Authorities.
(c) Title. Upon execution and recordation of the Ground Lease, the
Ground Lease will create a valid and subsisting leasehold estate in the Land in
favor of the Lessor, subject only to Permitted Exceptions.
(d) Insurance. The Lessee has obtained insurance coverage covering the
Property which meets the requirements of Article XIV of the Lease, and such
coverage is in full force and effect.
(e) Lease. Upon the execution and delivery of the Lease Supplement to
the Lease, (i) the Lessee will have unconditionally accepted the Property and
will be bound by the terms of the Lease Supplement and will have a valid
leasehold or subleasehold interest in the Property, subject only to the
Permitted Exceptions; (ii) the Lessee's obligation to pay Rent will be an
independent covenant and no right of deduction or offset will exist with respect
to any Rent or other sums payable under the Lease; and (iii) no Rent under the
Lease will have been prepaid and the Lessee will have no right to prepay the
Rent, except as specifically set forth therein.
(f) Protection of Interests. (i) On the Ground Lease Interest
Acquisition Date, the Lease Supplement, the Assignment of Lease, the Supplement
to Assignment of Lease, the Consent to Assignment and the Mortgage are each in a
form sufficient, and if recorded with the Official Records of Alameda County
will have been recorded in all recording offices necessary, to grant perfected
first priority liens (other than Permitted Exceptions) on the Property to the
Indenture Trustee or the Lessor, as the case may be, (ii) the Indenture Trustee
Financing Statements are each in a form sufficient, and if filed with the
Official Records of Alameda County and the office of the Secretary of State of
California, will have been filed in all filing offices necessary, to create a
valid and perfected first (other than Permitted Exceptions) priority security
interest in the Lessor's interest in all Equipment, if any, to be located on the
Property and the Improvements; and (iii) the Lessor Financing Statements are
each in a form sufficient, and if filed with the Official Records of Alameda
County and the office of the Secretary of State of California will have been
filed in all filing offices necessary, to perfect the Lessor's interest under
the Lease to the extent the Lease is a security agreement.
(g) Flood Hazard Areas. No portion of the Property is located in an
area identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable agency, or if any portion of the Property
is located in an area identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable agency, then flood insurance has
been obtained for the Property or
<PAGE> 43
such portion thereof in accordance with Section 14.2(b) of the Lease and in
accordance with the National Flood Insurance Act of 1968, as amended.
(h) Conditions Precedent. All conditions precedent contained in this
Agreement and in the other Operative Documents relating to the acquisition and
leasing of the Property by the Lessor have been satisfied in full or waived.
SECTION 8.5. Representations of the Lessee With Respect to Each
Advance. The Lessee hereby represents and warrants as of each Funding Date on
which an Advance is made as follows:
(a) Representations. The representations and warranties of the
Construction Agent and the Lessee set forth in the Operative Documents
(including the representations and warranties set forth in Sections 8.3 and 8.4)
are true and correct in all Material respects on and as of such Funding Date,
except to the extent such representations or warranties relate solely to an
earlier date, in which case such representations and warranties shall have been
true and correct in all Material respects on and as of such earlier date. The
Construction Agent and the Lessee are in compliance in all Material respects
with their respective obligations under the Operative Documents and there exists
no Event of Default or, to the Lessee's knowledge, Default. No Event of Default
or, to the Lessee's knowledge, Default will occur as a result of, or after
giving effect to, the Advance requested by the Acquisition Request or the
Funding Request on such date.
(b) Improvements. Construction of the Improvements to date has been
performed in a good and workmanlike manner, substantially in accordance with the
Plans and Specifications and in compliance with all Insurance Requirements and
Requirements of Law.
(c) No Liens. There have been no Liens against the Property since the
recordation of the Ground Lease, the Lease Supplement, the Assignment of Lease,
the Consent to Assignment or the Mortgage other than Permitted Exceptions and
Lessor Liens, if any. The Certificate Purchaser Amounts and Loans funding such
Advance are secured by the Lien of the Mortgage.
(d) Advance. The amount of the Advance requested represents amounts
owing or amounts that the Lessee reasonably believes will be due in the one
hundred twenty (120) days following such Advance from the Lessee to third
parties in respect of Property Improvements Costs, or amounts paid by the Lessee
to third parties in respect of Property Costs for which the Lessee has not
previously been reimbursed by an Advance. The conditions precedent to such
Advance and the related remittances by the Participants with respect thereto set
forth in Section 6 have been satisfied.
(e) Lease. Upon the execution and delivery of each Equipment Schedule
to the Lease, the Lessee will have unconditionally accepted the Equipment, if
any, subject to the Lease Supplement and will have good and marketable title to
a valid and subsisting leasehold interest in such Equipment, subject only to
Permitted Exceptions.
<PAGE> 44
(f) Protection of Interests. On each Funding Date for the acquisition
of Equipment, (i) the Lease Supplement, the applicable Equipment Schedule and
the Mortgage are each a form sufficient to grant perfected Liens on the Lessee's
and the Lessor's interests, respectively, in the Equipment to the Lessor and
Indenture Trustee, respectively, (ii) the Indenture Trustee Financing Statements
are each in a form sufficient, and if filed with the Official Records of Alameda
County and the Office of the Secretary of State of California, will have been
filed in all filing offices necessary, to create a valid and perfected first
priority security interest in such interest in such Equipment, and (iii) the
Lessor Financing Statements are each in a form sufficient, and if filed with the
Official Records of Alameda County and the Office of the Secretary of State of
California, will have been filed in all filing offices necessary, to perfect the
Lessor's interest in such Equipment under the Lease to the extent the Lease is a
security agreement.
(g) Title Insurance Date Down Endorsement. Prior to each Advance during
the Construction Period and prior to an Advance following the Construction
Period for Property Improvement Costs to which a mechanics' lien could take
priority over the lien of the Mortgage or the lien of the Lease, the Lessee
shall furnish the Lessor an endorsement or other coverage reasonably acceptable
to the Indenture Trustee from the title insurance company issuing the policies
pursuant to Section 6.1, insuring the Lessor and the Indenture Trustee that (i)
all mechanics' or similar liens and claims for such liens which could arise from
that part of the Property Improvements Costs previously paid for, if any, or to
be paid for with the then proposed Advance, have been waived and (ii) there has
not been filed with respect to all or any parts of the Ground Lease Interest and
Improvements any mechanics' or similar liens or claims of such liens that are
not discharged of record, or insured over by the title insurance company, in
respect of any part of the Ground Lease Interest and Improvements. The Lessee
shall pay or cause to be paid the cost of any such endorsement or coverage.
SECTION 8.6. Representations and Warranties of the Indenture Trustee.
The Indenture Trustee in its individual capacity represents and warrants to each
of the other parties hereto that:
(a) Due Organization. It is a corporation duly organized and validly
existing under the laws of The Netherlands and has corporate power and authority
to enter into and perform its obligations under this Agreement and each other
Operative Documents to which it is or will be party.
(b) Due Authorization; Enforceability. This Agreement and each other
Operative Document to which it is or will be a party (as the Indenture Trustee
and, to the extent expressly so provided therein, in its individual capacity)
have been, or when executed and delivered will be, duly authorized by all
necessary corporate action on the part of the Indenture Trustee and have been,
or on the Closing Date or Ground Lease Interest Acquisition Date will have been,
duly executed and delivered by the Indenture Trustee (as the Indenture Trustee
or in its individual capacity, as the case may be), and,
<PAGE> 45
assuming the due authorization, execution and delivery hereof and thereof by the
other parties hereto and thereto and that this Agreement and each other
Operative Document to which it is or will be a party constitutes the legal,
valid and binding obligation of the other parties hereto and thereto, are or,
upon execution and delivery thereof, will be legal, valid and binding
obligations of the Indenture Trustee (as the Indenture Trustee or in its
individual capacity, as the case may be), enforceable against it in accordance
with their respective terms, except as the same may be limited by insolvency,
bankruptcy, reorganization or other laws relating to or affecting the
enforcement of creditors' rights or by general equitable principles. The Notes
issued on the Closing Date will have been duly authenticated on the Closing
Date.
(c) No Violation. The execution, delivery and performance by the
Indenture Trustee of this Agreement and each other Operative Document to which
it is or will be a party are not and will not be inconsistent with the articles
of incorporation or by-laws of the Indenture Trustee, do not and will not
contravene any applicable law, rule or regulation of the [State of Delaware] or
any federal law, rule or regulation of the United States of America governing
its banking, trust or fiduciary activities and will not contravene any provision
of, or constitute a default under, any indenture, mortgage, contract or other
instrument to which it is a party or by which it or its properties are bound, or
require any consent or approval of any Governmental Authority under any
applicable law, rule or regulation of the State of Delaware or any federal law,
rule or regulation of the United States of America governing its banking, trust
or fiduciary activities.
(d) Litigation. There are no actions or proceedings pending or, to its
knowledge, threatened, to which it is or will be a party, either in its
individual capacity or as Indenture Trustee, before any court, tribunal,
administrative agency, board or arbitrator in the State of Delaware that concern
the Property or the transaction contemplated by the Operative Documents or that,
if adversely determined, would materially and adversely affect is ability to
perform its obligations under the Operative Documents to which it is a party,
would have a material adverse effect on the financial condition of the Indenture
Trustee or would question the validity or enforceability of any of the Operative
Documents to which it is or is to become a party.
SECTION 9.
PAYMENT OF CERTAIN EXPENSES
The Lessee agrees, for the benefit of the Lessor, the
Indenture Trustee and the Participants, that:
SECTION 9.1. Transaction Expenses. (a) During the Construction Period,
(i) the Lessee shall pay from time to time all Transaction Expenses of the
Lessee and the Ground Lessor in respect of the transactions consummated on the
Closing Date, the Ground Lease Interest Acquisition Date or any Funding Date,
and (ii) all other
<PAGE> 46
Transaction Expenses shall be capitalized and paid as Advances funded by related
Loans and Certificate Purchaser Amounts on the date of payment.
(b) On the Closing Date and during the Construction Period,
the following Transaction Expenses shall be paid as Advances (and funded by
related Loans and Certificate Purchaser Amounts) and subsequent to the
Construction Period, the Lessee shall pay, as the case may be, (i) the initial
and annual fee of Bank for acting as Owner Trustee and all expenses of the Owner
Trustee and any necessary co-trustees (including reasonable counsel fees and
expenses) or any successor Owner Trustee, for acting as Owner Trustee under the
Trust Agreement, (ii) the initial and annual fee of the Indenture Trustee
(including reasonable counsel fees and expenses) or any successor Indenture
Trustee for acting as Indenture Trustee under the Indenture, (iii) all
Transaction Expenses of the Lessor, (iv) the Commitment Fees, (v) the
Underwriting Fee, (vi) the Administrative Fee, (vii) all Transaction Expenses
incurred by the Indenture Trustee, the Participants or the Lessor in entering
into any future amendments or supplements with respect to any of the Operative
Documents, whether or not such amendments or supplements are ultimately entered
into, or giving or withholding of waivers or consents hereto or thereto, in each
case (except after the occurrence of an Event of Default) which have been
requested by or approved by the Lessee, (viii) all Transaction Expenses incurred
by the Lessor, the Participants or the Indenture Trustee in connection with any
purchase of the Property by the Lessee or other Person pursuant to Articles XVI,
XVII, XX or XXII of the Lease, and (ix) all Transaction Expenses incurred by any
of the other parties hereto in respect of enforcement of any of their rights or
remedies against the Lessee in respect of the Operative Documents. The Lessee
shall pay its own Transaction Expenses and those of the Ground Lessor.
SECTION 9.2. Brokers' Fees and Stamp Taxes. The Lessee shall pay or
cause to be paid any brokers' fees and any and all stamp, transfer and other
similar taxes, fees and excises, if any, including any interest and penalties,
which are payable in connection with the transactions contemplated by this
Participation Agreement and the other Operative Documents.
SECTION 9.3. Obligations. The Lessee shall pay on or before the due
date thereof, all costs, expenses and other amounts required to be paid the
Owner Trustee under the Mortgage, the Indenture (other than the principal of,
and interest on, the Notes) and the Assignment of Lease.
SECTION 10.
OTHER COVENANTS AND AGREEMENTS
SECTION 10.1. Covenants of the Lessee. The Lessee hereby agrees that so
long as this Participation Agreement is in effect:
<PAGE> 47
(a) Information. The Lessee will deliver to the Lessor, the
Participants and the Indenture Trustee:
(i) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of the Lessee, a statement of financial
position of the Lessee and its consolidated subsidiaries as of the end
of such fiscal year and the related consolidated statements of income,
stockholders equity and cash flows for such fiscal year, setting forth
in each case in comparative form the figures for the previous fiscal
year, all reported on by independent public accountants of nationally
recognized standing, together with a Responsible Officer's Certificate
from the chief financial officer of the Lessee substantially in the
form of Exhibit R hereto containing a computation of, and showing
compliance with, each of the financial ratios and restrictions
contained in this Section 10.1;
(ii) as soon as available and in any event within forty-five (45) days
after the end of each of the first three quarters of each fiscal year
of the Lessee, an unaudited consolidated statement of financial
position of the Lessee as of the end of such period and the related
consolidated statements of income, stockholders equity and cash flows
for such period and for the portion of the Lessee's fiscal year ended
at the end of such period, together with a Responsible Officer's
Certificate of the chief financial officer of the Lessee or other
officer responsible for the financial affairs of the Lessee
substantially in the form of Exhibit R hereto containing a computation
of, and showing compliance with, each of the financial ratios and
restrictions contained in this Section 10.1 and stating that no Default
known to the Lessee or Event of Default has occurred or is continuing
or, if any Default known to the Lessee or Event of Default has occurred
and is continuing, describing it and the steps, if any, being taken to
cure it;
(iii) promptly after the filing thereof, if applicable, copies (without
exhibits thereto other than, in the case of reports on Form 10-K, the
portions of the annual report incorporated therein by reference) of all
reports on Forms 10-K, 10-Q and 8-K (or their equivalents), which the
Lessee shall have filed with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended;
(iv) if and when any member of the ERISA Group (1) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA) with respect to any Plan which might constitute
grounds for a termination of such Plan under Title IV or ERISA, or
knows that the plan administrator of any Plan has given or is required
to give notice of any such reportable event, a copy of the notice of
such reportable event given or required to be given to the PBGC; (2)
receives notice of complete or partial withdrawal liability under Title
IV of ERISA or notice that any Multiemployer Plan is in reorganization,
is insolvent or has been terminated, a copy of such notice; (3)
receives notice from the PBGC under Title IV of ERISA of an intent to
terminate, impose liability (other than for premiums under Section 4007
of ERISA) in respect of, or appoint a trustee to
<PAGE> 48
administer any Plan, a copy of such notice; (4) applies for a waiver of
the minimum funding standard under Section 412 of the Code, a copy of
such application; (5) gives notice of intent to terminate any Plan
under Section 4041(c) of ERISA, a copy of such notice and other
information filed with the PBGC; (6) gives notice of withdrawal from
any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(7) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes
any amendment to any Plan or Benefit Arrangement which has resulted or
could result in the imposition of a Lien or the posting of a bond or
other security, a certificate of the chief financial officer or the
chief accounting officer of the Lessee setting forth details as to such
occurrence and action, if any, which the Lessee or applicable member of
the ERISA Group is required or proposes to take;
(v) promptly after the occurrence of any Default known to the Lessee or
Event of Default, notice thereof in writing, together with information
regarding the steps, if any, being taken to cure it; and
(vi) from time to time such additional information regarding the
Lessee, the Lessee or the Property as the Lessor or the Indenture
Trustee, at the request of any Participant, may reasonably request.
(vii) statements of financial performance and compliance certificates
required to be provided by the Lessee to the Lessor, the Indenture
Trustee and the Participants herein shall: (i) include a statement that
the Year 2000 remediation efforts of the Lessee and its Subsidiaries
are ongoing and no substantial changes have occurred in the disclosures
on this subject contained in the most recent filings made by the Lessee
to the Securities and Exchange Commission and; (ii) indicate whether an
auditor, regulator, or third party consultant has issued a management
letter or other communication regarding the Year 2000 exposure, program
or progress of the Lessee and/or its Subsidiaries.
(b) Compliance with Laws. The Lessee will, and will cause its
Subsidiaries to, comply in all material respects with all applicable laws,
ordinances, rules, regulations, orders and requirements of governmental
authorities (including, without limitation, Environmental Laws and ERISA and the
rules and regulations thereunder) except where the necessity of compliance
therewith is contested in good faith by appropriate proceedings and such contest
is not reasonably likely to result in a Material Adverse Effect.
(c) Further Assurances. The Lessee shall take or cause to be taken from
time to time all action necessary to assure during the Term that title to the
Property remains in the Lessor as contemplated by Section 12.1 of the Lease,
that the Lessor holds a perfected Lien on the Property securing the Lease
Balance as contemplated by Section 7.1 of the Lease, and that the Indenture
Trustee holds a perfected Lien on the Property, the Lease and the Indenture
Trust Estate securing the repayment of the Notes and Certificates.
<PAGE> 49
(d) Existence; Franchises; Businesses. Except as otherwise expressly
permitted in this Agreement, the Lessee shall, and shall cause each Subsidiary
to (i) maintain in full force and effect its separate existence and all rights,
licenses, leases and franchises reasonably necessary to the conduct of its
business, and (ii) continue doing business as a whole in the lines of business
in which they were engaged on the Closing Date.
(e) Books and Records. The Lessee shall, and shall cause each
Subsidiary to, maintain its books and records in accordance with GAAP, and
permit the Lessor and each Participant to make or cause to be made inspections
and audits of any books, records and papers of the Lessee and its Subsidiaries
and to make extracts therefrom at all such reasonable times after reasonable
notice and as often as any such Person may reasonably require, provided that (i)
at any time other than during the continuance of an Event of Default, such
Person shall not make such inspections and audits more often than once yearly
without a specific reasonable purpose and (ii) at any time after the occurrence
and during the continuance of an Event of Default, (A) the Lessee shall pay for
the cost and expense of any such inspections and audits and (B) the Lessor and
each Participant shall have the right to speak directly with the auditors of the
Lessee in the presence of the Lessee.
(f) Minimum Consolidated Quick Ratio. The Lessee shall maintain at all
times a minimum Consolidated Quick Ratio of 1.00 to 1.00, provided that the
Consolidated Quick Ratio shall be reduced to .95 to 1.0 solely for the fiscal
quarter in which the Momentum Distribution is made.
(g) Minimum Consolidated Tangible Net Worth. At no time will the
Lessee's Consolidated Tangible Net Worth be less than an amount equal to the sum
of (i) eighty-five percent (85%) of the Lessee's Consolidated Tangible Net Worth
at the end of the fiscal quarter ending June 30, 1998 (as adjusted for the
fiscal quarter in which the Momentum Transaction is consummated) plus (ii) an
amount equal to seventy-five percent (75%) of the Lessee's Consolidated Net
Income for each fiscal quarter of the Lessee beginning with the quarter ending
after June 30, 1998 (but with no deduction on account of negative Consolidated
Net Income for any fiscal quarter, unless such negative Consolidated Net Income
was caused solely by charges taken for the purchase of in-process research and
development, in which case such amount shall be deducted) plus (iii) one hundred
percent (100%) of the aggregate net proceeds, including the fair market value of
property other than cash (as determined in good faith by the Board of Directors
of the Lessee), received by the Lessee from the issuance and sale after June 30,
1998 of any capital stock of the Lessee (other than the issuance and sale of any
capital stock (x) to a Subsidiary of the Lessee or (y) which is required to be
redeemed, or is redeemable at the option of the holder, if certain events or
conditions occur or exist or otherwise) or in connection with the conversion or
exchange of any Indebtedness of the Lessee into capital stock of the Lessee
after June 30, 1998.
(h) Maximum Consolidated Debt to Consolidated Total Capital Ratio. At
no time shall the ratio of the Lessee's Consolidated Debt to Consolidated Total
Capital be
<PAGE> 50
greater than 0.35 to 1.00, provided that prior to the Lessee or any Subsidiary
incurring any new Debt, the Lessee shall prepare a pro forma consolidated
balance sheet as of the end of the Lessee's next preceding fiscal quarter
reflecting such new Debt and the application of the proceeds thereof, and such
pro forma must show that the financial covenants contained in Sections 10.1
(f)-(j) would not be violated as a result of the incurrence of such new Debt.
(i) Minimum Consolidated Fixed Charge Ratio. The Lessee shall maintain
at all times a minimum Consolidated Fixed Charge Ratio of 1.5 to 1.00 as
measured at the end of any fiscal quarter on a rolling four quarter basis.
(j) Minimum Consolidated Cash Balances. At no time shall the Lessee's
Consolidated Cash Balance fall below Lessee's Adjusted Consolidated Total
Liabilities and 150% of Adjusted Consolidated Current Liabilities.
(k) Liens. The Lessee shall not, and shall not permit any Subsidiary
to, create, assume, or permit to exist, any Lien on any of its property or
assets now owned or hereafter acquired except (i) Liens in favor of the Lessor
or the Indenture Trustee under the Operative Documents, (ii) statutory Liens of
landlords, (iii) easements, rights-of-way, zoning and similar restrictions and
other similar charges or encumbrances not interfering with the ordinary conduct
of business on assets other than the Property and which do not detract
materially from the value of the property to which they attached or impair
materially the use thereof, (iv) Liens created to secure purchase money
Indebtedness or Capitalized Lease Obligations, provided that such Liens are only
in respect of the property or assets subject to, and secure only, such
Indebtedness, (v) Permitted Liens and (vi) Liens in an amount (exclusive of
other Liens permitted under this Section 10.1(k)) at any time not to exceed 10%
of the Lessee's Consolidated Tangible Assets at such time to secure any
Indebtedness of the Lessee and Liens permitted under Section 10.1(k)(i) of the
Participation Agreement dated as of December 4, 1996, as amended (the "Initial
Participation Agreement") among the Lessee and the Lessor, the Indenture Trustee
and the Participants (as such terms are defined therein). Notwithstanding the
foregoing there shall be no Liens on any of the Cash Collateral or the
Collateral other than Liens in favor of the Lessor and the Indenture Trustee,
for the benefit of the Participants.
(l) Mergers, Acquisitions, Etc.. The Lessee shall not, nor shall it
permit any Subsidiary to, enter into any merger, consolidation or amalgamation,
or liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), acquire or establish any Subsidiary or acquire all or
substantially all of the assets of any other Person; provided, however, that as
long as no Default of which the Lessee has knowledge or could have obtained
knowledge through the exercise of reasonable diligence in the ordinary course of
business or resulting from any affirmative act of the Lessee or Event of Default
shall have occurred before or immediately after giving effect thereto:
(i) any Subsidiary of the Lessee may be merged or consolidated with or
into the Lessee (provided, however, that the Lessee shall be the
continuing or surviving corporation) or with or into any one or more
wholly-owned Subsidiaries
<PAGE> 51
of the Lessee (provided, however, that the wholly-owned Subsidiary or
Subsidiaries shall be the continuing or surviving corporation);
(ii) the Lessee may merge or consolidate with any other Person so long
as the Lessee is the surviving corporation;
(iii) the Lessee and its Subsidiaries may make any Investment permitted
by Section 10.1(p);
(iv) the Lessee and its Subsidiaries may make any acquisition in which
the consideration paid consists entirely of common stock of the Lessee
or any of its Subsidiaries; and
(v) the Lessee and its Subsidiaries may make any acquisition in which
the cash portion of the consideration paid is $50,000,000 or less.
(m) Asset Dispositions. The Lessee shall not, nor shall it permit any
Subsidiary to, Transfer any of its assets or property, whether now owned or
hereafter acquired; provided, however, that as long as no Default of which the
Lessee has knowledge or could have obtained knowledge through the exercise of
reasonable diligence in the ordinary course of business or resulting from any
affirmative act of the Lessee or Event of Default shall have occurred before or
immediately after giving effect thereto:
(i) any wholly-owned Subsidiary may Transfer any or all of its assets
(upon voluntary liquidation or otherwise) to the Lessee or any other
wholly-owned Subsidiary of the Lessee;
(ii) the Lessee and its Subsidiaries may Transfer any surplus, damaged,
worn or obsolete equipment (other than the Equipment, unless the Lessee
has purchased the same or substituted equipment therefor as permitted
by the Lease) or inventory for not less than fair market value;
(iii) the Lessee and its Subsidiaries may Transfer any defaulted
receivables to a collection agency in the ordinary course of business;
(iv) the Lessee may Transfer Lot 56 and the Dublin Parcel;
(v) the Lessee may Transfer receivables to PeopleSoft Credit Corp. in
connection with the financing by the Lessee of any initial sale of a
particular software license to a third party;
(vi) the Lessee and its Subsidiaries may Transfer any other assets or
property (other than the Property or the property (as defined in the
Initial Participation Agreement)), provided that the aggregate value of
such assets and property (based on the greater of the fair market value
or book value of such assets or properties)
<PAGE> 52
so Transferred in any fiscal year on a rolling aggregate basis does not
exceed fifteen percent (15%) of the Lessee's Consolidated Tangible Net
Worth as measured at the end of each fiscal quarter of the Lessee; and
(vii) the Lessee may make the Momentum Distribution.
(n) Transactions with Affiliates. The Lessee shall not, nor shall it
permit any Subsidiary to, conduct any business or enter into any transaction or
series of similar transactions (including the purchase, sale, lease or exchange
of any property or the rendering of any service) with any Affiliate of the
Lessee or any legal or beneficial owner of 5% or more of any class of capital
stock of the Lessee or with any Affiliate of such owner unless the terms of such
business, transaction or series of transactions are (i) as favorable to the
Lessee or such Subsidiary as terms that would be obtainable at the time for a
comparable transaction or series of similar transactions in arm's-length
dealings with an unrelated third Person or, if such transaction is not one which
by its nature could be obtained from such Person, is on fair and reasonable
terms and (ii) are in the ordinary course of business or, if not in the ordinary
course of business, are set forth in writing and the board of directors of the
Lessee or such Subsidiary, as the case may be, has determined in good faith that
such business or transaction or series of transactions meet the applicable
criteria set forth in clause (i) above.
(o) Restricted Payments. The Lessee shall not, nor shall it cause or
permit any of its Subsidiaries to, make any Restricted Payment; provided, that
(i) Lessee's Subsidiaries may make dividends, distributions and payments to the
Lessee, (ii) the Lessee may make Restricted Payments consisting of payments made
to repurchase or retire, or payments upon the exercise or conversion of,
warrants outstanding on the Closing Date to purchase the Company's common stock
and (iii) the Lessee may make the Restricted Payments contemplated by the
Momentum Transaction.
(p) Investments. The Lessee shall not, nor shall it permit any of its
Subsidiaries to, make any investment in, or make or accrue loans or advances of
money to any Person, through the direct or indirect lending of money, holding of
securities or otherwise, other than Permitted Investments and the investment
contemplated by the Momentum Transaction.
(q) Maintenance and Repair. The Lessee, at its sole cost and expense,
shall, and shall cause each of its Subsidiaries to, maintain its properties in
good working order, mechanical condition and repair and make all necessary
repairs thereto, of every kind and nature whatsoever, whether interior or
exterior, ordinary or extraordinary, structural or nonstructural or foreseen or
unforeseen, in each case as required by all Requirements of Law in all material
respects, insurance requirements and contractual requirements and on a basis
consistent with the operation and maintenance of commercial properties
comparable in type and location to such properties and in compliance with
prudent industry practice.
<PAGE> 53
(r) Payment of Taxes. The Lessee and each of its Subsidiaries shall
promptly pay when due all taxes, assessments or other charges owing by the
Lessee or such Subsidiary, except for such taxes, assessments and other charges
that are being contested in good faith by appropriate proceedings and adequate
reserves shall have been set aside therefor in accordance with GAAP.
(s) Insurance. The Lessee shall maintain, and cause each Subsidiary to
maintain, such insurance as may be required by law and such other insurance, to
such extent and against such hazards and liabilities, as is customarily
maintained by companies similarly situated.
SECTION 10.2. Cooperation with the Lessee. The Lessor, the Participants
and the Indenture Trustee shall, to the extent reasonably requested by the
Lessee (but without assuming additional liabilities, duties or other obligations
on account thereof), at the Lessee's expense, cooperate with the Lessee in
connection with its covenants contained herein including, without limitation, at
any time and from time to time, upon the request of the Lessee, to promptly and
duly execute and deliver any and all such further instruments, documents and
financing statements (and continuation statements related thereto) as the Lessee
may reasonably request in order to perform such covenants.
SECTION 10.3. Covenants of the Owner Trustee, the Certificate Holders,
and the Bank. Each of the Owner Trustee, the Certificate Holders and the Bank,
as applicable, hereby agrees with the other parties hereto that so long as this
Participation Agreement is in effect:
(a) Discharge of Liens. Each of the Certificate Holders, the Owner
Trustee and Bank, each agreeing as to itself only, will not create or permit to
exist at any time, and will, at its own cost and expense, promptly take such
action as may be necessary duly to discharge, or to cause to be discharged, all
Lessor Liens on the Property attributable to it; provided, however, that the
Certificate Holders, the Owner Trustee and Bank shall not be required to so
discharge any such Lessor Lien while the same is being contested in good faith
by appropriate proceedings diligently prosecuted so long as such proceedings
shall not involve any material danger of impairment of the Liens of the
Liability or the Security Documents or of the sale, forfeiture or loss of, and
shall not interfere with the use or disposition of, the Property or title
thereto or any interest therein or the payment of Rent.
(b) Trust Agreement. Without prejudice to any right under the Trust
Agreement of the Owner Trustee to resign, or the Certificate Holders' right
under the Trust Agreement to remove the institution acting as Owner Trustee,
each of the Certificate Holders and the Owner Trustee hereby agrees with the
Lessee, each Note Holder and the Indenture Trustee (i) not to terminate or
revoke the trust created by the Trust Agreement except as permitted by Article V
of the Trust Agreement, (ii) not to amend, supplement, terminate or revoke or
otherwise modify any provision of the Trust Agreement in such a manner as to
adversely affect the rights of any such party without the prior written consent
of such party and (iii) to comply with all of the terms of the
<PAGE> 54
Trust Agreement, the nonperformance of which would adversely affect any such
party or the Property or title thereto or any interest therein or the payment of
Rent.
(c) Successor Owner Trustee. The Owner Trustee or any successor may
resign or be removed by the Certificate Holders as Owner Trustee, a successor
Owner Trustee may be appointed, and a corporation may become the Owner Trustee
under the Trust Agreement, only in accordance with the provisions of Article IV
of the Trust Agreement and, in the absence of a Default or an Event of Default,
with the consent of the Lessee, which consent shall not be unreasonably withheld
or delayed.
(d) Indebtedness; Other Business. The Owner Trustee, in its capacity as
Owner Trustee under the Trust Agreement, and not in its individual capacity,
shall not contract for, create, incur or assume any indebtedness, or enter into
any business or other activity, other than pursuant to or under the Operative
Documents.
(e) Instructions. The Certificate Holders shall give the Owner Trustee
all instructions necessary for the Owner Trustee to carry out the Certificate
Purchasers' and the Owner Trustee's obligations under the Operative Documents,
including without limitation the Indenture and the Security Documents and shall
not instruct the Owner Trustee to take any action in contravention of the
Operative Documents.
(f) Change of Chief Place of Business. The Owner Trustee shall give
prompt notice to the Lessee and the Indenture Trustee if the Owner Trustee's
name changes or the chief place of business or chief executive office, or the
office where the records concerning the accounts or contract rights relating to
the Property are kept, shall cease to be located as set forth in Section 8.1(i).
(g) Performance of Covenants. The Lessor will (i) cause its
representations and warranties contained herein and each of the other Operative
Documents to be true and correct as of the date made or deemed made herein or
therein, (ii) perform on a timely basis its covenants and agreements contained
herein and in the other Operative Documents and (iii) deliver on a timely basis
all certificates, statements and other documents required to be delivered by it
herein and in the other Operative Documents.
SECTION 11.
LESSEE DIRECTIONS
The Note Holders, the Indenture Trustee, the Certificate Purchasers,
the Lessee and the Owner Trustee hereby agree that, so long as no Default or
Event of Default under the Lease exists, the Lessee shall have the exclusive
right to approve any successor Indenture Trustee pursuant to Section 7.8 of the
Indenture.
<PAGE> 55
SECTION 12.
TRANSFERS OF PARTICIPANTS' INTERESTS
SECTION 12.1. Restrictions on and Effect of Transfer by Participants.
(a) Transfer of Notes. Each Note Holder agrees that it will transfer
any Notes held by it only in a transaction which is exempt from registration
under the Securities Act and otherwise in accordance with applicable federal and
state securities laws, the terms hereof and of the Security Documents. By
acceptance of any Notes, each Note Holder shall be deemed to have made the
representations set forth in Section 8.2(a) hereof and such acceptance shall
constitute such Note Holder's agreement to be bound by the terms and provisions
of this Agreement and the Security Documents.
(b) Note Transfer Procedures. Each of the parties hereto, and each
other Note Holder, by its acceptance of a Note, hereby agrees as follows:
(i) On or prior to the date of any transfer of a Note by a Note Holder,
such Note Holder shall furnish to the Certificate Holders, the Owner
Trustee, the Indenture Trustee and the Lessee a written notice (a
"Transfer Notice") (A) setting forth the name of the proposed
transferee, (B) specifying the particular representation contained in
Section 8.2(a)(ii) hereof that shall be deemed made by the transferee
Note Holder upon such transfer and (C) in the event that such notice
shall specify that the representation that shall be deemed made by the
proposed transferee is of the type set forth in subparagraph (B), (C),
or (E) of Section 8.2(a)(ii) hereof, such notice shall be given not
less than ten days prior to the date of transfer and shall further set
forth the information required to be disclosed pursuant to such
subparagraph; and
(ii) In the event that the Transfer Notice shall contain information of
the type described in clause (C) of the preceding paragraph, then the
Lessee shall use commercially reasonable efforts to determine as
promptly as practicable (but in no event later than ten days following
receipt of the Transfer Notice) whether, as a result of matters
relating to the Lessee or the Certificate Holders or any of their
respective Affiliates, the proposed transfer could result in a
prohibited transaction, within the meaning of section 406 or 407 of
ERISA or in a transaction in connection with which a tax could be
imposed pursuant to Section 4975 of the Code (or any successor
provision thereto); and
(iii) In the event that the Lessee shall determine that the proposed
transfer could result in such a prohibited transaction or a transaction
in connection with which a tax could be imposed pursuant to Section
4975 of the Code, then (a) the Lessee shall thereupon furnish written
notice to such Note Holder and such other party describing in
reasonable detail the basis of such conclusion and (b) such Note Holder
shall refrain from consummating the proposed transaction, unless and
until such Note Holder shall obtain the written concurrence of the
Lessee and the Certificate Holders to such transfer. Upon the request
of such Note Holder,
<PAGE> 56
the Lessee and the Certificate Holders, as appropriate, agree to confer
in good faith regarding such conclusion.
(iv) Prior to a refinancing, if any, of the Notes and Certificates in
the private placement market, the restrictions on transfer applicable
to Certificate Holders set forth in Section 12.1(c) shall be equally
applicable to transfers of Notes by Note Holders and each Note Holder
wishing to transfer any Note shall comply therewith, substituting "Note
Holder", "Notes" and "Note Purchaser" for "Certificate Holder",
"Certificates" and "Certificate Purchaser" as required.
(c) Transfers of Certificates. No Certificate Holder may (without, in
the absence of a continuing Lease Default or Lease Event of Default, the prior
written consent of the Lessee (not to be unreasonably withheld)) assign, convey
or otherwise transfer all or any portion of its right, title or interest in, to
or under its Certificates or any of the Operative Documents, or the Property,
provided that (1) any Certificate Holder may pledge its interest without the
consent of the Lessee to any Federal Reserve Bank, (2) each transferee must be
an Institutional Investor, (3) without the prior written consent of the Lessee,
any Certificate Purchaser may transfer all or any portion of its interest to any
Institutional Investor that has either capital, surplus and undivided profits of
at least $40,000,000 or a net worth of at least $40,000,000 and (4) without the
prior written consent of the Lessee, each Certificate Purchaser may transfer all
or any portion of its interest to any Affiliate of such Participant or to any
other existing Participant; provided that in the case of any transfer (other
than to such Affiliate) each of the following conditions and any other
applicable conditions of the other Operative Documents are satisfied:
(i) Required Notice and Effective Date. If a Certificate Holder desires
to effect a transfer of its Certificates (or any portion thereof), it
shall give written notice of each such proposed transfer to the Lessee,
the Indenture Trustee and each other Participant at least five (5)
Business Days prior to such proposed transfer, setting forth the name
of such proposed transferee, the percentage or interest to be retained
by such Participant, if any, and the date on which such transfer is
proposed to become effective. All reasonable out-of-pocket costs
(including, without limitation, legal expenses) incurred by the Lessor,
the Indenture Trustee or any Participant in connection with any such
disposition by such Participant under this Section 12.1(c) shall be
borne by such transferring Participant. In the event of a transfer
under this Section 12.1(c), any expenses incurred by the transferee in
connection with its review of the Operative Documents and its
investigation of the transactions contemplated thereby shall be borne
by such transferee or the relevant Participant, as they may determine,
but shall not be considered costs and expenses which the Lessee is
obligated to pay or reimburse under Section 9. Any such proposed
transfer shall become effective upon the later of (i) the date proposed
in the transfer notice referred to above and (ii) the date on which all
conditions to such transfer set forth in this Section 12.1(c) shall
have been satisfied.
<PAGE> 57
(ii) Assumption of Obligations. Any transferee of a Certificate
Holder's interest pursuant to this Section 12.1 shall execute and
deliver to the Indenture Trustee, the Lessor and the Lessee an
Assignment and Acceptance in substantially the form attached hereto as
Exhibit J ("Assignment and Acceptance"), duly executed by such
transferee and the transferring Participant, and a letter in
substantially the form of the Participant's Letter attached hereto as
Exhibit K ("Participant's Letter"), duly executed by such transferee,
and thereupon the obligations of the transferring Participant under the
Operative Documents shall be proportionately released and reduced to
the extent of such transfer. Upon any such transfer as above provided,
the transferee shall be deemed to be bound by all obligations (whether
or not yet accrued) under, and to have become a party to, all Operative
Documents to which its transferor was a party, shall be deemed the
pertinent "Participant" for all purposes of the Operative Documents and
shall be deemed to have made that portion of the payments pursuant to
this Participation Agreement previously made or deemed to have been
made by the transferor represented by the interest being conveyed; and
each reference herein and in the other Operative Documents to the
pertinent "Certificate Purchaser" or "Certificate Holder" shall
thereafter be deemed a reference to the transferee, to the extent of
such transfer, for all purposes. Upon any such transfer, the Indenture
Trustee shall deliver to each Participant, the Lessor and the Lessee a
new Schedule I and Schedule II to this Agreement, revised to reflect
the relevant information for such new Participant and the Commitment of
such new Participant (and the revised Commitment of the transferor
Participant if it shall not have transferred its entire interest).
(iii) Representations. Notwithstanding anything to the contrary set
forth above, no Certificate Holder may assign, convey or transfer its
interest to any Person, unless such Person shall have delivered to the
Indenture Trustee, the Lessor and the Lessee a certificate confirming
the accuracy of the representations and warranties set forth in Section
8 with respect to such Person (other than as such representation or
warranty relates to the execution and delivery of Operative Documents)
and representing that such Person has, independently and without
reliance upon the Indenture Trustee, any other Participant or, except
to the extent of the Lessee's representations made under the Operative
Documents when made, the Lessee, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into this transaction, the Property and the Lessee and
made its own decision to enter into this transaction.
(iv) Applicable Law. Such transfer shall comply with Applicable Law and
shall not require registration under any securities law applicable
thereto.
(v) At-Risk Requirements. Any transferee of a Certificate Holder's
interest pursuant to this Section 12.1 agrees to comply with the
"at-risk" requirements under GAAP with respect to such interest as set
forth in Issues 90-15, 96-21 and 97-1 of The Emerging Issues Task Force
Abstracts published by the Financial Accounting Standards Board,
provided that the foregoing transfer restriction shall
<PAGE> 58
not apply (A) after the occurrence and during the continuance of an
Event of Default or (B) to any transfer necessitated as a result of any
of the events specified in Section 13.9.
(d) Effect. From and after any transfer of its Notes or Certificates,
the transferring Participant shall be released, to the extent assumed by the
transferee, from its liability and obligations hereunder and under the other
Operative Documents to which such transferor is a party in respect of
obligations to be performed on or after the date of such transfer. Upon any
transfer by a Participant as above provided, any such transferee shall be deemed
a "Participant" for all purposes of such documents and each reference herein to
a Participant shall thereafter be deemed a reference to such transferee for all
purposes to the extent of such transfer, except as the context may otherwise
require. Notwithstanding any transfer as provided in this Section 12.1, the
transferor shall be entitled to all benefits accrued and all rights vested prior
to such transfer, including, without limitation, rights to indemnification under
this Participation Agreement or any other Operative Document.
(e) Arranger's Fee. Each transferring Participant shall pay to the
Arranger a transfer fee of $2,500.
SECTION 12.2. Covenants and Agreements of Participants.
(a) Participations. Each Participant covenants and agrees that it will
not grant participations in its Notes or Certificates to any Person (a
"Sub-Participant") unless such participation complies with Applicable Law and
does not require registration under any securities law applicable thereto and
such Sub-Participant (i) is a bank or other financial institution and (ii)
represents and warrants, in writing, to such Participant for the benefit of the
Participants, the Lessor and the Lessee that (A) no part of the funds used by it
to acquire an interest in any Participation Interest constitutes assets of any
"employee benefit plan" (as defined in Section 3(3) of ERISA) which is subject
to Title I of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code)
and (B) such Sub-Participant is acquiring its interest for investment purposes
without a view to the distribution thereof. Any such Person shall require any
transferee of its interest in its Notes or Certificates to make the
representations and warranties set forth in the preceding sentence, in writing,
to such Person for its benefit and the benefit of the Participants, the Lessor,
the Indenture Trustee and Lessee. In the event of any such sale by a Participant
of a participating interest in its Notes or Certificates to a Sub-Participant,
such Participant's obligations under this Participation Agreement and under the
other Operative Documents shall remain unchanged, such Participant shall remain
solely responsible for the performance thereof, such Participant shall remain
the holder of its Notes or Certificates, for all purposes under this
Participation Agreement and under the other Operative Documents, and the Lessor,
the Indenture Trustee and, except as set forth in Section 12.2(b), the Lessee
shall continue to deal solely and directly with such Participant in connection
with such Participant's rights and obligations under this Participation
Agreement and under the other Operative Documents.
<PAGE> 59
(b) Transferee Indemnities. Each Sub-Participant shall be entitled to
the benefits of Sections 13.5, 13.6, and 13.7 and 13.10 with respect to its
participation in the Notes or Certificates outstanding from time to time;
provided that no Sub-Participant shall be entitled to receive any greater amount
pursuant to such Sections than the transferor Participant would have been
entitled to receive in respect of the amount of the participation transferred by
such transferor Participant to such Sub-Participant had no such transfer or
participation occurred.
SECTION 12.3. Future Participants. Each Participant shall be deemed to
be bound by and, upon compliance with the requirements of this Section 12, will
be entitled to all of the benefits of the provisions of, this Participation
Agreement.
SECTION 13.
