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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended NOVEMBER 2, 1996 or
/ /
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________________ to _________________
Commission file number: 0-19558
CENTIGRAM COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 94-2418021
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
91 EAST TASMAN DRIVE
SAN JOSE, CALIFORNIA
(Address of principal 95134
executive offices) (Zip Code)
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Registrant's telephone number, including area code: (408) 944-0250
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF CLASS NAME OF EXCHANGE
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Common Stock, $0.01 par value NASDAQ/National Market System
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Securities registered pursuant to Section 12(g) of the Act: None
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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __X__
The aggregate market value of the voting stock held by non-affiliates of the
Registrant (based on the closing price as reported on the NASDAQ/NMS for January
1, 1997) was $68,550,000. Shares of the Registrant's Common Stock, par value
$0.001 per share, ("Common Stock") held by each executive officer and director
and by each person who owns 5% or more of the outstanding Common Stock have been
excluded in calculating the aggregate market value of voting stock in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes. The number of
outstanding shares of the Registrant's Common Stock, as of January 1, 1997 was
6,978,000.
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ITEM 1. BUSINESS
The following contains forward-looking statements regarding future events or
the future financial performance of Centigram Communications Corporation
(Centigram or the Company) that involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in this Item 1 under "Manufacturing," "Patents, Trade Secrets and
Licenses," "Competition," the last two paragraphs of "Sales and Distribution,"
and the last two paragraphs of "Research and Development," as well as in Item 7
hereof under "Certain Trends and Uncertainties" and elsewhere in this report.
This report includes certain trademarks of Centigram and other companies.
OVERVIEW
Centigram designs, manufactures and markets wireless and wireline messaging
and communications systems that integrate voice, data and facsimile on the
Company's communications server, and provide access to this multimedia
information through a telephone or PC. Centigram also licenses TruVoice, its
patented text-to-speech software. Centigram's applications all operate on a
common hardware and software platform based on industry-standard hardware and
software which is the Company's implementation of its modular expandable system
architecture (MESA). Centigram's system architecture enables a user generally to
expand the capacity of a system in cost-effective increments from the Company's
smallest to its largest system configuration.
In the first quarter of fiscal 1996, the Company introduced its
next-generation platform, the "Series 6." The Series 6, which extends across all
size ranges of the Company's products, has been designed to offer significantly
expanded capacity, improved fault tolerance and greater use of industry-standard
hardware and software than the Company's prior platform. Incorporated into the
Series 6 are the Multi-Vendor Industry Protocol (MVIP), digital signal processor
(DSP) technology and Intel Pentium processors. Significant changes in hardware
are required to upgrade from earlier generations of the Company's products to
Series 6. These hardware changes include line cards, and for the Company's
larger configurations, new hardware platforms which provide greater robustness
and fault tolerance.
The Company's systems are based on industry-standard computer hardware and
operating system software. This enables the Company to bring additional product
features and applications to market more quickly, to utilize low-cost, commonly
available components and to capitalize on third party technological
developments. Centigram's systems can be integrated with central office, mobile
switch and paging terminal systems as well as with most telephone PBX systems.
Such systems are used for switching telephone calls in a variety of customer
premises equipment (CPE) and service provider environments. The Company's
products can also connect with a broad range of host and local area network
(LAN)-based computer systems, including systems based on widely-used mainframes
and minicomputers and personal computers in LANs. In addition, Centigram systems
located at different sites can be linked together in a digital network.
Centigram's distribution strategy is to provide broad, effective market
coverage through the Company's direct sales force and its distributors. The
Company sells its complete line of systems to corporate and institutional end
users through a broad network of distributors and original equipment
manufacturers (OEMs). The Company also sells its systems directly to regional
Bell operating companies (RBOCs), and to large independent telephone companies
and service providers. In addition, the Company sells to service provider
customers through an OEM arrangement with Motorola, Inc. Service providers in
turn employ Centigram systems to provide services to corporate, institutional
and individual end users. In recent periods the Company has been increasing its
international sales and marketing efforts, particularly for international
cellular service providers. Export sales were 30% and 23% of net revenue in
fiscal 1996 and 1995, respectively, and 16% of net revenue in fiscal 1994.
Since 1984, Centigram has been providing innovative, integrated messaging
systems to the CPE and service provider marketplaces, becoming a leader in
developing voice messaging and communications
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products. Today, more than 20,000 Centigram systems are installed with more than
6,000 of them delivering revenue enhancing services to telephone companies,
cellular providers, paging companies, and service bureaus. Centigram products
allow users to play, answer and forward voice, fax and e-mail messages from any
touch-tone telephone or PC anywhere in the world. Users can also add comments to
any message, print fax documents at any fax machine, listen to e-mail messages
and retrieve them by fax, and access one or more computer databases to retrieve
stored information or process transactions.
BACKGROUND
The technologies which form the foundation for the Company's products--voice
messaging, facsimile communications, e-mail, interactive-voice response (IVR)
and text-to-speech--originally emerged as independent technologies and have
historically been offered by different groups of vendors as stand-alone products
with little, if any, ability to integrate with each other. These technologies
can generally be described as follows:
- VOICE MESSAGING enables users to store, send and receive information, or
to access information from automated voice messaging systems, via the
telephone. Voice messaging applications include telephone answering,
automated attendant for inbound call routing, audio text and voice mail.
- FACSIMILE technology permits communication of text and graphics over the
public telephone network using hard copy input and output.
- E-MAIL allows users to send and receive text and data through terminals or
personal computers.
- IVR allows users to access and update information stored in computer
databases using the telephone as a terminal. For example, the financial
services industry uses IVR to permit account balance inquiry and
transaction execution.
- TEXT-TO-SPEECH is a software solution which converts textual information
stored in computer databases into synthesized speech.
Recognition of the benefits of simple, integrated access to these
communications technologies from any location continues to grow. The Company
provides these benefits using either the telephone or the PC as a communications
workstation.
PRODUCTS AND PRODUCT FEATURES
The Company's applications operate on a common software platform, which is
Centigram's implementation of its MESA architecture. The MESA architecture
allows the Company's systems generally to be upgraded in continual,
cost-effective increments from the Company's smallest to its largest system
configurations. In contrast, systems offered by the Company's principal
competitors, due to their architectural constraints, more often require
customers to purchase a new system in order to upgrade features or capacity.
Significant changes in hardware are, however, required to upgrade from earlier
generations of the Company's products to Series 6 products. These hardware
changes include line cards, and for the Company's larger configurations, new
hardware platforms which provide greater robustness and fault tolerance. The
Company provides financial incentives to those customers desiring such upgrades
as well as software programs to assist in the transfer of data, including
recorded speech.
Centigram's systems are available in configurations ranging from four ports,
supporting 50-100 users in small installations, to 240 ports (depending on
application configuration), supporting large headquarters and telecommunications
service provider applications with over 60,000 users depending on the
application. The Company sells its systems at prices ranging from below $10,000
to more than several hundred thousand dollars, depending on system
configuration.
The Company's MESA architecture uses a distributed processing approach that
links separate modules together into a single system. Users can expand systems
to provide more ports and hours of message storage by adding line cards and
opening up partitions in the disk drive. Additional system
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modules are added and linked as existing modules are fully used. This approach
provides a low-cost entry-level product that can be expanded without replacing
existing equipment. In addition, the Company offers connectivity between systems
through MESA-Net, a digital networking option that can link up to 1,500
Centigram systems anywhere in the world. MESA-Net provides end-to-end digital
networking which preserves the clarity of voice and fax messages and reduces
transmission time and cost. MESA-Net provides two networking options.
Low-traffic sites can use MESA-Net Async over modem connections. High traffic
sites can use MESA-Net TCP/IP over high-speed Ethernet networks. MESA-Net II,
introduced with the Series 6, enables messaging across wide area networks at
Ethernet speeds using industry-standard TCP/IP protocols. The Company's products
also support the Audio Messaging Interchange Specification (AMIS) analog
networking protocol, providing interoperability with voicemail systems from
other vendors. In addition, Centigram recently announced its participation in
the joint development of the voice profile for Internet messaging (VPIM)
protocol for transferring messages between disparate voice messaging servers.
VPIM is being designed to enable the exchange of voice, fax or compound voice
and fax messages between Centigram Series 6 communications servers and other
vendors' voice messaging systems.
MESA is based on standard hardware and software technology, such as MVIP,
QNX (a multi-tasking, real-time operating system for Intel microprocessor-based
computers) and the SCSI computer peripherals bus. The Company believes that its
MESA architecture and its platform are unique in the industry, although it has
not applied for patent protection. The Company believes this system architecture
offers competitive advantages to the Company. In the event that competitors were
to successfully implement a similar system architecture, it could have a
material adverse effect on the Company's competitive position.
The Company's Continuous System Operation Software (CSO) increases the
reliability of Centigram's systems by providing a measure of fault tolerance in
the Company's systems. Under CSO, the Company's operating system control is
distributed across multiple modules within a system. If one module ceases to
function, the balance of the operating system activity is shifted to the other
modules and the systems continue to function. In addition, each of the Company's
Series 6 configurations can store messages redundantly, thereby providing
protection against system or disk drive failures. The Company believes that
system reliability is a particularly important purchasing criterion for service
providers and large CPE customers.
Applications currently being used by end users of the Company's systems
include the following:
- A consumer durables manufacturer provides telephone access to messaging
and calendar information via e-mail in printed, facsimile or audio form,
in addition to voice mail messages.The system also gives sales and
marketing staff 24-hour access to product literature and sales information
through FaxMemo.
- A nationwide paging company uses an integrated messaging application to
provide services beyond voice messaging and paging to both outside callers
and subscribers. Outside callers use the locator service and send a page
for future delivery, while subscribers may hear their alphanumeric pages
spoken in text-to-speech or have pages re-transmitted through mailbox
commands.
- An international cellular carrier offers a nationwide voice mail service
through systems linked digitally by MESA-Net. A one call application
automatically routes messages to the correct mailbox location regardless
of call origination point.
- A telephone company, through its directory assistance service, provides
the capability for callers to leave voice mail messages for parties with
unlisted numbers.
- A cellular service provider sends a "record of entrance" to a computer
database when a cellular subscriber roams into the service provider's
territory.The system then calls the subscriber, welcomes the subscriber to
the territory, and advises the subscriber as to available cellular system
features.
The Company's family of products include:
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VOICEMEMO
Centigram's VoiceMemo application provides voice messaging and call
processing capabilities for customers in both CPE and service provider markets.
Systems can be integrated with most central office, mobile switch and paging
terminal systems as well as with most telephone PBX systems, including PBXs
manufactured by AT&T, Fujitsu Ltd., Hitachi Ltd., Mitel Corporation, NEC
Corporation, Northern Telecom and Siemens/ROLM. VoiceMemo provides a full range
of features that have been designed to improve customer service, increase
operating flexibility and employee productivity, and reduce communications
costs. System services include:
VOICE MESSAGING. Voice messaging enables users to store, send and
receive information, or to access information from automated voice messaging
systems, via the telephone.
TELEPHONE ANSWERING. Telephone answering automatically answers a busy
or unanswered telephone and records a voice message.
AUTOMATED ATTENDANT. Automated attendant answers incoming calls and
allows callers to direct calls to telephone extensions without the use of a
human operator.
PAGING. The VoiceMemo paging feature initiates a page upon receipt of
voicemail messages. VoiceMemo supports all commonly available (tone only,
tone/vibration, digital and voice) pagers.
AUDIOTEXT. Audiotext adds a voice bulletin board to a voice messaging
system, providing callers access to recorded announcements such as public
service, product or service information.
CALLAGENT. CallAgent is a software application which allows users to
program the manner in which the telephone is answered and calls are
directed.
CALL PLACEMENT (OFF-SYSTEM MESSAGING). Call placement allows a
VoiceMemo user to send messages to an "off-system" telephone number, such as
a home number, much the same as a message is sent to a VoiceMemo mailbox.
Before making a message, the user enters a telephone number to which the
message is to be delivered. The system dials the off-system telephone and
attempts to deliver the message.
FAXMEMO
Centigram's FaxMemo application enables a user to have facsimile
communications delivered to voice mailboxes rather than directly to a facsimile
machine. FaxMemo features include:
FAX MAIL. Using FaxMemo, users can receive facsimile messages in their
personal mailboxes with arrival notification, privacy and control. The user
can route the facsimile message to any machine at any time, or distribute
the facsimile to other users. Centigram's system permits forwarding of
facsimile messages from one person to another, addition of voice comments
and forwarding of facsimile messages to a facsimile machine or mailbox at a
pre-arranged time.
FAX BROADCASTING AND PUBLISHING. FaxMemo and the FaxIt feature of the
Company's Voice Gateway product both support facsimile publishing and
broadcast capabilities. Fax publishing makes frequently required documents
such as sales literature, price lists, technical documentation and reports
available to any facsimile machine. Fax broadcasting automatically
distributes a facsimile message to a large distribution list.
GUARANTEED FAX. Guaranteed Fax stores facsimile messages for a
recipient when the message cannot be delivered to the recipient's facsimile
machine at the time of its initial transmission because the machine is
otherwise occupied. The facsimile message is automatically delivered to the
recipient's facsimile machine when it becomes available.
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ONEVIEW
Centigram's OneView products allow users integrated access to multimedia
messaging from their personal computers and, with OneView Remote, even while
away from their offices. Connected through LAN-based personal computers
operating under Microsoft-Registered Trademark- Windows-TM-, OneView gives users
point and click access to their voice, fax and compound voice and fax messages
by listing them in a single In Box window. During fiscal 1996 Centigram expanded
OneView's remote capabilities to include a remote mode which allows users to
work "off-line". OneView Remote users can create, play, answer and forward voice
and fax messages from their personal computers from remote locations by
accessing their messaging system, downloading their messages to their local hard
disk, answering messages off-line, and reconnecting to the messaging system to
deliver the messages.
INTERACTIVE VOICE RESPONSE
Interactive Voice Response (IVR) allows callers to access information in a
computer database and update such information over the telephone. IVR
applications use the telephone keypad as a terminal for data entry and provide
voice output. Pre-recorded voice is used for standard and numeric responses,
while text-to-speech provides an unlimited vocabulary, verbalizing any other
information in the database. For example, account balance inquiry applications
in the banking and finance industry are now commonplace and have led to
increasing acceptance of IVR as a means of accessing information, improving
customer service and lowering operating costs. Other applications include funds
transfer, credit verification, insurance claim and policy status, dispatch of
off-site personnel, freight status and location information, college class
registration and automated order entry.
TEXT-TO-SPEECH
The Company's text-to-speech (TTS) software, TruVoice, takes textual
information as input and generates high quality, computer generated speech
output. TruVoice also contains an e-mail preprocessor that converts
abbreviations and other language forms commonly used in e-mail into full text
for text-to-speech processing. Workstations, personal computers and
telecommunications systems now include the necessary hardware to make TTS a
software option at significantly reduced end-user cost. In addition,
multi-tasking operating systems make applications more useful and easier to
develop, and recent advances in semiconductor DSP devices provide similar
potential opportunities. As a result, the Company believes that increasing
opportunities will emerge for TTS software. The Company offers its TTS software
with certain of the Company's systems, on an initial and add-on basis, and is
making the software available through third party licensing arrangements. The
Company has entered into license agreements for its TruVoice software, including
licenses to Microsoft, Group Sense Limited, AST, Dialogic, Intervoice and
Natural Microsystems, and is in the process of negotiating other licenses. The
Company has also engaged in joint promotional market development efforts with
platform providers including Analog Devices and Sun Microsystems and has sold
development kits to third party software developers. There can be no assurance
that any additional licensing agreements or marketing arrangements will be
consummated, or that any such agreements will result in any significant revenue
to the Company.
MOBILEMANAGER
Centigram's MobileManager product adds call management to the message and
information management services provided on the Series 6 platform. MobileManager
is configured on a switching module that integrates with the Series 6 platform
and allows calls to be transferred, connected or conferenced with other parties
and destinations. MobileManager is the result of the 1995 joint marketing
arrangement with Priority Call Management (PCM), a developer of intelligent
telephony systems for large organizations and service providers. MobileManager
services include:
PERSONAL NUMBER SERVICE. Personal Number Service enables network
operators to offer their subscribers the single telephone number that will
seamlessly route important communications to
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people on the move at their mobile number, office or home number, or any
telephone number anywhere in the world. In addition to routing, the Personal
Number application uses that same number for faxes, voice messages, text
messages, and numeric or alpha pagers.
PREPAID AND DEBIT CARD SERVICES. Prepaid and Debit Card Services allow
carriers to offer creative, revenue-generating network services that are
purchased in advance by subscribers whose account balances are debited in
real time.
CREDIT/CALLING CARD SERVICES. Credit/Calling Card Services let
subscribers bill toll calls to a corporate calling card. Calling card
service tracks and rates calls in real time to provide corporate expense
management tools for mobile employees.
CALLBACK. Callback lets customers call from anywhere in the world using
lowest cost dial tone, least cost routing, and prepaid, or Credit/Calling
card billing.
SALES AND DISTRIBUTION
The market for the Company's systems has generally been divided into two
segments; the CPE market and the telecommunications services provider market.
The CPE market includes corporations, government agencies, universities,
professional service firms and other institutional end users that purchase
systems for installation directly on their premises. Providers of
telecommunications services, such as large telephone companies and independent
service providers, including RBOCs, independent telephone companies, cellular
providers and voice mail and paging service bureaus, use Centigram systems to
deliver voice processing capabilities to third party customers on a subscription
basis.
In order to achieve broad market coverage, Centigram has developed two
distinct sales channels focused on separate segments of the voice processing
industry. The Company uses a broad network of distributors and OEMs to sell into
the CPE market, including Ameritech, BellSouth, Fujitsu, GTE Customer Networks,
Mitel Corporation, NEC Business Communications Systems, Sprint and WilTel
Communication Systems. The Company sells its systems directly to RBOCs, such as
NYNEX and BellSouth, and to large independent telephone companies and service
providers such as BellSouth Mobility (BMI), CUE Network Corporation, e-Plus
Mobilfunk, Optus Communications Pty Limited, Paging Network Inc. (PageNet),
Sprint Corporation and Voice-Tel Enterprises. The Company also sells to service
provider customers through an OEM arrangement with Motorola, Inc. These large
telecommunications service providers typically require a sustained, intense
direct selling effort and continual, comprehensive customer support.
No customer represented more than 10% of net revenue in fiscal 1996. Sprint
accounted for approximately 12% of net revenue in fiscal 1995. Fujitsu and
Sprint accounted for approximately 13%, and 11%, respectively, of net revenue in
fiscal 1994. The Company's top five customers collectively accounted for
approximately 35%, 42% and 48% of the Company's net revenue during fiscal 1996,
1995 and 1994, respectively.
Centigram believes that a high level of product support is essential to its
success. The Company provides system documentation and training to distributors
and to direct end-user customers. The training provided by the Company includes
technical software courses, installation and maintenance courses, and customer
support courses. In addition, Centigram maintains a support center 24 hours a
day to assist with customer and distributor inquiries and offers on-site
assistance through its field operations.
In an effort to expand its high level of service to its customers in 1996,
the Company launched its "Market Leadership Program" to deliver a comprehensive,
fully integrated program designed to increase and expand service providers'
revenue streams, maximize resources to reduce costs, and create market
leadership in customer service. The program focuses on key areas of a service
launch, including operations, market research, promotions, media relations,
product packaging and pricing, sales planning and tracking,
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customer support and billing requirements. The program also offers consulting
services to help service providers create an enhanced services deployment plan
customized to their market requirements.
In recent periods, the Company has been increasing its focus on
international sales, particularly direct sales to international cellular service
providers. In fiscal 1996, The Company made substantial investments in sales and
support and it now has sales offices in Europe, Asia, Australia and Latin
America. Export sales were 30%, 23% and 16% of net revenue in fiscal 1996, 1995
and 1994, respectively. There can be no assurance that the Company will be able
to maintain or increase its international sales or that the Company's sales
subsidiaries will be able to compete effectively.
International sales are subject to inherent risks, including the need to
obtain certain regulatory approvals and meet other standards, unexpected changes
in regulatory requirements and tariffs, difficulties in staffing and managing
foreign operations, costs and risks of localizing products for foreign
countries, more expensive support costs, longer payment cycles, greater
difficulty in accounts receivable collection, potentially adverse tax
consequences, potential restrictions on repatriating earnings, and the burdens
of complying with a wide variety of foreign laws. In particular, in both 1996
and 1995, the Company experienced significantly increased expenses associated
with its efforts in expanding sales in certain export markets. Gains and losses
on the conversion to U.S. dollars of assets and liabilities arising from
international operations may contribute to fluctuations in the Company's results
of operations, although such gains and losses have not to date been material to
the Company's results of operations, and fluctuations in exchange rates could
affect demand for the Company's products. In order to sell its products to
customers in other countries, the Company must comply with governmental
regulations, including U.S. export regulations, and convert its voice prompts to
additional foreign languages. Foreign sales are also constrained by the limited
penetration of touch-tone telephones in some countries and the Company's need to
develop adequate sales and marketing channels.
Most of the Company's distributors also offer systems manufactured by the
competitors of the Company. Accordingly, the Company must compete within any
distributor to have the distributor recommend the Company's products to end user
customers. The Company also competes with other voice messaging providers for
access to distributors. There can be no assurance that the Company will be able
to maintain strong relationships with existing distributors or establish strong
relationships with new distributors. In addition, certain former customers
(including distributors) of the Company had in the past experienced financial
difficulties resulting in the Company writing off related accounts receivable
balances, and a number of the Company's current customers (including
distributors) have limited financial resources. The loss of one or more key
customers or distributors, the decision by any key distributor to offer a
competitor's product line or otherwise de-emphasize the Company's products, or
the weakening of the financial condition of any of the Company's key customers
or distributors, could have a material adverse effect on the Company's operating
results, financial position and cash flows.
BACKLOG
At November 2, 1996, the Company had a backlog of $19.4 million and at
October 28, 1995, a backlog of $20.7 million. This decrease in year over year
backlog reflects the fact that Series 6 was in full production in fiscal 1996,
whereas at the end of 1995 Series 6 was not fully released for general
availability. The Company includes in such backlog orders received that the
Company believes are shippable within the next 12 months. The Company does not
believe, however, that current or future backlog levels are necessarily
indicative of future operating results. A significant portion of bookings and
shipments in any quarter have historically occurred near the end of the quarter,
and the Company has historically operated with very little backlog. There can be
no assurance that backlog will not decrease in the future, that there will not
be cancellation or deferral of a significant portion of backlog, or that the
Company will maintain any backlog level in the future.
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RESEARCH AND DEVELOPMENT
Centigram's development strategy is focused on the development of new
applications for the Company's product platform and the enhancement of the
Company's MESA architecture. Expenditures for research and development were
$20.2 million, $14.8 million and $12.6 million and as a percentage of net
revenue these expenses were 19.3%, 21.3%, and 16.0% in fiscal 1996, 1995 and
1994, respectively. Development efforts are focused on continuing the
development and testing of the Company's Series 6 platform, continuing to expand
the capacity of the Company's systems (particularly for the telecommunications
service provider and large CPE customer markets), enhancing voice messaging, IVR
and facsimile product capabilities, developing additional capabilities to
connect the Company's products with computer databases, high speed transmission
networks and foreign communications networks with non-standard protocols, adding
administration and network management capabilities to the Company's products,
developing further the Company's text-to-speech software, and developing and
enhancing the features and overall performance of the Company's systems.
As the Company seeks to continue to add functionality to its products and to
support a broader range of computer and LAN-based applications, the Company
faces continually increasing technical challenges. There can be no assurance
that the Company will be able to incorporate additional technologies into the
Company's products or introduce new products in a timely manner in order to meet
evolving market needs.
As the functionality of the Company's systems increases, the complexity of
the software utilized in such systems will also increase and software errors or
"bugs" may become more numerous and difficult to cure. Identifying and
correcting errors and making required design modifications is typically
expensive and time consuming and the Company expects that such modifications
will increase in complexity with the increasing sophistication of the Company's
products. The Company has made a substantial investment in additional testing
equipment as well as hiring additional employees to expand the Company's product
testing capabilities. There can be no assurance that such investment will lead
to reduced errors or that such errors will not in the future cause delays in
product introductions and shipments, require costly design modifications or
impair customer satisfaction with the Company's products.
MANUFACTURING
The Company's manufacturing operations consist primarily of final assembly
and test and quality control of materials, components, subassemblies and
systems. The Company's hardware and software product designs are proprietary but
use industry-standard hardware components and an industry-standard, real time,
multi-tasking operating system. The Company presently uses third parties to
perform printed circuit board and subsystem assembly. Although the Company has
not experienced significant problems with third party manufacturers in the past,
there can be no assurance that such problems will not develop in the future.
Although the Company generally uses standard parts and components for its
products, certain microprocessors, semiconductor devices and other components
are available only from sole source vendors. In addition, other components,
including power supplies, disk drives, other semiconductor devices and line
cards are presently available or acquired from a single source or from limited
sources. The Company to date has been able to obtain adequate supplies of these
components in a timely manner from existing sources or, when necessary, from
alternative sources of supply. However, the inability to develop such
alternative sources if and as required in the future, or to obtain sufficient
sole or limited source components as required, would have a material adverse
effect on the Company's operating results.
PATENTS, TRADE SECRETS AND LICENSES
The Company's success depends in part on its proprietary technology. While
the Company attempts to protect its proprietary technology through patents,
copyrights and trade secrets, as well as confidentiality agreements with
customers, suppliers and employees and other security measures, the Company
believes that its success will depend more upon innovation, technological
expertise and distribution strength. There
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can be no assurance that the Company will be able to protect its technology or
that competitors will not be able to develop similar technology independently.
The Company currently holds seven patents and has multiple patent applications
on file. No assurance can be given that patents will issue from any applications
filed by the Company or that, if patents do issue, the claims allowed will be
sufficiently broad to protect the Company's technology. For example, the Company
relies upon trade secret protection for its basic systems architecture and
hardware platform, and does not hold any patents thereon. In addition, no
assurance can be given that any patents issued to the Company will not be
challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages to the Company.
In addition, a number of other companies, including competitors of the
Company, also hold patents in the same general area as the technology used by
the Company. The Company has obtained licenses to use certain intellectual
property, including patents, from others. The Company from time to time has
received, and may receive in the future, letters alleging infringement of patent
rights by the Company's products. While such letters are prevalent in the
Company's industry and the Company has in the past been able to license
necessary patents or technology on commercially reasonable terms, there can be
no assurance that the Company would prevail in any litigation to enjoin the
Company from selling its products on the basis of such alleged infringement, or
that the Company would be able to license any valid and infringed patents on
reasonable terms.
EMPLOYEES
As of November 2, 1996, the Company had 449 employees, of whom 128 were
engaged in research and development, 227 in sales, marketing and customer
support, 47 in manufacturing and quality assurance and 47 in finance and
administration. The Company's future success will depend on its ability to
attract, train, retain and motivate highly qualified employees, who are in great
demand. The Company's employees are not represented by any collective bargaining
organization, and the Company has never experienced a work stoppage. The Company
believes that its employee relations are good.
COMPETITION
The Company competes in a number of markets within the communications
systems industry, each of which is highly competitive. Many of the Company's
competitors have substantially greater financial, technical, marketing and sales
resources than the Company and have larger installed bases of existing systems.
Furthermore, manufacturers of PBX equipment have a competitive advantage in
selling to the installed base of users of their PBX equipment and, to an even
greater degree, purchasers of new installations of their PBX equipment. The
Company expects to encounter continued competition from both existing
competitors and new market entrants. Increased competitive pressures could
result in intensified price competition, which would adversely affect the
Company's operating results. In addition, the Company believes that its ability
to integrate its systems with many different telephone PBX and Centrex systems
is an important competitive feature. Consequently, the Company's operating
results could be adversely affected if PBX manufacturers, such as AT&T, Northern
Telecom and ROLM, redesign their PBXs to limit current methods of integration.
Although the Company is not aware that any significant PBX manufacturer is
pursuing a strategy of redesigning its PBXs to limit the Company's current
integrations there can be no assurance that such manufacturers are not doing so
or will not do so in the future.
ITEM 2. PROPERTIES
The Company leases an 85,000 square foot headquarters facility, a 35,000
square foot manufacturing facility, and a 40,000 square foot office facility in
San Jose, California, pursuant to leases that expire in September 2007, December
1998 and May 1998, respectively. The Company also leases training facilities and
sales and support offices in various cities in the United States and overseas.
10
<PAGE>
In December 1996, the Company entered into a 12 year lease for approximately
225,000 square feet of office space in San Jose, California at a base monthly
rent of approximately $285,000. This lease contains a provision for the monthly
rent to be adjusted upwards based on changes in the Consumer Price Index and
also requires the Company to pay property taxes, insurance premiums, and normal
maintenance costs.
The Company believes that such facilities are adequate to meet its current
needs and that suitable additional or alternative space will be available in the
future on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The information in the second paragraph in the section entitled "Patents,
Trade Secrets and Licenses" under Item 1 above is hereby incorporated by
reference.
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 the fiscal year covered by this report.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Centigram Communications Corporation Common Stock is traded on the
over-the-counter market and is quoted on The Nasdaq National Market System under
the symbol CGRM. As of November 2, 1996, there were approximately 400
stockholders of record. The following table sets forth for the periods indicated
the high and low closing prices for the Company's Common Stock as reported by
Nasdaq.
<TABLE>
<CAPTION>
Fiscal Year 1996 HIGH LOW
--------- ---------
<S> <C> <C>
Fourth quarter ended November 2, 1996..................... $ 16 7/8 $ 12 3/4
Third quarter ended July 27, 1996......................... 23 5/8 12 7/8
Second quarter ended April 27, 1996....................... 23 3/4 15 7/8
First quarter ended January 27, 1996...................... 23 16 1/4
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1996 HIGH LOW
--------- ---------
<S> <C> <C>
Fourth quarter ended October 28, 1995..................... $ 23 3/4 $ 15 5/8
Third quarter ended July 29, 1995......................... 15 5/8 12 3/4
Second quarter ended April 29, 1995....................... 17 13 5/8
First quarter ended January 28, 1995...................... 21 3/4 12 5/8
</TABLE>
The Company has not paid and does not anticipate paying cash dividends on
its Common Stock in the foreseeable future. The Company's bank credit line
agreement requires the bank's consent to pay cash dividends.
The Company believes factors such as quarter-to-quarter variances in
financial results and announcements of new products and new orders by the
Company or its competitors could cause the market price of the Company's Common
Stock to fluctuate substantially. In addition, the stock prices for many high
technology companies typically experience extreme price fluctuations, which
often are not related to changes in their operating performance. Broad market
fluctuations as well as general economic conditions, such as a recessionary
period or high interest rates, may adversely affect the market price of the
Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED YEAR ENDED MONTH ENDED ------------------------------------
NOVEMBER 2, OCTOBER 28, OCTOBER 29, OCTOBER 1, OCTOBER 2, OCTOBER 3,
1996 1995 1994 1994 1993 1992
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Net revenue.................................... $ 104,324 $ 69,374 $ 1,988 $ 79,179 $ 60,002 $ 44,652
Net income (loss).............................. 1,000 (4,134) (1,890) 7,745 5,188 2,295
Net income (loss) per share.................... 0.14 (0.63) (0.30) 1.18 1.00 0.49
Research and development....................... 20,154 14,798 1,145 12,644 8,197 6,458
BALANCE SHEET DATA:
Working capital................................ $ 65,297 $ 64,489 $ 70,132 $ 72,401 $ 25,682 $ 19,363
Total assets................................... 104,009 99,017 98,374 102,309 47,959 34,010
Long-term liabilities.......................... 78 232 409 436 822 1,101
Stockholders' equity........................... 83,412 79,800 81,006 83,177 32,149 23,881
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following contains forward-looking statements regarding future events or
the future financial performance of Centigram that involve risks and
uncertainties. These statements include but are not limited to statements
related to changes in Centigram's research and development and selling, general
and administrative expenses, Centigram's effective tax rates, Centigram's
expenditures for capital equipment and sufficiency of Centigram's cash reserves.
Actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in this Item 7 under "Certain Trends and Uncertainties," in Item 1 hereof
under "Manufacturing," "Patents, Trade Secrets and Licenses," "Competition," the
last two paragraphs of "Sales and Distribution," and the last two paragraphs of
"Research and Development" and elsewhere in this report.
CHANGE IN FISCAL YEAR
In the fourth quarter of fiscal 1995, the Company changed its fiscal
year-end from the Saturday following September 30 to a fiscal year of 52 or 53
weeks ending on the Saturday nearest October 31. Fiscal 1996 included 53 weeks
and ended November 2, 1996. Fiscal years 1995 and 1994 included 52 weeks and
ended on October 28, 1995 and October 1, 1994, respectively. The month ended
October 29, 1994 is separately reported. This change in the Company's fiscal
periods was made primarily to improve the Company's operational efficiencies. By
moving the Company's fiscal periods out one month, the Company's manufacturing
operations have incurred reduced overtime payments during the December and July
holiday periods. Also, because many of the Company's distributors have calendar
quarter ends and place orders in the third month of the quarter, the Company has
not always been able to process and ship these orders during this third month of
the calendar quarter because of the late receipt of these orders. By staggering
its fiscal quarters to end one month after the calendar quarter-end, the Company
is in a better position to ship these late orders and at the same time avoid
additional overtime and other expediting charges.
PROPOSED ACQUISITION
In October 1996 the Company entered into a letter of intent for the
acquisition of Voice-Tel Enterprises and Voice-Tel Network ("Voice-Tel"). The
proposed transaction will involve the Company issuing a certain number of shares
of its common stock and assuming up to $11.5 million of debt in exchange for all
the capital of Voice-Tel, and is intended to be accounted for as a pooling of
interests. The exact terms of the transaction, which will be subject to
regulatory approval and require the approval of both companies stockholders,
will be determined upon signing of a definitive merger agreement.
RESULTS OF OPERATIONS
NET REVENUE
Net revenue for fiscal 1996 was 50% higher than net revenue for fiscal 1995.
This increase was primarily attributable to general expansion in the Company's
channels of distribution in connection with the introduction of the Company's
Series 6 platform, including an approximately 90% increase in service provider
business, improved performance of the Company's larger distributors, and a 100%
increase in sales to customers located outside the United States which increased
from $15.9 million to $31.8 million. Sales of the Company's larger system
configurations increased approximately 100% as compared to fiscal 1995, with
smaller percentage increases in the Company's smaller product configurations and
system upgrades and expansions.
Net revenue for fiscal 1995 was 12% below net revenue for fiscal 1994. This
decline in revenue primarily reflected a 30% decline in sales of the Company's
large system configurations and reduced revenue from domestic, CPE and service
provider customers. Such declines were offset in part by higher sales of the
Company's smaller product configurations, increased revenue from services and
licensing of
13
<PAGE>
the Company's text-to-speech software, and a 29% increase in sales to customers
located outside the United States. The Company believes that its revenue in
fiscal 1995 was adversely affected by not having available during the year the
new Series 6 product platform which was released in the first fiscal quarter of
1996.
There can be no assurance that the market for voice processing products will
grow in future periods at its historical percentage rate and the Company
believes that the growth rates of certain market segments have declined from
prior levels. There is also no assurance that the Company's markets will remain
at current levels in future periods. Further, there can be no assurance that the
Company will be able to increase or maintain its market share in the future, or
to re-attain historical growth rates. See "Certain Trends and Uncertainties".
GROSS MARGIN
In the fourth quarter of fiscal 1996 the Company reclassified certain
customer training and support costs from selling, general and administrative
expense to cost of goods sold to more properly reflect their current and
anticipated future direct correlation to product and service revenues. All
financial data for fiscal 1996 and prior years have been reclassified for
consistent presentation.
Gross margin for fiscal 1996 was 59.2% as compared to 61.4% for fiscal 1995.
This change in gross margin reflects lower margins on large system products due
to higher warranty and international freight costs because of increased
international shipments, offset in part by a favorable mix with large system
products representing a larger percentage of sales than small system products
(which typically carry lower margins).
Gross margin for fiscal 1995 was 61.4% as compared to 65.9% for fiscal 1994.
This change in gross margin in fiscal 1995 resulted from a shift in product mix
to a larger percentage of sales of small product configurations, which typically
carry lower gross margins, and a decrease in sales of large system
configurations, which typically carry higher gross margins than other products;
lower gross margin rates on these product lines as well as on upgrade and system
expansion products; and higher provisions for obsolete inventory related to the
Company's then forthcoming product transition. These factors were offset in part
by higher revenue from services and licensing of the Company's text-to speech
software which carries significantly higher than average gross margins. See
"Certain Trends and Uncertainties".
RESEARCH & DEVELOPMENT
Research and development (R&D) expenses for fiscal 1996 were 36% higher than
in fiscal 1995. This increase reflected general expansion of the Company's
product development programs and increases in compensation expenses due to
higher headcount, and depreciation.
R&D expenses for fiscal 1995 were 17% higher than in fiscal 1994. This
increase reflected the general expansion of the Company's new product
development programs, including significant investments in the Series 6
platform. This increased spending was largely for higher staffing levels,
depreciation, and facilities expenses, in particular, those facilities expenses
related to the testing of new products. As a percentage of net revenue, R&D
expenses were 19.3%, 21.3%, and 16.0% in fiscal 1996, 1995, and 1994,
respectively. The large increase in research and development expenses as a
percentage of net revenue in fiscal 1995 relative to fiscal 1994, resulted from
a combination of higher research and development expenses and lower net revenue.
The Company believes that ongoing development of new products and features
is required to maintain and enhance its competitive position. The Company
expects to continue to invest in R&D and therefore R&D expenses should continue
to increase, notwithstanding the level of sales realized in future quarters.
14
<PAGE>
SELLING, GENERAL & ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses in 1996 represented
41.0% of net revenue and were 28% higher than such expenses for fiscal 1995,
when they represented 48.2% of net revenue. The increase in SG&A expenses in
fiscal 1996 was primarily related to increased sales and marketing expenses and
increased compensation and travel expenses due to higher headcount, offset in
part by lower litigation expenses.
SG&A expenses in 1995 represented 48.2% of net revenue and were 10% higher
than such expenses for fiscal 1994, when they represented 38.3% of net revenue.
The increase in SG&A expenses in fiscal 1995 was primarily related to increased
levels of customer and sales support expenses and higher expenses related to
international sales expansion, offset in part by lower litigation expenses. The
Company believes that continued investments in sales and customer support,
particularly in export markets, are essential to maintaining its competitive
position and that the dollar amount of SG&A expenses will increase in future
periods. The Company expects that the dollar amount of SG&A expenses will
increase in future periods.
OTHER INCOME AND EXPENSE, NET
Interest income on investments increased in fiscal 1996 over such income in
1995 because of higher average interest yields as the Company shifted its
short-term investments from tax free state and municipal bonds to higher
yielding U.S. Government and agency obligations and corporate debt securities.
Interest income increased in fiscal 1995 over 1994 because of higher average
invested short-term balances and because of higher interest rates. Interest
expense declined over the three-year period beginning in 1994 as the Company's
capital lease balances declined. Fiscal 1995 included a charge of $550,000 for
the Company's cost of settling its stockholder class action lawsuit and certain
other litigation.
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 5% in fiscal 1996 and 28% in fiscal
1994. The Company's effective tax rate for fiscal 1996 and 1994 was less than
the statutory rate primarily because of tax-exempt interest income and a
reduction in the deferred tax asset valuation account for prior year losses
realized for tax purposes. The Company did not record an income tax benefit
associated with the pre-tax loss for fiscal 1995, because deferred tax assets
based on recoverable income taxes were recorded in prior periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and short-term investments at November 2, 1996
were $42.1 million, decreasing $13.6 million from October 28, 1995. At the end
of fiscal 1995 and 1994, cash, cash equivalents and short-term investments were
$55.7 million and $60.4 million, respectively.
Net cash used from operating activities was $4.9 million during fiscal 1996.
Trade receivables at the end of fiscal 1996 increased $9.4 million from the
prior year balance primarily due to increases in sales but also due to extended
payment terms granted to selected service provider customers. Days sales
outstanding (computed using quarterly revenues) were 86 days at the end of
fiscal 1996, compared to 72 days at end of fiscal 1995. This increase in DSO was
primarily due to a larger percentage of quarterly shipments occurring in the
last month of fiscal 1996 as compared to the same period in the prior year.
Inventory levels at November 2, 1996 increased $5.6 million over the fiscal 1995
balances because of increased levels of sales, increased inventory levels to
support both the Series 5 platform and the new Series 6 platform, and increased
customer support inventories. The Company expects investment in receivables and
inventories will continue to represent a significant portion of working capital.
During the fiscal year ended November 2, 1996, the Company made $10.6
million in capital expenditures. A significant portion of these expenditures
were related to the introduction of the Series 6 platform and included expenses
related to the upgrading and expanding of the Company's engineering test labs
and training classrooms and equipment purchased for increased engineering
development efforts.
15
<PAGE>
The Company's principal sources of liquidity as of November 2, 1996
consisted of $42.1 million of cash and cash equivalents and short-term
investments and $10.0 million available under the Company's bank line of credit
(which expires May 1, 1997). The Company expects to review this bank line in
fiscal 1997. This bank line requires the Company to maintain certain financial
ratios, minimum working capital, minimum tangible net worth, and financial
performance, and requires the bank's consent for the payment of cash dividends.
The Company is in compliance with this agreement and there were no borrowings
outstanding under the bank line as of November 2, 1996. The Company currently
expects to spend approximately $9.0 million for capital equipment during fiscal
1997. The Company may finance a portion of these expenditures through leasing
arrangements.
The Company presently believes, notwithstanding its accumulated deficit,
that its existing cash and short-term investments and credit under its line of
credit and lease credit arrangements, will be sufficient to support the
Company's working capital and capital equipment purchase requirements at least
through fiscal 1997.
CERTAIN TRENDS AND UNCERTAINTIES
The Company has in the past experienced and will likely in the future
experience substantial fluctuations in quarterly operating results. The Company
generally has no long-term order commitments from its customers, and a
significant portion of bookings and shipments in any quarter have historically
occurred near the end of the quarter. Accordingly, the Company has historically
operated with very little backlog, and net revenue has been difficult to
predict. In addition, the portion of backlog shippable in the next quarter
varies over time. As a result, revenue in future quarters will depend largely on
the level of orders received during such quarters.
If new order bookings do not meet expected levels, or if the Company
experiences delays in shipments at the end of a quarter, operating results will
be adversely affected, and these developments may not become apparent to the
Company until near or at the end of a quarter. Net revenue can also be affected
by product sales mix, distribution mix, the size and timing of customer orders
and shipments, customer returns and reserves provided therefor, competitive
pricing pressures, the effectiveness of key distributors in selling the
Company's products, changes in distributor inventory levels, the timing of new
product introductions by the Company and its competitors, regulatory approvals,
and the availability of components for the Company's products, each of which is
difficult to predict accurately. Each of such factors has in the past affected
the Company's revenue.
A significant portion of the Company's net revenue is attributable to a
limited number of customers. The Company's top five customers, representing a
combination of major distributors and service providers, accounted for
approximately 35%, 42%, and 48% of the Company's net revenue in fiscal 1996,
1995, and 1994 respectively, although the Company's five largest customers were
not the same in these periods. The Company has no long-term order commitments
from any of its customers. Any material reduction in orders from one or more
such customers or the cancellation or deferral of any significant portion of
backlog could have an adverse effect on net revenue and operating results. Such
concentration of sales typically results in a corresponding concentration of
accounts receivable. Although the Company has established reserves for
uncollectible accounts, the inability of any large customer to pay the Company
could have a material adverse impact on the Company's financial position,
results of operations and cash flows. See Risk and Uncertainties Note to
"Consolidated Financial Statements".
The Company's gross margin can be affected by a number of factors, including
changes in product, distribution channel, and customer mix, cost and
availability of parts and components, royalty obligations to suppliers of
licensed software, provisions for warranty, retrofits, and excess and obsolete
inventory, customer returns, and competitive pressures on pricing. The Company
has experienced increasing competitive pricing pressure in all markets and
expects this pricing pressure to continue. Further, distributors purchase
products at discounts, and the Company's margins can therefore vary depending
upon the mix of distributor and direct sales in any particular fiscal period.
The Company anticipates that its sales mix will
16
<PAGE>
fluctuate in future periods. As a result of the above factors, gross margin
fluctuations are difficult to predict, and gross margins may decline from
current levels in future periods.
The Company's future success will depend in part upon the ability of the
Company to continue to introduce new features and products as the Company's
markets evolve, new technologies become available, and customers demand
additional functionality. The Company's competitors continue to add
functionality to their products, and any failure by the Company to introduce in
a timely manner new products and features that meet customer requirements would
adversely affect the Company's operating results and cash flows. The Company's
ability to develop such new features and products depends in large measure on
its ability to hire and retain qualified technical talent and outside
contractors in highly competitive markets for such services. There can be no
assurance that the Company's product development efforts will be successful, or
that it will be able to introduce new products in a timely manner. In this
regard, the Company during fiscal 1996, announced significant new products,
after experiencing delays in the introduction of such products. Moreover,
customers' expectations of the introduction of new products by the Company or
its competitors can adversely affect sales of current products. In addition,
upon the introduction of new products, the Company could be subject to higher
customer returns with respect to prior generations of products, which could
adversely affect financial position, operating results and cash flows.
The Company presently uses third parties to perform printed circuit board
and subsystem assembly. In addition, although the Company has not experienced
significant problems with third-party manufacturers in the past, there can be no
assurance that such problems will not develop in the future. Although the
Company generally uses standard parts and components for its products, certain
microprocessors, line cards, application cards and other semiconductor devices
and other components are available from sole sources. Other components,
including power supplies, disk drives, certain other semiconductor devices and
subcontracted line card assemblies, are presently available or acquired from a
single source or from limited sources. To date, the Company has been able to
obtain adequate supplies of these components in a timely manner from existing
sources or, when necessary, from alternative sources of supply. However, the
inability to develop such alternative sources if and as required in the future,
or to obtain sufficient sole or limited source components as required, would
have a material adverse affect on the Company's operating results and cash
flows. In addition, the Company's products are dependent on the QNX software
operating system, a multitasking, real-time operating system for Intel
microprocessor-based computers. In future periods, the Company's products may
become increasingly dependent on software licensed from third party suppliers.
There can be no assurance such licenses will continue to be available to the
Company as needed or at commercially reasonable prices.
In recent years, stock markets have experienced extreme price and volume
trading volatility. This volatility has had a substantial effect on the market
prices of securities of many high technology companies for reasons frequently
unrelated to the operating performance of the specific companies. These broad
markets fluctuations may adversely affect the market price of the Company's
common stock. In addition, the trading price of the Company's common stock could
be subject to wide fluctuations in response to quarter-to-quarter variations in
operating results, announcements of new products or technological innovations by
the Company or its competitors, and general conditions in the computer and
communications industries.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements included with this Form 10-K are set
forth under Item 14 hereof.
17
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 28,
NOVEMBER 2, 1996 1995
---------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................... $ 12,668 $ 10,633
Short-term investments...................................................... 29,408 45,082
Trade receivables, net of allowances of $2,055 and $1,941................... 27,741 18,330
Inventories................................................................. 11,467 5,821
Deferred tax assets......................................................... 1,424 2,103
Other current assets........................................................ 3,108 1,505
-------- -------
Total current assets...................................................... 85,816 83,474
Property and equipment, net................................................... 15,249 12,013
Intangible assets, net........................................................ 2,004 2,379
Deposits and other assets..................................................... 940 1,151
-------- -------
$ 104,009 $ 99,017
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................................ $ 9,739 $ 6,953
Accrued compensation........................................................ 4,202 4,092
Accrued expenses and other liabilities...................................... 6,424 7,763
Current portion of capital lease obligations................................ 154 177
-------- -------
Total current liabilities................................................. 20,519 18,985
Capital lease obligations..................................................... 78 232
Commitments and contingencies.................................................
Stockholders' equity:.........................................................
Preferred stock, $.001 par value, 1,000,000 authorized; none outstanding....
Common stock, $.001 par value, 25,000,000 authorized; 6,908,000 and
6,679,000 outstanding..................................................... 7 7
Additional paid-in capital.................................................. 88,767 85,808
Accumulated deficit......................................................... (4,992) (5,992)
Unrealized loss on investments.............................................. (36) (14)
Cumulative translation adjustments.......................................... (34) (9)
Note receivable from officer................................................ (300) --
-------- -------
Total stockholders' equity................................................ 83,412 79,800
-------- -------
$ 104,009 $ 99,017
-------- -------
-------- -------
</TABLE>
See accompanying notes.
18
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED MONTH ENDED YEAR ENDED
NOVEMBER 2, OCTOBER 28, OCTOBER 29, OCTOBER 1,
1996 1995 1994 1994
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenue................................................... $ 104,324 $ 69,374 $ 1,988 $ 79,179
Cost and expenses:
Cost of goods sold.......................................... 42,516 26,802 885 27,039
Research and development.................................... 20,154 14,798 1,145 12,644
Selling, general and administrative......................... 42,832 33,470 1,983 30,302
----------- ----------- ----------- -----------
105,502 75,070 4,013 69,985
----------- ----------- ----------- -----------
Operating income (loss)....................................... (1,178) (5,696) (2,025) 9,194
Other income and expense, net................................. 2,231 1,618 135 1,563
----------- ----------- ----------- -----------
Income (loss) before income taxes............................. 1,053 (4,078) (1,890) 10,757
Provision for income taxes.................................... 53 56 -- 3,012
----------- ----------- ----------- -----------
Net income (loss)............................................. $ 1,000 $ (4,134) $ (1,890) $ 7,745
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) per share................................... $ 0.14 $ (0.63) $ (0.30) $ 1.18
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Common and common equivalent shares used in computing per
share amounts............................................... 6,981 6,560 6,379 6,558
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
19
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNREALIZED GAIN CUMULATIVE
------------------------ PAID-IN ACCUMULATED (LOSS) ON TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT INVESTMENTS ADJUSTMENTS
----------- ----------- ----------- ------------- ----------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balances, October 3, 1993..... 4,847 $ 5 $ 39,857 $ (7,713) $ -- $ --
Sale of stock, net of issuance
costs....................... 1,200 1 38,939
Shares issued under stock
plans....................... 331 -- 2,323
Warrant repurchase............ (86)
Tax benefits - stock plans.... 2,106
Net income.................... 7,745
----- --- ----------- ------------- ----- ---
Balances, October 1, 1994..... 6,378 6 83,139 32 -- --
Shares issued under stock
plans....................... 3 -- 39
Unrealized (loss) on
investments................. (322)
Translation adjustments....... 1
Net loss...................... (1,890)
----- --- ----------- ------------- ----- ---
Balances, October 29, 1994.... 6,381 6 83,178 (1,858) (322) 1
Shares issued under stock
plans....................... 298 1 2,630
Unrealized gain on
investments................. 308
Translation adjustments....... (10)
Net loss...................... (4,134)
----- --- ----------- ------------- ----- ---
Balances, October 28, 1995.... 6,679 7 85,808 (5,992) (14) (9)
Shares issued under stock
plans....................... 229 2,412
Tax benefits - stock plans.... 547
Unrealized loss on
investments................. (22)
Note receivable from officer..
Translation adjustments....... (25)
Net income.................... 1,000
----- --- ----------- ------------- ----- ---
Balances, November 2, 1996.... 6,908 $ 7 $ 88,767 $ (4,992) $ (36) $ (34)
----- --- ----------- ------------- ----- ---
----- --- ----------- ------------- ----- ---
<CAPTION>
NOTE
RECEIVABLE
FROM
OFFICER TOTAL
----------- ---------
<S> <C> <C>
Balances, October 3, 1993..... $ -- $ 32,149
Sale of stock, net of issuance
costs....................... 38,940
Shares issued under stock
plans....................... 2,323
Warrant repurchase............ (86)
Tax benefits - stock plans.... 2,106
Net income.................... 7,745
----- ---------
Balances, October 1, 1994..... -- 83,177
Shares issued under stock
plans....................... 39
Unrealized (loss) on
investments................. (322)
Translation adjustments....... 1
Net loss...................... (1,890)
----- ---------
Balances, October 29, 1994.... -- 81,005
Shares issued under stock
plans....................... 2,631
Unrealized gain on
investments................. 308
Translation adjustments....... (10)
Net loss...................... (4,134)
----- ---------
Balances, October 28, 1995.... -- 79,800
Shares issued under stock
plans....................... 2,412
Tax benefits - stock plans.... 547
Unrealized loss on
investments................. (22)
Note receivable from officer.. (300) (300)
Translation adjustments....... (25)
Net income.................... 1,000
----- ---------
Balances, November 2, 1996.... $ (300) $ 83,412
----- ---------
----- ---------
</TABLE>
See accompanying notes.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED MONTH ENDED YEAR ENDED
NOVEMBER 2, OCTOBER 28, OCTOBER 29, OCTOBER 1,
1996 1995 1994 1994
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and equivalents beginning of period...................... $ 10,633 $ 10,836 $ 16,625 $ 7,000
----------- ----------- ----------- -----------
Cash flows from operations:
Net income (loss)........................................... 1,000 (4,134) (1,890) 7,745
Depreciation and amortization............................... 7,729 5,418 368 3,535
Deferred taxes.............................................. 679 -- -- (334)
Trade receivables........................................... (9,411) 2,416 2,495 (9,200)
Inventories................................................. (5,646) 419 (2,030) (1,118)
Other assets................................................ (1,392) (702) 37 (258)
Accounts payable............................................ 2,786 1,365 (1,249) 2,010
Other liabilities and accrued expenses...................... (682) 866 (484) 4,351
----------- ----------- ----------- -----------
(4,937) 5,648 (2,753) 6,731
----------- ----------- ----------- -----------
Cash flows used for investing:
Purchase of short-term investments.......................... (68,702) (63,900) (3,645) (61,937)
Proceeds from sale and maturities of short-term
investments............................................... 84,354 65,127 1,059 31,776
Purchase of property and equipment.......................... (10,615) (7,967) (459) (7,189)
Purchase of intangible assets............................... -- (1,350) -- --
Note receivable from officer................................ (300) -- -- --
----------- ----------- ----------- -----------
4,737 (8,090) (3,045) (37,350)
----------- ----------- ----------- -----------
Cash flows from financing:
Proceeds from sale of common stock, net of issuancecosts.... 2,412 2,621 40 41,177
Principal payments on capital leases and long-term
obligations............................................... (177) (382) (31) (933)
----------- ----------- ----------- -----------
2,235 2,239 9 40,244
----------- ----------- ----------- -----------
Net change in cash and equivalents.......................... 2,035 (203) (5,789) 9,625
----------- ----------- ----------- -----------
Cash and equivalents, end of period......................... $ 12,668 $ 10,633 $ 10,836 $ 16,625
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL DATA
Interest (paid)............................................... $ (37) $ (89) $ (10) $ (209)
Income taxes (paid) refunded.................................. $ 383 $ (235) $ (5) $ (1,224)
Investments fair value adjustment............................. $ (22) $ 308 $ (322) $ --
</TABLE>
See accompanying notes.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF BUSINESS OPERATIONS
Centigram Communications Corporation (the Company) designs, manufactures and
markets wireless and wireline messaging communications systems that integrate
voice, data and facsimile on the Company's communications server, and provide
access to this multimedia information through a telephone or PC. The Company
also licenses TruVoice, its patented text-to-speech software. In addition to
these products, the Company offers installation, training, consulting, and
post-contract support services to its customers. The principal geographic
markets for the Company's products are North America, Australia, Latin America,
the Far East and Europe. The Company sells primarily to distributors, Regional
Bell Operating Companies, independent telephone companies, and other
telecommunications service providers.
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The accompanying consolidated financial statements
include the Company and its wholly owned subsidiaries after eliminating all
significant intercompany accounts and transactions.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION Revenue from sales of the Company's products is
recognized upon shipment to customers. Allowances for estimated future returns
and exchanges are provided at that time based on the Company's return policies
and experience. The Company recognizes software license revenue in accordance
with AICPA Statement of Position 91-1, "Software Revenue Recognition."
WARRANTY The Company generally warrants its products for one year. A
provision for estimated future warranty costs is recorded at the time of revenue
recognition.
RESEARCH AND DEVELOPMENT Research and Development expenses include costs of
developing new products and processes as well as design and engineering costs.
Such costs are charged to expense as incurred. Product customization costs
incurred pursuant to customer orders and/or contracts are included in cost of
sales. Development of new software products and enhancements to existing
software products are expensed as incurred until technological feasibility has
been established. After technological feasibility is established, any additional
costs would be capitalized in accordance with Statement of Financial Accounting
Standards No. 86. Because the Company believes its current process for
developing software is essentially completed concurrently with the establishment
of technological feasibility, no costs have been capitalized to date.
NET INCOME (LOSS) PER SHARE The computation of net income (loss) per share
in each year is based on the weighted average number of shares outstanding.
Stock options are included as share equivalents using the treasury stock method
when the effect would be to decrease net income per share.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash equivalents consist of
highly liquid investments with a maturity of three months or less and are
carried at cost plus accrued interest which approximates fair value. Short-term
investments have an initial maturity of greater than three months and are
carried at fair value.
INVENTORIES Inventories are stated at the lower of cost (first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to five years. Capitalized
leases and leasehold improvements are amortized using the straight-line method
over the
22
<PAGE>
shorter of the useful lives of the assets or the terms of the leases.
Depreciation expense includes amortization of assets under capital leases and
leasehold improvements.
INTANGIBLE ASSETS Intangible assets consist of patent license acquisition
costs and goodwill and are stated at cost. Patent license costs are being
amortized over ten years, the estimated useful lives of the patents. Goodwill is
also being amortized over ten years and represents the excess of the acquisition
cost over the fair value of the net assets of Speech Plus, Inc. acquired on
March 29, 1990. The carrying values of intangible assets are reviewed if the
facts and circumstances suggest that they may be impaired. If this review
indicates that the asset is not fully recoverable, as determined, by the
undiscounted cash flows of the acquired business or the related products over
the remaining amortization period, the Company's carrying value is reduced to
net realizable value. No such imparement charges have been incurred to date.
Intangible amortization expense was approximately $375,000, $356,000, and
$256,000, in fiscal 1996, 1995, and 1994, respectively.
FOREIGN CURRENCY TRANSLATION The Company's international subsidiaries use
their local currencies as their functional currencies. Assets and Liabilities
are translated at exchange rates in effect at the balance sheet date, and income
and expense accounts at average exchange rates during the year. Resulting
translation adjustments are recorded to a separate component of stockholders'
equity.
RECLASSIFICATIONS Certain prior year amounts have been reclassified to
conform to the current year presentation.
EMPLOYEE STOCK PLANS The Company accounts for its stock option plans and
its employee stock purchase plan in accordance with the provisions of the
Accounting Principles Board's Opinion No. 25 "Accounting For Stock Issued to
Employees" (APB 25). In October 1995, the Financial Accounting Standards Board
released Statement of Financial Accounting Standard No. 123, "Accounting For
Stock-Based Compensation" (FAS 123). FAS 123 provides an alternative to APB 25
and is effective for fiscal years beginning after December 15, 1995. The Company
expects to continue to account for its employee stock plans in accordance with
the provisions of APB 25. Accordingly, FAS 123 is not expected to have a
material impact on the Company's financial position or results of operations.
Effective with the issuance of the Company's fiscal year 1997 financial
statements, the Company will disclose proforma net income (loss) and net income
(loss) per share amounts as if FAS 123 were applied.
CHANGE IN FISCAL YEAR
In the fourth quarter of fiscal 1995, the Company changed its fiscal
year-end from the Saturday following September 30 to a fiscal year of 52 or 53
weeks ending on the Saturday nearest October 31. Fiscal 1996 included 53 weeks
and ended November 2, 1996. Fiscal 1995 and 1995 included 52 weeks and ended
October 28, 1995 and October 1, 1994, respectively. The fiscal year transition
period of October 2, 1994 to October 29, 1994 is separately reported. This
change to the Company's fiscal year and fiscal quarters was made primarily to
improve the Company's operational efficiencies. All references to years in these
notes to consolidated financial statements represent fiscal years unless
otherwise noted.
RISK AND UNCERTAINTIES
RECEIVABLES FROM CUSTOMER During 1996, the Company recorded sales of
approximately $5.1 million (5% of sales) to one customer. As of November 2, 1996
the Company had approximately $2.3 million due from this same customer which
purchases its inventory exclusively from Centigram. Although this customer has
in the past met all its obligations to the Company including making payments of
approximately $6.0 million on account during 1996, it continues to carry a
working capital deficit and net capital deficiency and is currently seeking
external financing. Accordingly, the Company continues to closely evaluate the
credit risk associated with its continuing business with this customer. Although
the Company believes all amounts due from this customer will be collected, the
inability of this customer to pay amounts due to the Company
23
<PAGE>
could have a material adverse effect on the Company's results of operations,
financial position, and cash flows.
In October 1996 the Company entered into a letter of intent for the
acquisition of this same customer. The proposed transaction will involve the
Company issuing a certain number of shares of its common stock and assuming up
to $11.5 million of the customer's debt in exchange for all the capital of the
customer, and is intended to be accounted for as a pooling of interests. The
exact terms of the transaction, which will be subject to regulatory approval and
require the approval of both companies stockholders, will be determined upon
signing of a definitive merger agreement.
SUPPLIES/SOURCE OF SUPPLY The Company's manufacturing operations consist
primarily of final assembly and test and quality control of materials,
components, subassemblies and systems. The Company's hardware and software
product designs are proprietary but use industry-standard hardware components
and an industry-standard, real time, multi-tasking operating system. The Company
presently uses third parties to perform printed circuit board and subsystem
assembly. Although the Company generally uses standard parts and components for
its products, certain of these parts and components are available only from sole
source vendor or from limited sources. The Company to date has been able to
obtain adequate supplies of these components in a timely manner from existing
sources or, when necessary, from alternative sources of supply. However, the
inability to develop such alternative sources if and as required in the future,
or to obtain sufficient sole or limited source components as required, would
have a material adverse effect on the Company's operating results.
DIVERSIFICATION OF CREDIT RISKS AND OFF-BALANCE-SHEET RISKS The Company's
investments and trade receivables subject the Company to certain credit risks.
The Company maintains cash and investments in various financial instruments, and
maintains policies establishing credit and concentration criteria for such
assets and limiting the exposure to any one institution or guarantor. Cash
equivalents and short-term investments at November 2, 1996 consisted primarily
of U.S. government and agency bonds and corporate debt obligations. The Company
sells primarily to distributors, Regional Bell Operating Companies, independent
telephone companies, and other telecommunications service providers. The Company
performs ongoing credit evaluations of its customers' financial condition and
generally requires no collateral. At November 2, 1996 five customers represented
approximately 39% of the trade receivables.
The Company occasionally enters into foreign exchange forward contracts to
hedge certain balance sheet exposures. Gains and losses on the foreign exchange
contracts are included in other income and expense, net, which offset foreign
exchange gains or losses from revaluation of foreign currency-denominated
balance sheet items. The counterparties to such contracts are major financial
institutions. The Company continuously monitors its foreign exchange contract
positions and limits the amount of agreements and contracts it enters into with
any one party. No foreign exchange contracts were entered into during fiscal
1996.
SHORT-TERM INVESTMENTS AND OTHER FINANCIAL INSTRUMENTS
Management determines the appropriate classifications of securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
The Company has classified its investments as "available for sale" and recorded
these investments at estimated fair value with unrealized gains and losses
reported as a separate component of stockholders' equity.
Investment income is recorded using an effective interest rate for each
investment. This rate includes interest earned and an amortization of each
investment's associated premium or discount over the term of the investment.
Realized gains or losses, using the specific identification method, and declines
in value judged to be other than temporary are also included in investment
income.
24
<PAGE>
Available-for-sale securities at November 2, 1996 consisted of:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS (LOSSES) FAIR VALUE
----------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government and agency obligations.................. $ 13,224 $ 6 $ (72) $ 13,158
Corporate debt securities............................... 10,222 4 (3) 10,223
Temporary cash investments.............................. 4,976 29 -- 5,005
Municipal securities.................................... 1,022 -- -- 1,022
----------- --- --- -----------
$ 29,444 $ 39 $ (75) $ 29,408
----------- --- --- -----------
----------- --- --- -----------
</TABLE>
Available-for-sale securities at October 28, 1995 consisted of:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS (LOSSES) FAIR VALUE
----------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
State and municipal bonds............................... $ 45,096 $ 57 $ (71) $ 45,082
----------- --- --- -----------
----------- --- --- -----------
</TABLE>
Contractual maturities of available-for-sale securities at November 2, 1996
are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less.......................................................... $ 22,767 $ 22,802
Due in one to three years........................................................ 6,677 6,606
----------- -----------
$ 29,444 $ 29,408
----------- -----------
----------- -----------
</TABLE>
The fair values of the Company's short-term investments are based on quoted
market prices at November 2, 1996 and October 28, 1995.
BANK CREDIT LINES
The Company has a $10,000,000 unsecured line of credit which expires May 1,
1997. Amounts borrowed bear interest at various rates as defined under the
agreement, including the bank's reference rate (8.25% at November 2, 1996). The
loan agreement requires the Company to maintain certain financial ratios,
minimum working capital, and minimum tangible net worth and requires the banks'
consent for the payment of cash dividends. The Company is in compliance with
this agreement and there were no borrowings outstanding under the line on
November 2, 1996.
The Company also has contracts with banks allowing it to enter into foreign
currency spot and future exchange transactions in amounts not to exceed
$15,000,000 outstanding at one time. A portion of these amounts, $5,000,000,
expires May 1, 1997. At November 2, 1996, the Company had no outstanding foreign
exchange contracts.
25
<PAGE>
BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
INVENTORIES
Raw materials............................................................................. $ 4,603 $ 2,516
Work-in-process........................................................................... 2,898 2,010
Finished goods............................................................................ 3,966 1,295
---------- ----------
$ 11,467 $ 5,821
---------- ----------
---------- ----------
PROPERTY AND EQUIPMENT
Equipment................................................................................. $ 30,810 $ 21,364
Furniture and fixtures.................................................................... 3,514 2,997
Leasehold improvements.................................................................... 2,593 2,238
---------- ----------
36,917 26,599
Less accumulated depreciation and amortization............................................ (21,668) (14,586)
---------- ----------
$ 15,249 $ 12,013
---------- ----------
---------- ----------
INTANGIBLE ASSETS
Goodwill.................................................................................. $ 2,557 $ 2,557
Patent licenses........................................................................... 1,350 1,350
Less accumulated amortization............................................................. (1,903) (1,528)
---------- ----------
$ 2,004 $ 2,379
---------- ----------
---------- ----------
ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses.......................................................................... $ 3,680 $ 3,679
Deferred income and rent.................................................................. 519 1,740
Other liabilities......................................................................... 2,225 2,344
---------- ----------
$ 6,424 $ 7,763
---------- ----------
---------- ----------
</TABLE>
COMMITMENTS AND CONTINGENCIES
LEASES The Company leases its facilities and certain equipment under
noncancellable operating leases expiring through 2001 and beyond. Leases for the
Company's three principal operating facilities require the Company to pay
property taxes, insurance premiums and normal maintenance costs, and one such
lease contains provisions for rental adjustments.
In December 1996, the Company entered into a 12 year lease for approximately
225,000 square feet of office space in San Jose, California at a base monthly
rent of approximately $285,000. This lease contains a provision for the monthly
rent to be adjusted upwards based on changes in the Consumer Price Index and
also requires the Company to pay property taxes, insurance premiums, and normal
maintenance costs. In December 1996, the Company amended the lease of its
principal San Jose office facility. The term of this lease was extended to
September 2007 with fixed base rent adjustments in each year of the lease.
26
<PAGE>
Future minimum lease payments under noncancellable operating leases and the
present value of future minimum capital lease payments as of November 2, 1996,
and as adjusted for the December 1996 commitments as noted above, are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
YEARS
1997............................................................................... $ 168 $ 2,360
1998............................................................................... 80 4,563
1999............................................................................... -- 5,136
2000............................................................................... -- 5,201
2001 and beyond.................................................................... -- 43,533
----- -----------
Total minimum payments............................................................. $ 248 $ 60,793
----- -----------
-----------
Less amount representing interest.................................................. (16)
-----
Present value of minimum lease payments............................................ 232
-----
Less current portion............................................................... (154)
-----
$ 78
-----
-----
</TABLE>
Equipment acquired by the company under capital lease arrangements and
related accumulated amortization are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Equipment, at cost..................................................................... $ 640 $ 640
Less accumulated amortization.......................................................... (640) (531)
--------- ---------
$ -- $ 109
--------- ---------
--------- ---------
</TABLE>
Rent expense totaled approximately $1,964,000, $1,475,000 and $1,405,000 for
years 1996, 1995 and 1994, respectively.
LETTERS OF CREDIT The Company frequently enters into purchase agreements
with vendors whereby the Company guarantees payment with standby letters of
credit. Also, letters of credit are provided as performance securities for
certain sales contracts. Various standby letters of credit totaling $800,000 and
$175,000 were outstanding as of November 2, 1996 and October 28, 1995,
respectively.
LITIGATION The Company from time to time has received letters from other
parties, including competitors of the Company, that make allegations of patent
infringement. Certain lawsuits have also arisen from time to time in the
ordinary course of business. The Company believes the ultimate resolution of
these matters will not have a material adverse effect on the Company's financial
condition, results of operations, or cash flows.
STOCKHOLDERS' EQUITY
SHARES RESERVED The Company has reserved 1,494,000 and 131,000 common
shares for the Company's Stock Option Plans and the Employee Stock Purchase
Plan, respectively, at November 2, 1996.
STOCKHOLDER RIGHTS PLAN The Company has adopted a Stockholder Rights Plan
(the Rights Plan) which is intended to protect stockholders from unfair or
coercive takeover practices. In accordance with the Rights Plan, the Company
declared a dividend distribution of one Preferred Share Purchase Right (the
Purchase Right) for each outstanding share of the Company's common stock held at
the close of business on November 30, 1992.
27
<PAGE>
Each Purchase Right entitles the registered holder to purchase from the
Company a unit consisting of one-thousandth of a share of the Company's Series A
Participating Preferred Stock at an exercise price of $115.00. The Purchase
Rights separate from the common stock and become exercisable by the holders and
are redeemable by the Company on various dates and in certain situations as
defined in the Rights Plan. The Purchase Rights expire November 30, 2002.
NOTE RECEIVABLE FROM OFFICER In April 1996, the Company loaned $300,000 to
an officer of the corporation. The note is payable in full April 15, 2001, with
interest thereon at the rate of 5.88% per annum, compounded annually. The note
is presently secured by 20,428 common shares of the Company owned by the
officer. The Board of Directors has approved an amendment to the note whereby a
security interest in real property of such officer will replace the common
shares as security for the note.
STOCK AND BENEFIT PLANS
EMPLOYEE STOCK PURCHASE PLAN The Company's 1991 Employee Stock Purchase
Plan (the Purchase Plan), as amended, allows eligible employees through payroll
deduction to purchase shares of the Company's common stock at the lower of 85%
of the fair market value of the stock on the first or last day of a six-month
offering period, or such other offering period as determined by the Board of
Directors but at no time to exceed 27 months. Approximately 107,000 and 94,000
shares were issued under the Purchase Plan at average prices of $13.70 and
$14.35 per share in 1996 and 1995, respectively.
STOCK OPTION PLANS The Company has in effect two stock option plans: the
Amended and Restated 1987 Incentive Stock Option Plan (the 1987 Plan) and the
1995 Nonstatutory Stock Option Plan (the 1995 Plan). The 1987 plan expires by
its terms in December 1997. In addition, the Board of Directors of the Company
has approved a third Stock Option Plan, the 1997 Stock Plan (the 1997 Plan), and
will submit such Plan to the stockholders of the Company for approval at the
Company's next Annual Meeting of Stockholders.
The 1987 Plan and the 1997 Plan both have a ten year term and provide for
the granting of incentive stock options and nonstatutory stock options to
officers, directors, employees and consultants of the Company at prices ranging
from 100% to 110% of the fair market value of the common stock on the date of
grant as determined by the Board of Directors. Also, stock options are
automatically granted to directors who are not employees of the Company. Options
generally expire five or ten years after the date of grant. The vesting and
exercise provisions of option grants are determined by the Board of Directors.
Options to new employees generally vest at the rate of 25% of the shares subject
to the option one year after the date of grant, and then ratably over the
following 36 months, based on continued service to the Company. Options granted
to current employees generally vest at the rate of 12.5% of the shares subject
to the option six months after the date of grant and then ratably over the
following 42 months, based on continued service to the Company. Options to
outside directors generally vest in equal monthly amounts over a three-year or
one-year period depending on the nature of the option. Unexercised options are
canceled thirty days following termination of the optionee's service to the
Company.
The 1995 Plan has a ten year term and was approved by the Board of Directors
on July 25, 1995. The 1995 plan provides for the granting of nonstatutory stock
options to employees (excluding officers and directors) and consultants of the
Company at the fair market value of the common stock on the date of the option
grant. The vesting and exercise provisions of option grants are determined by
the Board of Directors, and are generally similar to those provided under the
1987 Plan.
28
<PAGE>
A summary of stock option plan transactions follows:
<TABLE>
<CAPTION>
MONTH ENDED OCTOBER
1996 1995 29, 1994 1994
------------------- ------------------- ------------------- -------------------
(IN THOUSANDS, EXCEPT PRICE PER SHARE)
<S> <C> <C> <C> <C>
Number of option shares
Granted................................ 637 895 -- 283
Exercised.............................. (123) (207) (4) (263)
Canceled............................... (147) (572) (2) (36)
Outstanding at end of year............. 1,331 964 848 854
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Option price per share
$14.00 -
Granted....................... $21.88 $12.63 -$21.50 $-- $11.75 -$41.50
Exercised..................... 3.20 - 19.00 2.04 - 19.00 1.20 - 16.75 1.20 - 16.75
Canceled...................... 5.00 - 21.50 2.40 - 41.50 1.20 - 40.25 1.20 - 41.00
Outstanding at end of year.... 5.00 - 40.25 3.20 - 40.25 2.04 - 41.50 1.20 - 41.50
</TABLE>
Options to purchase approximately 472,000 and 291,000 shares were
exercisable at November 2, 1996, and October 28, 1995, respectively, at the per
share price ranges noted above. At November 2, 1996, 157,000 shares remain
available for granting under these plans.
EMPLOYEE BENEFIT PLAN The Company has an employee savings plan, which
qualifies under Section 401(k) of the Internal Revenue Code (the 401(k) Plan).
Under the 401(k) Plan, all eligible employees may defer from 1% to 20% of their
pre-tax compensation, but not more than statutory limits. The Company is allowed
to make contributions as defined in the 401(k) Plan and as approved by the Board
of Directors. Company contributions of $327,000 were made through November 2,
1996. The Company contributed $152,000 and $175,000 in 1996 and 1995,
respectively. In December 1996 the Board of Directors approved a 401(k) matching
program, not to exceed $500 per eligible employee.
OTHER INCOME AND EXPENSE, NET
Other income and expense, net consists of:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment income.......................................................... $ 2,321 $ 2,287 $ 1,797
Interest expense........................................................... (76) (108) (227)
Other...................................................................... (14) (561) (7)
--------- --------- ---------
$ 2,231 $ 1,618 $ 1,563
--------- --------- ---------
--------- --------- ---------
</TABLE>
INCOME TAXES
Income tax provisions have been determined in accordance with statement of
Financial Accounting Standards No. 109--Accounting for Income Taxes ("FAS 109).
29
<PAGE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
FEDERAL
Current....................................................................... $ (901) $ -- $ 2,465
Deferred...................................................................... 901 -- (103)
STATE
Current....................................................................... -- -- 881
Deferred...................................................................... -- -- (231)
FOREIGN
Current....................................................................... 53 56 --
--------- --- ---------
53 56 --
--------- --- ---------
$ 53 $ 56 $ 3,012
--------- --- ---------
--------- --- ---------
</TABLE>
The tax benefits resulting from the exercise of nonqualified stock options
and the disqualifying dispositions of shares acquired under the Company's stock
option plans and employee stock purchase plan reduced taxes currently payable as
shown above by $547,000, $0 and $2,106,000, in 1996, 1995 and 1994,
respectively. Such benefits are credited to additional paid-in capital when
realized.
The total provision for income taxes differs from the amount computed by
applying the federal statutory income tax rate to income before taxes as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income tax (benefit) computed at federal statutory rate.................. 34.0% (34.0%) 34.0%
State taxes, net of federal benefit...................................... -- -- 3.2
Foreign taxes............................................................ 5.0 1.4 --
Goodwill amortization.................................................... 8.3 2.1 .8
Benefit of tax net operating loss........................................ -- -- (3.3)
Adjustment to valuation allowance........................................ (27.3) -- (3.3)
Tax-exempt interest income............................................... (16.1) (19.0) (5.0)
Temporary differences and tax net operating losses for which no current
benefit is recognized................................................... -- 49.5 --
Other individually immaterial items...................................... 1.1 1.4 1.6
----- ----- ---
Effective tax rate....................................................... 5.0% 1.4% 28.0%
----- ----- ---
----- ----- ---
</TABLE>
30
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX LIABILITIES
Difference in accounting periods.................................................. $ (2,854) $ --
DEFERRED TAX ASSETS
Net operating loss carryforwards.................................................. 2,576 3,302
Tax credit carryforwards.......................................................... 2,622 797
Fixed assets...................................................................... 986 456
Allowance for doubtful accounts................................................... 839 654
Other accruals and reserves not currently deductible for tax purposes............. 1,897 1,488
Inventory valuation accounts...................................................... 2,272 1,417
Difference in accounting periods.................................................. -- 186
Other............................................................................. 41 210
--------- ---------
11,233 8,510
Valuation allowance............................................................... (6,356) (5,586)
--------- ---------
4,877 2,924
--------- ---------
Total deferred taxes.............................................................. $ 2,023 $ 2,924
--------- ---------
--------- ---------
</TABLE>
The change in the valuation allowance was a net increase of $770,000 and
$3,468,000 and a net decrease of $1,013,000 for 1996, 1995, and 1994,
respectively. Approximately $655,000 of the valuation allowance is related to
stock options which will be credited to additional paid-in capital when
realized.
As of November 2, 1996, the Company has federal tax net operating loss
carryforwards of approximately $6,000,000 which will expire in 1998 through
2002, if not utilized. Also available at November 2, 1996 are tax credit
carryforwards for federal and state income tax purposes of approximately
$2,200,000 and $650,000 respectively, which will expire in the years 2002
through 2011, if not utilized. Utilization of approximately $4,000,000 of the
federal net operating loss carryforwards and the deduction equivalent of
approximately $118,000 of tax credit carryforwards are limited to less than
$1,000,000 per year, due to the application of the change in ownership
provisions of Sections 382 and 383 of the Internal Revenue Code of 1986, as
amended.
SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment: the design, manufacture
and marketing of systems and software for communications applications including
voice messaging, facsimile storage and forwarding and interactive voice
response.
No customer represented more than 10% of net revenue in 1996. Sprint
Corporation (Sprint) accounted for approximately 12% of net revenue in 1995 and
Fujitsu Business Communications Systems (Fujitsu) and Sprint accounted for
approximately 13% and 11% of net revenue, respectively, in 1994.
31
<PAGE>
Export revenue consist of sales from the Company's U.S. operating company to
non-affiliated customers by geographic area after adjustments to include such
export sales based on the location of the customer:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Latin America.......................................................... $ 9,800 $ 2,900 $ 2,800
Australia.............................................................. 9,000 4,000 3,600
Canada................................................................. 5,900 3,600 2,500
Europe................................................................. 5,600 2,700 1,900
Far East............................................................... 1,500 2,700 1,500
--------- --------- ---------
$ 31,800 $ 15,900 $ 12,300
--------- --------- ---------
--------- --------- ---------
</TABLE>
SUBSEQUENT EVENT
In December 1996, the Board of Directors approved an increase in shares
reserved for issuance under the Company's stock option plans and the Employee
Stock Purchase plan of 277,000 and 100,000, respectively, and in January 1997
approved the 1997 Plan which has 375,000 shares reserved for issuance. The
increase in the shares for the Employee Stock Purchase Plan and the adoption of
the 1997 Plan are subject to stockholders' approval.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1996
Net revenue........................................................... $ 24,013 $ 24,533 $ 26,500 $ 29,278
Gross margin (1)...................................................... 14,502 13,583 15,714 18,009
Research and development.............................................. 4,574 4,961 5,114 5,505
Operating income (loss)............................................... 42 (1,861) 100 541
Net income (loss)..................................................... 507 (1,311) 710 1,094
Net income (loss) per share (2)....................................... $ .07 $ (.19) $ .10 $ .16
Shares used in per share calculations................................. 6,980 6,806 6,958 6,954
1995
Net revenue........................................................... $ 14,916 $ 16,450 $ 17,570 $ 20,438
Gross margin (1)...................................................... 9,561 10,286 10,034 12,691
Research and development.............................................. 3,509 3,508 3,814 3,967
Operating income (loss)............................................... (1,368) (859) (2,152) (1,317)
Net income (loss)..................................................... (770) (320) (1,683) (1,361)
Net income (loss) per share (2)....................................... $ (.12) $ (.05) $ (.26) $ (.21)
Shares used in per share calculations................................. 6,485 6,530 6,590 6,636
</TABLE>
- ------------------------
(1) In the fourth quarter of 1996, the Company reclassified certain customer
training and support costs from selling, general, and administrative expense
to cost of goods sold to more properly reflect their current and anticipated
future direct correlation to product and service revenues. All 1996 and 1995
quarterly financial data have been reclassified for consistent presentation.