INDEMNIFICATION
SECTION 13.1. General Indemnification. The Lessee agrees, whether or
not any of the transactions contemplated hereby shall be consummated, to assume
liability for, and to indemnify, protect, defend, save and keep harmless each
Indemnitee, on an After Tax Basis, from and against, any and all Claims that may
be imposed on, incurred by or asserted against such Indemnitee (whether because
of action or omission by such Indemnitee or otherwise), whether or not such
Indemnitee shall also be indemnified as to any such Claim by any other Person
and whether or not such Claim arises or accrues prior to the Closing Date or
after the Expiration Date, in any way relating to or arising out of:
(a) any of the Operative Documents or any of the transactions
contemplated thereby or any violation thereof by the Lessee, and any amendment,
modification or waiver in respect thereof;
(b) the Property, the Lease, the Ground Lease, the Trust Estate, the
Indenture Trust Estate or any part thereof or interest therein;
(c) the purchase, design, construction, preparation, installation,
inspection, delivery, non-delivery, acceptance, rejection, ownership,
management, possession, operation, rental, lease, sublease, repossession,
maintenance, repair, alteration, modification, addition or substitution,
storage, transfer of title, redelivery, use, financing, refinancing,
disposition, operation, condition, sale (including, without limitation, any sale
pursuant to Sections 16.2, 16.3, 16.4, 17.2(c), 17.2(e) or 17.4 of the Lease or
any sale pursuant to Articles XX or XXII of the Lease), return or other
disposition of all or any part or any interest in the Property or the imposition
of any Lien (or incurring of any liability to refund or pay over any amount as a
result of any Lien) thereon, including, without limitation: (1) Claims or
penalties arising from any violation of federal, state or local law, rule,
regulation or order or in tort (strict liability or otherwise), (2) latent or
other defects, whether or not discoverable, (3) any Claim based upon a violation
or
<PAGE> 60
alleged violation of the terms of any restriction, easement, condition or
covenant or other matter affecting title to the Property, (4) the making of any
Modifications in violation of any standards imposed by any insurance policies
required to be maintained by Lessee pursuant to the Lease which are in effect at
any time with respect to the Property or any part thereof, (5) any Claim for
patent, trademark or copyright infringement, and (6) Claims arising from any
public improvements with respect to the Property resulting in any charge or
special assessments being levied against the Property or any plans to widen,
modify or realign any street or highway adjacent to the Property;
(d) the offer, issuance or sale of the Notes and Certificates, provided
that (i) the Lessor shall not be entitled to indemnification under this clause
(d) if it shall have been determined by a court of competent jurisdiction to
have breached its representation set forth in Section 8.1(h), (ii) no
Participant shall be entitled to indemnification under this clause (d) if it
shall have been determined by a court of competent jurisdiction to have breached
its representation set forth in Section 8.2(b)(vi) and (iii) neither the Lessor,
the Indenture Trustee nor any Participant shall be entitled to indemnification
under this clause (d) with respect to any Claim which a court of competent
jurisdiction determines to have arisen out of any misrepresentation of a
material fact made by the Lessor, the Indenture Trustee or such Participant,
unless the misrepresentation was made in reliance upon and in conformity with
information furnished to the Lessor, the Indenture Trustee or such Participant,
as applicable, by the Lessee;
(e) the breach by the Lessee of any covenant, representation or
warranty made by it or deemed made by it in any Operative Document or any
certificate required to be delivered by any Operative Document;
(f) the retaining or employment of any broker, finder or financial
advisor by the Lessee to act on its behalf in connection with this Participation
Agreement, or the incurring of any fees or commissions to which the Lessor might
be subjected by virtue of entering into the transactions contemplated by this
Participation Agreement;
(g) the existence of any Lien on or with respect to the Property, the
Improvements, the Equipment, any Basic Rent or Supplemental Rent, the Cash
Collateral, title thereto, or any interest therein including any Liens which
arise out of the possession, use, occupancy, construction, repair or rebuilding
of the Property or by reason of labor or materials furnished or claimed to have
been furnished to the Lessee, the Existing Owner, the Lessor or any of their
contractors or agents or by reason of the financing of the Property or any
personalty or equipment purchased or leased by the Lessee or Improvements or
Modifications constructed by the Lessee, except Lessor Liens and Liens in favor
of the Indenture Trustee or the Lessor;
(h) the transactions contemplated by the Lessee hereby or by any other
Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B
of Title I of ERISA and any prohibited transaction described in Section 4975(c)
of the Code (other than any Claim resulting from a breach of representation or
warranty of the Lessor or any Participant); or
<PAGE> 61
(i) the lease of the Ground Lease Interest and the purchase or
ownership of the other Property by the Lessor, or any matters arising therefrom
or related thereto;
provided, however, the Lessee shall not be required to indemnify (x) the Lessor
for any Claim to the extent arising from any misrepresentation by the Lessor
under Section 8.1 (e) or (l) or from the failure by the Lessor to comply with
Section 10.3 (a), or (y) any Indemnitee under this Section 13.1 for any of the
following: (1) any Claim to the extent resulting from the willful misconduct or
gross negligence of such Indemnitee (it being understood that the Lessee shall
be required to indemnify an Indemnitee even if the ordinary (but not gross)
negligence of such Indemnitee caused or contributed to such Claim), (2) any
Claim resulting from Lessor Liens which the Lessor is responsible for
discharging under the Operative Documents, (3) any Claim to the extent
attributable to acts or events occurring after the expiration of the Term or the
return or remarketing of the Property so long as the Lessor, the Indenture
Trustee and the Participants are not exercising remedies against the Lessee in
respect of the Operative Documents and no Default or Event of Default under the
Lease has occurred and is continuing, (4) any Imposition or other claims for
Taxes of the type(s) described in Section 13.5 and (5) any Claims of the type(s)
described in Sections 13.2 (only with respect to claims in respect of a decline
in the Fair Market Sales Value of the Property as a result of an event described
in Section 13.2(b) and the Lessee's exercise of the Remarketing Option), 13.6,
13.7, 13.8 and 13.10, or (z) any Indemnitee for any such Claim under this
Section 13.1 arising during the Construction Period except as follows:
(1) The Lessee shall indemnify the Indemnitees as provided in
this Section 13.1 from and against any and all such
liabilities, losses, damages and expenses caused by or arising
from any failure by the Lessee to comply with any of its
obligations under the Operative Documents (including its
insurance obligations), any representation by the Lessee in
any of the Operative Documents not being true, any negligence
or willful misconduct of the Lessee, or any claim by any
third-party against the Lessee (or against any Indemnitee)
based upon the alleged action or inaction by the Lessee.
(2) If any Lessor Party incurs any such claims or expenses for
which the Lessee is not obligated to indemnify such Lessor
Party pursuant to clause (z) (1) of Section 13.1, such claims
shall, if such Lessor Party shall so request by a written
notice to the Lessor, be capitalized pursuant to Section
3.9(f).
It is expressly understood and agreed that the indemnity provided for herein
shall survive the expiration or termination of and shall be separate and
independent from any remedy under the Lease or any other Operative Document.
Without limiting the express rights of any Indemnitee under this Section 13.1,
this Section 13.1 shall be construed as an indemnity only and not a guaranty of
residual value of the Property or as a guaranty of the Participation Interests.
<PAGE> 62
SECTION 13.2. End of Term Indemnity.
(a) If the Lessee elects the Remarketing Option and there would, after
giving effect to the proposed remarketing transactions, be a Shortfall Amount,
then prior to the Maturity Date and as a condition to the Lessee's right to
complete the remarketing of the Property pursuant to Section 22.1 of the Lease,
the Lessee shall cause to be delivered to the Lessor at least 30 days prior to
the Expiration Date, at the Lessee's sole cost and expense, an Appraisal in form
and substance satisfactory to the Lessor, the Indenture Trustee and the Required
Participants (the "End of the Term Report") which shall state the appraiser's
conclusions as to the reason for any decline in the Fair Market Sales Value of
the Property from that anticipated for such date in the Appraisal delivered on
the Closing Date.
(b) Prior to the Expiration Date, the Lessee shall pay to the Lessor an
amount (not to exceed the Shortfall Amount) equal to the portion of the
Shortfall Amount that the End of the Term Report demonstrates was the result of
a decline in the Fair Market Sales Value of the Property due to:
(i) extraordinary wear and tear, excessive usage, failure to maintain,
to repair, to restore, to rebuild or to replace, failure to comply with
the Lease and all applicable laws, failure to use, workmanship, method
of installation or removal or maintenance, repair, rebuilding or
replacement (excepting in each case ordinary wear and tear);
(ii) any Modification made to, or any rebuilding of, the Property or
any part thereof by the Lessee without the consent of the Lessor; or
(iii) the existence of any Hazardous Activity, Hazardous Substance or
Environmental Violations; or
(iv) any restoration or rebuilding carried out by the Lessee or any
sublessee; or
(v) any condemnation of any portion of the Property pursuant to Article
XV of the Lease; or
(vi) any use of the Property or any part thereof by the Lessee or any
sublessee other than as a suburban office facility; or
(vii) any grant, release, dedication, transfer, annexation or amendment
made pursuant to Section 12.2 of the Lease; or
(viii) the failure of the Lessor to have a good and marketable
leasehold or fee estate in the Property, as required by the Operative
Documents, free and clear of all Liens (including Permitted Liens) and
exceptions to title, except (A) such Liens or exceptions to title that
existed on the Ground Lease Interest Acquisition
<PAGE> 63
Date and were disclosed in the policy of title insurance delivered
pursuant to Section 6.1; (B) Lessor Liens and (C) other Liens
specifically consented to by the Lessor.
SECTION 13.3. Environmental Indemnity. Without limitation of the other
provisions of this Section 13, the Lessee hereby agrees to indemnify, hold
harmless and defend each Indemnitee from and against any and all claims
(including without limitation third party claims for personal injury or real or
personal property damage), losses (including but not limited to any loss of
value of the Property), damages, liabilities, fines, penalties, charges,
administrative and judicial proceedings (including informal proceedings) and
orders, judgments, remedial action, requirements, enforcement actions of any
kind, and all reasonable and documented costs and expenses incurred in
connection therewith (including but not limited to reasonable and documented
attorneys' and/or paralegals' fees and expenses), including, but not limited to,
all costs incurred in connection with any investigation or monitoring of site
conditions or any clean-up, remedial, removal or restoration work by any
federal, state or local government agency, which such Indemnitee becomes subject
to because of its involvement with the Property, the transactions contemplated
by the Operative Documents or any other matter referred to in paragraphs (a)
through (i) of Section 13.1 arising in whole or in part, out of:
(a) the presence on or under the Property of any Hazardous Substances,
or any Releases or discharges of any Hazardous Substances on, under, from or
onto the Property;
(b) any activity, including, without limitation, construction, carried
on or undertaken on or off the Property, and whether by the Lessee, the Lessor,
the Ground Lessor or any predecessor in title or any employees, agents,
contractors or subcontractors of the Lessee, the Lessor, the Ground Lessor or
any predecessor in title, or any other Persons (including such Indemnitee), in
connection with the handling, treatment, removal, storage, decontamination,
cleanup, transport or disposal of any Hazardous Substances that at any time are
located or present on or under or that at any time migrate, flow, percolate,
diffuse or in any way move onto or under the Property;
(c) loss of or damage to any property or the environment (including,
without limitation, cleanup costs, response costs, remediation and removal
costs, cost of corrective action, costs of financial assurance, fines and
penalties and natural resource damages), or death or injury to any Person, and
all expenses associated with the protection of wildlife, aquatic species,
vegetation, flora and fauna, and any mitigative action required by or under
Environmental Laws;
(d) any claim concerning lack of compliance with Environmental Laws, or
any act or omission causing an environmental condition that requires remediation
or would allow any Governmental Authority to record a Lien on the land records;
(e) any residual contamination on or under the Property, or affecting
any natural resources, or any contamination of any property or natural resources
arising in
<PAGE> 64
connection with the generation, use, handling, storage, transport or disposal of
any such Hazardous Substances, and irrespective of whether any of such
activities were or will be undertaken in accordance with applicable
Environmental Laws; or
(f) any material inaccuracies, misrepresentations, misstatements, and
omissions and any conflicting information contained in or omitted from the
Environmental Audit;
provided, however, the Lessee shall not be required to indemnify any Indemnitee
under this Section 13.3 for (1) any Claim to the extent resulting from the
willful misconduct or gross negligence of such Indemnitee (it being understood
that the Lessee shall be required to indemnify an Indemnitee even if the
ordinary (but not gross) negligence of such Indemnitee caused or contributed to
such Claim), (2) subject to the provisions Section 15.2 of the Lease, any Claim
to the extent attributable to acts or events occurring after the expiration of
the Term or the return or remarketing of the Property so long as the Lessor, the
Indenture Trustee and the Participants are not exercising remedies against the
Lessee in respect of the Operative Documents and no Default or Event of Default
under the Lease has occurred and is continuing, (3) any Imposition or other
claims for Taxes of the type(s) described in Section 13.5 or (4) any Claims of
the type(s) described in Sections 13.2 (only with respect to claims in respect
of a decline in the Fair Market Sales Value of the Property and the Lessee's
exercise of the Remarketing Option), 13.6, 13.7, 13.8 and 13.10. It is expressly
understood and agreed that the indemnity provided for herein shall survive the
expiration or termination of and shall be separate and independent from any
remedy under the Lease or any other Operative Document.
SECTION 13.4. Proceedings in Respect of Claims. With respect to any
amount that the Lessee is requested by an Indemnitee to pay by reason of Section
13.1 or 13.3, such Indemnitee shall, if so requested by the Lessee and prior to
any payment, submit such additional information to the Lessee as the Lessee may
reasonably request and which is in the possession of such Indemnitee to
substantiate properly the requested payment.
In case any action, suit or proceeding shall be brought against any
Indemnitee, such Indemnitee shall notify the Lessee of the commencement thereof,
and if the Construction Period limitation on indemnification set forth in clause
(z) of the proviso to Section 13.1 does not apply, the Lessee shall be entitled,
at its expense, to participate in, and, to the extent that the Lessee desires
to, assume and control the defense thereof; provided, however, that the Lessee
shall have acknowledged in writing its obligation to fully indemnify such
Indemnitee in respect of such action, suit or proceeding, and the Lessee shall
keep such Indemnitee fully apprised of the status of such action, suit or
proceeding and shall provide such Indemnitee with all information with respect
to such action, suit or proceeding as such Indemnitee shall reasonably request,
and provided further, that the Lessee shall not be entitled to assume and
control the defense of any such action, suit or proceeding if and to the extent
that, (A) in the reasonable opinion of such Indemnitee, (x) such action, suit or
proceeding involves any possibility of imposition of criminal liability or any
risk of material civil liability on such Indemnitee or will involve
<PAGE> 65
a material risk of the sale, forfeiture or loss of, or the creation of any Lien
(other than a Permitted Lien) on the Property or any part thereof unless, in the
case of civil liability or Lien, the Lessee shall have posted a bond or other
security satisfactory to the relevant Indemnitee in respect to such risk or (y)
the control of such action, suit or proceeding would involve an actual or
potential conflict of interest, (B) such proceeding involves Claims not fully
indemnified by the Lessee which the Lessee and the Indemnitee have been unable
to sever from the indemnified claim(s), or (C) an Event of Default under the
Lease has occurred and is continuing. The Indemnitee may participate in a
reasonable manner at its own expense and with its own counsel in any proceeding
conducted by the Lessee in accordance with the foregoing. The Lessee shall not
enter into any settlement or other compromise with respect to any Claim which is
entitled to be indemnified under Section 13.1 or 13.3 without the prior written
consent of the Indemnitee which consent shall not be unreasonably withheld in
the case of a money settlement not involving an admission of liability of such
Indemnitee.
Each Indemnitee shall at the expense of the Lessee cooperate with and
supply the Lessee with such information and documents reasonably requested by
the Lessee as are necessary or advisable for the Lessee to participate in any
action, suit or proceeding to the extent permitted by Section 13.1 or 13.3.
Unless an Event of Default under the Lease shall have occurred and be
continuing, no Indemnitee shall enter into any settlement or other compromise
with respect to any Claim which is entitled to be indemnified under Section 13.1
or 13.3 without the prior written consent of the Lessee, which consent shall not
be unreasonably withheld, unless such Indemnitee waives its right to be
indemnified under Section 13.1 or 13.3 with respect to such Claim.
Upon payment in full of any Claim by the Lessee pursuant to Section
13.1 or 13.3 to or on behalf of an Indemnitee, the Lessee, without any further
action, shall be subrogated to any and all claims that such Indemnitee may have
relating thereto (other than claims in respect of insurance policies maintained
by such Indemnitee at its own expense), and such Indemnitee shall execute such
instruments of assignment and conveyance, evidence of claims and payment and
such other documents, instruments and agreements as may be necessary to preserve
any such claims and otherwise cooperate with the Lessee and give such further
assurances as are necessary or advisable to enable the Lessee vigorously to
pursue such claims.
Any amount payable to an Indemnitee pursuant to Section 13.1 or 13.3
shall be paid to such Indemnitee promptly upon receipt of a written demand
therefor from such Indemnitee, accompanied by a written statement describing in
reasonable detail the basis for such indemnity and the computation of the amount
so payable and, if requested by the Lessee, such determination shall be verified
by a nationally recognized independent accounting firm mutually acceptable to
the Lessee and the Indemnitee at the expense of the Lessee.
SECTION 13.5. General Impositions Indemnity.
<PAGE> 66
(a) Indemnification. The Lessee shall pay and assume liability for, and
does hereby agree to indemnify, protect and defend the Property and all
Indemnitees, and hold them harmless against, all Impositions on an After Tax
Basis; provided, however, that the Lessee shall have no obligation to indemnify
any Indemnitee for any such Impositions under this Section 13.5 arising during
the Construction Period except as follows:
(1) The Lessee shall indemnify the Indemnitees as provided in
this Section 13.5 from and against any and all such
Impositions caused by or arising from any failure by the
Lessee to comply with any of its obligations under the
Operative Documents (including its insurance obligations), any
representation by the Lessee in any of the Operative Documents
not being true, any negligence or willful misconduct of the
Lessee, or any claim by any third-party against the Lessee (or
against any Indemnitee) based upon the alleged action or
inaction by the Lessee.
(2) If any Lessor Party incurs any such claims or expenses for
which the Lessee is not obligated to indemnify such Lessor
Party pursuant to Section 13.5(a), such liabilities, losses,
damages and expenses shall, if such Lessor Party shall so
request by a written notice to the Lessor, be capitalized
pursuant to Section 3.9(f).
(b) Payments. (i) Subject to the terms of Section 13.5(a) and (f), the
Lessee shall pay or cause to be paid all Impositions directly to the taxing
authorities where feasible and otherwise to the Indemnitee, as appropriate, and
the Lessee shall at its own expense, upon such Indemnitee's reasonable request,
furnish to such Indemnitee copies of official receipts or other satisfactory
proof evidencing such payment.
(ii) In the case of Impositions for which no contest is conducted
pursuant to Section 13.5(f) and which the Lessee pays directly to the
taxing authorities, the Lessee shall pay such Impositions prior to the
latest time permitted by the relevant taxing authority for timely
payment. In the case of Impositions for which the Lessee reimburses an
Indemnitee, the Lessee shall do so within twenty (20) days after
receipt by the Lessee of demand by such Indemnitee describing in
reasonable detail the nature of the Imposition and the basis for the
demand (including the computation of the amount payable), but in no
event shall the Lessee be required to pay such reimbursement prior to
thirty (30) days before the latest time permitted by the relevant
taxing authority for timely payment. In the case of Impositions for
which a contest is conducted pursuant to Section 13.5(f), the Lessee
shall pay such Impositions or reimburse such Indemnitee for such
Impositions, to the extent not previously paid or reimbursed pursuant
to subsection (a), prior to the latest time permitted by the relevant
taxing authority for timely payment after conclusion of all contests
under Section 13.5(f).
(iii) At the Lessee's request, the amount of any indemnification
payment by the Lessee pursuant to subsection (a) shall be
verified and certified by an independent public accounting
firm mutually acceptable to the Lessee and the Indemnitee. The
fees and expenses of such independent public
<PAGE> 67
accounting firm shall be paid by the Lessee unless such verification
shall result in an adjustment in the Lessee's favor of 5% or more of
the payment as computed by the Indemnitee, in which case such fee shall
be paid by the Indemnitee.
(c) Reports and Returns. (i) The Lessee shall be responsible for
preparing and filing any real and personal property or ad valorem tax returns in
respect of the Property. In case any other report or tax return shall be
required to be made with respect to any obligations of the Lessee under or
arising out of subsection (a) and of which the Lessee has knowledge or should
have knowledge, the Lessee, at its sole cost and expense, shall notify the
relevant Indemnitee of such requirement and (except if such Indemnitee notifies
the Lessee that such Indemnitee intends to file such report or return) (A) to
the extent required or permitted by and consistent with Applicable Law, make and
file in its own name such return, statement or report; and (B) in the case of
any other such return, statement or report required to be made in the name of
such Indemnitee, advise such Indemnitee of such fact and prepare such return,
statement or report for filing by such Indemnitee or, where such return,
statement or report shall be required to reflect items in addition to any
obligations of the Lessee under or arising out of subsection (a), provide such
Indemnitee at the Lessee's expense with information sufficient to permit such
return, statement or report to be properly made with respect to any obligations
of the Lessee under or arising out of subsection (a). Such Indemnitee shall,
upon the Lessee's request and at the Lessee's expense, provide any data
maintained by such Indemnitee (and not otherwise available to or within the
control of the Lessee) with respect to the Property which the Lessee may
reasonably require to prepare any required tax returns or reports. Each
Indemnitee agrees to use its best efforts to send to the Lessee a copy of any
written request or other notice that the Indemnitee receives with respect to any
reports or returns required to be filed with respect to the Property or the
transactions contemplated by the Operative Documents, it being understood that
no Indemnitee shall have any liability for failure to provide such copies.
(d) Income Inclusions. If as a result of the payment or reimbursement
by the Lessee of any expenses of the Lessor or the payment of any Transaction
Expenses incurred in connection with the transactions contemplated by the
Operative Documents, the Lessor or any Participant shall suffer a net increase
in any federal, state or local income tax liability, the Lessee shall indemnify
such Persons (without duplication of any indemnification required by subsection
(a)) on an After Tax Basis for the amount of such increase. The calculation of
any such net increase shall take into account any current or future tax savings
realized or reasonably expected to be realized by such person in respect
thereof, as well as any interest, penalties and additions to tax payable by the
Lessor, or any Participant or such Affiliate, in respect thereof.
(e) Withholding Taxes. As between the Lessee on one hand, and the
Lessor or the Indenture Trustee and any Participant on the other hand, the
Lessee shall be responsible for, and, subject to the provisions of Sections
13.5(g) and (h), the Lessee shall indemnify and hold harmless the Lessor, the
Indenture Trustee and the Participants (without duplication of any
indemnification required by subsection (a)) on an After Tax
<PAGE> 68
Basis against, any obligation for United States or foreign withholding taxes
imposed in respect of payments with respect to the Participation Interests or
with respect to Rent payments under the Lease or payments of the Asset
Termination Value or Purchase Option Price (and, if the Lessor, the Indenture
Trustee or any Participant receives a demand for such payment from any taxing
authority, the Lessee shall discharge such demand on behalf of the Lessor, the
Indenture Trustee or such Participant). Notwithstanding the foregoing, the
Lessee shall not be responsible for any payment of any withholding tax if the
Lessee is not liable under the Operative Documents for payment of the ultimate
tax.
(f) Contests of Impositions. (i) If a written claim is made against any
Indemnitee or if any proceeding shall be commenced against such Indemnitee
(including a written notice of such proceeding), for any Impositions, such
Indemnitee shall promptly notify the Lessee in writing and shall not take action
with respect to such claim or proceeding without the consent of the Lessee for
thirty (30) days after the receipt of such notice by the Lessee; provided,
however, that, in the case of any such claim or proceeding, if action shall be
required by law or regulation to be taken prior to the end of such 30-day
period, such Indemnitee shall, in such notice to the Lessee, inform the Lessee
of such shorter period, and no action shall be taken with respect to such claim
or proceeding without the consent of the Lessee before 2 days before the end of
such shorter period; provided, further, that the failure of such Indemnitee to
give the notices referred to this sentence shall not diminish the Lessee's
obligation hereunder except to the extent such failure precludes the Lessee from
contesting all or part of such claim.
(ii) If, within thirty (30) days of receipt of such notice from the
Indemnitee (or such shorter period as the Indemnitee has notified the
Lessee is required by law or regulation for the Indemnitee to commence
such contest), the Lessee shall request in writing that such Indemnitee
contest such Imposition, the Indemnitee shall, at the expense of the
Lessee, in good faith conduct and control such contest (including,
without limitation, by pursuit of appeals) relating to the validity,
applicability or amount of such Impositions (provided, however, that
(A) if such contest involves a tax other than a tax on net income and
can be pursued independently from any other proceeding involving a tax
liability of such Indemnitee, the Indemnitee, at the Lessee's request,
shall allow the Lessee to conduct and control such contest and (B) in
the case of any contest, the Indemnitee may request the Lessee to
conduct and control such contest) by, in the sole discretion of the
Person conducting and controlling such contest, (1) resisting payment
thereof, (2) not paying the same except under protest, if protest is
necessary and proper, (3) if the payment be made, using reasonable
efforts to obtain a refund thereof in appropriate administrative and
judicial proceedings, or (4) taking such other action as is reasonably
requested by the Lessee from time to time.
(iii) The party controlling any contest shall consult in good faith
with the non-controlling party and shall keep the non-controlling party
reasonably informed as to the conduct of such contest; provided, that
all decisions ultimately shall be
<PAGE> 69
made in the sole discretion of the controlling party. The parties agree
that an Indemnitee may at any time decline to take further action with
respect to the contest of any Imposition and may settle such contest if
such Indemnitee shall waive its rights to any indemnity from the Lessee
that otherwise would be payable in respect of such claim (and any
future claim by any taxing authority, the contest of which is precluded
by reason of such resolution of such claim) and shall pay to the Lessee
any amount previously paid or advanced by the Lessee pursuant to this
Section 13.5 by way of indemnification or advance for the payment of an
Imposition other than expenses of such contest.
(iv) Notwithstanding the foregoing provisions of this Section 13.5, an
Indemnitee shall not be required to take any action and the Lessee
shall not be permitted to contest any Impositions in its own name or
that of the Indemnitee unless (A) the Lessee shall have agreed such
Imposition is subject to indemnity hereunder and shall pay to such
Indemnitee on demand and on an After Tax Basis all reasonable costs,
losses and expenses that such Indemnitee actually incurs in connection
with contesting such Impositions, including, without limitation, all
reasonable legal, accounting and investigatory fees and disbursements,
(B) in the case of a claim that must be pursued in the name of an
Indemnitee (or an Affiliate thereof), the amount of the potential
indemnity (taking into account all similar or logically related claims
that have been or could be raised in any audit involving such
Indemnitee for which the Lessee may be liable to pay an indemnity under
this Section 13.5) exceeds $100,000, (C) the Indemnitee shall have
reasonably determined that the action to be taken will not result in
any material danger of sale, forfeiture or loss of the Property, or any
part thereof or interest therein, will not interfere with the payment
of Rent, and will not result in risk of criminal liability, (D) if such
contest shall involve the payment of the Imposition prior to the
contest, the Lessee shall provide to the Indemnitee an interest-free
advance in an amount equal to the Imposition that the Indemnitee is
required to pay (with no additional net after-tax cost to such
Indemnitee), (E) in the case of a claim that must be pursued in the
name of an Indemnitee (or an Affiliate thereof), the Lessee shall have
provided to such Indemnitee an opinion of independent tax counsel
selected by the Indemnitee and reasonably satisfactory to the Lessee
stating that a reasonable basis exists to contest such claim (or, in
the case of an appeal of an adverse determination, an opinion of such
counsel to the effect that there is substantial authority for the
position asserted in such appeal) and (F) no Event of Default hereunder
shall have occurred and be continuing. In no event shall an Indemnitee
be required to appeal an adverse judicial determination to the United
States Supreme Court. In addition, an Indemnitee shall not be required
to contest any claim in its name (or that of an Affiliate) if the
subject matter thereof shall be of a continuing nature and shall have
previously been decided adversely by a court of competent jurisdiction
pursuant to the contest provisions of this Section 13.5, unless there
shall have been a change in law (or interpretation thereof) and the
Indemnitee shall have received, at the Lessee's expense, an opinion of
independent tax counsel selected by the Indemnitee and reasonably
acceptable to
<PAGE> 70
the Lessee stating that as a result of such change in law (or
interpretation thereof), it is more likely than not that the Indemnitee
will prevail in such contest.
(g) Documentation of Withholding Status. Each Participant (or any
successor thereto or transferee thereof) that is organized under the laws of a
jurisdiction outside of the United States of America and each Lessor or
Indenture Trustee that is organized under the laws of a jurisdiction outside of
the United States of America shall:
(i) on or before the date it becomes a party to any Operative Document,
deliver to the Lessor and the Lessee any certificates, documents, or
other evidence that shall be required by the Code or Treasury
Regulations issued pursuant thereto to establish its exemption from
United States Federal withholding requirements, including (A) two
valid, duly completed, original copies of Internal Revenue Service Form
1001 or Form 4224 or successor applicable form, properly and duly
executed, certifying in each case that such party is entitled to
receive payments pursuant to the Operative Documents without deduction
or withholding of United States Federal income taxes, or (B) a valid,
duly completed, original copy of Internal Revenue Service Form W-8 or
Form W-9 or applicable successor form, properly and duly executed,
certifying that such party is entitled to an exemption from United
States of America backup withholding tax; and
(ii) so long as it shall be legally entitled to do so, on or before the
date that any such form described above expires or becomes obsolete, or
after the occurrence of any event requiring a change in the most recent
such form previously delivered to the Lessor and the Lessee, deliver to
the Lessee two further valid, duly completed, original copies of any
such form or certification, properly and duly executed.
(h) Limitation on Tax Indemnification. The Lessee shall not be required
to indemnify any Indemnitee, or to pay any increased amounts to any Indemnitee
or tax authority with respect to any Impositions pursuant to this Section 13.5
to the extent that such Imposition is attributable to such Indemnitee's failure
to comply with the provisions of Section 13.5(g) (and, in such case, the Lessee
may deduct and withhold all Taxes required by law as a result of such
noncompliance from payments made by the Lessee pursuant to the Operative
Documents).
(i) Tax Savings. In the event an Indemnitee receives a refund (or
similar tax savings) in respect of any Imposition paid or reimbursed by the
Lessee, such Indemnitee shall within thirty (30) days thereafter remit the
amount of such refund (or tax savings) to the Lessee, provided that the amount
so remitted shall not exceed the lesser of: (i) the amount received by such
Indemnitee as a refund (or tax savings) net of all reasonable costs and expenses
incurred by such Indemnitee in connection with obtaining and paying such amount;
and (ii) (a) the amount of all prior payments by the Lessee to such Indemnitee
with respect to Impositions, plus any refunded interest, less (b) the amount of
all prior payments by the Indemnitee to the Lessee under this Section 13.5(i).
<PAGE> 71
SECTION 13.6. Funding Losses. If any payment of any Eurodollar Rate
Advance or any portion of any Loan or Certificate Purchaser Amount with respect
thereto is made on any day other than the last day of an Interest Period
applicable thereto, or if any payment of any Fixed Rate Advance or any portion
of any Loan or Certificate Purchaser Amount with respect thereto is made on any
day other than the last day of the Fixed Rate Period applicable thereto, or if
the Lessee fails to utilize the proceeds of any Loans or Certificate Purchaser
Amounts after notice has been given to the Lessor or any Participant in
accordance with Section 3 or 4, the Lessee shall reimburse the Lessor and each
Participant within fifteen (15) days after demand for any resulting loss,
expense, breakage costs or swap breakage costs incurred by it, including
(without limitation) any loss incurred in obtaining, liquidating or employing
deposits from third parties, provided that in the case of a Eurodollar Rate
Advance or a Fixed Rate Advance, such Participant or the Lessor shall have
delivered to the Lessee a certificate as to the amount of such loss, expense or
costs, which certificate shall be conclusive in the absence of manifest error,
and provided further that in the case of a Eurodollar Rate Advance, such loss
shall in no event exceed the interest or Certificate Yield on the Loans or
Certificate Purchaser Amounts funding such Advance which would have been payable
for the balance of such Interest Period, less the amount actually earned by the
Lessor or such Participant on such Loans or Certificate Purchaser Amounts.
SECTION 13.7. Regulation D Compensation. For so long as any Participant
or the Lessor is required to increase its existing reserve percentage against
"Eurocurrency Liabilities" (or any other category of liabilities which include
deposits by reference to which the interest rate or Certificate Yield rate on
its Loans or Certificate Purchaser Amounts or Advances is determined or any
category of extensions of credit or other assets which includes loans by a
non-United States office of such Participant to United States residents), and,
as a result, the cost to such Participant (or its Funding Office) or the Lessor
of making or maintaining its Loans or Certificate Purchaser Amounts with respect
to any Advance is increased, then such Participant or the Lessor may require the
Lessee to pay, contemporaneously with each payment of interest or Certificate
Yield on the Loans or Certificate Purchaser Amounts an additional amount at a
rate per annum up to but not exceeding the excess of (i) (A) the applicable
Eurodollar Rate divided by (B) one minus the Eurocurrency Reserve Requirements
and (ii) the applicable Eurodollar Rate.
SECTION 13.8. Basis for Determining Interest Rate or Certificate Yield
Rate Inadequate or Unfair. If on or prior to the first day of any Interest
Period:
(a) deposits in dollars (in the applicable amounts) are not being
offered to the Indenture Trustee in the relevant market for such Interest Period
or any Participants shall advise the Indenture Trustee that the Eurodollar Rate
as determined by the Indenture Trustee will not adequately and fairly reflect
the cost to such Participant of funding its Loans or Certificate Purchaser
Amounts with respect to any Advance for such Interest Period; or
<PAGE> 72
(b) any Participant determines that, by reason of the adoption, on or
after the date of this Participation Agreement, of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Participant (or its Funding Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
governmental agency, it is restricted, directly or indirectly, in the amount it
may hold of (i) a category of liabilities that includes deposits by reference to
which, or on the basis of which, the interest rates or Certificate Yield rates
applicable to Advances based on the Eurodollar Rate are directly or indirectly
determined, or (ii) the category of assets which includes Advances based on the
Eurodollar Rate;
the Indenture Trustee shall forthwith give notice thereof to the Lessee and the
Participants, whereupon until the Indenture Trustee notifies the Lessee that the
circumstances giving rise to such suspension no longer exist, each outstanding
Loan and Certificate Purchaser Amount shall begin to bear interest at the
Alternate Base Rate plus the Applicable Margin on the last day of the then
current Interest Period applicable thereto.
SECTION 13.9. Illegality. If, on or after the date of this
Participation Agreement, the adoption of any applicable law, rule or regulation,
or any change therein, or any change in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any
Participant (or its Funding Office) with any request or directive (whether or
not having the force of law) of any such authority, central bank or comparable
agency, shall make it unlawful or impossible for any Participant (or its Funding
Office) to make, maintain or fund its Loans or Certificate Purchaser Amounts
with respect to any Advance and such Participant shall so notify the Indenture
Trustee, the Indenture Trustee shall forthwith give notice thereof to the other
Participants and the Lessee, whereupon until such Participant notifies the
Lessee and the Indenture Trustee that the circumstances giving rise to such
suspension no longer exist, the obligation of such Participant to fund its Loans
or Certificate Purchaser Amounts with respect to any Advance shall be suspended.
If such notice is given, each outstanding Loan and Certificate Purchaser Amount
of such Participant then outstanding shall begin to bear interest at the
Alternate Base Rate plus the Applicable Margin either (a) on the last day of the
then current Interest Period applicable to such Advance if such Participant may
lawfully continue to maintain and fund such Loan or Certificate Purchaser Amount
to such day or (b) immediately if such Participant shall determine that it may
not lawfully continue to maintain and fund such Loan or Certificate Purchaser
Amount to such day.
SECTION 13.10.Increased Cost and Reduced Return. (a) In the event that
the adoption of any applicable law, rule or regulation, or any change therein or
in the interpretation or application thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof or compliance by any Participant or the Lessor with any
request or directive after the date
<PAGE> 73
hereof (whether or not having the force of law) of any such authority,
central bank or comparable agency:
(i) does or shall subject such Participant or the Lessor to
any additional tax of any kind whatsoever with respect to the
Operative Documents or any Loan or Certificate Purchaser
Amount or Advance made by it, or change the basis or the
applicable rate of taxation of payments to such Participant or
the Lessor of principal, Certificate Purchaser Amount,
Certificate Yield or any other amount payable hereunder
(except for the imposition of or change in any tax on or
measured by the overall net income of such Participant or the
Lessor (other than any such tax imposed by means of
withholding)); or
(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, insurance assessment, compulsory
loan or similar requirement against assets held by, or
deposits or other liabilities in or for the account of,
advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of such Participant
or the Lessor which are not otherwise included in
determination of the rate of interest or Certificate Yield
rate on Advances hereunder;
and the result of any of the foregoing is to increase the cost to such
Participant of making or maintaining its Loan or Certificate Purchaser Amounts
or Advances or to reduce any amount receivable hereunder with respect thereto,
then in any such case, the Lessee shall promptly pay such Participant or the
Lessor, upon its demand, any additional amounts necessary to compensate such
Participant or the Lessor for such increased cost or reduced amount receivable
which such Participant or the Lessor deems to be material as determined by such
Participant or the Lessor; provided, however, that the Lessee shall have no
obligation to pay any additional amounts under this Section 13.10(a) on account
of any increased costs or reduced amounts arising during the Construction Period
except as follows:
(1) The Lessee shall pay any additional amounts under this
Section 13.10(a) on account of any increased costs or reduced
amounts caused by or arising from any failure by the Lessee to
comply with any of its obligation under the Operative
Documents (including its insurance obligations), any
representation by the Lessee in any of the Operative Documents
not being true, any negligence or willful misconduct of the
Lessee, or any claim by any third-party against the Lessee (or
against any Lessor Party) based upon the alleged action or
inaction by the Lessee.
(2) If any Lessor Party incurs any such increased costs or
reduced amounts for which the Lessee is not obligated to pay
additional amounts pursuant to clause (1) above, the amount of
such increased costs and reduced amounts shall, if such Lessor
Party shall so request by a written notice to the Lessor, be
capitalized pursuant to Section 3.9(f).
<PAGE> 74
(b) If any Participant or the Lessor shall have determined that, after
the date hereof, the adoption of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency has or would have the effect of reducing the rate of return on capital of
such Participant or the Lessor (or any entity directly or indirectly controlling
such Participant or the Lessor) as a consequence of such Participant's or the
Lessor's obligations under the Operative Documents to a level below that which
such Participant or the Lessor (or any entity directly or indirectly controlling
such Participant or the Lessor) could have achieved but for such adoption,
change, request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Participant or the
Lessor to be material, then from time to time, within 15 days after demand by
such Participant or the Lessor (with a copy to the Indenture Trustee), the
Lessee shall pay to such Participant or the Lessor such additional amount or
amounts as will compensate such Participant or the Lessor (or its parent) for
such reduction.
SECTION 13.11.Notice and Mitigation. Each demand for payment of
Supplemental Rent pursuant to Sections 13.6, 13.7, 13.9 or 13.10 must be
accompanied by a certificate of the Person claiming compensation (an "Affected
Person") setting forth in reasonable detail the computation of such compensation
(including the reasons therefor), which certificate shall be conclusive and
binding for all purposes absent manifest error. Prior to demand by an Affected
Person for Supplemental Rent pursuant to Sections 13.6 (other than a demand
relating to Fixed Rate Advances), 13.7, 13.9 or 13.10, such Affected Person
agrees that it will use its reasonable efforts to reduce and eliminate any claim
for compensation including, subject to Applicable Law, a change in applicable
lending office for this transaction; provided, however, that nothing herein
shall obligate an Affected Person to take any action which, in the opinion of
such Affected Person, is unlawful, or results in any unreimbursed costs or
expenses to such Affected Person, which costs or expenses would not have been
incurred but for such action. No Affected Person shall be entitled to any
compensation under this Section 13.11 with respect to Sections 13.6 (other than
a demand relating to Fixed Rate Advances), 13.7, 13.9 or 13.10 unless at the
time it requests such compensation it is the policy or general practice of such
Affected Person to demand compensation for comparable costs in similar
circumstances under comparable provisions of documents to which it is a party.
SECTION 13.12.Substitution of Participant. If (i) the obligation of any
Participant to make Loans or fund Certificate Purchaser Amounts has been
suspended pursuant to this Section 13, or (ii) any Participant has demanded
compensation or given notice of its intention to demand compensation under
Section 13.11 with respect to Sections 13.6 (other than a demand relating to
Fixed Rate Advances), 13.7, 13.8, 13.9 or 13.10, the Lessee shall have the
right, with the assistance of the Indenture Trustee, to seek one or more
mutually satisfactory substitute banks or financial institutions (which may be
one or more of the Participants) to replace such Participant under the Operative
Documents.
<PAGE> 75
SECTION 13.13.Indemnity Payments in Addition to Residual Value
Guarantee Amount. The Lessee acknowledges and agrees that its obligations to
make indemnity payments under this Section 13 are separate from, in addition to,
and do not reduce, its obligation to pay the Residual Value Guarantee Amount
under the Lease; provided, that except as otherwise set forth in Section 13.2
hereof, the Shortfall Amount payable by the Lessee in connection with the
Remarketing Option under the Lease shall not be increased under this Section 13.
SECTION 13.14.Limitations on Indemnification. Notwithstanding any other
provisions of Sections 13.1, 13.5 or 13.10 (the "Indemnification Sections") to
the contrary, during the Construction Period, the Lessee (i) shall only be
obligated to indemnify the Lessor (and not any other Indemnitee, except to the
extent any Claims of such Indemnitee, Impositions against such Indemnitee, or
losses, costs or expenses suffered or incurred by such Indemnitee arise solely
from a Fully Indemnifiable Event) for any Claims of the Lessor under Section
13.1, Impositions against the Lessor under Section 13.5, or losses, costs or
expenses suffered or incurred by the Lessor under Section 13.10 (collectively
"Lessor Losses") provided, that such Lessor Losses shall include costs and
expenses of the Lessor under Section 13.15 and (ii) shall have no right to
contest any matter covered under Section 13.1, 13.5 or 13.10, notwithstanding
the language of Section 13.1, 13.5 or 13.10, if such matter is not fully
indemnifiable by the Lessee because of the operation of Section 13.14 or because
such matter is not indemnifiable due to the exclusions set forth in Section 13.1
(z), 13.5 (a) or 13.10(a).
SECTION 13.15.Lessor Indemnification.
(a) Indemnified Losses. During the Construction Period, the Lessor
shall pay, indemnify, protect, defend, save and keep harmless each Indemnitee
(other than the Lessor, its Affiliates, successors, assigns, directors,
shareholders, partners, officers, employees and agents) (an "Indemnified Party")
on an After Tax Basis from and against any Losses (as hereinafter defined)
arising from Covered Matters (as hereinafter defined), subject to the
limitations set forth in this Section 13.15.
(b) Definitions. For purposes of this Section 13.15, the following
terms shall have the meanings set forth below:
"Covered Matters" means each of the matters set forth in the
Indemnification Sections.
"Losses" means each of the Claims, Impositions, losses, costs or
expenses indemnified against pursuant to any of the Indemnification Sections.
(c) No Indemnification for Certain Matters. The Lessor shall not be
required to indemnify or hold harmless any Indemnified Party hereunder against
any matter referred to in clause (a) of this Section (i) to the extent arising
solely as a result of any Fully Indemnifiable Event or (ii) to the extent of the
exceptions or exclusions from indemnification contained in any of the
Indemnification Sections.
<PAGE> 76
(d) Limitations on Indemnification by Lessor. The Lessor's obligation
to indemnify and hold harmless any Indemnified Party under this Section:
(i) is not an individual or personal obligation of the Lessor
or the Bank, but solely its obligation as Owner Trustee, and nothing
herein shall be construed as creating any liability on the Bank,
individually or personally, to pay, indemnify or hold harmless any
Indemnified Party under this Section;
(ii) is not an obligation binding on the Trust Estate created
by the Trust Agreement except to the extent of any payments received by
the Lessor pursuant to the Indemnification Sections;
(iii) shall be paid and discharged solely and exclusively from
amounts received by the Lessor pursuant to the Indemnification
Sections, and it is expressly agreed by each Indemnified Party that the
sole recourse of each such Person for payment or discharge of the
indemnification obligations created under this Section shall be to such
amounts paid by the Lessee or the Guarantor pursuant to the
Indemnification Sections;
(iv) is the sole and exclusive right of each Indemnified Party
against the Lessor, and any right to proceed against the Lessor
individually or otherwise under common law, federal or state securities
laws or otherwise for indemnification or contribution in connection
with the matters covered by this Section, is hereby expressly waived by
each Indemnified Party (other than claims that may be made against the
Lessor or the Bank, individually or personally, for fraud, gross
negligence or willful misconduct).
Nothing in this Section is intended as or should be construed as a limitation on
the right of any Indemnified Party to make indemnification, contribution or
other claims of any kind against the Lessee or the Guarantor, to the extent that
such claims otherwise may be made, with respect to any matter, including
indemnification for Losses of the type referred to in this Section.
(d) Repayment to the Lessor. To the extent that any payments made
pursuant to the Indemnification Sections are subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid by the
Lessor to a trustee, debtor in possession, receiver or other Person under any
Bankruptcy Law, common law or equitable cause, then to such extent, the
Indemnified Parties who received any such payments from the Lessor (or any
portion thereof) shall repay any such amounts to the Lessor, or as may otherwise
be directed by a court of competent jurisdiction.
(f) Survival, Reinstatement. The indemnification obligations of the
Lessor under this Section shall survive and be reinstated to the same extent,
for the same period and in the same manner as the indemnification obligations of
the Lessee under the Indemnification Sections.
<PAGE> 77
(g) Indemnification Procedures. The right of any Indemnified Party to
seek indemnification from the Lessor under this Section is subject to and
conditioned upon compliance by any such Indemnified Party with the notice,
cooperation, appointment of counsel, contest rights and other provisions in the
Indemnification Sections as fully as if such Sections were set forth herein,
except (i) that any reference in the Indemnification Sections to the Lessee
shall be deemed to be a reference to the Lessor or, if the Lessor so directs in
any case, the Lessor and/or the Lessee for purposes of this Section and (ii) the
limitation in the Indemnification Sections on the number of counsel that may be
engaged to represent Indemnified Parties shall be deemed to be a reference to
the same number of counsel acting on behalf of Indemnified Parties rather than
Indemnitees under the Indemnification Sections, to the extent such costs are
recoverable pursuant to the Indemnification Sections.