(2) Net income (loss) per share is computed independently for each of the
quarters presented and therefore may not sum to the total for the year.
32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CENTIGRAM COMMUNICATIONS CORPORATION
We have audited the accompanying consolidated balance sheets of Centigram
Communications Corporation as of November 2, 1996 and October 28, 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the two years in the period ended November 2, 1996, the one-month
period ended October 29, 1994, and the year ended October 1, 1994. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Centigram
Communications Corporation at November 2, 1996 and October 28, 1995, and the
consolidated results of its operations and its cash flows for the two years in
the period ended November 2, 1996, the one-month period ended October 29, 1994,
and the year ended October 1, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
San Jose, California
November 26, 1996
except for the second paragraph of
"Commitments and Contingencies" and
the note "Subsequent Event"
as to which date is
December 20, 1996
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS OF THE
REGISTRANT
The information required by this item is incorporated by reference to the
Proxy Statement for the Company's Annual Meeting of Stockholders scheduled to be
held on March 24, 1997, under the headings "Proposal No. 1" and "Management".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Proxy Statement for the Company's Annual Meeting of Stockholders, scheduled to
be held on March 24, 1997, under the heading "Executive Officer Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Proxy Statement for the Company's Annual Meeting of Stockholders, scheduled to
be held on March 24, 1997, under the heading "Security Ownership of Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Proxy Statement for the Company's Annual Meeting of Stockholders, scheduled to
be held on March 24, 1997, under the heading "Certain Transactions".
34
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENTS OF CENTIGRAM
COMMUNICATIONS CORPORATION ARE INCLUDED IN ITEM 8:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT AUDITORS:
Report of Independent Auditors 33
Consolidated Balance Sheets--November 2, 1996 and October 28, 1995 18
Consolidated Statement of Operations--Years ended November 2, 1996 and October 28, 1995,
one-month ended October 29, 1994, and year ended October 1, 1994 19
Consolidated Statements of Stockholder's Equity--Years ended November 2, 1996 and October 28,
1995, one-month ended October 29, 1994, and year ended October 1, 1994 20
Consolidated Statements of Cash Flows--Years ended November 2, 1996 and October 28, 1995,
one-month ended October 29, 1994, and year ended October 1, 1994 21
Notes to Consolidated Financial Statements--November 2, 1996 (except quarterly financial data) 22
SUPPLEMENTARY FINANCIAL DATA NOT COVERED BY REPORT OF INDEPENDENT AUDITORS:
Quarterly Financial Data in Notes to Consolidated Financial Statements 32
</TABLE>
(A) 2. FINANCIAL STATEMENT SCHEDULES:
<TABLE>
<S> <C>
The following financial schedules of the Registrant for the years ended
November 2, 1996 and October 28, 1995, the one-month period ended October 29,
1994, and the year ended October 1, 1994 are filed as part of this report.
SCHEDULES COVERED BY REPORT OF INDEPENDENT AUDITORS:
Schedule II--Valuation and Qualifying Accounts S-1
</TABLE>
Schedules not listed above have been omitted because they are not applicable
or are not required or the information required to be set forth therein is
included in the consolidated financial statements or notes.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the fiscal year
covered by this Annual Report on Form 10-K.
(C) EXHIBITS
(The Company will furnish to any stockholders who so request a copy of this
Annual Report on Form 10-K, as amended, including a copy of any Exhibit listed
below, provided that the Company may require payment of a reasonable fee not to
exceed its expense in furnishing any such Exhibit.)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Second Restated Certificate of Incorporation of Registrant.(1)
3.2 Bylaws of Registrant.(1)
4.1 Preferred Shares Rights Agreement dated as of October 20, 1992 by and between Registrant and The First
National Bank of Boston.(2)
4.2 Amendment to Preferred Shares Rights Agreement dated April 26, 1994.(4)
10.1 Amended and Restated 1987 Incentive Stock Option Plan.(4)
10.2 Amended and Restated 1991 Employee Stock Purchase Plan.(4)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.3 Settlement Agreement and Cross-License between the Company and VMX, Inc. dated June 29, 1990.(1)+
10.4 Standard Triple Net Industrial Lease between the Company and Pactel Properties dated May 30, 1990.(1)
10.7 Form of Change of Control Agreement.(1)
10.8 Employment Agreement dated February 22, 1985 by and between Registrant and George H. Sollman, as
amended.(1)
10.11 Credit Agreement dated as of March 28, 1994 by and between the Registrant and Silicon Valley Bank.(4)
10.12 Industrial Lease Agreement dated June 7, 1993 between the Company and Aetna Life Insurance Company.(3)
10.13 Loan Modification Agreement entered into as of April 21, 1995 between the Registrant and Silicon Valley
Bank.(5)
10.14 Loan Modification Agreement entered into as of September 12, 1995 between the Registrant and Silicon
Valley Bank.(5)
10.15 1995 Nonstatutory Stock Option Plan.(5)
10.16 Amendment to Triple Net Industrial Lease Between the Company and Bryan/Cilker Properties (successor in
interest to Pactel Properties) dated December 23, 1996
10.17 1997 Stock Plan
10.18 Promissory Note dated April 15, 1996 between the Company and George H. Sollman.
10.19 Standard Triple Net Industrial Lease between the Company and Sobrato Interests III dated December 20,
1996.
10.20 Standard Triple Net Industrial Lease between the Company and Sobrato Interests III dated December 20,
1996.
11.1 Statement of Computation of Earnings Per Share.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedules.
</TABLE>
- ------------------------
(1) Incorporated by reference to the Form S-1 Registration Statement as filed
with the Securities and Exchange Commission on October 10, 1991
(Registration No. 33-42039).
(2) Incorporated by reference to the Form 8-A Registration Statement as filed
with the Securities and Exchange Commission on November 3, 1992.
(3) Incorporated by reference to Annual Report on Form 10-K for fiscal 1993.
(4) Incorporated by reference to Annual Report on Form 10-K for fiscal 1994.
(5) Incorporated by reference to Annual Report on Form 10-K for fiscal 1995.
+ Confidential treatment granted as to certain portions.
36
<PAGE>
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.
CENTIGRAM COMMUNICATIONS CORPORATION
Date: January 23, 1997 By: /s/ GEORGE H. SOLLMAN
-----------------------------------------
George H. Sollman
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George H. Sollman and Dennis P. Wolf, jointly and
severally his attorneys-in-fact, each with the power of substitution for him in
any and all capacities, to sign any amendments to this Report on 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 of 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.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ GEORGE H. SOLLMAN Officer, Director
---------------------------- (Principal Executive January 23, 1997
George H. Sollman Officer)
/s/ DENNIS P. WOLF
---------------------------- Senior Vice President and January 23, 1997
Dennis P. Wolf Chief Financial Officer
/s/ THOMAS E. BRUNTON Vice President and
---------------------------- Controller (Principal January 23, 1997
Thomas E. Brunton Accounting Officer)
/s/ JAMES H. BOYLE
---------------------------- Director January 23, 1997
James H. Boyle
/s/ JAMES F. GIBBONS
---------------------------- Director January 23, 1997
James F. Gibbons
/s/ J. MICHAEL JARVIS
---------------------------- Director January 23, 1997
J. Michael Jarvis
/s/ DEAN O. MORTON
---------------------------- Director January 23, 1997
Dean O. Morton
37
<PAGE>
CENTIGRAM COMMUNICATIONS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS AT END OF
DESCRIPTION OF PERIOD EXPENSES (2) DEDUCTIONS (1) PERIOD
- -------------------------------------------------- ----------- ------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended November 2, 1996
Allowance for doubtful accounts................. $ 841 $ 330 $ -- $ 216 $ 955
Product return reserve.......................... 1,100 -- -- -- 1,100
Year ended October 28, 1995
Allowance for doubtful accounts................. $ 1,380 $ -- $ -- $ 539 $ 841
Product return reserve.......................... 825 -- 275 -- 1,100
Month ended October 29, 1994
Allowance for doubtful accounts................. $ 1,383 $ 5 $ -- $ 8 $ 1,380
Product return reserve.......................... 750 -- 75 -- 825
Year ended October 1, 1994
Allowance for doubtful accounts................. $ 1,250 $ 165 $ -- $ 32 $ 1,383
Product return reserve.......................... 500 -- 250 -- 750
</TABLE>
- ------------------------
(1) Writeoffs of uncollectible accounts, net of recoveries.
(2) The product return reserve is charged to revenue.
S-1
<PAGE>
EXHIBIT 10.16
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("First Amendment") is made and entered
into as of this 23rd day of December, 1996 by and between Evelyn L. Bryan and
Robert A. Bryan, Trustees UTA dated November 3, 1987, Bryan Tax Deferral
Trust and George E. Cilker and Elizabeth B. Cilker, Trustees, UTA dated May
9, 1979, the Cilker Revocable Trust, dba Bryan/Cilker Properties ("Landlord")
and Centigram Communications Corporation, a California Corporation ("Tenant").
RECITALS
--------
A. WHEREAS, PacTel Properties and Centigram Communications Corporation
entered into that certain Lease dated May 30, 1990, (the "Lease") for the
premises commonly known as 91 East Tasman Drive, San Jose, California and
more particularly described in the Lease (the "Premises").
B. WHEREAS, on July 31, 1991, Landlord, Bryan/Cilker Properties, became
the legal successors in interest under the Lease to PacTel Properties, a
California corporation.
C. WHEREAS, the term of the Lease is scheduled to expire on September
30, 1997.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree to the Lease as follows:
1. TERM. Paragraph 3.1 (Term) of the Lease is hereby amended to extend
the Term for a period of ten (10) years, commencing October 1, 1997 and
expiring September 30, 2007.
2. RENT. Paragraph 4.1 (Base Rent) of the Lease is hereby amended as
follows:
BASE MONTHLY RENT
-----------------
Months 1 - 12 10/1/97 thru 9/30/98 $ 100,358
Months 13 - 24 10/1/98 thru 9/30/99 $ 104,540
Months 25 - 36 10/1/99 thru 9/30/00 $ 108,722
Months 37 - 48 10/1/00 thru 9/30/01 $ 112,903
Months 49 - 60 10/1/01 thru 9/30/02 $ 117,085
Months 61 - 72 10/1/02 thru 9/30/03 $ 121,266
Months 73 - 84 10/1/03 thru 9/30/04 $ 125,448
Months 85 - 96 10/1/04 thru 9/30/05 $ 129,630
Months 97 - 108 10/1/05 thru 9/30/06 $ 133,811
Months 109 - 120 10/1/06 thru 9/30/07 $ 137,933
<PAGE>
3. CONDITION OF PREMISES. Paragraph 5.3 (Condition of Premises) is
hereby amended by adding a third paragraph as follows:
(C) Tenant acknowledges that Tenant has been occupying the Premises
pursuant to the terms and conditions of the Lease, and as such, accepts the
Premises in its presently existing "as is" condition. Tenants's past,
present, and future possession of the Premises shall conclusively establish
that the Premises are at such time in good and satisfactory order, condition
and repair.
4. SECURITY DEPOSIT. Paragraph 20 (Security Deposit) shall be deleted
in its entirety and the following paragraph shall be inserted in its place:
Tenant shall deposit with Landlord upon execution of this First
Amendment to Lease the sum of ONE HUNDRED THOUSAND AND NO/100THS Dollars
($100,000.00) as the Security Deposit for the full and faithful performance
of every provision of this Lease to be performed by Tenant. These funds shall
be placed in an interest bearing account at a Federally Chartered Financial
Institution, the location of which shall be at the discretion of Landlord,
where the interest thereon shall accumulate within said account and shall
accrue to Tenant, except as provided for in the following sentence. If
Tenant defaults with respect to any provision of this Lease, Landlord may
apply all or any part of the Security Deposit for the payment of any rent or
other sum in default, the repair of such damage to the Premises or the
payment of any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default or to compensate Landlord for any other
loss or damage which Landlord may suffer by reason of Tenant's default to the
full extent permitted by law. If any portion of the Security Deposit is so
applied, Tenant shall, within ten (10) days after written demand therefor,
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its original amount. Landlord shall not be required to keep the
Security Deposit separate from its general funds, however, Tenant shall be
entitled to interest on the Security Deposit. If Tenant is not otherwise in
default pursuant to Paragraph 12 herein, the Security Deposit or any balance
thereof, including interest, shall be returned to Tenant within thirty (30)
days of termination of the Lease.
5. OPTION TO EXTEND TERM. Paragraphs 45(a) and 45(b) of the Lease is
hereby amended in part as follows:
45(a). Tenant shall have an option (the "Extension Option") to extend
the term of this lease for one (1) additional period of five (5) years beyond
the expiration date hereof (9/30/07) (the "Option Term").
45(b). OPTION RENTAL RATE. The Base Monthly Rent payable for the first
year of the Option Term shall be an amount equal to the greater of (i) 100%
of the "Prevailing Market Rent" or (ii) the Base Rent due hereunder during
the last month of the Initial Term of the Lease. For purposes of this Lease,
the "Prevailing Market Rent" shall mean "...... (such as Tenant Improvement
Allowance, free rent or moving expenses)."
Commencing each year thereafter (years 2 through 5) the Base Monthly
Rent shall be increased five cents ($0.05) per rentable square foot.
Except as set forth in this First Amendment, the Lease is unmodified and
in full force and effect.
2
<PAGE>
In witness whereof, the parties hereto have executed this First
Amendment as of the date and year first above written.
LANDLORD TENANT
Bryan/Cilker Properties Centigram Communications Corporation
a Delaware corporation
ROBERT A BRYAN AND EVELYN L. BRYAN,
TRUSTEES OF THE BRYAN TAX-DEFERRAL TRUST, By /s/ George Sollman
DATED NOVEMBER 3, 1987 -------------------------------
George Sollman
Its: President and Chief
Executive Officer
------------------------------
- ---------------------------------- Date: 10/20/96
Robert A. Bryan Date ------------------------------
91 East Tasman Drive
San Jose, California
- ----------------------------------
Evelyn L. Bryan Date
GEORGE E. CILKER AND ELIZABETH B. CILKER,
TRUSTEES OF THE CILKER REVOCABLE TRUST,
DATED MAY 9, 1979
- ----------------------------------------
George E. Cilker Date
- ----------------------------------------
Elizabeth B. Cilker Date
5450 Thornwood Drive, Suite G
San Jose, California 95123
3
<PAGE>
CENTIGRAM COMMUNICATIONS CORPORATION
1997 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. The Plan also provides for automatic grants to Outside Directors.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Options are, or will be, granted
under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Centigram Communications Corporation, a Delaware
corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "DIRECTOR" means a member of the Board.
<PAGE>
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any
leave of absence approved by the Company or (ii) transfers between locations
of the Company or between the Company, its Parent, any Subsidiary, or any
successor. For purposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed
by statute or contract. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, on the 181st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment"
by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day prior to the time of determination, as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a Share of Common Stock shall be the mean between the high bid and low
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
2
<PAGE>
(p) "NOTICE OF GRANT" means a written or electronic notice evidencing
certain terms and conditions of an individual Option grant. The Notice of
Grant is part of the Option Agreement.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "OPTIONED STOCK" means the Common Stock subject to an Option.
(v) "OPTIONEE" means the holder of an outstanding Option granted
under the Plan.
(w) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "PLAN" means this 1997 Stock Plan.
(y) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "SECTION 16(b)" means Section 16(b) of the Exchange Act.
(aa) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(bb) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(cc) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 375,000 Shares. The Shares may be authorized, but
unused, or reacquired Shares of Common Stock. For purposes of this Section
3, (i) "unissued Shares" means Shares reserved for issuance but not covered
by grants under this Plan or under the Amended and Restated 1987 Incentive
Stock Option Agreement (the "1987 Plan"), which 1987 Plan shall terminate
automatically in 1997 or upon approval by the Board of this Plan, whichever
is earlier, and (ii) "reacquired Shares" means Shares
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covered by grants under this Plan or the 1987 Plan which are not issued to
participants, or which are returned to the Company upon forfeiture of such
Shares.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program,
the unpurchased Shares which were subject thereto shall become available for
future grant or sale under the Plan (unless the Plan has terminated);
PROVIDED, however, that Shares that have actually been issued under the Plan,
whether upon exercise of an Option, shall not be returned to the Plan and
shall not become available for future distribution under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be administered
by different Committees with respect to different groups of Service Providers.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
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(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option of the shares of Common
Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option (subject to Section 15(c) of
the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal
to the amount required to be withheld. The Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such
conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously granted
by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on
all Optionees and any other holders of Options.
5. ELIGIBILITY. Nonstatutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Employees.
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6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 250,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000
Shares which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the canceled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 15 of
the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall
be ten (10) years from the date of grant or such shorter term as may be
provided in the Option Agreement. Moreover, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be
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five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share
on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied
before the Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
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(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date
of surrender equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and
at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by
the Administrator and permitted by the Option Agreement and the Plan. Shares
issued upon exercise of an Option shall be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse. Until the Shares are issued (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued)
such Shares promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the Shares are issued, except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
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(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's
death or Disability, the Optionee may exercise his or her Option within such
period of time as is specified in the Option Agreement to the extent that the
Option is vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for thirty (30) days following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified by the Administrator, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise
his or her Option within such period of time as is specified in the Option
Agreement to the extent the Option is vested on the date of termination (but
in no event later than the expiration of the term of such Option as set forth
in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of
such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the
Optionee's termination. If, at the time of death, the Optionee is not vested
as to his or her entire Option, the Shares covered by the unvested portion of
the Option shall immediately revert to the Plan. The Option may be exercised
by the executor or administrator of the Optionee's estate or, if none, by the
person(s) entitled to exercise the Option under the Optionee's will or the
laws of descent or distribution. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered
by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
All grants hereunder shall be automatic and shall be made strictly in
accordance with the following provisions upon the expiration or termination
of the 1987 Plan:
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(a) No person shall have discretion to select which Outside Directors
shall be granted Options or to determine the number of Shares to be covered
by Options granted to Outside Directors.
(b) Each Outside Director who shall commence service after the approval
of this Plan by the Board shall automatically receive an Option to purchase
Fifteen Thousand (15,000) Shares upon such commencement of service. 1/36 of
the Shares subject to such Option shall vest one month after the date of
grant of such Option, and 1/36 of the Shares subject to such Option shall
vest each month thereafter, subject to the Outside Director continuing to be
a Service Provider on such dates.
(c) Each year on the day immediately following the date of such Annual
Meeting, during the term of this Plan, each Outside Director shall
automatically receive an Option to purchase Five Thousand (5,000) Shares;
provided, however, any newly elected Outside Director who has served on the
Board for less than six (6) months prior to the scheduled Annual Meeting
shall not be eligible to receive the Option to purchase Five Thousand (5,000)
Shares until the next following scheduled Annual Meeting. 1/12 of the Shares
subject to such Option shall vest one month after the date of grant of such
Option, and 1/12 of the Shares subject to such Option shall vest each month
thereafter, subject to the Outside Director continuing to be a Service
Provider on such dates.
12. NON-TRANSFERABILITY OF OPTIONS. Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws
of descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions
as the Administrator deems appropriate.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have
yet been granted or which have been returned to the Plan upon cancellation or
expiration of an Option as well as the price per share of Common Stock
covered by each such outstanding Option shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion
of any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the
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effective date of such proposed transaction. The Administrator in its
discretion may provide for an Optionee to have the right to exercise his or
her Option until ten (10) days prior to such transaction as to all of the
Optioned Stock covered thereby, including Shares as to which the Option would
not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option shall lapse as to all such Shares, provided the
proposed dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option
will terminate immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the
assets of the Company, each outstanding Option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option, the Optionee
shall fully vest in and have the right to exercise the Option as to all of
the Optioned Stock, including Shares as to which it would not otherwise be
vested or exercisable. If an Option becomes fully vested and exercisable in
lieu of assumption or substitution in the event of a merger or sale of
assets, the Administrator shall notify the Optionee in writing or
electronically that the Option shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option
shall terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if, following the merger or
sale of assets, the option confers the right to purchase or receive, for each
Share of Optioned Stock subject to the Option immediately prior to the merger
or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders
of Common Stock for each Share held on the effective date of the transaction
(and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale
of assets is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option
for each Share of Optioned Stock subject to the Option to be solely common
stock of the successor corporation or its Parent equal in fair market value
to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination
granting such Option or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to each
Optionee within a reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Applicable Laws.
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(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such
termination.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company, such
a representation is required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan
is adopted. Such shareholder approval shall be obtained in the manner and to
the degree required under Applicable Laws.
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CENTIGRAM COMMUNICATIONS CORPORATION
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
VESTING SCHEDULE:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates.
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TERMINATION PERIOD:
This Option may be exercised for 90 days after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for such longer period as provided in the Plan. In no event
shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share
set forth in the Notice of Grant (the "Exercise Price"), subject to the terms
and conditions of the Plan, which is incorporated herein by reference.
Subject to Section 15(c) of the Plan, in the event of a conflict between the
terms and conditions of the Plan and the terms and conditions of this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of
Code Section 422(d) it shall be treated as a Nonstatutory Stock Option
("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of an
exercise notice, in the form attached as EXHIBIT A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares
in respect of which the Option is being exercised (the "Exercised Shares"),
and such other representations and agreements as may be required by the
Company pursuant to the provisions of the Plan. The Exercise Notice shall be
completed by the Optionee and delivered to [Title] of the Company. The
Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be
exercised upon receipt by the Company of such fully executed Exercise Notice
accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming
such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised
with respect to such Exercised Shares.
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3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by the Optionee.
The terms of the Plan and this Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. TAX CONSEQUENCES. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION.
(i) NONSTATUTORY STOCK OPTION. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price.
If the Optionee is an Employee or a former Employee, the Company will be
required to withhold from his or her compensation or collect from Optionee
and pay to the applicable taxing authorities an amount in cash equal to a
percentage of this compensation income at the time of exercise, and may
refuse to honor the exercise and refuse to deliver Shares if such withholding
amounts are not delivered at the time of exercise.
(ii) INCENTIVE STOCK OPTION. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair
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<PAGE>
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price will be treated as an adjustment to alternative
minimum taxable income for federal tax purposes and may subject the Optionee
to alternative minimum tax in the year of exercise. In the event that the
Optionee ceases to be an Employee but remains a Service Provider, any
Incentive Stock Option of the Optionee that remains unexercised shall cease
to qualify as an Incentive Stock Option and will be treated for tax purposes
as a Nonstatutory Stock Option on the date three (3) months and one (1) day
following such change of status.
(b) DISPOSITION OF SHARES.
(i) NSO. If the Optionee holds NSO Shares for at least one year,
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for
federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized
on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the excess, if any, of the lesser of
(A) the difference between the Fair Market Value of the Shares acquired on
the date of exercise and the aggregate Exercise Price, or (B) the difference
between the sale price of such Shares and the aggregate Exercise Price. Any
additional gain will be taxed as capital gain, short-term or long-term
depending on the period that the ISO Shares were held.
(c) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant
to an ISO on or before the later of (i) two years after the grant date, or
(ii) one year after the exercise date, the Optionee shall immediately notify
the Company in writing of such disposition. The Optionee agrees that he or
she may be subject to income tax withholding by the Company on the
compensation income recognized from such early disposition of ISO Shares by
payment in cash or out of the current earnings paid to the Optionee.
7. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not
be modified adversely to the Optionee's interest except by means of a writing
signed by the Company and Optionee. This agreement is governed by the
internal substantive laws, but not the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES
AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF
THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN
OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
4
<PAGE>
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and
governed by the terms and conditions of the Plan and this Option Agreement.
Optionee has reviewed the Plan and this Option Agreement in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing
this Option Agreement and fully understands all provisions of the Plan and
Option Agreement. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Administrator upon any
questions relating to the Plan and Option Agreement. Optionee further agrees
to notify the Company upon any change in the residence address indicated
below.
OPTIONEE CENTIGRAM COMMUNICATIONS
CORPORATION
___________________________________ _______________________________________
Signature By
____________________________________ ______________________________________
Print Name Title
____________________________________
Residence Address
____________________________________
5
<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to
be irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or
exercise of rights under the Plan or this Option Agreement.
_______________________________________
Spouse of Optionee
6
<PAGE>
EXHIBIT A
CENTIGRAM COMMUNICATIONS CORPORATION
1997 STOCK PLAN
EXERCISE NOTICE
Centigram Communications Corporation
91 East Tasman Drive
San Jose, CA 95134
Attention: __________________
1. EXERCISE OF OPTION. Effective as of today, ________________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Centigram Communications Corporation
(the "Company") under and pursuant to the 1997 Stock Plan (the "Plan") and
the Stock Option Agreement dated ______________________, 19___ (the "Option
Agreement"). The purchase price for the Shares shall be $______________, as
required by the Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and
agrees to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to
the Optioned Stock, notwithstanding the exercise of the Option. The Shares
so acquired shall be issued to the Optionee as soon as practicable after
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date of issuance, except as
provided in [Section 13] of the Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition
of the Shares. Purchaser represents that Purchaser has consulted with any
tax consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company
for any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire
1
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agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Purchaser with respect to the subject matter hereof, and may not
be modified adversely to the Purchaser's interest except by means of a
writing signed by the Company and Purchaser. This agreement is governed by
the internal substantive laws, but not the choice of law rules, of California.
Submitted by: Accepted by:
PURCHASER CENTIGRAM COMMUNICATIONS
CORPORATION
__________________________________ _____________________________________
Signature By
__________________________________ _____________________________________
Print Name Its
ADDRESS: ADDRESS:
_________________________________ Centigram Communications Corporation
91 East Tasman Drive
_________________________________ San Jose, CA 95134
_____________________________________
Date Received
2
<PAGE>
LANGUAGE TO BE INSERTED INTO OPTION AGREEMENT IF ADMINISTRATOR ALLOWS THE
OPTIONEE TO BE ABLE TO PAY FOR OPTIONS BY PROMISSORY NOTE:
(_) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as EXHIBIT C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with
the execution and delivery by the Optionee of the Security Agreement attached
hereto as EXHIBIT B. The Note shall bear interest at the "applicable federal
rate" prescribed under the Code and its regulations at time of purchase, and
shall be secured by a pledge of the Shares purchased by the Note pursuant to
the Security Agreement.
3
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between Centigram
Communications Corporation, a Delaware corporation ("Pledgee"), and
_______________________ ("Pledgor").
RECITALS
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1997 Stock Plan, and Pledgor's election under the terms of the
Option to pay for such shares with his promissory note (the "Note"), Pledgor
has purchased _________ shares of Pledgee's Common Stock (the "Shares") at a
price of $________ per share, for a total purchase price of $__________. The
Note and the obligations thereunder are as set forth in EXHIBIT C to the
Option.
NOW, THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the
Option, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:
a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in
the manner provided in the Note.
b. ENCUMBRANCES. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without
the prior written consent of Pledgee.
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<PAGE>
c. MARGIN REGULATIONS. In the event that Pledgee's Common Stock is
now or later becomes margin-listed by the Federal Reserve Board and Pledgee
is classified as a "lender" within the meaning of the regulations under Part
207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor
agrees to cooperate with Pledgee in making any amendments to the Note or
providing any additional collateral as may be necessary to comply with such
regulations.
3. VOTING RIGHTS. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the
terms of the Note, Pledgor shall have the right to vote all of the Shares
pledged hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are
declared or made in the capital structure of Pledgee, all new, substituted
and additional shares or other securities issued by reason of any such change
shall be delivered to and held by the Pledgee under the terms of this
Security Agreement in the same manner as the Shares originally pledged
hereunder. In the event of substitution of such securities, Pledgor, Pledgee
and Pledgeholder shall cooperate and execute such documents as are reasonable
so as to provide for the substitution of such Collateral and, upon such
substitution, references to "Shares" in this Security Agreement shall include
the substituted shares of capital stock of Pledgor as a result thereof.
5. OPTIONS AND RIGHTS. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then
held by Pledgeholder shall be immediately delivered to Pledgeholder, to be
held under the terms of this Security Agreement in the same manner as the
Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the
California Commercial Code.
7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder here-under upon payments of the principal
of the Note. The number of the pledged Shares which shall be released shall
be that number of full Shares which bears the same proportion to the initial
number of
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<PAGE>
Shares pledged hereunder as the payment of principal bears to the initial
full principal amount of the Note.
8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. TERM. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for
the property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due
and payable, and Pledgee may proceed as provided in the case of default.
11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his
acts, or omissions to act, as Pledgeholder.
12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective
successors and assigns, and that the term "Pledgor" and the term "Pledgee" as
used herein shall be deemed to include, for all purposes, the respective
designees, successors, assigns, heirs, executors and administrators.
14. GOVERNING LAW. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law
rules, of California.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" _________________________________
Signature
_________________________________
Print Name
Address: _________________________________
_________________________________
"PLEDGEE" Centigram Communications Corporation,
a Delaware corporation
________________________________
Signature
________________________________
Print Name
________________________________
Title
"PLEDGEHOLDER" ________________________________
Secretary of
Centigram Communications Corporation
4
<PAGE>
EXHIBIT C
NOTE
$_______________ [City, State]
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to Centigram
Communications Corporation, a Delaware corporation (the "Company"), or order,
the principal sum of _______________________ ($_____________), together with
interest on the unpaid principal hereof from the date hereof at the rate of
_______________ percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith
and is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this
Note in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of
the Company, be accelerated, and the whole unpaid balance on this Note of
principal and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by
the undersigned.
____________________________________
____________________________________
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<PAGE>
PROMISSORY NOTE
---------------
$300,000.00 San Jose, California
April 15, 1996
--
FOR VALUE RECEIVED, the undersigned, George H. Sollman, hereby promises
to pay to Centigram Communications Corporation, a Delaware corporation (the
"Company"), the principal sum of Three Hundred Thousand and No/100 Dollars
($300,000.00), which interest thereon at the simple rate of 5.88% per annum,
compounded annually, at the principal offices of the Company, upon the
following terms and conditions:
The principal amount of this Note and all accrued but unpaid interest
from the date hereof shall be due on April 15, 2001.
In the event that prior to April 15, 2001, the undersigned shall cease
to be an employee of the Company for any reason other than death or permanent
disability, then the principal amount of this Note shall be due and payable
on written demand by the Company on or at any time after the tenth (10th) day
following the occurrence of one or more of such events, together with all
interest accrued but unpaid thereon.
The undersigned shall have the right to prepay at any time, and from
time to time, without premium or penalty all or any portion of the principal
and/or accrued interest hereunder.
The undersigned hereby waives presentment, protest, demand for payment,
notice of dishonor and all other notices or demands in connection with the
delivery, acceptance, performance, default or endorsement of this Note.
This Note is originally secured by a pledge of twenty thousand four
hundred twenty-eight (20,428) Common Shares of the Company pursuant to a
Stock Pledge Agreement of even date herewith which is on file with the
Secretary of the Company.
The undersigned agrees to pay any costs of collection of this Note,
including without limitation reasonable attorney's fees and costs, in the
event it is not fully paid when due.
This Note has been made and delivered in the State of California and
shall be construed in accordance with, and all actions arising hereunder
shall be governed by, the laws of the State of California.
April 15, 1996
--
/s/ George H. Sollman
----------------------------
George H. Sollman
<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "PLEDGE AGREEMENT"), dated as of
April ____, 1996, is executed by George H. Sollman ("PLEDGOR") in favor of
Centigram Communications Corporation, a Delaware corporation ("COMPANY").
RECITALS
--------
A. Pledgor has borrowed Three Hundred Thousand Dollars ($300,000) from
Company pursuant to a full recourse promissory note, a copy of which is
attached hereto as Exhibit A (the "Note"), in favor of Company in such amount.
B. To secure the payment when due of all amounts under the Note,
Pledgor is pledging Twenty Thousand Four Hundred Twenty-Eight (20,428) shares
of Common Stock of Company (the "SHARES") held by Pledgor pursuant to the
terms and conditions of this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Pledgor hereby agrees with Company as follows:
1. DEFINITIONS. When used in this Pledge Agreement, the following terms
shall have the following respective meanings:
"COLLATERAL" shall have the meaning given to that term in PARAGRAPH
2 hereof.
"OBLIGATIONS" shall mean and include all obligations owed by Pledgor
to Company under the Note, including without limitation all interest, fees,
charges, expenses, attorneys' fees and accountants' fees and costs
chargeable to Pledgor or payable by Pledgor.
"UCC" shall mean the Uniform Commercial Code as in effect in the
State of California from time to time.
2. PLEDGE. As security for the payment and performance of the
Obligations, Pledgor hereby pledges and assigns to Company and grants to
Company a security interest in all right, title and interest of Pledgor in
and to the Shares, and all proceeds of the foregoing, including, without
limitation, all dividends, additional shares of stock, certificates and other
money and property received and receivable by Pledgor in connection with the
foregoing (the "COLLATERAL").
3. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants to
Company that (a) Pledgor is the record and beneficial owner of the Collateral
(or, in the case of after-acquired Collateral, at the time Pledgor acquires
rights in the Collateral, will be the record and beneficial owner thereof)
and no other person has (or, in the case of after-acquired Collateral, at the
time Pledgor acquires rights therein, will have) any right, title, claim or
interest (by way of lien or otherwise) in, against or to the Collateral; (b)
upon delivery to Company of all Collateral consisting of securities, Company
will have a first priority perfected security interest in such Collateral;
(c) Pledgor currently owns the Shares, which Shares have been duly and
validly issued and are fully paid and nonassessable; and (d) Pledgor
maintains his or her primary residence in the State of California.
4. COVENANTS. Pledgor hereby agrees (a) to perform all acts that may be
necessary to maintain, preserve, protect and perfect the Collateral, the lien
granted to Company therein and the first priority of such lien; (b) to
deliver, within sixty (60) days from the date hereof, to Company all
originals of certificates and other documents, instruments and agreements
evidencing the Shares, together with such blank stock powers executed by
Pledgor as Company may request (c) to procure, execute and deliver from time
to time any endorsements, assignments, financing statements and other
<PAGE>
documents, instruments and agreements and take other actions deemed necessary
or appropriate by Company to perfect, maintain and protect its lien hereunder
and the priority thereof; (d) to appear in and defend any action or
proceeding which may affect its title to or Company's interest in the
Collateral; (e) not to surrender or lose possession of (other than to
Company), sell, encumber, lease, rent, or otherwise dispose of or transfer
any Collateral or right or interest therein and to keep the Collateral free
of all liens; and (f) not to take any action contrary to the intent of this
Pledge Agreement.
5. VOTING RIGHTS PRIOR TO DEFAULT. Unless an Event of Default (as
defined in SUBPARAGRAPH 6(b) hereof) shall have occurred and Company shall
have given notice to Pledgor of Company's intent to exercise its rights
pursuant to SUBPARAGRAPH 6(b) below, Pledgor shall be permitted to exercise
all voting and corporate rights with respect to the Shares; PROVIDED,
HOWEVER, that no vote shall be cast or corporate right exercised or other
action taken which could impair the Collateral or which would be inconsistent
with or could result in a default in the payment of principal or interest
under the Note.
6. DEFAULT AND REMEDIES.
(a) EVENTS OF DEFAULT. Pledgor shall be deemed in default under
this Pledge Agreement upon the occurrence of a default in the payment when
due of principal or interest under the Note or the breach by Pledgor of any
term of the Note or this Pledge Agreement (each an "EVENT OF DEFAULT").
(b) DIVIDENDS, VOTING RIGHTS, ETC. Upon the occurrence of any Event
of Default, Company may, upon notice to Pledgor, to the extent permissible
under applicable law, (i) pay all dividends on Shares to the account of
Company, receive and collect all such dividends and make application thereof
to the obligations in such order as Company may determine, and (ii)
register the Shares in its name or the name of the Company's nominee, and the
Company or the Company's nominee may thereafter exercise (A) all voting,
corporate and other rights pertaining to the Shares at any meeting of
shareholders of Company or otherwise and (B) any and all rights of
conversion, exchange, subscription and any other rights, privileges or options
pertaining to the Shares as if they were the absolute owner thereof
(including, without limitation, the right to exchange at its discretion any
and all of the Shares upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure of
the Company, or upon the exercise by Pledgor or Company of any right,
privilege or option pertaining to the Shares, and in connection therewith,
the right to deposit and deliver any and all of the Shares with any
committee, depositary, transfer agent, registrar or other designated agency
upon such terms and conditions as it may determine), all without liability
except to account for property actually received by them, but Company shall
have no duty to Pledgor to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing.
(c) ADDITIONAL REMEDIES. Upon the occurrence of an Event of
Default, Company may exercise, in addition to all other rights and remedies
granted in this Pledge Agreement and in the Note, all rights and remedies of
a secured party under the UCC. Without limiting the generality of the
foregoing, Company may, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind to or upon Pledgor
or any other person (except notice of time and place of sale and any other
notice required by law referred to below) forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, assign, give an option or options to purchase or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do
any of the foregoing), in one or more parcels at public or private sale or
sales, in the over-the-counter market, at any exchange, broker's board or
office of Company or elsewhere upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or
for future delivery without assumption of any credit risk. Company shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such
2
<PAGE>
private sale or sales to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in Pledgor, which right or
equity is hereby waived and released. Company shall apply any proceeds from
time to time held by it and the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred in respect thereof or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of Company hereunder, including,
without limitation, reasonable attorneys' fees and disbursements of counsel
to Company, to the payment in whole or in part of the Obligations, in such
order as Company may elect, and only after such application and after the
payment by Company of any other amount required by any provision of law, need
Company account for the surplus, if any, to Pledgor. To the extent permitted
by applicable law, Pledgor waives all claims, damages and demands it may
acquire against Company arising out of the exercise by it of any rights
hereunder except as may arise solely from Company's gross negligence or
willful misconduct. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least 10 days before such sale or other disposition.
Pledgor further waives and agrees not to assert any rights or privileges
which it may acquire under Section 9112 of the UCC.
7. SALE OF SHARES.
(a) PRIVATE SALE. Pledgor recognizes that Company may be unable to
effect a public sale of any or all of the Shares, by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, and
applicable state securities laws or otherwise, and may be compelled to resort
to one or more private sales thereof to a restricted group of purchasers
which will be obliged to agree, among other things, to acquire such
securities for its own account for investment and not with a view to the
distribution or resale thereof. Pledgor acknowledges and agrees that any such
private sale may result in prices and other terms less favorable than if such
sale were public sale and, notwithstanding such circumstances, agrees that
any such private sale shall be deemed to have been made in a commercially
reasonable manner. Company shall be under no obligation to delay a sale of
any of the Shares for the period of time necessary to register such
securities for public sale under the Securities Act, or under applicable state
securities laws.
(b) FURTHER ASSURANCES. Pledgor further agrees to use its best
efforts to do or cause to be done all such other acts as may be necessary to
make such sale or sales of all or any portion of the Shares pursuant to this
Pledge Agreement valid and binding and in compliance with any and all other
applicable laws, rules and regulations of all governmental authorities.
Pledgor further agrees that a breach of any of the covenants contained in
this PARAGRAPH 7 will cause irreparable injury to Company, that Company has
no adequate remedy at law in respect of such breach and, as a consequence,
that each and every covenant contained in this PARAGRAPH 7 shall be
specifically enforceable against Pledgor, and Pledgor hereby waives and
agrees not to assert any defenses against an action for specific performance
of such covenants except for a defense that no Event of Default has occurred.
8. LIMITATION ON DUTIES REGARDING COLLATERAL. Company's sole duty with
respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9207 of the UCC or otherwise,
shall be to deal with it in the same manner as Company deals with similar
securities and property for its own account. Neither Company nor any of its
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
Pledgor or otherwise.
3
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9. MISCELLANEOUS.
(a) NOTICES. Except as otherwise provided herein, all notices,
requests, demands, consents, instructions or other communications to or upon
Company or Pledgor under this Pledge Agreement shall be duly given or made if
sent in writing by certified mail, recognized overnight courier or hand
delivery and shall be effective upon delivery to the recipient.
(b) NONWAIVER. No failure or delay on Company's part in exercising
any right hereunder shall operate as a waiver thereof or of any other right
nor shall any single or partial exercise of any such right preclude any other
further exercise thereof or of any other right.
(c) AMENDMENTS AND WAIVERS. This Pledge Agreement may not be
amended or modified, nor may any of its terms be waived, except by written
instruments signed by Pledgor and Company. Each waiver or consent under any
provision hereof shall be effective only in the specific instances for the
purpose for which given.
(d) ASSIGNMENTS. This Pledge Agreement shall be binding upon and
inure to the benefit of Company and Pledgor and their respective successors
and assigns; provided that Pledgor may not assign its obligations hereunder
without the written consent of Company.
(e) CUMULATIVE RIGHTS, ETC. The rights, powers and remedies of
Company under this Pledge Agreement shall be in addition to all rights,
powers and remedies given to Company by virtue of any applicable law, rule or
regulation of any governmental entity, the Note, any other agreement, all of
which rights, powers, and remedies shall be cumulative and may be exercised
successively or concurrently without impairing Company's rights hereunder.
Pledgor waives any right to require Company to proceed against any person or
to exhaust any Collateral or to pursue any remedy in Company's power.
(f) PAYMENTS FREE OF TAXES, ETC. All payments made by Pledgor under
this Pledge Agreement shall be made by Pledgor free and clear of and without
deduction for any and all present and future taxes, levies, charges,
deductions and withholdings. In addition, Pledgor shall pay upon demand any
stamp or other taxes, levies or charges of any jurisdiction with respect to
the execution, delivery, registration, performance and enforcement of this
Pledge Agreement.
(g) PARTIAL INVALIDITY. If any time any provision of this Pledge
Agreement is or becomes illegal, invalid or unenforceable in any respect
under the law or any jurisdiction, neither the legality, validity or
enforceability of the remaining provisions of this Pledge Agreement nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction shall in any way be affected or impaired thereby.
(h) GOVERNING LAW. This Pledge Agreement shall be governed by and
construed in accordance with the laws of the State of California without
reference to conflicts of law rules.
(i) AUTHORIZED ACTION BY PLEDGEES. Pledgor hereby irrevocably
appoints Company as its attorney-in-fact and agree that Company may perform
(but Company shall not be obligated to and shall incur no liability to
Pledgor or any third party for failure so to do) any act which Pledgor is
obligated by this Pledge Agreement or the Note to perform, and to exercise
such rights and powers as Pledgor might exercise with respect to the
Collateral, including, without limitation, the right to (a) exercise (1) all
voting, corporate and other rights pertaining to the Shares at any meeting of
shareholders of the Company or otherwise and (2) any and all rights of
conversion, exchange, subscription and any other rights, privileges or
options pertaining to the Shares; (b) collect by legal proceedings or
otherwise and endorse, receive and receipt for all dividends, interest,
payments, proceeds and other sums and property now or hereafter payable on or
on account of the Collateral; (c) enter into any extension, reorganization,
deposit, merger, consolidation or other agreement
4
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pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral; (d) insure, process and preserve the Collateral;
(e) make any compromise or settlement, and take any action it deems
advisable, with respect to the Collateral and (f) pay any indebtedness of
Pledgor relating to the Collateral. Pledgor agrees to reimburse Company upon
demand for any reasonable costs and expenses, including, without limitation,
attorneys' fees and costs. Company may incur while acting as Pledgor's
attorney-in-fact hereunder, all of which costs and expenses are included in
the Obligations.
[Remainder of Page Intentionally Left Blank]
5
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IN WITNESS WHEREOF, Pledgor has caused this Pledge Agreement to be
executed as of the day and year first above written.
/s/ George H. Sollman
----------------------------
George H. Sollman
Acknowledged and Agreed to by:
CENTIGRAM COMMUNICATIONS CORPORATION
By: /s/ Anthony R. Muller
-------------------------------------
Name: Anthony R. Muller
Title: Chief Financial Officer
6
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INTERIOR PARCEL - EIICHI
SOBRATO 10600 N. De Anza Boulevard, Suite 200
DEVELOPMENT Cupertino, CA 95014-2075
COMPANIES (408) 446-0700
FAX (408) 446-0583
LEASE BETWEEN
SOBRATO INTERESTS III AND CENTIGRAM COMMUNICATIONS CORPORATION
Section Page #
- ------- ------
Parties.......................................................................1
Premises......................................................................1
Use...........................................................................2
Term and Rental...............................................................2
Rental Adjustment.........................................................2
Security Deposit..............................................................3
Late Charges..................................................................5
Construction and Possession ..................................................5
Building Shell Construction...............................................5
Tenant Improvement Plans..................................................5
Final Building Shell Plans................................................6
Change Orders.............................................................6
Construction..............................................................7
Insurance/Indemnity.......................................................7
Punch List & Warranty.....................................................8
Other Work by Tenant......................................................8
Landlord's Failure to Complete Construction...............................8
Acceptance of Possession and Covenants to Surrender...........................9
Uses Prohibited..............................................................10
Alterations and Additions....................................................10
Maintenance of Premises......................................................11
Tenant's Obligations.....................................................11
Landlord's Obligations...................................................12
Capital Replacements.....................................................12
Hazard Insurance.............................................................12
Tenant's Use.............................................................12
<PAGE>
Landlord's Insurance.....................................................12
Tenant's Insurance.......................................................13
Waiver...................................................................13
Taxes........................................................................13
Utilities....................................................................14
Abandonment..................................................................14
Free From Liens..............................................................14
Compliance With Governmental Regulations.....................................14
Toxic Waste and Environmental Damage.........................................15
Tenant's Responsibility..................................................15
Tenant's Indemnity Regarding Hazardous Materials.........................16
Actual Release by Tenant.................................................16
Landlord's Indemnity Regarding Hazardous Materials.......................17
Environmental Monitoring.................................................17
Indemnity....................................................................17
Advertisements and Signs.....................................................18
Attorney's Fees..............................................................18
Tenant's Default.............................................................18
Remedies.................................................................19
Right to Re-enter........................................................19
Abandonment..............................................................19
No Termination...........................................................20
Surrender of Lease...........................................................20
Landlord's Default...........................................................20
Notices......................................................................21
Entry by Landlord............................................................21
Destruction of Premises......................................................22
Destruction by an Insured Casualty.......................................22
Destruction by an Uninsured Casualty.....................................23
Assignment or Sublease.......................................................23
Consent by Landlord......................................................23
Assignment or Subletting Consideration...................................24
No Release...............................................................24
Effect of Default........................................................24
Permitted Transfers......................................................25
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Condemnation.................................................................25
Effects of Conveyance........................................................25
Subordination................................................................26
Waiver.......................................................................26
Holding Over.................................................................27
Successors and Assigns.......................................................27
Estoppel Certificates........................................................27
Option to Extend the Lease Term..............................................27
Grant and Exercise of Option.............................................28
Determination of Fair Market Rental......................................28
Resolution of a Disagreement over the Fair Market Rental.................29
Options......................................................................30
Quiet Enjoyment..............................................................30
Brokers......................................................................30
Landlord's Liability.........................................................30
Authority of Parties.........................................................30
Transportation Demand Management programs....................................30
Dispute Resolution...........................................................30
Interference with Use of Premises............................................31
Existing Victorian Home......................................................31
Miscellaneous Provisions.....................................................32
Rent.....................................................................32
Management Fee...........................................................32
Performance by Landlord..................................................32
Interest.................................................................32
Rights and Remedies......................................................32
Survival of Indemnities..................................................32
Severability.............................................................32
Choice of Law............................................................32
Time.....................................................................32
Entire Agreement.........................................................33
Representations..........................................................33
No Presumption Against Drafter...........................................33
Headings.................................................................33
Exhibits.................................................................33
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Cross-Default................................................................33
EXHIBIT A - Premises, Building & Project.....................................35
EXHIBIT B - Shell Plans and Specifications...................................36
EXHIBIT C - Building Shell Definition........................................37
EXHIBIT D - Tenant Improvement Plans and Specifications......................40
Page iv
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SOBRATO 10600 N. De Anza Boulevard, Suite 200
DEVELOPMENT Cupertino, CA 95014-2075
COMPANIES (408) 446-0700
FAX (408) 446-0583
1. PARTIES: THIS LEASE, is entered into on this 20th day of December, 1996,
between SOBRATO INTERESTS III, a California Limited Partnership, whose
address is 10600 North De Anza Boulevard, Suite 200, Cupertino, CA 95014 and
CENTIGRAM COMMUNICATIONS CORPORATION, a Delaware Corporation, whose address
is 91 East Tasman Drive, San Jose, CA 95134, hereinafter called respectively
Landlord and Tenant. The effectiveness of this Lease is expressed
conditioned upon (i) execution by Landlord and Tenant of the Adjacent
Building Lease (as defined below), (ii) Tenant's receipt of a recognition and
non-disturbance agreement in a form and substance reasonably acceptable to
Tenant from Ground Lessor and from any and all other ground lessors with an
interest in the Parcel (defined below) and from any and all lenders with a
lien on the Ground Lease (defined below) or the Parcel, and (iii) Landlord's
ability to obtain a building permit for construction of a building of not
less than 100,000 rentable square feet with the number of parking spaces
required by code. In the event any of the foregoing conditions have not been
satisfied or waived by the parties within thirty (30) days following
execution of this Lease, either Landlord or Tenant shall have the option to
terminate this lease by providing written notice to the other party. Upon
the execution of this Lease, Landlord shall deliver to Tenant a copy of
Landlord's ground lessee's title insurance policy for the Parcel and, if in
die possession or control of Landlord, a current preliminary title report for
the Parcel reflecting the state of title to the Parcel.
2. PREMISES: Landlord hereby leases to Tenant, and Tenant hires from
Landlord those certain Premises with the appurtenances, situated in the City
of San Jose, County of Santa Clara, State of California, located within a
four-story steel frame building to be constructed by Landlord consisting of
approximately 110,881 rentable square feet (the "Building") on a parcel
leased by Landlord from Eiichi and Suzuye Sakauye ("Ground Lessor")
consisting of approximately 5.0 acres and an existing historic Victorian home
consisting of approximately 2,500 rentable square feet (the "Historic Home")
located at the corner of Guadalupe Parkway and North First Street as outlined
in red on EXHIBIT "A" ("Parcel"). In addition Tenant shall have the right to
use the common area consisting of all parking areas, sidewalks and landscape
areas ("Common Area") surrounding the Building and an additional building of
110,881 square feet ("Adjacent Building") which Landlord intends to construct
for Tenant on the adjacent land leased from Kenji and Shizu Sakauye totaling
approximately 5.0 acres pursuant to another lease between the parties of even
date herewith ("Adjacent Building Lease"). The Premises, the Adjacent
Building, the Historic Home and the Common Area shall comprise the "Project".
Tenant shall have exclusive use of approximately 370 parking spaces within
the Parcel. Unless expressly provided otherwise, the term Premises as used
herein shall include the Tenant Improvements (defined in Section 7.B)
constructed by Tenant
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pursuant to Section 7.B. Tenant acknowledges Landlord's right to and hereby
consents to construction of the Adjacent Building.
3. USE: Tenant may use the Premises only for the following purposes and
shall not change the use of the Premises without the prior written consent of
Landlord: Office, research and development, marketing, light manufacturing,
storage and other incidental uses. Landlord makes no representation or
warranty that any specific use of the Premises desired by Tenant is permitted
pursuant to any Laws.
4. TERM AND RENTAL: The term ("Lease Term") shall be for one hundred
forty four (144) months, commencing upon the later to occur of (i) two (2)
months following the date on which Landlord allows Tenant access to the
Premises to begin construction of the Tenant Improvements pursuant to Section
7.H, as such two (2) month period is extended by Landlord Delays (hereinafter
defined), or (ii) substantial completion of the Building Shell, as defined in
Section 7.D ("Commencement Date"), and ending one hundred forty four (144)
months thereafter ("Expiration Date"). In addition to all other sums payable
by Tenant under this Lease, Tenant shall initially pay as base monthly rent
("Base Monthly Rent") for the Premises in the amount of One Hundred Forty
Five Thousand One Hundred Twenty Seven and 68/100 Dollars ($145,127.68)
commencing two (2) months following the Commencement Date as such two (2)
month period is extended by Landlord Delays (hereinafter defined).
Commencing twelve (12) months following the Commencement Date, the Base
Monthly Rent shall increase to One Hundred Forty Nine Thousand Five Hundred
Sixty Two and 92/100 Dollars ($149,562.92). As used herein, the term
"Landlord Delays" shall mean delays in Tenant's construction of the Tenant
Improvements that are caused by Landlord, Landlord's contractors, defects in
the Building Shell and failure of the Building Shell to conform to the Final
Building Shell Plans. Two months prior to the date Landlord reasonably
estimates the Building Shell will be substantially completed, Landlord shall
give Tenant written notice and shall exercise its best efforts to allow
Tenant and its contractor and subcontractors access to the Premises to
commence construction or installation of the Tenant Improvement Work. Such
early access to the Premises shall not be permitted, however, if the same
would materially delay or interfere with the completion of construction of
the Building Shell.
Base Monthly Rent shall be due in advance on or before the first day of each
calendar month during the Lease Term. All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of
America, without offset or deduction and without prior notice or demand, at
the address specified in Section 1 of this Lease or at such place or places
as may be designated by Landlord during the Lease Term. Base Monthly Rent
for any period less than a calendar month shall be a pro rata portion of the
monthly installment.
A. RENTAL ADJUSTMENT: Beginning thirty (30) months after the
Commencement Date, and every thirty (30) months thereafter during the initial
lease term (an "Adjustment Date"), the
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<PAGE>
then-payable Base Monthly Rent shall be subject to adjustment based on the
increase, if any, in the Consumer Price Index that has occurred during the
thirty (30) months preceding the then-applicable Adjustment Date. The basis
for computing the adjustment shall be the U.S. Department of Labor, Bureau of
Labor Statistic's Consumer Price Index for All Urban Consumers, All Items,
1982-84=100, for the San Francisco-Oakland-San Jose area ("Index"). The
Index most recently published preceding the Commencement Date for the first
Adjustment (or previous Adjustment Date, as applicable), shall be considered
the "Base Index". If the Index most recently published preceding the
Adjustment Date ("Comparison Index") is greater than the Base Index, the
then-payable Base Monthly Rent shall be increased by multiplying the
then-payable Base Monthly Rent by a fraction, the numerator of which is the
Comparison Index and the denominator of which is the Base Index. On
adjustment of the Base Monthly Rent, Landlord shall notify Tenant by letter
stating the new Base Monthly Rent. Landlord's failure to adjust Base Monthly
Rent on an Adjustment Date shall not prevent Landlord from retroactively
adjusting Base Monthly Rent at any subsequent time during the Lease Term. If
the Index base year is changed so that it differs from 1982-84=100, the Index
shall be converted in accordance with the conversion factor published by the
United States Department of Labor, Bureau of Labor Statistics. If the Index
is discontinued or revised during the Lease Term, such other government index
or computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the index had not been
discontinued or revised.
5. SECURITY DEPOSIT: Concurrently with Tenant's execution of this
Lease, Tenant has deposited with Landlord the sum of One Hundred Forty
Thousand Dollars ($140,000.00) ("Security "Deposit"). Landlord shall not be
required to separate the Security Deposit from Landlord's other funds and
Tenant shall not be entitled to interest on the Security Deposit. If Tenant
defaults with respect to any provisions of the Lease, including but not
limited to the provisions relating to payment of Base Monthly Rent or other
charges, Landlord may, to the extent reasonably necessary to remedy Tenant's
default, use any or all of the Security Deposit towards payment of the
following: (i) Base Monthly Rent or other charges in default; (ii) any other
amount which Landlord may spend or become obligated to spend by reason of
Tenant's default; and (iii) any other loss or damage which Landlord may
suffer by reason of Tenant's default. If any portion of the Security Deposit
is so used or applied, Tenant shall, within ten (10) days after written
demand from Landlord, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its full original amount, and shall pay to
Landlord such other sums as necessary to reimburse Landlord for any sums paid
by Landlord.
The Security Deposit shall be returned to Tenant within thirty (30) days
after the Expiration Date and surrender of the Premises to Landlord, less any
amount deducted in accordance with this Section, together with Landlord's
written notice itemizing the amounts and purposes for such deduction. In the
event of termination of Landlord's interest in this Lease, Landlord shall
transfer the Security Deposit to Landlord's successor in interest.
Page 3
<PAGE>
At Tenant's election, in lieu of the Security Deposit, Tenant may at any
time simultaneously with, or following the execution of this Lease, deliver
to Landlord an irrevocable letter of credit payable in favor of Landlord in
the amount of One Hundred Forty Thousand Dollars ($140,000). The letter of
credit shall provide that it is automatically renewable until the date that
is not earlier than the expiration of the term hereby demised without any
action whatsoever on the part of Landlord; provided that the issuing bank
shall have the right not to renew said letter of credit on written notice to
Landlord not less than the expiration of the then current term thereof (it
being understood, however, that the privilege of the issuing bank not to
renew said letter of credit shall not, in any event, diminish the obligation
of Tenant to maintain such irrevocable letter of credit with Landlord through
the expiration of the term hereby demised).
The form and terms of the letter of credit, and the bank issuing the
same, shall be reasonably acceptable to Landlord and the letter of credit
shall provide, among other things, in effect that: (i) Landlord, or its then
managing agent, shall have the right to draw down an amount up to the amount
of the sums then due to Landlord under this Lease upon the presentation to
the issuing bank of Landlord's (or Landlord's then managing agent's)
statement that such amount is due to Landlord under the terms and conditions
of this Lease, it is being understood that such statement shall be duly
signed by a general partner of Landlord; (ii) The letter of credit will be
honored by the issuing bank without inquiry as to the accuracy thereof and
regardless of whether the Tenant disputes the content of such statement;
(iii) In the event of a transfer of Landlord's interest in the Building,
Landlord shall have the right to transfer the letter of credit to the
Transferee and the provision hereof shall apply to every transfer or
assignment of said letter of credit to a new Landlord (or it Tenant is not
able to obtain a transferable letter of credit, then Tenant shall cause the
letter of credit to be replaced or amended such that the new Landlord may
draw).
If as a result of any such application of all or any part of the proceeds
of the Letter of Credit, the amount of the lever of credit shall be less than
$140,000, Tenant shall forthwith provide Landlord with additional letter(s)
of credit (or a cash security deposit) in an amount equal to the deficiency.
Any such cash security deposit, and any proceeds of the letter of credit
which are not applied to sums owed by Tenant to Landlord, shall be held by
Landlord as a security deposit under the first two paragraphs of this Section
5.
Without limiting the generality of the foregoing, if the letter of credit
expires earlier than sixty (60) days after the expiration of the term of this
Lease, or the issuing bank notifies Landlord that it shall not renew the
letter of credit, Landlord will accept a renewal thereof or substitute letter
of credit (such renewal or substitute letter of credit to be in effect not
later than the expiration of the expiring letter of credit), irrevocable and
automatically renewable as above provided upon the same terms as the expiring
letter of credit or such other terms as may be reasonably acceptable to
Landlord. However, (i) if the letter of credit is not timely renewed or a
substitute letter of credit is
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not timely provided, (ii) or if Tenant fails to maintain the letter of credit
in the amount and terms set forth in this Section 5, Tenant must promptly
deposit with Landlord cash security in the amounts required by, and to be
held subject to and in accordance with, all of the terms and conditions set
forth in the first two paragraphs of this Section 5, failing which the
Landlord may present such letter of credit to the bank, in accordance with
the terms of this Section 5, and the entire amount of the letter of credit
shall be paid to Landlord and shall be held by Landlord as provided in the
first two paragraphs of this Section 5.
6. LATE CHARGES: Tenant hereby acknowledges that late payment by Tenant
to Landlord of Base Monthly Rent and other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which is extremely difficult to ascertain. Such costs include but are not
limited to: administrative, processing, accounting, and late charges which
may be imposed on Landlord by the terms of any contract,, revolving credit,
mortgage, or trust deed covering the Premises. Accordingly, if any
installment of Base Monthly Rent or other sum due from Tenant shall not be
received by Landlord or its designee when due, Tenant shall pay to Landlord a
late charge equal to five (5%) percent of such overdue amount, which late
charge shall be due and payable on the same date that the overdue amount was
due. Landlord agrees to provide Tenant a notice to pay rent or quit if the
Base Monthly Rent is not received when due and further agrees to waive said
late charge in the event all amounts set forth in such notice are paid in
full by cashier's check within five (5) days after Landlord's service upon
Tenant of such notice. The parties agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of
late payment by Tenant. Acceptance by Landlord of such late charge shall not
constitute a waiver of Tenant's default with respect to such overdue amount
nor prevent Landlord from exercising any of the other rights and remedies
granted hereunder.
7. CONSTRUCTION AND POSSESSION:
A. BUILDING SHELL CONSTRUCTION. Landlord shall cause the shell of
the Building ("Building Shell") to be constructed by independent contractors
to be employed by and under the supervision of Landlord's affiliated
construction company, Sobrato Construction Corporation in accordance with the
conceptual Building Shell plans and guideline specifications prepared by
Arctec ("Architect") and approved by Landlord and Tenant, which are attached
hereto as EXHIBIT "B" ("Preliminary Shell Plans and Specifications") and
Final Building Shell Plans (defined in subsection 7.C below). Landlord shall
construct the Building Shell in accordance with all applicable municipal,
local, state and federal laws, statutes, rules, regulations and ordinances,
and shall correct any violations of such laws at no cost to Tenant. Landlord
shall pay for all costs and expenses associated with the construction of the
Building Shell. The Building Shell shall include those items set forth in
the attached EXHIBIT "C" ("Building Shell Definition").
B. TENANT IMPROVEMENT PLANS. Tenant, at Tenant's sole cost and
expense, has also
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hired the Architect to prepare plans and outline specifications which will be
attached hereto upon completion as EXHIBIT "D" ("Tenant Improvement Plans and
Specifications") with respect to the construction of improvements to the
interior premises ("Tenant Improvements"). The Tenant Improvements shall
consist of all items not included within in the scope of the Building Shell
Definition. Tenant has hired Permian Builders as the general contractor for
the Tenant Improvements ("General Contractor"). Tenant shall cause the
General Contractor to construct the Tenant Improvements in accordance with
all Tenant Improvement Plans and Specifications. Landlord shall provide
Tenant a work allowance to be utilized by Tenant for the construction of
Tenant Improvements ("Work Allowance") in the amount of One Million Six
Hundred Fifty Thousand and No/100 Dollars ($1,650,000.00). The Work Allowance
shall be paid by Landlord to Tenant as payments become due to General
Contractor. The Tenant Improvements shall become the property of Tenant upon
installation and shall not be removed or altered by Tenant without the prior
written consent of Landlord as provided in Section 10. Tenant shall have the
right to depreciate and claim and collect any investment tax credits in the
Tenant Improvements during the Lease Term. Upon expiration of the Lease Term
or any earlier termination of the Lease, the Tenant Improvements shall become
the property of Landlord and shall remain upon and be surrendered with the
Premises, and title thereto shall automatically vest in Landlord without any
payment therefore.
C. FINAL BUILDING SHELL PLANS. Within thirty (30) days following
execution of this Lease, Landlord shall deliver the final Building Shell
Plans and Specifications for Tenant's review and approval ("Final Building
Shell Plans"). The Final Building Shell Plans shall include those items set
forth in the Building Shell Definition attached as EXHIBIT "C" and shall be a
natural evolution of the Preliminary Building Shell Plans and Specifications
attached as EXHIBIT "B". Tenant's approval of the Final Building Shell Plans
is not a representation or warranty that such improvements illustrated
therein are in compliance with applicable building codes or the ADA.
D. CHANGE ORDERS. Tenant shall have the right to order changes in
the manner and type of construction of the Building Shell. Any change order
submitted by Tenant after ten (10) days from the date of issuance by the City
of San Jose of a building permit for the construction of the Building Shell,
which causes either Landlord's construction schedule to be delayed, shall
cause the Commencement Date to occur one (1) day in advance of the date the
Building Shell is Substantially Complete (as defined in Section 7.E) for each
day of delay. Upon request and prior to Tenant's submitting any binding
change order, Landlord shall promptly provide Tenant with written statements
of the cost to implement and the time delay and increased construction costs
associated with any proposed change order, which statements shall be binding
on Landlord. If no time delay or increased construction cost amount is noted
on the written statement, the parties agree that there shall be no adjustment
to the construction cost or the Commencement Date associated with such change
order. If ordered by Tenant, Landlord shall implement such change order and
the cost of constructing the Building Shell shall be increased in accordance
with the cost statement previously
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delivered by Landlord to Tenant for any such change order.
E. CONSTRUCTION. Landlord shall use its best efforts to obtain a
building permit from the City of San Jose as soon as possible after Tenant's
approval of the Final Building Shell Plans. The Building Shell shall be
deemed substantially complete ("Substantially Complete") when (i) the
Building Shell has been substantially completed in accordance with the Final
Building Shell Plans, as evidenced by the issuance of a certificate of
occupancy or its equivalent by the appropriate governmental authority for the
Building Shell, and the issuance of a certificate by the Architect certifying
that the Building Shell have been completed in accordance with the Final
Building Shell Plans and (ii) only punch list type work remains to be
completed and such punch list work does not materially affect Tenant's
ability to use the Premises in the manner contemplated by this Lease.
F. INSURANCE/INDEMNITY. Landlord shall indemnify, protect, defend
and hold Tenant harmless from and against all liability, cost, expense, or
damage, including attorneys fees, arising from construction of the Building
Shell; construction defects; or failure to properly construct the Building
Shell in accordance with the approved Final Building Shell Plans. Tenant's
review and approval of plans, specifications, or any other documents shall
not relieve Landlord from its obligations under the foregoing
indemnification. Landlord shall procure a "Broad Form" liability insurance
policy on an occurrence basis, with a minimum combined single limit in the
amount of Three Million Dollars ($3,000,000.00), insuring all Landlord's
construction activities with respect to the Building and Premises naming
Tenant and Permian Builders as additional insureds and Landlord shall cause
its general contractor to procure a "Broad Form" liability insurance policy
on an occurrence basis, with a minimum combined single limit in the amount of
Three Million Dollars ($3,000,000) insuring all of such general contractors'
construction activities with respect to the Building and Premises and naming
Tenant and Permian Builders as additional insureds. Such insurance shall not
be modified or canceled without thirty (30) days prior notice to Tenant.
Tenant shall indemnify, protect, defend and hold Landlord harmless from
and against all liability, cost, expense, or damage, including attorneys
fees, arising from construction of the Tenant Improvements; construction
defects; or failure to properly construct the Tenant Improvements in
accordance with the approved Tenant Improvement Plans and Specifications.
Landlord's review and approval of plans, specifications, or any other
documents shall not relieve Tenant from its obligations under the foregoing
indemnification. Tenant shall cause General Contractor to procure a "Broad
Form" liability insurance policy, on an occurrence basis, in a minimum
combined single limit in the amount of Three Million Dollars ($3,000,000.00),
insuring all General Contractor's construction activities with respect to the
Building and Premises naming Landlord and Sobrato Construction Corporation as
additional insureds. Such insurance shall not be modified or canceled
without thirty (30) days prior notice to Landlord.
Landlord shall also procure (as a cost of the Building Shell) builder's
risk insurance for the
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full replacement cost of the Building Shell and Tenant Improvements while the
Building and Tenant Improvements are under construction, up until the date
that the fire insurance policy described in Lease Section 12 is in full force
and effect.
G. PUNCH LIST & WARRANTY. After the Building Shell is Substantially
Complete, Landlord shall immediately correct any construction defect or other
"punch list" item which Tenant brings to Landlord's attention. All such work
shall be performed so as to cause the least possible interruption to Tenant
and its activities on the Premises. Landlord shall cause its contractor to
provide a standard contractor's warranty with respect to the Building Shell
for one (1) year from the Commencement Date and Landlord shall warrant the
Building Shell against defects in workmanship or material for one (1) year
from the Commencement Date. Such warranties shall exclude routine
maintenance, damage caused by Tenant's negligence or misuse, and acts of God.
Landlord shall also promptly correct or cure, after written notice from
Tenant given from time to time and at no cost to Tenant, any failure of the
Building Shell to comply with laws in effect as of the date of completion of
the Building Shell (including, without limitation, building code violations).
H. OTHER WORK BY TENANT. All work not within the scope of work not
described in the Shell Plans and Specifications shall be furnished and
installed by Tenant or the General Contractor. When the construction of the
Building Shell has proceeded to the point where the construction of the
Tenant Improvements may begin, Landlord shall notify General Contractor and
shall permit General Contractor and as authorized representatives and
contractors access to the Premises before the Commencement Date without the
payment of rent for the purpose of constructing the Tenant Improvements. Any
such installation work by Tenant or its General Contractor shall be
undertaken upon the following conditions: (i) if the entry into the Premises
by Tenant or its representatives or contractors interferes with or delays
Landlord's work, Tenant shall cause the party responsible for such
interference or delay to leave the Premises; and (ii) any contractor used by
Tenant or its General Contractor in connection with such entry and
installation shall use union labor if the use of nonunion labor would disrupt
Landlord's work when both Landlord and Tenant's contractors are working in
the Premises.
I. LANDLORD'S FAILURE TO COMPLETE CONSTRUCTION: Notwithstanding the
foregoing, (i) if the Premises are not Substantially Complete on or before
that date which is eight (8) months following the date on which Landlord
obtains a building permit from the City of San Jose allowing Landlord to
begin construction of the Building, Tenant shall be entitled to rental
abatement hereunder of one (1) day's rent for each day beyond said eight (8)
month period in which the Building Shell is not Substantially Complete (i.e.,
the date on which Tenant is required to commence paying rent under this Lease
shall be extended by one day for each day beyond said eight month period
during which the Building Shell is not Substantially Complete). The above
dates shall be extended one day for every day of delay in completion caused
by labor strikes, material shortages, inclement weather, Tenant Delays or
other causes beyond the reasonable control of Landlord ("Force
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Majeure Delays"); provided, however, that Landlord must notify Tenant in
writing within five (5) days after the occurrence of any such Force Majeure
Delay, and if Landlord does not so notify Tenant in writing, then the
applicable Force Majeure Delay shall be deemed not to have commenced until
the date which is five (5) days prior to the date Tenant actually receives
written notice from Landlord advising Tenant of the applicable Force Majeure
Delay event. If the Premises are not Substantially Complete on or before May
1, 1998 (the "Latest Completion Date"), then Tenant may terminate this Lease
and the Adjacent Building Lease by written notice to Landlord given on or
before May 15, 1998. The Latest Completion Date shall be extended by Tenant
Delays but not by delays in completion caused by labor strikes, material
shortages, inclement weather or any other causes beyond the reasonable
control of Landlord (other than Tenant Delays). The delay in the
commencement of rent, the abatement of rent, and termination right provided
above shall be the sole and exclusive remedies of Tenant with respect by the
failure by Landlord to achieve Substantial Completion by the Commencement
Date.
8. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER: On the
Commencement Date, Landlord shall deliver and Tenant shall accept the
Premises as being in good and sanitary order, condition and repair, and shall
accept the Premises and the other improvements in their present condition,
subject to (i) a reservation of claims of latent defects, (ii) the warranties
from Landlord contained in this Lease, (iii) Landlord's obligations under
Section 7.G to correct construction defects, (iv) any failure of the Building
Shell to comply with laws in effect as of the date of completion, and (v)
Landlord's obligation to complete punch list items, and (vi) Landlord and its
general contractor's one (1) year warranties described in Section 7.G above,
and any other applicable warranties. Within one hundred twenty (120) days
after the Commencement Date, Tenant agrees to be in occupancy of at least
fifty percent (50%) of the rentable square footage of the Premises.
Tenant further agrees on Expiration Date or on the sooner termination of
this Lease, to surrender the Premises to Landlord in good condition and
repair, reasonable wear and tear excepted. "Good condition" means that all
interior walls, floors, suspended ceilings, and carpeting within the Premises
will be cleaned to the same condition as existed at the Commencement Date,
normal wear and tear and acts of God excepted. Tenant agrees, at its sole
cost, to remove all phone and data cabling from the suspended ceiling, repair
or replace broken ceiling tiles, and relevel the ceiling if required due to
Tenant's cabling. On or before the Expiration Date or sooner termination of
this Lease, Tenant shall remove all its personal property and trade fixtures
from the Premises. All property and fixtures not so removed shall be deemed
as abandoned by Tenant. Approximately sixty (60) days prior to the Expiration
Date, Landlord shall notify Tenant in writing whether Landlord will require
the removal of any Alterations made by Tenant to the Premises, except for
such Alterations Landlord has previously agreed to allow to remain on the
Premises pursuant to paragraph 10 below. If Landlord shall so require,
Tenant shall, at Tenant's sole cost and expense, remove such Alterations as
Landlord requires and shall repair and restore said Premises or such
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parts thereof before the Expiration Date. Such repair and restoration shall
include causing the Premises to be brought into compliance with all
applicable building codes and laws in effect at the time of the removal to
extent such compliance is necessitated by the repair and restoration work.
In no event, however, shall Tenant be required to remove any of the Tenant
Improvements constructed by Tenant prior to its initial occupancy of the
Premises. If the Premises are not surrendered at the Expiration Date or
sooner termination of this Lease in the condition required by this Section 8,
Tenant shall be deemed in a holdover tenancy pursuant to Section 34, and
Tenant shall indemnify, defend, and hold Landlord harmless against loss or
liability resulting from delay by Tenant in so surrendering the Premises
including, without limitation, any claims made by any succeeding tenant
founded on such delay.
9. USES PROHIBITED: Tenant shall not commit or suffer to be committed
on the Premises any waste, nuisance, or other act or thing which disturb the
quiet enjoyment of any other tenant in or around the Premises, nor allow
any sale by auction or any other use of the Premises for an unlawful purpose.
Tenant shall not place any loads upon the floor, walls, or ceiling which
endanger the structure, nor use any machinery or apparatus which harmfully
vibrate or shake the Premises, nor shall Tenant place any harmful liquids,
waste materials, or hazardous materials in the drainage system or upon or in
the soils surrounding the Building. No materials, supplies, equipment,
finished products or semi-finished products, raw materials or articles of any
nature, or any waste materials, refuse, scrap or debris, shall be stored upon
or permitted to remain on any portion of the Premises outside of the Building
except in storage enclosures designed for such purposes.
10. ALTERATIONS AND ADDITIONS: Tenant shall be entitled without
obtaining Landlord's consent, to make any alteration or addition to the
Premises ("Alterations") which (i) does not affect the structure of the
Building, (ii) cost does not exceed Fifty Thousand Dollars ($50,000.00) per
alteration nor an aggregate of One Hundred Thousand Dollars ($100,000.00) in
any twelve (12) month period. All other Alterations shall require Landlord's
consent. If Landlord's consent is required, Tenant shall deliver to Landlord
the proposed architectural and structural plans for the Alteration and
Landlord shall have a period of ten (10) business days thereafter to grant
its consent, which consent shall not be unreasonably withheld. Landlord
shall indicate in writing to Tenant at the time of Tenant's request, whether
or not Landlord will require Tenant to remove such Alteration at the
Expiration Date. If, at the time Landlord consents to any Alteration,
Landlord does not require Tenant to remove such Alteration at the Expiration
Date, then Landlord shall be deemed to have waived such right to require
Tenant to remove such Alteration so consented to. After obtaining Landlord's
consent, Tenant shall not proceed to make such Alterations until Tenant has
obtained all required governmental approvals and permits, and provided
Landlord reasonable security, in form reasonably approved by Landlord, to
protect Landlord against mechanics' lien claims (if such Alterations exceed
$1,000,000 in cost). Tenant agrees to provide Landlord written notice of the
anticipated and actual start-date of the work, and a complete set of
half-size (15" X 21") vellum as-built drawings. All Alterations shall be
constructed in compliance with applicable buildings codes
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and laws. Any Alterations, except movable furniture and trade fixtures,
shall become at once a part of the realty and belong to Landlord but shall
nevertheless be subject to removal by Tenant as provided in this Section 10
and Section 8 above. Alterations which are not deemed as trade fixtures
include heating, lighting, electrical systems, air conditioning,
partitioning, carpeting, or any other installation which has become an
integral part of the Premises. All Alterations shall be maintained, replaced
or repaired by Tenant at its sole cost and expense.
11. MAINTENANCE OF PREMISES:
A. TENANT'S OBLIGATIONS: Subject to Sections 11.B, 28 and 30
below, Tenant shall, at is sole cost, keep, maintain, repair, and replace as
and when necessary said Premises and appurtenances and every part hereof in
good and sanitary order, condition, and repair, including but not limited to
the following: roof membrane, glazing, caulking, sidewalks, parking areas,
site utilities, elevator, telephone, plumbing, electrical, HVAC systems, and
all Tenant Improvements. Notwithstanding the foregoing, Tenant shall have no
responsibility to perform any repair, maintenance or improvement (i)
necessitated by the acts or omissions of Landlord or its agents, employees or
contractors, (ii) occasioned by fire, acts of God or other casualty, whether
or not covered by insurance, or by the exercise of the power of eminent
domain, (iii) required as a consequence of any violation of laws or
construction defect in the Premises existing as of the Commencement Date, or
(iv) for which Landlord has a right of reimbursement from others. Tenant
shall provide Landlord a copy of a service contract between Tenant and: (i) a
licensed air conditioning and heating contractor providing for bi-monthly
maintenance of all air conditioning and heating equipment at the Premises;
and (ii) a licensed elevator maintenance contractor providing for monthly
maintenance of all elevator related systems. Tenant shall pay the cost of all
air conditioning, heating, and elevator equipment repairs or replacements
which are excluded from such service contract or any existing equipment
warranties. All wall surfaces and floor tile are to be maintained in an as
good a condition as when Tenant took possession free of holes, gouges, or
defacements.
Tenant shall also be responsible, at its sole cost and expense, for the
preventive maintenance of the membrane of the roof, which responsibility
shall be deemed properly discharged if Tenant contracts, at its sole cost,
with a licensed roof contractor reasonably satisfactory to Tenant and
Landlord to inspect the roof membrane at least every six (6) months, with the
first inspection due the sixth (6th) month after the Commencement Date; and
Tenant performs, at Tenant's sole cost, all preventive maintenance
recommendations made by such contractor within a reasonable time after such
recommendations are made. Such preventive maintenance might include acts such
as clearing storm gutters and drains, removing debris from the roof membrane,
trimming trees overhanging the roof membrane, applying coating materials to
seal roof penetrations, repairing blisters, and other routine measures.
Tenant shall provide Landlord a copy of such preventive maintenance contract
and paid invoices for the recommended work. Tenant agrees, at its sole cost,
to water, maintain, and replace
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when necessary, any shrubbery and landscaping.
B. LANDLORD'S OBLIGATIONS: Landlord at its sole cost and expense,
shall maintain in good condition, order, and repair, and replace as and when
necessary, all structural portions of the Building, including, without
limitation, the foundation, exterior load bearing walls and roof structure of
the Building Shell.
C. CAPITAL REPLACEMENTS: If as a part of Tenant's fulfillment of its
maintenance obligations under Section 11.A above, a capital improvement or
replacement to the Premises (not required by new laws, rules or regulations)
is paid for by Tenant which costs in excess of One Hundred Thousand Dollars
($100,000.00), Landlord shall, within ten (10) days following receipt of
written invoices and supporting documentation evidencing costs incurred by
Tenant, reimburse Tenant for the entire cost of the capital improvement or
replacement less that portion of the cost equal to the product of such tool
cost multiplied by a fraction, the numerator of which is the number of years
remaining in the Lease Term, and the denominator of which is the useful life
(in years) of the capital improvement or replacement.
12. HAZARD INSURANCE:
A. TENANT'S USE: Tenant shall not use or permit the Premises, or
any part thereof, to be used for any purpose other than that for which the
Premises are hereby leased; and no use of the Premises shall be made or
permitted, nor acts done, which will cause a cancellation of any insurance
policy covering the Premises or any part thereof, nor shall Tenant sell or
permit to be sold, kept, or used in or about the Premises, any article
prohibited by the standard form of fire insurance policies. Tenant shall, at
its sole cost, comply with all reasonable requirements of any insurance
company or organization necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises and appurtenances.
B. LANDLORD'S INSURANCE: Landlord agrees to purchase and keep in
force fire, extended coverage, earthquake (at Landlord's election if
commercially available and required by Landlord's lender), owner's liability,
and 12-month rental loss insurance. The amount of the fire, extended
coverage and earthquake insurance shall equal the replacement cost of the
Building Shell and Tenant Improvements as determined by Landlord's insurance
company's appraisers. Tenant agrees to pay Landlord as additional rent, on
demand, the full cost of said insurance as evidenced by insurance billings to
Landlord, and in the event of damage covered by said insurance, the amount of
any deductible under such policy. In no event, however, shall Tenant's
obligation to reimburse Landlord for the deductible exceed $25,000.00.
Payment shall be due to Landlord within thirty (30) days after written
invoice to Tenant. Notwithstanding the foregoing, Tenant's obligation to pay
the cost of earthquake insurance premiums shall be limited to an amount no
greater than four (4) times the cost of the fire and extended coverage
premiums. It is understood and agreed that Tenant's obligation
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under this Section will be prorated to reflect the Lease Commencement and
Expiration Dates.