SECTION 14.
THE INDENTURE TRUSTEE
Each Certificate Holder hereby irrevocably designates and appoints the
Indenture Trustee as the agent of such Participant under this Agreement, the
Indenture and the other Operative Documents to the extent set forth in the
Indenture, and each Certificate Holder irrevocably authorizes the Indenture
Trustee, in such capacity, to take such action on its behalf under the
provisions of this Agreement and the other Operative Documents and to exercise
such powers and perform such duties as are expressly delegated to the Indenture
Trustee by the terms of this Agreement, the Indenture and the other Operative
Documents, together with such other powers as are reasonably incidental thereto.
SECTION 15.
MISCELLANEOUS
SECTION 15.1. Survival of Agreements. The representations, warranties,
covenants, indemnities and agreements of the parties provided for in the
Operative Documents, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Participation Agreement, the
transfer of the Property to the Lessor, the construction of any Improvements,
any disposition of any interest of the Lessor in the Property or any
Improvements, payment of the Notes and Certificates and any disposition thereof
and shall be and continue in effect notwithstanding any investigation made by
any party and the fact that any party may waive compliance with any of the other
terms, provisions or conditions of any of the Operative Documents. Except as
otherwise expressly set forth herein or in other Operative Documents, the
indemnities of the parties provided for in the Operative Documents shall survive
the expiration or termination of any thereof.
<PAGE> 78
SECTION 15.2. No Broker, etc. Each of the parties hereto represents to
the others that it has not retained or employed any broker, finder or financial
adviser to act on its behalf in connection with this Participation Agreement or
the transactions contemplated herein, nor has it authorized any broker, finder
or financial adviser retained or employed by any other Person so to act. Any
party who is in breach of this representation shall indemnify and hold the other
parties harmless from and against any liability arising out of such breach of
this representation.
SECTION 15.3. Notices. Unless otherwise specifically provided herein,
all notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person shall be given in writing and delivered (i) personally, (ii) by a
nationally recognized overnight courier service, (iii) by mail (by registered or
certified mail, return receipt requested, postage prepaid) or (iv) by facsimile,
in each case directed to the address of such Person as indicated on Schedule II.
Any such notice shall be effective upon receipt or refusal.
From time to time any party may designate a new address for purposes of
notice hereunder by written notice to each of the other parties hereto in
accordance with this Section.
SECTION 15.4. Counterparts. This Participation Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 15.5. Amendments. Subject to the provisions of Section 8.1 of
the Indenture, no Operative Document nor any of the terms thereof may be
terminated, amended, supplemented, waived or modified with respect to the
Lessee, the Lessor, the Bank, the Indenture Trustee or any Participant, except
(a) in the case of a termination, amendment, supplement, waiver or modification
to be binding on the Lessee, the Lessor, the Bank, or the Indenture Trustee,
with the written agreement or consent of such party, and (b) in the case of a
termination, amendment, supplement, waiver or modification to be binding on the
Participants, with the written agreement or consent of the Required
Participants; provided, however, that
(x) no such termination, amendment, supplement, waiver or
modification shall without written agreement or consent of each Participant:
(i) modify any of the provisions of this Section 15.5, change
the definition of "Required Participants" or modify or waive any
provision of an Operative Agreement requiring action by the foregoing;
(ii) amend, modify, waive or supplement any of the provisions
of Section 3.8 or Sections 5, and 6 of the Indenture or the
representations of such Participant in Section 8 or the covenants in
Sections 7 and 10 of this Participation Agreement;
<PAGE> 79
(iii) reduce, modify, amend or waive any fees or indemnities
in favor of any Participant, including without limitation amounts
payable pursuant to Section 13 (except that any Person may consent to
any reduction, modification, amendment or waiver of any indemnity
payable to it);
(iv) modify, postpone, reduce or forgive, in whole or in part,
any payment of Rent (other than pursuant to the terms of any Operative
Agreement), any payment in respect of its Note or Certificate, or any
payment of the Asset Termination Value, Commitment Fee, Residual Value
Guarantee Amount, amounts due pursuant to Section 22.2 of the Lease,
interest, Certificate Yield or, subject to clause (iii) above, any
other amount payable under the Lease or this Participation Agreement,
or modify the definition or method of calculation of Rent (other than
pursuant to the terms of any Operative Agreement), Asset Termination
Value, Commitment Fee, Shortfall Amount, Residual Value Guarantee
Amount, Property Improvements Cost, Participant Balance, Tranche A
Participant Balance, Tranche B Participant Balance, or any other
definition which would affect the amounts to be advanced or which are
payable under the Operative Documents;
(v) consent to any assignment of the Lease, releasing the
Lessee from its obligations in respect of the payments of Rent and the
Asset Termination Value or changing the absolute and unconditional
character of such obligation;
(vi) except as authorized by the Operative Documents, release
the Lessor's interest in all or a substantial part of the Property;
(vii) amend the definition of "Event of Default;"
(viii) terminate or release the Guarantee or amend,
supplement, waive or modify any provision thereof;
(ix) increase the amount of the Commitment of such
Participant; and
(y) no other termination, amendment, supplement, waiver or
modification shall, without the written agreement or consent of the Lessor and
the Required Participants, be made to the Lease or Section 6 of this
Participation Agreement.
SECTION 15.6. Headings, etc. The Table of Contents and headings of the
various Sections of this Agreement are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions hereof.
SECTION 15.7. Parties in Interest. Except as expressly provided herein,
none of the provisions of this Participation Agreement are intended for the
benefit of any Person except the parties hereto. Subject to the provisions of
Section 25.1 of the Lease,
<PAGE> 80
the Lessee shall not assign or transfer any of its rights or obligations under
the Operative Documents without the prior written consent of the Lessor, the
Indenture Trustee and the Participants, except that the Lessee may without such
consent assign rights or obligations of the Lessee under the Operative Documents
to a Subsidiary of the Lessee, provided that the Lessee remains primarily liable
with respect to such obligations and provides its full unconditional and
irrevocable guaranty of such Subsidiary's obligations under the Operative
Documents, such guaranty to be in form and substance reasonably satisfactory to
the Required Participants.
SECTION 15.8. GOVERNING LAW. THIS PARTICIPATION AGREEMENT SHALL IN ALL
RESPECTS BE GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA (EXCLUDING ANY
CONFLICT-OF-LAW OR CHOICE-OF-LAW RULES WHICH MIGHT LEAD TO THE APPLICATION OF
THE INTERNAL LAWS OF ANY OTHER JURISDICTION) AS TO ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE.
SECTION 15.9. Severability. Any provision of this Participation
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 15.10.Liability Limited. (a) The Lessee, the Indenture Trustee,
and the Participants each acknowledge and agree that the Owner Trustee is
(except as otherwise expressly provided herein or therein) entering into this
Participation Agreement and the other Operative Documents to which it is a party
(other than the Trust Agreement), solely in its capacity as trustee under the
Trust Agreement and not in its individual capacity and that Bank shall not be
liable or accountable under any circumstances whatsoever in its individual
capacity for or on account of any statements, representations, warranties,
covenants or obligations stated to be those of the Owner Trustee in its trust
capacity, except for its own gross negligence or willful misconduct and as
otherwise expressly provided herein or in the other Operative Documents, and it
is understood and agreed that all obligations of the Lessor to the Lessee, the
Indenture Trustee, any Certificate Holder and any Note Holder under the
Operative Documents are solely nonrecourse obligations (except as otherwise
expressly provided therein) enforceable only against the Trust Estate.
(b) Each party hereto acknowledges that the provisions of
Section 7.2 of the Indenture in favor of the Indenture Trustee shall apply to
the Indenture Trustee under each other Operative Document.
SECTION 15.11.Further Assurances. The parties hereto shall promptly
cause to be taken, executed, acknowledged or delivered, at the sole expense of
the Lessee, all such further acts, conveyances, documents and assurances as the
other parties may from time to time reasonably request in order to carry out and
effectuate the intent and purposes of
<PAGE> 81
this Participation Agreement, the other Operative Documents, and the
transactions contemplated hereby and thereby (including, without limitation, the
preparation, execution and filing of any and all Uniform Commercial Code
financing statements and other filings or registrations which the parties hereto
may from time to time request to be filed or effected). The Lessee, at its own
expense and without need of any prior request from any other party, shall take
such action as may be necessary (including any action specified in the preceding
sentence), or (if the Lessor shall so request) as so requested, in order to
maintain and protect all security interests provided for hereunder or under any
other Operative Document.
SECTION 15.12.Submission to Jurisdiction. The Lessee hereby submits to
the nonexclusive jurisdiction of the United States District Court for the
Northern District of California and of any California state court sitting in San
Francisco for purposes of all legal proceedings arising out of or relating to
the Operative Documents or the transactions contemplated hereby. The Lessee
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.
SECTION 15.13.Confidentiality. The Lessor, the Indenture Trustee and
each Participant represent that they will maintain the confidentiality of the
transactions contemplated by, and of any written or oral information provided
under, the Operative Documents by or on behalf of the Lessee (hereinafter
collectively called "Confidential Information"), subject to the Lessor's, the
Indenture Trustee's and each Participant's (a) obligation to disclose any such
Confidential Information pursuant to a request or order under applicable laws
and regulations or pursuant to a subpoena or other legal process, (b) right to
disclose any such Confidential Information to its bank examiners, Affiliates,
auditors, counsel and other professional advisors and to other Participants, (c)
right to disclose any such Confidential Information in connection with any
litigation or dispute involving the Participants and the Lessee or any of its
Subsidiaries and Affiliates and (d) right to provide such information to
Sub-Participants, prospective Sub-Participants to which sales of participating
interests are permitted pursuant to this Participation Agreement and prospective
assignees to which assignments of interests are permitted pursuant to this
Participation Agreement, but only if (i) such Sub-Participant, prospective
Sub-Participant or prospective assignee agrees in writing to maintain the
confidentiality of such information on terms substantially similar to those of
this Section as if it were a "Participant" party hereto and (ii) the Lessee
receives copies of such written agreement prior to the release of such
information. Notwithstanding the foregoing, any such information supplied to a
Participant, Sub-Participant, prospective Sub-Participant or prospective
assignee under this Participation Agreement shall cease to be Confidential
Information if it is or becomes known to such Person by other than unauthorized
disclosure, or if it becomes a matter of public knowledge.
SECTION 15.14.WAIVER OF JURY TRIAL. EACH OF THE LESSEE, THE INDENTURE
TRUSTEE, THE LESSOR, AND EACH PARTICIPANT HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY
<PAGE> 82
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE OPERATIVE DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 15.15.Usury Savings Clause. Nothing contained in this
Participation Agreement or the other Operative Documents shall be deemed to
require the payment of interest or other charges by the Lessee or any other
Person in excess of the amount which may be may lawfully be charged under any
applicable usury laws. In the event that the Lessor or any other Person shall
collect moneys under the Participation Agreement or any other Operative Document
which are deemed to constitute interest (including, without limitation, the
Basic Rent or Supplemental Rent) which would increase the effective interest
rate to a rate in excess of that permitted to be charged by applicable law, all
such sums deemed to constitute interest in excess of the legal rate shall, upon
such determination, at the option of the Person to whom such payment was made,
be returned to the Person making such payment or credited against other amounts
owed by the person making such payment.
[SIGNATURE PAGES FOLLOW]
DOCUMENT NUMBER: 363621.7
IN WITNESS WHEREOF, the parties hereto have caused this
Participation Agreement to be duly executed by their respective officers
thereunto duly authorized as of the day and year first above written.
PEOPLESOFT, INC., as Lessee
By:_____________________________________
Mark G. Thompson, Treasurer
WILMINGTON TRUST COMPANY,
not in its individual capacity, except
as expressly stated herein, but solely
as Owner Trustee
By:_____________________________________
Name:
Title:
ABN AMRO BANK N.V.,
not in its individual capacity, except
as expressly stated herein, but solely
as Indenture Trustee
By:_____________________________________
Name:
Title:
<PAGE> 83
By:_____________________________________
Name:
Title:
ABN AMRO LEASING, INC.,
as a Certificate Purchaser
By:_____________________________________
Name:
Title:
ABN AMRO BANK N.V.,
SAN FRANCISCO INTERNATIONAL BRANCH,
as a Note Purchaser
By:_____________________________________
Name:
Title:
By:_____________________________________
Name:
Title:
CREDIT LYONNAIS LOS ANGELES BRANCH,
as a Note Purchaser
By:_____________________________________
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
as a Note Purchaser
By:_____________________________________
Name:
Title:
BANQUE NATIONALE DE PARIS,
as a Note Purchaser
By:_____________________________________
Name:
<PAGE> 84
Title:
FLEET BANK, as a Note Purchaser
By:_____________________________________
Name:
Title:
THE FUJI BANK, LIMITED, as a Note
Purchaser
By:_____________________________________
Name:
Title:
THE DAI-ICHI KANGYO BANK, LIMITED, as a
Note Purchaser
By:_____________________________________
Name:
Title:
THE BANK OF NOVA SCOTIA, as a Note
Purchaser
By:_____________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
SAN FRANCISCO AGENCY, as a Note
Purchaser
By:_____________________________________
Name:
Title:
WELLS FARGO BANK, as a Note Purchaser
By:_____________________________________
Name:
Title:
<PAGE> 85
//SCHEDULE I
<TABLE>
<CAPTION>
PRE-COMPLETION POST-COMPLETION
PRE-COMPLETION POST-COMPLETION COMMITMENT COMMITMENT
PARTICIPANT COMMITMENTS COMMITMENTS PERCENTAGE PERCENTAGE
<S> <C> <C> <C> <C>
364 Day Commitments
ABN AMRO LEASING, INC.
Tranche A Loan Commitment: 0.0% 0.0%
Tranche B Loan Commitment: 0.0% 0.0%
Certificate Commitment: 3.0% 3.0%
Total 364 Day Commitment: 3.0% 3.0%
ABN AMRO BANK N.V.,
SAN FRANCISCO
INTERNATIONAL BRANCH
Tranche A Loan Commitment: 9.85782568% 9.37535145%
Tranche B Loan Commitment: 0.77853796% 1.26101218%
Certificate Commitment: 0.0% 0.0%
Total 364 Day Commitment: 10.63636364% 10.63636364%
CREDIT LYONNAIS
LOS ANGELES BRANCH
Tranche A Loan Commitment: 9.68931584% 9.21508903%
Tranche B Loan Commitment: 0.76522962% 1.23945642%
Certificate Commitment: 0.0% 0.0%
Total 364 Day Commitment: 10.45454545% 10.45454545%
KEYBANK NATIONAL ASSOCIATION
Tranche A Loan Commitment: 9.68931584% 9.21508903%
Tranche B Loan Commitment: 0.76522962% 1.23945642%
Certificate Commitment: 0.0% 0.0%
Total 364 Day Commitment: 10.45454545% 10.45454545%
BANK NATIONALE DE PARIS
</TABLE>
<PAGE> 86
<TABLE>
<S> <C> <C> <C> <C>
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total 364 Day Commitment: 8.18181818% 8.18181818%
FLEET BANK
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total 364 Day Commitment: 8.18181818% 8.18181818%
MELLON BANK
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total 364 Day Commitment: 8.18181818% 8.18181818%
THE FUJI BANK, LIMITED
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total 364 Day Commitment: 8.18181818% 8.18181818%
THE DAI-ICHI KANGYO BANK,
LIMITED SAN FRANCISCO AGENCY
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total 364 Day Commitment: 8.18181818% 8.18181818%
THE BANK OF NOVA SCOTIA
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
</TABLE>
<PAGE> 87
<TABLE>
<S> <C> <C> <C> <C>
Certificate Commitment: 0.0% 0.0%
Total 364 Day Commitment: 8.18181818% 8.18181818%
THE INDUSTRIAL BANK OF JAPAN,
LIMITED SAN FRANCISCO AGENCY
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total 364 Day Commitment: 8.18181818% 8.18181818%
WELLS FARGO BANK
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total 364 Day Commitment: 8.18181818% 8.18181818%
AGGREGATE 364 DAY TRANCHE A 89.90000000% 85.50000000%
LOAN COMMITMENT OF ALL
PARTICIPANTS:
AGGREGATE 364 DAY TRANCHE B 7.10000000% 11.50000000%
LOAN COMMITMENT OF ALL
PARTICIPANTS:
AGGREGATE 364 DAY CERTIFICATE 3.00000000% 3.00000000%
COMMITMENT OF ALL PARTICIPANTS:
AGGREGATE 364 DAY COMMITMENT $83,000,000 $83,000,000 100.00000000% 100.00000000%
OF ALL PARTICIPANTS:
EIGHTEEN MONTH COMMITMENTS
ABN AMRO LEASING, INC.
Tranche A Loan Commitment: 0.0% 0.0%
Tranche B Loan Commitment: 0.0% 0.0%
Certificate Commitment: 3.0% 3.0%
Total Eighteen Month 3.0% 3.0%
Commitment:
</TABLE>
<PAGE> 88
<TABLE>
<S> <C> <C> <C> <C>
ABN AMRO BANK N.V.,
SAN FRANCISCO
INTERNATIONAL BRANCH
Tranche A Loan Commitment: 9.85782568% 9.37535145%
Tranche B Loan Commitment: 0.77853796% 1.26101218%
Certificate Commitment: 0.0% 0.0%
Total Eighteen Month 10.63636364% 10.63636364%
Commitment:
CREDIT LYONNAIS
LOS ANGELES BRANCH
Tranche A Loan Commitment: 9.68931584% 9.21508903%
Tranche B Loan Commitment: 0.76522962% 1.23945642%
Certificate Commitment: 0.0% 0.0%
Total Eighteen Month 10.45454545% 10.45454545%
Commitment:
KEYBANK NATIONAL ASSOCIATION
Tranche A Loan Commitment: 9.68931584% 9.21508903%
Tranche B Loan Commitment: 0.76522962% 1.23945642%
Certificate Commitment: 0.0% 0.0%
Total Eighteen Month 10.45454545% 10.45454545%
Commitment:
BANK NATIONALE DE PARIS
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total Eighteen Month 8.18181818% 8.18181818%
Commitment:
FLEET BANK
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
</TABLE>
<PAGE> 89
<TABLE>
<S> <C> <C> <C> <C>
Total Eighteen Month 8.18181818% 8.18181818%
Commitment:
MELLON BANK
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total Eighteen Month 8.18181818% 8.18181818%
Commitment:
THE FUJI BANK, LIMITED
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total Eighteen Month 8.18181818% 8.18181818%
Commitment:
THE DAI-ICHI KANGYO BANK,
LIMITED SAN FRANCISCO AGENCY
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total Eighteen Month 8.18181818% 8.18181818%
Commitment:
THE BANK OF NOVA SCOTIA
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total Eighteen Month 8.18181818% 8.18181818%
Commitment:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED SAN FRANCISCO AGENCY
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
</TABLE>
<PAGE> 90
<TABLE>
<S> <C> <C> <C> <C>
Certificate Commitment: 0.0% 0.0%
Total Eighteen Month 8.18181818% 8.18181818%
Commitment:
WELLS FARGO BANK
Tranche A Loan Commitment: 7.58294283% 7.21180881%
Tranche B Loan Commitment: 0.59887535% 0.97000937%
Certificate Commitment: 0.0% 0.0%
Total Eighteen Month 8.18181818% 8.18181818%
Commitment:
AGGREGATE EIGHTEEN MONTH 89.90000000% 85.50000000%
TRANCHE A LOAN COMMITMENT OF
ALL PARTICIPANTS:
AGGREGATE EIGHTEEN MONTH 7.10000000% 11.50000000%
TRANCHE B LOAN COMMITMENT OF
ALL PARTICIPANTS:
AGGREGATE EIGHTEEN MONTH 3.00000000% 3.00000000%
CERTIFICATE COMMITMENT OF ALL
PARTICIPANTS:
AGGREGATE EIGHTEEN MONTH $27,000,000 $27,000,000 100.00000000% 100.00000000%
COMMITMENT OF ALL PARTICIPANTS:
</TABLE>
//
SCHEDULE II
Notice Information, Funding Offices and Payment Instructions
Lessee:PEOPLESOFT, INC.
4305 Hacienda Drive
Pleasanton, California 94588
Attention: General Counsel
Telephone: (925) 694-7180
Facsimile: (925) 694-7184
with copies to:PEOPLESOFT, INC.
4305 Hacienda Drive
Pleasanton, California 94588
Attention: Director of Real Estate
<PAGE> 91
Telephone: (925) 694-7053
Facsimile: (925) 694-7050
PEOPLESOFT, INC.
4305 Hacienda Drive
Pleasanton, California 94588
Attention: Chief Financial Officer
Telephone: (925) 694-7114
Facsimile: (925) 694-7190
GRIGGS RESOURCE GROUP
3470 Mt. Diablo Boulevard
Suite A-205
Lafayette, California 94549
Attention: Brian Griggs
Telephone: (510) 299-4870
Facsimile: (510) 299-4872
ORRICK HERRINGTON & SUTCLIFFE
400 Sansome Street
San Francisco, California 94111
Attention: William Murray
Telephone: (415) 773-5807
Facsimile: (415) 773-5759
Lessor:WILMINGTON TRUST COMPANY
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telephone: (302) 651-1000
Facsimile: (302) 651-8882
Payments shall be made to:
Wilmington Trust Company
Wilmington, Delaware
ABA No.: 031100092
For Credit to: PeopleSoft '98
Account No.: 46147-0
<PAGE> 92
Attention: Charisse Rodgers, Corp Trust
Administration
Telephone: (302) 651-8951
Facsimile: (302) 427-4749
Indenture Trustee: ABN AMRO BANK N.V.
1325 Avenue of the Americas
New York, New York 10019
Attention: Edward Corletzi
Telephone: (212) 314-1721
Facsimile: (212) 314-1709
Payments shall be made to:
Federal Reserve Bank of New York, New York, NY
ABN AMRO Bank New York
ABA No.: 026009580
For account of: ABN AMRO Bank San Francisco
Account No.: 651001054541
Re: PeopleSoft, Inc.
Co-Trustee: U.S. BANK TRUST NATIONAL ASSOCIATION
One California Street, Suite 400
San Francisco, CA 94111
Attention: Jennifer Holder, Vice President
Telephone: (415) 273-4576
Facsimile: (415) 273-4590
Payments shall be made to:
ABA No.: 091000022
U.S. Bank Trust: 180121167365
San Francisco Wire Clearing: 4730027
Ref: 95457370
Attention: Jennifer Holder, Vice President
Participant: ABN AMRO LEASING, INC.
135 South LaSalle Street
Suite 711
Chicago, Illinois 60603
Attention: David M. Shipley
<PAGE> 93
Telephone: (312) 904-2183
Facsimile: (312) 904-6217
Payments shall be made to:
LaSalle National Bank
ABA No.: 071-000-505
For account of: ABN AMRO Leasing, Inc.
Account No.: 2226951
Attention: Jaime Guzman
Participant: ABN AMRO BANK N.V.,
SAN FRANCISCO INTERNATIONAL BRANCH
101 California Street, Suite 4550
San Francisco, California 94111-5812
Attention: Jamie Dillon
Telephone: (415) 984-3750
Facsimile: (415) 362-3524
Payments shall be made to:
Federal Reserve Bank of New York, New York, NY
ABN AMRO Bank New York
ABA No.: 026009580
For account of: ABN AMRO Bank San Francisco
Account No.: 651001054541
Re: PeopleSoft, Inc.
Participant: CREDIT LYONNAIS LOS ANGELES BRANCH
515 S. Flower Street, 22nd Floor
Los Angeles, California 90071
Attention: Rita Raychaudhuri
Telephone: (213) 362-5954
Facsimile: (213) 623-3437
Payments shall be made to:
Federal Reserve Bank of New York, New York, NY
Credit Lyonnais New York
ABA No.: 026008073
For further credit to: Credit Lyonnais
Los Angeles Branch
<PAGE> 94
Account: Credit Lyonnais New York
Re: PeopleSoft, Inc.
Participant: KEYBANK NATIONAL ASSOCIATION
700 Fifth Avenue, 46th Floor
M/S 31-10-4612
Seattle, Washington 98104
Attention: Rick Ameny
Telephone: (206) 684-6014
Facsimile: (206) 684-6035
Payments shall be made to:
KeyBank National Association, Seattle, WA
ABA No.: 125000574
For further credit to: Specialty Services Team
Account No.: 01500163
Re: PeopleSoft, Inc.
Participant: BANQUE NATIONALE DE PARIS
180 Montgomery Street
San Francisco, California 94104
Attention: Michael McCorriston
Telephone: (415) 956-0707
Facsimile: (415) 296-8954
Payments shall be made to:
Banque Nationale de Paris New York
ABA No.: 026007689
For Credit: Banque Nationale de Paris San
Francisco
Account No.: 14334000176
Participant: FLEET BANK
1 Federal Street
Mail Stop MAOF D07A
Boston, Massachussetts 02110
Attention: Matt Glauninger
Telephone: (617) 346-0029
Facsimile: (617) 346-1633
<PAGE> 95
Payments shall be made to:
Fleet Bank
ABA No.: 011000138
For Credit: Commercial Loan Wire Suspense
G/L Account No.: 1510351-03156
Re: PeopleSoft, Inc.
Participant: MELLON BANK, N.A.
435 Tasso Street, Suite 100
Palo Alto, California 94301
Attention: Mike Rogers
Telephone: (650) 326-3005
Facsimile: (650) 326-2382
Payments shall be made to:
Mellon Bank, N.A., Pittsburgh, PA
ABA No.: 043000261
Account No.: 990873800 - Loan Administration
Re: PeopleSoft, Inc.
Participant: THE FUJI BANK, LIMITED
601 California Street, Suite 500
San Francisco, California 94108
Attention: Quentin Falconer, Vice President
Telephone: (415) 296-5452
Facsimile: (415) 362-4613
Payments shall be made to:
Bankers Trust Company, New York, NY
ABA No.: 021001033
For Credit: The Fuji Bank, Limited Los Angeles
Agency
Account No.: 04402840
Attention: CP&A
Re: PeopleSoft, Inc.
Participant: THE DAI-ICHI KANGYO BANK, LIMITED
SAN FRANCISCO AGENCY
<PAGE> 96
101 California Street, Suite 4002
San Francisco, California 94111
Attention: Mark Dirsa
Telephone: (415) 393-1813
Facsimile: (415) 788-7868
Payments shall be made to:
The Dai-Ichi Kangyo Bank, Limited
New York Branch, New York, NY
ABA No.: 026-004307
For further credit to: The Dai-Ichi Kangyo Bank,
Limited
San Francisco Agency
Account No.: 079 740 111 268
Re: PeopleSoft, Inc.
Participant: THE BANK OF NOVA SCOTIA
580 California Street
Suite 2100
San Francisco, California 94104
Attention: Chris Osborn
Telephone: (415) 616-4170
Facsimile: (415) 397-0791
Payments shall be made to:
The Bank of Nova Scotia
ABA No.: 026002532
For Credit: The Bank of Nova Scotia San
Francisco Loan Service
Account No.: 0610136
Re: PeopleSoft, Inc.
Participant: THE INDUSTRIAL BANK OF JAPAN, LIMITED
SAN FRANCISCO AGENCY
555 California Street, Suite 3110
San Francisco, California 94104
Attention: Greg Stewart
Telephone: (415) 693-1824
<PAGE> 97
Facsimile: (415) 982-1917
Payments shall be made to:
Bank of America NT & SA, Concord, CA
ABA No.: 121-000-358
Account: The Industrial Bank of Japan, Limited
Los Angeles Agency
Account No.: 62906-14014
"For Credit to IBJ SFA, A/C 2601-22011"
Re: PeopleSoft, Inc.
Participant: WELLS FARGO
201 3rd Street
8th Floor
San Francisco, California 94103
Attention: Oscar Enriquez
Telephone: (415) 477-5425
Facsimile: (415) 477-0675
Payments shall be made to:
Wells Fargo Bank
ABA No.: 121000248
For Credit: G/L# 2712-507201
Re: PeopleSoft, Inc.
Obligor #:69-43492899
Obligation #: (to be assigned)
Attention: Lily Storer
Telephone: (925) 687-7359
SCHEDULE III
Environmental Matters
None
SCHEDULE IV
Intellectual Property Matters
None
<PAGE> 1
EXHIBIT 10.43
W&S DRAFT
9/28/98
Prepared by and upon recording return to:
John R. Grier, Esq.
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
MASTER LEASE
dated as of September 28, 1998
between
WILMINGTON TRUST COMPANY,
not in its individual capacity,
but solely as Owner Trustee,
as the Lessor
and
PEOPLESOFT, INC.,
as the Lessee
PeopleSoft Hacienda II Lease Facility
This Lease has been executed in counterparts. To the extent, if any, that this
Lease constitutes chattel paper (as such term is defined in the Uniform
Commercial Code as in effect in any applicable jurisdiction), no lien on this
Lease may be created through the transfer or possession of any counterpart other
than the original counterpart containing the receipt therefor executed by ABN
AMRO Bank N.V., as Indenture Trustee on the signature page hereof.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I 1
1.1. Definitions; Interpretation 1
ARTICLE II 1
2.1. Acceptance and Lease of Property 1
2.2. Acceptance Procedure 2
2.3. Lease Term 2
2.4. Title 2
ARTICLE III 3
3.1. Rent 3
3.2. Payment of Basic Rent 3
3.3. Supplemental Rent 3
3.4. Method of Payment 4
ARTICLE IV 4
4.1. Utility Charges 4
ARTICLE V 4
5.1. Quiet Enjoyment 4
ARTICLE VI 5
6.1. Net Lease 5
6.2. No Termination or Abatement 6
ARTICLE VII 6
7.1. Ownership of the Property 6
ARTICLE VIII 8
8.1. Condition of the Property 8
8.2. Possession and Use of the Property 8
ARTICLE IX 9
9.1. Compliance with Requirements of Law and Insurance Requirements 9
ARTICLE X 9
10.1. Maintenance and Repair; Return 9
ARTICLE XI 10
11.1. Modifications, Substitutions and Replacements 10
ARTICLE XII 10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
12.1. Warranty of Title 10
12.2. Grants and Releases of Easements 11
12.3. Actions Required of the Lessor 12
12.4. Further Actions By the Lessee 12
ARTICLE XIII 13
13.1. Permitted Contests Other Than in Respect of Indemnities 13
ARTICLE XIV 13
14.1. Coverage 13
14.2. Public Liability and Workers' Compensation Insurance 13
14.3. Hazard and Other Insurance 14
14.4. Terms 15
ARTICLE XV 16
15.1. Casualty and Condemnation 16
15.2. Environmental Matters 18
15.3. Notice of Environmental Matters 18
ARTICLE XVI 19
16.1. Termination by the Lessee upon Certain Events 19
16.2. Procedures 19
16.3. Termination by the Lessor upon Certain Events 20
16.4. Purchase of Property 20
ARTICLE XVII 20
17.1. Lease Events of Default 20
17.2. Remedies 23
17.3. Waiver of Certain Rights 28
17.4. Power of Sale and Foreclosure 28
17.5. Remedies Cumulative 31
17.6. Lessee's Right to Cure 31
ARTICLE XVIII 31
18.1. The Lessor's Right to Cure the Lessee's Lease
Events of Default 31
ARTICLE XIX 32
19.1. Provisions Relating to the Lessee's Termination of this
Lease or Exercise of Purchase Option or Obligation and
Conveyance Upon Remarketing and Conveyance Upon Certain
Other Events 32
ARTICLE XX 33
20.1. Purchase Option 33
20.2. Expiration Date Purchase Obligation 33
20.3. Acceleration of Purchase Obligation 34
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE XXI 34
21.1. Renewal 34
ARTICLE XXII 35
22.1. Option to Remarket 35
22.2. Certain Obligations Continue 38
22.3. Support Obligations 38
ARTICLE XXIII 39
23.1. Holding Over 39
ARTICLE XXIV 39
24.1. Risk of Loss 39
ARTICLE XXV 40
25.1. Subletting and Assignment 40
ARTICLE XXVI 40
26.1. Estoppel Certificates 40
ARTICLE XXVII 41
27.1. Right to Inspect 41
27.2. No Waiver 41
ARTICLE XXVIII 41
28.1. Acceptance of Surrender 41
ARTICLE XXIX 42
29.1. No Merger of Title 42
ARTICLE XXX 42
30.1. Notices 42
ARTICLE XXXI 44
31.1. Miscellaneous 44
31.2. Amendments and Modifications 44
31.3. Successors and Assigns 44
31.4. Headings and Table of Contents 44
31.5. Counterparts 44
31.6. GOVERNING LAW 44
31.7. Limitations on Recourse 44
31.8. Original Lease 45
31.9. Usury Savings Clause 45
ARTICLE XXXII 45
32.1. Ground Lease 45
</TABLE>
<PAGE> 5
APPENDICES
APPENDIX I Definitions and Interpretation
EXHIBITS
EXHIBIT A Form of Lease Supplement
EXHIBIT B Form of Equipment Schedule
SCHEDULES
SCHEDULE 1 Data Center Purchase Price
SCHEDULE 14.3 Minimum Insurance Requirements
MASTER LEASE
THIS MASTER LEASE (including all Lease Supplements and Equipment
Schedules from time to time executed and delivered, this "Lease"), dated as of
September 28, 1998, between WILMINGTON TRUST COMPANY, a Delaware banking
corporation, having its principal office at Rodney Square North, 1100 N. Market
Street, Wilmington, Delaware 19890, not in its individual capacity, but solely
as Owner Trustee, as the lessor (the "Lessor"), and PEOPLESOFT, INC., a Delaware
corporation, having a principal office at 4305 Hacienda Drive, Pleasanton,
California 94588, as the lessee (the "Lessee").
W I T N E S S E T H:
A. WHEREAS, the Owner Trustee, in its capacity as Lessor, will ground
lease the Ground Lease Interest from the Ground Lessor on the Ground Lease
Interest Acquisition Date;
B. WHEREAS, the Lessor desires to sublease to the Lessee, and the Lessee
desires to sublease from the Lessor, the Ground Lease Interest; and
C. WHEREAS, with respect to the Ground Lease Interest the Lessee, as
Construction Agent, will construct certain Improvements which as constructed
will be the property of the Lessor and will be leased to Lessee subject to the
terms of this Lease;
<PAGE> 6
NOW, THEREFORE, in consideration of the foregoing, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
1.1. Definitions; Interpretation. Capitalized terms used but not
otherwise defined in this Lease have the respective meanings specified in
Appendix 1 to this Lease; and the rules of interpretation set forth in Appendix
1 to this Lease shall apply to this Lease.
ARTICLE II
2.1. Acceptance and Lease of Property. Effective as of the Closing Date,
the Lessor, subject to the satisfaction or waiver of the conditions set forth in
Section 6 of the Participation Agreement, hereby agrees to lease the Ground
Lease Interest from the Ground Lessor on the Ground Lease Interest Acquisition
Date pursuant to the terms of the Participation Agreement, and simultaneously to
sublease to the Lessee hereunder for the Term (as defined in Section 2.3), the
Lessor's interest in such Ground Lease Interest and the Lessor's interest in any
Improvements existing thereon, and to lease to the Lessee any Improvements which
thereafter may be constructed thereon and any Equipment, if any, which may be
purchased for use in connection therewith pursuant to the Construction Agency
Agreement, this Lease or the Participation Agreement, and the Lessee hereby
agrees, expressly for the direct benefit of the Lessor, to sublease commencing
on the Ground Lease Interest Acquisition Date from the Lessor for the Term, the
Lessor's interest in such Ground Lease Interest to be leased by the Lessor from
the Ground Lessor on such Ground Lease Interest Acquisition Date and any
Improvements existing thereon and to lease any Improvements which thereafter may
be constructed thereon and such Equipment pursuant to the Construction Agency
Agreement, this Lease or the Participation Agreement. As used in this Lease, the
term "Property" shall have the meaning given to such term in Appendix 1 hereto,
and shall also include, without limitation, the right to use and enjoy (and, to
the extent the following consist of contract rights, to enforce) any interests
or rights of Lessor in, to or under the following, now existing or hereafter
arising: any and all Permitted Exceptions (including the Development Contracts),
and any other general intangibles, permits, licenses, franchises, certificates,
and other rights and privileges related to the Ground Lease Interest or the
underlying real property and the Property.
2.2. Acceptance Procedure. (a) The Lessor hereby authorizes one or more
employees of the Lessee, to be designated by the Lessee, as the authorized
representative or representatives of the Lessor to accept delivery on behalf of
the Lessor of the Property identified on the Acquisition Request or an Equipment
Schedule.
<PAGE> 7
(b) The Lessee hereby agrees that such acceptance of delivery by such
authorized representative or representatives and the execution and delivery by
the Lessee on the Ground Lease Interest Acquisition Date of a Lease Supplement
in the form of Exhibit A hereto (appropriately completed) shall, without further
act, constitute the irrevocable acceptance by the Lessee of the Property which
is the subject thereof for all purposes of this Lease and the other Operative
Documents on the terms set forth therein and herein, and that the Property
(including the Improvements constructed thereon) shall be deemed to be included
in the leasehold estate of this Lease and shall be subject to the terms and
conditions of this Lease as of the Ground Lease Interest Acquisition Date.
(c) The Lessee hereby agrees that such acceptance of delivery by such
authorized representative or representatives and the execution and delivery by
the Lessee of an Equipment Schedule in the form of Exhibit B hereto
(appropriately completed) on or prior to the applicable Funding Date with
respect to the acquisition of Equipment shall, without further act, constitute
the irrevocable acceptance of the Equipment which is the subject thereof for all
purposes of this Lease and the other Operative Documents on the terms set forth
therein and herein, and that the Equipment shall be deemed to be included in the
leasehold estate of this Lease and shall be subject to the terms and conditions
of this Lease as of such Funding Date.
2.3. Lease Term. The term of this Lease (the "Term") shall begin on the
Closing Date and shall end on the fifth anniversary of the Closing Date, unless
the Term is renewed or earlier terminated in accordance with the provisions of
this Lease.
2.4. Title. The Ground Lease Interest is subleased, and the other
Property is leased, as applicable, to the Lessee without any representation or
warranty of title, condition of the Improvements or permitted uses, express or
implied, by the Lessor and subject to the rights of parties in possession, the
existing state of title (including, without limitation, the Permitted
Exceptions), the terms of the Ground Lease and all applicable Requirements of
Law. The Lessee shall in no event have any recourse against the Lessor for any
defect in or exception to title to the Property, other than for any such defect
or exception constituting a Lessor Lien. The Lessee expressly waives and
releases the Lessor from any common law or statutory covenant of quiet
enjoyment.
ARTICLE III
3.1. Rent. (a) During the Term, the Lessee shall pay Basic Rent on each
Payment Date, on the date required under Section 22.1(i) in connection with the
Lessee's exercise of the Remarketing Option and on any date on which this Lease
shall terminate. The Lessor shall provide the Lessee with not less than five (5)
days' notice of the amount of Basic Rent due on any Scheduled Payment Date.
(b) Basic Rent shall be due and payable (i) during the Construction
Period, in the manner set forth in Section 3.9 of the Participation Agreement
and (ii) thereafter, in lawful money of the United States and shall be paid by
wire transfer of immediately
<PAGE> 8
available funds on the due date therefor to such account or accounts at such
bank or banks or to the Indenture Trustee or in such other manner as the
Indenture Trustee shall from time to time direct.
(c) Neither the Lessee's inability or failure to take possession of all
or any portion of the Property when delivered by the Lessor, nor the Lessor's
inability or failure to deliver all or any portion of the Property to the Lessee
on or before the Ground Lease Interest Acquisition Date or the applicable
Funding Date, whether or not attributable to any act or omission of the Lessee
or any act or omission of the Lessor, or for any other reason whatsoever, shall
delay or otherwise affect the Lessee's obligation to pay Rent for the Property
from and after commencement of the Term.
3.2. Payment of Basic Rent. Basic Rent shall be paid absolutely net to
the Lessor, so that this Lease shall yield to the Lessor the full amount
thereof, without setoff, deduction or reduction, whether or not the Lessee's
quiet possession of the Property is disturbed.
3.3. Supplemental Rent. The Lessee shall pay to the Lessor or the Person
entitled thereto any and all Supplemental Rent (including, without limitation,
Ground Rent) promptly as the same shall become due and payable, provided that
except for any payments of Asset Termination Value, Purchase Option Price,
Residual Value Guarantee Amount or any other amount due and payable on the
Expiration Date or Termination Date, the Lessor shall provide the Lessee with
not less than three (3) Business Days' notice of any Supplemental Rent due and
payable by the Lessee. If the Lessee fails to pay any Supplemental Rent, the
Lessor shall have all rights, powers and remedies provided for herein or by law
or equity or otherwise in the case of nonpayment of Basic Rent. The Lessee shall
pay to the Lessor, as Supplemental Rent, among other things, on demand, to the
extent permitted by Applicable Law, interest at the applicable Overdue Rate on
any installment of Basic Rent not paid when due for the period for which the
same shall be overdue and on any payment of Supplemental Rent not paid when due
or demanded by the Lessor for the period from the due date or the date of any
such demand, as the case may be, until the same shall be paid. The expiration or
other termination of the Lessee's obligations to pay Basic Rent hereunder shall
not limit or modify the obligations of the Lessee with respect to Supplemental
Rent. Unless expressly provided otherwise in this Lease, in the event of any
failure on the part of the Lessee to pay and discharge any Supplemental Rent as
and when due, the Lessee shall also promptly pay and discharge any fine,
penalty, interest or cost which may be assessed or added under any agreement
with a third party for nonpayment or late payment of such Supplemental Rent, all
of which shall also constitute Supplemental Rent.
3.4. Method of Payment. Each payment of Rent shall be made by the Lessee
to the Indenture Trustee by 12:00 noon, San Francisco time at the place of
payment in funds consisting of lawful currency of the United States of America
which shall be immediately available on the scheduled date when such payment
shall be due, unless such scheduled date shall not be a Business Day, in which
case such payment shall be made on the next succeeding Business Day or as
otherwise required by the definition of
<PAGE> 9
the term "Interest Period" set forth in Appendix 1 hereto. Payments initiated
after 12:00 noon, San Francisco time shall be deemed received on the next
succeeding Business Day.
ARTICLE IV
4.1. Utility Charges. The Lessee shall pay or cause to be paid all
charges for electricity, power, gas, oil, water, telephone, sanitary sewer
service and all other rents and utilities used in or on the Property during the
Term. The Lessee shall be entitled to receive any credit or refund with respect
to any utility charge paid by the Lessee and the amount of any credit or refund
received by the Lessor on account of any utility charges paid by the Lessee, net
of the costs and expenses reasonably incurred by the Lessor in obtaining such
credit or refund, shall be promptly paid over to the Lessee. All charges for
utilities imposed with respect to the Property for a billing period during which
this Lease expires or terminates shall be adjusted and prorated on a daily basis
between the Lessor and the Lessee, and each party shall pay or reimburse the
other for each party's pro rata share thereof, except that if the Lessee retains
possession of the Property after termination or expiration of this Lease, no
such adjustment and proration shall be made.
ARTICLE V
5.1. Quiet Enjoyment. LESSEE SPECIFICALLY DISCLAIMS ANY WARRANTY OF
QUIET ENJOYMENT FOR ANY ACTION BY ANY PARTY, other than the obligations of the
Lessor to remove Lessor Liens.
ARTICLE VI
6.1. Net Lease. This Lease shall constitute a net lease. It is the
further express intent of Lessor and Lessee that the obligations of Lessor and
Lessee hereunder shall be separate and independent covenants and agreements and
that the Basic Rent and Supplemental Rent, and all other charges and sums
payable by Lessee hereunder, shall commence at the times provided herein and
shall continue to be payable in all events unless the obligations to pay the
same shall be terminated pursuant to an express provision in this Lease. Any
present or future law to the contrary notwithstanding, this Lease shall not
terminate, nor shall the Lessee be entitled to any abatement, suspension,
deferment, reduction, setoff, counterclaim, or defense with respect to the Rent,
nor shall the obligations of the Lessee hereunder be affected (except as
expressly herein permitted and by performance of the obligations in connection
therewith) by reason of: (i) any defect in the condition, merchantability,
design, construction, quality or fitness for use of the Property or any part
thereof, or the failure of the Property to comply with all Requirements of Law,
including any inability to occupy or use the Property by reason of such
non-compliance; (ii) any damage to, removal, abandonment, salvage, loss,
contamination of or Release from, scrapping or destruction of or any requisition
or taking of the Property or any part thereof; (iii) any restriction, prevention
or curtailment of or
<PAGE> 10
interference with any use of the Property or any part thereof including
eviction; (iv) any defect in title to or rights to the Property or any Lien on
such title or rights or on the Property (other than Lessor Liens); (v) any
change, waiver, extension, indulgence or other action or omission or breach in
respect of any obligation or liability of or by the Lessor, the Indenture
Trustee or any Participant; (vi) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceedings
relating to the Lessee, the Lessor, the Indenture Trustee, any Participant, or
any other Person, or any action taken with respect to this Lease by any trustee
or receiver of the Lessee, the Lessor, the Indenture Trustee, any Participant or
any other Person, or by any court, in any such proceeding; (vii) any claim that
the Lessee has or might have against any Person, including without limitation
the Lessor, any vendor, manufacturer, contractor of or for the Property, the
Indenture Trustee or any Participant; (viii) any failure on the part of the
Lessor to perform or comply with any of the terms of this Lease, any other
Operative Document or any other agreement; (ix) any invalidity or
unenforceability or illegality or disaffirmance of this Lease or against or by
the Lessee or any provision hereof or any of the other Operative Documents or
any provision of any thereof; (x) the impossibility or illegality of performance
by the Lessee, the Lessor or both; (xi) any action by any court, administrative
agency or other Governmental Authority; (xii) any restriction, prevention or
curtailment of or interference with the construction on or any use of the
Property or any part thereof; (xiii) any cause or circumstance arising with
respect to or out of the Ground Lease; or (xiv) any other cause or circumstances
whether similar or dissimilar to the foregoing and whether or not the Lessee
shall have notice or knowledge of any of the foregoing. The parties intend that
the obligations of the Lessee hereunder shall be covenants and agreements that
are separate and independent from any obligations of the Lessor hereunder or
under any other Operative Documents and the obligations of the Lessee shall
continue unaffected unless such obligations shall have been modified or
terminated in accordance with an express provision of this Lease.
6.2. No Termination or Abatement. The Lessee shall remain obligated
under this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting the Lessor, the Indenture Trustee or any Participant, or
any action with respect to this Lease or any Operative Document which may be
taken by any trustee, receiver or liquidator of the Lessor, the Indenture
Trustee or any Participant or by any court with respect to the Lessor, the
Indenture Trustee or any Participant. The Lessee hereby waives all right (i) to
terminate or surrender this Lease (except as provided herein) or (ii) to avail
itself of any abatement, suspension, deferment, reduction, setoff, counterclaim
or defense (other than the defense of payment) with respect to any Rent. The
Lessee shall remain obligated under this Lease in accordance with its terms and
the Lessee hereby waives any and all rights now or hereafter conferred by
statute or otherwise to modify or to avoid strict compliance with its
obligations under this Lease. Notwithstanding any such statute or otherwise, the
Lessee shall be bound by all of the terms and conditions contained in this
Lease.
<PAGE> 11
ARTICLE VII
7.1. Ownership of the Property. (a) It is the intent of the parties
hereto that: (i) this Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, for purposes of
Lessee's financial reporting, and (ii) for purposes of federal, state, and local
income or franchise taxes and for any other tax imposed on or measured by
income, the transaction contemplated hereby is a financing arrangement and
preserves ownership in the Property in the Lessee. Accordingly, and
notwithstanding any provision of this lease to the contrary, the parties hereto
agree and declare that: (i) the transactions contemplated by the Lease are
intended to have a dual, rather than single, form; and (ii) all references in
this Lease to the "lease" of the Property which fail to reference such duel form
do so as a matter of convenience only and do not reflect the intent of parties
hereto as to the true form of such arrangements. Nevertheless, the Lessee
acknowledges and agrees that neither the Indenture Trustee, the Lessor nor any
Participant has made any representations or warranties to the Lessee concerning
the tax, accounting or legal characteristics of the Operative Documents and that
the Lessee has obtained and relied upon such tax, accounting and legal advice
concerning the Operative Documents as it deems appropriate.
(b) Anything to the contrary in the Operative Documents notwithstanding,
the Lessor and the Lessee intend and agree that with respect to the nature of
the transactions evidenced by this Lease in the context of the exercise of
remedies under the Operative Documents, including, without limitation, in the
case of any insolvency or receivership proceedings or a petition under the
United States bankruptcy laws or any other applicable insolvency laws or statute
of the United States of America or any State or Commonwealth thereof affecting
the Lessee, the Lessor, or any Participant or any enforcement or collection
actions, (i) the transactions evidenced by this Lease are loans made by the
Lessor and the Participants as unrelated third party lenders to the Lessee
secured by the Property, (ii) the obligations of the Lessee under this Lease to
pay Basic Rent and Supplemental Rent or Asset Termination Value in connection
with a purchase of the Property pursuant to this Lease shall be treated as
payments of interest on and principal of, respectively, loans from the Lessor
and the Participants to the Lessee, and (iii) this Lease grants a security
interest and mortgage or deed of trust or lien, as the case may be, in the
Property to the Lessor and the Participants secure the Lessee's performance
under and payment of all amounts under this Lease and the other Operative
Documents.
(c) Specifically, without limiting the generality of subsection (b) of
this Section 7.1, the Lessor and the Lessee further intend and agree that, for
the purpose of securing the Lessee's obligations for the repayment of the
above-described loans from the Lessor and the Participants to the Lessee, (i)
this Lease shall also be deemed to be a security agreement and financing
statement within the meaning of Article 9 of the Uniform Commercial Code (and
specifically, a construction mortgage, as said term is defined in Section
9-313(1)(c) of the Uniform Commercial Code) and a real property mortgage or deed
of trust; (ii) the conveyance provided for in Article II shall be deemed
<PAGE> 12
to be a grant by the Lessee to the Lessor and the Participants of a mortgage
lien and security interest in all of the Lessee's right, title and interest in
and to the Property and all proceeds of the conversion, voluntary or
involuntary, of the foregoing into cash, investments, securities or other
property, whether in the form of cash, investments, securities or other property
(it being understood that Lessee hereby mortgages and warrants and grants a
security interest in the Property to Lessor and the Participants to secure such
loans); (iii) the possession by the Lessor or any of its agents of notes and
such other items of property as constitute instruments, money, negotiable
documents or chattel paper shall be deemed to be "possession by the secured
party" for purposes of perfecting the security interest pursuant to Section
9-305 of the Uniform Commercial Code; and (iv) notifications to Persons holding
such property, and acknowledgments, receipts or confirmations from financial
intermediaries, bankers or agents (as applicable) of the Lessee shall be deemed
to have been given for the purpose of perfecting such security interest under
Applicable Law. The Lessor and the Lessee shall, to the extent consistent with
this Lease, take such actions and execute, deliver, file and record such other
documents, financing statements, mortgages and deeds of trust as may be
necessary to ensure that, if this Lease were deemed to create a security
interest in the Property in accordance with this Section, such security interest
would be deemed to be a perfected security interest of first priority under
Applicable Law and will be maintained as such throughout the Term.
(d) Specifically, without limiting the generality of subsection (a), (b)
and (c) of this Section 7.1, the parties hereto intend and agree that, for
purposes of filing federal, state and local returns, reports and other
statements relating to income or franchise taxes, or any other taxes imposed
upon or measured by income, (i) the Lessee shall be entitled to take any
deduction, credit, allowance or other reporting position consistent with its
status as owner of the Property; and (ii) neither the Lessor nor any Participant
shall take an initial position on its federal, state and local returns, reports
and other statements relating to income or franchise taxes that is inconsistent
with the Lessee's status as owner of the Property.
(e) If the transaction evidenced by this Agreement and the other
Operative Documents can no longer be treated as an operating lease pursuant to
GAAP for accounting purposes, all provisions in the Operative Documents limiting
the Lessee's obligation to pay the Lease Balance or Asset Termination Value
(including the Remarketing Option) on the Expiration Date shall no longer apply.
If any such change in accounting treatment shall occur, the Lessee shall enter
into such amendments to the Operative Documents as the Lessor or the Required
Participants may reasonably request to reflect the foregoing.
ARTICLE VIII
8.1. Condition of the Property. THE LESSEE ACKNOWLEDGES AND AGREES THAT
ALTHOUGH THE LESSOR WILL HOLD LEASEHOLD OR FEE TITLE TO THE PROPERTY, AS
APPLICABLE, THE LESSEE IS SOLELY
<PAGE> 13
RESPONSIBLE FOR THE IMPROVEMENTS AND ANY ALTERATIONS OR MODIFICATIONS. THE
LESSEE FURTHER ACKNOWLEDGES AND AGREES THAT IT IS LEASING THE PROPERTY "AS IS"
WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) BY THE LESSOR,
THE BANK, THE INDENTURE TRUSTEE OR ANY PARTICIPANT AND IN EACH CASE SUBJECT TO
(A) THE EXISTING STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION
THEREOF, (C) ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION
MIGHT SHOW, AND (D) VIOLATIONS OF REQUIREMENTS OF LAW WHICH MAY EXIST ON THE
DATE HEREOF. NEITHER THE LESSOR, THE BANK, THE INDENTURE TRUSTEE NOR ANY
PARTICIPANT HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION,
WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO HAVE ANY
LIABILITY WHATSOEVER AS TO THE TITLE (INCLUDING BUT NOT LIMITED TO ANY IMPLIED
LIABILITY RELATING TO A COVENANT OF QUIET ENJOYMENT, WHICH THE LESSEE HEREBY
EXPRESSLY WAIVES), VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, OR
FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF), OR ANY OTHER
REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE PROPERTY (OR ANY PART THEREOF) AND NEITHER THE LESSOR, THE BANK,
THE INDENTURE TRUSTEE NOR ANY PARTICIPANT SHALL BE LIABLE FOR ANY LATENT,
HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF THE PROPERTY, OR ANY PART
THEREOF, TO COMPLY WITH ANY REQUIREMENT OF LAW.
8.2. Possession and Use of the Property. The Property shall only be used
in a manner consistent with all Requirements of Law, other properties located
within the Hacienda Business Park, and any covenants, conditions and
restrictions of record and any ordinance or law affecting the use and occupancy
of the Property; and provided that such uses do not increase the liability,
directly or indirectly, of the Lessor or adversely affect the value, utility or
remaining useful life of the Property. The Lessee shall pay, or cause to be
paid, all charges and costs required in connection with the use of the Property
as contemplated by this Lease and the Construction Agency Agreement. The Lessee
shall not commit or permit any waste of the Property or any part thereof.
ARTICLE IX
9.1. Compliance with Requirements of Law and Insurance Requirements.
Subject to the terms of Article XIII relating to permitted contests, the Lessee,
at its sole cost and expense, shall (a) comply with all Requirements of Law
(including all Environmental Laws) and comply with all Insurance Requirements
relating to the Property, including the construction, use, operation,
maintenance, repair and restoration thereof and the remarketing thereof pursuant
to Article XXII, whether or not compliance therewith shall require structural or
extraordinary changes in the Improvements or interfere with the use and
enjoyment of the Property, and (b) procure, maintain and
<PAGE> 14
comply with all licenses, permits, orders, approvals, consents and other
authorizations required for the construction, use, maintenance and operation of
the Property and for the use, operation, maintenance, repair and restoration of
the Improvements.
ARTICLE X
10.1. Maintenance and Repair; Return. (a) The Lessee, at its sole cost
and expense, shall maintain the Property in good working order, mechanical
condition and repair and make all necessary repairs thereto, of every kind and
nature whatsoever, whether interior or exterior, ordinary or extraordinary,
structural or nonstructural or foreseen or unforeseen, in each case as required
by all Requirements of Law and Insurance Requirements and on a basis consistent
with the operation and maintenance of commercial properties comparable in type
and location to the Property and in compliance with prudent industry practice.
(b) The Lessor shall under no circumstances be required to build any
improvements on the Property, make any repairs, replacements, alterations or
renewals of any nature or description to the Property, make any expenditure
whatsoever in connection with this Lease (except for Advances required under the
Participation Agreement) or maintain the Property in any way. The Lessor shall
not be required to maintain, repair or rebuild all or any part of the Property,
and the Lessee waives any right to (i) require the Lessor to maintain, repair,
or rebuild all or any part of the Property, or (ii) make repairs at the expense
of the Lessor pursuant to any Requirement of Law, Insurance Requirement,
contract, agreement, or covenant, condition or restriction in effect at any time
during the Term.
(c) The Lessee shall, upon the expiration or earlier termination of this
Lease, vacate and surrender the Property to the Lessor in its then-current, "AS
IS" condition, subject to the Lessee's obligations under Sections 9.1, 10.1(a),
11.1, 12.1, 15.1(e), 15.2, 22.1 and 23.1.
(d) The Lessee warrants that, subject to delays to the extent permitted
under the terms of the Construction Agency Agreement, it shall cause the
Improvements currently under construction or currently planned to be constructed
on the Property to be designed and constructed in a workmanlike manner and in
accordance with all Requirements of Law, prior to the Outside Completion Date so
that, prior to such date, such Improvements will be fit for their intended
purpose.
ARTICLE XI
11.1. Modifications, Substitutions and Replacements. (a) After
Completion of the Improvements, the Lessee, at its sole cost and expense, may at
any time and from time to time make alterations, renovations, improvements and
additions to the Property or any part thereof and substitutions and replacements
therefor (collectively, "Modifications"); provided that: (i) no Modification
shall impair the value, utility or
<PAGE> 15
useful life of the Property or any part thereof from that which existed
immediately prior to such Modification; (ii) the Modification shall be done
expeditiously and in a good and workmanlike manner; (iii) the Lessee shall
comply with all Requirements of Law (including all Environmental Laws) and
comply with all Insurance Requirements applicable to the Modification, including
the obtaining of all permits and certificates of occupancy, and the structural
integrity of the Property shall not be adversely affected; (iv) subject to the
terms of Article XIII relating to permitted contests, the Lessee shall pay all
costs and expenses and shall discharge (or cause to be insured or bonded over)
within sixty (60) days after the same shall be filed (or otherwise become
effective) any Liens arising with respect to the Modification; and (v) such
Modifications shall comply with Sections 8.2 and 10.1. All Modifications (other
than those that both are not Modifications required to be made pursuant to a
Requirement of Law or an Insurance Requirement ("Required Modification") and are
readily removable without impairing the value, utility or remaining useful life
of the Property) shall remain part of the realty and shall be subject to this
Lease, and title thereto shall immediately vest in the Lessor. So long as no
Lease Event of Default has occurred and is continuing, the Lessee may place upon
the Property any trade fixtures, machinery, equipment or other property
belonging to the Lessee or third parties and may remove the same at any time
during the Term, subject, however, to the terms of Section 10.1(a); provided
that such trade fixtures, machinery, equipment or other property do not impair
the value, utility or remaining useful life of the Property; provided, further,
that the Lessee shall keep and maintain at the Property and shall not remove
from the Property any Fixtures or Equipment financed or otherwise paid for
(directly or indirectly) by the Lessor or any Participant pursuant to the
Participation Agreement, unless it replaces such Fixtures or Equipment with
Fixtures or Equipment of equal or greater value, as evidenced by an appraisal,
invoice or other documentation satisfactory to the Lessor, not subject to any
Liens other than Permitted Liens.
(b) The Lessee shall deliver to the Lessor and the Indenture Trustee a
brief written narrative of the work to be done in connection with any
Modification to the Property the cost of which is anticipated to exceed $500,000
in the aggregate.
ARTICLE XII
12.1. Warranty of Title. (a) The Lessee agrees that except as otherwise
provided herein and subject to the terms of Article XIII relating to permitted
contests, the Lessee shall not directly or indirectly create or allow to remain,
and shall promptly discharge at its sole cost and expense, any Lien, defect,
attachment, levy, title retention agreement or claim upon the Property (or the
Lessor's interest therein) or any Modifications or any Lien, attachment, levy or
claim with respect to the Rent or with respect to any amounts held by the
Indenture Trustee pursuant to the Participation Agreement or the other Operative
Documents, other than Permitted Exceptions and Lessor Liens.
<PAGE> 16
(b) Nothing contained in this Lease shall be construed as constituting
the consent or request of the Lessor, expressed or implied, to or for the
performance by any contractor, mechanic, laborer, materialman, supplier or
vendor of any labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to the Property
or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR, THE BANK,
ANY PARTICIPANT NOR THE INDENTURE TRUSTEE IS OR SHALL BE LIABLE FOR ANY LABOR,
SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE OR TO ANYONE
HOLDING THE PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE AND THAT NO
MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH
TO OR AFFECT THE INTEREST OF THE LESSOR IN AND TO THE PROPERTY.
12.2. Grants and Releases of Easements. Provided that no Lease Event of
Default shall have occurred and be continuing and subject to the provisions of
Articles VIII, IX, X and XI, the Lessor hereby consents in each instance to the
following actions by the Lessee (provided, that the same are permitted by the
Ground Lease), in the name and stead of the Lessor, but at the Lessee's sole
cost and expense: (a) the granting of easements, licenses, rights-of-way and
other rights and privileges in the nature of easements reasonably necessary or
desirable for the completion of construction of the Improvements, use, repair,
operation or maintenance of the Property as herein provided; (b) the release of
existing easements or other rights in the nature of easements which are for the
benefit of the Property; (c) the execution of petitions to have the Property
annexed to any municipal corporation or utility district; (d) the execution of
amendments to any covenants and restrictions affecting the Property; and (e) the
Lessee's obtaining all necessary Governmental Actions necessary for completion
of the construction of the Improvements described in the Participation Agreement
or the making of any Modifications; provided, however, in each case the Lessee
shall have delivered to the Lessor a Responsible Officer's Certificate stating
that (i) such grant, release, dedication or transfer does not materially impair
the value, utility and remaining useful life of the Property, (ii) such grant,
release, dedication or transfer is reasonably necessary in connection with the
completion of construction of the Improvements, use, operation maintenance,
alteration or improvement of the Property, (iii) the Lessee shall remain
obligated under this Lease and under any instrument executed by the Lessee
consenting to the assignment of the Lessor's interest in this Lease as security
for indebtedness, in each such case in accordance with their terms, as though
such grant, release, dedication or transfer, had not been effected, (iv) the
Lessee shall pay and perform any obligations of the Lessor under such grant,
release, dedication or transfer, and (v) such easements, rights-of-way and other
rights shall be subordinate and subject to the Lien of the Mortgage and the
Indenture. Without limiting the effectiveness of the foregoing, provided that no
Lease Event of Default shall have occurred and be continuing, the Lessor shall,
upon the request of the Lessee, and at the Lessee's sole cost and expense,
execute and deliver any instruments necessary or appropriate to confirm any such
grant, release, dedication or transfer to any Person permitted under this
Section 12.2.
<PAGE> 17
12.3. Actions Required of the Lessor. So long as no Lease Event of
Default shall have occurred and be continuing, the Lessor shall, at no cost or
expense to the Lessor, cooperate with the Lessee in connection with actions
contemplated in clauses (a) through (e) of Section 12.2, and under Article XI
above, including execution of documents and taking such other action required by
the Permitted Exceptions or by Applicable Laws; provided, that (i) such actions
shall be limited to actions that can only be taken by the Lessor as the owner or
ground lessee of the Property, as opposed to any action that can be taken by the
Lessee or any third party (and the payment of any monetary obligation shall not
be an action required of the Lessor under this subparagraph unless the Lessor
shall first have received funds from the Lessee, in excess of any other amounts
due from the Lessee hereunder, sufficient to pay such monetary obligations),
(ii) the Lessee requests the action to be taken by the Lessor (which request
must be specific and in writing, if required by Lessor at the time the request
is made), and (iii) the action to be taken will not constitute a violation of
any Applicable Laws or subject the Lessor to any liability whatsoever, unless
such liability is covered by the indemnification obligations under Section 13.1
of the Participation Agreement.
12.4. Further Actions By the Lessee. Subject to the other terms and
conditions of this Lease and the Ground Lease, the Lessee shall be entitled to
do any of the following in the Lessee's own name and to the exclusion of the
Lessor during the Term without any notice to or consent of the Lessor so long as
no Lease Event of Default has occurred and is continuing and so long as the
Lessee does not thereby create any encumbrance or cloud on the Lessor's title to
the Property (other than a Permitted Exception):
(a) to perform obligations arising under and to exercise and
enforce the rights of the Lessee or the owner of the Property under the
Development Contracts and other Permitted Exceptions;
(b) to perform obligations arising under and to exercise and
enforce the rights of the Lessee or the owner of the Property with
respect to any other contracts or documents (such as plans and
specifications) included within the Property; and
(c) to recover and retain any monetary damages or other benefit
inuring to the Lessee or the owner of the Property through the
enforcement of any rights, contracts or other documents included within
the Property (including without limitation the Development Contracts and
other Permitted Encumbrances and any ordinances, regulations and laws);
provided, that to the extent any such monetary damages may become payable as
compensation for an adverse impact on value of the Property, the rights of
Lessor and Lessee hereunder with respect to the collection and application of
such monetary damages shall be the same as for condemnation proceeds payable
because of a taking of all or any part of the Property. Without limiting the
generality of the foregoing, subject to the terms of the Ground Lease, the
Lessee shall be entitled to any and all refunds
<PAGE> 18
received by the Lessor with respect to any assessment bonds or assessment
districts applicable to the Property for such periods or portions thereof ending
on the earlier of the Termination Date or the Expiration Date or other date of
termination of this Lease unless the Lessee has purchased the Property, in which
event the Lessee shall be entitled to all such refunds regardless of the period
to which they are applicable.
ARTICLE XIII
13.1. Permitted Contests Other Than in Respect of Indemnities. Except to
the extent otherwise provided for in Section 13 of the Participation Agreement,
the Lessee, on its own or on the Lessor's behalf but at the Lessee's sole cost
and expense, may contest, by appropriate administrative or judicial proceedings
conducted in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any Requirement of Law, or utility charges
payable pursuant to Section 4.1 or any Lien, attachment, levy, encumbrance or
encroachment, and the Lessor agrees not to pay, settle or otherwise compromise
any such item, provided that (a) the commencement and continuation of such
proceedings shall suspend the collection thereof from, and suspend the
enforcement thereof against, the Property, the Collateral, the Lessor, the
Indenture Trustee and the Participants or the Lessee shall have bonded or
otherwise secured such amount in a manner satisfactory to the Lessor and the
Indenture Trustee; (b) there shall be no risk of the imposition of a Lien (other
than Permitted Exceptions) on the Property or the Collateral and no part of the
Property nor any Rent would be in any danger of being sold, forfeited, lost or
deferred; (c) at no time during the permitted contest shall there be a risk of
the imposition of criminal liability or material civil liability on the Lessor,
the Indenture Trustee or any Participant for failure to comply therewith
(unless, in the case of civil liability, the Lessee shall have bonded or
otherwise secured such amount in a manner satisfactory to the Lessor and the
Indenture Trustee); and (d) in the event that, at any time, there shall be a
material risk of extending the application of such item beyond the end of the
Term, then the Lessee shall deliver to the Lessor a Responsible Officer's
Certificate certifying as to the matters set forth in clauses (a), (b) and (c)
of this Section 13.1. The Lessor, at the Lessee's sole cost and expense, shall
execute and deliver to the Lessee such authorizations and other documents as may
reasonably be required in connection with any such contest and, if reasonably
requested by the Lessee, shall join as a party therein at the Lessee's sole cost
and expense.
ARTICLE XIV
14.1. Coverage. During the Construction Period, the Lessee shall arrange
for insurance as agent for the Lessor and the incremental cost of such insurance
shall be capitalized as a project cost. After the Construction Period, the
Lessee, at its sole cost and expense, shall at all times carry and maintain
insurance coverage. Such insurance, both during and after the Construction
Period, shall provide for coverage as specified in Sections 14.2 through 14.4
hereof.
<PAGE> 19
14.2. Public Liability and Workers' Compensation Insurance. The Lessee
shall procure and carry commercial general liability insurance, including
contractual liability, for claims for injuries or death sustained by persons or
damage to property while on the Property and such other commercial general
liability coverages as are ordinarily procured by Persons who own or operate
similar properties and consistent with prudent business practice, which policies
shall include contractual liability endorsements covering the Lessee's
indemnification obligations in Section 13.1 of the Participation Agreement. Such
insurance shall be on terms and in amounts (which shall be acceptable to the
Lessor and in the event of liability insurance shall be maintained at a level
set forth on Schedule 14.3 that are no less favorable than insurance maintained
by the Lessee with respect to similar properties that it owns and that are in
accordance with prudent business practice and may be provided under blanket
policies maintained by or on behalf of the Lessee. The policy shall be endorsed
to name the Lessor, the Bank, the Indenture Trustee and each Participant as
additional insureds. The policy shall also specifically provide that the policy
shall be considered primary insurance which shall apply to any loss or claim
before any contribution by any insurance which the Lessor, the Bank, the
Indenture Trustee or the Participants may have in force. The Lessee shall, in
the construction of the Improvements and the operation of the Property
(including in connection with any Modifications thereof) comply with the
applicable workers' compensation laws and protect the Lessor, the Bank, the
Indenture Trustee and the Participants against any liability under such laws.
14.3. Hazard and Other Insurance. The Lessee shall keep, or cause to be
kept, the Property insured against loss or damage by fire, flood, earthquakes,
and other risks in an amount not less than the greater of the amount set forth
on Schedule 14.3 and the then current replacement cost of the buildings and
improvements on the Property and on terms that are no less favorable than
insurance covering other similar properties owned or leased by the Lessee or any
of its Affiliates and that are in accordance with prudent business practice;
provided that the Lessee shall be required to maintain earthquake coverage only
if commercially reasonably available and, if obtained, in a minimum amount equal
to 100% of the probable maximum loss with respect to the Property as
demonstrated by a professional engineer qualified to make such a determination
selected by the Lessee as reasonably approved by the Lessor and the Indenture
Trustee. Earthquake insurance shall be deemed to be commercially reasonably
available if it is offered by more than one insurance carrier. The Lessee may
provide such coverage under blanket policies maintained by the Lessee; provided
that if the Lessee does not elect to terminate the Lease pursuant to Article XVI
hereof following the occurrence of an event covered by any such blanket policy,
the proceeds of any such blanket policy shall be applied (i) first, to the
exclusion of other facilities covered by such policy other than the Initial
Property, to the repair, rebuilding and restoration of any damage to the
Property and the Initial Property covered by such policy on a pro rata basis, if
so required in order to complete such repair, rebuilding or restoration, up to
the lesser of (A) the extent of the loss suffered and (B) $23,000,000 per
occurrence, and (ii) second, if the loss suffered is in excess of $23,000,000
per occurrence, any such proceeds in excess of $23,000,000 per occurrence shall
be shared between the loss payees under this Lease and the lease referred to in
the Initial Participation Agreement, on the one hand, and other
<PAGE> 20
parties having an insured interest with respect to such event covered by such
policy, on the other hand, based on the proportion that the loss suffered with
respect to the Property and the Initial Property, on the one hand, bears to the
aggregate loss suffered by the Property, the Initial Property and all other
properties insured by such policy, on the other hand. During the construction of
any Improvements the Lessee shall also maintain builders' risk insurance. Each
policy of insurance maintained by the Lessee pursuant to this Section 14.3 shall
provide that all insurance proceeds in respect of any loss or occurrence shall
be paid to and adjusted solely by Indenture Trustee (at the Lessee's expense)
during the Construction Period, and thereafter, by (and such proceeds shall be
paid to) the Lessee, except (i) insurance proceeds in excess of $5,000,000 shall
be paid to the Indenture Trustee and applied to the repair, rebuilding or
restoration of the Property in accordance with Article XV and (ii) from and
after the date on which the insurer receives written notice from the Lessor or
the Indenture Trustee that a Lease Event of Default exists (and unless and until
such insurer receives written notice from the Lessor or the Indenture Trustee
that all Lease Events of Default have been cured), all losses shall be adjusted
solely by, and all insurance proceeds shall be paid solely to, the Indenture
Trustee (or the Lessor if the Notes have been fully paid) for application
pursuant to Article XV.
14.4. Terms. (a) The Lessee shall furnish the Lessor and the Indenture
Trustee with certified copies of the insurance policies showing the insurance
required under Sections 14.2 and 14.3 to be in effect and naming the Lessor, the
Bank, the Indenture Trustee and each Participant as additional insureds and,
with respect to the insurance required under Section 14.3, loss payees, and
showing the mortgagee endorsement required by Section 14.4(c). All such
insurance shall be at the cost and expense of the Lessee. Such policies shall
include a provision for advance written notice by the insurer to the Lessor, the
Indenture Trustee and the Lessee of ten (10) days in the event of cancellation
of such coverage for non-payment of premiums or thirty (30) days in the event of
cancellation of such insurance for any other reason.
(b) The Lessee agrees that the insurance policy or policies required by
Sections 14.2 and 14.3 shall include (i) an appropriate clause pursuant to which
such policy shall provide that it will not be invalidated should the Lessee
waive, in writing, prior to a loss, any or all rights of recovery against any
party for losses covered by such policy, and that the insurance in favor of the
Lessor, the Bank, the Indenture Trustee and the Participants, and their
respective rights under and interests in said policies shall not be invalidated
or reduced by any act or omission or negligence of the Lessee or any other
Person having any interest in the Property, and (ii) a so-called "Waiver of
Subrogation Clause". The Lessee hereby waives any and all such rights against
the Lessor, the Bank, the Indenture Trustee and the Participants to the extent
of payments made under such policies.
(c) All such insurance shall be written by reputable insurance companies
that are financially sound and solvent and otherwise reasonably appropriate
considering the amount and type of insurance being provided by such companies;
provided that the Lessee may self insure such coverage through its domestic
insurance captive subsidiary.
<PAGE> 21
Any third-party insurance company selected by the Lessee which is rated in
Best's Key Rating Guide or any successor thereto (or if there be none, an
organization having a similar national reputation) shall have a general
policyholder rating of "A" and a financial rating of at least VII in Best's Key
Rating Guide or be otherwise acceptable to the Lessor, the Indenture Trustee and
the Required Participants. All insurance policies required by Section 14.3 shall
include a standard form mortgagee endorsement in favor of the Indenture Trustee.
(d) The Lessor shall not carry separate insurance concurrent in kind or
form or contributing in the event of loss with any insurance required under this
Article XIV except that the Lessor may carry separate liability insurance (at
its sole cost) so long as (i) the Lessee's insurance is designated as primary
and in no event excess or contributory to any insurance the Lessor may have in
force which would apply to a loss covered under the Lessee's policy and (ii)
each such insurance policy will not cause the Lessee's insurance required under
this Article XIV to be subject to a coinsurance exception of any kind.
(e) The Lessee shall pay as they become due all premiums for the
insurance required by Section 14.2 and Section 14.3, and shall renew or replace
each policy prior to the expiration date thereof. Throughout the Term, at the
time each of the Lessee's insurance policies is renewed (but in no event less
frequently than once each year), the Lessee shall deliver to the Lessor and the
Indenture Trustee certified copies of the insurance policies required by this
Article XIV to be maintained by the Lessee with respect to the Property.
(f) The Lessee hereby waives, releases and discharges the Lessor, the
Indenture Trustee and each Participant and their agents and employees from all
claims whatsoever arising out of loss, claim, expense or damage to or
destruction covered or coverable by insurance required under this Article XIV
notwithstanding that such loss, claim, expense or damage may have been caused by
the Lessor, the Indenture Trustee or any Participant or any of their agents or
employees, and the Lessee agrees to look to the insurance coverage only in the
event of such loss.
ARTICLE XV
15.1. Casualty and Condemnation. (a) Subject to the provisions of
Article XIV, this Article XV and (in the event the Lessee delivers, or is
obligated to deliver, a Termination Notice) Article XVI, and prior to the
occurrence and continuation of a Lease Event of Default, the Lessee shall be
entitled to receive (and the Lessor shall pay over to the Lessee, if received by
the Lessor, and hereby irrevocably assigns to the Lessee all of the Lessor's
right, title and interest in) any award, compensation or insurance proceeds to
which the Lessee or the Lessor may become entitled by reason of their respective
interests in the Property (i) if all or a portion of the Property is damaged or
destroyed in whole or in part by a Casualty or (ii) if the use, access,
occupancy, easement rights or title to the Property or any part thereof, is the
subject of a Condemnation; provided, however,
<PAGE> 22
subject to Article XIV, if the amount of such proceeds is in excess of
$5,000,000 or if a Lease Event of Default shall have occurred and be continuing,
such award, compensation or insurance proceeds shall be paid directly to the
Indenture Trustee or, if received by the Lessee, shall be held in trust for the
Indenture Trustee, and shall be paid over by the Lessee to the Indenture Trustee
(or, if the Notes have been fully paid, to the Lessor) and held in accordance
with the terms of this paragraph (a). If, contrary to such provision, any such
award, compensation or insurance proceeds are paid to the Lessor or the Lessee
rather than to the Indenture Trustee, the Lessor and the Lessee, as the case may
be, hereby agree to transfer any such payment to the Indenture Trustee. All
amounts held by the Lessor or the Indenture Trustee under the preceding sentence
on account of any award, compensation or insurance proceeds either paid directly
to the Lessor or the Indenture Trustee or turned over to the Lessor or the
Indenture Trustee shall either be (i) paid to the Lessee for the repair of
damage caused by such Casualty or Condemnation in accordance with paragraph (e)
of this Section 15.1, or (ii) applied to the purchase price of the Property on
the Termination Date, with any Excess Proceeds being payable to the Lessee.
(b) In any proceeding or action under the control of the Lessor pursuant
to the terms of Section 14.3, the Lessee may participate and shall pay all
expenses of such proceeding and its participation. At the Lessee's reasonable
request, and at the Lessee's sole cost and expense, the Lessor and the Indenture
Trustee shall participate in any such proceeding, action, negotiation,
prosecution or adjustment under the control of the Lessee. The Lessor and the
Lessee agree that this Lease shall control the rights of the Lessor and the
Lessee in and to any such award, compensation or insurance payment.
(c) If the Lessor or the Lessee shall receive notice of a Casualty or of
an actual, pending or threatened Condemnation of the Property or any interest
therein, the Lessor or the Lessee, as the case may be, shall give notice thereof
to the other and to the Indenture Trustee promptly after the receipt of such
notice.
(d) In the event of a Casualty or receipt of notice by the Lessee or the
Lessor of a Condemnation, the Lessee may deliver to the Lessor and the Indenture
Trustee a Termination Notice with respect to the Property pursuant to Section
16.1. If the Lessee does not deliver a Termination Notice within ninety (90)
days after such occurrence, then this Lease shall (subject to the terms and
conditions thereof) remain in full force and effect, and the Lessee shall, at
the Lessee's sole cost and expense, promptly and diligently restore the Property
pursuant to paragraph (e) of this Section 15.1 and otherwise in accordance with
this Lease. If the Lessee delivers a Termination Notice within ninety (90) days
after such occurrence, a Significant Event shall irrevocably be deemed to have
occurred with respect to the Property, and, in such event, this Lease shall
terminate and the Lessee shall purchase the Property on the next Payment Date
(or, if such Payment Date is within fifteen (15) days of the Lessor's receipt of
such Termination Notice, on the Payment Date next following such Payment Date)
(a "Termination Date") pursuant to Article XVI hereof.
(e) If pursuant to this Section 15.1 this Lease shall continue in full
force and effect following a Casualty or Condemnation, the Lessee shall, at its
sole cost and
<PAGE> 23
expense (and, without limitation, if any award, compensation or insurance
payment is not sufficient to restore the Property in accordance with this
paragraph, the Lessee shall pay the shortfall), promptly and diligently repair
any damage to the Property caused by such Casualty or Condemnation or substitute
new Equipment for the affected Equipment in conformity with the requirements of
Sections 10.1 and 11.1 using the as-built Plans and Specifications for the
Property (as modified to give effect to any subsequent Modifications, any
Condemnation affecting the Property and all applicable Requirements of Law) so
as to restore the Property to at least the same condition, operation, function
and value as existed immediately prior to such Casualty or Condemnation;
provided, the substitution of any Equipment for any such affected Equipment
shall, at the Lessor's reasonable request, be subject to delivery of an
independent third-party appraisal reasonably satisfactory to the Lessor and the
Required Participants by an appraiser satisfactory to the Lessor and the
Required Participants showing both (i) a current Fair Market Sales Value and
(ii) expected Fair Market Sales Value as of the then current Expiration Date and
the dates on which any potential Renewal Term would expire, in each case equal
to or greater than such values at such dates for the Equipment being replaced.
In the event of such restoration, title to the Property shall remain with the
Lessor; provided, that (i) title to any such substituted equipment shall vest in
the Lessor and such equipment shall constitute Equipment thereafter for all
purposes of this Lease, and (ii) the Lessor shall assign all of its right, title
and interest to the Lessee in any such replaced equipment without representation
or warranty of any kind other than that such equipment is free of Lessor Liens.
Upon completion of such restoration, the Lessee shall furnish the Lessor an
architect's certificate of substantial completion and a Responsible Officer's
Certificate confirming that such restoration has been completed pursuant to this
Lease.
(f) In no event shall a Casualty or Condemnation with respect to which
this Lease remains in full force and effect under this Section 15.1 affect the
Lessee's obligations to pay Rent pursuant to Section 3.1 or to perform its
obligations and pay any amounts due on the Expiration Date or pursuant to
Articles XIX and XX.
(g) Any Excess Proceeds received by the Lessor or the Indenture Trustee
in respect of a Casualty or Condemnation shall be turned over to the Lessee,
provided that no Lease Event of Default or Lease Default has occurred and is
continuing.
15.2. Environmental Matters. Promptly upon the Lessee's actual knowledge
of the presence of Hazardous Substances in any portion of the Property in
concentrations and conditions that constitute an Environmental Violation where
the cost to remediate such Environmental Violation in compliance with all
Environmental Laws would, in the opinion of the Lessee, be at least $500,000,
the Lessee shall notify the Lessor in writing of such condition. In the event of
such Environmental Violation, the Lessee shall, not later than thirty (30) days
after the Lessee has actual knowledge of such Environmental Violation, either,
if such Environmental Violation is a Significant Event, deliver to the Lessor
and the Indenture Trustee a Responsible Officer's Certificate and a Termination
Notice with respect to the Property pursuant to Section 16.1, or, if such
Environmental Violation is not a Significant Event, at the Lessee's sole cost
and expense, promptly and
<PAGE> 24
diligently commence any Response Actions necessary to investigate, remove, clean
up or remediate the Environmental Violation in accordance with the terms of
Section 9.1. If the Lessee does not deliver a Termination Notice with respect to
the Property pursuant to Section 16.1, the Lessee shall, upon completion of
Response Actions by the Lessee, cause to be prepared by an environmental
consultant reasonably acceptable to the Lessor a report describing the
Environmental Violation and the Response Actions taken by the Lessee (or its
agents) for such Environmental Violation, and a statement by the consultant that
the Environmental Violation has been remedied in compliance in all material
respects with applicable Environmental Law. Each such Environmental Violation
shall be remedied prior to the Expiration Date. Nothing in this Article XV shall
reduce or limit the Lessee's obligations under Sections 13.1, 13.2 or 13.3 of
the Participation Agreement.
15.3. Notice of Environmental Matters. Promptly, but in any event within
the thirty (30) Business Days from the date the Lessee has actual knowledge
thereof, the Lessee shall provide to the Lessor written notice of any pending or
threatened claim, action or proceeding involving any Environmental Law or any
Release on or in connection with the Property where the cost to remediate the
underlying condition or the aggregate indemnifiable exposure under Section 13.2
of the Participation Agreement is estimated by the Lessee to be at least
$500,000. All such notices shall describe in reasonable detail the nature of the
claim, action or proceeding and the Lessee's proposed response thereto. In
addition, the Lessee shall provide to the Lessor, within thirty (30) Business
Days of receipt, copies of all material written communications with any
Governmental Authority relating to any Environmental Law in connection with the
Property where the cost to remediate such Environmental Violation in compliance
with all Environmental Laws would, in the opinion of the Lessee, be at least
$500,000. The Lessee shall also promptly provide such detailed reports of any
such environmental claims as may reasonably be requested by the Lessor and the
Indenture Trustee.
ARTICLE XVI
16.1. Termination by the Lessee upon Certain Events. If either: (i) the
Lessee or the Lessor shall have received notice of a Condemnation, and the
Lessee shall have delivered to the Lessor a Responsible Officer's Certificate
that such Condemnation is a Significant Condemnation; or (ii) a Casualty occurs,
and the Lessee shall have delivered to the Lessor a Responsible Officer's
Certificate that such Casualty is a Significant Casualty; or (iii) an
Environmental Violation occurs or is discovered and the Lessee shall have
delivered to the Lessor a Responsible Officer's Certificate stating that, in the
reasonable, good-faith judgment of the Lessee, the cost to remediate the same
will cause the same to be a Significant Event, or (iv) if the Lessee shall not
have delivered a Termination Notice with respect to such Environmental Violation
described in clause (iii) but the requirements of Section 16.4 are met with
respect to such Environmental Violation; then, (A) the Lessee shall,
simultaneously with the delivery of the Responsible Officer's Certificate
pursuant to the preceding clause (i), (ii) or (iii) deliver a written notice in
the form described in Section 16.2(a) (a "Termination Notice"), or (B) if clause
(iv) is applicable, the Lessor may deliver Termination Notice pursuant to
Section 16.4.
<PAGE> 25
16.2. Procedures. (a) A Termination Notice shall contain: (i) notice of
termination of this Lease with respect to the Property or the affected portion
thereof on a date that is no later than thirty (30) days after the occurrence of
the applicable event described in clause (i), (ii), (iii) or (iv) of Section
16.1 (the "Termination Date"), such termination to be effective upon the
Lessee's payment of the Asset Termination Value (or portion thereof representing
the Property Cost of the affected portion of the Property) (offsetting against
such amount the aggregate amount of the Cash Collateral, if any); and (ii) a
binding and irrevocable agreement of the Lessee to pay the Asset Termination
Value or a portion thereof (offsetting against such amount the aggregate amount
of the Cash Collateral, if any), and purchase the Property on the Termination
Date.
(b) On the Termination Date, the Lessee shall pay to the Lessor the
Asset Termination Value (or such portion thereof, as applicable), plus all other
amounts owing in respect of Rent for the Property (including Supplemental Rent)
theretofore accruing, and the Lessor shall convey the Lessor's interest in the
Property or such portion thereof to the Lessee (or the Lessee's designee) all in
accordance with Section 19.1, as well as any Net Proceeds with respect to the
Casualty or Condemnation giving rise to the termination of this Lease with
respect to the Property theretofore received by the Lessor.
16.3. Termination by the Lessor upon Certain Events. If the Lessor
reasonably determines that any change in, or change in the interpretation of,
any applicable law after the date hereof would result in it or any Participant
being unable to continue to hold legal or beneficial title to all or any portion
of the Property or, except as provided in Section 16.4 hereof, subject it or any
Participant to onerous regulations or onerous liability on account thereof, the
Lessor may deliver a Termination Notice with respect to the Lease to the
Indenture Trustee, the Participants and the Lessee, such termination to be
effective on the Termination Date specified therein. Prior to delivering a
Termination Notice, the Lessor agrees that it will use its reasonable efforts to
reduce or eliminate the consequences of any such onerous regulation or onerous
liability, including, subject to Applicable Law, a change in the applicable
lending office for this transaction; provided, however, that nothing herein
shall obligate the Lessor to take any action which, in the opinion of the
Lessor, is unlawful, or results in any unreimbursed cost or expense to the
Lessor, which cost or expense would not have been incurred but for such action.
In the event the Lessor exercises its termination option, the Lessee may
exercise the Remarketing Option provided in Section 22.1 hereof by giving notice
to the Lessor within ten (10) Business Days of receipt of the notice from the
Lessor. If the Lessee does not exercise its Remarketing Option, the Lessee shall
be obligated to purchase the Property in accordance with Section 20.2 hereof on
the Termination Date for the purchase price set forth therein.
16.4. Purchase of Property. Upon receipt of any notice pursuant to
Section 15.2 or 15.3, the Lessor or the Required Participants, at the Lessee's
expense, shall have the right to select an independent environmental consultant
acceptable to the Lessee, which acceptance shall not be unreasonably withheld or
delayed, to determine the estimated cost of conducting any clean-up or
remediation required as a result of the Environmental
<PAGE> 26
Violation disclosed in such notice. If such independent environmental consultant
determines that the cost of any such clean-up or remediation would exceed
$2,500,000, the Lessor shall, at the direction of the Required Participants,
require the Lessee to purchase, or arrange for an Affiliate or other third party
to purchase, the Property on the Expiration Date by delivering a Termination
Notice following the requirements of Section 16.2 hereof.