C. TENANT'S INSURANCE: Tenant agrees, at as sole cost, to insure its
personal property, Tenant Improvements (for which it has paid from sources
other than the Work Allowance), and Alterations for their full replacement
value (without depreciation) and to obtain worker's compensation and public
liability and property damage insurance for occurrences within the Premises
with combined limits for bodily injury and property damage of at least
$1,000,000.00 per occurrence and a general aggregate limit of at least
$5,000,000.00. Tenant's liability insurance shall be primary insurance
containing a cross-liability endorsement, and shall provide coverage on an
"occurrence" rather than on a "claims made" basis. Tenant shall name
Landlord and Landlord's lender as an additional insured and shall deliver a
copy of the policies and renewal certificates to Landlord. All such policies
shall provide for thirty (30) days' prior written notice to Landlord of any
cancellation, termination, or reduction in coverage.
D. WAIVER: To the extent of the insurance proceeds paid by the
applicable insurance company, Landlord and Tenant hereby waive all rights
each may have against the other on account of any loss or damage sustained by
Landlord or Tenant, as the case may be, or to the Premises or its contents or
any other property, which may arise from any risk covered by their respective
insurance policies (or which would have been covered had such insurance
policies been maintained in accordance with this Lease) as set forth above or
which are otherwise maintained by Landlord or Tenant. The parties shall use
their reasonable efforts to obtain from their respective insurance companies
a waiver of any right of subrogation which said insurance company may have
against Landlord or Tenant, as the case may be.
13. TAXES: Tenant shall be liable for and shall pay as additional
rental, prior to delinquency, the following: (i) all taxes and assessments
levied against Tenant's personal property and trade or business fixtures;
(ii) all real estate taxes and assessment installments or other impositions
or charges which may be levied on the Premises or upon the occupancy of the
Premises, including any substitute or additional charges which may be imposed
applicable to the Lease Term; and (iii) real estate tax increases due to a
sale, transfer or other change of ownership of the Premises as it appears on
the City and County tax bills during the Lease Term. Tenant's obligation
under this Section shall be prorated to reflect the Lease Commencement and
Expiration Dates. If, at any time during the Lease Term a tax, excise on
rents, business license tax or any other tax, however described, is levied or
assessed against Landlord as a substitute or addition, in whole or in part,
for taxes assessed or imposed on land or Buildings, Tenant shall pay and
discharge its pro rata share of such tax or excise on rents or other tax
before it becomes delinquent; except that this provision is not intended to
cover net income taxes, inheritance, gift or estate tax imposed upon
Landlord. In the event that a tax is placed, levied, or assessed against
Landlord and the taxing authority takes the position that Tenant cannot pay
and discharge its pro rata share of such tax on behalf of Landlord, then at
Landlord's sole election, Landlord may increase the Base Monthly Rent by the
exact amount
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of such tax and Tenant shall pay such increase. Both Landlord and Tenant
shall have the right to seek a reduction in the assessed value of the
Premises. If by virtue of any application or proceeding brought by or on
behalf of Landlord, there results a reduction in the assessed value of the
Premises during the Lease Term, Tenant agrees to reimburse Landlord for all
costs incurred by Landlord in connection with such application or proceeding
provided such costs do not exceed the present value of the savings.
14. UTILITIES: Tenant shall pay directly to the providing utility all
water, gas, electric, telephone, and other utilities supplied to the
Premises. Except due to the negligence or willful misconduct of Landlord,
Landlord shall not be liable for loss of or injury to person or property,
however occurring, through or in connection with or incidental to furnishing
or failure to furnish utilities to the Premises, and, except as provided in
Section 44, Tenant shall not be entitled to abatement or reduction of any
portion of Base Monthly Rent or any other amount payable under this Lease.
15. ABANDONMENT: Tenant shall not abandon the Premises at any time
during the Lease Term. In the event Tenant abandons or surrenders the
Premises or is dispossessed by process of law or otherwise, any personal
property belonging to Tenant left on the Premises shall be deemed as
abandoned at the option of Landlord, except such property as may be mortgaged
to Landlord.
16. FREE FROM LIENS: Tenant shall keep the Premises free from all liens
arising out of work performed, materials furnished, or obligations incurred
by Tenant or claimed to have been performed for Tenant. In the event Tenant
fails to discharge any such lien within twenty (20) days after receiving
notice of the filing, Landlord shall be entitled to discharge the lien at
Tenant's expense and all resulting costs incurred by Landlord, including
attorney's fees shall be due from Tenant as additional rent.
17. COMPLIANCE WITH GOVERNMENTAL REGULATIONS: Tenant shall, at its sole
cost and expense, comply with and faithfully observe in its use of the
Premises all laws, regulations and other requirements of all Municipal,
County, State and Federal authorities now in force, or which may hereafter be
in force, pertaining to Tenant's specific use of the Premises. The judgment
of any court of competent jurisdiction or the admission of Tenant in any
action or proceeding against Tenant (whether Landlord be a party thereto or
not) that Tenant has violated any such law, regulation or other requirement
in its use of the Premises shall be conclusive of that fact as between
Landlord and Tenant. If any improvement or alteration to the Premises is
required as a result of any future laws or regulations affecting the Premises
not related to Tenant's specific use of the Premises, and provided further
said improvement or alteration is not required because of Alterations made by
Tenant, the cost of such improvements shall be allocated between Landlord and
Tenant such that Tenant shall pay to Landlord as additional rent an amount
determined as follows:
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(a) all costs reasonably incurred by Landlord to construct such
improvement shall be fully amortized over the useful life of such improvement
with interest on the unamortized balance at the prevailing market rate
Landlord would pay if it borrowed funds to construct such improvements from
an institutional lender, and Landlord shall inform Tenant of such monthly
amortization payment required to so amortize such costs, and shall also
provide Tenant with the information upon which such determination is made; and
(b) as additional rent Tenant shall pay the monthly amortization payment
with respect to any such capital improvement required as a result of any
future law or regulation affecting the Premises which is not related to
Tenant's specific use of the Premises as stated above. Tenant's obligation
to make payments hereunder with respect to any particular capital improvement
shall commence when such improvement has been substantially completed and
shall cease upon the earlier of the expiration of the Lease term (but not
upon a termination due to any Event of Default on the part of Tenant) or the
end of the term over which the costs of constructing the particular
improvement were amortized. Payments of such additional rent required under
this Section 17 shall be made concurrently with payments of Base Monthly Rent.
18. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:
A. TENANT'S RESPONSIBILITY: Without the prior written consent of
Landlord, Tenant shall not bring, use, or permit upon the Premises, or
generate, create, release, emit, or dispose (nor permit any of the same) from
the Premises any chemicals, toxic or hazardous gaseous, liquid or solid
materials or waste, including without limitation, material or substance
having characteristics of ignitability, corrosivity, reactivity, or toxicity
or substances or materials which are listed on any of the Environmental
Protection Agency's lists of hazardous wastes or which are identified in
Division 22 Title 26 of the California Code of Regulations as the same may be
amended from time to time ("Hazardous Materials") unless such Hazardous
Materials are used (i) in compliance with all applicable laws, and (ii) are
commonly used in connection with general office use. In order to obtain
consent, Tenant shall deliver to Landlord its written proposal describing the
toxic material to be brought onto the Premises, measures to be taken for
storage and disposal thereof, safety measures to be employed to prevent
pollution of the air, ground, surface and ground water. Landlord's approval
may be withheld in its reasonable judgment. In the event Landlord consents to
Tenant's use of Hazardous Materials on the Premises, Tenant represents and
warrants that it will do the following: (i) adhere to all reporting and
inspection requirements imposed by Federal, State, County or Municipal laws,
ordinances or regulations and will provide Landlord a copy of any such
reports or agency inspections; (ii) obtain and provide Landlord copies of all
necessary permits required for the use and handling Hazardous Materials on
the Premises; (iii) enforce Hazardous Materials handling and disposal
practices consistent with industry standards; (iv) surrender the Premises
free from any Hazardous Materials arising from Tenant's bringing, using,
permitting, generating, creating, releasing, emitting or disposing of
Hazardous Materials; and (v) properly close the facility with
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regard to Hazardous Materials including the removal or decontamination of any
process piping, mechanical ducting, storage tanks, containers, or trenches
which have come into contact with Hazardous Materials and obtain a closure
certificate from the local administering agency prior to the Expiration Date.
B. TENANT'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Tenant shall, at
its sole cost, comply with all laws pertaining to, and shall indemnify and
hold Landlord harmless from, any claims, liabilities, costs or expenses
incurred or suffered by Landlord arising from the bringing, using,
authorizing, generating, emitting or disposing of Hazardous Materials by
Tenant during the Lease Term. Tenant's indemnification and hold harmless
obligations include, without limitation, the following: (i) claims,
liability, costs or expenses resulting from or based upon administrative,
judicial (civil or criminal) or other action, legal or equitable, brought by
any private or public person under common law or under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"),
the Resource Conservation and Recovery Act of 1980 ("RCRA") or any other
Federal, State, County or Municipal law, ordinance or regulation with respect
to Hazardous Materials generated or disposed of by Tenant, its agents,
employees or contractors; (ii) claims, liabilities, costs or expenses
pertaining to the identification, monitoring, cleanup, containment, or
removal of Hazardous Materials generated or disposed of by Tenant, its
agents, employees or contractors from soils, riverbeds or aquifers including
the provision of an alternative public drinking water source; and (iii) all
costs of defending such claims.
C. ACTUAL RELEASE BY TENANT: Each party agrees to notify the other of
any known lawsuits or order which relate to the remedying of or actual
release of Hazardous Materials on or into the soils or ground water at or
under the Premises. Each party shall also provide the other all notices
required by Section 25359.7(b) of the Health and Safety Code and all other
notices required by law to be given in connection with Hazardous Materials.
In the event of any such release of Hazardous Materials by Tenant, Tenant
agrees to meet and confer with Landlord and its Lender to attempt to
eliminate and mitigate any financial exposure to such Lender and resultant
exposure to Landlord under California Code of Civil Procedure section 736(b)
as a result of such release, and promptly to take reasonable monitoring,
cleanup and remedial steps given, inter alia, the historical uses to which
the Property has and continues to be used, the risks to public health posed
by the release by Tenant, the then available technology and the costs of
remediation, cleanup and monitoring, consistent with acceptable customary
practices for the type and severity of such contamination and all applicable
laws. Nothing in the preceding sentence shall eliminate, modify or reduce
the obligation of Tenant under Section 18.B of this Lease to indemnify and
hold Landlord harmless from any claims liabilities, costs or expenses
incurred or suffered by Landlord. Tenant shall provide Landlord prompt
written notice of Tenant's monitoring, cleanup and remedial steps.
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In the absence of an order of any federal, state or local governmental or
quasigovernmental agency relating to the cleanup, remediation or other
response action required by applicable law, any dispute arising between
Landlord and Tenant concerning Tenant's obligation to Landlord under this
Section 18.C concerning the level, method, and manner of cleanup, remediation
or response action required in connection with such a release of Hazardous
Materials shall be resolved by mediation and/or arbitration pursuant to the
provisions of Section 45 of this Lease.
D. LANDLORD'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Landlord shall
indemnify and hold Tenant harmless from any claims, liabilities, costs or
expenses incurred or suffered by Tenant related to the removal,
investigation, monitoring or remediation of Hazardous Materials which are
present on the Premises as of the Commencement Date or which come to be
present on the Premises due to the acts of Landlord, its employees, agents or
contractors. Landlord's indemnification and hold harmless obligations
include, without limitation, (i) claims, liability, costs or expenses
resulting from or based upon administrative, judicial (civil or criminal) or
other action, legal or equitable, brought by any private or public person
under common law or under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation
and Recovery Act of 1980 ("RCRA") or any other Federal, State, County or
Municipal law, ordinance or regulation with respect to Hazardous Materials
generated or disposed of by Landlord, its agents, employees or contractors,
(ii) claims, liabilities, costs or expenses pertaining to the identification,
monitoring, cleanup, containment, or removal of Hazardous Materials generated
or disposed of by Landlord, its agents, employees or contractors from soils,
riverbeds or aquifers including the provision of an alternative public
drinking water source, and (iii) all costs of defending such claims. In no
event shall Landlord be liable under this Lease for any consequential damages
suffered or incurred by Tenant as a result of any such contamination.
E. ENVIRONMENTAL MONITORING: Provided Landlord (i) gives
reasonable prior notice (except in case of emergency) and (ii) minimizes its
interference with Tenant's business, Landlord and its agents shall have the
right to inspect, investigate, sample and monitor the Premises including any
air, soil, water, ground water or other sampling or any other testing,
digging, drilling or analysis to determine whether Tenant is complying with
the terms of this Section 18. If Landlord discovers that Tenant is not in
compliance with the terms of this Section 18, any such reasonable costs
incurred by Landlord, including attorneys' and consultants' fees, shall be
due and payable by Tenant to Landlord within thirty (30) days following
Landlord's written demand therefore.
19. INDEMNITY: As a material part of the consideration rendered to
Landlord, Tenant hereby waives all claims against Landlord for damages to
goods, wares and merchandise, and all other personal property in, upon or
about said Premises and for injuries to persons in or about said Premises,
from any cause (other than due to the negligence or willful misconduct of
Landlord, its agents, employees, invitees and contractors) arising at any
time to the fullest extent permitted by law, and Tenant shall indemnify and
hold Landlord exempt and harmless from any damage or
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injury to any person, or to the goods, wares and merchandise and all other
personal property of any person, arising from the use of the Premises,
Building, and/or Project by Tenant, its employees, contractors, agents and
invitees or from the failure of Tenant to keep the Premises in good condition
and repair as herein provided, except to the extent due to the negligence or
willful misconduct of Landlord, its employees, agents, invitees, or
contractors. Further, in the event Landlord is made party to any litigation
due to the acts or omission of Tenant, its employees, contractors, agents and
invitees, Tenant will indemnify and hold Landlord harmless from any such
claim or liability including Landlord's costs and expenses and reasonable
attorney's fees incurred in defending such claims.
20. ADVERTISEMENTS AND SIGNS: Tenant will not place or permit to be
placed, in, upon or about the Premises any signs not approved by the city or
other governing authority. Tenant will not place or permit to be placed upon
the Premises any signs, advertisements or notices without the written consent
of Landlord as to type, size, design, lettering, coloring and location, which
consent will not be unreasonably withheld. Any sign placed on the Premises
shall be removed by Tenant, at its sole cost, prior to the Expiration Date or
promptly following the earlier termination of the lease, and Tenant shall
repair, at its sole cost, any damage or injury to the Premises caused
thereby, and if not so removed, then Landlord may have same so removed at
Tenant's expense.
21. ATTORNEY'S FEES: In the event a suit or alternative form of dispute
resolution is brought for the possession of die Premises, for the recovery of
any sum due hereunder, to interpret the Lease, or because of the breach of
any other covenant herein; then the losing party shall pay to the prevailing
party reasonable attorney's fees including the expense of expert witnesses,
depositions and court testimony as part of its costs which shall be deemed to
have accrued on the commencement of such action. The prevailing party shall
also be entitled to recover all costs and expenses including reasonable
attorney's fees incurred in enforcing any judgment or award against the other
party. The foregoing provision relating to post-judgment costs is severable
from all other provisions of this Lease.
22. TENANT'S DEFAULT: The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant: (i)
Tenant's failure to pay any rent due under this Lease by die date such rent
is due, which failure continues for ten (10) days after written notice from
Landlord; (ii) the abandonment of the Premises by Tenant; (iii) Tenant's
failure to observe and perform any other required provision of this Lease,
where such failure continues for thirty (30) days after written notice from
Landlord (provided however, that if the nature of the default is such that it
cannot reasonably be cured within the 30-day period, Tenant shall not be
deemed in default if Tenant commences within such period to cure the default
and thereafter diligently prosecutes the cure to completion); (iv) Tenant's
making of any general assignment for the benefit of creditors; (v) the filing
by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a
petition for reorganization or arrangement under any law relating to
bankruptcy (unless, in the case of a petition
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filed against Tenant, the same is dismissed after the filing); (vi) the
appointment of a trustee or receiver to take possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days;
(vii) the attachment, execution or other judicial seizure of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in
this Lease, where such seizure is not discharged within thirty (30) days; or
(viii) an uncured default by Tenant under the Adjacent Building Lease after
applicable notice has been given and any applicable cure period has expired.
The notice requirements set forth herein are in lieu of and not in addition
to the notices required by California Code of Civil Procedure Section 1161.
Any notice given by Landlord to Tenant pursuant to California Code of Civil
Procedure 1161 regarding Tenant's failure to pay rent under this Lease by the
date due shall provide Tenant with a period of at least ten (10) (lays to pay
such rent or quit.
A. REMEDIES: In the event of any such default by Tenant, then in
addition to other remedies available to Landlord at law or in equity,
Landlord shall have the immediate option to terminate this Lease and all
rights of Tenant hereunder by giving written notice of such intention to
terminate. In the event Landlord elects to so terminate this Lease, Landlord
may recover from Tenant all the following: (i) the worth at time of award of
any unpaid rent which had been earned at the time of such termination; (ii)
the worth at time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the amount
of such rental loss for the same period that Tenant proves could have been
reasonably avoided; (iii) the worth at time of award of the amount by which
the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided; (iv) any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease, or which in the ordinary course of things would be likely
to result therefrom; and (v) at Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted by applicable
California law. The term "rent", as used herein, is defined as the minimum
monthly installments of Base Monthly Rent and all other sums required to be
paid by Tenant pursuant to this Lease, all such other sums being deemed as
additional rent due hereunder. As used in (i) and (ii) above, "worth at the
time of award" shall be computed by allowing interest at a rate equal to the
discount rate of the Federal Reserve Bank of San Francisco plus five (5%)
percent per annum. As used in (iii) above, "worth at the time of award"
shall be computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one (1%)
percent.
B. RIGHT TO RE-ENTER: In the event of any such default by Tenant,
Landlord shall have the right, after terminating this Lease, to re-enter the
Premises and remove all persons and property. Such property may be removed
and stored in a public warehouse or elsewhere at the cost of and "or the
account of Tenant, and disposed of by Landlord in any manner permitted by law.
C. ABANDONMENT: If Landlord does not elect to terminate this Lease as
provided in
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Section 22.A or 22.B above, then the provisions of California Civil Code
Section 1951.4, (Landlord may continue the lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due if Tenant has a
right to sublet and assign, subject only to reasonable limitations) as
amended from time to time, shall apply and Landlord may from time to time,
without terminating this Lease, either recover all rental as it becomes due
or relet the Premises or any part thereof for such term or terms and at such
rental or rentals and upon such other terms and conditions as Landlord in its
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises. In the event that Landlord elects to so relet,
rentals received by Landlord from such reletting shall be applied in the
following order to: (i) the payment of any indebtedness other than Base
Monthly Rent due hereunder from Tenant to Landlord; (ii) the payment of any
cost of such reletting; (iii) the payment of the cost of any alterations and
repairs to the Premises necessary to relet the Premises; and (iv) the payment
of Base Monthly Rent due and unpaid hereunder. The residual rentals, if any,
shall be held by Landlord and applied in payment of future Base Monthly Rent
as the same may become due and payable hereunder. In the event the portion of
rentals received from such reletting which is applied to the payment of rent
hereunder during any month be less than the rent payable during that month by
Tenant hereunder, then Tenant shall pay such deficiency to Landlord
immediately upon demand. Such deficiency shall be calculated and paid
monthly. Tenant shall also pay to Landlord, as soon as ascertained, any
reasonable costs and expenses incurred by Landlord in such reletting or in
making such alterations and repairs not covered by the rentals received from
such reletting.
D. NO TERMINATION: Landlord's re-entry or taking possession of the
Premises pursuant to 22.B or 22.C of this Section 22 shall not be construed
as an election to terminate this Lease unless written notice of such
intention is given to Tenant or unless the termination is decreed by a court
of competent jurisdiction. Notwithstanding any reletting without termination
by Landlord because of any default by Tenant, Landlord may at any time after
such reletting elect to terminate this Lease for any such default.
23. SURRENDER OF LEASE: The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation thereof, shall not automatically effect a
merger of the Lease with Landlord's ownership of the Premises. Instead, at
me option of Landlord, Tenant's surrender may terminate all or any existing
subleases or subtenancies or may operate as an assignment to Landlord of any
or all such subleases or subtenancies, thereby creating a direct
Landlord-Tenant relationship between Landlord and any subtenants.
24. This paragraph intentionally left blank.
25. LANDLORD'S DEFAULT: In the event of Landlord's failure to perform
any of its covenants or agreements under this Lease, Tenant shall give
Landlord written notice of such failure and shall give Landlord thirty (30)
days to cure or commence to cure such failure prior to any claim
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for breach or resultant damages, provided, however, that if the nature of the
default is such that it cannot reasonably be cured within the 30-day period,
Landlord shall not be deemed in default if it commences within such period to
cure, and thereafter diligently prosecutes the same to completion. Further
in the event that this Lease is terminated due to an uncured default by
Landlord, Tenant shall also have the right to terminate the Adjacent Building
Lease after written notice and expiration of any applicable cure period.
Upon any such failure by Landlord, Tenant shall also give notice by
registered or certified mail to any person or entity with a security interest
in the Premises ("Mortgagee") that has provided Tenant with notice of its
interest in the Premises, and shall provide Mortgagee a reasonable
opportunity to cure such failure, including such time to obtain possession of
the Premises by power of sale or judicial foreclosure, if such should prove
necessary to effectuate a cure. Tenant agrees that each of the Mortgagees to
whom this Lease has been assigned is an expressed third-party beneficiary
hereof. Tenant shall not make any prepayment of rent more than one (1) month
in advance without the prior written consent of Mortgagee. Tenant waives any
right under California Civil Code Section 1950.7 or any other present or
future law to the collection of any payment or deposit from Mortgagee or any
purchaser at a foreclosure sale of Mortgagee's interest unless Mortgagee or
such purchaser shall have actually received and not refunded the applicable
payment or deposit.
26. NOTICES: All notices, demands, requests, or consents required to be
given under this Lease shall be sent in writing by U.S. certified mail,
return receipt requested, overnight delivery by a reputable carrier, or by
personal delivery addressed to the party to be notified at the address for
such party specified in Section 1 of this Lease, or to such other place as
the party to be notified may from time to time designate by at least fifteen
(15) days prior notice to the notifying party.
27. ENTRY BY LANDLORD: Landlord (i) shall not enter the Premises without
first giving twenty-four (24) hours notice to Tenant of such entry except in
the case of emergency, (ii) shall be accompanied by an employee of Tenant at
all times while in the Premises, (iii) shall comply with Tenant's security
procedures applicable to the Premises, and (iv) shall not unreasonably
interfere with Tenant's use of the Premises. Provide the foregoing
conditions are satisfied, Tenant shall permit Landlord and his agents to
enter into and upon the Premises at all reasonable times, and without any
rent abatement (except as otherwise provided in Section 45) or reduction or
any liability to Tenant for any loss of occupation or quiet enjoyment of the
Premises thereby occasioned, for the following purposes: (i) inspecting and
maintaining the Premises; (ii) making repairs, alterations or additions to
the Premises; (iii) to construct the Adjacent Building; and (iv) performing
any obligations of Landlord under the Lease including remediation of
hazardous materials if determined to be the responsibility of Landlord. If
Landlord or its agents, employees or contractors are negligent in connection
with or during any such entry, or if any such entry unreasonably interferes
with Tenant's use of the Premises, then subject to Section 41 below, Landlord
shall be liable therefore. Tenant shall permit Landlord and his agents, at
any time within one hundred eighty (180) days prior to the Expiration Date
(or at any time during the Lease if Tenant is in default hereunder after
notice
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and expiration of any applicable cure period), to place upon the Premises
"For Lease" signs and exhibit the Premises to real estate brokers and
prospective tenants subject to the conditions contained in this Section 27.
28. DESTRUCTION OF PREMISES:
A. DESTRUCTION BY AN INSURED CASUALTY: In the event of a
destruction of the Premises during the Lease Term by a casualty for which
Landlord has received insurance proceeds sufficient to repair the damage or
destruction, Landlord shall repair the same to the extent of such proceeds.
Such destruction shall not annul or void this Lease; however, Tenant shall be
entitled to a proportionate reduction of Base Monthly Rent commencing on the
date of damage or destruction and continuing while repairs are being made,
such proportionate reduction to be based upon the extent to which the repairs
or damage interferes with Tenant's business in the Premises, as reasonably
determined by Landlord. Within sixty (60) days after any damage or
destruction of the Premises, Landlord shall notify Tenant in writing of
Landlord's estimate of the time required to repair the damage or destruction,
and if Landlord estimates that the repairs cannot be made in 180 days from
the date of receipt of all governmental approvals necessary under the laws
and regulations of State, Federal, County or Municipal authorities, as
reasonably determined by Landlord, or if the repairs actually take longer
than said 180 day period, then Tenant may terminate this Lease within fifteen
(15) days of Landlord's notice or the expiration of the 180 day period as
applicable. Landlord shall use reasonable efforts to promptly obtain all
governmental approvals and permits required for the repairs. Notwithstanding
the foregoing, either Landlord or Tenant shall have the option to terminate
the Lease in the event of a total destruction of the Premises or in the event
of a partial destruction occurs in the last year of the Lease Term and will
take more than sixty (60) days to repair; provided, however, that if the
partial destruction occurs after Tenant shall have exercised its Option under
Section 37 below or if Tenant exercises its Option under Section 37 within
twenty days following the event of partial damage or destruction, then the
last year of the Lease Term shall be deemed to be the last year of the Option
Term. In no event shall Landlord be required to replace or restore
Alterations, Tenant's fixtures or personal property. With respect to a
destruction which Landlord is obligated to repair or may elect to repair
under the terms of this Section, Tenant waives the provisions of Section
1932, and Section 1933, Subdivision 4, of the Civil Code of the State of
California, and- any other similarly enacted statute, and the provisions of
this Section 28 shall govern in the case of such destruction.
In the event that this Lease is terminated as the result of damage or
destruction and any insurance proceeds are payable to Landlord, Landlord
shall deliver to Tenant a portion of such insurance proceeds equal to the
portion of the costs of the Tenant Improvements paid for by Tenant ("Tenant's
Contribution") that remains unamortized as of the date this Lease is
terminated (calculated by amortizing Tenant's Contribution on a straight-line
basis over the initial term of this Lease, or if the termination occurs after
Tenant exercises its Option under Section 37 below, then
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calculated by amortizing Tenant's Contribution on a straight-line basis over
the term of this Lease, as so extended); provided, however, that Landlord's
obligation to pay such insurance proceeds to Tenant shall be subject and
subordinate to any obligation that Landlord may have to apply such insurance
proceeds to any loans made to Landlord for the construction of the Building
Shell which are secured by the Building Shell and the Ground Lease.
B. DESTRUCTION BY AN UNINSURED CASUALTY: In the event of a
destruction of the Premises during the Lease Term by a casualty for which
Landlord will not received insurance proceeds sufficient to repair the damage
or destruction (except for any deductible amount) and Tenant has not elected
to contribute the shortfall (excluding any deductible amount payable by
Landlord), the Lease shall automatically terminate unless (i) Landlord elects
to rebuild, and (ii) the damage can be repaired within one hundred eighty
(180) days from the date of receipt of all governmental approvals necessary
under the laws and regulations of State, Federal, County or Municipal
authorities, as reasonably determined by Landlord and communicated to Tenant
in writing within sixty (60) days after the damage or destruction.
29. ASSIGNMENT OR SUBLEASE:
A. CONSENT BY LANDLORD: Except as specifically provided in this
Section 29, Tenant may not assign, sublet, hypothecate, or allow a third
party to use the Premises without the express written consent of Landlord
which shall not be unreasonably withheld or delayed. In the event Tenant
desires to assign this Lease or any interest herein including, without
limitation, a pledge, mortgage or other hypothecation, or sublet the Premises
or any part thereof, Tenant shall deliver to Landlord executed counterparts
of any agreement and of all ancillary agreements with the proposed
assignee/subtenant, and a notice containing the name and address of the
proposed assignee/subtenant, proposed use of the Premises, rental rate and
current financial statement. At Landlord's request, Tenant shall also
provide additional information reasonably required by Landlord to determine
whether it will consent to the proposed assignment or sublease. Landlord
shall have a ten (10) day period following receipt of all the foregoing
within which to notify Tenant in writing that Landlord elects to: (i) permit
Tenant to assign or sublet such space to the named assignee/subtenant on the
terms and conditions set forth in the notice; or (ii) refuse consent. If
Landlord should fail to notify Tenant in writing of such election within the
10-day period, Landlord shall be deemed to have elected option (ii) above.
In the event Landlord elects option (i) above, Landlord's written consent to
the proposed assignment or sublease shall not be unreasonably withheld,
provided and upon the condition that: (i) the proposed assignee or subtenant
is engaged in a business that is limited to the use expressly permitted under
this Lease; (ii) the proposed assignee or subtenant is a company with
sufficient financial worth and management ability to undertake the financial
obligation of this Lease and Landlord has been furnished with reasonable
proof thereof; (iii) the proposed assignment or sublease is in form
reasonably satisfactory to Landlord; (iv) Tenant reimburses Landlord on
demand for any reasonable costs that may be incurred by Landlord in
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connection with said assignment or sublease, including the costs of making
investigations as to the acceptability of the proposed assignee or subtenant
and legal costs incurred in connection with the granting of any requested
consent; and (v) Tenant shall not have advertised or publicized in any way
the availability of the Premises without prior notice to Landlord. In the
event all or any one of the foregoing conditions are not satisfied, Landlord
shall be considered to have acted reasonably if it withholds its consent.
B. ASSIGNMENT OR SUBLETTING CONSIDERATION: Any rent or other economic
consideration realized by Tenant under any sublease and assignment, in excess
of the rent payable hereunder and reasonable subletting and assignment costs
(which shall include without limitations, all tenant improvement costs
expended for the subtenant, attorney's fees and brokerage commissions), shall
be divided and paid fifty percent (50%) to Landlord and fifty percent (50%)
to Tenant. Tenant's obligation to pay over Landlord's portion of the
consideration constitutes an obligation for additional rent hereunder. The
above provisions relating to Landlord's right to terminate the Lease and
relating to the allocation of bonus rent are independently negotiated terms
of the Lease which constitute a material inducement for the Landlord to enter
into the Lease, and are agreed by the parties to be commercially reasonable.
No assignment or subletting by Tenant shall relieve it of any obligation
under this Lease. Any assignment or subletting which conflicts with the
provisions hereof shall be void.
C. NO RELEASE: Notwithstanding any such sublease or assignment and
the acceptance of rent by Landlord from any subtenant or assignee, Tenant and
any guarantor shall remain fully liable for the payment of Base Monthly Rent
and additional rent due, and to become due hereunder, for the performance of
all the covenants, agreements, terms, provisions and conditions contained in
this Lease on the part of Tenant to be performed and for all acts and
omissions of any licensee, subtenant, assignee or any other person claiming
under or through any subtenant or assignee that shall be in violation of any
of the terms and conditions of this Lease, and any such violation shall be
deemed a violation by Tenant. Tenant shall indemnify, defend and hold
Landlord harmless from and against all losses, liabilities, damages, costs
and expenses (including reasonable attorney fees) resulting from any claims
that may be made against Landlord by the proposed assignee or subtenant or by
any real estate brokers or other persons claiming compensation in connection
with the proposed assignment or sublease.
D. EFFECT OF DEFAULT: In the event of Tenant's default, Tenant hereby
assigns all rents due from any assignment or subletting to Landlord as
security for performance of its obligations under this Lease, and Landlord
may collect such rents as Tenant's Attorney-in-Fact, except that Tenant may
collect such rents unless a default occurs as described in Section 22 and 24
above and such default is continuing. A Lease termination due to Tenant's
default shall not automatically terminate an assignment or sublease then in
existence; rather at Landlord's election, such assignment or sublease shall
survive the Lease termination, the assignee or subtenant shall attorn to
Landlord,
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and Landlord shall undertake the obligations of Tenant under the sublease or
assignment; except that Landlord shall not be liable for prepaid rent,
security deposits or other debuts of Tenant to the subtenant or assignee, or
for any acts or omissions of Tenant, its agents, employees, contractors or
invitees.
E. PERMITTED TRANSFERS: Tenant may, without Landlord's prior written
consent, sublet the Premises or assign the Lease to: (i) a subsidiary,
affiliate, division or corporation controlled or under common control with
Tenant; (ii) a successor corporation related to Tenant by merger,
consolidation, non-bankruptcy reorganization, or government action; or (iii)
a purchaser of substantially all of Tenant's assets, provided, however, that
the sublessee or assignee has a net worth sufficient to meet is obligations
under this Lease ("Permitted Transferees"). For the purpose of this Lease,
sale of Tenant's capital stock through any public exchange shall not be
deemed an assignment, subletting, or any other transfer of the Lease or the
Premises.
30. CONDEMNATION: If any part of the Premises shall be taken for any
public or quasipublic use, under any statute or by right of eminent domain or
private purchase in lieu thereof, and only a part thereof remains which is
susceptible of occupation hereunder, this Lease shall, as to the part so
taken, terminate as of the day before the vests in the condemnor or purchaser
("Vesting Date") and Base Monthly Rent payable hereunder shall be adjusted so
that Tenant is required to pay for the remainder of the Lease Term only such
portion of Base Monthly Rent as the value of the part remaining after such
taking bears to the value of the entire Premises prior to such taking; but in
such event Tenant shall have the option to terminate this Lease as of the
Vesting Date if the portion remaining is no longer suitable for Tenant's
intended use. If all of the Premises or such part thereof be taken so that
there does not remain a portion susceptible for occupation hereunder, this
Lease shall terminate on the Vesting Date. If part or all of the Premises be
taken, all compensation awarded upon such taking shall go to Landlord, and
Tenant shall have no claim thereto; but Landlord shall cooperate with Tenant,
without cost to Landlord, to recover compensation for damage to or taking of
any Alterations, Tenant Improvements paid for by Tenant from sources other
than the Work Allowance, or for Tenant's moving costs. Tenant hereby waives
the provisions of California Code of Civil Procedures Section 1265.130 and
any other similarly enacted statue, and the provisions of this Section 30
shall govern in the case of such taking.
31. EFFECTS OF CONVEYANCE: As used in this Lease, the term "Landlord" is
defined only as the owner for the time being of the Premises, so that in the
event of any sale or other conveyance of the Premises or in the event of a
master lease of the Premises, Landlord shall be entirely freed and relieved
of all its covenants and obligations hereunder to the extent such obligations
accrue after the date of said sale or master lease, and only to the extent
the purchaser or master lessee agrees in writing to assume the obligations of
Landlord hereunder arising after said sale or master lease, and it shall be
deemed and construed, without further agreement between the parties and the
purchaser at any such sale or the master tenant of the Premises, that the
purchaser or
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master tenant of the Premises has assumed and agreed to carry out any and all
covenants and obligations of Landlord hereunder. Such transferor shall
transfer and deliver Tenant's security deposit to the purchaser at any such
sale or the master tenant of the Premises, and thereupon the transferor shall
be discharged from any further liability in reference thereto.
32. SUBORDINATION: Subject to the recognition and nondisturbance
agreements described in Section 1, this Lease is subject and subordinate to
ground and underlying leases, mortgages and deeds of trust (collectively
"Encumbrances") which may now affect the Premises, to any covenants,
conditions or restrictions of record, and to all renewals, modifications,
consolidations, replacements and extensions thereof; provided, however, if
the holder or holders of any such Encumbrance ("Holder") require that its
Lease be prior and superior thereto, within seven (7) days after written
request of Landlord to Tenant, Tenant shall execute, have acknowledged and
deliver all documents or instruments, in the reasonable form presented to
Tenant, which Landlord or Holder deems necessary or desirable for such
purposes. Landlord shall have the right to cause this Lease to be and become
and remain subject and subordinate to any and all Encumbrances which are now
or may hereafter be executed covering the Premises or any renewals,
modifications, consolidations, replacements or extensions thereof, for the
full amount of all advances made or to be made thereunder and without regard
to the time or character of such advances, together with interest thereon and
subject to all the terms and provisions thereof, on the condition that the
Holder delivers to Tenant a non-disturbance agreement providing that in the
event of termination of any such lease or upon the foreclosure of any such
mortgage or deed of trust, the Holder agrees to recognize Tenant's rights
under this Lease as long as Tenant is not then in default and continues to
pay Base Monthly Rent and additional rent and observes and performs all
required provisions of this Lease (in each case, after notice and the
expiration of any applicable cure period). Within fifteen (15) days after
Landlord's written request, Tenant shall execute any reasonable documents
required by Landlord or the Holder to make this Lease subordinate to any lien
of the Encumbrance provided Tenant shall have received a Nondisturbance
Agreement from the Holder of the applicable Encumbrance. If Tenant fails to
do so, then in addition to such failure constituting a default by Tenant it
shall be deemed that this Lease is so subordinated to such Encumbrance
provided Tenant shall have received a Nondisturbance Agreement from the
Holder of the applicable Encumbrance. Notwithstanding anything to the
contrary in this Section, Tenant hereby attorns, and agrees to attorn. to any
entity purchasing or other-wise acquiring the Premises at any sale or other
proceeding or pursuant to the exercise of any other rights, powers or
remedies under such encumbrance.
33. WAIVER: The waiver by Landlord or Tenant of any breach of any term,
covenant or condition, herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent
acceptance of rent hereunder by Landlord shall not be deemed to be a waiver
of any preceding breach by Tenant of any term, covenant or condition of this
Lease, other than the failure of Tenant to pay the particular rental so
accepted, regardless of Landlord's knowledge of such
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preceding breach at the time of acceptance of such rent. No payment by
Tenant or receipt by Landlord of a lesser amount than any installment of rent
due shall be deemed to be other than payment on account of the amount due.
No delay or omission in the exercise of any right or remedy by Landlord or
Tenant shall impair such right or remedy or be construed as a waiver thereof
by the non-defaulting party. No act or conduct of Landlord, including,
without limitation, the acceptance of keys to the Premises, shall constitute
acceptance of the surrender of the Premises by Tenant before the Expiration
Date (only written notice from Landlord to Tenant of acceptance shall
constitute such acceptance of surrender of the Premises). Landlord's consent
to or approval of any act by Tenant which require Landlord's consent or
approvals shall not be deemed to waive or render unnecessary Landlord's
consent to or approval of any subsequent act by Tenant.
34. HOLDING OVER: Any holding over after the termination or Expiration
Date with Landlord's consent, shall be construed as month-to-month tenancy,
terminable on thirty (30) days written notice from either party, and Tenant
shall pay as Base Monthly Rent to Landlord a rate equal to one hundred thirty
three percent (133%) of the Base Monthly Rent due in the month preceding the
termination or Expiration Date, plus all other amounts payable by Tenant
under this Lease. Any holding over shall otherwise be on the terms and
conditions herein specified, except those provisions relating to the Lease
Term and any options to extend or renew, which provisions shall be of no
further force and effect following the expiration of the applicable exercise
period. Tenant shall indemnify, defend, and hold Landlord harmless from all
loss or liability (including, without limitation, any loss or liability
resulted from any claim against Landlord made by any succeeding tenant)
resulting from Tenant's failure to timely surrender the Premises to Landlord
and losses to Landlord due to lost opportunities to lease the Premises to
succeeding tenants.
35. SUCCESSORS AND ASSIGNS: Subject to the provisions of Section 29, the
covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all parties hereto; and
all parties hereto shall be jointly and severally liable hereunder.
36. ESTOPPEL CERTIFICATES: At any time during the Lease Term, Landlord
or Tenant shall, within fifteen (15) days following written notice from the
other, execute and deliver a written statement certifying, if true, the
following: (i) that this Lease is unmodified and in full force and effect
(or, if modified, stating the nature of such modification); (ii) the date to
which rent and other charges are paid in advance, if any; (iii) acknowledging
that there are not, to the party's knowledge, any uncured defaults (or
specifying such defaults if they are claimed); and (iv) such other
information as may be reasonably requested. Any such statement may be
conclusively relied upon by a third party. Tenant agrees to provide, within
twenty (20) days of Landlord's request, Tenant's most recent annual report
and latest quarterly reports.