ARTICLE XVII
17.1. Lease Events of Default. The occurrence of any one or more of the
following events (whether such event shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body) shall constitute a "Lease Event of
Default":
(a) the Lessee shall fail to make payment of (i) any Basic Rent
(provided that the Lessor has given the notice of amount due required under
Section 3.1 when required) (other than a payment of Basic Rent due on the
Expiration Date or Termination Date) within five (5) Business Days after the
same has become due and payable or (ii) Basic Rent, Purchase Option Price, Asset
Termination Value or Residual Value Guarantee Amount or other amounts due on the
Expiration Date or the Termination Date, including, without limitation, amounts
due pursuant to Sections 16.2, 16.3, 16.4, 20.1, 20.2, 20.3 or 22.1, after the
same has become due and payable;
(b) the Lessee shall fail to make payment of any Supplemental Rent
(other than Supplemental Rent referred to in clause (a) of this Section) due and
payable within thirty (30) days after written notice thereof;
(c) the Lessee shall fail to maintain insurance as required by Article
XIV of this Lease;
(d) the Lessee shall fail to observe or perform any term, covenant or
condition of the Lessee under this Lease, the Participation Agreement or any
other Operative Document to which it is a party other than those described in
Section 17.1(a), (b),or (c) hereof, or any representation or warranty set forth
in this Lease or in any other Operative Document or in any document entered into
in connection herewith or therewith or in any document, certificate or financial
or other statement delivered in connection herewith or therewith shall be false
or inaccurate in any Material way, and such failure or misrepresentation or
breach of warranty shall remain uncured for a period of thirty (30) days after
receipt of written notice thereof; provided, that if such failure to perform is
not capable of being cured within such period but is capable of being cured
within one hundred eighty (180) days after the occurrence of such default and
the Lessee is proceeding diligently to cure such default, the Lessee shall be
entitled to request an additional period (not to exceed one hundred eighty (180)
days from the date of such
<PAGE> 27
default) to cure such default, which extended cure period may be granted by the
Lessor and the Required Participants in their sole discretion;
(e) the Lessee shall (i) admit in writing its inability to pay its debts
generally as they become due, (ii) file a petition under the United States
bankruptcy laws or any other applicable insolvency law or statute of the United
States of America or any State or Commonwealth thereof, (iii) make a general
assignment for the benefit of its creditors, (iv) consent to the appointment of
a receiver of itself or the whole or any substantial part of its property, (v)
fail to cause the discharge of any custodian, trustee or receiver appointed for
the Lessee or the whole or a substantial part of its property within sixty (60)
days after such appointment, or (vi) file a petition or answer seeking or
consenting to reorganization under the United States bankruptcy laws or any
other applicable insolvency law or statute of the United States of America or
any State or Commonwealth thereof;
(f) insolvency proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency law or statute of the United
States of America or any State or Commonwealth thereof shall be filed against
the Lessee and not dismissed within sixty (60) days from the date of its filing,
or a court of competent jurisdiction shall enter an order or decree appointing,
without the consent of the Lessee, a receiver of the Lessee or the whole or a
substantial part of its property, and such order or decree shall not be vacated
or set aside within sixty (60) days from the date of the entry thereof;
(g) if any of the following shall occur, and the aggregate liability of
the Lessee in respect thereof would exceed $5,000,000: (i) any member of the
ERISA Group shall fail to pay when due an amount or amounts aggregating in
excess of $5,000,000 which it shall have become liable to pay under Title IV of
ERISA; or (ii) notice of intent to terminate a Material Plan shall be filed
under Title IV of ERISA by any member of the ERISA Group, any plan administrator
or any combination of the foregoing; or (iii) the PBGC shall institute
proceedings under Title IV of ERISA to terminate, to impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer any Material Plan; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or (iv) there shall
occur a complete or partial withdrawal from, or a default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause one or more members of the ERISA Group to incur a current
payment obligation in excess of $5,000,000;
(h) a judgment or order for the payment of money in excess of
$10,000,000 shall be rendered against the Lessee or any Subsidiary and such
judgment or order shall continue unsatisfied and unstayed (pursuant to laws,
rules or court orders) for a period of thirty (30) days;
(i) the Guarantor, the Lessee or any of their respective Subsidiaries
(i) shall default in the payment when due, whether at stated maturity or
otherwise, of principal or interest in respect of Indebtedness (other than under
the Operative Documents) or
<PAGE> 28
obligations in respect of Consolidated Off-Balance Sheet Debt having an
aggregate principal amount of $5,000,000 or more; or (ii) shall fail to perform
or observe any other condition or covenant, or any other event shall occur or
condition exist, under any agreement or instrument relating to any such
Indebtedness or Consolidated Off-Balance Sheet Debt, if the effect of any such
failure, event or condition is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) or the lessor or the lenders under any such Consolidated
Off-Balance Sheet Debt to cause such Indebtedness or Consolidated Off-Balance
Sheet Debt to be declared to be due and payable prior to its stated maturity, or
cash collateral in respect thereof to be demanded or, in the case of
Consolidated Off-Balance Sheet Debt, demand that the Lessee purchase the
property covered by such Consolidated Off-Balance Sheet Debt;
(j) a Guarantee Event of Default shall have occurred and be continuing;
(k) [intentionally omitted]
(l) a Construction Agency Agreement Event of Default shall have occurred
and be continuing; or
(m) an Environmental Violation shall occur that, in the reasonable
opinion of the Lessor and the Required Participants, based on an Environmental
Audit, constitutes a Significant Event and the Lessee shall not, within thirty
(30) days after notice from the Lessor, have delivered a Termination Notice with
respect thereto pursuant to Section 16.1 hereof or, if so delivered, repurchase
of the Property shall not have been consummated on the Termination Date pursuant
to Section 16.2 hereof;
(n) the Lessee shall have elected to or be required to purchase the
Property pursuant to Sections 16.3 or 16.4 hereof and such purchase shall not
have been consummated on the Termination Date pursuant to either such Section;
or
(o) a Ground Lease Event of Default shall have occurred and be
continuing; or the Lessee shall fail to comply with its covenants set forth in
Section 32.1 hereof; or the Ground Lease shall, in whole or in part, terminate,
cease to be effective or cease to be the legal, valid and binding obligation of
the Lessee.
17.2. Remedies. Upon the occurrence of any Lease Event of Default and at
any time thereafter, the Lessor may, so long as such Lease Event of Default is
continuing, do one or more of the following as the Lessor in its sole discretion
shall determine, without limiting any other right or remedy the Lessor may have
on account of such Lease Event of Default (including, without limitation, the
obligation of the Lessee to purchase the Property as set forth in Section 20.3):
(a) The Lessor may, by notice to the Lessee, rescind or terminate this
Lease as to all or any portion of the Property as of the date specified in such
notice; however, (i) no reletting, reentry or taking of possession of the
Property (or any portion thereof) by the
<PAGE> 29
Lessor will be construed as an election on the Lessor's part to terminate this
Lease unless a written notice of such intention is given to the Lessee, (ii)
notwithstanding any reletting, reentry or taking of possession, the Lessor may
at any time thereafter elect to terminate this Lease for a continuing Lease
Event of Default, and (iii) no act or thing done by the Lessor or any of its
agents, representatives or employees and no agreement accepting a surrender of
the Property shall be valid unless the same be made in writing and executed by
the Lessor;
(b) The Lessor may (i) demand that the Lessee, and the Lessee shall upon
the written demand of the Lessor, return the Property promptly to the Lessor in
the manner and condition required by, and otherwise in accordance with all of
the provisions of, Articles VIII, IX and X hereof as if the Property were being
returned at the end of the Term, and the Lessor shall not be liable for the
reimbursement of the Lessee for any costs and expenses incurred by the Lessee in
connection therewith and (ii) without prejudice to any other remedy which the
Lessor may have for possession of the Property, and to the extent and in the
manner permitted by Applicable Law, enter upon the Property and take immediate
possession of (to the exclusion of the Lessee) the Property or any part thereof
and expel or remove the Lessee and any other Person who may be occupying the
Property, by summary proceedings or otherwise, all without liability to the
Lessee for or by reason of such entry or taking of possession, whether for the
restoration of damage to property caused by such taking or otherwise and, in
addition to the Lessor's other damages, the Lessee shall be responsible for all
costs and expenses incurred by the Lessor and/or the Indenture Trustee or the
Participants in connection with any reletting, including, without limitation,
brokers' fees and all costs of any alterations or repairs made by the Lessor;
(c) The Lessor may (i) sell all or any part of the Property at public or
private sale, as the Lessor may determine, free and clear of any rights of the
Lessee and without any duty to account to the Lessee with respect to such action
or inaction or any proceeds with respect thereto (except to the extent required
by clause (ii) below if the Lessor shall elect to exercise its rights
thereunder) in which event the Lessee's obligation to pay Basic Rent hereunder
for periods commencing after the date of such sale shall be terminated or
proportionately reduced, as the case may be; and (ii) if the Lessor shall so
elect, demand that the Lessee pay to the Lessor, and the Lessee shall pay to the
Lessor, on the date of such sale, as liquidated damages for loss of a bargain
and not as a penalty (the parties agreeing that the Lessor's actual damages
would be difficult to predict, but the aforementioned liquidated damages
represent a reasonable approximation of such amount) (in lieu of Basic Rent due
for periods commencing on or after the Payment Date coinciding with such date of
sale (or, if the sale date is not a Payment Date, the Payment Date next
preceding the date of such sale)), an amount equal to (subject to Section
17.2(j)) (A) the excess, if any, of (1) the Asset Termination Value calculated
as of such Payment Date (including all Rent due and unpaid to and including such
Payment Date) less the aggregate amount of the Cash Collateral, if any,
permitted to be retained by the Lessor, the Indenture Trustee or the
Participants, over (2) the net proceeds of such sale, if any (that is, after
deducting all costs and expenses incurred by the Lessor, the Indenture Trustee
and the Participants incident to such conveyance, including, without limitation,
<PAGE> 30
repossession costs, brokerage commissions, prorations, transfer taxes, fees and
expenses for counsel, title insurance fees, survey costs, recording fees, and
any repair or alteration costs); plus (B) all damages, costs and expenses of the
Lessor under the Ground Lease; plus (C) interest at the Overdue Rate on the
foregoing amount from such Payment Date until the date of payment;
(d) The Lessor may terminate the Commitments and its obligation to make
Advances as provided in Section 3.8 of the Participation Agreement;
(e) Unless the Property has been sold in its entirety, the Lessor may,
subject to Section 17.2(j), whether or not the Lessor shall have exercised or
shall thereafter at any time exercise any of its rights under paragraph (b), (c)
or (d) of this Section 17.2 with respect to the Property or portions thereof,
demand, by written notice to the Lessee specifying a date (a "Termination Date")
not earlier than 10 days after the date of such notice, that the Lessee
purchase, on such Termination Date, the Property (or the remaining portion
thereof) in accordance with the provisions of Article XIX and Section 20.3;
provided, that the Lessee shall remain liable for all damages, costs and
expenses of the Lessor under the Ground Lease;
(f) The Lessor may exercise any other right or remedy that may be
available to it under the Operative Documents or otherwise under Applicable Law,
or proceed by appropriate court action (legal or equitable) to enforce the terms
hereof or to recover damages for the breach hereof. Separate suits may be
brought to collect any such damages for any period(s), and such suits shall not
in any manner prejudice the Lessor's right to collect any such damages for any
subsequent period(s), or the Lessor may defer any such suit until after the
expiration of the Term, in which event such suit shall be deemed not to have
accrued until the expiration of the Term; or
(g) The Lessor may retain and apply against the Lessor's damages all
sums which the Lessor would, absent such Lease Event of Default, be required to
pay to, or turn over to, the Lessee pursuant to the terms of this Lease.
(h) In addition to the other rights and remedies set forth herein,
Lessor shall have the right to continue this Lease in effect and, as permitted
by Section 1951.4 of the California Civil Code, to enforce, by suit or
otherwise, all covenants and conditions hereof to be performed or complied with
by Lessee and exercise all of Lessor's rights and remedies under this Lease,
including, without limitation, the right to recover Basic Rent and Supplemental
Rent from Lessee as it becomes due under this Lease, even though Lessee shall
have breached this Lease and abandoned the Property. Acts of maintenance or
preservation, or efforts by Lessor or on Lessor's behalf to relet the Property,
or the appointment of a receiver upon the initiative of Lessor to protect
Lessor's interest under this Lease shall not constitute a termination of
Lessee's right to possession of the Property; provided, however, that the
foregoing enumeration shall not be construed as in any way limiting the actions
Lessor may take without terminating Lessee's right to possession. In furtherance
of the rights hereby granted to Lessor, and to the extent, permitted by law,
Lessee hereby appoints Lessor its agent and attorney-in-fact, which
<PAGE> 31
appointment shall be deemed to be coupled with an interest and is irrevocable,
with power of substitution, to enter the Property upon a Lease Event of Default
hereunder and remove therefrom all persons and property (with the right to store
such property on the Property in a public warehouse or elsewhere at the cost and
risk and for the account of Lessee) and to alter the Property in such manner as
Lessor may deem necessary or advisable so as to put the Property in good order
and to make the same rentable and from time to time sublet the Property or any
part thereof for such term or terms whether or not extending beyond the then
current term of this Lease (but such sublease may provide for a new and
successive lease to commence immediately upon the termination of this Lease), at
such rentals and upon such other terms as Lessor in its sole discretion may deem
advisable, and with the right to make alterations and repairs to the Property;
and Lessee agrees to pay to Lessor on demand all reasonable expenses incurred by
Lessor in such subletting, and in altering, repairing and putting the Property
in good order and condition, and in reletting the same, including fees of
attorneys and architects, and all other reasonable expenses or commissions.
Lessor shall be Lessee's agent and representative on the Property in respect of
all matters arising under or in connection with any such sublease made for
Lessee by Lessor. Under each such sublease, Lessee shall retain the right to
enter upon and use the Property, subject to the terms and conditions of such
sublease and the rights of the sublessee thereunder. Lessee further agrees to
pay to Lessor, following the date of such subletting, to and including the date
provided in this Lease for the expiration of the Lease Term, the sums of money
which would have been payable by Lessee as Basic Rent and Supplemental Rent,
deducting only the net amount of rent, if any, which Lessor shall actually
receive (after deducting from the gross receipts the expenses, costs and
payments of Lessor which in accordance with the terms of this Lease would have
been borne by Lessee) in the meantime from and by any such subletting of the
Property, and Lessee hereby agrees to remain liable for all sums otherwise
payable by Lessee under this Lease, including, but not limited to, the expenses
of Lessor aforesaid, as well as for any deficiency aforesaid. Lessor shall have
the right from time to time to begin and maintain successive actions or other
legal proceedings against Lessee for the recovery of such deficiency, expenses
or damages or for a sum equal to any installments of Basic Rent or Supplemental
Rent and other sums payable hereunder, and to recover the same upon the
liability of Lessee herein provided, which liability it is expressly covenanted
shall survive the commencement or determination of any action to secure
possession of the Property. Nothing herein contained shall be deemed to require
Lessor to wait to begin such action or other legal proceedings until the date
when this Lease would have expired by limitation had there been no such Lease
Event of Default. Notwithstanding any such subletting without termination,
pursuant to the terms hereof, Lessor shall retain the right to and may at any
time thereafter elect to terminate this Lease or Lessee's right to possession of
the Property for any previous breach which remains uncured or for any subsequent
breach by giving Lessee written notice thereof as herein provided, and in such
event Lessee shall forfeit any rights or interest under any such sublease and
thereafter the obligations of any such sublessee shall run directly to Lessor
for its own account. Upon application by Lessor, a receiver may be appointed to
take possession of the Property, exercise all rights granted to Lessor as agent
and attorney-in-fact for Lessee set forth in this Section 17.2(h) and apply any
rentals collected from the Property as hereinabove provided. No taking of
possession of the
<PAGE> 32
Property or other act by Lessor as the agent and attorney-in-fact for Lessee
pursuant to the foregoing provisions, nor any subletting by Lessor for Lessee
pursuant to the foregoing provisions, nor any such appointment of a receiver
shall constitute or be construed as an election by Lessor to terminate this
Lease or Lessee's right to possession of the Property unless a written notice of
such intention be given to Lessee.
(i) In the event of any termination of the Lease Term pursuant to
Section 17.2(a) or as permitted by law, Lessee shall quit and surrender the
Property to Lessor, and Lessor may without further notice enter upon, reenter,
possess and repossess the same by summary proceedings, ejectment or otherwise,
and again have, repossess and enjoy the same as if this Lease had not been made,
and in any such event neither Lessee nor any Person claiming through or under
Lessee by virtue of any law or an order of any court shall be entitled to
possession or to remain in possession of the Property but shall forthwith quit
and surrender the Property, and Lessor shall, notwithstanding any other
provision of this Lease, be entitled to recover from Lessee the aggregate of all
amounts Lessor is permitted to recover from Lessee, including:
(i) the worth at the time of award, as computed below,
of the unpaid rent (including, without limitation, Basic Rent and
Supplemental Rent) which had been earned at the time of termination of
this Lease;
(ii) the worth at the time of award of the amount by
which the unpaid rent (including, without limitation, Basic Rent and
Supplemental Rent) which would have been earned after the time of
termination of this Lease until the time of award exceeds the amount of
such rental loss that Lessee proves could have been reasonably avoided;
(iii) the worth at the time of award of the amount by
which the unpaid rent (including, without limitation, Basic Rent and
Supplemental Rent) for the balance of the term after the time of award
exceeds the amount of such rental loss for said balance of the term that
Lessee proves could be reasonably avoided; and
(iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom; including without limitation any
loss or damage arising out of the failure of Lessor to receive the
benefit of the performance by Lessee of any obligation to purchase the
Property under the provisions of this Lease. Lessee acknowledges and
agrees that, in reliance upon this Lease and Lessee's covenants and
agreements hereunder and the creditworthiness and financial condition of
Lessee, Lessor has entered into certain special transactions to finance
the costs of purchasing the Ground Lease Interest and constructing the
Improvements and, in connection with such financing transactions, Lessor
has incurred and will continue to incur indebtedness and liabilities
under and pursuant to the Participation Agreement and the other
Operative Documents. Lessee
<PAGE> 33
acknowledges and agrees that a Lease Event of Default will cause Lessor
substantial damage and detriment due to its obligations and liabilities
under the Participation Agreement and the other Operative Documents,
including, without limitation, the failure of Lessor to be fully
compensated for the Advances made to Lessee. Accordingly, in order to
compensate Lessor for all detriment proximately caused by Lessee's
failure to perform its obligations under this Lease, Lessor shall be
permitted to recover from Lessee, without limitation, all amounts
necessary for Lessor to be fully compensated for all of the Advances
made to the Lessee.
The "worth at the time of award, of the amounts referred to in the
foregoing subsections 17.2(i) (i) and (ii) shall be computed by allowing
interest at the Overdue Rate (or at the highest rate permitted by applicable
law, whichever is less) on each rental installment from the date the same was
due hereunder to the time of award. The "worth at the time of award" of the
amount referred to in the foregoing subparagraph (iii) shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of the award plus one percent (1%). As used herein, the
term "time of award" shall mean either (A) the date upon which Lessee pays to
Lessor the amount recoverable by Lessor as hereinabove set forth or (B) the date
of entry of any determination, order or judgment of any court, other legally
constituted body, or any arbitrator(s), determining the amount recoverable,
whichever first occurs. If the time of award is determined under clause (B),
above, then the amount recoverable by Lessor hereunder shall bear interest from
the time of award until paid at the Overdue Rate (or at the highest rate
permitted by applicable law, whichever is less). Nothing herein contained shall
limit or prejudice the right of Lessor, and Lessor is hereby expressly granted
the right, in any bankruptcy or reorganization or insolvency proceedings, to
prove for and obtain as damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law whether such amount shall
be greater or less than the amounts referred to above.
(j) Notwithstanding anything contained in this Lease to the
contrary, in the event that the Lease Event of Default resulting in the exercise
of remedies by the Lessor hereunder is solely an Event of Default described in
Section 17.1 (l) occurring during the Construction Period, the Lessee shall, at
the request of the Lessor, (i) (A) return the Property to the Lessor or a Person
designated by the Lessor on a date specified by the Lessor (which date shall
constitute the Expiration Date) and/or (B) remarket the Property for the Lessor
as the Lessor's agent subject to the Lessor's direction, and at the Lessee's
expense and (ii) pay to the Lessor (A) the maximum Residual Value Guarantee
Amount on the date that is ten (10) days after the Lessor furnishes the Lessee
notice that it will require the Lessee to return or remarket the Property), (B)
all breakage costs incurred by the Participants for the duration of all then
current Interest Periods or Fixed Rate Periods under the Participation Agreement
with respect to the amount so paid following notices thereof by the Indenture
Trustee, (C) the other costs and expenses of the sale of the Property, and (D)
all Rent and other amounts payable under this Lease and the other Operative
Documents; provided, that the Lessor may recover from the Lessee, and the Lessee
shall be obligated to pay to the Lessor, the Asset Termination Value as of
<PAGE> 34
such date (notwithstanding the limitation to maximum Residual Value Guarantee
Amount contained in clause (A) above) if a Fully Indemnifiable Event has
occurred.
17.3. Waiver of Certain Rights. If this Lease shall be terminated
pursuant to Section 17.2, the Lessee waives, to the fullest extent permitted by
law, (a) any notice of re-entry or the institution of legal proceedings to
obtain re-entry or possession; (b) any right of redemption, re-entry or
repossession; (c) the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt or limiting the Lessor with respect
to the election of remedies; and (d) any other rights which might otherwise
limit or modify any of the Lessor's rights or remedies under this Article XVII.
17.4. Power of Sale and Foreclosure. Subject to Article XXII below, in
the event that a court of competent jurisdiction rules that this Lease
constitutes a mortgage, deed of trust or other secured financing, and subject to
the availability of such remedy under applicable law, then the Lessor and the
Lessee agree that the Lessee hereby mortgages and grants to Lessor a Lien
against the Property WITH POWER OF SALE, for the purpose of securing all of
Lessee's obligations hereunder (including the payment of Basic Rent,
Supplemental Rent and the Asset Termination Value or Purchase Option Price)
(collectively, the "Obligations"). In each case, upon the occurrence of any
Lease Event of Default, the Lessor shall have the power and authority, to the
extent provided by law, to exercise the following rights and remedies:
(a) To declare the Obligations immediately due and payable;
(b) With or without notice, and without releasing Lessee from any
obligation hereunder, to cure any default of Lessee and, in connection
therewith, to enter upon the Property and to perform such acts and things as
Lessor deems necessary or desirable to inspect, investigate, assess and protect
the Property, including, without limitation of any of its other rights: to
obtain a court order to enforce Lessor's right to enter and inspect the Property
pursuant to California Civil Code Section 2929.5, to which the decision of
Lessor as to whether there exists a release or threatened release of a Hazardous
Substance onto the Property shall be deemed reasonable and conclusive as between
the parties hereto; to have a receiver appointed pursuant to California Code of
Civil Procedure Section 564 to enforce Lessor's right to enter and inspect the
Property for Hazardous Substances; to appear in and defend any action or
proceeding purporting to affect the Property or the rights or powers of Lessor
hereunder; to pay, purchase, contest or compromise any encumbrance, charge, lien
or claim of lien which, in the judgment of Lessor, is prior or superior hereto,
the judgment of Lessor being conclusive as between the parties hereto; to pay
any premiums or charges with respect to insurance required to be carried
hereunder; and to employ counsel, accountants, contractors and other appropriate
persons to assist Lessor;
(c) To commence and maintain an action or actions in any court of
competent jurisdiction to foreclose this instrument as a mortgage or to obtain
specific enforcement of the covenants of Lessee hereunder, and Lessee agrees
that such covenants shall be specifically enforceable by injunction or any other
appropriate equitable remedy
<PAGE> 35
and that for the purposes of any suit brought hereunder, Lessee waives the
defense of laches and any applicable statute of limitations;
(d) Lessor or its employees, acting by themselves or through a
court-appointed receiver, may enter upon, possess, manage, operate, dispose of
and contract to dispose of the Property or any part thereof; negotiate with
governmental authorities with respect to the Property's environmental compliance
and remedial measures; contract for goods and services, hire agents, employees
and counsel, make repairs, alterations and improvements to the Property
necessary, in Lessor's judgment, to protect or enhance the security hereof; to
incur the risks and obligations ordinarily incurred by owners of property
(without any personal obligation on the part of the receiver); and/or to take
any and all other actions which may be necessary or desirable to comply with
Lessee's obligations hereunder and under the Operative Documents. All sums
realized by Lessor under this Section 17.4(d), less all costs and expenses
incurred by it under this Section 17.4(d), including attorneys' fees, and less
such sums as Lessor deems appropriate as a reserve to meet future expenses under
this Section 17.4(d), shall be applied on any Obligations secured hereby in such
order as Lessor shall determine. Neither application of said sums to said
indebtedness nor any other action taken by Lessor under this Section 17.4(d)
shall cure or waive any Lease Event of Default or notice of default hereunder or
nullify the effect of any such notice of default. Lessor, or any employee or
agent of Lessor, or a receiver appointed by a court, may take any action or
proceeding hereunder without regard to (i) the adequacy of the security for the
indebtedness secured hereunder, (ii) the existence of a declaration that the
indebtedness secured hereby has been declared immediately due and payable, or
(iii) the filing of a notice of default;
(e) To execute a written notice of such Lease Event of Default and
of its election to cause the Property to be sold to satisfy the obligations
secured hereby. Lessor shall give and record such notice as the law then
requires as a condition precedent to a nonjudicial foreclosure sale. When the
minimum period of time required by law after such notice has elapsed, Lessor,
without notice to or demand upon Lessee except as otherwise required by law,
shall sell the Property at the time and place of sale fixed by it in the notice
of sale and in such order as it or Lessor may determine, at public auction to
the highest bidder for cash, in lawful money of the United States, payable at
time of sale (the Obligations hereby secured being the equivalent of cash for
purposes of said sale). If the Property consists of several lots, parcels, or
items of property, Lessor may: (i) designate the order in which such lots,
parcels, or items shall be offered for sale or sold, or (ii) elect to sell such
lots, parcels or items through a single sale, through two or more successive
sales, or in any other manner Lessor deems in its best interest. Lessee shall
have no right to direct the order in which the Property is sold. Lessor may
postpone sale of all or any portion of the Property by public announcement at
such time and place of sale, and from time to time thereafter may postpone such
sale by public announcement at such time fixed by the preceding postponement.
Lessor shall deliver to the purchaser at such sale a deed or other appropriate
transfer instrument conveying the Property or portion thereof so sold, but
without any covenant or warranty, express or implied. The recitals in such deed
of any matters or facts shall be conclusive proof of the truthfulness thereof.
Any person, including Lessor or Lessee may purchase at such sale.
<PAGE> 36
In connection with any sale or sales hereunder, Lessor may elect
to treat any of the Property which consists of a right in action or which is
property that can be severed from the real property covered hereby or any
improvements thereon without causing structural damage thereto as if the same
were personal property or a fixture, as the case may be, and dispose of the same
in accordance with applicable law, separate and apart from the sale of real
property. Any sale of any personal property or fixtures hereunder shall be
conducted in any manner permitted by the UCC.
After deducting all costs, fees and expenses of Lessor and of this
trust, including all costs of evidence of title and attorneys' fees in
connection with sale, Lessor shall apply the proceeds of sale to payment of all
sums so expended under the terms hereof not then repaid; the payment of all
other sums then secured hereby; and the remainder, if any, to the person or
persons legally entitled thereto;
(f) To resort to and realize upon the Property and any other
security now or hereafter held by Lessor in such order and manner as Lessor may,
in its sole discretion, determine; and resort to any or all such security may be
taken concurrently or successively and in one or several consolidated or
independent judicial actions or lawfully taken non-judicial proceedings, or
both;
(g) To commence and maintain an action or actions in any court of
competent jurisdiction pursuant to California Code of Civil Procedure Section
736, whether commenced prior to foreclosure of the Property or after foreclosure
of the Property, and to seek the recovery of any and all costs, damages,
expenses, fees, penalties, fines, judgments, indemnification payments to third
parties, and other out-of-pocket costs or expenses actually incurred by Lessor
(collectively, the "Environmental Costs") incurred or advanced by Lessor
relating to the cleanup, remediation or other response action required by
Applicable Law or which Lessor believes necessary to protect the Property, it
being conclusively presumed between Lessor and Lessee that all such
Environmental Costs incurred or advanced by Lessor relating to the cleanup,
remediation or other response action of or to the Property were made by Lessor
in good faith. All Environmental Costs incurred by Lessor pursuant to this
Section 17.4(g) (including, without limitation, court costs, consultants' fees
and attorneys' fees, whether incurred in litigation or not and whether before or
after judgment) shall bear interest at the Overdue Rate from the date of
expenditure until said sums have been paid. Lessor shall be entitled to bid, at
the sale of the Property held pursuant to Section 17.4(e) above, the amount of
said costs, expenses and interest in addition to the amount of the other
Obligations hereby secured as a credit bid, the equivalent of cash. For the
purposes of any action brought under this Section 17.4(g), Lessee hereby waives
the defense of laches and any applicable statute of limitations; and
(h) To waive its lien against the Property or any portion thereof,
whether fixtures or personal property, to the extent such property is found to
be environmentally impaired in accordance with California Code of Civil
Procedure Section 726.5 and to exercise any and all rights and remedies of an
unsecured creditor against
<PAGE> 37
Lessee and all of Lessee's assets and property for the recovery of any
deficiency and Environmental Costs, including, but not limited to, seeking an
attachment order pursuant to California Code of Civil Procedure Section 483.010.
As between Lessor and Lessee, for purposes of California Code of Civil Procedure
Section 726.5, Lessee shall have the burden of proving that Lessee or any
related party (or any affiliate or agent of Lessee or any related party) was not
in any way negligent in permitting the release or threatened release of the
Hazardous Substance. For the purposes of any action brought under this
paragraph, Lessee hereby waives the defense of laches and any applicable statute
of limitations.
(i) All costs and expenses incurred by Lessor pursuant to Section
17.4 (including without limitation court costs, consultants' fees and attorneys'
fees, whether incurred in litigation or not and whether before or after
judgment) shall bear interest at the Overdue Rate, from the date of expenditure
until said sums have been paid. Lessor shall be entitled to bid, at the sale of
the Property held pursuant to subsection 17.4(e) above, the amount of said
costs, expenses and interest in addition to the amount of the other Obligations
hereby secured as a credit bid, which shall be deemed the equivalent of cash.
(j) Lessee hereby waives any right to require that any security
given hereunder or under any other agreement securing the Obligations be
marshalled and further waives any right otherwise available in respect to
marshalling of assets which secure any Obligation or to require Lessor to pursue
its remedies against any such assets.
17.5. Remedies Cumulative. The remedies herein provided shall be
cumulative and in addition to (and not in limitation of) any other remedies
available at law, equity or otherwise, including, without limitation, any
mortgage foreclosure remedies.
17.6. Lessee's Right to Cure. Notwithstanding any provision contained in
the Lease or any other Operative Agreement, if a Lease Event of Default has
occurred and is continuing, the Lessee shall have the right to cure such Lease
Event of Default by exercising its Purchase Option at any time prior to the
termination of the Lessee's possessory interest in the Property and the thirty
(30) day period following the occurrence of a Lease Event of Default and
purchasing the Property at any time prior to such time as a foreclosure upon or
sale of the Property has been completed.
ARTICLE XVIII
18.1. The Lessor's Right to Cure the Lessee's Lease Events of Default.
The Lessor, without waiving or releasing any obligation or Lease Event of
Default, may (but shall be under no obligation to), upon not less than three (3)
Business Days' notice to the Lessee, remedy any Lease Event of Default for the
account and at the sole cost and expense of the Lessee, including the failure by
the Lessee to maintain the insurance required by Article XIV, and may, to the
fullest extent permitted by law, and notwithstanding any right of quiet
enjoyment in favor of the Lessee, enter upon the
<PAGE> 38
Property for such purpose and take all such action thereon as may be necessary
or appropriate therefor. No such entry shall be deemed an eviction of the
Lessee. All out-of-pocket costs and expenses so incurred (including fees and
expenses of counsel), together with interest thereon at the Overdue Rate from
the date on which such sums or expenses are paid by the Lessor, shall be paid by
the Lessee to the Lessor on demand, as Supplemental Rent.
ARTICLE XIX
19.1. Provisions Relating to the Lessee's Termination of this Lease or
Exercise of Purchase Option or Obligation and Conveyance Upon Remarketing and
Conveyance Upon Certain Other Events. (a) In connection with any termination of
this Lease pursuant to the terms of Article XVI (if the Lessee is obligated to
purchase the Property), or in connection with the Lessee's exercise of its
Purchase Option, Partial Purchase Option or Expiration Date Purchase Obligation,
upon the date on which this Lease is to terminate or upon the Expiration Date,
and upon tender by the Lessee of the amounts set forth in Sections 16.2(b),
20.1, 20.2 or 20.3, as applicable: (i) the Lessor shall execute and deliver to
the Lessee (or to the Lessee's designee) at the Lessee's cost and expense an
assignment without recourse of the Lessor's right, title and interest in the
Property or applicable portion thereof and the Ground Lease (except for the
Lessor's indemnities thereunder) (which shall include a release, quitclaim and
assignment of all of the Lessor's right, title and interest in and to any Net
Proceeds with respect to the Property or such portion thereof not previously
received by the Lessor), subject to the Permitted Exceptions (other than Lessor
Liens) and any encumbrance caused by the fault, neglect or intention of the
Lessee, in recordable form and otherwise in conformity with local custom and
free and clear of the Mortgage and any Lessor Liens attributable to the Lessor;
and (ii) the Lessee shall execute and deliver to the Lessor an assumption of all
of the Lessor's obligations under the Ground Lease.. The Improvements and the
Equipment shall be conveyed to the Lessee "AS IS" and in their then present
condition of title and physical condition free of any Lessor Liens.
(b) If the Lessee properly exercises the Remarketing Option or is
required to remarket the Property or return the Property to the Lessor pursuant
to Section 17.2, then the Lessee shall, on the Expiration Date, and at its own
cost, transfer possession of the Property (or remaining portion thereof),
together with the Lessor's rights under the Ground Lease (except for the
Lessor's rights of indemnification), to the independent purchaser thereof, by
surrendering the same into the possession of the Lessor or such purchaser, as
the case may be, free and clear of all Liens other than Lessor Liens, in good
condition (as modified by Modifications permitted by this Lease), ordinary wear
and tear excepted, in compliance with Applicable Law, and in "broom-swept clean"
condition. The Lessee shall cooperate reasonably with the Lessor and the
independent purchaser of the Property (or remaining portion thereof) in order to
facilitate the purchase by such purchaser of the Property (or remaining portion
thereof) which cooperation shall include the following, all of which the Lessee
shall do on or before the Expiration Date: providing all books and records
regarding the maintenance and ownership of the Property
<PAGE> 39
and all know-how, data and technical information relating thereto, providing a
current copy of the "as built" Plans and Specifications for the Property (or
remaining portion thereof), granting or assigning all licenses necessary for the
operation and maintenance of the Property and cooperating reasonably in seeking
and obtaining all necessary Governmental Action and complying with the revision
of Section 22.3 hereof. The obligations of the Lessee under this paragraph shall
survive the expiration or termination of this Lease.
ARTICLE XX
20.1. Purchase Option. (a) Without limitation of the Lessee's purchase
obligation pursuant to Sections 20.2 or 20.3, unless the Lessee shall have given
notice of its intention to exercise the Remarketing Option and the Lessor shall
have entered into a binding contract to sell the Property, the Lessee shall have
the option (exercisable by giving the Lessor irrevocable written notice (the
"Purchase Notice") of the Lessee's election to exercise such option) to
purchase, or to designate a third party to purchase, (i) all of the Property
(the "Purchase Option") or (ii) the Data Center (the "Partial Purchase Option"),
in each case, together with the Lessor's rights under the Ground Lease with
respect to all or such portion of the Property, as applicable (except for the
Lessor's rights of indemnification), on the date specified in such Purchase
Notice, which date shall be a Payment Date. The purchase price in respect of the
Property shall be as follows: (i) in respect of the entire Property, the Asset
Termination Value and (ii) in respect of the Data Center, as set forth on
Schedule 1 hereto, plus, in each case, all other amounts owing in respect of
Rent (including Supplemental Rent) theretofore accruing with respect to all or
such portion of the Property, as the case may be (the "Purchase Option Price")
(offsetting against such amount the aggregate amount or such proportionate
amount of the Cash Collateral, if any). The Lessee shall deliver the Purchase
Notice to the Lessor not less than sixty (60) days prior to the purchase date.
If the Lessee exercises its Purchase Option or Partial Purchase Option, pursuant
to this Section 20.1, the Lessor shall (x) transfer to the Lessee all of the
Lessor's right, title and interest in and to all or the applicable portion of
the Property, together with the Lessor's rights under the Ground Lease with
respect to all or such portion of the Property, as applicable (except for the
Lessor's rights of indemnification), as of the date specified in the Purchase
Notice upon receipt of the Purchase Option Price and all Rent and other amounts
then due and payable under this Lease and any other Operative Document, in
accordance with Section 19.l(a), and (y) enter into such cross parking and
access easement agreements as may be reasonably necessary in order to ensure
access to and adequate parking for the Data Center and the remaining Property.
(b) The purchase by the Lessee on any Payment Date of the Data Center
pursuant to this Section 20.1 is subject to receipt by the Lessor, on or prior
to such date, of new Appraisals for all sub-tracts and tracts of the Property
that are to remain subject to the Lease after such date, which appraisals (i)
each shall be dated a recent date prior to such date and (ii) together shall
assess the aggregate Fair Market Sales Value of all such remaining sub-tracts
and tracts of the Property at not less than the Fair Market Sales
<PAGE> 40
Value therefor as of the Maturity Date as set forth in the Appraisal delivered
to Lessor on the Closing Date.
20.2. Expiration Date Purchase Obligation. Unless (a) the Lessee shall
have properly exercised the Purchase Option pursuant to Section 20.1 and
purchased the Property pursuant thereto, (b) the Lessee shall have properly
exercised the Remarketing Option and shall have fulfilled all of the conditions
of clauses (a) through (j) of Section 22.1 hereof or (c) the Lessee shall have
properly exercised the Renewal Option pursuant to Section 21.1 and the terms and
conditions of a Renewal Term shall have been agreed upon pursuant to such
Section, then, subject to the terms, conditions and provisions set forth in this
Article, and in accordance with the terms of Section 19.1(a), the Lessee shall
purchase from the Lessor, and the Lessor shall assign to the Lessee without
recourse, on the Expiration Date of the Term (as such Term may be renewed
pursuant to Section 21.1) all of the Lessor's right, title and interest in the
Property, together with the Lessor's rights under the Ground Lease (except for
the Lessor's rights of indemnification), (subject to all existing Liens, other
than the Mortgage and Lessor Liens) for an amount equal to the Asset Termination
Value (offsetting against such amount the aggregate amount of the Cash
Collateral, if any). The Lessee may designate, in a notice given to the Lessor
not less than ten (10) Business Days prior to the closing of such purchase (time
being of the essence), the transferee or transferees to whom the conveyance
shall be made (if other than to the Lessee), in which case such conveyance shall
(subject to the terms and conditions set forth herein) be made to such designee;
provided, however, that such designation of a transferee or transferees shall
not cause the Lessee to be released, fully or partially, from any of its
obligations under this Lease, including, without limitation, the obligation to
pay the Lessor an amount equal to the Asset Termination Value that was not fully
and finally paid by such designee on such Expiration Date.
20.3. Acceleration of Purchase Obligation. (a) The Lessee shall be
obligated to purchase for an amount equal to the Asset Termination Value
(offsetting against such amount the aggregate amount of the Cash Collateral, if
any, permitted to be retained by the Lessor, the Indenture Trustee and the
Participants), the Lessor's interest in the Property (notwithstanding any prior
election to exercise its Purchase Option pursuant to Section 20.1) (i)
automatically and without notice upon the occurrence of any Lease Event of
Default specified in clause (e) or (f) of Section 17.1, and (ii) as provided for
at Section 17.2(e) immediately upon written demand of the Lessor upon the
occurrence of any other Lease Event of Default (except as provided in Section
17.2(j)).
(b) The Lessee shall be obligated to purchase for an amount equal to the
Asset Termination Value (plus all other amounts owing in respect of Rent
(including Supplemental Rent) theretofore accruing) (offsetting against such
amount the aggregate amount of the Cash Collateral, if any, permitted to be
retained by the Lessor, the Indenture Trustee and the Participants), immediately
upon written demand of the Lessor, the Lessor's interest in the Property at any
time during the term when the Lessor's interest in the Property is foreclosed
due to an event arising out of a violation of the warranty of title contained in
Section 12.1 hereof and the Lessor ceases to have title as contemplated by
Section 12.1.
<PAGE> 41
ARTICLE XXI
21.1. Renewal.
(a) Subject to the conditions set forth herein, the Lessee shall have
the option (the "Renewal Option") by written request (the "Renewal Request") to
the Lessor, each Participant and the Indenture Trustee given at any time and
from time to time after six months after the Closing Date to renew the Term for
a five year period commencing on the date requested by the Lessee (the "Renewal
Effective Date"). No later than the date (the "Renewal Response Date") which is
thirty (30) days after such request has been delivered to each of the Lessor,
each Participant and the Indenture Trustee, the Lessor will notify the Lessee in
writing (with a copy to the Indenture Trustee) whether or not it consents to
such Renewal Request (which consent may be granted or denied in its sole
discretion and may be conditioned on receipt of such financial information or
other documentation as may be specified by the Lessor including without
limitation a satisfactory appraisal of the Property), provided that if the
Lessor shall fail to notify the Lessee on or prior to the Renewal Response Date,
it shall be deemed to have denied such Renewal Request. The renewal of the Term
contemplated by any Renewal Request shall become effective as of the Renewal
Effective Date on or after the Renewal Response Date on which the Lessor shall
have consented to such Renewal Request; provided that such renewal shall be
subject to and conditioned upon the following:
(A) on both the Expiration Date then in effect and the date of
the Renewal Request, (i) no Lease Default or Lease Event of Default
shall have occurred and be continuing, and (ii) the Lessor and the
Indenture Trustee shall have received a Responsible Officer's
Certificate of the Lessee as to the matters set forth in clause (i)
above,
(B) the Lessee shall not have exercised the Remarketing Option,
and
(C) the Participants shall have agreed to extend the Maturity
Date contemporaneously therewith pursuant to Section 3.6 of the
Participation Agreement such that the Renewal Term will expire on the
same date as the extended Maturity Date.
(b) The renewal of this Lease shall be on the same terms and conditions
as are set forth in this Lease for the original Term, with such modifications
thereto, if any, as the parties hereto and to the other Operative Documents may
negotiate based upon the current credit information regarding the Lessee,
interest rates and such other factors as the Lessor may consider relevant.
ARTICLE XXII
<PAGE> 42
22.1. Option to Remarket. Subject to the fulfillment of each of the
conditions set forth in this Section 22.1, the Lessee shall have the option (the
"Remarketing Option") to market for the Lessor and complete the sale of all, but
not less than all, of the Lessor's interest in the Property, together with the
Lessor's rights under the Ground Lease (except for the Lessor's rights of
indemnification), on the Expiration Date for the Lessor.
The Lessee's effective exercise and consummation of the Remarketing
Option shall be subject to the due and timely fulfillment of each of the
following provisions as of the dates set forth below.
(a) Not later than one hundred eighty (180) days prior to the Expiration
Date, the Lessee shall give to the Lessor written notice of the Lessee's
exercise of the Remarketing Option, which exercise shall be irrevocable (except
by delivery of a Purchase Notice and consummation of the exercise of the
Purchase Option prior to the earlier of (i) the Expiration Date or (ii) the date
on which the Lessor enters into a binding contract to sell the Property pursuant
to the exercise of the Remarketing Option).
(b) The Lessee shall deliver to the Lessor an Environmental Audit of the
Property together with its notice of exercise of the Remarketing Option. Such
Environmental Audit shall be prepared by an environmental consultant selected by
the Lessor in the Lessor's reasonable discretion and shall contain no change in
the environmental status of the Property from that existing at the Ground Lease
Interest Acquisition Date. If such Environmental Audit indicates any material
exceptions reasonably requiring remedy or further investigation, the Lessee
shall have also delivered a Phase Two environmental assessment by such
environmental consultant prior to the Expiration Date showing the completion of
the remedying of such exceptions in compliance with Applicable Law.
(c) On the date of the Lessee's notice to the Lessor of the Lessee's
exercise of the Remarketing Option, no Lease Event of Default or Lease Default
shall exist, and thereafter, no uncured Lease Event of Default shall exist.
(d) The Lessee shall have completed in all Material respects all
Modifications, restoration and rebuilding of the Property pursuant to Sections
11.1 and 15.1 (as the case may be) and shall have fulfilled in all Material
respects all of the conditions and requirements in connection therewith pursuant
to said Sections, in each case by the date on which the Lessor receives the
Lessee's notice of the Lessee's exercise of the Remarketing Option (time being
of the essence), regardless of whether the same shall be within the Lessee's
control. The Lessee shall have also paid the cost of all Modifications commenced
prior to the Expiration Date. The Lessee shall not have been excused pursuant to
Section 13.1 from complying with any Applicable Law that involved the extension
of the ultimate imposition of such Applicable Law beyond the last day of the
Term. Any Liens on the Property that were contested by the Lessee shall have
been removed before the Expiration Date.