37. OPTION TO EXTEND THE LEASE TERM:
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A. GRANT AND EXERCISE OF OPTION: Landlord grants to Tenant, subject
to the terms and conditions set forth in this Section, the option (the
"Option") to extend the Lease Term for an additional term (the "Option Term")
of one hundred twenty (120) months. The Option shall be exercised, if at
all, by written notice to Landlord no earlier than eighteen (18) months prior
to the Expiration Date but no later than twelve (12) months prior to the
Expiration Date. Tenant's ability to exercise the Option is expressly
conditioned on Tenant's exercise of its option to extend the Adjacent
Building Lease. If Tenant exercises the Option, all of the terms, covenants
and conditions of this Lease except this Section shall apply during the
Option Term as though the expiration date of the Option Term was the date
originally set forth herein as the Expiration Date, provided that the terms
of EXHIBIT B shall not apply to the Option Term and Tenant shall not have any
obligation in connection with the Option Term to make or pay for any tenant
improvements and provided, further, that Base Monthly Rent for the Premises
payable by Tenant during the Option Term shall be the greater of either (i)
the Base Monthly Rent applicable to the period immediately prior to the
commencement of the Option Term, or (ii) ninety five percent (95%) of the
Fair Market Rental as hereinafter defined. Notwithstanding anything herein
to the contrary, if Tenant is in monetary or material non-monetary default
under any of the terms, covenants or conditions of this Lease either at the
time Tenant exercises the Option or as the commencement date of the Option
Term (after notice and expiration of any applicable cure period), Landlord
shall have, in addition to all of Landlords other rights and remedies
provided in this Lease, the right to terminate the Option upon notice to
Tenant, in which event the expiration date of this Lease shall be and remain
the Expiration Date. As used herein, the term "Fair Market Rental" is
defined as the rental and all other monetary payments, including any
escalations and adjustments thereto (including without limitation Consumer
Price Indexing) that Landlord could obtain during the Option Term from a
third party desiring to lease the Premises, based upon the current use and
other potential uses of the Premises under or permitted by this Lease, as
determined by the rents then being obtained for new leases of space
comparable in age and quality to the Premises in the locality of the
Building. The parties hereto agree that in calculating the Fair Market
Rental of the Premises, the value of all Tenant Improvements and Alterations
paid for solely by Tenant shall not be taken into consideration. The parties
further agree that the appraisers shall be instructed that the foregoing five
percent (5%) discount is intended to reduce comparable rents which include
(i) brokerage commissions, (ii) tenant improvement allowances, and (iii)
vacancy costs, to account for the fact that Landlord will not suffer such
costs in the event Tenant exercises its Option.
B. DETERMINATION OF FAIR MARKET RENTAL: If Tenant exercises the
Option, Landlord shall send Tenant a notice setting forth the Fair Market
Rental for the Option Term within thirty (30) days following the Exercise
Date. If Tenant disputes Landlord's determination of Fair Market Rental for
the Option Term, Tenant shall, within thirty (30) days after the date of
Landlord's notice setting forth Fair Market Rental for the Option Term, send
to Landlord a notice stating that Tenant either elects to terminate its
exercise of the Option, in which event the Option shall lapse and this Lease
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shall terminate on the Expiration Date, or that Tenant disagrees with
Landlord's determination of Fair Market Rental for the Option Term and elects
to resolve the disagreement as provided in Section 37.C below. If Tenant
does not send Landlord a notice as provided in the previous sentence,
Landlord's determination of Fair Market Rental shall be the basis for
determining the Base Monthly Rent payable by Tenant during the Option Term.
If Tenant elects to resolve the disagreement as provided in Section 37.C and
such procedures are not concluded prior to the commencement date of the
Option Term, Tenant shall pay to Landlord as Base Monthly Rent the Fair
Market Rental as determined by Landlord in the manner provided above. If the
Fair Market Rental as finally determined pursuant to Section 37.C is greater
than Landlord's determination, Tenant shall pay Landlord the difference
between the amount paid by Tenant and the Fair Market Rental as so determined
in Section 37.C within thirty (30) days after such determination. If the
Fair Market Rental as finally determined in Section 37.C is less than
Landlord's determination, the difference between the amount paid by Tenant
and the Fair Market Rental as so determined in Section 37.C shall be credited
against the next installments of rent due from Tenant to Landlord hereunder.
C. RESOLUTION OF A DISAGREEMENT OVER THE FAIR MARKET RENTAL: Any
disagreement regarding Fair Market Rental shall be resolved as follows:
1. Within thirty (30) days after Tenant's response to
Landlord's notice setting forth the Fair Market Rental, Landlord and Tenant
shall meet at least two (2) times at a mutually agreeable time and place, in
an attempt to resolve the disagreement.
2. If within the 30-day period referred to above, Landlord and
Tenant cannot reach agreement as to Fair Market Rental, each party shall
select one appraiser to determine Fair Market Rental. Each such appraiser
shall arrive at a determination of Fair Market Rental and submit their
conclusions to Landlord and Tenant within thirty (30) days after the
expiration of the 30-day consultation period described above.
3. If only one appraisal is submitted within the requisite
time period, it shall be deemed as Fair Market Rental. If both appraisals
are submitted within such time period and the two appraisals so submitted
differ by less than ten percent (10%), the average of the two shall be deemed
as Fair Market Rental. If the two appraisals differ by more than 10%, the
appraisers shall immediately select a third appraiser who shall, within
thirty (30) days after his selection, make and submit to Landlord and Tenant
a determination of Fair Market Rental. This third appraisal will then be
averaged with the closer of the two previous appraisals and the result shall
be Fair Market Rental.
4. All appraisers specified pursuant to this Section shall be
members of the American Institute of Real Estate Appraisers with not less
than ten (10) years experience appraising office and industrial properties in
the Santa Clara Valley. Each party shall pay the cost of the appraiser
selected by such party and one-half of the cost of the third appraiser.
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38. OPTIONS: In the event Tenant has multiple options to extend this
Lease, a later option to extend the Lease cannot be exercised unless the
prior option has been so exercised.
39. QUIET ENJOYMENT: Upon Tenant's faithful and timely performance of
all the terms and covenants of the Lease and except as otherwise provided in
this Lease, Tenant shall quietly have and hold the Premises for the Lease
Term and any extensions thereof.
40. BROKERS: Landlord and Tenant represent they have not utilized or
contacted a real estate broker or finder with respect to this Lease other
than BT Commercial and each party agrees to indemnify, defend and hold the
other harmless against any claim, cost, liability or cause of action asserted
by any other broker or finder.
41. LANDLORD'S LIABILITY: If Tenant recovers a money judgment against
Landlord arising in connection with this Lease, the judgment shall be
satisfied only out of (i) all rents and profits from the Parcel, (ii)
Landlord's interest in the Parcel, and (iii) Landlord's insurance and
interest in any insurance proceeds and neither Landlord nor any of its
partners, officers, directors, agents, trustees, shareholders or employees
shall be liable personally for any deficiency. Tenant expressly waives all
rights to proceed against the individual partners or the officers, directors
or shareholders of any corporate partner, except to the extent of their
interest in said limited partnership.
42. AUTHORITY OF PARTIES: Tenant represents and warrants that it is duly
formed and in good standing, and is duly authorized to execute and deliver
this Lease on behalf of said corporation, in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance
with the by-laws of said corporation, and that this Lease is binding upon
said corporation in accordance with its terms. Landlord represents and
warrants that it is duly formed and in good standing, and is duly authorized
to execute and deliver this Lease on behalf of said partnership, and that
this Lease is binding upon said partnership in accordance with its terms. At
Landlord's request, Tenant shall provide Landlord with corporate resolutions
or other proof in a form acceptable to Landlord, authorizing the execution of
the Lease.
43. TRANSPORTATION DEMAND MANAGEMENT PROGRAMS: Should a government
agency or municipality require Landlord or Tenant to institute a TDM
(Transportation Demand Management) program, Tenant agrees to pay the cost or
expenses associated with such TDM programs which are required for the
Premises.
44. DISPUTE RESOLUTION: Except for the Tenant's failure to timely pay Base
Monthly Rent, any controversy, dispute, or claim of whatever nature arising out
of, in connection with, or in relation to the interpretation, performance or
breach of this Lease, including any claim based on
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<PAGE>
contract, tort, or statute, shall be resolved at the request of any party to
this agreement through a two-step dispute resolution process administered by
JAMS or another judicial and mediation service mutually acceptable to the
parties involving first mediation, followed, if necessary, by final and
binding arbitration administered by and in accordance with the then-existing
rules and practice of the judicial and mediation service selected, and
judgment upon any award rendered by the arbitrator(s) may be entered by any
State or Federal Court having jurisdiction thereof.
45. INTERFERENCE WITH USE OF PREMISES: If the Premises should become
unsuitable for Tenant's use as a consequence of (i) die presence of any
Hazardous Material which does not result from Tenant's use, storage or
disposal of such material in violation of applicable Law, or (ii) as the
result of a cessation of utilities not caused by Tenant or from a casualty,
which persists for seventy two (72) consecutive hours or which is caused by
Landlord, ("Interfering Event") then Tenant shall be entitled to an abatement
of rent to the extent of the interference with Tenant's use of the Premises
occasioned thereby from the date of the Interfering Event, and, if such
interference cannot be corrected or the damage resulting therefrom repaired
so that the Premises will be reasonably suitable for Tenant's intended use
within one hundred eighty (180) days following the occurrence of the
Interfering Event, then Tenant shall be entitled to terminate ads Lease by
delivery of written notice to the other within five (5) days following the
expiration of such one hundred eighty (180) day period.
46. EXISTING VICTORIAN HOME: Landlord agrees to relocate the Historic
Home onto the Parcel in the location shown in Exhibit "A" and remodel or
improve the interior and exterior of the Historic Home in compliance with the
conditions set forth by the City of San Jose and all applicable municipal,
local, state and federal laws, statutes, rules, regulations and ordinances to
allow Tenant to utilize the Historic Home for general office/conference uses
and Tenant shall have the right under this Lease to utilize the Historic Home
for such purposes. The cost of the improvements to the Historic Home shall be
paid by Landlord and Tenant as follows: (i) Landlord shall pay the cost to
relocate the Home (which scope of work is outlined in EXHIBIT "E") and the
first Two Hundred Twelve Thousand Dollars ($212,000.00) of improvement costs,
(ii) Tenant shall pay the next Fifty Thousand Dollars ($50,000.00) of
improvement costs (if necessary), and (iii) Landlord shall pay any remaining
improvement costs (if necessary).
The Historic House shall be considered part of the Premises for all
purposes under this Lease except that me portion of the Base Monthly Rent
applicable to the Historic House shall be $3,200 per month (as provided in
Section it above and subject to escalation pursuant to Section 4.B) and the
provisions of Section 4 of this Lease to the contrary notwithstanding,
Tenant's obligation to pay Base Monthly Rent for the Historic House shall not
commence until the later of (i) the date the Historic House has be relocated,
remodeled and improved by Landlord as provided in this Section 46 above, or
(ii) the date two (2) months following the Commencement Date of the Lease as
such two month period is extended by Landlord Delays as described in Section
4 of the Lease. Landlord shall
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use commercially reasonable efforts to complete the relocation and
improvement of the Historic House prior to the Commencement Date.
47. MISCELLANEOUS PROVISIONS:
A. RENT: All monetary sums due from Tenant to Landlord under this
Lease, including, without limitation those referred to as "additional rent",
shall be deemed as rent.
B. MANAGEMENT FEE: During the Lease Term commencing two months
following the Commencement Date, Tenant shall pay Landlord a fee of two
percent (2%) of the Base Monthly Rent to reimburse Landlord for property
management costs related to the Project.
C. PERFORMANCE BY LANDLORD: If Tenant fails to perform any
obligation required under this Lease or by law or governmental regulation,
Landlord in its sole discretion may, after giving Tenant at leak thirty (30)
days prior written notice, without waiving any rights or remedies and without
releasing Tenant from its obligations hereunder, perform such obligation, in
which event Tenant shall pay Landlord as additional rent all sums paid by
Landlord in connection with such substitute performance, including interest
as provided in Section 47.D below within ten (10) days of Landlord's written
notice for such payment.
D. INTEREST: All sums due hereunder, if not paid by Tenant or
Landlord within thirty (30) days after they are due, shall bear interest at
the maximum rate the parties are permitted to contract for under California
law, accruing from the date due until the date paid.
E. RIGHTS AND REMEDIES: All rights and remedies hereunder are
cumulative and not alternative to the extent permitted by law, and are in
addition to all other rights and remedies in law and in equity.
F. SURVIVAL OF INDEMNITIES: All indemnification, defense, and hold
harmless obligations of Landlord and Tenant under this Lease shall survive
the expiration or sooner termination of the Lease.
G. SEVERABILITY: If any term or provision of this Lease is held
unenforceable or invalid by a court of competent jurisdiction, the remainder
of the Lease shall not be invalidated thereby but shall be enforceable in
accordance with its terms, omitting the invalid or unenforceable term.
H. CHOICE OF LAW: This Lease shall be governed by and construed in
accordance with California law. Venue shall be Santa Clara County.
I. TIME: Time is of the essence hereunder.
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J. ENTIRE AGREEMENT: This Lease contains all of the agreements and
conditions made between the parties hereto and may not be modified orally or
in any other manner other than by written agreement signed by all parties
hereto or their respective successors in interest. This Lease supersedes and
revokes all previous negotiations, letters of intent, lease proposals,
brochures, agreements, representations, promises, warranties, and
understandings, whether oral or in writing, between the parties or their
respective representatives or any other person purporting to represent
Landlord or Tenant.
K. REPRESENTATIONS: Except as expressly provided in this Lease,
Tenant acknowledges that neither Landlord nor any of its employees or agents
have made any agreements, representations, warranties or promises with
respect to the Premises or with respect to present or future rents, expenses,
operations, tenancies or any other matter. Except as herein expressly set
forth herein, Tenant relied on no statement of Landlord or its employees or
agents for that purpose.
L. NO PRESUMPTION AGAINST DRAFTER: Landlord and Tenant understand,
agree and acknowledge that this Lease has been freely negotiated by both
parties; and that in any controversy, dispute, or contest over the meaning,
interpretation, validity, or enforceability of this Lease or any of its terms
or conditions, there shall be no inference, presumption, or conclusion drawn
whatsoever against either party by virtue of that party having drafted this
Lease or any portion thereof.
M. HEADINGS: The headings or titles to the Sections of this Lease
are not a part of this Lease and shall have no effect upon the construction
or interpretation of any part thereof.
N. EXHIBITS: All exhibits referred to are attached to this Lease
and incorporated by reference.
48. CROSS-DEFAULT. If this Lease is terminated as the result of a
default by Landlord or Tenant or the exercise by Landlord or Tenant of any
right to terminate given to Landlord or Tenant under this Lease (other than a
right to terminate exercised by Landlord or Tenant with respect to damage to
or destruction of the Premises), then subject to the provisions of Section
28.A concerning the payment by Landlord to Tenant of the unamortized cost of
the Tenant Improvements paid for by Tenant, the non-defaulting party may
elect to terminate the Adjacent Lease by giving written notice of such
termination to the other party concurrently with, or within ten (10) business
days after, the termination of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day
and year first above written.
LANDLORD: SOBRATO INTERESTS III TENANT: CENTIGRAM COMMUNICATIONS
CORP.
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a California Limited Partnership a Delaware Corporation
By: /s/ signature unreadable By: /s/ signature unreadable
------------------------ ------------------------
Its: General Partner Its: President & CEO
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<PAGE>
EXHIBIT "A" - PREMISES, BUILDING & PROJECT NOT SHOWN
IMAGE NOT SHOWN
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<PAGE>
EXHIBIT "B" - SHELL PLANS AND SPECIFICATIONS
(SHEET REFERENCES TO BE ATTACHED)
ARCHITECTURAL DRAWINGS
SHEET NO. SHEET NAME
A0.1 Project Information and Notes
A1.0 Site Plan
A2.0A Building One - First Level Floor Plan
A2.1A Building One - Second Level Floor Plan
A2.2A Building One - Third Level Floor Plan
A2.3A Building One - Fourth Level Floor Plan
A2.4A Building One - Roof Plan
A2.5B Building Two - First Level Floor Plan
A2.6B Building Two - Second Level Floor Plan
A2.7B Building Two - Third Level Floor Plan
A2.8B Building Two - Fourth Level Floor Plan
A2.9B Building Two - Roof Plan
A3.0A Building One - North and South Exterior Elevations
A3.1A Building One - East and West Exterior Elevations
A3.2B Building Two - East and West Exterior Elevations
A3.38 Building Two - North and South Exterior Elevations
A4.0 Wall Sections
A4.1 Wall Sections
A4.2 Wall Sections
A4.3 Wall Sections
A6.0 Detail Stair Floor Plans
A6.1 Stair Details
A6.2 Stair Sections and Details
CIVIL DRAWINGS
C-1 Topographical Survey
C-2 Preliminary Grading Plan
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STRUCTURAL DRAWINGS
S1 Horne House Foundation Plans and Details
S2.0 Building One Foundation Plan
S2.1 Building One - Second Floor Framing Plan
S2.2 Building One - Third Floor Framing Plan
S2.3 Building One - Fourth Floor Framing Plan
S3.1 Building One - Braced Frame Elevations
S3.2 Typical Structural Details
S6.l Wall Sections
S6.2 Wall Sections
S6.3 Wall Sections
S6.4 Wall Sections
S3.1 Panel Elevations
S3.2 Panel Elevations
S3.3 Panel Elevations
S4.0 Foundation Details
ELECTRICAL DRAWINGS
SE.1 Site Electrical Plan
E.1a Building One - First Level Power Plan
E1.b Building Two - First Level Power Plan
E2.a Building One a Second Level Power Plan
E2.b Building Two - Second Level Power Plan
LANDSCAPE DRAWINGS
L1.1 General Landscape Notes and Legend
Ll.2 Plant List and Planting Notes
L2.1 Irrigation Site Plan
L4.l Planting Site Plan
L6.1 Landscape Details
L7.1 Fountain Plan, Notes and Details
<PAGE>
EXHIBIT "C" - BUILDING SHELL DEFINITION
The Building Shell shall be a four -story steel frame structure with 90% of
the perimeter containing glass. The Building Shell shall include the
following items:
1. BUILDING STRUCTURE
(a) All foundations to include footings, piers, caissons, pilings, grade
beams, foundation walls or other building foundation components required to
support the building structure.
(b) Five inch (5") thick concrete slab on grade with below grade vapor
barrier and welded wire mesh and any other reinforcing or structural
connections that may be necessary or required as specified by structural
engineer.
(c) Complete structural framing system comprised of rolled steel or pipe
columns, light weight braced-frame steel structure with corrugated metal deck
and concrete toping over and openweb bar joist and girder floor support
system, all members fireproofed as required by code. Floor support system
shall provide for a minimum of 120 pounds per square foot live load.
(d) Tinted high performance glass with Robertson composite metal panels
including required caulking and sealants. Four (4) exterior double doors,
door closers and locking devices as necessary.
(e) Four (4) ply built up roofing with cap sheet by Owens-Corning, John
Manville, or equal and all flashings over a rigid insulated corrugated metal
deck roof system.
(f) Exterior painting of any concrete with Tex-Coat or Kel-Tex textural
paint, all caulking of exterior concrete joints in preparation for painting.
(g) Two (2) steel fire stairs at perimeter of building One ship ladder
to roof of building with roof hatch.
(h) Mechanical roof screen.
(i) Loading area with grade level access with hydraulic scissors lift
external of building.
(j) penetrations of the roof and floor for the mechanical ducting and for
the elevators (elevator penetrations to accommodate two hydraulic passenger
elevators at the core and one freight elevator near the dock area)
(k) Riser for Building sprinkler system (no sprinkler grid or drops)
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2. SITEWORK
(a) All work outside the building perimeter walls shall be considered
site work for the Building Shell and shall include grading, asphalt concrete,
paving, landscaping, landscape irrigation, storm drainage, utility service
laterals, curbs, gutters, sidewalks, specialty paving (if required, i.e.
reinforced roadway section to truck doors), retaining walls, planters, trash
enclosure, parking lot and landscape lighting and other exterior lighting per
code. Landscape design to include screen dining patio (no furniture) and
three flag poles with bases.
(b) Paving sections for automobile and truck access shall be according to
the Geologic Soils Report
(c) All parking lot striping to include handicap spaces and signage.
(d) Underground site storm drainage system shall be connected to the city
storm system main.
3. PLUMBING
(a) Underground sanitary sewer laterals connected to the city sewer main
in the street and stubbed to the core of the building.
(b) Domestic water mains connected to the city water main in the street
and stubbed to the building.
(c) Roof drain leaders and downspouts piped and connected to the site
storm drainage system.
(d) Gas lines connected to the city or public utility mains and run to
gas meters adjacent to, and in close proximity to the building. Meter
supplied by utility company.
4. ELECTRICAL
(a) A primary electrical raceway service from the street to the
building, including underground conduit, wire feeders, and transformer pads.
Transformer supplied by utility company. Underground conduits and secondary
feeders from transformer pads into the building.
(b) 4" Underground conduit from the street to the building for telephone
trunk lines by Pacific Telephone.
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(c) An electrically operated landscape irrigation system, with
controller, that is a complete and functioning system.
(e) Underground conduit from the building to the main fire protection
system post indicator valve (PIV) for installation of supervisory alarm
wiring.
(f) Telephone and data conduits between the Building and the Adjacent
Building
All other costs shall be deemed Tenant Improvements.
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<PAGE>
EXHIBIT "D" - TENANT IMPROVEMENT PLANS AND SPECIFICATIONS
(SHEET REFERENCES TO BE ATTACHED)
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<PAGE>
EXHIBIT "E" - HISTORIC HOME RELOCATION SCOPE
(SHEET REFERENCES TO BE ATTACHED)
[LOGO]
HORNE HOUSE RELOCATION ACTIVITIES
In conjunction with the development of Centigram's Headquarters Facility at
North First and Guadalupe Parkway, the develop will relocate the historic
Horne House to a new location on the development site. Those activities,
that the developer will perform at his cost, not subject to deduce from the
improvement allowances agreed to in the lease, are outlined below.
RELOCATION-DEVELOPER COST
1. Preparation of pathway for transit of house from existing location to
new location.
2. Preparation and placement of foundation for the new house. The new
configuration will eliminate the basement and cause the house floor
structure to be positioned within 18" of the ground (crawl space).
3. Extension of utility services in the house for its reconnection, to
include sanitary sewer, water, electricity, and telephone conduit.
Should the City require that the relocated structure have fire
sprinklers installed, the fire sprinkler main would also be extended
to the house perimeter.
4. The physical move of the house and its placement on the new foundation.
5. Patching and repair/restoration of any damage to the house caused by
the move process, i.e. patching any holes in the side walls caused by
placement of support beams under or over the structure and repair of
walls, floor and roof in the event that the house is divided into
sections in order to facilitate its move.
6. Demolition and removal of the old foundation, site improvements and
terminated utility services.
7. Any other items required by the City as part of the relocation
activity, excluding external/internal improvements.
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<PAGE>
<PAGE>
Corner Parcel - Kenji
SOBRATO 10600 N. De Anza Boulevard, Suite 200
DEVELOPMENT Cupertino, CA 95014-2075
COMPANIES (408) 446-0700
FAX (408) 446-0583
LEASE BETWEEN
SOBRATO INTERESTS III AND CENTIGRAM COMMUNICATIONS CORPORATION
Section Page #
- ------- ------
Parties........................................................................1
Premises.......................................................................1
Use............................................................................2
Term and Rental................................................................2
Rental Adjustment..........................................................2
Security Deposit...............................................................3
Late Charges...................................................................5
Construction and Possession....................................................5
Building Shell Construction................................................5
Tenant Improvement Plans...................................................5
Final Building Shell Plans.................................................6
Change Orders..............................................................6
Construction...............................................................7
Insurance/Indemnity........................................................7
Punch List & Warranty......................................................8
Other Work by Tenant.......................................................8
Landlord's Failure to Complete Construction................................8
Acceptance of Possession and Covenants to Surrender............................9
Uses Prohibited...............................................................10
Alterations and Additions.....................................................10
Maintenance of Premises.......................................................11
Tenant's Obligations......................................................11
Landlord's Obligations....................................................12
Capital Replacements......................................................12
Hazard Insurance..............................................................12
Tenant's Use..............................................................12
<PAGE>
Landlord's Insurance......................................................12
Tenant's Insurance........................................................13
Waiver....................................................................13
Taxes.........................................................................13
Utilities.....................................................................14
Abandonment...................................................................14
Free From Liens...............................................................14
Compliance With Governmental Regulations......................................14
Toxic Waste and Environmental Damage..........................................15
Tenant's Responsibility...................................................15
Tenant's Indemnity Regarding Hazardous Materials..........................16
Actual Release by Tenant..................................................16
Landlord's Indemnity Regarding Hazardous Materials........................17
Environmental Monitoring..................................................17
Indemnity.....................................................................17
Advertisements and Signs......................................................18
Attorney's Fees...............................................................18
Tenant's Default..............................................................18
Remedies..................................................................19
Right to Re-enter.........................................................19
Abandonment...............................................................19
No Termination............................................................20
Surrender of Lease............................................................20
Landlord's Default............................................................20
Notices.......................................................................21
Entry by Landlord.............................................................21
Destruction of Premises.......................................................22
Destruction by an Insured Casualty........................................22
Destruction by an Uninsured Casualty......................................23
Assignment or Sublease........................................................23
Consent by Landlord.......................................................23
Assignment or Subletting Consideration....................................24
No Release................................................................24
Effect of Default.........................................................24
Permitted Transfers.......................................................25
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Condemnation..................................................................25
Effect of Conveyance..........................................................25
Subordination.................................................................26
Waiver........................................................................26
Holding Over..................................................................27
Successors and Assigns........................................................27
Estoppel Certificates.........................................................27
Option to Extend the Lease Term...............................................27
Grant and Exercise of Option..............................................28
Determination of Fair Market Rental.......................................28
Resolution of a Disagreement over the Fair Market Rental..................29
Options.......................................................................30
Quiet Enjoyment...............................................................30
Brokers.......................................................................30
Landlord Liability............................................................30
Authority of Parties..........................................................30
Transportation Demand Management programs.....................................30
Dispute Resolution............................................................30
Interference with Use of Premises.............................................31
Existing Victorian Home.......................................................31
Miscellaneous Provisions......................................................31
Rent......................................................................31
Management Fee............................................................31
Performance by Landlord...................................................31
Interest..................................................................31
Rights and Remedies.......................................................32
Survival of Indemnities...................................................32
Severability..............................................................32
Choice of Law.............................................................32
Time......................................................................32
Entire Agreement..........................................................32
Representations...........................................................32
No Presumption Against Drafter............................................32
Headings..................................................................33
Exhibits..................................................................33
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Cross-Default.................................................................33
EXHIBIT A - Premises, Building & Project......................................34
EXHIBIT B - Shell Plans and Specifications....................................35
EXHIBIT C - Building Shell Definition.........................................36
EXHIBIT D - Tenant Improvement Plans and Specifications.......................39
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SOBRATO 10600 N. De Anza Boulevard, Suite 200
DEVELOPMENT Cupertino, CA 95014-2075
COMPANIES (408) 446-0700
FAX (408) 446-0583
1. PARTIES: THIS LEASE, is entered into on this 20th day of December, 1996,
between SOBRATO INTERESTS III, a California Limited Partnership, whose address
is 10600 North De Anza Boulevard, Suite 200, Cupertino, CA 95014 and CENTIGRAM
COMMUNICATIONS CORPORATION, a Delaware Corporation, whose address is 91 East
Tasman Drive, San Jose, CA 95134, hereinafter called respectively Landlord and
Tenant. The effectiveness of this Lease is expressed conditioned upon (i)
execution by Landlord and Tenant of the Adjacent Building Lease (as defined
below), (ii) Tenant's receipt of a recognition and non-disturbance agreement in
a form and substance reasonably acceptable to Tenant from Ground Lessor and from
any and all other ground lessors with an interest in the Parcel (defined below)
and from any and all lenders with a lien on the Ground Lease (defined below) or
the Parcel, and (iii) Landlord's ability to obtain a building permit for
construction of a building of not less than 100,000 rentable square feet with
the number of parking spaces required by code. In the event any of the
foregoing conditions have not been satisfied or waived by the parties within
thirty (30) days following execution of this Lease, either Landlord or Tenant
shall have the option to terminate this lease by providing written notice to the
other party. Upon the execution of this Lease, Landlord shall deliver to Tenant
a copy of Landlord's ground lessee's title insurance policy for the Parcel and,
if in the possession or control of Landlord, a current preliminary title report
for the Parcel reflecting the state of title to the Parcel.
2. PREMISES: Landlord hereby leases to Tenant, and Tenant hires from
Landlord those certain Premises with the appurtenances, situated in the City
of San Jose, County of Santa Clara, State of California, located within a
four-story steel frame building to be constructed by Landlord consisting of
approximately 110,881 rentable square feet (the "Building") on a parcel
leased by Landlord from Kenji and Shizu Sakauye ("Ground Lessor") consisting
of approximately 5.0 acres located at the corner of Guadalupe Parkway and
North First Street as outlined in red on EXHIBIT "A" ("Parcel"). In addition
Tenant shall have the right to use the common area consisting of all parking
areas, sidewalks and landscape areas ("Common Area") surrounding the Building
and an additional building of 110,881 square feet ("Adjacent Building") which
Landlord intends to construct for Tenant and an existing historic Victorian
home consisting of approximately 2,500 rentable square feet (the "Historic
Home") on the adjacent land leased from Eiichi and Suzuye Sakauye totaling
approximately 5.0 acres pursuant to another lease between the parties of even
date herewith ("Adjacent Building Lease"). The Premises, the Adjacent
Building, the Historic Home and the Common Area shall comprise the "Project".
Tenant shall have exclusive use of approximately 370 parking spaces within
the Parcel. Unless expressly provided otherwise, the term Premises as used
herein shall include the Tenant Improvements (defined in Section 7.B)
constructed by Tenant
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pursuant to Section 7.B. Tenant acknowledges Landlord's right to and hereby
consents to construction of the Adjacent Building.
3. USE: Tenant may use the Premises only for the following purposes and
shall not change the use of the Premises without the prior written consent of
Landlord: Office, research and development, marketing, light manufacturing,
storage and other incidental uses. Landlord makes no representation or warranty
that any specific use of the Premises desired by Tenant is permitted pursuant to
any Laws.
4. TERM AND RENTAL: The term ("Lease Term") SHALL BE FOR ONE HUNDRED
FORTY FOUR (144) MONTHS, commencing upon the later to occur of (i) two (2)
months following the date on which Landlord allows Tenant access to the
Premises to begin construction of the Tenant, Improvements as such two (2)
month period is, extended by Landlord Delays (hereinafter defined), or (ii)
substantial completion of the Building Shell, as defined in Section 7.D
("Commencement Date"), and ending one hundred forty four (144) months
thereafter ("Expiration Date"). In addition to all other sums payable by
Tenant under this Lease, Tenant shall initially pay as base monthly rent
("Base Monthly Rent") for the Premises in the amount of ONE HUNDRED FORTY ONE
THOUSAND NINE HUNDRED TWENTY SEVEN AND 68/00 DOLLARS ($141,927.68) commencing
two (2) month period is extended by Landlord Delays (hereinafter defined).
Commencing TWELVE (12) MONTHS following the Commencement Date, the Base
Monthly Rent shall increase to One Hundred Forty Six Thousand Three Hundred
Sixty Two and 92/100 Dollars ($146,362.92). As used herein, the term
"Landlord Delays" shall mean delays in Tenant's construction of the Tenant
Improvements that are caused by Landlord, Landlord's contractors, defects in
the Building Shell and failure of the Building Shell to conform to the Final
Building Shell Plans. Two months prior to the date Landlord reasonably
estimates the Building Shell will be substantially completed, Landlord shall
give Tenant written notice and shall exercise its best efforts to allow
Tenant and its contractor and subcontractors access to the Premises to
commence construction or installation of the Tenant Improvement Work. Such
early access to the Premises shall not be permitted, however, if the same
would materially delay or interfere with the completion of construction of
the Building Shell.
Base Monthly Rent shall be due in advance on or before the first day of each
calendar month during the Lease Term. All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of America,
without offset or deduction and without prior notice or demand, at the address
specified in Section 1 of this Lease or at such place or places as may be
designated by Landlord during the Lease Term. Base Monthly Rent for any period
less than a calendar month shall be a pro rata portion of the monthly
installment.
A. RENTAL ADJUSTMENT: Beginning thirty (30) months after the
Commencement Date, and every thirty (30) months thereafter during the initial
lease term (an "Adjustment Date"), the
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then-payable Base Monthly Rent shall be subject to adjustment based on the
increase, if any, in the Consumer Price Index that has occurred during the
thirty (30) months preceding the then-applicable Adjustment Date. The basis
for computing the adjustment shall be the U.S. Department of Labor, Bureau of
Labor Statistic's Consumer Price Index for All Urban Consumers, All Items,
1982-84=100, for the San Francisco-Oakland-San Jose area ("Index"). The
Index most recently published preceding the Commencement Date for the first
Adjustment (or previous Adjustment Date, as applicable), shall be considered
the "Base Index". If the Index most recently published preceding the
Adjustment Date ("Comparison Index") is greater than the Base Index, the
then-payable Base Monthly Rent shall be increased by multiplying the
then-payable Base Monthly Rent by a fraction, the numerator of which is the
Comparison Index and the denominator of which is the Base Index. On
adjustment of the Base Monthly Rent, Landlord shall notify Tenant by letter
stating the new Base Monthly Rent. Landlord's failure to adjust Base Monthly
Rent on an Adjustment Date shall not prevent Landlord from retroactively
adjusting Base Monthly Rent at any subsequent time during the Lease Term. If
the Index base year is changed so that it differs from 1982-84=100, the Index
shall be converted in accordance with the conversion factor published by the
United States Department of Labor, Bureau of Labor Statistics. If the Index
is discontinued or revised during the Lease Term, such other government index
or computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the index had not been
discontinued or revised.
5. SECURITY DEPOSIT: Concurrently with Tenant's execution of this Lease,
Tenant has deposited with Landlord the sum of One Hundred Forty Thousand Dollars
($140,000.00) ("Security "Deposit"). Landlord shall not be required to separate
the Security Deposit from Landlord's other funds and Tenant shall not be
entitled to interest on the Security Deposit. If Tenant defaults with respect
to any provisions of the Lease, including but not limited to the provisions
relating to payment of Base Monthly Rent or other charges, Landlord may, to the
extent reasonably necessary to remedy Tenant's default, use any or all of the
Security Deposit towards payment of the following: (i) Base Monthly Rent or
other charges in default; (ii) any other amount which Landlord may spend or
become obligated to spend by reason of Tenant's default; and (iii) any other
loss or damage which Landlord may suffer by reason of Tenant's default. If any
portion of the Security Deposit is so used or applied, Tenant shall, within ten
(10) days after written demand from Landlord, deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its full original amount,
and shall pay to Landlord such other sums as necessary to reimburse Landlord for
any sums paid by Landlord.
The Security Deposit shall be returned to Tenant within thirty (30) days
after the Expiration Date and surrender of the Premises to Landlord, less any
amount deducted in accordance with this Section, together with Landlord's
written notice itemizing the amounts and purposes for such deduction. In the
event of termination of Landlord's interest in this Lease, Landlord shall
transfer the Security Deposit to Landlord's successor in interest.
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At Tenant's election, in lieu of the Security Deposit, Tenant may at any
time simultaneously with, or following the execution of this Lease, deliver
to Landlord an irrevocable letter of credit payable in favor of Landlord in
the amount of One Hundred Forty Thousand Dollars ($140,000). The letter of
credit shall provide that it is automatically renewable until the date that
is not earlier than the expiration of the term hereby demised without any
action whatsoever on the part of Landlord; provided that the issuing bank
shall have the right not to renew said letter of credit on written notice to
Landlord not less than the expiration of the then current term thereof (it
being understood, however, that the privilege of the issuing bank not to
renew said letter of credit shall not, in any event, diminish the obligation
of Tenant to maintain such irrevocable letter of credit with Landlord through
the expiration of the term hereby demised).
The form and terms of the letter of credit, and the bank issuing the
same, shall be reasonably acceptable to Landlord and the letter of credit
shall provide, among other things, in effect that: (i) Landlord, or its then
managing agent, shall have the right to draw down an amount up to the amount
of the sums then due to Landlord under this Lease upon the presentation to
the issuing bank of Landlord's (or Landlord's then managing agent's)
statement that such amount is due to Landlord under the terms and conditions
of this Lease, is being understood that such statement shall be duly signed
by a general partner of Landlord; (ii) The letter of credit will be honored
by the issuing bank without inquiry as to the accuracy thereof and regardless
of whether the Tenant disputes the content of such statement; (iii) In the
event of a transfer of Landlord's interest in the Building, Landlord shall
have the right to transfer the letter of credit to the Transferee and the
provision hereof shall apply to every transfer or assignment of said letter
of credit to a new Landlord (or it Tenant is not able to obtain a
transferable letter of credit, then Tenant shall cause the letter of credit
to be replaced or amended such that the new Landlord may draw).
If as a result of any such application of all or any part of the proceeds
of the Letter of Credit, the amount of the letter of credit shall be less
than $140,000, Tenant shall forthwith provide Landlord with additional
letter(s) of credit (or a cash security deposit) in an amount equal to the
deficiency. Any such cash security deposit, and any proceeds of the letter of
credit which are not applied to sums owed by Tenant to Landlord, shall be
held by Landlord as a security deposit under the first two paragraphs of this
Section 5.
Without limiting the generality of the foregoing, if the letter of credit
expires earlier than sixty (60) days after the expiration of the term of this
Lease, or the issuing bank notifies Landlord that it shall not renew the
letter of credit, Landlord will accept a renewal thereof or substitute letter
of credit (such renewal or substitute letter of credit to be in effect not
later than the expiration of the expiring letter of credit), irrevocable and
automatically renewable as above provided upon the same terms as the expiring
letter of credit or such other terms as may be reasonably acceptable to
Landlord. However, (i) if the letter of credit is not timely renewed or a
substitute letter of credit is
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not timely provided, (ii) or if Tenant fails to maintain the letter of credit in
the amount and terms set forth in this Section 5, Tenant must promptly deposit
with Landlord cash security in the amounts required by, and to be held subject
to and in accordance with, all of the terms and conditions set forth in the
first two paragraphs of this Section 5, failing which the Landlord may present
such letter of credit to the bank, in accordance with the terms of this Section
5, and the entire amount of the letter of credit shall be paid to Landlord and
shall be held by Landlord as provided in the first two paragraphs of this
Section 5.
6. LATE CHARGES: Tenant hereby acknowledges that late payment by Tenant
to Landlord of Base Monthly Rent and other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which is extremely difficult to ascertain. Such costs include but are not
limited to: administrative, processing, accounting, and late charges which may
be imposed on Landlord by the terms of any contract, revolving credit, mortgage,
or trust deed covering the Premises. Accordingly, if any installment of Base
Monthly Rent or other sum due from Tenant shall not be received by Landlord or
its designee when due, Tenant shall pay to Landlord a late charge equal to five
(5%) percent of such overdue amount, which late charge shall be due and payable
on the same date that the overdue amount was due. Landlord agrees to provide
Tenant a notice to pay rent or quit if the Base Monthly Rent is not received
when due and further agrees to waive said late charge in the event all amounts
set forth in such notice are paid in full by cashier's check within five (5)
days after Landlord's service upon Tenant of such notice. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of late payment by Tenant. Acceptance by Landlord
of such late charge shall not constitute a waiver of Tenant's default with
respect to such overdue amount nor prevent Landlord from exercising any of the
other rights and remedies granted hereunder.
7. CONSTRUCTION AND POSSESSION:
A. BUILDING SHELL CONSTRUCTION. Landlord shall cause the shell of
the Building ("Building Shell") to be constructed by independent contractors
to be employed by and under the supervision of Landlord's affiliated
construction company, Sobrato Construction Corporation in accordance with the
conceptual Building Shell plans and guideline specifications prepared by
Arctec ("Architect") and approved by Landlord and Tenant, which are attached
hereto as EXHIBIT "B" ("Preliminary Shell Plans and Specifications") and
Final Building Shell Plans (defined in subsection 7.C below). Landlord shall
construct the Building Shell in accordance with all applicable municipal,
local, state and federal laws, statutes, rules, regulations and ordinances,
and shall correct any violations of such laws at no cost to Tenant. Landlord
shall pay for all costs and expenses associated with the construction of the
Building Shell. The Building Shell shall include those items set forth in
the attached EXHIBIT "C" ("Building Shell Definition").
B. TENANT IMPROVEMENT PLANS. Tenant, at Tenant's sole cost and
expense, has also
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hired the Architect to prepare plans and outline specifications which will be
attached hereto upon completion as EXHIBIT "D" ("Tenant Improvement Plans and
Specifications") with respect to the construction of improvements to the
interior premises ("Tenant Improvements"). The Tenant Improvements shall
consist of all items not included within in the scope of the Building Shell
Definition. Tenant has hired Permian Builders as the general contractor for
the Tenant Improvements ("General Contractor"). Tenant shall cause the
General Contractor to construct the Tenant Improvements in accordance with
all Tenant Improvement Plans and Specifications. Landlord shall provide
Tenant a work allowance to be utilized by Tenant for the construction of
Tenant Improvements ("Work Allowance") in the amount of One Million Six
Hundred Fifty Thousand and No/100 Dollars ($1,650,000.00). The Work Allowance
shall be paid by Landlord to Tenant as payments become due to General
Contractor. The Tenant Improvements shall become the property of Tenant upon
installation and shall not be removed or altered by Tenant without the prior
written consent of Landlord as provided in Section 10. Tenant shall have the
right to depreciate and claim and collect any investment tax credits in the
Tenant Improvements during the Lease Term. Upon expiration of the Lease Term
or any earlier termination of the Lease, the Tenant Improvements shall become
the property of Landlord and shall remain upon and be surrendered with the
Premises, and title thereto shall automatically vest in Landlord without any
payment therefore.
C. FINAL BUILDING SHELL PLANS. Within thirty (30) days following
execution of this Lease, Landlord shall deliver the final Building Shell
Plans and Specifications for Tenant's review and approval ("Final Building
Shell Plans"). The Final Building Shell Plans shall include those items set
forth in the Building Shell Definition attached as EXHIBIT "C" and shall be a
natural evolution of do Preliminary Building Shell Plans and Specifications
attached as EXHIBIT "B". Tenant's approval of the Final Building Shell Plans
is not a representation or warranty that such improvements illustrated
therein are in compliance with applicable building codes or the ADA.
D. CHANGE ORDERS. Tenant shall have the right to order changes in
the manner and type of construction of the Building Shell. Any change order
submitted by Tenant after ten (10) days from the date of issuance by the City of
San Jose of a building permit for the construction of the Building Shell, which
causes either Landlord's construction schedule to be delayed, shall cause the
Commencement Date to occur one (1) day in advance of the date the Building Shell
is Substantially Complete (as defined in Section 7.E) for each day of delay.
Upon request and prior to Tenant's submitting any binding change order Landlord
shall promptly provide Tenant with written statements of the cost to implement
and the time delay and increased construction costs associated with any proposed
change order, which statements shall be binding on Landlord. If no time delay
or increased construction cost amount is noted on the written statement, the
parties agree that there shall be no adjustment to the construction cost or the
Commencement Date associated with such change order. If ordered by Tenant,
Landlord shall implement such change order and the cost of constructing the
Building Shell shall be increased in accordance with the cost statement
previously
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delivered by Landlord to Tenant for any such change order.
E. CONSTRUCTION. Landlord shall use its best efforts to obtain a
building permit from the City of San Jose as soon as possible after Tenant's
approval of the Final Building Shell Plans. The Building Shell shall be deemed
substantially complete ("Substantially Complete") when (i) the Building Shell
has been substantially completed in accordance with the Final Building Shell
Plans, as evidenced by the issuance of a certificate of occupancy or its
equivalent by the appropriate governmental authority for the Building Shell, and
the issuance of a certificate by the Architect certifying that the Building
Shell have been completed in accordance with the Final Building Shell Plans and
(ii) only punch list type work remains to be completed and such punch list work
does not materially affect Tenant's ability to use the Premises in the manner
contemplated by this Lease.
F. INSURANCE/INDEMNITY. Landlord shall indemnify, protect, defend
and hold Tenant harmless from and against all liability, cost, expense, or
damage, including attorneys fees, arising from construction of the Building
Shell; construction defects; or failure to properly construct the Building Shell
in accordance with the approved Final Building Shell Plans. Tenant's review and
approval of plans, specifications, or any other documents shall not relieve
Landlord from its obligations under the foregoing indemnification. Landlord
shall procure a "Broad Form" liability insurance policy on an occurrence basis,
with a minimum combined single limit in the amount of Three Million Dollars
($3,000,000.00), insuring all Landlord's construction activities with respect to
the Building and Premises naming Tenant and Permian Builders as additional
insureds and Landlord shall cause its general contractor to procure a "Broad
Form" liability insurance policy on an occurrence basis, with a minimum combined
single limit in the amount of Three Million Dollars ($3,000,000) insuring all of
such general contractors' construction activities with respect to the Building
and Premises and naming Tenant and Permian Builders as additional insureds.
Such insurance shall not be modified or canceled without thirty (30) days prior
notice to Tenant.
Tenant shall indemnify, protect, defend and hold Landlord harmless from and
against all liability, cost, expense, or damage including attorneys fees,
arising from construction of the Tenant Improvements; construction defects; or
failure to properly construct the Tenant Improvements in accordance with the
approved Tenant Improvement Plans and Specifications. Landlord's review and
approval of plans, specifications, or any other documents shall not relieve
Tenant from its obligations under the foregoing indemnification. Tenant shall
cause General Contractor to procure a "Broad Form" liability insurance policy,
on an occurrence basis, in a minimum combined single limit in the amount of
Three Million Dollars ($3,000,000.00), insuring all General Contractor's
construction activities with respect to the Building and Premises naming
Landlord and Sobrato Construction Corporation as additional insureds. Such
insurance shall not be modified or canceled without thirty (30) days prior
notice to Landlord.
Landlord shall also procure (as a cost of the Building Shell) builder's
risk insurance for the
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full replacement cost of the Building Shell and Tenant Improvements while the
Building and Tenant Improvements are under construction, up until the date that
the fire insurance policy described in Lease Section 12 is in full force and
effect.
G. PUNCH LIST & WARRANTY. After the Building Shell is
Substantially Complete, Landlord shall immediately correct any construction
defect or other "punch list" item which Tenant brings to Landlord's
attention. All such work shall be performed so as to cause the least
possible interruption to Tenant and its activities on the Premises. Landlord
shall cause its contractor to provide a standard contractor's warranty with
respect to the Building Shell for one (1) year from the Commencement Date and
Landlord shall warrant the Building Shell against defects in workmanship or
material for one (1) year from the Commencement Date. Such warranties shall
exclude routine maintenance, damage caused by Tenant's negligence or misuse,
and acts of God. Landlord shall also promptly correct or cure, after written
notice from Tenant given from time to time and at no cost to Tenant, any
failure of the Building Shell to comply with laws in effect as of the date of
completion of the Building Shell (including, without limitation, building
code violations).
H. OTHER WORK BY TENANT. All work not within the scope of work
not described in the Shell Plans and Specifications shall be furnished and
installed by Tenant or the General Contractor. When the construction of the
Building Shell has proceeded to the point where the construction of the
Tenant Improvements may begin, Landlord shall notify General Contractor and
shall permit General Contractor and its authorized representatives and
contractors access to the Premises before the Commencement Date without the
payment of rent for the purpose of constructing the Tenant Improvements. Any
such installation work by Tenant or its General Contractor shall be
undertaken upon the following conditions: (i) if the entry into the Premises
by Tenant or its representatives or contractors interferes with or delays
Landlord's work, Tenant shall cause the party responsible for such
interference or delay to leave the Premises; and (ii) any contractor used by
Tenant or its General Contractor in connection with such entry and
installation shall use union labor if the use of nonunion labor would disrupt
Landlord's work when both Landlord and Tenant's contractors are working in
the Premises.
I. LANDLORD'S FAILURE TO COMPLETE CONSTRUCTION: Notwithstanding
the foregoing, (i) if the Premises are not Substantially Complete on or
before that date which is eight (8) months following the date on which
Landlord obtains a building permit from the City of San Jose allowing
Landlord to begin construction of the Building, Tenant shall be entitled to
rental abatement hereunder of one (1) day's rent for each day beyond said
eight (8) month period in which the Building Shell is not Substantially
Complete (i.e., the date on which Tenant is required to commence paying rent
under this Lease shall be extended by one day for each day beyond said eight
month period during which the Building Shell is not Substantially Complete).
The above dates shall be extended one day for every day of delay in
completion caused by labor strikes, material shortages, inclement weather,
Tenant Delays or other causes beyond the reasonable control of Landlord ("Force
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Majeure Delays"); provided, however, that Landlord must notify Tenant in writing
within five (5) days after the occurrence of any such Force Majeure Delay, and
if Landlord does not so notify Tenant in writing, then the applicable Force
Majeure Delay shall be deemed not to have commenced until the date which is five
(5) days prior to the date Tenant actually receives written notice from Landlord
advising Tenant of the applicable Force Majeure Delay event. If the Premises
are not Substantially Complete on or before May 1, 1998 (the "Latest Completion
Date"), then Tenant may terminate this Lease and the Adjacent Building Lease by
written notice to Landlord given on or before May 15, 1998. The Latest
Completion Date shall be extended by Tenant Delays but not by delays in
completion caused by labor strikes, material shortages, inclement weather or any
other causes beyond the reasonable control of Landlord (other than Tenant
Delays). The delay in the commencement of rent, the abatement of rent, and
termination right provided above shall be the sole and exclusive remedies of
Tenant with respect by the failure by Landlord to achieve Substantial Completion
by the Commencement Date.
8. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER: On the
Commencement Date, Landlord shall deliver and Tenant shall accept the Premises
as being in good and sanitary order, condition and repair, and shall accept the
Premises and the other improvements in their present condition, subject to (i) a
reservation of claims of latent defects, (ii) the warranties from Landlord
contained in this Lease, (iii) Landlord's obligations under Section TG to
correct construction defects, (iv) any failure of the Building Shell to comply
with laws in effect as of the date of completion, and (v) Landlord's obligation
to complete punch list items, and (vi) Landlord and its general contractor's one
(1) year warranties described in Section 7.G above, and any other applicable
warranties. Within one hundred twenty (120) days after the Commencement Date,
Tenant agrees to be in occupancy of at least fifty percent (50%) of the rentable
square footage of the Premises.
Tenant further agrees on Expiration Date or on the sooner termination of
this Lease, to surrender the Premises to Landlord in good condition and
repair, reasonable wear and tear excepted. "Good condition" means that all
interior calls, floors, suspended ceilings, and carpeting within the Premises
will be cleaned to the same condition as existed at the Commencement Date,
normal wear and tear and acts of God excepted. Tenant agrees, at its sole
cost, to remove all phone and data cabling from the suspended ceiling, repair
or replace broken ceiling tiles, and relevel the ceiling if required due to
Tenant's cabling. On or before the Expiration Date or sooner termination of
this Lease, Tenant shall remove all its personal property and trade fixtures
from the Premises. All property and fixtures not so removed shall be deemed
as abandoned by Tenant. Approximately sixty (60) days prior to the Expiration
Date, Landlord shall notify Tenant in writing whether Landlord will require
the removal of any Alterations made by Tenant to the Premises, except for
such Alterations Landlord has previously agreed to allow to remain on the
Premises pursuant to paragraph 10 below. If Landlord shall so require, Tenant
shall, at Tenant's sole cost and expense, remove such Alterations as Landlord
requires and shall repair and restore said Premises or such
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parts thereof before the Expiration Date. Such repair and restoration shall
include causing the Premises to be brought into compliance with all applicable
building codes and laws in effect at the time of the removal to extent such
compliance is necessitated by the repair and restoration work. In no event,
however, shall Tenant be required to remove any of the Tenant Improvements
constructed by Tenant prior to its initial occupancy of the Premises. If the
Premises are not surrendered at the Expiration Date or sooner termination of
this Lease in the condition required by this Section 8, Tenant shall be deemed
in a holdover tenancy pursuant to Section 34, and Tenant shall indemnify,
defend, and hold Landlord harmless against loss or liability resulting from
delay by Tenant in so surrendering the Premises including, without limitation,
any claims made by any succeeding tenant founded on such delay.
9. USES PROHIBITED: Tenant shall not commit or suffer to be committed
on the Premises any waste, nuisance, or other act or thing which disturb the
quiet enjoyment of any other tenant in or around the Premises, nor allow
any sale by auction or any other use of the Premises for an unlawful purpose.
Tenant shall not place any loads upon the floor, walls, or ceiling which
endanger the structure, nor use any machinery or apparatus which harmfully
vibrate or shake the Premises, nor shall Tenant place any harmful liquids,
waste materials, or hazardous materials in the drainage system or upon or in
the soils surrounding the Building. No materials, supplies, equipment,
finished products or semi-finished products, raw materials or articles of any
nature, or any waste materials, refuse, scrap or debris, shall be stored upon
or permitted to remain on any portion of the Premises outside of the Building
except in storage enclosures designed for such purposes.
10. ALTERATIONS AND ADDITIONS: Tenant shall be entitled without obtaining
Landlord's consent, to make any alteration or addition to the Premises
("Alterations") which (i) does not affect the structure of the Building, (ii)
cost does not exceed Fifty Thousand Dollars ($50,000.00) per alteration nor an
aggregate of One Hundred Thousand Dollars ($100,000.00) in any twelve (12) month
period. All other Alterations shall require Landlord's consent. If Landlord's
consent is required, Tenant shall deliver to Landlord the proposed architectural
and structural plans for the Alteration and Landlord shall have a period of ten
(10) business days thereafter to grant its consent, which consent shall not be
unreasonably withheld. Landlord shall indicate in writing to Tenant at the time
of Tenant's request, whether or not Landlord will require Tenant to remove such
Alteration at the Expiration Date. If, at the time Landlord consents to any
Alteration, Landlord does not require Tenant to remove such Alteration at the
Expiration Date, then Landlord shall be deemed to have waived such right to
require Tenant to remove such Alteration so consented to. After obtaining
Landlord's consent, Tenant shall not proceed to make such Alterations until
Tenant has obtained all required governmental approvals and permits, and
provided Landlord reasonable security, in form reasonably approved by Landlord,
to protect Landlord against mechanics' lien claims (if such Alterations exceed
$1,000,000 in cost). Tenant agrees to provide Landlord written notice of the
anticipated and actual start-date of the work, and a complete set of half-size
(15" X 21") vellum as-built drawings. All Alterations shall be constructed in
compliance with applicable buildings codes
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and laws. Any Alterations, except movable furniture and trade fixtures, shall
become at once a part of the realty and belong to Landlord but shall
nevertheless be subject to removal by Tenant as provided in this Section 10 and
Section 8 above. Alterations which are not deemed as trade fixtures include
heating, lighting, electrical systems, air conditioning, partitioning,
carpeting, or any other installation which has become an integral part of the
Premises. All Alterations shall be maintained, replaced or repaired by Tenant
at its sole cost and expense.
11. MAINTENANCE OF PREMISES:
A. TENANT'S OBLIGATIONS: Subject to Sections 11.B, 28 and 30 below,
Tenant shall, at its sole cost, keep, maintain, repair, and replace as and when
necessary said Premises and appurtenances and every part hereof in good and
sanitary order, condition, and repair, including but not limited to the
following: roof membrane, glazing, caulking, sidewalks, parking areas, site
utilities, elevator, telephone, plumbing, electrical, HVAC systems, and all
Tenant Improvements. Notwithstanding the foregoing, Tenant shall have no
responsibility to perform any repair, maintenance or improvement (i)
necessitated by the acts or omissions of Landlord or its agents, employees or
contractors, (ii) occasioned by fire, acts of God or other casualty, whether or
not covered by insurance, or by the exercise of the power of eminent domain,
(iii) required as a consequence of any violation of laws or construction defect
in the Premises existing as of the Commencement Date, or (iv) for which Landlord
has a right of reimbursement from others. Tenant shall provide Landlord a copy
of a service contract between Tenant and: (i) a licensed air conditioning and
heating contractor providing for bi-monthly maintenance of all air conditioning
and heating equipment at the Premises; and (ii) a licensed elevator maintenance
contractor providing for monthly maintenance of all elevator related systems.
Tenant shall pay the cost of all air conditioning, heating, and elevator
equipment repairs or replacements which are excluded from such service contract
or any existing equipment warranties. All wall surfaces and floor tile are to
be maintained in an as good a condition as when Tenant took possession free of
holes, gouges, or defacements.
Tenant shall also be responsible, at its sole cost and expense, for the
preventive maintenance of the membrane of the roof, which responsibility shall
be deemed properly discharged if Tenant contracts, at as sole cost, with a
licensed roof contractor reasonably satisfactory to Tenant and Landlord to
inspect the roof membrane at least every six (6) months, with the first
inspection due the sixth (6th) month after the Commencement Date; and Tenant
performs, at Tenant's sole cost, all preventive maintenance recommendations made
by such contractor within a reasonable time after such recommendations are made.
Such preventive maintenance might include acts such as clearing storm gutters
and chains, removing debris from the roof membrane, trimming trees overhanging
the roof membrane, applying coating materials to seal roof penetrations,
repairing blisters, and other routine measures. Tenant shall provide Landlord a
copy of such preventive maintenance contract and paid invoices for the
recommended work. Tenant agrees, at its sole cost, to water, maintain, and
replace
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when necessary, any shrubbery and landscaping.
B. LANDLORD'S OBLIGATIONS: Landlord at its sole cost and expense,
shall maintain in good condition, order, and repair, and replace as and when
necessary, all structural portions of the Building, including, without
limitation, the foundation, exterior load bearing walls and roof structure of
the Building Shell.
C. CAPITAL REPLACEMENTS: If as a part of Tenant's fulfillment of its
maintenance obligations under Section 11.A above, a capital improvement or
replacement to the Premises (not required by new laws, rules or regulations) is
paid for by Tenant which costs in excess of One Hundred Thousand Dollars
($100,000.00), Landlord shall, within ten (10) days following receipt of written
invoices and supporting documentation evidencing costs incurred by Tenant,
reimburse Tenant for the entire cost of the capital improvement or replacement
less that portion of the cost equal to the product of such tool cost multiplied
by a fraction, the numerator of which is the number of years remaining in the
Lease Term, and the denominator of which is the useful life (in years) of the
capital improvement or replacement.
12. HAZARD INSURANCE:
A. TENANT'S USE: Tenant shall not use or permit the Premises, or any
part thereof, to be used for any purpose other than that for which the Premises
are hereby leased; and no use of the Premises shall be made or permitted, nor
acts done, which will cause a cancellation of any insurance policy covering the
Premises or any part thereof, nor shall Tenant sell or permit to be sold, kept,
or used in or about the Premises, any article prohibited by the standard form of
fire insurance policies. Tenant shall, at its sole cost, comply with all
reasonable requirements of any insurance company or organization necessary for
the maintenance of reasonable fire and public liability insurance covering the
Premises and appurtenances.
B. LANDLORD'S INSURANCE: Landlord agrees to purchase and keep in
force fire, extended coverage, earthquake (at Landlord's election if
commercially available and required by Landlord's lender), owner's liability,
and 12-month rental loss insurance. The amount of the fire, extended coverage
and earthquake insurance shall equal the replacement cost of the Building Shell
and Tenant Improvements as determined by Landlord's insurance company's
appraisers. Tenant agrees to pay Landlord as additional rent, on demand, the
full cost of said insurance as evidenced by insurance billings to Landlord, and
in the event of damage covered by said insurance, the amount of any deductible
under such policy. In no event, however, shall Tenant's obligation to reimburse
Landlord for the deductible exceed $25,000.00. Payment shall be due to Landlord
within thirty (30) days after written invoice to Tenant. Notwithstanding the
foregoing, Tenant's obligation to pay the cost of earthquake insurance premiums
shall be limited to an amount no greater than four (4) times the cost of the
fire and extended coverage premiums. It is understood and agreed that Tenant's
obligation
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under this Section will be prorated to reflect the Lease Commencement and
Expiration Dates.
C. TENANT'S INSURANCE: Tenant agrees, at as sole cost, to insure its
personal property, Tenant Improvements (for which it has paid from sources other
than the Work Allowance), and Alterations for their full replacement value
(without depreciation) and to obtain worker's compensation and public liability
and property damage insurance for occurrences within the Premises with combined
limits for bodily injury and property damage of at least $1,000,000.00 per
occurrence and a general aggregate limit of at least $5,000,000.00. Tenant's
liability insurance shall be primary insurance containing a cross-liability
endorsement, and shall provide coverage on an "occurrence" rather than on a
"claims made" basis. Tenant shall name Landlord and Landlord's lender as an
additional insured and shall deliver a copy of the policies and renewal
certificates to Landlord. All such policies shall provide for thirty (30) days'
prior written notice to Landlord of any cancellation, termination, or reduction
in coverage,
D. WAIVER: To the extent of the insurance proceeds paid by the
applicable insurance company, Landlord and Tenant hereby waive all rights each
may have against the other on account of any loss or damage sustained by
Landlord or Tenant, as the case may be, or to the Premises or its contents or
any other property, which may arise from any risk covered by their respective
insurance policies (or which would have been covered had such insurance policies
been maintained in accordance with this Lease) as set forth above or which are
otherwise maintained by Landlord or Tenant. The parties shall use their
reasonable efforts to obtain from their respective insurance companies a waiver
of any right of subrogation which said insurance company may have against
Landlord or Tenant, as the case may be.
13. TAXES: Tenant shall be liable for and shall pay as additional rental,
prior to delinquency, the following: (i) all taxes and assessments levied
against Tenant's personal property and trade or business fixtures; (ii) all real
estate taxes and assessment installments or other impositions or charges which
may be levied on the Premises or upon the occupancy of the Premises, including
any substitute or additional charges which may be imposed applicable to the
Lease Term; and (iii) real estate tax increases due to a sale, transfer or other
change of ownership of the Premises as it appears on the City and County tax
bills during the Lease Term. Tenants obligation under this Section shall be
prorated to reflect the Lease Commencement and Expiration Dates. If, at any
time during the Lease Term a tax, excise on rents, business license tax or any
other tax, however described, is levied or assessed against Landlord as a
substitute or addition, in whole or in part, for taxes assessed or imposed on
land or Buildings, Tenant shall pay and discharge its pro rata share of such tax
or excise on rents or other tax before it becomes delinquent; except that this
provision is not intended to cover net income taxes, inheritance, gift or estate
tax imposed upon Landlord. In the event that a tax is placed, levied, or
assessed against Landlord and the taxing authority takes the position that
Tenant cannot pay and discharge its pro rata share of such tax on behalf of
Landlord, then at Landlord's sole election, Landlord may increase the Base
Monthly Rent by the exact amount
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of such tax and Tenant shall pay such increase. Both Landlord and Tenant shall
have the right to seek a reduction in the assessed value of the Premises. If by
virtue of any application or proceeding brought by or on behalf of Landlord,
there results a reduction in the assessed value of the Premises during the Lease
Term, Tenant agrees to reimburse Landlord for all costs incurred by Landlord in
connection with such application or proceeding provided such costs do not exceed
the present value of the savings.
14. UTILITIES: Tenant shall pay directly to the providing utility all
water, gas, electric, telephone, and other utilities supplied to the Premises.
Except due to the negligence or willful misconduct of Landlord, Landlord shall
not be liable for loss of or injury to person or property, however occurring,
through or in connection with or incidental to furnishing or failure to furnish
utilities to the Premises, and, except as provided in Section 44, Tenant shall
not be entitled to abatement or reduction of any portion of Base Monthly Rent or
any other amount payable under this Lease.
15. ABANDONMENT: Tenant shall not abandon the Premises at any time during
the Lease Term. In the event Tenant abandons or surrenders the Premises or is
dispossessed by process of law or otherwise, any personal property belonging to
Tenant left on the Premises shall be deemed as abandoned at the option of
Landlord, except such property as may be mortgaged to Landlord.
16. FREE FROM LIENS: Tenant shall keep the Premises free from all liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant or claimed to have been performed for Tenant In the event Tenant fails to
discharge any such lien within twenty (20) days after receiving notice of the
filing, Landlord shall be entitled to discharge the lien at Tenant's expense and
all resulting costs incurred by Landlord, including attorney's fees shall be due
from Tenant as additional rent.
17. COMPLIANCE WITH GOVERNMENTAL REGULATIONS: Tenant shall, at its sole
cost and expense, comply with and faithfully observe in its use of the Premises
all laws, regulations and other requirements of all Municipal, County, State and
Federal authorities now in force, or which may hereafter be in force, pertaining
to Tenant's specific use of the Premises. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action or proceeding
against Tenant (whether Landlord be a party thereto or not) that Tenant has
violated any such law, regulation or other requirement in its use of the
Premises shall be conclusive of that fact as between Landlord and Tenant. If
any improvement or alteration to the Premises is required as a result of any
future laws or regulations affecting the Premises not related to Tenant's
specific use of the Premises, and provided further said improvement or
alteration is not required because of Alterations made by Tenant, the cost of
such improvements shall be allocated between Landlord and Tenant such that
Tenant shall pay to Landlord as additional rent an amount determined as follows:
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(a) all costs reasonably incurred by Landlord to construct such
improvement shall be fully amortized over the useful life of such improvement
with interest on the unamortized balance at the prevailing market rate
Landlord would pay if A borrowed funds to construct such improvements from an
institutional lender, and Landlord shall inform Tenant of such monthly
amortization payment required to so amortize such costs, and shall also
provide Tenant with the information upon which such determination is made; and
(b) as additional rent, Tenant shall pay the monthly amortization
payment with respect to any such capital improvement required as a result of
any future law or regulation affecting the Premises which is not related to
Tenant's specific use of the Premises as stated above. Tenant's obligation
to make payments hereunder with respect to any particular capital improvement
shall commence when such improvement has been substantially completed and
shall cease upon the earlier of the expiration of the Lease term (but not
upon a termination due to any Event of Default on the part of Tenant) or the
end of the term over which the costs of constructing the particular
improvement were amortized. Payments of such additional rent required under
this Section 17 shall be made concurrently with payments of Base Monthly Rent.
18. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:
A. TENANT'S RESPONSIBILITY: Without the prior written consent of
Landlord, Tenant shall not bring, use, or permit upon the Premises, or
generate, create, release, emit, or dispose (nor permit any of the same) from
the Premises any chemicals, toxic or hazardous gaseous, liquid or solid
materials or waste, including without limitation, material or substance
having characteristics of ignitability, corrosivity, reactivity, or toxicity
or substances or materials which are listed on any of the Environmental
Protection Agency's lists of hazardous wastes or which are identified in
Division 22 Title 26 of the California Code of Regulations as the same may be
amended from time to time ("Hazardous Materials") unless such Hazardous
Materials are used (i) in compliance with all applicable laws, and (ii) are
commonly used in connection with general office use. In order to obtain
consent, Tenant shall deliver to Landlord its written proposal describing the
toxic material to be brought onto the Premises, measures to be taken for
storage and disposal thereof, safety measures to be employed to prevent
pollution of the air, ground, surface and ground water. Landlord's approval
may be withheld in its reasonable judgment. In the event Landlord consents to
Tenant's use of Hazardous Materials on the Premises, Tenant represents and
warrants that it will do the following: (i) adhere to all reporting and
inspection requirements imposed by Federal, State, County or Municipal laws,
ordinances or regulations and will provide Landlord a copy of any such
reports or agency inspections; (ii) obtain and provide Landlord copies of all
necessary permits required for the use and handling Hazardous Materials on
the Premises; (iii) enforce Hazardous Materials handling and disposal
practices consistent with industry standards; (iv) surrender the Premises
free from any Hazardous Materials arising from Tenant's bringing, using,
permitting, generating, creating, releasing, emitting or disposing of
Hazardous Materials; and (v) properly close the facility with
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regard to Hazardous Materials including the removal or decontamination of any
process piping, mechanical ducting, storage tanks, containers, or trenches
which have come into contact with Hazardous Materials and obtain a closure
certificate from the local administering agency prior to the Expiration Date.
B. TENANT'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Tenant shall,
at its sole cost, comply with all laws pertaining to, and shall indemnify and
hold Landlord harmless from, any claims, liabilities, costs or expenses
incurred or suffered by Landlord arising from the bringing, using,
authorizing, generating, emitting or disposing of Hazardous Materials by
Tenant during the Lease Term. Tenant's indemnification and hold harmless
obligations include, without limitation, the following: (i) claims,
liability, costs or expenses resulting from or based upon administrative,
judicial (civil or criminal) or other action, legal or equitable, brought by
any private or public person under common law or under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"),
the Resource Conservation and Recovery Act of 1980 ("RCRA") or any other
Federal, State, County or Municipal law, ordinance or regulation with respect
to Hazardous Materials generated or disposed of by Tenant, its agents,
employees or contractors; (ii) claims, liabilities, costs or expenses
pertaining to the identification, monitoring, cleanup, containment, or
removal of Hazardous Materials generated or disposed of by Tenant, its
agents, employees or contractors from soils, riverbeds or aquifers including
the provision of an alternative public drinking water source; and (iii) all
costs of defending such claims.
C. ACTUAL RELEASE BY TENANT: Each party agrees to notify the other
of any known lawsuits or order which relate to the remedying of or actual
release of Hazardous Materials on or into the soils or ground water at or
under the Premises. Each party shall also provide the other all notices
required by Section 25359.7(b) of the Health and Safety Code and all other
notices required by law to be given in connection with Hazardous Materials.
In the event of any such release of Hazardous Materials by Tenant,
Tenant agrees to meet and confer with Landlord and its Lender to attempt to
eliminate and mitigate any financial exposure to such Lender and resultant
exposure to Landlord under California Code of Civil Procedure section 736(b)
as a result of such release, and promptly to take reasonable monitoring,
cleanup and remedial steps given, inter alia, the historical uses to which
the Property has and continues to be used, the risks to public health posed
by the release by Tenant, the then available technology and the costs of
remediation, cleanup and monitoring, consistent with acceptable customary
practices for the type and severity of such contamination and all applicable
laws. Nothing in the preceding sentence shall eliminate, modify or reduce
the obligation of Tenant under Section 18.B of this Lease to indemnify and
hold Landlord harmless from any claims liabilities, costs or expenses
incurred or suffered by Landlord. Tenant shall provide Landlord prompt
written notice of Tenant's monitoring, cleanup and remedial steps.
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In the absence of an order of any federal, state or local
governmental or quasi-governmental agency relating to the cleanup,
remediation or other response action required by applicable law, any dispute
arising between Landlord and Tenant concerning Tenant's obligation to
Landlord under this Section 18.C concerning the level, method, and manner of
cleanup, remediation or response action required in connection with such a
release of Hazardous Materials shall be resolved by mediation and/or
arbitration pursuant to the provisions of Section 45 of this Lease.
D. LANDLORD'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Landlord
shall indemnify and hold Tenant harmless from any claims, liabilities, costs
or expenses incurred or suffered by Tenant related to the removal,
investigation, monitoring or remediation of Hazardous Materials which are
present on the Premises as of the Commencement Date or which come to be
present on the Premises due to the acts of Landlord, its employees, agents,
or contractors. Landlord's indemnification and hold harmless obligations
include, without limitation, (i) claims, liability, costs or expenses
resulting from or based upon administrative, judicial (civil or criminal) or
other action, legal or equitable, brought by any private or public person
under common law or under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation
and Recovery Act of 1980 ("RCRA") or any other Federal, State,, County or
Municipal law, ordinance or regulation with respect to Hazardous Materials
generated or disposed of by Landlord, its agents, employees or contractors,
(ii) claims, liabilities, costs or expenses pertaining to the identification,
monitoring, cleanup, containment," or removal of Hazardous Materials
generated or disposed of by Landlord, its agents, employees or contractors
from soils, riverbeds or aquifers including the provision of an alternative
public drinking water source, and (iii) all costs of defending such claims.
In no event shall Landlord be liable under this Lease for any consequential
damages suffered or incurred by Tenant as a result of any such contamination.
E. ENVIRONMENTAL MONITORING: Provided Landlord (i) gives reasonable
prior notice (except in case of emergency) and (ii) minimizes its
interference with Tenant's business, Landlord and its agents shall have the
right to inspect, investigate, sample and monitor the Premises including any
air, soil, water, ground water or other sampling or any other testing,
digging, drilling or analysis to determine whether Tenant is complying with
the terms of this Section 18. If Landlord discovers that Tenant is not in
compliance with the terms of this Section 18, any such reasonable costs
incurred by Landlord, including attorneys' and consultants' fees, shall be
due and payable by Tenant to Landlord within thirty (30) days following
Landlord's written demand therefore.
19. INDEMNITY: As a material part of the consideration rendered to
Landlord, Tenant hereby waives all claims against Landlord for damages to
goods, wares and merchandise, and all other personal property in, upon or
about said Premises and for injuries to persons in or about said Premises,
from any cause (other than due to the negligence or willful misconduct of
Landlord, its agents, employees, invitees and contractors) arising at any
time to the fullest extent permitted by law, and Tenant shall indemnify and
hold Landlord exempt and harmless from any damage or
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injury to any person, or to the goods, wares and merchandise and all other
personal property of any person, arising from the use of the Premises,
Building, and/or Project by Tenant, its employees, contractors, agents and
invitees or from the failure of Tenant to keep the Premises in good condition
and repair as herein provided, except to the extent due to the negligence or
willful misconduct of Landlord, its employees, agents, invitees, or
contractors. Further, in the event Landlord is made party to any litigation
due to the acts or omission of Tenant, its employees, contractors, agents and
invitees, Tenant will indemnify and hold Landlord harmless from any such
claim or liability including Landlord's costs and expenses and reasonable
attorney's fees incurred in defending such claims.
20. ADVERTISEMENTS AND SIGNS: Tenant will not place or permit to be
placed, in, upon or about the Premises any signs not approved by the city or
other governing authority. Tenant will not place or permit to be placed upon
the Premises any signs, advertisements or notices without the written consent
of Landlord as to type, size, design, lettering, coloring and location, which
consent will not be unreasonably withheld. Any sign placed on the Premises
shall be removed by Tenant, at its sole cost, prior to the Expiration Date or
promptly following the earlier termination of the lease, and Tenant shall
repair, at its sole cost, any damage or injury to the Premises caused
thereby, and if not so removed, then Landlord may have same so removed at
Tenant's expense.
21. ATTORNEYS FEES: In the event a suit or alternative form of dispute
resolution is brought for the possession of die Premises, for the recovery of
any sum due hereunder, to interpret the Lease, or because of the breach of
any other covenant herein; then the losing party shall pay to the prevailing
party reasonable attorney's fees including the expense of expert witnesses,
depositions and court testimony as part of its costs which shall be deemed to
have accrued on the commencement of such action. The prevailing party shall
also be entitled to recover all costs and expenses including reasonable
attorney's fees incurred in enforcing any judgment or award against the other
party. The foregoing provision relating to post-judgment costs is severable
from all other provisions of this Lease.
22. TENANT'S DEFAULT: The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant: (i)
Tenant's failure to pay any rent due under this Lease by the date such rent
is due, which failure continues for ten (10) days After written notice from
Landlord; (ii) the abandonment of the Premises by Tenant; (iii) Tenant's
failure to observe and perform any other required provision of this Lease,
where such failure continues for thirty (30) days after written notice from
Landlord (provided however, that if the nature of the default is such that it
cannot reasonably be cured within the 30-day period, Tenant shall not be
deemed in default if Tenant commences within such period to cure the default
and thereafter diligently prosecutes the cure to completion); (iv) Tenant's
making of any general assignment for the benefit of creditors; (v) the filing
by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a
petition for reorganization or arrangement under any law relating to
bankruptcy (unless, in the case of a petition
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filed against Tenant, the same is dismissed after the filing); (vi) the
appointment of a trustee or receiver to take possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days;
(vii) the attachment, execution or other judicial seizure of substantially
all of Tenant's assets located at the Premises or of Tenant's interest in
this Lease, where such seizure is not discharged within thirty (30) days; or
(viii) an uncured default by Tenant under the Adjacent Building Lease after
applicable notice has been given and any applicable cure period has expired.
The notice requirements set forth herein are in lieu of and not in addition
to the notices required by California Code of Civil Procedure Section 1161.
Any notice given by Landlord to Tenant pursuant to California Code of Civil
Procedure 1161 regarding Tenant's failure to pay rent under this Lease by the
date due shall provide Tenant with a period of at least ten (10) days to pay
such rent or quit.
A. REMEDIES: In the event of any such default by Tenant, then in
addition to other remedies available to Landlord at law or in equity,
Landlord shall have the immediate option to terminate this Lease and all
rights of Tenant hereunder by giving written notice of such intention to
terminate. In the event Landlord elects to so terminate this Lease, Landlord
may recover from Tenant all the following: (i) the worth at time of award of
any unpaid rent which had been earned at the time of such termination; (ii)
the worth at time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the amount
of such rental loss for the same period that Tenant proves could have been
reasonably avoided; (iii) the worth at time of award of the amount by which
the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided; (iv) any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease, or which in the ordinary course of things would be likely
to result therefrom; and (v) at Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted by applicable
California law. The term "rent", as used herein, is defined as the minimum
monthly installments of Base Monthly Rent and all other sums required to be
paid by Tenant pursuant to this Lease, all such other sums being deemed as
additional rent due hereunder. As used in (i) and (ii) above, "worth at the
time of award" shall be computed by allowing interest at a rate equal to the
discount rate of the Federal Reserve Bank of San Francisco plus five (5%)
percent per annum. As used in (iii) above, "worth at the time of award"
shall be computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one (1%)
percent.
B. RIGHT TO RE-ENTER: In the event of any such default by Tenant,
Landlord shall have the right, after terminating this Lease, to re-enter the
Premises and remove all persons and property. Such property may be removed
and stored in a public warehouse or elsewhere at the cost of and for the
account of Tenant and disposed of by Landlord in any manner permitted by law.
C. ABANDONMENT: If Landlord does not elect to terminate this Lease
as provided in
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Section 22.A or 22.B above, then the provisions of California Civil Code
Section 1951.4, (Landlord may continue the lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due if Tenant has a
right to sublet and assign, subject only to reasonable limitations) as
amended from time to time, shall apply and Landlord may from time to time,
without terminating this Lease, either recover all rental as it becomes due
or relet the Premises or any part thereof for such term or terms and at such
rental or rentals and upon such other terms and conditions as Landlord in its
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises. In the event that Landlord elects to so relet,
rentals received by Landlord from such reletting shall be applied in the
following order to: (i) the payment of any indebtedness other than Base
Monthly Rent due hereunder from Tenant to Landlord; (ii) the payment of any
cost of such reletting; (iii) the payment of the cost of any alterations and
repairs to the Premises necessary to relet the Premises; and (iv) the payment
of Base Monthly Rent due and unpaid hereunder. The residual rentals, if any,
shall be held by Landlord and applied in payment of future Base Monthly Rent
as the same may become due and payable hereunder. In the event the portion of
rentals received from such reletting which is applied to the payment of rent
hereunder during any month be less than the rent payable during that month by
Tenant hereunder, then Tenant shall pay such deficiency to Landlord
immediately upon demand. Such deficiency shall be calculated and paid
monthly. Tenant shall also pay to Landlord, as soon as ascertained, any
reasonable costs and expenses incurred by Landlord in such reletting or in
making such alterations and repairs not covered by the rentals received from
such reletting.
D. NO TERMINATION: Landlord's re-entry or taking possession of the
Premises pursuant to 22.13 or 22.C of this Section 22 shall not be construed
as an election to terminate this Lease unless written notice of such
intention is given to Tenant or unless the termination is decreed by a court
of competent jurisdiction. Notwithstanding any reletting without termination
by Landlord because of any default by Tenant, Landlord may at any time after
such reletting elect to terminate this Lease for any such default.
23. SURRENDER OF LEASE: The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation thereof, shall not automatically effect a
merger of the Lease with Landlord's ownership of the Premises. Instead, at
me option of Landlord, Tenant's surrender may terminate all or any existing
subleases or subtenancies or may operate as an assignment to Landlord of any
or all such subleases or subtenancies, thereby creating a direct
Landlord-Tenant relationship between Landlord and any subtenants.
24. This paragraph intentionally left blank.
25. LANDLORD IS DEFAULT: In the event of Landlord's failure to perform
any of its covenants or agreements under this Lease, Tenant shall give
Landlord written notice of such failure and shall give Landlord thirty (30)
days to cure or commence to cure such failure prior to any claim
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for breach or resultant damages, provided, however, that if the nature of the
default is such that it cannot reasonably be cured within the 30-day period,
Landlord shall not be deemed in default if it commences within such period to
cure, and thereafter diligently prosecutes the same to completion. Further
in the event that this Lease is terminated due to an uncured default by
Landlord, Tenant shall also have the right to terminate the Adjacent Building
Lease after written notice and expiration of any applicable cure period.
Upon any such failure by Landlord, Tenant shall also give notice by
registered or certified mail to any person or entity with a security interest
in the Premises ("Mortgagee") that has provided Tenant with notice of its
interest in the Premises, and shall provide Mortgagee a reasonable
opportunity to cure such failure, including such time to obtain possession of
the Premises by power of sale or judicial foreclosure, if such should prove
necessary to effectuate a cure. Tenant agrees that each of the Mortgagees to
whom this Lease has been assigned is an expressed third-party beneficiary
hereof. Tenant shall not make any prepayment of rent more than one (1) month
in advance without the prior written consent of Mortgagee. Tenant waives any
right under California Civil Code Section 1950.7 or any other present or
future law to the collection of any payment or deposit from Mortgagee or any
purchaser at a foreclosure sale of Mortgagee's interest unless Mortgagee or
such purchaser shall have actually received and not refunded the applicable
payment or deposit.
26. NOTICES: All notices, demands, requests, or consents required to be
given under this Lease shall be sent in writing by U.S. certified mail,
return receipt requested, overnight delivery by a reputable carrier, or by
personal delivery addressed to the party to be notified at the address for
such party specified in Section 1 of this Lease, or to such other place as
the party to be notified may from time to time designate by at least fifteen
(15) days prior notice to the notifying party.