<PAGE> 43
(e) During the Marketing Period, the Lessee shall, as nonexclusive agent
for the Lessor, use commercially reasonable efforts to sell the Lessor's
interest in the Property, together with the Lessor's rights under the Ground
Lease (except for the Lessor's rights of indemnification), on or prior to the
Expiration Date (without diminishing the Lessee's obligation to consummate the
sale on the Expiration Date) and will attempt to obtain the highest purchase
price therefor and for not less than the Fair Market Sales Value. The Lessee
will be responsible for hiring and compensating brokers and making the Property
available for inspection by prospective purchasers. The Lessee shall promptly
upon request permit inspection of the Property and any maintenance records
relating to the Property by the Lessor, any Participant and any potential
purchasers, and shall otherwise do all things necessary to sell and deliver
possession of the Property to any purchaser. All such marketing of the Property
shall be at the Lessee's sole expense. The Lessee shall allow the Lessor and any
potential qualified purchaser reasonable access to the Property for the purpose
of inspecting the same.
(f) The Lessee shall submit all bids to the Lessor, the Indenture
Trustee and the Participants, and the Lessor will have the right to review the
same and the right to submit any one or more bids. All bids shall be on an
all-cash basis unless the Lessor, the Indenture Trustee and the Participants
shall otherwise agree in their sole discretion. The Lessee shall procure bids
from one or more bona fide prospective purchasers and shall deliver to the
Lessor, the Indenture Trustee and the Participants not less than ninety (90)
days prior to the Expiration Date a binding written unconditional (except as set
forth below), irrevocable offer by such purchaser or purchasers offering the
highest bid to purchase the Property, together with the Lessor's rights under
the Ground Lease (except for the Lessor's rights of indemnification). No such
purchaser shall be the Lessee, or any Subsidiary or Affiliate of the Lessee. The
written offer must specify the Expiration Date as the closing date unless the
Lessor, the Indenture Trustee and the Participants shall otherwise agree in
their sole discretion.
(g) In connection with any such sale of the Property, the Lessee will
provide to the purchaser all customary "seller's" indemnities, representations
and warranties regarding title, absence of Liens (except Lessor Liens) and the
condition of the Property, as well as such other terms and conditions as may be
negotiated between the Lessee and the purchaser. The Lessee shall have obtained,
at its cost and expense, all required governmental and regulatory consents and
approvals and shall have made all filings as required by Applicable Law in order
to carry out and complete the transfer of the Property and such rights under the
Ground Lease. As to the Lessor, any such sale shall be made on an "as is, with
all faults" basis without representation or warranty by the Lessor other than
the absence of Lessor Liens. Any agreement as to such sale shall be made subject
to the Lessor's rights hereunder.
(h) The Lessee shall pay directly, and not from the sale proceeds, all
prorations, credits, costs and expenses of the sale of the Property and such
rights under the Ground Lease, whether incurred by the Lessor or the Lessee,
including without limitation, the cost of all title insurance, surveys,
environmental reports, appraisals, transfer taxes, the Lessor's and the
Indenture Trustee's reasonable attorneys' fees, the
<PAGE> 44
Lessee's attorneys' fees, commissions, escrow fees, recording fees, and all
applicable documentary and other transfer taxes.
(i) The Lessee shall pay to the Indenture Trustee on or prior to the
Expiration Date (or to such other Person as the Indenture Trustee shall notify
the Lessee in writing, or in the case of Supplemental Rent, to the Person
entitled thereto) an amount equal to the Residual Value Guarantee Amount plus
all Rent and all other amounts under this Lease and the other Operative
Documents which have accrued or will accrue prior to or as of the Expiration
Date, in the type of funds specified in Section 3.4 hereof.
(j) If the selling price of the Property and such rights under the
Ground Lease is less than the difference between (A) the Asset Termination Value
minus (B) the Residual Value Guarantee Amount, then the Lessee shall have caused
to be delivered to the Lessor, the Indenture Trustee and each Participant the
appraisal required by Section 13.2 of the Participation Agreement thirty (30)
Business Days prior to the Expiration Date and shall pay to the Indenture
Trustee on or prior to the Expiration Date (or to such other person as the
Indenture Trustee shall notify the Lessee in writing) the amounts required to be
paid pursuant to Section 13.2 of the Participation Agreement.
(k) The purchase of the Property shall be consummated on the Expiration
Date following the payment by the Lessee pursuant to paragraphs (i) and (j)
above and contemporaneously with the Lessee's surrender of the Property pursuant
to Section 19.1(b) and the gross proceeds (the "Gross Proceeds") of the sale of
the Property (i.e., without deduction for any marketing, closing or other costs,
prorations or commissions) shall be paid directly to the Indenture Trustee;
provided, however, that if the sum of the Gross Proceeds from such sale plus the
Residual Value Guarantee Amount paid by the Lessee pursuant to paragraph (i)
above exceeds the Asset Termination Value, then the excess shall be paid to the
Lessee on the Expiration Date.
(l) The Lessee shall not be entitled to exercise or consummate the
Remarketing Option if a circumstance that would permit the Lessor to require the
Lessee to repurchase the Property under Section 16.4 exists and is continuing.
If one or more of the foregoing provisions shall not be fulfilled as of
the date set forth above, then the Lessor shall declare by written notice to the
Lessee the Remarketing Option to be null and void (whether or not it has been
theretofore exercised by the Lessee) as to the Property, in which event all of
the Lessee's rights under this Section 22.1 shall immediately terminate and the
Lessee shall be obligated to vacate the Property on the Expiration Date and
comply with the obligations set forth in Section 22.3. Except as expressly set
forth herein, the Lessee shall have no right, power or authority to bind the
Lessor in connection with any proposed sale of the Property.
22.2. Certain Obligations Continue. During the Marketing Period, the
obligation of the Lessee to pay Rent (including the installment of Basic Rent
due on the fifth anniversary of the Closing Date or at the end of the Renewal
Term, or on the Expiration Date, as the case may be) shall continue undiminished
until payment in full to
<PAGE> 45
the Indenture Trustee of the Gross Proceeds, the Residual Value Guarantee
Amount, and all other amounts due to the Lessor with respect to the Property
under the Operative Documents. The Lessor shall have the right, but shall be
under no duty, to solicit bids, to inquire into the efforts of the Lessee to
obtain bids or otherwise to take action in connection with any such sale, other
than as expressly provided in this Article XXII.
22.3. Support Obligations. In the event that (A) the Lessee does not
elect to purchase the Property on the Expiration Date, (B) this Lease is
terminated without a purchase of the Property by the Lessee as expressly
permitted herein or (C) pursuant to the Lessor's exercise of remedies under
Article XVII, this Lease is terminated, the Lessee shall provide the Lessor or
other purchaser of the Property, effective on the Expiration Date or earlier
termination date of this Lease, with (i) all permits, certificates of occupancy,
governmental licenses and authorizations necessary to use and operate the
Property for its intended purposes (to the extent such items are transferable or
may be obtained by the Lessee on behalf of another party), (ii) such easements,
licenses, rights-of-way and other rights and privileges in the nature of an
easement as are reasonably necessary or desirable in connection with the use,
repair, access to or maintenance of the Property as the Lessor shall request,
and (iii) a services agreement covering such services as the Lessor may request
in order to use and operate the Property for its intended purposes at such rates
(not in excess of arm's length fair market rates) as shall be acceptable to the
Lessor and the Lessee. All assignments, licenses, easements, agreements and
other deliveries required by clauses (i) and (ii) of this Section 22.3 shall be
in form satisfactory to the Lessor and shall be fully assignable (including both
primary assignments and assignments given in the nature of security) without
payment of any fee, cost or other charge.
ARTICLE XXIII
23.1. Holding Over. If the Lessee shall for any reason remain in
possession of the Property after the expiration or earlier termination of this
Lease (unless the Property is conveyed to the Lessee), such possession shall be
as a tenancy at sufferance during which time the Lessee shall continue to pay
Supplemental Rent that would be payable by the Lessee hereunder were the Lease
then in full force and effect and the Lessee shall continue to pay Basic Rent at
an annual rate equal to 110% of the average rate of Basic Rent payable hereunder
during the Term. Such Basic Rent shall be payable from time to time upon demand
by the Lessor. During any period of tenancy at sufferance, the Lessee shall,
subject to the second preceding sentence, be obligated to perform and observe
all of the terms, covenants and conditions of this Lease, but shall have no
rights hereunder other than the right, to the extent given by law to tenants at
sufferance, to continue its occupancy and use of the Property. Nothing contained
in this Article XXIII shall constitute the consent, express or implied, of the
Lessor to the holding over of the Lessee after the expiration or earlier
termination of this Lease (unless the Property is conveyed to the Lessee), and
nothing contained herein shall be read or construed to relieve the Lessee of its
obligations to purchase or remarket the Property on the Expiration Date pursuant
to Article XX or Article XXII or as preventing the Lessor from maintaining a
suit for
<PAGE> 46
possession of the Property or exercising any other remedy available to the
Lessor at law or in equity or hereunder.
ARTICLE XXIV
24.1. Risk of Loss. The Lessee assumes all risks of loss arising from
any Casualty or Condemnation which arises or occurs prior to the Expiration Date
or while the Lessee is in possession of the Property and all liability for all
personal injuries and deaths and damages to property suffered by any Person or
property on or in connection with the Property which arises or occurs prior to
the Expiration Date or while the Lessee is in possession of the Property, except
in each case to the extent any such loss or liability is primarily caused by the
gross negligence or willful misconduct of a Lessor Party; provided, however,
that the Lessee shall have no obligation under this Section 24.1 on account of
any such loss or liability arising during the Construction Period except as
follows:
(a) The Lessee shall be liable to the Lessor under this Section
24.1 for all such losses and liabilities caused by or arising from any
failure by the Lessee to comply with any of its obligations under the
Operative Documents (including its insurance obligations), any
representation by the Lessee in any of the Operative Documents not being
true, any negligence or willful misconduct of the Lessee, or any claim
by any third-party against the Lessee (or against the Lessor) based upon
any alleged action or inaction by the Lessee.
(b) If any Lessor Party incurs any such loss or liability for
which the Lessee is not liable pursuant to Section 24.1(a), the amount
of such loss or liability shall, if such Lessor Party shall so request
by a written notice to the Lessor, be capitalized pursuant to Section
3.9(f) of the Participation Agreement.
The Lessee hereby waives the provisions of California Civil Code Sections
1932(1), 1932(2) and 1933(4), and any and all other applicable existing or
future laws, ordinances and governmental regulations permitting the termination
of this Lease as a result of the damage or destruction of the Property by fire,
the elements, casualties, thefts, riots, wars or otherwise, and the Lessor shall
in no event be answerable or accountable for any risk of loss of or decrease in
the enjoyment and beneficial use of the Property as a result of any such event.
ARTICLE XXV
25.1. Subletting and Assignment. The Lessee may assign with recourse
this Lease or any of its rights or obligations hereunder in whole or in part to
any Person, in which case the Lessee shall guarantee performance of the
obligations of such assignee under this Lease by a guaranty in form and
substance acceptable to the Lessor and the Required Participants. The Lessee
may, without the consent of the Lessor, sublease the
<PAGE> 47
Property or portion thereof to any Person, provided, that any sublessee shall
agree to abide by the applicable terms of this Lease and the Lessee shall
provide to the Lessor a copy of any such subleases. No assignment, sublease or
other relinquishment of possession of the Property shall in any way discharge or
diminish any of the Lessee's obligations to the Lessor hereunder and the Lessee
shall remain directly and primarily liable under this Lease as to the Property,
or portion thereof, so assigned or sublet. Any sublease of the Property shall be
made subject to and subordinated to this Lease and to the rights of the Lessor
hereunder, and shall expressly provide for the surrender of the Property (or
portion thereof) after a Lease Event of Default hereunder. All such subleases
shall expressly provide for termination at or prior to the earlier of the
applicable Expiration Date or other date of termination of this Lease unless the
Lessee shall have purchased the Property pursuant to Article XX. No assignee or
sublessee shall be permitted to engage in any activities on the Property other
than those permitted pursuant to the terms of Section 8.2, without the prior
written consent of the Lessor.
ARTICLE XXVI
26.1. Estoppel Certificates. At any time and from time to time upon not
less than twenty (20) days' prior request by the Lessor or the Lessee (the
"Requesting Party"), the other party (whichever party shall have received such
request, the "Certifying Party") shall furnish to the Requesting Party (but not
more than four times per year unless required to satisfy the requirements of any
sublessees and only to the extent that the required information has been
provided to the Certifying Party by the other party) a certificate signed by an
individual having the office of vice president or higher in the Certifying Party
certifying that this Lease is in full force and effect (or that this Lease is in
full force and effect as modified and setting forth the modifications); the
dates to which the Basic Rent and Supplemental Rent have been paid; to the best
knowledge of the signer of such certificate, whether or not the Requesting Party
is in default under any of its obligations hereunder (and, if so, the nature of
such alleged default); and such other matters under this Lease as the Requesting
Party may reasonably request. Any such certificate furnished pursuant to this
Article XXVI may be relied upon by the Requesting Party, and any existing or
prospective mortgagee, purchaser or lender, and any accountant or auditor, of,
from or to the Requesting Party (or any Affiliate thereof).
ARTICLE XXVII
27.1. Right to Inspect. During the Term, the Lessee shall upon
reasonable notice (but in any event not less than forty-eight (48) hours'
notice) from the Lessor (except that no notice shall be required if a Lease
Event of Default has occurred and is continuing), permit the Lessor, the
Indenture Trustee and their respective authorized representatives to inspect the
Property during normal business hours, provided that such inspections shall not
unreasonably interfere with the Lessee's business operations at the Property.
<PAGE> 48
27.2. No Waiver. No failure by the Lessor or the Lessee to insist upon
the strict performance of any term hereof or to exercise any right, power or
remedy upon a default hereunder, and no acceptance of full or partial payment of
Rent during the continuance of any such default, shall constitute a waiver of
any such default or of any such term. To the fullest extent permitted by law, no
waiver of any default shall affect or alter this Lease, and this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent default.
ARTICLE XXVIII
28.1. Acceptance of Surrender. No surrender to the Lessor of this Lease
or of all or any portion of any Property or of any part of any thereof or of any
interest therein shall be valid or effective unless agreed to and accepted in
writing by the Lessor and, prior to the payment or performance of all
obligations under the Indenture and termination of the Commitments, the
Indenture Trustee, and no act by the Lessor or the Indenture Trustee or any
representative or agent of the Lessor or the Indenture Trustee, other than a
written acceptance, shall constitute an acceptance of any such surrender.
ARTICLE XXIX
29.1. No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same Person
may acquire, own or hold, directly or indirectly, in whole or in part, (a) this
Lease or the leasehold estate created hereby or any interest in this Lease or
such leasehold estate, or (b) the fee title in the Property, except as may
expressly be stated in a written instrument duly executed and delivered by the
appropriate Person.
ARTICLE XXX
30.1. Notices. All notices, demands, requests, consents, approvals and
other communications hereunder shall be in writing and delivered (i) personally,
(ii) by a nationally recognized overnight courier service, (iii) by mail (by
registered or certified mail, return receipt requested, postage prepaid) or (iv)
by facsimile, addressed to the respective parties, as follows:
If to the Lessee:
PeopleSoft, Inc.
4305 Hacienda Drive
Pleasanton, California 94588
Attention: General Counsel
Telephone: (925) 694-7180
Facsimile: (925) 694-7184
<PAGE> 49
with copies to:
PeopleSoft, Inc.
4305 Hacienda Drive
Pleasanton, California 94588
Attention: Director of Real Estate
Telephone: (925) 694-7053
Facsimile: (925) 694-7050
PeopleSoft, Inc.
4305 Hacienda Drive
Pleasanton, California 94588
Attention: Chief Financial Officer
Telephone: (925) 694-7114
Facsimile: (925) 694-7190
Griggs Resource Group
3470 Mt. Diablo Blvd.
Suite A-205
Lafayette, California 94549
Attention: Brian Griggs
Telephone: (510) 299-4870
Facsimile: (510) 299-4872
Orrick Herrington & Sutcliffe
400 Sansome Street
San Francisco, California 94111
Attention: William Murray
Telephone: (415) 773-5807
Facsimile: (415) 773-5759
If to the Lessor:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telephone: (302) 651-1000
Facsimile: (302) 651-8882
If to the Indenture Trustee:
ABN AMRO Bank N.V.
<PAGE> 50
1325 Avenue of the Americas
9th Floor
New York, New York 10019
Attention: Edward Corletzi
Telephone: (212) 314-1721
Facsimile: (212) 314-1709
or such additional parties and/or other address as such party may hereafter
designate (provided, however, in no event shall either party be obligated to
notify, in the aggregate, more than five (5) designees of the other party), and
shall be effective upon receipt or refusal thereof.
ARTICLE XXXI
31.1. Miscellaneous. Anything contained in this Lease to the contrary
notwithstanding, all claims against and liabilities of the Lessee or the Lessor
arising from events commencing prior to the expiration or earlier termination of
this Lease shall survive such expiration or earlier termination. If any term or
provision of this Lease or any application thereof shall be declared invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby. If any right or option of the
Lessee provided in this Lease, including any right or option described in
Articles XV, XVI, XX, XXI or XXII, would, in the absence of the limitation
imposed by this sentence, be invalid or unenforceable as being in violation of
the rule against perpetuities or any other rule of law relating to the vesting
of an interest in or the suspension of the power of alienation of property, then
such right or option shall be exercisable only during the period which shall end
twenty-one (21) years after the date of death of the last survivor of the
descendants of Franklin D. Roosevelt, the former president of the United States,
Henry Ford, the deceased automobile manufacturer, and John D. Rockefeller, the
founder of the Standard Oil Company, known to be alive on the date of the
execution, acknowledgment and delivery of this Lease.
31.2. Amendments and Modifications. Subject to the requirements,
restrictions and conditions set forth in the Participation Agreement, neither
this Lease, any Lease Supplement nor any provision hereof may be amended,
waived, discharged or terminated except by an instrument in writing in
recordable form signed by the Lessor and the Lessee. In the event of any
conflict or inconsistency between the terms hereof and the terms of the
Participation Agreement, the Participation Agreement shall control.
31.3. Successors and Assigns. All the terms and provisions of this Lease
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
31.4. Headings and Table of Contents. The headings and table of contents
in this Lease are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
<PAGE> 51
31.5. Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.
31.6. GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES.
31.7. Limitations on Recourse. The parties hereto agree that Wilmington
Trust Company, in its individual capacity (in such capacity, "Bank") shall have
no personal liability whatsoever to the Lessee or its respective successors and
assigns for any claim based on or in respect of this Lease or any of the other
Operative Documents or arising in any way from the transactions contemplated
hereby or thereby; provided, however, that the Bank shall be liable in its
individual capacity (a) for its own willful misconduct or gross negligence (or
negligence in the handling of funds), (b) for liabilities that may result from
the incorrectness of any representation or warranty expressly made by it in
Section 8.1 of the Participation Agreement or (c) for any Taxes based on or
measured by any fees, commission or compensation received by it for acting as
the Lessor as contemplated by the Operative Documents. It is understood and
agreed that, except as provided in the preceding proviso: (i) the Bank shall
have no personal liability under any of the Operative Documents as a result of
acting pursuant to and consistent with any of the Operative Documents; (ii) all
obligations of the Bank to the Lessee are solely nonrecourse obligations except
to the extent that it has received payment from others and are enforceable
solely against the Lessor's interest in the Property; (iii) all such personal
liability of the Bank is expressly waived and released as a condition of, and as
consideration for, the execution and delivery of the Operative Documents by the
Lessor; and (iv) this Lease is executed and delivered by the Bank solely in the
exercise of the powers expressly conferred upon it as the Lessor under the Trust
Agreement.
31.8. Original Lease. The single executed original of this Lease marked
"THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature page
thereof and containing the receipt of the Indenture Trustee therefor on or
following the signature page thereof shall be the Original Executed Counterpart
of this Lease (the "Original Executed Counterpart"). To the extent that this
Lease constitutes chattel paper, as such term is defined in the Uniform
Commercial Code as in effect in any applicable jurisdiction, no security
interest in this Lease may be created through the transfer or possession of any
counterpart other than the Original Executed Counterpart.
31.9. Usury Savings Clause. Nothing continued in this Lease or the other
Operative Documents shall be deemed to require the payment of interest or other
charges by the Lessee or any other Person in excess of the amount which may
lawfully be charged under any applicable usury laws. In the event that the
Lessor or any other Person shall collect moneys under this Lease or any other
Operative Document which are deemed to constitute interest (including, without
limitation, the Basic Rent or
<PAGE> 52
Supplemental Rent) which would increase the effective interest rate to a rate in
excess of that permitted to be charged by applicable law, all such sums deemed
to constitute interest in excess of the legal rate shall, upon such
determination, at the option of the Person to whom such payment was made, be
returned to the Person making such payment or credited against other amounts
owed by the person making such payment.
ARTICLE XXXII
32.1. Ground Lease. During the Term, the Lessee shall observe and
perform all of the obligations of the Lessor under the Ground Lease.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have caused this Lease be duly executed
and delivered as of the date first above written.
WILMINGTON TRUST COMPANY, not in
its individual capacity, but solely
as Owner Trustee, as Lessor
By: ______________________________
Name: ______________________________
Title:______________________________
PEOPLESOFT, INC., a Delaware corporation,
as Lessee
By: ________________________________
Mark G. Thompson,
Treasurer
STATE OF DELAWARE )
) SS.:
COUNTY OF NEW CASTLE )
Before me, the undersigned, a Notary Public within and for the
State and County aforesaid, personally appeared ___________________, with whom I
am personally acquainted (or proved to me on the basis of satisfactory
evidence), and who,
<PAGE> 53
upon oath, acknowledged himself to be a _________________ of Wilmington Trust
Company, the within named bargainor, a corporation, and that he as such
________________, being duly authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such ________________.
WITNESS my hand and seal, at office, on this the ____ day of
September, 1998.
________________________________________
Notary Public
My Commission Expires:
_________________________________
STATE OF CALIFORNIA )
) SS.:
COUNTY OF ALAMEDA )
Before me, the undersigned, a Notary Public within and for the
State and County aforesaid, personally appeared Mark G. Thompson, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged himself to be the Treasurer of PEOPLESOFT,
INC., the within named bargainor, a corporation, and that he as such Treasurer
being duly authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation by himself as
such Treasurer.
WITNESS my hand and seal, at office, on this the ____day of
September, 1998.
________________________________________
Notary Public
My Commission Expires:
_________________________________
THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART.
<PAGE> 54
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged as of September 28, 1998.
ABN AMRO BANK N.V., as Indenture Trustee
By: _________________________________
Name: _________________________________
Title: _________________________________
By: _________________________________
Name: _________________________________
Title: _________________________________
SCHEDULE 1
TO THE LEASE
Data Center Release Price
$27,500,000
SCHEDULE 14.3
TO THE LEASE
Minimum Insurance Requirements
(i) Commercial general liability insurance, umbrella insurance and excess
liability insurance, each written on an "occurrence basis," including
contractual liability and products and completed operations hazards,
covering claims for bodily injury, personal injury or death sustained by
persons or damage to property, in an amount of not less than $50,000,000
per occurrence and $50,000,000 annual aggregate;
(ii) Workers compensation insurance for statutory limits and employer's
liability insurance covering injury, death or disease sustained by
employees, in an amount not less than $1,000,000 for disease and
$1,000,000 for bodily injury or death by accident; and
<PAGE> 55
(iii) "All risk" property insurance covering loss or damage in an amount not
less than the then current replacement cost of the buildings and
improvements on the Property, including loss or damage by earthquake in
an amount of not less than 100% of the probable maximum loss to the
Property, as determined by a professional engineer qualified to make
such a determination selected by the Lessee and approved by the Lessor.
Prepared by and upon recording return to:
John R. Grier, Esq.
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
EXHIBIT A TO
THE LEASE
LEASE SUPPLEMENT NO. 1
(And Memorandum of Lease)
THIS LEASE SUPPLEMENT NO. 1 (And Memorandum of Lease) (this "Lease
Supplement") dated as of September 28, 1998, between WILMINGTON TRUST COMPANY,
not in its individual capacity, but solely as Owner Trustee, as lessor (the
"Lessor"), and PeopleSoft, Inc., a Delaware corporation, as lessee (the
"Lessee").
WHEREAS, the Lessor is the holder of a leasehold interest in the parcels
of land described on Schedule 1 hereto and wishes to sublease such Ground Lease
Interest and lease all Improvements thereon or which may thereafter be
constructed thereon pursuant to the Construction Agency Agreement or the Lease
to the Lessee (the Ground Lease Interest and such Improvements being
collectively called the "Property");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. Definitions; Interpretation. For purposes of this Lease
Supplement, capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to them in Appendix 1 to the Master Lease, dated as
of September 28, 1998, between the Lessee and the Lessor; and the rules of
interpretation set forth in Appendix 1 to the Lease shall apply to this Lease
Supplement.
SECTION 2. The Property. Attached hereto as Schedule I is the
description of a certain Ground Lease Interest. Effective upon the execution and
delivery of this Lease Supplement by the Lessor and the Lessee, the Property
shall be subject to the terms and provisions of the Lease. Subject to the terms
and conditions of the Lease, the Lessor hereby leases to the Lessee for the Term
(as defined below) of the Lease, the Lessor's
<PAGE> 56
interest in the Property, and the Lessee hereby agrees, expressly for the direct
benefit of the Lessor, to lease from the Lessor for the Term, the Lessor's
interest in the Property.
SECTION 3. Parties and Addresses. The Lease is dated as of September 28,
1998, between the Lessor, whose principal office is at Rodney Square North, 1100
N. Market Street, Wilmington, Delaware 19890 and the Lessee, whose principal
office is 4305 Hacienda Drive, Pleasanton, California 94588.
SECTION 4. Lease Term. The term of the Lease (the "Term") shall begin on
September 28, 1998, and shall end on September 28, 2003, unless the Term is
renewed or earlier terminated in accordance with the provisions of the Lease.
The Lease contains extension options which give Lessee the right, subject to the
terms thereof, to extend the term of the Lease.
SECTION 5. Ownership of the Property. (a) It is the intent of the
parties hereto that: (i) the Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, for purposes of
Lessee's financial reporting, and (ii) for purposes of Federal and state income
tax, the transaction contemplated hereby and by the Lease is a financing
arrangement and preserves ownership in the Property in the Lessee. Accordingly,
and notwithstanding any provision of this lease to the contrary, the parties
hereto agree and declare that: (i) the transactions contemplated by the Lease
are intended to have a dual, rather than single, form; and (ii) all references
in the Lease to the "lease" of the Property which fail to reference such duel
form do so as a matter of convenience only and do not reflect the intent of
parties hereto as to the true form of such arrangements. Nevertheless, the
Lessee acknowledges and agrees that neither the Indenture Trustee, the Lessor
nor any Participant has made any representations or warranties to the Lessee
concerning the tax, accounting or legal characteristics of the Operative
Documents and that the Lessee has obtained and relied upon such tax, accounting
and legal advice concerning the Operative Documents as it deems appropriate.
(b) Anything to the contrary in the Operative Documents notwithstanding,
the Lessor and the Lessee intend and agree that with respect to the nature of
the transactions evidenced by the Lease in the context of the exercise of
remedies under the Operative Documents, including, without limitation, in the
case of any insolvency or receivership proceedings or a petition under the
United States bankruptcy laws or any other applicable insolvency laws or statute
of the United States of America or any State or Commonwealth thereof affecting
the Lessee, the Lessor or any Participant or any enforcement or collection
actions, (i) the transactions evidenced by the Lease are loans made by the
Lessor and the Participants as unrelated third party lenders to the Lessee
secured by the Property, (ii) the obligations of the Lessee under the Lease to
pay Basic Rent and Supplemental Rent or Asset Termination Value in connection
with any purchase of the Property pursuant to the Lease shall be treated as
payments of interest on and principal of, respectively, loans from the Lessor
and the Participants to the Lessee, and (iii) the Lease grants a security
interest and mortgage or deed of trust or lien, as the case may be, in the
Property to the Lessor and the Participants to secure the Lessee's
<PAGE> 57
performance under and payment of all amounts under the Lease and the other
Operative Documents.
(c) Specifically, but without limiting the generality of subsection (b)
of this Section 5, the Lessor and the Lessee further intend and agree that, for
the purpose of securing the Lessee's obligations for the repayment of the
above-described loans from the Certificate Purchaser and the Lenders to the
Lessee, (i) the Lease shall also be deemed to be a security agreement and
financing statement within the meaning of Article 9 of the Uniform Commercial
Code and a real property mortgage or deed of trust; (ii) the conveyance provided
for hereby and in Article II of the Lease shall be deemed to be a grant by the
Lessee to the Lessor and the Participants of a mortgage lien and security
interest in all of the Lessee's right, title and interest in and to the Property
and all proceeds of the conversion, voluntary or involuntary, of the foregoing
into cash, investments, securities or other property, whether in the form of
cash, investments, securities or other property (it being understood that Lessee
hereby mortgages and warrants and grants a security interest in the Property to
the Lessor and the Participants to secure the loans); (iii) the possession by
the Lessor or any of its agents of notes and such other items of property as
constitute instruments, money, negotiable documents or chattel paper shall be
deemed to be "possession by the secured party" for purposes of perfecting the
security interest pursuant to Section 9-305 of the Uniform Commercial Code; and
(iv) notifications to Persons holding such property, and acknowledgments,
receipts or confirmations from financial intermediaries, bankers or agents (as
applicable) of the Lessee shall be deemed to have been given for the purpose of
perfecting such security interest under Applicable Law. The Lessor and the
Lessee shall, to the extent consistent with the Lease, take such actions and
execute, deliver, file and record such other documents, financing statements,
mortgages and deeds of trust as may be necessary to ensure that, if the Lease
and this Lease Supplement were deemed to create a security interest in the
Property in accordance with this Section, such security interest would be deemed
to be a perfected security interest of first priority under Applicable Law and
will be maintained as such throughout the Term.
(d) Specifically, without limiting the generality of subsection (a), (b)
and (c) of this Section 5, the parties hereto intend and agree that, for
purposes of filing federal, state and local returns, reports and other
statements relating to income or franchise taxes, or any other taxes imposed
upon or measured by income, (i) the Lessee shall be entitled to take any
deduction, credit, allowance or other reporting position consistent with its
status as owner of the Property; and (ii) neither the Lessor nor any Participant
shall take an initial position on its federal, state and local returns, reports
and other statements relating to income or franchise taxes that is inconsistent
with the Lessee's status as owner of the Property.
(e) If the transaction evidenced by the Lease and the other Operative
Documents can no longer be treated as an operating lease pursuant to GAAP for
accounting purposes, all provisions in the Operative Documents limiting the
Lessee's obligation to pay the Lease Balance or Asset Termination Value
(including the Remarketing Option) on the Expiration Date shall no longer apply.
If any such change in
<PAGE> 58
accounting treatment shall occur, the Lessee shall enter into such amendments to
the Operative Documents as the Lessor or the Required Participants may
reasonably request to reflect the foregoing.
SECTION 6. Lease Events of Default and Remedies. Sections 17.2 through
17.5 of the Lease, which are hereby incorporated by reference, set forth the
remedies available to Lessor in the event of a Lease Event of Default. Such
remedies include, without limitation, the following provision: "Subject to
Article XXII below, in the event that a court of competent jurisdiction rules
that this Lease constitutes a mortgage, deed of trust or other secured
financing, and subject to the availability of such remedy under applicable law,
then the Lessor and the Lessee agree that the Lessee hereby mortgages and grants
to Lessor a Lien against the Property WITH POWER OF SALE, for the purpose of
securing all of Lessee's obligations hereunder (including the payment of Basic
Rent, Supplemental Rent, the Asset Termination Value and Purchase Option Price)
(collectively, the "Obligations")."
SECTION 7. Purchase Option. Sections 19 and 20 of the Lease contain
various purchase options which may be exercised by Lessee during the term of the
Lease subject to the terms and conditions of said Sections 19 and 20 of the
Lease.
SECTION 8. Liens. (a) THIS LEASE IS SUPERIOR TO A MORTGAGE IN FAVOR OF
ABN AMRO BANK N.V. AS INDENTURE TRUSTEE (THE "INDENTURE TRUSTEE") UNDER THE
PARTICIPATION AGREEMENT DATED AS OF SEPTEMBER 28, 1998, AMONG THE LESSEE, THE
LESSOR, THE INDENTURE TRUSTEE AND THE PARTICIPANTS, EXCEPT AS AMENDED OR
SUPPLEMENTED.
(b) NOTICE IS HEREBY GIVEN THAT NEITHER THE LESSOR, THE BANK, ANY
PARTICIPANT NOR THE INDENTURE TRUSTEE IS OR SHALL BE LIABLE FOR ANY LABOR,
SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE
HOLDING THE PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT
NO MECHANICS'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL
ATTACH TO OR AFFECT THE INTEREST OF THE LESSOR IN AND TO THE PROPERTY.
SECTION 9. Ratification. Except as specifically modified hereby, the
terms and provisions of the Lease are hereby ratified and confirmed and remain
in full force and effect.
SECTION 10. Original Lease Supplement. The single executed original of
this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED
COUNTERPART" on the signature page thereof and containing the receipt of the
Indenture Trustee therefor on or following the signature page thereof shall be
the Original Executed Counterpart of this Lease Supplement (the "Original
Executed Counterpart"). To the extent that this Lease Supplement constitutes
chattel paper, as such term is defined in the Uniform Commercial Code as in
effect in any applicable jurisdiction, no security
<PAGE> 59
interest in this Lease Supplement may be created through the transfer or
possession of any counterpart other than the Original Executed Counterpart.
SECTION 11. GOVERNING LAW. THE LEASE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES.
SECTION 12. Counterpart Execution. This Lease Supplement may be executed
in any number of counterparts and by each of the parties hereto in separate
counterparts, all such counterparts together constituting but one and the same
instrument.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease
Supplement to be duly executed by an officer thereunto duly authorized as of the
date and year first above written.
WILMINGTON TRUST COMPANY,
not in its individual capacity, but solely
as Owner Trustee, as Lessor
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
PEOPLESOFT, INC.,
a Delaware corporation, as Lessee
By: _______________________________________
Mark G. Thompson, Treasurer
STATE OF DELAWARE )
) SS.:
COUNTY OF NEW CASTLE )
Before me, the undersigned, a Notary Public within and for the
State and County aforesaid, personally appeared , with
whom I am
<PAGE> 60
personally acquainted (or proved to me on the basis of satisfactory
evidence), and who, upon oath, acknowledged himself to be a of WILMINGTON TRUST
COMPANY, the within named bargainor, a corporation, and that he as such , being
duly authorized so to do, executed the foregoing instrument for the purposes
therein contained by signing the name of the corporation by himself as such .
WITNESS my hand and seal, at office, on this the ____ day of
September, 1998.
______________________________
Notary Public
My Commission Expires:
_______________________________
STATE OF CALIFORNIA )
) SS.:
COUNTY OF ALAMEDA )
Before me, the undersigned, a Notary Public in and for the State
and County aforesaid, personally appeared, Mark G. Thompson, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged himself to be the Treasurer of PEOPLESOFT,
INC., the within named bargainor, a corporation, and that he as such Treasurer
being duly authorized so to do, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation by himself as
such Treasurer.
WITNESS my hand and seal, at office, on this the ____ day of
September, 1998.
______________________________
Notary Public
My Commission Expires:
_______________________________
THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART.
Receipt of this original counterpart of the foregoing Lease Supplement is hereby
acknowledged as of September 28, 1998.
<PAGE> 61
ABN AMRO BANK N.V., as Indenture Trustee
By: _________________________________
Name: _________________________________
Title: _________________________________
By: _________________________________
Name: _________________________________
Title: _________________________________
SCHEDULE 1
TO THE LEASE SUPPLEMENT NO. 1
Property Description
EXHIBIT B TO THE LEASE
[FORM OF EQUIPMENT SCHEDULE]
EQUIPMENT SCHEDULE NO.
Forming a part of Master Lease dated as of September 28, 1998 (the "Lease"),
between Wilmington Trust Company, not in its individual capacity, but solely as
Owner Trustee, as Lessor (the "Lessor"), and PeopleSoft, Inc., a Delaware
corporation, as Lessee (the "Lessee").
1. EQUIPMENT. The Equipment leased hereunder shall be as set forth in the
schedule attached hereto as Annex A.
TOTAL PROPERTY IMPROVEMENTS COST: $____________
2. TERM. Upon and after the date of execution hereof, the Equipment shall
be subject to the terms and conditions provided herein and in the Lease (which
is incorporated herein by reference).
3. RENT. From and after the date hereof, the Basic Rent for said Equipment
during the Basic Lease Term shall be payable on the dates and in the amounts set
forth in Article III of the Lease which is incorporated herein by reference.
4. LESSEE CONFIRMATION. Lessee hereby confirms and warrants to Lessor that
the Equipment: (a) was duly delivered to Lessee on or prior to the date hereof
at the
<PAGE> 62
locations specified in Section 5 hereof; (b) has been received, inspected and
determined to be in compliance with all applicable specifications and that the
Equipment is hereby accepted for all purposes of the Lease; and (c) is a part of
the "Equipment" referred to in the Lease and is taken subject to all terms and
conditions therein and herein provided.
5. LOCATION OF EQUIPMENT. The locations of the Equipment are specified
on the Schedule of Equipment attached hereto as Annex A.
6. FINANCING STATEMENTS. Annex B attached hereto specifies the location
of all UCC financing statements or other similar documents under applicable law
covering the Equipment. Date of Execution: ____________, ____
WILMINGTON TRUST COMPANY, PEOPLESOFT, INC.,
not in its individual capacity, a Delaware corporation
but solely as Owner Trustee
By: _________________________ By: _________________________
Name: _________________________ Name: _________________________
Title: _________________________ Title: _________________________
ANNEX A TO
EQUIPMENT SCHEDULE
EQUIPMENT
Approved by _____________________________ Page No. ___ of ___ total pages
(Lessee to initial each
page)
Attached Bill of Sale dated Equipment located at:
_______________, ____
and Street No.
Equipment Schedule No. ___. City County State Zip
<PAGE> 63
This location is owned, x leased, x mortgaged.
Manufacturer and/or
Vendor Name & Description Equipment Cost
Invoice No.
See Schedule 1 Attached
ANNEX B TO
EQUIPMENT SCHEDULE
FINANCING STATEMENTS COVERING
EQUIPMENT
Secured Party Statement No. Filing Date Filing Location
- - ------------- ------------- ----------- ---------------
DOCUMENT NUMBER: 364154.5
SEPTEMBER 28, 1998
<PAGE> 1
EXHIBIT 10.44
W&S DRAFT
FEBRUARY 23, 1999
APPENDIX 1
to
Participation Agreement, Master Lease, Indenture and
Construction Deed of Trust
each dated as of September 28, 1998
(PeopleSoft Hacienda II Lease Facility)
DEFINITIONS AND INTERPRETATION
A. Interpretation. In each Operative Document, unless a clear contrary
intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by the Operative Documents, and reference to a Person in a
particular capacity excludes such Person in any other capacity or
individually;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Operative
Document), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms of the
other Operative Documents and reference to any promissory note includes
any promissory note which is an extension or renewal thereof or a
substitute or replacement therefor;
(v) reference to any Applicable Law means such Applicable Law as
amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations
promulgated thereunder, and reference to any section or other provision
of any Applicable Law means that provision of such Applicable Law from
time to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section
or other provision;
(vi) reference in any Operative Document to any Article, Section,
Appendix, Schedule or Exhibit means such Article or Section thereof or
Appendix, Schedule or Exhibit thereto;
<PAGE> 2
(vii)"hereunder", "hereof", "hereto" and words of similar import
shall be deemed references to an Operative Document as a whole and not
to any particular Article, Section or other provision thereof;
(viii) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding
such term;
(ix) "or" is not exclusive; and
(x) relative to the determination of any period of time, "from"
means "from and including" and "to" means "to but excluding".
B. Accounting Terms. In each Operative Document, unless expressly
otherwise provided, accounting terms shall be construed and interpreted, and
accounting determinations and computations shall be made, in accordance with
GAAP.
C. Conflict in Operative Documents. If there is any conflict between any
Operative Documents, such Operative Document shall be interpreted and construed,
if possible, so as to avoid or minimize such conflict but, to the extent (and
only to the extent) of such conflict, the Participation Agreement shall prevail
and control.
D. Legal Representation of the Parties. The Operative Documents were
negotiated by the parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring the Operative Document to
be construed or interpreted against any party shall not apply to any
construction or interpretation hereof or thereof.
E. Defined Terms. Unless a clear contrary intention appears, terms
defined herein have the respective indicated meanings when used in each
Operative Document.
"Acquisition Request" is defined in Section 3.4 of the Participation
Agreement.
"Actual Knowledge" shall mean, as it applies to the Indenture Trustee,
actual knowledge of, including any written notices received by, an officer in
the Corporate Trust Administration Department of the Indenture Trustee having
responsibility for the administration of the transaction contemplated by the
Operative Documents; provided that the Indenture Trustee shall be deemed to have
"actual knowledge" of any matter as to which the Indenture Trustee has been
given notice by any Note Holder pursuant to Section 12.5 of the Indenture.
"Address" means, when used with respect to any Person, the notification
address for such Person set forth on Schedule II to the Participation Agreement.
"Advance" means advances of funds by the Lessor from the proceeds of
Loans and Certificate Purchaser Amounts pursuant to Section 3 of the
Participation Agreement to pay Property Improvements Costs (including all
amounts capitalized under the terms of the Participation Agreement).
<PAGE> 3
"Adjusted Consolidated Current Liabilities" means, for the Lessee and
its Subsidiaries on a consolidated basis at any date, the sum of (i)
Consolidated Short Term Liabilities, plus (ii) the current maturities of
Consolidated Long Term Liabilities, plus (iii) the current maturities of
uncollateralized Consolidated Off-Balance Sheet Debt.
"Adjusted Consolidated Total Liabilities" means, for the Lessee and its
Subsidiaries on a consolidated basis at any date, the sum of (i) Adjusted
Consolidated Current Liabilities, (ii) Consolidated Long Term Liabilities
(without duplication of amounts included in clause (i)) and (iii)
uncollateralized Consolidated Off-Balance Sheet Debt (without duplication of
amounts included in clause (i)).
"Administrative Fee" is defined in Section 4.3 of the Participation
Agreement.
"Affiliate" means, when used with respect to any Person, any other
Person directly or indirectly Controlling or Controlled by or under direct or
indirect common control with such Person.
"After Tax Basis" means, with respect to any payment to be received, the
amount of such payment increased so that, after deduction of the amount of all
taxes required to be paid by the recipient calculated at the then maximum
marginal federal and state income tax rates generally applicable to Persons of
the same type as the recipient with respect to the receipt by the recipient of
such amounts, such increased payment is equal to the payment otherwise required
to be made.
"Alternate Base Rate" means, for any period, an interest rate per annum
equal to the lower of (i) the Participants' average cost of funds employed to
fund their Participation Interests, as notified to the Indenture Trustee and the
Lessee or (ii) the Federal Funds Effective Rate most recently determined by the
Indenture Trustee plus 0.50%. If either of the aforesaid rates or equivalent
changes from time to time after the date of the Participation Agreement, the
Alternate Base Rate shall be automatically increased or decreased, if
appropriate and as the case may be, without notice to the Lessee or the Lessor,
as of the effective time of each change.
"Applicable Law" means all existing and future applicable laws, rules,
regulations (including Environmental Laws), statutes, treaties, codes,
ordinances, permits, certificates, covenants, restrictions, requirements, orders
and licenses of and interpretations by, any Governmental Authorities, and
applicable judgments, decrees, injunctions, writs, orders or like action of any
court, arbitrator or other administrative, judicial or quasi-judicial tribunal
or agency of competent jurisdiction (including those pertaining to health,
safety or the environment (including, without limitation, wetlands) and those
pertaining to the construction, use or occupancy of the Property) and any
restrictive covenant or deed restriction or easement affecting the Property.
"Applicable Margin" means (i) with respect to the Loans (and related
Advances) (A) except as provided in clause (B), the respective margin percentage
that shall be subject to
<PAGE> 4
adjustment (upwards or downwards, as appropriate) based on the existence of the
applicable Level I, II, III or IV as at the end of any fiscal quarter as set
forth below, or (C) for any portion of the Loans as to which Cash Collateral has
been delivered pursuant to the Cash Collateral Agreement, .225% per annum, and
(ii) with respect to the Certificate Purchaser Amounts, 2.00% per annum,
regardless of whether Cash Collateral has been so delivered. The Lessee's
Consolidated Funded Debt to Consolidated Total Capital ratio shall be determined
from the then most recent quarterly or annual financial statements delivered by
the Lessee pursuant to Section 10.1(a) of the Participation Agreement. The
adjustment, if any, to the Applicable Margin shall be effective commencing on
the fifth Business Day after the delivery of such financial statements. If the
Lessee shall at any time fail to timely furnish to the Participants the
financial statements required to be delivered pursuant to Section 10.1(a) of the
Participation Agreement and such financial statements indicate that an
adjustment (upwards or downwards, as appropriate) shall be made, then such
adjustment shall be made retroactively to the date on which the financial
statements were due to be delivered and appropriate payments or reimbursements
shall be made to reflect such adjustments.