27. ENTRY BY LANDLORD: Landlord (i) shall not enter the Premises without
first giving twenty-four (24) hours notice to Tenant of such entry except in
the case of emergency, (ii) shall be accompanied by an employee of Tenant at
all times while in the Premises, (iii) shall comply with Tenant's security
procedures applicable to die Premises, and (iv) shall not unreasonably
interfere with Tenant's use of the Premises. Provide the foregoing
conditions are satisfied, Tenant shall permit Landlord and his agents to
enter into and upon the Premises at all reasonable times, and without any
rent abatement (except as otherwise provided in Section 45) or reduction or
any liability to Tenant for any loss of occupation or quiet enjoyment of the
Premises thereby occasioned, for the following purposes (i) inspecting and
maintaining die Premises; (ii) making repairs, alterations or additions to
the Premises; (iii) to construct the Adjacent Building; and (iv) performing
any obligations of Landlord under the Lease including remediation of
hazardous materials if determined to be the responsibility of Landlord. If
Landlord or its agents, employees or contractors are negligent in connection
with or during any such entry, or if any such entry unreasonably interferes
with Tenant's use of the Premises, then subject to Section 41 below, Landlord
shall be liable therefor. Tenant shall permit Landlord and his agents, at
any time within one hundred eighty (180) days prior to the Expiration Date
(or at any time during the Lease if Tenant is in default hereunder after
notice
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and expiration of any applicable cure period), to place upon the Premises
"For Lease" signs and exhibit the Premises to real estate brokers and
prospective tenants subject to the conditions contained in this Section 27.
28. DESTRUCTION OF PREMISES:
A. DESTRUCTION BY AN INSURED CASUALTY: In the event of a
destruction of the Premises during the Lease Term by a casualty for which
Landlord has received insurance proceeds sufficient to repair the damage or
destruction, Landlord shall repair the same to the extent of such proceeds.
Such destruction shall not annul or void this Lease; however, Tenant shall be
entitled to a proportionate reduction of Base Monthly Rent commencing on the
date of damage or destruction and continuing while repairs are being made,
such proportionate reduction to be based upon the extent to which the repairs
or damage interferes with Tenant's business in the Premises, as reasonably
determined by Landlord. Within sixty (60) days after any damage or
destruction of the Premises, Landlord shall notify Tenant in writing of
Landlord's estimate of the time required to repair the damage or destruction,
and if Landlord estimates that the repairs cannot be made in 180 days from
the date of receipt of all governmental approvals necessary under the laws
and regulations of State, Federal, County or Municipal authorities, as
reasonably determined by Landlord, or if the repairs actually take longer
than said 180 day period, then Tenant may terminate this Lease within fifteen
(15) days of Landlord's notice or the expiration of me 180 day period as
applicable. Landlord shall use reasonable efforts to promptly obtain all
governmental approvals and permits required for the repairs. Notwithstanding
the foregoing, either Landlord or Tenant shall have the option to terminate
the Lease in the event of a total destruction of the Premises or in the event
of a partial destruction occurs in the last year of the Lease Term and will
take more than sixty (60) days to repair; provided, however, that if the
partial destruction occurs after Tenant shall have exercised its Option under
Section 37 below or if Tenant exercises its Option under Section 37 within
twenty days following the event of partial damage or destruction, then the
last year of the Lease Term shall be deemed to be the last year of the Option
Term. In no event shall Landlord be required to replace or restore
Alterations, Tenant's fixtures or personal property. With respect to a
destruction which Landlord is obligated to repair or may elect to repair
under the terms of this Section, Tenant waives the provisions of Section
1932, and Section 1933, Subdivision 4, of the Civil Code of the State of
California, and any other similarly enacted statute, and the provisions of
this Section 28 shall govern in the case of such destruction.
In the event that this Lease is terminated as the result of damage
or destruction and any insurance proceeds are payable to Landlord, Landlord
shall deliver to Tenant a portion of such insurance proceeds equal to the
portion of me coos of do Tenant: Improvements paid for by Tenant ("Tenant's
Contribution") that remains unamortized as of the date this Lease is
terminated (calculated by amortizing Tenant's Contribution on a straight-line
basis over the initial term of this Lease, or if the termination occurs after
Tenant exercises its Option under Section 37 below, then
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calculated by amortizing Tenant's Contribution on a straight-line basis over
the term of this Lease, as so extended); provided, however, that Landlord's
obligation to pay such insurance proceeds to Tenant shall be subject and
subordinate to any obligation that Landlord may have to apply such insurance
proceeds to any loans made to Landlord for the construction of the Building
Shell which are secured by the Building Shell and the Ground Lease.
B. DESTRUCTION BY AN UNINSURED CASUALTY: In the event of a
destruction of the Premises during the Lease Term by a casualty for which
Landlord will not received insurance proceeds sufficient to repair the damage
or destruction (except for any deductible amount) and Tenant has not elected
to contribute the shortfall (excluding any deductible amount payable by
Landlord), the Lease shall automatically terminate unless (i) Landlord elects
to rebuild, and (ii) the damage can be repaired within one hundred eighty
(180) days from the date of receipt of an governmental approvals necessary
under the laws and regulations of State, Federal, County or Municipal
authorities, as reasonably determined by Landlord and communicated to Tenant
in writing within sixty (60) days after the damage or destruction.
29. ASSIGNMENT OR SUBLEASE:
A. CONSENT BY LANDLORD: Except as specifically provided in this
Section 29, Tenant may not assign, sublet, hypothecate, or allow a third
party to use the Premises without the express written consent of Landlord
which shall not be unreasonably withheld or delayed. In the event Tenant
desires to assign this Lease or any interest herein including, without
limitation, a pledge, mortgage or other hypothecation, or sublet the Premises
or any part thereof, Tenant shall deliver to Landlord executed counterparts
of any agreement and of all ancillary agreements with the proposed
assignee/subtenant and a notice containing the name and address of the
proposed assignee/subtenant proposed use of the Premises, rental rate and
current financial statement. At Landlord's request, Tenant shall also
provide additional information reasonably required by Landlord to determine
whether it will consent to the proposed assignment or sublease. Landlord
shall have a ten (10) day period following receipt of all the foregoing
within which to notify Tenant in writing that Landlord elects to: (i) permit
Tenant to assign or sublet such space to the named assignee/subtenant on the
terms and conditions set forth in the notice; or (ii) refuse consent. If
Landlord should fail to notify Tenant in writing of such election within the
10-day period, Landlord shall be deemed to have elected option (ii) above.
In the event Landlord elects option (i) above, Landlord's written consent to
the proposed assignment or sublease shall not be unreasonably withheld,
provided and upon the condition that: (i) the proposed assignee or subtenant
is engaged in a business that is limited to the use expressly permitted under
this Lease; (ii) the proposed assignee or subtenant is a company with
sufficient financial worth and management ability to undertake the financial
obligation of this Lease and Landlord has been furnished with reasonable
proof thereof; (iii) the proposed assignment or sublease is in form
reasonably satisfactory to Landlord; (iv) Tenant reimburses Landlord on
demand for any reasonable costs that may be incurred by Landlord in
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connection with said assignment or sublease, including the costs of making
investigations as to the acceptability of the proposed assignee or subtenant
and legal costs incurred in connection with the granting of any requested
consent; and (v) Tenant shall not have advertised or publicized in any way
the availability of the Premises without prior notice to Landlord. In the
event all or any one of the foregoing conditions are not satisfied, Landlord
shall be considered to have acted reasonably if it withholds its consent.
B. ASSIGNMENT OR SUBLETTING CONSIDERATION: Any rent or other
economic consideration realized by Tenant under any sublease and assignment,
in excess of the rent payable hereunder and reasonable subletting and
assignment costs (which shall include without limitation, all tenant
improvement costs expended for the subtenant, attorney's fees and brokerage
commissions), shall be divided and paid fifty percent (50%) to Landlord and
fifty percent (50%) to Tenant. Tenant's obligation to pay over Landlord's
portion of the consideration constitutes an obligation for additional rent
hereunder. The above provisions relating to Landlord's right to terminate
the Lease and relating to the allocation of bonus rent are independently
negotiated terms of the Lease which constitute a material inducement for the
Landlord to enter into the Lease, and are agreed by the parties to be
commercially reasonable. No assignment or subletting by- Tenant shall
relieve it of any obligation under this Lease. Any assignment or subletting
which conflicts with the provisions hereof shall be void.
C. NO RELEASE: Notwithstanding any such sublease or assignment and
the acceptance of rent by Landlord from any subtenant or assignee, Tenant and
any guarantor shall remain fully liable for the payment of Base Monthly Rent
and additional rent due, and in become due hereunder, for the performance of
all the covenants, agreements, terms,, provisions and conditions contained in
this Lease on the part of Tenant to be performed and for all acts and
omissions of any licensee, subtenant, assignee or any other person claiming
under or through any subtenant or assignee that shall be in violation of any
of the terms and conditions of this Lease, and any such violation shall be
deemed a violation by Tenant. Tenant shall indemnify, defend and hold
Landlord harmless from and against all losses, liabilities, damages, costs
and expenses (including reasonable attorney fees) resulting from any claims
that may be made against Landlord by the proposed assignee or subtenant or by
any real estate brokers or other persons claiming compensation in connection
with the proposed assignment or sublease.
D. EFFECT OF DEFAULT: In the event of Tenant's default, Tenant
hereby assigns all rents due from any assignment or subletting to Landlord as
security for performance of is obligations under this Lease and Landlord may
collect such rents as Tenant's Attorney-in-Fact, except that Tenant may
collect such rents unless a default occurs as described in Section 22 and 24
above and such default is continuing. A Lease termination due to Tenant's
default shall not automatically terminate an assignment or sublease then in
existence; rather at Landlord's election, such assignment or sublease shall
survive the Lease termination, the assignee or subtenant shall attorn to
Landlord,
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and Landlord shall undertake the obligations of Tenant under the sublease or
assignment; except that Landlord shall not be liable for prepaid rent,
security deposits or other defaults of Tenant to the subtenant or assignee,
or for any acts or omissions of Tenant, its agents, employees, contractors or
invitees.
E. PERMITTED TRANSFERS: Tenant may, without Landlord's prior
written consent, sublet the Premises or assign the Lease to: (i) a
subsidiary, affiliate, division or corporation controlled or under common
control with Tenant; (ii) a successor corporation related to Tenant by
merger, consolidation, non-bankruptcy reorganization, or government action;
or (iii) a purchaser of substantially all of Tenant's assets, provided,
however, that the sublessee or assignee has a net worth sufficient to meet
its obligations under this Lease ("Permitted Transferees"). For the purpose
of this Lease, sale of Tenant's capital stock through any public exchange
shall not be deemed an assignment, subletting, or any other transfer of the
Lease or the Premises.
30. CONDEMNATION: If any part of the Premises shall be taken for any
public or quasi-public use, under any statute or by right of eminent domain
or private purchase in lieu thereof, and only a part thereof remains which is
susceptible of occupation hereunder, this Lease shall, as to the part so
taken, terminate as of the day before title vests in the condemnor or
purchaser ('Vesting Date") and Base Monthly Rent payable hereunder shall be
adjusted so that Tenant is required to pay for the remainder of the Lease
Term only such portion of Base Monthly Rent as the value of the Fort
remaining after such taking bears to the value of the entire Premises prior
to such taking; but in such event Tenant shall have the option to terminate
this Lease as of the Vesting Date if the portion remaining; is no longer
suitable for Tenant's intended use. If all of the Premises or such part
thereof be taken so that there does not remain a portion susceptible for
occupation hereunder, this Lease shall terminate on the Vesting Date. If
part or all of the Premises be taken, all compensation awarded upon such
taking shall go to Landlord, and Tenant shall have no claim thereto; but
Landlord shall cooperate with Tenant, without cost to Landlord, to recover
compensation for damage to or taking of any Alterations, Tenant Improvements
paid for by Tenant from sources other than the Work Allowance, or for
Tenant's moving costs. Tenant hereby waives the provisions of California
Code of Civil Procedures Section 1261130 and any odor similarly enacted
statue, and the provisions of this Section 30 shall govern in the case of
such taking.
31. EFFECTS OF CONVEYANCE: As used in this Lease, the term "Landlord" is
defined only as the owner for the time being of the Premises, so that in the
event of any sale or other conveyance of the Premises or in the event of a
master lease of the Premises, Landlord shall be entirely freed and relieved
of all its covenants and obligations hereunder to the extent such obligations
accrue after the date of said sale or maker lease, and only to the extent the
purchaser or master lessee agrees in writing to assume the obligations of
Landlord hereunder arising after said sale or master lease., and A shall be
deemed and construed, without further agreement between the parties and the
purchaser at any such sale or the master tenant of the Premises, that the
purchaser or
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master tenant of the Premises has assumed and agreed to carry out any and all
covenants and obligations of Landlord hereunder. Such transferor shall
transfer and deliver Tenant's security deposit to the purchaser at any such
sale or the master tenant of the Premises, and thereupon the transferor shall
be discharged from any further liability in reference thereto.
32. SUBORDINATION: Subject to the recognition and nondisturbance
agreements described in Section 1, this Lease is subject and subordinate to
ground and underlying leases, mortgages and deeds of dust (collectively
"Encumbrances") which may now affect the Premises, to any covenants,
conditions or restrictions of record, and to all renewals, modifications,
consolidations, replacements and extensions thereof; provided, however, if
the holder or holders of any such Encumbrance ("Holder") require that this
Lease be prior and superior thereto, within seven (7) days after written
request of Landlord to Tenant, Tenant shall execute, have acknowledged and
deliver all documents or instruments, in the reasonable form presented to
Tenant, which Landlord or Holder deems necessary or desirable for such
purposes. Landlord shall have the right to cause this Lease to be and become
and remain subject and subordinate to any and all Encumbrances which are now
or may hereafter be executed covering the, Premises or any renewals,
modifications, consolidations, replacements or extensions thereof, for the
full amount of all advances made or to be made thereunder and without regard
to the time or character of such advances, together with interest thereon and
subject to all the terms and provisions thereof, on the condition that the
Holder delivers to Tenant a non-disturbance agreement providing that in the
event of termination of any such lease or upon the foreclosure of any such
mortgage or deed of trust, the Holder agrees to recognize Tenant's rights
under this Lease as long as Tenant is not then in default and continues to
pay Base Monthly Rent and additional rent and observes and performs all
required provisions of this Lease (in each case, after notice and the
expiration of any applicable cure period). Within fifteen (15) days after
Landlord's written request, Tenant shall execute any reasonable documents
required by Landlord or the Holder to make this Lease subordinate to any hen
of the Encumbrance provided Tenant shall have received a Nondisturbance
Agreement from the Holder of the applicable Encumbrance. If Tenant fails to
do so, then in addition to such. failure constituting a default by Tenant it
shall be deemed that this Lease is so subordinated to such Encumbrance
provided Tenant shall have received a Nondisturbance Agreement from the
Holder of the applicable Encumbrance. Notwithstanding anything to the
contrary in this Section, Tenant hereby attorns and agrees to attorn to any
entity purchasing or otherwise acquiring the Premises at any sale or other
proceeding or pursuant to the exercise of any other rights, powers or
remedies under such encumbrance.
33. WAIVER: The waiver by Landlord or Tenant of any breach of any term,
covenant or condition, herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent
acceptance of rent hereunder by Landlord shall not be deemed to be a waiver
of any preceding breach by Tenant of any term, covenant or condition of this
Lease, other than the failure of Tenant to pay the particular rental so
accepted, regardless of Landlord's knowledge of such
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preceding breach at the time of acceptance of such rent. No payment by
Tenant or receipt by Landlord of a lesser amount than any installment of rent
due shall be deemed to be other than payment on account of the amount due.
No delay or omission in the exercise of any right or remedy by Landlord or
Tenant shall impair such right or remedy or be construed as a waiver thereof
by the non-defaulting party. No act or conduct of Landlord, including,
without limitation, the acceptance of keys to the Premises, shall constitute
acceptance of the surrender of the Premises by Tenant before the Expiration
Date (only written notice from Landlord to Tenant of acceptance shall
constitute such acceptance of surrender of the Premises). Landlord's consent
to or approval of any act by Tenant which require Landlord's consent or
approvals shall not be deemed to waive or render unnecessary Landlord's
consent to or approval of any subsequent act by Tenant.
34. HOLDING OVER: Any holding over after the termination or Expiration
Date with Landlord's consent, shall be construed as month-to-month tenancy,
terminable on thirty (30) days written notice from either party, and Tenant
shall pay as Base Monthly Rent to Landlord a rate equal to one hundred thirty
three percent (133%) of the Base Monthly Rent due in the month preceding the
termination or Expiration Date, plus all other amounts payable by Tenant
under this Lease. Any holding over shall otherwise be on the terms and
conditions herein specified, except those provisions relating to the Lease
Term and any options to extend or renew, which provisions shall be of no
further force and effect following the expiration of the applicable exercise
period. Tenant shall indemnify, defend, and hold Landlord harmless from all
loss or liability (including, without limitation, any loss or liability
resulted from any claim against Landlord made by any succeeding tenant)
resulting from Tenant's failure to timely surrender the Premises to Landlord
and losses to Landlord due to lost opportunities to lease the Premises to
succeeding tenants.
35. SUCCESSORS AND ASSIGNS: Subject to the provisions of Section 29, the
covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all parties hereto; and
all parties hereto shall be jointly and severally liable hereunder.
36. ESTOPPEL CERTIFICATES: At any time during the Lease Term, Landlord
or Tenant shall, within fifteen (15) days following written notice from the
other, execute and deliver a written statement certifying, if true, the
following: (i) that this Lease is unmodified and in full force and effect
(or, if modified, stating the nature of such modification); (ii) the date to
which rent and other charges are paid in advance, if any; (iii) acknowledging
that there are not, to the party's knowledge, any uncured defaults (or
specifying such defaults if they are claimed); and (iv) such other
information as may be reasonably requested. Any such statement may be
conclusively relied upon by a third party. Tenant agrees to provide, within
twenty (20) days of Landlord's request, Tenant's most recent annual report
and latest quarterly reports.
37. OPTION TO EXTEND THE LEASE TERM:
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A. GRANT AND EXERCISE OF OPTION: Landlord grants to Tenant,
subject to the terms and conditions set forth in this Section, the option
(the "Option") to extend the Lease Term for an additional term (the "Option
Term") of one hundred twenty (120) months. The Option shall be exercised, if
at all, by written notice to Landlord no earlier than eighteen (18) months
prior to the Expiration Date but no later than twelve (12) months prior to
the Expiration Date. Tenant's ability to exercise the Option is expressly
conditioned on Tenant's exercise of its option to extend the Adjacent
Building Lease. If Tenant exercises the Option, all of the terms, covenants
and conditions of this Lease except this Section shall apply during the
Option Term as though the expiration date of the Option Term. was the date
originally set forth herein as the Expiration Date, provided that the terms
of EXHIBIT B shall not apply to the Option Term and Tenant shall not have any
obligation in connection with the Option Term to make or pay for any tenant
improvements and provided, further, that Base Monthly Rent for the Premises
payable by Tenant during the Option Term shall be the greater of either (i)
the Base Monthly Rent applicable to the period immediately prior to the
commencement of the Option Term, or (ii) ninety five percent (95%) of the
Fair Market Rental as hereinafter defined. Notwithstanding anything herein to
the contrary, if Tenant is in monetary or material non-monetary default under
any of the terms, covenants or conditions of this Lease either at the time
Tenant exercises the Option or as the commencement date of the Option Term
(after notice and expiration of any applicable cure period), Landlord shall
have, in addition to all of Landlord's other rights and remedies provided in
this Lease, the right to terminate the Option upon notice to Tenant, in which
event the expiration date of this Lease shall be and remain the Expiration
Date. As used herein, the term "Fair Market Rental" is defined as the rental
and all other monetary payments, including any escalations and adjustments
thereto (including without limitation Consumer Price Indexing) that Landlord
could obtain during the Option Term from a third party desiring to lease the
Premises, based upon the current use and other potential uses of the Premises
under or permitted by this Lease, as determined by the rents then being
obtained for new leases of space comparable in age and quality to the
Premises in the locality of the Building. The parties hereto agree that in
calculating the Fair Market Rental of the Premises, the value of all Tenant
Improvements and Alterations paid for solely by Tenant shall not be taken
into consideration. The parties further agree that the appraisers shall be
instructed that the foregoing five percent (5%) discount is intended to
reduce comparable rents which include (i) brokerage commissions, (ii) tenant
improvement allowances, and (iii) vacancy costs, to account for the fact that
Landlord will not suffer such costs in the event Tenant exercises its Option.
B. DETERMINATION OF FAIR MARKET RENTAL: If Tenant exercises the
Option, Landlord shall send Tenant a notice setting forth the Fair Market
Rental for the Option Term within thirty (30) days following the Exercise
Date. If Tenant disputes Landlord's determination of Fair Market Rental for
the Option Term, Tenant shall, within thirty (30) days after the date of
Landlord's notice setting forth Fair Market Rental for the Option Term, send
to Landlord a notice stating that Tenant either elects to terminate its
exercise of the Option, in which event the Option shall lapse and this Lease
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shall terminate on the Expiration Date, or that Tenant disagrees with Landlord's
determination of Fair Market Rental for the Option Term and elects to resolve
the disagreement as provided in Section 37.C below. If Tenant does not send
Landlord a notice as provided in the previous sentence, Landlord's
determination of Fair Market Rental shall be the basis for determining the
Base Monthly Rent payable by Tenant during the Option Term. If Tenant elects
to resolve the disagreement as provided in Section 37.C and such procedures
are not concluded prior to the commencement date of the Option Term, Tenant
shall pay to Landlord as Base Monthly Rent the Fair Market Rental as
determined by Landlord in the manner provided above. If the 'air Market
Rental as finally determined pursuant to Section 37.C is greater than,
Landlord's determination, Tenant shall pay Landlord the difference between
the amount paid by Tenant and the Fair Market Rental as so determined in
Section 37.C within thirty (30) days after such determination. If the Fair
Market Rental as finally determined in Section 37.C is less than Landlord's
determination, the difference between the amount paid by Tenant and the Fair
Market Rental as so determined in Section 37.C shall be credited against the
next installments of rent due from Tenant to Landlord hereunder.
C. RESOLUTION OF A DISAGREEMENT OVER THE FAIR MARKET RENTAL: Any
disagreement regarding Fair Market Rental shall be resolved as follows:
1. Within thirty (30) days after Tenant's response to
Landlord's notice setting form the Fair Market Rental, Landlord and Tenant shall
meet at least two (2) times at a mutually agreeable time and place, in an
attempt to resolve the disagreement.
2. If within me 30-day period referred to above, Landlord and
Tenant cannot reach agreement as to Fair Market Rental, each party shall select
one appraiser to determine Fair Market Rental. Each such appraiser shall arrive
at a determination of Fair Market Rental and submit their conclusions to
Landlord and Tenant within thirty (30) days after the expiration of the 30-day
consultation period described above.
3. If only one appraisal is submitted within the requisite time
period, it shall be deemed as Fair Market Rental. If both appraisals are
submitted within such time period and the two appraisals so submitted differ by
less than ten percent (10%), the average of the two shall be deemed as Fair
Market Rental. If the two appraisals differ by more than 10%, the appraisers
shall immediately select a third appraiser who shall, within thirty (30) days
after his selection, make and submit to Landlord and Tenant a determination of
Fair Market Rental. This third appraisal will then be averaged with the closer
of the two previous appraisals and the result shall be Fair Market Rental.
4. All appraisers specified pursuant to this Section shall be
members of the American Institute of Real Estate Appraisers with not less than
ten (10) years experience appraising office and industrial properties in the
Santa Clara Valley. Each party shall pay the cost of the appraiser selected by
such party and one-half of the cost of the third appraiser.
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<PAGE>
38. OPTIONS: In the event Tenant has multiple options to extend this
Lease, a later option to extend the Lease cannot be exercised unless the prior
option has been so exercised.
39. QUIET ENJOYMENT: Upon Tenant's faithful and timely performance of all
the terms and covenants of the Lease and except as otherwise provided in this
Lease, Tenant shall quietly have and hold the Premises for the Lease Term and
any extensions thereof.
40. BROKERS: Landlord and Tenant represent they have not utilized or
contacted a real estate broker or finder with respect to this Lease other than
BT Commercial and each party agrees to indemnify, defend and hold the other
harmless against any claim, cost, liability or cause of action asserted by any
odor broker or finder.
41. LANDLORD'S LIABILITY: If Tenant recovers a money judgment against
Landlord arising in connection with this Lease, the judgment shall be satisfied
only out of (i) all rents and profits from the Parcel, (ii) Landlord's interest
in the Parcel, and (iii) Landlord's insurance and interest in any insurance
proceeds and neither Landlord nor any of its partners, officers, directors,
agents, trustees, shareholders or employees shall be liable personally for any
deficiency. Tenant expressly waives all rights to proceed against the
individual partners or the officers, directors or shareholders of any corporate
partner, except to the extent of their interest in said limited partnership.
42. AUTHORITY OF PARTIES: Tenant represents and warrants that it is duly
formed and in good standing, and is duly authorized to execute and deliver
this Lease on behalf of said corporation, in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance
with the by-laws of said corporation, and that this Lease is binding upon
said corporation in accordance with its terms. Landlord represents and
warrants that it is duly formed and in good standing, and is duly authorized
to execute and deliver this Lease on behalf of said partnership, and that
this Lease is binding upon said partnership in accordance with its terms. At
Landlord's request, Tenant shall provide Landlord with corporate resolutions
or other proof in a form acceptable to Landlord, authorizing the execution of
the Lease.
43. TRANSPORTATION DEMAND MANAGEMENT PROGRAMS: Should a government agency
or municipality require Landlord or Tenant to institute a TDM (Transportation
Demand Management) program, Tenant agrees to pay the cost or expenses associated
with such TDM programs which are required for the Premises.
44. DISPUTE RESOLUTION: Except for the Tenant's failure to timely pay Base
Monthly Rent, any controversy, dispute, or claim of whatever nature arising out
of, in connection with, or in relation to the interpretation, performance or
breach of this Lease, including any claim based on
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<PAGE>
contract, tort, or statute, shall be resolved at the request of any party to
this agreement through a two-step dispute resolution process administered by
JAMS or another judicial and mediation service mutually acceptable to the
parties involving first mediation, followed, if necessary, by final and binding
arbitration administered by and in accordance with the then-existing rules and
practice of the judicial and mediation service selected, and judgment upon any
award rendered by the arbitrators) may be entered by any State or Federal Court
having jurisdiction thereof.
45. INTERFERENCE WITH USE OF PREMISES: If the Premises should become
unsuitable for Tenant's use as a consequence of (i) the presence of any
Hazardous Material which does not result from Tenant's use, storage or disposal
of such material in violation of applicable Law, or (ii) as the result of a
cessation of utilities not caused by Tenant or from a casualty, which persists
for seventy two (72) consecutive hours or which is caused by Landlord,
('Interfering Event") then Tenant shall be entitled to an abatement of rent to
the extent of the interference with Tenant's use of the Premises occasioned
thereby from the date of the Interfering Event, and, if such interference cannot
be corrected or the damage resulting therefrom repaired so that the Premises
will be reasonably suitable for Tenant's intended use within one hundred eighty
(180) days following the occurrence of the Interfering Event, then Tenant shall
be entitled to terminate this Lease by delivery of written notice to the other
within five (5) days following the expiration of such one hundred eighty (180)
day period.
46. EXISTING VICTORIAN HOME: Not applicable
47. MISCELLANEOUS PROVISIONS:
A. RENT: All monetary sums due from Tenant to Landlord under this
Lease, including, without limitation those referred to as "additional rent",
shall be deemed as rent.
B. MANAGEMENT FEE: During the Lease Term commencing two months
following the Commencement Date, Tenant shall pay Landlord a fee of two percent
(2%) of the Base Monthly Rent to reimburse Landlord for property management
costs related to the Project.
C. PERFORMANCE BY LANDLORD: If Tenant fails to perform any
obligation required under this Lease or by law or governmental regulation,
Landlord in its sole discretion may, after giving Tenant at leak thirty (30)
days prior written notice, without waiving any rights or remedies and without
releasing Tenant from its obligations hereunder, perform such obligation, in
which event Tenant shall pay Landlord as additional rent all sums paid by
Landlord in connection with such substitute performance, including interest as
provided in Section 47.D below within ten (10) days of Landlord's written notice
for such payment.
D. INTEREST: All sums due hereunder, if not paid by Tenant or
Landlord within thirty
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<PAGE>
(30) days after they are due, shall bear interest at the maximum rate the
parties are permitted to contract for under California law, accruing from the
date due until the date paid.
E. RIGHTS AND REMEDIES: All rights and remedies hereunder are
cumulative and not alternative to the extent permitted by law, and are in
addition to all other rights and remedies in law and in equity.
F. SURVIVAL OF INDEMNITIES: All indemnification, defense, and hold
harmless obligations of Landlord and Tenant under this Lease shall survive the
expiration or sooner termination of the Lease.
G. SEVERABILITY: If any term or provision of this Lease is held
unenforceable or invalid by a court of competent jurisdiction, the remainder of
the Lease shall not be invalidated thereby but shall be enforceable in
accordance with its terms omitting the invalid or unenforceable term.
H. CHOICE OF LAW: This Lease shall be governed by and construed in
accordance with California law. Venue shall be Santa Clara County.
I. TIME: Time is of the essence hereunder.
J. ENTIRE AGREEMENT: This Lease contains all of the agreements and
conditions made between the parties hereto and may not be modified orally or in
any other manner other than by written agreement signed by all parties hereto or
their respective successors in interest. This Lease supersedes and revokes all
previous negotiations letters of intent, lease proposals, brochures, agreements,
representations, promises, warranties, and understandings, whether oral or in
writing, between the parties or their respective representatives or any other
person purporting to represent Landlord or Tenant.
K. REPRESENTATIONS: Except as expressly provided in this Lease,
Tenant acknowledges that neither Landlord nor any of its employees or agents
have made any agreements, representations, warranties or promises with respect
to the Premises or with respect to present or future rents, expenses,
operations, tenancies or any other matter. Except as herein expressly set forth
herein, Tenant relied on no statement of Landlord or its employees or agents for
that purpose.
L. NO PRESUMPTION AGAINST DRAFTER: Landlord and Tenant understand,
agree and acknowledge that this Lease has been freely negotiated by both
parties; and that in any controversy, dispute, or contest over the meaning,
interpretation, validity, or enforceability of this Lease or any of its terms or
conditions, there shall be no inference, presumption, or conclusion drawn
whatsoever against either party by virtue of that party having drafted this
Lease or any portion thereof.
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<PAGE>
M. HEADINGS: The headings or titles to the Sections of this Lease
are not a part of this Lease and shall have no effect upon the construction or
interpretation of any part thereof.
N. EXHIBITS: All exhibits referred to are attached to this Lease and
incorporated by reference.
48. CROSS-DEFAULT. If this Lease is terminated as the result of a default
by Landlord or Tenant or the exercise by Landlord or Tenant of any right to
terminate given to Landlord or Tenant under this Lease (other than a right to
terminate exercised by Landlord or Tenant with respect to damage to or
destruction of the Premises), then subject to the provisions of Section 28.A
concerning the payment by Landlord to Tenant of the unamortized cost of the
Tenant Improvements paid for by Tenant, the non-defaulting party may elect to
terminate the Adjacent Lease by giving written notice of such termination to the
other party concurrently with, or within ten (10) business days after, the
termination of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day and
year first above written.
LANDLORD: SOBRATO INTERESTS III TENANT: CENTIGRAM COMMUNICATIONS CORP.
a California Limited Partnership a Delaware Corporation
By: /s/ Signature unreadable By: /s/ Signature unreadable
---------------------------------- ----------------------------------
Its: General Partner Its: President & CEO
Page 33
<PAGE>
EXHIBIT "A" - PREMISES, BUILDING & PROJECT
IMAGE NOT SHOWN
Page 34
<PAGE>
EXHIBIT "B" - SHELL PLANS AND SPECIFICATIONS
(SHEET REFERENCES TO BE ATTACHED)
ARCHITECTURAL DRAWINGS
SHEET NO. SHEET NAME
A0.1 Project Information and Notes
A1.0 Site Plan
A2.0A Building One - First Level Floor Plan
A2.1A Building One - Second Level Floor Plan
A2.2A Building One - Third Level Floor Plan
A2.3A Building One - Fourth Level Floor Plan
A2.4A Building One - Roof Plan
A2.5B Building Two - First Level Floor- PI,
A2.6B Building Two - Second Level Floor Plan
A2.7B Building Two - Third Level Floor Plan
A2.8B Building Two - Fourth Level Floor Plan
A2.9B Building Two - Roof Plan
A3.0A Building One - North and South Exterior E
A3.1A Building One - East and West Exterior Elevations
A3.2B Building Two East and West Exterior Elevations.,
A3.3B Building Two - North and South Exterior Elevations,
A4.0 Wall Sections
A4.1 Wall Sections
A4.2 Wall Sections
A4.3 Wall Sections
A6.0 Detail Stair Floor Plans
A6.1 Stair Details
A6.2 Stair Sections and Details
CIVIL DRAWINGS
C-1 Topographical Survey
C-2 Preliminary Grading Plan
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<PAGE>
STRUCTURAL DRAWINGS
S1 Horn House Foundation Plans and Details
S2.0 Building One Foundation Plan
S2.l Building One - Second Floor Framing Plan
S2.2 Building One - Third Floor Framing Plan
S2.3 Building One - Fourth Floor Framing Plan
S3.1 Building One - Braced Frame Elevations
S3.2 Typical Structural Details
S6.1 Wall Sections
S6.2 Wall Sections
S6.3 Wall Sections
S6.4 Wall Sections
S3.1 Panel Elevations
S3.2 Panel Elevations
S3.3 Panel Elevations
S4.0 Foundation Details
ELECTRICAL DRAWINGS
SE.1 Site Electrical Plan
E.1a Building One - First Level Power Plan
El.b Building Two - First Level Power Plan
E2.a Building One - Second Level Power Plan
E2.b Building Two - Second Level Power Plan
LANDSCAPE DRAWINGS
L1.1 General Landscape Notes and Legend
L1.2 Plant List and Planting Notes
L2.1 Irrigation Site Plan
L4.1 Planing Site Plan
L6.1 Landscape Details
L7.1 Fountain Plan, Notes and Details
<PAGE>
EXHIBIT "C" - BUILDING SHELL DEFINITION
The Building Shell shall be a four -story steel frame structure with 90% of
the perimeter containing glass. The Building Shell shall include the
following items:
1. BUILDING STRUCTURE
(a) All foundations to include footings, piers, caissons, pilings, grade
beams, foundation walls or other building foundation components required to
support the building structure.
(b) Five inch (5") thick concrete slab on grade with below grade vapor
barrier and welded wire mesh and any other reinforcing or structural
connections that may be necessary or required as specified by structural
engineer.
(c) Complete structural framing system comprised of rolled steel or pipe
columns, light weight braced-frame steel structure with corrugated metal deck
and concrete toping over and open web bar joist and girder floor support
system, all members fireproofed as required by code. Floor support system
shall provide for a minimum of 120 pounds per square foot live load.
(d) Tinted high performance glass with Robertson composite metal panels
including required caulking and sealants. Four (4) exterior double doors,
door closers and locking devices as necessary.
(e) Four (4) ply built up roofing with cap sheet by Owens-Corning, John
Manville, or equal and all flashings over a rigid insulated corrugated metal
deck roof system.
(f) Exterior painting of any concrete with Tex-Coat or Kel-Tex textural
paint, all caulking of exterior concrete joints in preparation for painting.
(g) Two (2) steel fire stairs at perimeter of building. One ship ladder
to roof of building with roof hatch.
(h) Mechanical roof screen.
(i) Loading area with grade level access with hydraulic scissors lift
external of building.
(j) penetrations of the roof and floor for the mechanical ducting and
for the elevators (elevator penetrations to accommodate two hydraulic
passenger elevators at the core and one freight elevator near the dock area)
(k) Riser for Building sprinkler system (no sprinkler grid or drops)
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<PAGE>
2. SITEWORK
(a) All work outside the building perimeter walls shall be considered
site work for the Building Shell and shall include grading, asphalt concrete,
paving, landscaping, landscape irrigation, storm drainage, utility service
laterals, curbs, gutters, sidewalks, specialty paving (if required, i.e.
reinforced roadway section to truck doors), retaining walls, planters, trash
enclosure, parking lot and landscape lighting and other exterior lighting per
code. Landscape design to include screen dining patio (no furniture) and
three flag poles with bases.
(b) Paving sections for automobile and truck access shall be according
to the Geologic Soils Report
(c) All parking lot striping to include handicap spaces and signage.
(d) Underground site storm drainage system shall be connected to the
city storm system main.
3. PLUMBING
(a) Underground sanitary sewer laterals connected to the city sewer main
in the street and stubbed to the core of the building.
(b) Domestic water mains connected to the city water main in the street
and stubbed to the building.
(c) Roof drain leaders and downspouts piped and connected to the site
storm drainage system.
(d) Gas lines connected to the city or public utility mains and run to
gas meters adjacent to, and in close proximity to the building. Meter
supplied by utility company.
4. ELECTRICAL
(a) A primary electrical raceway service from the street to the
building, including underground conduit wire feeders, and transformer pads.
Transformer supplied by utility company. Underground conduits and secondary
feeders from transformer pads into the building.
(b) 4" Underground conduit from the street to the building for telephone
trunk lines by Pacific Telephone.
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<PAGE>
(c) An electrically operated landscape irrigation system, with
controller, that is a complete and functioning system.
(e) Underground conduit from the building to the main fire protection
system post indicator valve (PIV) for installation of supervisory alarm
wiring.
(f) Telephone and data conduits between the Building and the Adjacent
Building
All other costs shall be deemed Tenant Improvements.
Page 38
<PAGE>
EXHIBIT "D" - TENANT IMPROVEMENT PLANS AND SPECIFICATIONS
(SHEET REFERENCES TO BE ATTACHED)
Page 39
<PAGE>
EXHIBIT 11.1
CENTIGRAM COMMUNICATIONS CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED NOVEMBER 2, 1996 AND OCTOBER 28, 1995,
THE MONTH ENDED OCTOBER 29, 1994, AND YEAR ENDED OCTOBER 1, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MONTH ENDED
OCTOBER 29,
YEAR 1996 YEAR 1995 1994 YEAR 1994
--------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Net income (loss).................................................... $ 1,000 $ (4,134) $ (1,890) $ 7,745
--------- --------- ------------- ---------
--------- --------- ------------- ---------
Computation of common and common equivalent shares outstanding:
Common stock....................................................... 6,824 6,560 6,379 6,147
Options and warrants............................................... 157 -- -- 411
--------- --------- ------------- ---------
Common and common equivalent shares used in computing per share
amounts............................................................. 6,981 6,560 6,379 6,558
--------- --------- ------------- ---------
--------- --------- ------------- ---------
Net income (loss) per share.......................................... $ 0.14 $ (0.63) $ (0.30) $ 1.18
--------- --------- ------------- ---------
--------- --------- ------------- ---------
</TABLE>
Fully diluted computation not presented since such amount differs by less
than 3% of the net income per share amounts shown above
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF REGISTRANT
Centigram Asia Limited
Centigram Australasia Pty Limited
Centigram Communications (Barbados), Inc.
Centigram Europe B.V.
Centigram UK Limited
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 Nos. 33-43726, 33-98484, 333-4215, and 333-4217) pertaining to the
Amended and Restated 1987 Stock Option Plan, the 1991 Employee Stock Purchase
Plan, and the 1995 Nonstatutory Stock Option Plan of Centigram Communications
Corporation of our report dated November 26, 1996, except for the second
paragraph of "Commitments and Contingencies" and the note "Subsequent Events" as
to which the date is December 20, 1996, with respect to the consolidated
financial statements and schedule of Centigram Communications Corporation
included in the Annual Report (Form 10-K) for the year ended November 2, 1996.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
San Jose, California
January 23, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's 10-K for the year and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-02-1996
<PERIOD-START> OCT-29-1995
<PERIOD-END> NOV-02-1996
<CASH> 12,668
<SECURITIES> 29,408
<RECEIVABLES> 29,796
<ALLOWANCES> 2,055
<INVENTORY> 11,467
<CURRENT-ASSETS> 85,816
<PP&E> 36,917
<DEPRECIATION> 21,668
<TOTAL-ASSETS> 104,009
<CURRENT-LIABILITIES> 20,519
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 83,405
<TOTAL-LIABILITY-AND-EQUITY> 104,009
<SALES> 104,324
<TOTAL-REVENUES> 104,324
<CGS> 42,516
<TOTAL-COSTS> 42,516
<OTHER-EXPENSES> 62,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> 1,053
<INCOME-TAX> 53
<INCOME-CONTINUING> 1,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,000
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