Applicable Margin Table
<TABLE>
<CAPTION>
Applicable Margin for Eurodollar
Level Rate-Based Advances
----- -------------------
<S> <C>
Level I .625%
Level II .750%
Level III 1.00%
Level IV 1.25%
</TABLE>
"Appointment of Co-Trustee" means the Appointment of Co-Trustee, dated
as of the Closing Date, between the Lessor and the Co-Trustee.
"Appraisal" means, with respect to the Property, an appraisal, prepared
by ValueQuest International, Ltd., in the case of the appraisal to be delivered
on the Closing Date, and, in the case of any future appraisals, a member of the
American Institute of Real Estate Appraisers with operations in Alameda or
Contra Costa County, California, reasonably approved by the Lessor, the
Indenture Trustee and the Required Participants, unless such designation is
violative of any Applicable Law to which the Lessor, the Indenture Trustee or
any Participant is subject, in which case such appraiser shall be reasonably
approved by the Lessor, the Indenture Trustee and the Required Participants, in
each case which in the judgment of counsel to the Lessor, the Indenture Trustee
and the Required Participants, complies with all of the provisions of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended,
the rules and regulations adopted pursuant thereto, and all other applicable
Requirements of Law, which appraisal will (i) appraise the Fair Market Sales
Value of the Property as built in accordance with
<PAGE> 5
the Plans and Specifications: on the fifth anniversary of the Closing Date; as
of the commencement of the Renewal Term, if any; and at the end of the Renewal
Term, if any; (ii) contain an estimate of the useful life of the Improvements as
of each such date, all in a form satisfactory to the Lessor, the Indenture
Trustee and the Required Participants; and (iii) be prepared in conformance with
the Uniform Standards of Professional Appraisal Practice as promulgated by the
Appraisal Foundation, and the Code of Professional Ethics and Standards of
Professional Practice of the Appraisal Institute.
"Appurtenant Rights" means (i) all agreements, easements, rights of way
or use, rights of ingress or egress, privileges, appurtenances, tenements,
hereditaments and other rights and benefits at any time belonging or pertaining
to the Land or the Improvements, including, without limitation, the use of any
streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or
contiguous to the Land and (ii) all permits, licenses and rights, whether or not
of record, appurtenant to the Land.
"Arranger" means ABN AMRO Bank N.V.
"Arranger Fee Letter" means the letter from the Arranger to the Lessee
dated as of July 31, 1998.
"Asset Termination Value" means, as of any date of determination, an
amount equal to (i) the sum of (A) the aggregate sum of the outstanding
principal amount of the Notes (including all amounts capitalized under the terms
of the Participation Agreement), (B) all accrued and unpaid interest on the
Notes, (C) the aggregate sum of the Certificate Purchaser Amounts (including all
amounts capitalized under the terms of the Participation Agreement), (D) all
accrued and unpaid Certificate Yield on the Certificate Purchaser Amounts, and
(E) all other amounts owing by the Lessee under the Operative Documents, less
(ii) sum of all payments received by the Lessor, the Indenture Trustee or the
Participants on account of payments to reduce Asset Termination Value, including
reductions resulting from payments by the Lessor, the Lessee or the Guarantor,
the proceeds from the sale of the Property and/or amounts realized from the Cash
Collateral pursuant to the Cash Collateral Agreement.
"Assignment and Acceptance" is defined in Section 12.1(c) of the
Participation Agreement.
"Assignment of Construction Documents" means the Assignment of
Construction Documents, dated as of the Closing Date, in the form attached as
Exhibit A to the Construction Agency Agreement.
"Assignment of Lease" means the Assignment of Lease, dated as of the
Closing Date, from the Lessor to the Indenture Trustee for the benefit of the
Participants, and consented to by the Lessee pursuant to that certain Lessee's
Consent, dated as of the Closing Date (the "Consent to Assignment")by the
Lessee, as obligor, in favor of the Indenture Trustee for the benefit of the
Participants, in each case in the respective forms set forth in Exhibit L to the
Participation Agreement.
<PAGE> 6
"Available Commitments" means as to any Participant at any time, an
amount equal to the excess, if any, of (a) the amount of such Participant's
Commitment over (b) the aggregate amount of its Loans and Certificate Purchaser
Amounts with respect to all Advances made by the Lessor then outstanding.
"Bank" means the institution serving as Owner Trustee or any successor
financial institution acting as Owner Trustee under the Operative Documents, in
each case in its individual capacity.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect.
"Basic Rent" means the sum of (i) the Notes Basic Rent and (ii) the
Certificate Purchaser Basic Rent, in each case, calculated as of the applicable
date on which Basic Rent is due.
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.
"Board" means the Board of Governors of the Federal Reserve System of
the United States (or any successor).
"Budget" means a construction budget for the Improvements delivered by
the Lessee to the Lessor pursuant to Section 6.1(z) of the Participation
Agreement.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banks in Chicago, Illinois, San Francisco,
California, New York, New York, Wilmington, Delaware or (if interest and
Certificate Yield is being determined by reference to the Eurodollar Rate)
London, England, are generally authorized or obligated, by law or executive
order, to close.
"Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is, or is required to be, accounted for as a capital lease
on the balance sheet of that Person.
"Capitalized Lease Obligations" means any amount payable with respect to
any Capital Lease or any lease of any tangible or intangible property (whether
real, personal or mixed), however denoted, which is required by GAAP to be
reflected as a liability on the face of the balance sheet of the lessee
thereunder.
"Cash Collateral" is defined in Section 1 of the Cash Collateral
Agreement.
"Cash Collateral Agreement" means the Cash Collateral Agreement dated as
of the Closing Date among the Lessee, the Lessor, the Indenture Trustee and the
Participants.
<PAGE> 7
"Cash Collateral Agreement Supplement" is defined in Recital 4 to the
Cash Collateral Agreement.
"Casualty" means any damage or destruction of all or any portion of the
Property as a result of a fire or other casualty.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S.C. Sections 9601 et seq., as amended by
the Superfund Amendments and Reauthorization Act of 1986.
"Certificates" is defined in Section 2.1 of the Trust Agreement.
"Certificate Commitment" means, as to any Certificate Purchaser, the
obligation of such Certificate Purchaser to fund Certificate Purchaser Amounts
to the Lessor under Section 3.2 of the Participation Agreement in an aggregate
amount not to exceed the amount set forth opposite such Certificate Purchaser's
name on Schedule I to the Participation Agreement
"Certificate Holder" means any registered holder of a Certificate.
"Certificate Purchaser Amount" is defined in Section 3.2 of the
Participation Agreement.
"Certificate Purchaser Basic Rent" means the amount of accrued
Certificate Yield due on the Certificate Purchaser Amounts on any Payment Date
pursuant to the Participation Agreement, the Indenture and the Trust Agreement.
"Certificate Purchasers" means the Persons listed as Certificate
Purchasers on Schedule I to the Participation Agreement.
"Certificate Register" is defined in Section 2.4 of the Trust Agreement.
"Certificate Yield" is defined in Section 3.9(a) of the Participation
Agreement.
"Certifying Party" is defined in Section 26.1 of the Lease.
"Claims" means any and all obligations, liabilities, losses, actions,
suits, judgments, penalties, fines, claims, demands, settlements, costs and
expenses (including, without limitation, reasonable legal fees and expenses) of
any nature whatsoever, including, as they relate to issues involving any
Environmental Law or Environmental Violation, those matters set forth in Section
13.3 of the Participation Agreement.
"Closing Date" is defined in Section 2 of the Participation Agreement.
<PAGE> 8
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute thereto.
"Collateral" means (i) all of the Trust Estate or Trust Indenture Estate
now owned or hereafter acquired upon which a Lien is purported to be created by
the Security Documents or (ii) when used in the Cash Collateral Agreement, has
the meaning specified in Section 1.1 thereof.
"Commitment" means (i) as to any Note Purchaser, its Tranche A Loan
Commitment and/or Tranche B Loan Commitment, (ii) as to any Certificate
Purchaser, its Certificate Commitment, and (iii) as to the Lessor, the
obligation of the Lessor to make Advances (to the extent the Lessor receives the
proceeds of the funding of the related Loans and Certificate Purchaser Amounts
in accordance with the terms of the Participation Agreement.
"Commitment Fees" is defined in Section 4.1 of the Participation
Agreement.
"Commitment Fee Payment Date" means the last day of each March, June,
September and December during the Commitment Period and the Outside Completion
Date or such earlier date as the Commitments shall terminate as provided in the
Operative Documents.
"Commitment Fee Rate" means, as to each Participant (i) as to such
Participant's 364 Day Commitment and any permitted extension thereof and (ii) as
to such Participant's Eighteen Month Commitment, the respective percentages that
shall be subject to adjustment (upwards or downwards, as appropriate) based on
the existence of the applicable Level I, II, III or IV as at the end of any
fiscal quarter as set forth below.
Applicable Commitment Fee Rate Table
Commitment Fee Rate for 364 Day Commitment
<TABLE>
<CAPTION>
Level Applicable Commitment Fee Rate
----- ------------------------------
<S> <C>
Level I .125%
Level II .15%
Level III .1875%
Level IV .225%
</TABLE>
Commitment Fee Rate for Eighteen Month Commitment
<TABLE>
<CAPTION>
Level Applicable Commitment Fee Rate
----- ------------------------------
<S> <C>
Level I .225%
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
Level II .25%
Level III .2875%
Level IV .325%
</TABLE>
For purposes of determining the applicable Commitment Fee Rate, the Lessee's
Consolidated Funded Debt to Consolidated Total Capital ratio shall be determined
in the manner set forth in the definition of the term "Applicable Margin".
"Commitment Percentage" means, (i) with respect to each Participant at any
time prior to the Completion Date, the percentage which such Participant's
Commitment then constitutes of the aggregate Commitments of the Participants as
set forth in the column captioned "Pre-Completion Commitment Percentage" on
Schedule I to the Participation Agreement and (ii) with respect to each
Participant at any time after the Completion Date, the percentage which such
Participant's Commitment then constitutes of the aggregate Commitments of the
Participants as set forth in the column captioned "Post-Completion Commitment
Percentage" on Schedule I to the Participation Agreement (or, in either case, at
any time after the Commitments of the Participants shall have expired or
terminated, the percentage which the aggregate amount of such Participant's
Notes or Certificates then outstanding constitutes of the aggregate amount of
the Notes and Certificates then outstanding).
"Commitment Period" means the period from and including the Closing Date to
but not including the earlier of the Completion Date or the Outside Completion
Date, or such earlier date on which the Commitments shall terminate as provided
in the Operative Documents.
"Completion" is defined in Section 7 of the Participation Agreement.
"Completion Date" means, with respect to the Property, the date on which
Completion of the Improvements on such Property has occurred.
"Completion Delay Event" means (a) the occurrence of any event or the
existence of any condition that causes the likely Completion Date to be later
than the Outside Completion Date and (b) the delivery by the Lessee to any
Lessor Party at any time of any notice, certificate or other writing which
indicates that the likely Completion Date will be later than the Outside
Completion Date.
"Condemnation" means any condemnation, requisition, confiscation, seizure
or other taking or sale of the use, access, occupancy, easement rights or title
to the Property or any part thereof, wholly or partially (temporarily or
permanently), by or on account of any actual or threatened eminent domain
proceeding or other taking of action by any Person having the power of eminent
domain, including an action by a Governmental Authority after the Improvements
proposed to be constructed on the Land pursuant to the Plans and
<PAGE> 10
Specifications have been constructed to change the grade of, or widen the
streets adjacent to, the Property or alter the pedestrian or vehicular traffic
flow to the Property so as to result in change in access to the Property, or by
or on account of an eviction by paramount title or any transfer made in lieu of
any such proceeding or action. A "Condemnation" shall be deemed to have occurred
on the earliest of the dates that use, occupancy or title is taken.
"Confidential Information" is defined in Section 15.13 of the Participation
Agreement.
"Consent to Assignment" is defined in the definition of the term
"Assignment of Lease".
"Consent to Construction Agency Agreement Assignment" means the Consent
dated as of the Closing Date by the Lessee to the Construction Agency Agreement
Assignment in the form attached to the Construction Agency Agreement Assignment.
"Consolidated Cash Balance" means, for the Lessee and its Subsidiaries on a
consolidated basis at any date, (a) the sum of unencumbered (i) cash and cash
equivalents plus (ii) Consolidated Short Term Investments minus (b) cash
designated as collateral for any Consolidated Off-Balance Sheet Debt.
"Consolidated Current Liabilities" means, for the Lessee and its
Subsidiaries on a consolidated basis at any date, those liabilities of the
Lessee and its Subsidiaries which are required to be classified as current
liabilities on a balance sheet of the Lessee and its Subsidiaries in accordance
with GAAP.
"Consolidated Debt" means, for the Lessee and its consolidated Subsidiaries
on a consolidated basis at any date, the sum of (i) Debt plus (ii) Consolidated
Off-Balance Sheet Debt.
"Consolidated Fixed Charge Ratio" means, for the Lessee and its
Subsidiaries on a consolidated basis at any date the quotient of (a) the sum of
(i) Consolidated Net Income, plus (ii) Consolidated Interest Expense, plus (iii)
Consolidated Income Tax Expense, plus (iv) Consolidated Lease Rental Expense,
plus (v) charges taken related to the acquisition of in-process research and
development, divided by (b) the sum of (x) Consolidated Interest Expense plus
(y) Consolidated Lease Rental Expense.
"Consolidated Funded Debt" means, for the Lessee and its consolidated
Subsidiaries on a consolidated basis at any date, all Debt of the Lessee and its
Subsidiaries; provided, that Consolidated Funded Debt shall not include any
undrawn amounts under standby letters of credit where the Lessee is the account
party.
"Consolidated Income Tax Expense" means, for the Lessee and its
Subsidiaries on a consolidated basis for any period, the amount required to be
classified as income tax
<PAGE> 11
expense on an income statement of the Lessee and its Subsidiaries in accordance
with GAAP.
"Consolidated Intangible Assets" means, for the Lessee and its Subsidiaries
on a consolidated basis at any date, the aggregate amount of any intangible
assets of the Lessee and its Subsidiaries, including, without limitation,
goodwill, franchises, licenses, patents, patent applications, trademarks, trade
names, copyrights, service marks, capitalized software development expense,
unamortized debt discount and expense reserves not already deducted from
Consolidated Total Assets.
"Consolidated Interest Expense" means for the Lessee and its Subsidiaries
on a consolidated basis for any period, the amount required to be classified as
interest expense on an income statement of the Lessee and its Subsidiaries in
accordance with GAAP.
"Consolidated Lease Rental Expense" means, for the Lessee and its
Subsidiaries on a consolidated basis for any period, the amount required to be
shown as rental expense in respect of operating leases on an income statement of
the Lessee and its Subsidiaries in accordance with GAAP.
"Consolidated Long Term Liabilities" means, for the Lessee and its
Subsidiaries on a consolidated basis at any date, Indebtedness for borrowed
money, whether secured or unsecured, which by the terms of the agreement
governing or instrument evidencing such Indebtedness for borrowed money, whether
secured or unsecured, matures more than one year from or is directly or
indirectly renewable or extendible at the option of the obligor under a
revolving credit or similar agreement obligating the lender or lenders to extend
credit over a period of more than one year from the date of creation thereof,
including in each instance current maturities of long-term debt (and the current
portion of long-term debt in the last year of its term), revolving credit and
short-term debt extendible beyond one year at the option of the debtor, and
shall also include, without limitation, Indebtedness arising under or in
connection with any interest rate swap agreement or arrangements.
"Consolidated Net Income" means, for the Lessee and its consolidated
Subsidiaries for any period, the gross revenues from operations of the Lessee
and its Subsidiaries less all their operating and non-operating expenses
(including without limitation, taxes on income) as determined in accordance with
GAAP.
"Consolidated Net Worth" means, for the Lessee and its Subsidiaries on a
consolidated basis at any date, the difference between (a) Consolidated Total
Assets and (b) Consolidated Total Liabilities, excluding Consolidated
Off-Balance Sheet Debt, all as determined in accordance with GAAP.
"Consolidated Off-Balance Sheet Debt" means, for the Lessee and its
Subsidiaries on a consolidated basis at any date, the maximum amount of that
portion of the rental payments (including basic, supplemental and additional
rent) representing payments of principal and not interest required to be made by
the Lessee and any of its Subsidiaries
<PAGE> 12
under any synthetic lease or other off-balance sheet financing arrangement,
including in the amount of such payments the maximum amount of all payments
(including payments of termination value) representing payments of principal and
not interest required to be made in connection with any purchase of the property
or assets subject thereto by the Lessee or any of its Subsidiaries at the
expiration of the term of such lease or arrangement.
"Consolidated Quick Ratio" means, for the Lessee and its Subsidiaries on a
consolidated basis, at any date, the ratio of (a) the sum of (i) unencumbered
cash and cash equivalents (including all Cash Collateral for this purpose) plus
(ii) Consolidated Short Term Investments maturing in less than one year from
such date plus (iii) the net amount of accounts receivable, divided by (b) the
sum of (i) Consolidated Current Liabilities plus (ii) Consolidated Off-Balance
Sheet Debt maturing within one year of such date.
"Consolidated Short Term Investments" means, for the Lessee and its
consolidated Subsidiaries on a consolidated basis at any date, investments
described in clause (i) of the definition of the term "Permitted Investments"
which mature less than one year from the date of creation thereof.
"Consolidated Short Term Liabilities" means, for the Lessee and its
Subsidiaries on a consolidated basis at any date, Indebtedness for borrowed
money, whether secured or unsecured, which by the terms of the agreement
governing or instrument evidencing such Indebtedness for borrowed money, whether
secured or unsecured, matures within one year or less from the date of creation
thereof.
"Consolidated Tangible Net Worth" means, for the Lessee and its
Subsidiaries on a consolidated basis at any date, the difference between (a)
Consolidated Net Worth and (b) Consolidated Intangible Assets.
"Consolidated Total Assets" means for the Lessee and its Subsidiaries on a
consolidated basis at any date, the sum of all assets less depreciation,
amortization and other reserves of the Lessee and its Subsidiaries determined in
accordance with GAAP.
"Consolidated Total Capital" means, for the Lessee and its Subsidiaries on
a consolidated basis at any date, the sum of (i) Consolidated Debt plus (ii)
Consolidated Tangible Net Worth.
"Consolidated Tangible Assets" means, for the Lessee and its Subsidiaries
on a consolidated basis at any date, the difference between (a) Consolidated
Total Assets and (b) Consolidated Intangible Assets.
"Consolidated Total Liabilities" means, for the Lessee and its Subsidiaries
on a consolidated basis at any date, the sum of (i) Consolidated Current
Liabilities, plus (ii) Consolidated Long Term Liabilities (without duplication
of amounts included in clause (i)) plus (iii) the Consolidated Off-Balance Sheet
Debt.
<PAGE> 13
"Construction Agency Agreement" means the Construction Agency Agreement,
dated as of the Closing Date, between the Lessor and the Construction Agent, in
the form of Exhibit M to the Participation Agreement.
"Construction Agency Agreement Assignment" means the Assignment of
Construction Agency Agreement, dated as of the Closing Date, from the Lessor to
the Indenture Trustee, for the benefit of the Participants, in the form of
Exhibit N to the Participation Agreement.
"Construction Agency Agreement Event of Default" means a "Construction
Agency Agreement Event of Default" as defined in Section 5.1 of the Construction
Agency Agreement.
"Construction Agent" means the Lessee, as construction agent under the
Construction Agency Agreement.
"Construction Commencement Date" is defined in Section 2.3 of the
Construction Agency Agreement.
"Construction Period" means, with respect to the Property, the period
commencing on the Construction Commencement Date and ending on the earlier of
the Completion Date and the Outside Completion Date for the Property.
"Construction Termination Event" means (a) the occurrence or existence of
any Cost Overrun Event or Completion Delay Event, (b) the incurrence by any
Lessor Party of any liabilities, losses, damages or expenses excluded from the
Lessee's obligations under clause (z) of Section 13.1 of the Participation
Agreement or Section 13.5(a) of the Participation Agreement by the proviso to
such section, (c) the incurrence by any Lessor Party of any increased costs or
reduced amounts excluded from the Lessee's obligations under Section 13.10(a) of
the Participation Agreement by the proviso to such section or (d) the occurrence
or existence of any loss or liability excluded from the Lessee's obligations
under Section 24.1 of the Lease Agreement by the proviso to such section.
"Contingent Obligation" means, with respect to any Person, without
duplication, (a) any Guaranty Obligation of that Person; and (b) any direct or
indirect obligation or liability, contingent or otherwise, of that Person (i) in
respect of any letters of credit, acceptances, bank guaranties, surety bonds or
similar instruments issued for the account of that Person or as to which that
Person is otherwise liable for reimbursement of drawings, (ii) as a partner or
joint venturer in any partnership or joint venture, (iii) incurred pursuant to
any interest rate swap, currency swap, forward, cap, floor or other similar
contract that is not entered into in connection with a bona fide hedging
operation that provides offsetting benefits to such Person or (iv) with respect
to noncollateralized Consolidated Off-Balance Sheet Debt. The amount of any
Contingent Obligation shall (subject, in the case of Guaranty Obligations, to
the last sentence of the definition of "Guaranty Obligation") be deemed equal to
the maximum reasonably anticipated liability in respect thereof.
<PAGE> 14
"Control" means (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
Person, the possession directly or indirectly, of the power to direct or cause
the direction of the management policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"Cost Overrun Event" means (a) the delivery by the Lessee of an Advance
Request for any Advance that will reduce the Unused Total Commitment to $0 prior
to the Completion Date, (b) the occurrence of any event or the existence of any
condition that causes the likely aggregate remaining cost for Completion of the
Improvements at any time to exceed the Unused Total Commitment at such time or
(c) the delivery by the Lessee to any Lessor Party at any time of any notice,
certificate or other writing which indicates that the likely aggregate remaining
cost for Completion of the Improvements at such time will exceed the Unused
Total Commitment at such time.
"Co-Trustee" means U.S. Bank Trust National Association, a national banking
association.
"Covered Matters" is defined in Section 13.15(b) of the Participation
Agreement.
"Data Center" means that certain two-story structure of approximately
76,000 total square feet to be constructed at the north west end of Lot 57 of
the Hacienda Business Park, Pleasanton, California, and to be commonly known as
5840 Owens Drive.
"Debt" means, for the Lessee and its Subsidiaries on a consolidated basis
at any date, the sum of (i) Consolidated Long Term Liabilities, plus (ii)
Capitalized Lease Obligations plus (iii) Contingent Obligations.
"Default" means any event or condition which, with the lapse of time or the
giving of notice, or both, would constitute an Event of Default.
"Defaulting Participant" means, at any time, any of the Participants which
at such time has (i) failed to make a payment when due to the Lessor equal to
its Commitment Percentage of an Advance, (ii) has been notified of such failure
by the Lessor, and (iii) has not cured such failure by making such payment,
together with interest at the Late Payment Rate.
"Designated Payment Date" means the Expiration Date, the Termination Date
or other date of termination of the Lease.
"Deposit Accounts" is defined in Section 2.01 of the Cash Collateral
Agreement.
"Depositary Bank" is defined in Section 2.02 of the Cash Collateral
Agreement.
<PAGE> 15
"Development Contracts" means the agreements relating to construction of
the Improvements to be finalized before the commencement of such construction,
as such agreements may be modified from time to time with any required consent
of the Lessor pursuant to Sections 12.2, 12.3 and 12.4 of the Lease or the
Construction Agency Agreement and any applications, permits, contracts or
documents concerning the use or development of or construction of improvements
on the Property that the Lessor may hereafter execute or to which the Lessor may
consent at the request of the Lessee pursuant to Sections 12.2, 12.3 or 12.4 of
the Lease or the Construction Agency Agreement.
"Dollars" and "$" mean dollars in lawful currency of the United States of
America.
"Dublin Parcel" means an approximately 49.0744 acre parcel forming a
portion of that certain real property located in the City of Dublin, California,
south of Dublin Boulevard, west of Hacienda Drive, north of I-580 and east of
Arnold Road.
"Eighteen-Month Commitment" means $27,000,000. The Eighteen month
Commitment expires on the earlier of the Completion Date or the Outside
Completion Date.
"End of the Term Report" is defined in Section 13.2 of the Participation
Agreement.
"Enforcement Date" is defined in Section 7.4 of the Indenture.
"Environmental Audit" means a Phase One environmental site assessment (the
scope and performance of which meets or exceeds ASTM Standard Practice E1527-93
Standard Practice for Environmental Site Assessments: Phase One Environmental
Site Assessment Process) of the Property to be acquired by the Lessor on the
Ground Lease Interest Acquisition Date or of the Property to be remarketed under
the Remarketing Option under the Lease.
"Environmental Certificate" is defined in Section 6.1(c) of the
Participation Agreement.
"Environmental Law" means, whenever enacted or promulgated, any Federal,
state, county or local law, statute, ordinance, rule, regulation, license,
permit, authorization, approval, covenant, criteria, guideline, administrative
or court order, judgment, decree, injunction, code or requirement or any
agreement with a Governmental Authority:
(x) relating to pollution (or the cleanup, removal, remediation
or encapsulation thereof, or any other response thereto), or the
regulation or protection of human health, safety or the environment,
including air, water, vapor, surface water, groundwater, drinking water,
land (including surface or subsurface), plant, aquatic and animal life,
or
(y) concerning exposure to, or the use, containment, storage,
recycling, treatment, generation, discharge, emission, Release or
threatened Release,
<PAGE> 16
transportation, processing, handling, labeling, containment, production,
disposal or remediation of any Hazardous Substance, Hazardous Condition
or Hazardous Activity;
in each case as amended and as now or hereafter in effect, and any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries (whether personal or property) or
damages due to or threatened as a result of the presence of, exposure to, or
ingestion of, any Hazardous Substance, whether such common law or equitable
doctrine is now or hereafter recognized or developed. Applicable laws include,
but are not limited to, CERCLA; the Resource Conservation and Recovery Act of
1976, 42 U.S.C. Section 6901 et seq.; the Federal Water Pollution Control Act,
33 U.S.C. Section 1251 et seq.; the Clean Air Act, 42 U.S.C. Sections 7401 et
seq.; the National Environmental Policy Act, 42 U.S.C. Section 4321; the Refuse
Act, 33 U.S.C. Sections 401 et seq.; the Hazardous Materials Transportation Act
of 1975, 49 U.S.C. Sections 1801-1812; the Toxic Substances Control Act, 15
U.S.C. Sections 2601 et seq.; the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. Sections 136 et seq.; the Safe Drinking Water Act, 42
U.S.C. Sections 300f et seq.; and the Occupational Safety and Health Act of
1970, each as amended and as now or hereafter in effect, and their state and
local counterparts or equivalents, including any regulations promulgated
thereunder.
"Environmental Violation" means any activity, occurrence or condition or
omission that violates or results in non-compliance with any Environmental Law.
"Equipment" means equipment, apparatus, furnishings, fittings and personal
property of every kind and nature whatsoever purchased by the Lessor using the
proceeds of the Participation Interests in the Advances now or subsequently
attached to, contained in or used or usable in any way in connection with any
operation or letting of the Property, including but without limiting the
generality of the foregoing, all equipment, screens, awnings, shades, blinds,
curtains, draperies, artwork, carpets, rugs, storm doors and windows, shelving,
counters, furniture and furnishings, heating, electrical, and mechanical
equipment, lighting, switchboards, plumbing, ventilation, air conditioning and
air-cooling apparatus, refrigerating, and incinerating equipment, escalators,
elevators, loading and unloading equipment and systems, cleaning systems
(including window cleaning apparatus), telephones, communication systems
(including satellite dishes and antennae), televisions, computers, sprinkler
systems and other fire prevention and extinguishing apparatus and materials,
security systems, motors, engines, machinery, pipes, pumps, tanks, conduits,
appliances, fittings and fixtures of every kind and description.
"Equipment Schedule" means each Equipment Schedule in the form of Exhibit B
to the Lease.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time or any successor Federal statute.
<PAGE> 17
"ERISA Affiliate" means each entity required to be aggregated with the
Lessee pursuant to the requirements of Section 414(b) or (c) of the Code.
"ERISA Group" means the Lessee and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Lessee, are treated as a single employer
under Section 414 of the Code.
"Eurocurrency Reserve Requirements" means, for any day as applied to an
Advance, the aggregate (without duplication) of the rates (expressed as a
decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Rate" means, with respect to each day during each Interest
Period, the rate per annum determined by the Indenture Trustee to be the offered
rate per annum at which deposits in Dollars appear with respect to such Interest
Period on the Reuters Screen LIBOR Page (or any successor page), or if such
offered rate is not available, then the rate per annum at which deposits in
Dollars appear with respect to such Interest Period on the Telerate Page 3750
(or any successor page) in each case as of 11:00 a.m. (London time), two
Business Days prior to the beginning of such Interest Period or in the event
that the foregoing offered rates are not available, then the average (rounded
upward to the nearest whole multiple of one sixteenth of one percent per annum,
if such average is not such a multiple) of the respective rates notified to the
Indenture Trustee by each of the Participants as the rates at which such
Participant's Funding Office is offered Dollar deposits at or about 11:00 a.m.
(London time), two Business Days prior to the beginning of such Interest Period
in the interbank Eurodollar market for delivery on the first day of such
Interest Period for the number of days comprised therein in an amount comparable
to the amount of the Advances estimated to be outstanding during such Interest
Period.
"Eurodollar Rate Advance" means any Advance (and related Loans and
Certificate Purchaser Amounts) bearing interest or Certificate Yield at a rate
per annum equal to the sum of (i) the Eurodollar Rate applicable to such Advance
plus (ii) the Applicable Margin.
"Event of Default" means a Lease Event of Default, a Construction Agency
Agreement Event of Default, a Guarantee Event of Default, a Ground Lease Event
of Default or an Indenture Event of Default.
"Excepted Payments" means:
(a) all indemnity payments (including indemnity payments made
pursuant to Section 13 of the Participation Agreement) to which the
Lessor (both
<PAGE> 18
in its individual capacity and as Owner Trustee) or any Certificate
Holder, or any of their respective Affiliates, agents, officers,
directors or employees is entitled, provided that during the
Construction Period, indemnity payments made to the Lessor pursuant to
Section 13.14 of the Participation Agreement for Losses of the Lessor
arising out of its indemnification obligations under Section 13.15 of
the Participation Agreement shall not constitute Excepted Payments;
(b) any amounts (other than Basic Rent or amounts payable by
Lessee pursuant to Section 16.2, Section 16.3, Section 16.4 or Articles
XVII, XX or XXII of the Lease) payable under any Operative Document to
reimburse the Lessor, any Certificate Holder or any of their respective
Affiliates (including the reasonable expenses of the Lessor or any
Certificate Holder incurred in connection with any such payment) for
performing or complying with any of the obligations of the Lessee under
and as permitted by any Operative Document, except to the extent that
one or more Participants have indemnified the Lessor with respect
thereto pursuant to the Participation Agreement;
(c) any amount payable to any Certificate Holder by any
transferee permitted under the Operative Documents of the interest of
such Certificate Holder as the purchase price of such Certificate
Holder's interest in the Trust;
(d) any insurance proceeds (or payments with respect to risks
self-insured or policy deductibles) under liability policies other than
such proceeds or payments payable to the Indenture Trustee or the Lessor
under policies required to be maintained by the Lessee under the
Operative Documents;
(e) any insurance proceeds under policies maintained by the
Lessor or any Certificate Holder;
(f) Transaction Expenses or other amounts or expenses paid or
payable to or for the benefit of the Bank in its individual capacity;
(g) all right, title and interest of the Lessor or any
Certificate Holder to the Property or any portion thereof or any other
property to the extent any of the foregoing has been released from the
Lien of the Indenture, the Mortgage, the Assignment of Lease and the
Construction Agency Agreement Assignment pursuant to the terms thereof
following the payment of the Participant Balances of all of the Note
Holders and all amounts due and owing to the Indenture Trustee; and
(h) any payments in respect of interest to the extent
attributable to payments referred to in clauses (a) through (g) above.
"Excepted Rights" means the following described rights and privileges:
<PAGE> 19
(a) as and to the extent provided for in the Operative Documents,
the right of the Owner Trustee and the Certificate Holders, but not to
the exclusion of the Indenture Trustee or any other Person, to receive
from the Lessee certificates and other documents and information which
the Lessee is required to give or furnish to Owner Trustee or the
Certificate Holders pursuant to any Operative Document, and to inspect
the Property and all records relating thereto;
(b) all rights of the Owner Trustee and the Certificate Holders
under the Lease or the Trust Agreement to demand, collect, sue for or
otherwise obtain all amounts from the Lessee due the Owner Trustee or
the Certificate Holders on account of any Excepted Payments; provided
that the rights excepted and reserved by this clause (b) shall not be
deemed to include the exercise of any remedies provided for in Article
XVII of the Lease other than the right to proceed by appropriate court
action or actions to recover damages for the breach thereof;
(c) the right of the Owner Trustee, as Lessor, but not to the
exclusion of the Indenture Trustee, to seek specific performance of the
covenants of the Lessee under the Lease relating to the protection,
insurance and maintenance of the Property (but excluding any right to
declare the Lease to be in default and to enforce any remedies under
Article XVII thereof) and to maintain separate insurance with respect to
the Property pursuant to Article XIV of the Lease; and
(d) the right of the Owner Trustee, as Lessor, but not to the
exclusion of the Indenture Trustee, to perform for the Lessee under
Section XVII of the Lease.
"Excess Proceeds" means the excess, if any, of the aggregate of all awards,
compensation or insurance proceeds payable in connection with a Casualty or
Condemnation over the Asset Termination Value paid by the Lessee pursuant to
Articles XIV and XV of the Lease with respect to such Casualty or Condemnation.
"Expiration Date" means the fifth anniversary of the Closing Date or the
scheduled expiration of the then current Renewal Term, if any.
"Expiration Date Purchase Obligation" means the Lessee's obligation,
pursuant to Section 20.2 of the Lease, to purchase all (but not less than all)
of the Property on the Expiration Date.
"Extension Date" means, if the Extension Fee is payable, the date which is
364 days after the Closing Date.
"Extension Effective Date" is defined in Section 3.8(b) of the
Participation Agreement.
"Extension Fee" means an amount equal to (i) 0.10% multiplied by (ii) the
aggregate amount of the 364 Day Commitment that is extended pursuant to Section
3.8 of the Participation Agreement.
<PAGE> 20
"Extension Request" is defined in Section 3.8(b) of the Participation
Agreement.
"Extension Response Date" is defined in Section 3.8(b) of the Participation
Agreement.
"Fair Market Sales Value" means, with respect to the Property, the amount,
which in any event shall not be less than zero, that would be paid in cash in an
arm's-length transaction between an informed and willing purchaser and an
informed and willing seller, neither of whom is under any compulsion to purchase
or sell, respectively, for the ownership of the Property. The Fair Market Sales
Value of the Property shall be determined based on the assumption that, except
for purposes of Article XVII of the Lease and Section 13.2 of the Participation
Agreement, the Property is in the condition and state of repair required under
Section 10.1 of the Lease and the Lessee is in compliance with the other
requirements of the Operative Documents.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business Day,
the average of quotations for such day on such transaction received by the
Indenture Trustee from three Federal funds brokers of recognized standing
selected by it.
"Fixed Rate" means, as to any Advance (and related Loans and Certificate
Purchaser Amounts) as to which the Lessee has elected the application of the
Fixed Rate pursuant to Section 3.5(b) of the Participation Agreement, the
weighted average fixed rate of interest and Certificate Yield accepted by the
Lessee and applicable to such Advance pursuant to Section 3.5(b) of the
Participation Agreement.
"Fixed Rate Advance" means any Advance bearing interest and Certificate
Yield at a rate per annum equal to the sum of (i) the Fixed Rate applicable to
such Advance as determined pursuant to Section 3.5(b) of the Participation
Agreement plus (ii) the Applicable Margin.
"Fixed Rate Maturity Date" is defined in Section 3.5(b) of the
Participation Agreement.
"Fixed Rate Offer" is defined in Section 3.5(b) of the Participation
Agreement.
"Fixed Rate Period" is defined in Section 3.5(b) of the Participation
Agreement.
"Fixed Rate Request" is defined in Section 3.5(b) of the Participation
Agreement.
<PAGE> 21
"Fixtures" means all fixtures relating to the Improvements, including all
components thereof, located in or on the Improvements, together with all
replacements, modifications, alterations and additions thereto.
"Fully Indemnifiable Event" means the occurrence of any of the following
events: (i) a Lease Event of Default specified in Section 17.1(e) or (f) of the
Lease or (ii) the Lessee has committed fraud, misapplication of funds, illegal
acts or willful misconduct in respect of the Property, the Operative Documents
or any actions or transactions in connection therewith.
"Funding Date" means any Business Day on which Advances are funded pursuant
to the Participation Agreement.
"Funding Office" means the office of each Participant identified on
Schedule II to the Participation Agreement as its Funding Office.
"Funding Request" is defined in Section 3.5(a) of the Participation
Agreement.
"GAAP" means United States generally accepted accounting principles
(including principles of consolidation), in effect from time to time.
"Governmental Action" means all permits, authorizations, registrations,
consents, approvals, waivers, exceptions, variances, orders, judgments, written
interpretations, decrees, licenses, exemptions, publications, filings, notices
to and declarations of or with, or required by, any Governmental Authority, or
required by any Applicable Law, and shall include, without limitation, all
environmental and operating permits and licenses that are required for the full
use, occupancy, zoning and operation of the Property.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Gross Proceeds" is defined in Section 22.1(k) of the Lease.
"Ground Lease" means, in respect of the Property, the Ground Lease
Agreement, dated as of the Closing Date, between the Lessor, as ground lessee,
and the Ground Lessor, as ground lessor.
"Ground Lease Commencement Date" is defined in Section 2.02 of the Ground
Lease.
"Ground Lease Event of Default" means any event of default under the Ground
Lease.
"Ground Lease Expiration Date" is defined in Section 4.02 of the Ground
Lease.
<PAGE> 22
"Ground Lease Interest" means the leasehold interest in the Land and the
other Ground Lease Property acquired by the Lessor by ground lease from the
Ground Lessor.
"Ground Lease Interest Acquisition Date" means the date on which the Lessor
acquires the Ground Lease Interest, which date shall be specified in the
Acquisition Request.
"Ground Lease Option Price" is defined in Section 6.02 of the Ground Lease.
"Ground Lease Property" is defined in Section 2.01 of the Ground Lease.
"Ground Lease Purchase Option Date" is defined in Section 6.01 of the
Ground Lease.
"Ground Lease Termination Date" is defined in Section 2.02 of the Ground
Lease.
"Ground Lessor" means PeopleSoft Properties, Inc., a California
corporation, or any successor as ground lessor under the Ground Lease.
"Ground Rent" means all rents and other amounts payable by the Lessor, as
ground lessee, under the Ground Lease.
"Guarantee" means the Guarantee executed by the Guarantor in favor of the
Indenture Trustee, for the benefit of the Participants, in the form of Exhibit O
to the Participation Agreement.
"Guarantee Event of Default" is defined in the Guarantee.
"Guarantor" means PeopleSoft, Inc. a Delaware corporation.
"Guaranty Obligation" means, with respect to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, or other obligation (the "primary obligations") of another Person (the
"primary obligor"), including any obligation of that Person, whether or not
contingent, (a) to purchase, repurchase or otherwise acquire such primary
obligations or any property constituting direct or indirect security therefor,
or (b) to advance or provide funds (i) for the payment or discharge of any such
primary obligation, or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, or (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the holder of any such primary obligation against
loss in respect thereof. The amount of any Guaranty Obligation shall be deemed
equal to the stated or determinable amount of the primary obligation in respect
of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect thereof.
<PAGE> 23
"Hazardous Activity" means any activity, process, procedure or undertaking
that directly or indirectly (i) produces, generates or creates any Hazardous
Substance; (ii) causes or results in (or threatens to cause or result in) the
Release of any Hazardous Substance into the environment (including air, water
vapor, surface water, groundwater, drinking water, land (including surface or
subsurface), plant, aquatic and animal life); (iii) involves the containment or
storage of any Hazardous Substance; or (iv) would be regulated as hazardous
waste treatment, storage or disposal within the meaning of any Environmental
Law.
"Hazardous Condition" means any condition that violates, or that results in
noncompliance with, any Environmental Law.
"Hazardous Substance" means any of the following: (i) any petroleum or
petroleum product, explosives, radioactive materials, asbestos, formaldehyde,
polychlorinated biphenyls, lead and radon gas; or (ii) any substance, material,
product, derivative, compound or mixture, mineral, chemical, waste, gas, medical
waste or pollutant, in each case whether naturally occurring, man-made or the
by-product of any process, that is toxic, harmful or hazardous to the
environment or human health or safety; or (iii) any substance, material,
product, derivative, compound or mixture, mineral, chemical, waste, gas, medical
waste or pollutant that would support the assertion of any claim under any
Environmental Law, whether or not defined as hazardous as such under any
Environmental Law.
"Impositions" means, except to the extent described in the following
sentence, any and all liabilities, losses, expenses, costs, charges and Liens of
any kind whatsoever for fees, taxes, levies, imposts, duties, charges,
assessments or withholdings ("Taxes") including (i) real and personal property
taxes, including personal property taxes on any property covered by the Lease
that is classified by Governmental Authorities as personal property, and real
estate or ad valorem taxes in the nature of property taxes; (ii) sales taxes,
use taxes and other similar taxes (including rent taxes and intangibles taxes);
(iii) any excise taxes; (iv) real estate transfer taxes, mortgage taxes,
conveyance taxes, stamp taxes and documentary recording taxes and fees; (v)
taxes that are or are in the nature of franchise, income, value added, privilege
and doing business taxes, license and registration fees; (vi) assessments on the
Property, including all assessments for public improvements or benefits, whether
or not such improvements are commenced or completed within the Term; and (vii)
any tax, Lien, assessment or charge asserted, imposed or assessed by the PBGC or
any governmental authority succeeding to or performing functions similar to, the
PBGC, and in each case all interest, additions to tax and penalties thereon,
which at any time prior to, during or with respect to the Term or in respect of
any period for which the Lessee shall be obligated to pay Supplemental Rent, may
be levied, assessed or imposed by any Governmental Authority upon or with
respect to (a) the Property or any part thereof or interest therein; (b) the
purchase, sale, leasing, financing, refinancing, demolition, construction,
alteration, substitution, subleasing, assignment, control, condition, occupancy,
servicing, maintenance, repair, ownership, possession, activity conducted on,
delivery, insuring, use, operation, improvement,
<PAGE> 24
transfer of title, return or other disposition of the Property or any part
thereof or interest therein; (c) the Participation Interests with respect to the
Property or any part thereof or interest therein; (d) the rentals, receipts or
earnings arising from the Property or any part thereof or interest therein; (e)
the Operative Documents, the performance thereof, or any payment made or accrued
pursuant thereto; (f) the income or other proceeds received with respect to the
Property or any part thereof or interest therein upon the sale or disposition
thereof; (g) any contract (including the Construction Agency Agreement) relating
to the construction, acquisition or delivery of the Improvements or any part
thereof or interest therein; or (h) otherwise in connection with the
transactions contemplated by the Operative Documents.
The term "Imposition" shall not mean or include the following (in each case
only to the extent such Taxes would have applied if the Lease were structured as
a loan):
(i) Taxes and impositions (other than Taxes that are, or are in
the nature of, sales, use, transfer or property taxes) that are imposed
on an Indemnitee by the United States federal government that are based
on or measured by the net income (including taxes based on capital gains
and minimum taxes) of such Person; provided, that this clause (i) shall
not be interpreted to prevent a payment from being made on an After Tax
Basis if such payment is otherwise required to be so made;
(ii) Taxes and impositions (other than Taxes that are, or are in
the nature of, sales, use, transfer or property taxes) that are imposed
by any state or local jurisdiction or taxing authority within any state
or local jurisdiction and that are franchise taxes or are based upon or
measured by the net income or net receipts; provided, that this clause
(ii) shall not be interpreted to prevent a payment from being made on an
After Tax Basis if such payment is otherwise required to be so made
(anything to the contrary notwithstanding, nothing in the Operative
Documents shall be construed to impose upon Lessee any liability for
Taxes imposed upon an Indemnitee to the extent imposed with respect to
any activities of such Indemnitee other than under the transactions
contemplated by the Operative Documents);
(iii)any Tax or imposition for so long as, but only for so long
as, it is being contested in accordance with the provisions of Section
13.5 of the Participation Agreement;
(iv) any Taxes which are imposed on an Indemnitee as a result of
the gross negligence or wilful misconduct of such Indemnitee itself (as
opposed to gross negligence or wilful misconduct imputed to such
Indemnitee), but not Taxes imposed as a result of ordinary negligence of
such Indemnitee; or
(v) any California withholding Taxes imposed upon payments to the
Lessor as a result of the Lessor failing to be qualified to do business
in the State of California.
<PAGE> 25
Any Tax excluded from the defined term "Imposition" in any one of the foregoing
clauses (i) through (v) shall not be construed as constituting an Imposition by
any provision of any other of the aforementioned clauses.
"Improvements" means all buildings, structures, Fixtures, Equipment, and
other improvements of every kind existing on the Ground Lease Interest
Acquisition Date and at any time and from time to time and either constructed
pursuant to the Construction Agency Agreement or those purchased with amounts
advanced by the Participants pursuant to the Participation Agreement (or those
becoming the property of the Lessor pursuant to Article XI of the Lease) on or
under the Land, together with any and all appurtenances to such buildings,
structures, or improvements, including sidewalks, utility pipes, conduits and
lines, parking areas and roadways, and including all Modifications and other
additions to or changes in the Improvements at any time.
"Indebtedness" with respect to any Person means, as of the date of
determination thereof, (i) all items which in accordance with GAAP would be
included in determining total liabilities on the liability side of such Person's
balance sheet as at such date, (ii) all indebtedness of such Person or any
Person secured by any Lien with respect to any property or asset owned or held
by such Person, regardless of whether the indebtedness secured thereby shall
have been assumed by such Person, (iii) all indebtedness of other Persons which
such Person has directly or indirectly guaranteed (whether by discount or
otherwise), endorsed (otherwise than for collection or deposit in the ordinary
course of business), discounted with recourse to such Person or with respect to
which such Person is otherwise directly or indirectly liable, including, without
limitation, indebtedness in effect guaranteed by such Person through any
agreement (contingent or otherwise) to (A) purchase, repurchase or otherwise
acquire such Indebtedness or any security therefor, (B) provide funds for the
payment of discharge of such indebtedness or any other liability of the obligor
of such indebtedness (whether in the form of loans, advances, stock purchases,
capital contribution or otherwise), (C) maintain the solvency of any balance
sheet or other financial condition of the obligor of such indebtedness, or (D)
make payment for any products, materials or supplies or for any transportation
or services regardless of the non-delivery or non-furnishing thereof, if in any
such case the purpose or intent of such agreement is to provide assurance that
such indebtedness will be paid or discharged or that any agreements relating
thereto will be complied with or that the holders of such indebtedness will be
protected against loss in respect thereof, (iv) all of such Person's Capitalized
Lease Obligations, and (v) all actual or contingent reimbursement obligations
with respect to letters of credit issued for such Person's account.
"Indebtedness Hereby Secured" means the aggregate of all outstanding
indebtedness for borrowed money evidenced by the Notes and interest thereon and
all additional amounts and other sums at any time due and owing from, and
required to be paid by the Owner Trustee, as borrower in respect thereof under
the terms of the Notes, the Indenture, the Mortgage or the Assignment of Lease.
<PAGE> 26
"Indemnification Sections" is defined in Section 13.14(c) of the
Participation Agreement.
"Indemnified Party" is defined in Section 13.15(a) of the Participation
Agreement.
"Indemnitee" means the Lessor, the Owner Trustee, the Bank, the Indenture
Trustee, in its individual capacity and as trustee, the Participants, their
respective Affiliates and their respective successors, assigns, directors,
shareholders, partners, officers, employees and agents.
"Indenture" means the Trust Indenture, dated as of the Closing Date,
between the Lessor, as borrower, and the Indenture Trustee.
"Indenture Default" means any event, act or condition which with notice or
lapse of time, or both, would constitute an Indenture Event of Default.
"Indenture Event of Default" is defined in Section 6.1 of the Indenture.
"Indenture Trustee" means ABN AMRO Bank N.V. and any successor or
replacement Indenture Trustee expressly permitted under the Operative Documents.
"Initial Participation Agreement" is defined in Section 10.1(k) of the
Participation Agreement.
"Initial Property" means the property subject to the Initial Participation
Agreement.
"Institutional Investor" means (x) a corporation, a commercial finance
company, a leasing company, a securities company, a bank, a bank holding
company, trust company or savings and loan association or an insurance company
organized under the laws of the United States or any state or any duly licensed
domestic branch of a foreign bank, and (y) a collective investment fund,
endowment, foundation, educational institution, real estate investment trust or
any other Person organized under the laws of the United States or any state or
political subdivision thereof and, in the case of an entity described in clause
(y), which is generally recognized in the financing or real estate field as an
institutional investor or which owns other real properties which are net leased
to major United States corporations, and (z) a "qualified institutional buyer"
under Rule 144A of the U.S. Securities and Exchange commission promulgated under
the Securities Act.
"Insurance Requirements" means all terms and conditions of any insurance
policy required by the Lease to be maintained by the Lessee, and all
requirements of the issuer of any such policy.
"Interest Payment Advance" means any Advance made to fund the payment of
interest or Certificate Yield accruing on Advances allocated to Property
Improvements Costs during the Construction Period.
<PAGE> 27
"Interest Period" means, with respect to any Eurodollar Rate Advance:
(a) initially, the period commencing on the funding of such
Advance or the conversion or continuation of such Advance as a
Eurodollar Rate Advance, and ending one, two, three or six months
thereafter, as selected by the Lessee by irrevocable notice to the
Lessor and the Indenture Trustee not less than three (3) Business Days
prior to the first day of such Interest Period; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Advance, or the date such Advance
is made or converted from a Fixed Rate Advance, and ending one, two, three or
six months thereafter, as selected by the Lessee by irrevocable notice to the
Lessor and the Indenture Trustee not less than three (3) Business Days prior to
the first day of such Interest Period; provided that, the foregoing provisions
relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is not a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to carry such Interest
Period into another calendar month in which event such Interest Period shall end
on the immediately preceding Business Day;
(ii) any Interest Period that would otherwise extend beyond the
Expiration Date shall end on the Expiration Date;
(iii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of the Interest Period) shall end on the last
Business Day of a calendar month; and
(iv) The Lessee shall select Interest Periods so as not to require a
payment or prepayment of any Advance during an Interest Period for such Advance.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, together with the rules and regulations promulgated thereunder.
"Land" means the parcel of real property described on Schedule 1 of the
Lease Supplement and all Appurtenant Rights attached thereto.
"Lease" means the Master Lease, dated as of the Closing Date, between the
Lessor and the Lessee, together with the Lease Supplement and all Equipment
Schedules thereto.
"Lease Balance" means, as of any date of determination, an amount equal to
(i) the sum of (A) the aggregate sum of the outstanding principal amount of the
Notes (including all amounts capitalized under the terms of the Participation
Agreement), (B) all accrued and unpaid interest on the Notes, (C) the aggregate
sum of the Certificate Purchaser
<PAGE> 28
Amounts (including all amounts capitalized under the terms of the Participation
Agreement), (D) all accrued and unpaid Certificate Yield on the Certificate
Purchaser Amounts, and (E) all other amounts owing by the Lessee under the
Operative Documents, less (ii) sum of all payments received by the Lessor, the
Indenture Trustee or the Participants on account of payments to reduce the Lease
Balance, including reductions resulting from payments by the Lessor, the Lessee
or the Guarantor, proceeds from the sale of the Property and/or amounts realized
from the Cash Collateral pursuant to the Cash Collateral Agreement.
"Lease Default" means any event or condition which, with the lapse of time
or the giving of notice, or both, would constitute a Lease Event of Default.
"Lease Event of Default" is defined in Section 17.1 of the Lease.
"Lease Supplement" means the Lease Supplement substantially in the form of
Exhibit A to the Lease together with all attachments and schedules thereto, as
such Lease Supplement may be supplemented, amended or modified from time to
time.
"Leasehold Mortgagee" is defined in Section 3.07(c)(iii) of the Ground
Lease.
"Leasehold Mortgages" is defined in Section 3.07(c)(i) of the Ground Lease.
"Lessee" means PeopleSoft, Inc., a Delaware corporation, as Lessee under
the Lease, and its successors and assigns expressly permitted under the
Operative Documents.
"Lessor" means the Owner Trustee, as Lessor under the Lease, and its
successors and assigns expressly permitted under the Operative Documents.
"Lessee Obligations" is defined in Section 1.01 of the Cash Collateral
Agreement.
"Lessor Losses" is defined in Section 13.14 of the Participation Agreement.
"Lessor Financing Statements" means UCC financing statements appropriately
completed and executed for filing in the applicable jurisdiction in order to
protect the Lessor's interest under the Lease to the extent the Lease is a
security agreement.
"Lessor Lien" means any Lien, true lease or sublease or disposition of
title arising as a result of (a) any claim against the Lessor or the Bank not
resulting from the transactions contemplated by the Operative Documents, (b) any
act or omission of the Lessor or the Bank which is not required by the Operative
Documents or is in violation of any of the terms of the Operative Documents, (c)
any claim against the Lessor or the Bank with respect to Taxes or Transaction
Expenses against which Lessee is not required to indemnify the Lessor or the
Bank in its individual capacity, pursuant to Sections 9 or 13.5 of the
Participation Agreement or (d) any claim against the Lessor arising out of any
transfer by the Lessor of all or any portion of the interest of the Lessor in
the Property, the Trust Estate or the Operative Documents other than the
transfer of title to or
<PAGE> 29
possession of the Property by the Lessor pursuant to and in accordance with the
Lease, the Indenture or the Participation Agreement or pursuant to the exercise
of the remedies set forth in Article XVII of the Lease.
"Lessor Parties" means the Lessor, the Bank, the Participants and the
Indenture Trustee.
"Level I" means at any time that the Lessee's Consolidated Funded Debt to
Consolidated Total Capital ratio at the end of any fiscal quarter is less than
.10 to 1.0.
"Level II" means at any time that the Lessee's Consolidated Funded Debt to
Consolidated Total Capital ratio at the end of the applicable fiscal quarter is
greater than or equal to .10 to 1.0 but is less than .20 to 1.0.
"Level III" means at any time that the Lessee's Consolidated Funded Debt to
Consolidated Total Capital ratio at the end of the applicable fiscal quarter is
greater than or equal to .20 to 1.0 but is less than .25 to 1.0.
"Level IV" means at any time that the Lessee's Consolidated Funded Debt to
Consolidated Total Capital ratio at the end of the applicable fiscal quarter is
greater than or equal to .25 to 1.0 but is less than .35 to 1.0.
"Lien" means any mortgage, deed of trust, pledge, security interest,
encumbrance, lien, easement, servitude or charge of any kind, including, without
limitation, any irrevocable license, conditional sale or other title retention
agreement, any lease in the nature thereof, or any other right of or arrangement
with any creditor to have its claim satisfied out of any specified property or
asset with the proceeds therefrom prior to the satisfaction of the claims of the
general creditors of the owner thereof, whether or not filed or recorded, or the
filing of, or agreement to execute as "debtor", any financing or continuation
statement under the Uniform Commercial Code of any jurisdiction or any federal,
state or local lien imposed pursuant to any Environmental Law.
"Loans" means Tranche A Loans and Tranche B Loans.
"Loan Value" means with respect to the Property subject to the Lease an
amount determined by multiplying the aggregate unpaid principal amount of the
Notes, or unpaid Certificate Purchaser Amounts of the Certificates, immediately
prior to the date on which the Loan Value is to be paid by a fraction in which
the numerator is the portion of the Asset Termination Value to be repaid
pursuant to Article XVI of the Lease in connection with a Significant Casualty
or Significant Condemnation and the denominator is the Asset Termination Value
of the Property then subject to the Lease.
"Losses" is defined in Section 13.15(b) of the Participation Agreement.
"Lot 56" means an approximately 20.538 acre parcel commonly known as Lot
56C in the Hacienda Business Park, Pleasanton, California.
<PAGE> 30
"Marketing Period" means the period commencing on the date one hundred
eighty (180) days prior to the Expiration Date and ending on the Expiration
Date.
"Material", "Materially", and "Material Adverse Effect" mean material to,
or a material adverse effect on, (i) the consolidated financial position,
business or consolidated results of operations of the Lessee or the Guarantor,
(ii) the ability of the Lessee or the Guarantor to perform its obligations under
any of the Operative Documents, (iii) the value or condition of the Property or
the Lessor's interests therein or title thereto, or (iv) the ability of the
Lessor, the Indenture Trustee or any Participant to enforce any of its rights or
remedies under any Operative Document.
"Material Plan" means at any time a Plan or Plans having aggregate Unfunded
Liabilities in excess of $1,000,000.
"Maturity Date" means the fifth anniversary of the Closing Date, as such
date may be accelerated or extended pursuant to Section 3.8 of the Participation
Agreement.
"Memorandum of Ground Lease" means the Memorandum of Lease to be executed,
delivered and recorded pursuant to the Ground Lease.
"Modifications" is defined in Section 11.1(a) of the Lease.
"Momentum Distribution" is defined in the definition of the term Momentum
Transaction.
"Momentum Transaction" means a transaction to be consummated by the Lessee
consisting of (i) the establishment of a new entity ("Momentum") for the purpose
of developing enterprise application software for selected industry markets,
(ii) distribution by the Lessee to Momentum of an amount not to exceed
$300,000,000 (the "Momentum Distribution") and (iii) the distribution of the
shares of callable common stock of Momentum to the stockholders of the Lessee.
"Mortgage" means, with respect to the Property, a Construction Deed of
Trust, Security Agreement and Financing Statement substantially in the form
attached as Exhibit Q to the Participation Agreement, made by the Lessor in
favor of a trustee for the Indenture Trustee for the benefit of the Participants
and satisfactory in form and substance to the Indenture Trustee and the Required
Participants in order to create a first priority mortgage lien on the Lessor's
Ground Lease Interest, a first priority mortgage lien on Lessor's fee interest
in the Improvements and a first priority security interest in the Equipment.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
<PAGE> 31
"Net Proceeds" means all amounts paid in connection with any Casualty or
Condemnation, and all interest earned thereon, less the expense of claiming and
collecting such amounts, including all costs and expenses in connection
therewith for which the Indenture Trustee or the Lessor is entitled to be
reimbursed pursuant to the Lease.
"Non-Consenting Participant" means any Participant which has denied, or is
deemed to have denied, an Extension Request pursuant to Section 3.8(b) of the
Participation Agreement.
"Note Holder" means any holder of a Note.
"Note Purchaser's Commitment" means, as to any Note Purchaser, its Tranche
A Loan Commitment and its Tranche B Loan Commitment.
"Note Purchasers" means the Persons listed as Note Purchasers on Schedule I
to the Participation Agreement.
"Notes" means the Tranche A Notes and the Tranche B Notes, collectively.
"Notes Basic Rent" means the sum of (i) the principal due on the Notes on
any Scheduled Payment Date pursuant to the Indenture, plus (ii) the interest due
on the Notes on each Payment Date pursuant to the Indenture.
"Notice of Ground Lease Purchase Option Exercise" is defined in Section
6.01 of the Ground Lease.
"Notice of Ground Lease Rent Increase" is defined in Section 2.03 of the
Ground Lease.
"Notice of Security Interest" is defined in Section 2.01(a) of the Cash
Collateral Agreement.
"Operative Documents" means the following:
(a) the Participation Agreement;
(b) the Lease and Lease Supplement;
(c) the Guarantee;
(d) the Ground Lease and Memorandum of Ground Lease;
(e) the Construction Agency Agreement;
(f) the Assignment of Lease and each Supplement to the
Assignment of Lease;
(g) the Consent to Assignment;
(h) the Equipment Schedules;
(i) the Mortgage;
<PAGE> 32
(j) the Construction Agency Agreement Assignment;
(k) the Consent to Construction Agency Agreement
Assignment;
(l) the Assignment of Construction Documents;
(m) the Cash Collateral Agreement;
(n) the Indenture;
(o) the Notes;
(p) the Certificates;
(q) the Trust Agreement; and
(r) the Appointment of Co-Trustee.
"Option Exercise Notification Date" is defined in Section 6.01 of the
Ground Lease.
"Original Executed Counterpart" is defined in Section 31.8 of the Lease.
"Outside Completion Date" means the eighteenth monthly anniversary of the
Closing Date.
"Outstanding" when used with respect to the Notes, means as of the date of
determination, all Notes theretofore issued and delivered under the Indenture,
except:
(i) Notes theretofore canceled by the Indenture Trustee or
delivered to the Indenture Trustee for cancellation;
(ii) Notes or portions thereof for whose payment or redemption
money in the necessary amount is on deposit with the Indenture Trustee,
provided that such Notes are to be redeemed and notice of such
redemption has been duly given and not revoked or otherwise withdrawn
pursuant to the Indenture; and
(iii) Notes paid, or in exchange for which, or in lieu of which
other Notes have been authenticated and delivered pursuant to the
Indenture.
"Overdue Rate" means (i) with respect to the Notes, the interest rate then
applicable thereto plus 2% per annum, and (ii) with respect to the Certificates,
the Certificate Yield rate then applicable thereto plus 2% per annum.
"Owner Trustee" means Wilmington Trust Company, not in its individual
capacity, but solely as Owner Trustee under the Trust Agreement, and any
successor or replacement Owner Trustee expressly permitted under the Operative
Documents.
"Partial Purchase Option" is defined in Section 20.1(a) of the Lease.
"Participant Balance" means, for any Note Holder or Certificate Holder as
of any date of determination, an amount equal to the outstanding unpaid
principal amount or Certificate Purchaser Amounts of the applicable series of
Notes or Certificates held by
<PAGE> 33
such Note Holder or Certificate Holder, together with all accrued and unpaid
interest and Certificate Yield thereon.
"Participants" means the Note Purchasers, the Certificate Purchasers and
all future Note Holders and Certificate Holders, collectively.
"Participant's Letter" is defined in Section 12.1(c) of the Participation
Agreement.
"Participation Agreement" means the Participation Agreement, dated as of
the Closing Date, among the Lessee, the Lessor, the Participants and the
Indenture Trustee.
"Payment Date" means (a) any Scheduled Payment Date and (b) any date on
which interest or Certificate Yield is payable pursuant to Section 4 of the
Indenture or Section 2.7 of the Trust Agreement in connection with any payment
or prepayment of the Notes and/or the Certificates.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Exceptions" means (i) Liens of the types described in clauses
(i), (ii), (iii), (v), (vii) and (viii) of the definition of Permitted Liens;
and (ii) all encumbrances, exceptions, restrictions, easements, rights of way,
servitudes, encroachments and irregularities in title, other than Liens which,
in the reasonable assessment of the Construction Agent, do not materially impair
the value of the Property or the use of the Property for its intended purpose.
"Permitted Investments" means (i) the investments permitted by the Lessee's
investment guidelines as approved by the Lessee's board of directors from time
to time, a copy of which shall be provided to the Indenture Trustee and the
Participants, (ii) existing investments in Subsidiaries, (iii) investments in
new Subsidiaries after the Closing Date in an aggregate amount at any time not
to exceed 20% of the Lessee's Consolidated Tangible Net Worth at such time, and
(iv) loans or advances to employees of the Lessee or its Subsidiaries in the
ordinary course of business.
"Permitted Liens" means:
(i) the respective rights and interests of the parties to the
Operative Documents as provided in the Operative Documents;
(ii) the rights of any sublessee or assignee under a sublease or
an assignment expressly permitted by the terms of the Lease;
(iii) Liens for Taxes that either are not yet due or are being
contested in accordance with the provisions of Section 13.1 of the
Lease;
<PAGE> 34
(iv) Liens arising by operation of law, materialmen's,
mechanics', workers', repairmen's, employees', carriers', warehousemen's
and other like Liens in connection with any Modifications or arising in
the ordinary course of business for amounts that either are not more
than 60 days past due or are being diligently contested in good faith by
appropriate proceedings, so long as such proceedings satisfy the
conditions for the continuation of proceedings to contest Taxes set
forth in Section 13.1 of the Lease;
(v) Liens of any of the types referred to in clause (iv) above
that have been bonded for not less than the full amount in dispute (or
as to which other security arrangements satisfactory to the Lessor have
been made), which bonding (or arrangements) shall comply with applicable
Requirements of Law, and has effectively stayed any execution or
enforcement of such Liens;
(vi) Liens arising out of judgments or awards with respect to
which appeals or other proceedings for review are being prosecuted in
good faith and for the payment of which adequate reserves have been
provided as required by GAAP or other appropriate provisions have been
made, so long as such proceedings have the effect of staying the
execution of such judgments or awards and satisfy the conditions for the
continuation of proceedings to contest set forth in Section 13.1 of the
Lease;
(vii) all encumbrances, exceptions, restrictions, easements,
rights of way, servitudes, encroachments and irregularities in title,
other than Liens which, in the reasonable assessment of the Indenture
Trustee, do not materially impair the value of the Property or the use
of the Property for its intended purpose;
(viii) easements, rights of way and other encumbrances on title
to real property pursuant to Section 12.2 of the Lease; and
(ix) a Lien consisting of a deposit or pledge made, in the
ordinary course of business, in connection with, or to secure payment
of, obligations under worker's compensation, unemployment insurance or
similar legislation.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
governmental authority or any other entity.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.
<PAGE> 35
"Plans and Specifications" means, with respect to the Property, (a) prior
to the submittal of final plans and specifications in connection with the
application for a building permit for any Improvements on the Property, the
plans and specifications submitted in connection with the design review approval
for such Improvements (such plans and specifications may also be referred to
herein as the "Design Review Plans and Specifications"), and (b) after the
submittal of final plans and specifications in connection with the application
for a building permit for any Improvements on the Property, such final plans and
specifications. Any such final plans and specifications shall not vary
materially from the Design Review Plans and Specifications without the written
consent of the Owner Trustee and the Indenture Trustee.
"Project Costs" means the Lease Balance less any amounts included therein
not constituting project costs within the meaning of such term under GAAP in
effect on the date of the Participation Agreement. Project costs shall include,
without limitation, the incremental cost of insurance, if any, required by
Article 14 of the Lease.
"Property" means (i) the Ground Lease Interest and (ii) all of the
Improvements, Equipment and Fixtures at any time located on or under such Ground
Lease Interest other than Equipment and Fixtures not financed by an Advance and
not becoming property of the Lessor under Article XI of the Lease.
"Property Balance" means, as of any date of determination, with respect to
the Property, an amount equal to (i) the sum of (A) the aggregate sum of the
outstanding principal amount of the Notes (including all amounts capitalized
under the terms of the Participation Agreement), (B) all accrued and unpaid
interest on the Notes, (C) the aggregate sum of the Certificate Purchaser
Amounts (including all amounts capitalized under the terms of the Participation
Agreement), (D) all accrued and unpaid Certificate Yield on the Certificate
Purchaser Amounts, and (E) all other amounts owing by the Lessee under the
Operative Documents, less (ii) sum of all payments received by the Lessor, the
Indenture Trustee or the Participants on account of payments to reduce Asset
Termination Value, including reductions resulting from payments by the Lessor,
the Lessee or the Guarantor, the proceeds from the sale of the Property and/or
amounts realized from the Cash Collateral pursuant to the Cash Collateral
Agreement.
"Property Cost" means, with respect to the Property, the aggregate amount
of all Property Improvements Costs.
"Property Improvements Costs" means, with respect to the Property, the
amount funded to or on behalf of the Construction Agent or the Lessee by the
Lessor under the Participation Agreement and the Construction Agency Agreement
to construct any Improvements, Fixtures or Modifications, to purchase Equipment
to be used on the Property in accordance with the Plans and Specifications
therefor and the Operative Documents and to pay Transaction Expenses during the
Construction Period that are to be capitalized under Section 9.1 of the
Participation Agreement, as set forth in the Acquisition Request and Funding
Requests therefor (including interest on the Notes and Certificate Yield on the
Certificate Purchaser Amounts during the Construction Period
<PAGE> 36
applied to such cost and funded by an Interest Payment Advance and amounts
funded by one or more Lessor Parties and capitalized under Section 3.9(f) of the
Participation Agreement).
"Proportionate Share" is defined in Section 1.01(b) of the Cash Collateral
Agreement.
"Purchase Notice" is defined in Section 20.1(a) of the Lease.
"Purchase Option" is defined in Section 20.1(a) of the Lease.
"Purchase Option Price" is defined in Section 20.1(a) of the Lease.
"Related Agreements" means all chattel paper, accounts, instruments,
documents, investment property and general intangibles relating to any of the
Land, Improvements or Appurtenant Rights or to the present or future
development, construction, operation or use of any of the Land, Improvements or
Appurtenant Rights, including (a) all plans, specifications, construction
agreements, maps, surveys, studies, books of account, records, files, insurance
policies, guarantees and warranties relating to such Land or Improvements or to
the present or future development, construction, operation or use of such Land,
Improvements or Appurtenant Rights (including the Construction Contracts and the
Plans and Specifications); (b) all architectural, engineering, construction and
management contracts, all supply and service contracts for water, sanitary and
storm sewer, drainage, electricity, steam, gas, telephone and other utilities
relating to such Land, Improvements or Appurtenant Rights or to the present or
future development, construction, operation or use of such Land, Improvements or
Appurtenant Rights; and (c) all guaranties and warranties, letters of credit,
and documents relating to such Land, Improvements or Appurtenant Rights or to
the present or future development, construction, operation or use of such Land,
Improvements or Appurtenant Rights and all computer software specifically
relating to the design maintenance, operation or construction of the
Improvements.
"Related Permits" shall mean all licenses, authorizations, certificates,
variances, consents, approvals and other permits, now or hereafter pertaining to
any of the Land, Improvements or Appurtenant Rights and all trademarks or
business names relating to any of the Land, Improvements or Appurtenant Rights
or the present or future development, construction, operation or use of any of
the Land, Improvements or Appurtenant Rights.
"Release" means any release, pumping, pouring, emptying, injecting,
escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or
emission of a Hazardous Substance.
"Remarketing Option" is defined in Section 22.1 of the Lease.
"Renewal Effective Date" is defined in Section 21.1(a) of the Lease.
<PAGE> 37
"Renewal Option" is defined in Section 21.1(a) of the Lease.
"Renewal Request" is defined in Section 21.1(a) of the Lease.
"Renewal Response Date" is defined in Section 21.1(a) of the Lease.
"Renewal Term" means each five year renewal period commencing on each
Renewal Effective Date with respect to which the Lessee has exercised its
Renewal Option pursuant to Section 21.1 of the Lease.
"Rent" means, collectively, the Basic Rent and the Supplemental Rent, in
each case payable under the Lease.
"Rent Increase Notification Date" is defined in Section 2.03 of the Ground
Lease.
"Replacement Participant" is defined in Section 3.8(c) of the Participation
Agreement.
"Requesting Party" is defined in Section 26.1 of the Lease.
"Required Certificate Holders" means, at any time, the holders of 66-2/3%
of the outstanding stated amount of all Certificates.
"Required Modification" is defined in Section 11.1(a) of the Lease.
"Required Note Holders" means, at any time, the holders of 66-2/3% in
aggregate principal of the Outstanding Notes.
"Required Participants" means, at any time, the Required Note Holders and
the Required Certificate Holders.
"Requirement of Law" means all Federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting the Property, the Improvements or the
demolition, construction, use or alteration thereof, whether now or hereafter
enacted and in force, including any that require repairs, modifications or
alterations in or to the Property or in any way limit the use and enjoyment
thereof (including all building, zoning and fire codes and the Americans with
Disabilities Act of 1990, 42 U.S.C. Section 1201 et. seq. and any other similar
Federal, state or local laws or ordinances and the regulations promulgated
thereunder) and any that may relate to environmental requirements (including all
Environmental Laws), and all permits, certificates of occupancy, licenses,
authorizations and regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instruments which are either of
record or known to the Lessee affecting the Property, the Appurtenant Rights and
any easements, licenses or other agreements entered into pursuant to Section
12.2 of the Lease.
<PAGE> 38
"Residual Value Guarantee Amount" means, as of any date of determination,
an amount equal to the aggregate Tranche A Proportionate Share of the Lease
Balance; provided, however, that if (i) a Cost Overrun Event has occurred and
the Lessee has itself funded (without reimbursement from Advances) any
additional Property Improvement Costs or Transaction Expenses of constructing
the Improvements caused by such Cost Overrun Event or (ii) any amount has been
capitalized pursuant to clause (ii) of Section 3.9(f) of the Participation
Agreement, then the Residual Value Guaranty Amount shall be an amount equal to
the remainder of (A) the total Tranche A Proportionate Share of the total
Project Costs of the Improvements minus (B) the aggregate amount of any such
overrun costs and expenses so funded by the Lessee (and not reimbursed from
Advances).
"Response Actions" means remove, removal, remedy, and remedial action as
those terms are defined in CERCLA, 42 U.S.C. Section 9601.
"Responsible Officer" means the President, any Vice President, the
Treasurer or the Controller of any Person.
"Responsible Officer's Certificate" means a certificate signed by any
Responsible Officer, which certificate shall certify as true and correct the
subject matter being certified to in such certificate.
"Restricted Payment" means (i) the declaration or payment of any dividend
or the incurrence of any liability to make any payment or distribution of cash
or other property or assets in respect of a Person's stock, (ii) any payment on
account of the purchase, redemption, defeasance or other retirement of a
Person's stock or any other payment or distribution made in respect thereof,
either directly or indirectly, or (iii) any payment, loan, contribution, or
other transfer of funds or other property to any stockholder of such Person.
"Scheduled Payment Date" means (a) as to interest on any Note or the
Certificate Yield on any Certificate Purchaser Amount having an Interest Period
of three months or less, the last day of each month, (b) as to interest on any
Note or the Certificate Yield on any Certificate Purchaser Amount having an
Interest Period longer than three months, each day which is three months, or a
whole multiple thereof, after the first day of such Interest Period and the last
day of such Interest Period, (c) as to the interest or Certificate Yield on
Fixed Rate Advances, the last day of each March, June, September and December of
each year and the maturity date of such Advance (and related Loans and
Certificate Purchaser Amounts), and (d) as to the principal amount of the Notes
and the Certificate Purchaser Amounts, each date indicated on Schedule 1 to the
Lease as being a payment date with respect to such portion of the Property
Improvements Cost, if any.
"Securities Accounts" is defined in Section 2.01(b) of the Cash Collateral
Agreement.
<PAGE> 39
"Securities Act" means the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"Security Documents" means the collective reference to the Lease, the
Indenture, Mortgage, the Assignment of Lease, the Construction Agency Agreement
Assignment, the Assignment of Construction Documents, the Cash Collateral
Agreement and all other security documents hereafter delivered to the Indenture
Trustee granting a Lien on any asset or assets of any Person to secure the
obligations and liabilities of the Lessor to the Indenture Trustee and the
Participants under the Participation Agreement or of the Lessee to the Lessor
under the Lease.
"Shortfall Amount" means, as of the Expiration Date, the amount that the
Asset Termination Value will exceed the aggregate of the Gross Proceeds and the
Residual Value Guarantee Amount upon the completion of a sale of the Property
pursuant to Article XXII of the Lease.
"Significant Casualty" means (i) a Casualty that results in an insurance
settlement on the basis of a total loss, or a constructive or compromised total
loss, or (ii) a Casualty that in the reasonable, good faith judgment of the
Lessee (as evidenced by a Responsible Officer's Certificate delivered to the
Lessor pursuant to Section 16.1 of the Lease) either (a) renders the Property
unsuitable for continued use as a commercial property of the type of such
property immediately prior to such Casualty or (b) is so substantial in nature
that restoration of the Property to substantially its condition as existed
immediately prior to such Casualty would be impracticable or impossible.
"Significant Condemnation" means (i) a Condemnation that involves a taking
of Lessor's entire title to the related Ground Lease Interest, (ii) a
Condemnation that results in loss of possession of the Property by the Lessee
for a period in excess of one hundred eighty (180) consecutive days, or (iii) a
Condemnation that in the reasonable, good faith judgment of the Lessee (as
evidenced by a Responsible Officer's Certificate delivered to the Lessor
pursuant to Section 16.1 of the Lease) either (a) renders the Property
unsuitable for continued use as commercial of the type of such property
immediately prior to such Condemnation or (b) is such that restoration of the
Property to substantially its condition as existed immediately prior to such
Condemnation would be impracticable or impossible.
"Significant Event" means (i) a Significant Casualty, (ii) a Significant
Condemnation, (iii) an event where the restoration of the Property subject to a
Casualty or Condemnation shall not be completed prior to the earlier of (A) the
180th day prior to the Expiration Date or (B) twelve (12) months following the
occurrence of such Casualty or Condemnation or (iv) the occurrence of an
Environmental Violation where the costs to clean up or remediate the same are
reasonably estimated by the Lessee to exceed $1,000,000.
<PAGE> 40
"Six Month Extension Termination Date" means, if the 364 Day Commitment is
extended pursuant to Section 3.8(b) of the Participation Agreement, the date
which is six months after the expiration of the 364 Day Commitment.
"Sub-Participant" is defined in Section 12.2(a) of the Participation
Agreement.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, trust or estate of which (or in which) more than 50% of:
(a) the outstanding capital stock having Voting Power to elect a
majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might having Voting Power upon the occurrence of
any contingency),
(b) the interest in the capital or profits of such partnership or
joint venture, or
(c) the beneficial interest of such trust or estate,
is at the time directly or indirectly owned by such Person, by such Person and
one or more of its Subsidiaries or by one or more of such Person's Subsidiaries.
"Supplemental Rent" means all amounts, liabilities and obligations (other
than Basic Rent) which Lessee assumes or agrees to pay to Lessor or any other
Person under the Lease, or under any of the other Operative Documents,
including, without limitation, payments of the Residual Value Guarantee Amount,
the Shortfall Amount and payments pursuant to Sections 16.2, 16.3. 16.4 or 17.6
of the Lease and Articles XX and XXII of the Lease.
"Supplement to Assignment of Lease" means the Supplement substantially in
the form of Exhibit A to the Assignment of Lease together with all attachments
and schedules thereto, as such Supplement to Assignment of Lease may be
supplemented, amended or modified from time to time.
"Taxes" is defined in the definition of Impositions.
"Term" is defined in Section 2.3 of the Lease.
"Termination Date" is defined in Section 15.1(d), 16.2(a) and 17.2(e) of
the Lease.
"Termination Notice" is defined in Section 16.1 of the Lease.
"364 Day Commitment" means $83,000,000.
"Total Commitment" means the amount set forth as such in Schedule I to the
Participation Agreement or, if such amount is reduced pursuant to Subparagraph
3.8(a) of the Participation Agreement, the amount to which so reduced.
<PAGE> 41
"Tranche A Loans" is defined in Section 1.1 of the Indenture.
"Tranche A Loan Commitment" means, as to any Note Purchaser, the obligation
of such Note Purchaser to purchase Tranche A Notes from the Owner Trustee under
Sections 3.3 and Section 3.6 of the Participation Agreement in an aggregate
principal amount not to exceed the amount set forth opposite such Note
Purchaser's name, at any time prior to Completion, under the column heading
"Pre-Completion Commitments" and, at any time after Completion, under the column
heading "Post-Completion Commitments" on Schedule I to the Participation
Agreement.
"Tranche A Note Holders" means Note Holders holding Tranche A Notes.
"Tranche A Notes" is defined in Section 1.4 of the Indenture.
"Tranche A Participant Balance" means for each Tranche A Participant as of
any date of determination an amount equal to (i) the sum of the outstanding
principal amount of the Tranche A Notes held by such Tranche A Participant
(including amounts capitalized under Section 3.9(f) of the Participation
Agreement), together with all accrued and unpaid interest thereon, and all other
amounts owing by the Lessee to such Tranche A Participant under the Operative
Documents, less (ii) the sum of all payments received by the Tranche A
Participant on account of payments to reduce the outstanding principal amount of
the Tranche A Notes held by such Tranche A Participant, including reductions
resulting from payments by the Lessor, the Lessee and the Guarantor, proceeds
from the sale of the Property and/or amounts realized from the Cash Collateral
pursuant to the Cash Collateral Agreement.
"Tranche A Proportionate Share" means (a) at any time prior to the
Completion Date, eighty-nine and nine-tenths percent (89.9%) and (b) at any time
on or after the Completion Date, eighty-five and five-tenths percent (85.5%).
"Tranche B Loans" is defined in Section 1.2 of the Indenture.
"Tranche B Loan Commitment" means, as to any Note Purchaser, the obligation
of such Note Purchaser to purchase Tranche B Notes from the Owner Trustee under
Sections 3.3 and 3.6 of the Participation Agreement in an aggregate principal
amount not to exceed the amount set forth opposite such Note Purchaser's name,
at any time prior to Completion, under the column heading "Pre-Completion
Commitments" and, at any time after Completion, under the column heading
"Post-Completion Commitments" on Schedule I to the Participation Agreement.
"Tranche B Note Holders" means Note Holders holding Trance B Notes.
"Tranche B Notes" is defined in Section 1.4 of the Indenture.
<PAGE> 42
"Tranche B Participant Balance" means for each Tranche B Participant as of
any date of determination an amount equal to (i) the sum of the outstanding
principal amount of the Tranche B Notes held by such Tranche B Participant
(including amounts capitalized under Section 3.9(f) of the Participation
Agreement, together with all accrued and unpaid interest thereon, and all other
amounts owing by the Lessee to such Tranche B Participant under the Operative
Documents, less (ii) the sum of all payments received by the Tranche B
Participant on account of payments to reduce the outstanding principal amount of
the Tranche B Notes held by such Tranche B Participant, including reductions
resulting from payments by the Lessor, the Lessee and the Guarantor, proceeds
from the sale of the Property and/or amounts realized from the Cash Collateral
pursuant to the Cash Collateral Agreement.
"Transaction Expenses" means all costs and expenses incurred in connection
with the preparation, execution and delivery of the Operative Documents and the
transactions contemplated by the Operative Documents including without
limitation:
(a) the reasonable fees, out-of-pocket expenses and disbursements
of counsel for each of the Bank, the Lessor, the Arranger, the Indenture
Trustee and the Ground Lessor, in negotiating the terms of the Operative
Documents and the other transaction documents, preparing for the closing
under, and rendering opinions in connection with, such transactions and
in rendering other services customary for counsel representing parties
to transactions of the types involved in the transactions contemplated
by the Operative Documents;
(b) the reasonable fees, out-of-pocket expenses and disbursements
of counsel, and (without duplication) the reasonable allocated cost of
internal legal services and all disbursements of internal counsel of
each of the Bank, the Lessor, the Arranger, the Indenture Trustee and
the Ground Lessor in connection with (1) any amendment, supplement,
waiver or consent with respect to any Operative Documents requested or
approved by the Lessee and (2) any enforcement of any rights or remedies
against the Lessee in respect of the Operative Documents;
(c) any other reasonable fees, out-of-pocket expenses,
disbursements or cost of any party to the Operative Documents or any of
the other transaction documents;
(d) any and all Taxes and fees incurred in recording, registering
or filing any Operative Document or any other transaction document, any
deed, declaration, mortgage, security agreement, notice or financing
statement with any public office, registry or governmental agency in
connection with the transactions contemplated by the Operative
Documents;
(e) any title fees, premiums and escrow costs and other expenses
relating to title insurance and the closing contemplated by the
Transaction Documents;
<PAGE> 43
(f) all expenses relating to all Environmental Audits;
(g) all expenses relating to all Appraisals, provided that such
expenses shall not exceed $8,000 with respect to the Appraisal delivered
on the Closing Date; and
(h) all expenses relating to Arranger's insurance consultant.
"Transfer" means any conveyance, sale, assignment, transfer or other
disposition.
"Transfer Notice" is defined in Section 12.1(b) of the Participation
Agreement.
"Trust" means the trust created by the Trust Agreement.
"Trust Agreement" means the Trust Agreement, dated as of September ___,
1998, among the Certificate Purchasers and the Bank.
"Trust Estate" is defined in Section 1.2(a) of the Trust Agreement.
"Trustee Financing Statements" means UCC financing statements
appropriately completed and executed for filing in the applicable jurisdiction
in order to perfect a security interest in favor of the Indenture Trustee for
the ratable benefit of the Participants in the Equipment located on the Property
or in any Improvements on the Property.
"Trust Indenture Estate" is defined in the "Now, Therefore" clause at
the beginning of the Indenture.
"Type" is defined in Section 3.9(a) of the Participation Agreement.
"UCC Financing Statements" means collectively the Trustee Financing
Statements and the Lessor Financing Statements.
"Underwriting Fee" is defined in Section 4.2 of the Participation
Agreement.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Uniform Commercial Code" and "UCC" means the Uniform Commercial Code as
in effect in any applicable jurisdiction.
<PAGE> 44
"Unused" means, with respect to the Total Commitment at any time, the
remainder of (a) the Total Commitment at such time minus (b) the aggregate
amount of all Advances made prior to such time.
"Voting Power" means, with respect to securities issued by any Person,
the combined voting power of all securities of such person which are issued and
outstanding at the time of determination and which are entitled to vote in the
election of directors of such Person, other than securities having such power
only by reason of the happening of a contingency.
DOCUMENT NUMBER: 365933.8
DECEMBER 9, 1998
<PAGE> 1
EXHIBIT 21.1
DIRECT SUBSIDIARIES OF PEOPLESOFT, INC.
<TABLE>
<CAPTION>
INCORP/FORMED IN
<S> <C>
PEOPLESOFT ARGENTINA S.A. Argentina
PEOPLESOFT CREDIT CORPORATION California, USA
PEOPLESOFT DO BRASIL LTDA Brazil
PEOPLESOFT FRANCE S.A. France
PEOPLESOFT GERMANY GMBH Germany
PEOPLESOFT IBERICA, S.L. Spain
PEOPLESOFT JAPAN K.K. Japan
PEOPLESOFT MEXICO SA DE CV Mexico
PEOPLESOFT PROPERTIES, INC. California, USA
PEOPLESOFT UK LTD. United Kingdom
PEOPLESOFT USA, INC. California, USA
PEOPLESOFT VENTURES, INC. California, USA
PSFT INTERNATIONAL HOLDINGS C.V. Netherlands
PeopleSoft Schweiz A.G. Switzerland
PeopleSoft Italia Srl. Italy
PeopleSoft C.I. Holdings Ltd. Cayman Islands
Intrepid Systems (UK) Ltd. United Kingdom
</TABLE>
INDIRECT SUBSIDIARIES OF PEOPLESOFT, INC.
<TABLE>
<CAPTION>
INCORP/FORMED IN
<S> <C>
PEOPLESOFT ASIA PTE. LTD. Singapore
PEOPLESOFT AUSTRALIA PTY. LTD. Australia
PEOPLESOFT, B.V. Netherlands
PEOPLESOFT CANADA CO. Canada
PEOPLESOFT C.I. LTD. Cayman Islands
PEOPLESOFT INTERNATIONAL B.V. Netherlands
PEOPLESOFT NEW ZEALAND New Zealand
PEOPLESOFT SOUTH AFRICA (PTY) LIMITED South Africa
PeopleSoft Malaysia Sdn Bdh Malaysia
PeopleSoft Venezuela SA Venezuela
PeopleSoft Hong Kong Limited Hong Kong
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-80755, No. 333-20555, and No. 333-36951) of PeopleSoft, Inc.
and in the related Prospectuses and in the Registration Statements (Form S-8)
pertaining to the Amended and Restated 1989 Stock Plan, the 1992 Directors'
Plan, the Amended and Restated 1992 Employee Stock Purchase Plan of PeopleSoft,
Inc., the Red Pepper Software Company 1993 stock option plan and the Intrepid
Systems, Inc. 1992 stock option plan, of our report dated January 26, 1999, with
respect to the consolidated financial statements of PeopleSoft, Inc. included in
this Form 10-K for the year ended December 31, 1998 filed with the Securities
and Exchange Commission.
Ernst & Young LLP
Walnut Creek, California
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 480,086
<SECURITIES> 206,242
<RECEIVABLES> 425,414
<ALLOWANCES> 40,001
<INVENTORY> 0
<CURRENT-ASSETS> 1,163,515
<PP&E> 314,765
<DEPRECIATION> 128,509
<TOTAL-ASSETS> 1,440,605
<CURRENT-LIABILITIES> 668,487
<BONDS> 0
0
0
<COMMON> 2,339
<OTHER-SE> 661,953
<TOTAL-LIABILITY-AND-EQUITY> 1,440,605
<SALES> 0
<TOTAL-REVENUES> 1,313,673
<CGS> 0
<TOTAL-COSTS> 1,092,164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 27,773
<INTEREST-EXPENSE> 752
<INCOME-PRETAX> 241,576
<INCOME-TAX> 98,358
<INCOME-CONTINUING> 143,218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143,218
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.55
</TABLE>
