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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21180
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INTUIT INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 77-0034661
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
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2535 GARCIA AVENUE, MOUNTAIN VIEW, CA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(650) 944-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.01 par value
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of September 30, 1997, there were 47,192,154 shares of the Registrant's
common stock, $0.01 par value, outstanding, which is the only outstanding class
of common or voting stock of the Registrant. As of that date, the aggregate
market value of the shares of common stock held by non-affiliates of the
Registrant (based on the closing price for the common stock as quoted by the
Nasdaq National Market on such date), was approximately $1,274,222,898.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held in January 1998 are incorporated by reference
into Part III of this report on Form 10-K.
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FISCAL 1997 FORM 10-K
INTUIT INC.
INDEX
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ITEM PAGE
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PART I
ITEM 1: Business............................................................... 1
ITEM 2: Properties............................................................. 14
ITEM 3: Legal Proceedings...................................................... 14
ITEM 4: Submission of Matters to a Vote of Security Holders.................... 15
ITEM 4A: Executive Officers of the Registrant................................... 15
PART II
ITEM 5: Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 18
ITEM 6: Selected Consolidated Financial Data................................... 19
ITEM 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 19
ITEM 7A: Quantitative and Qualitative Disclosures About Market Risk............. 19
ITEM 8: Financial Statements and Supplementary Data............................ 20
ITEM 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................... 47
PART III
ITEM 10: Directors and Executive Officers of the Registrant..................... 48
ITEM 11: Executive Compensation................................................. 48
ITEM 12: Security Ownership of Certain Beneficial Owners and Management......... 48
ITEM 13: Certain Relationships and Related Transactions......................... 48
PART IV
ITEM 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K....... 48
Signatures ....................................................................... 52
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Intuit, the Intuit logo, Quicken, QuickBooks, QuickBooks Pro, TurboTax,
MacInTax, ProSeries and NETworth, among others, are registered trademarks and/or
registered service marks of Intuit Inc. in the United States and other
countries. Quicken.com, BankNOW, Quicken Financial Planner, Quicken
InsureMarket, QuickenMortgage, QuickTax, Obanto, Kobanto and Yayoi, among
others, are trademarks and/or service marks of Intuit Inc. or one of its
subsidiaries in the United States and other countries.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
We have written our fiscal 1997 Form 10-K in "plain English." This is consistent
with Intuit's mission to revolutionize the way people manage their financial
lives. One of the ways we accomplish this is by helping people eliminate the
unnecessary complexity of financial information. While we can't eliminate all of
the complexity of Intuit's business and finances, we think the ordinary words
used in our Form 10-K will enable readers to understand Intuit more easily than
the complicated language normally found in 10-Ks. Please let us know your
reactions by contacting our Investor Relations Department at (650) 944-2713.
OVERVIEW OF INTUIT'S BUSINESS
Intuit's mission is to revolutionize the way individuals and small businesses
manage their finances. To achieve this goal, we create, sell and support small
business accounting, tax preparation and consumer finance desktop software
products, financial supplies (such as computer checks, invoices and envelopes),
and Internet-based products and services. We sell our products throughout North
America and in many international markets. Our fiscal year ends on July 31 of
each year.
Fiscal 1997 was a year of transition for Intuit. Although our mission remains
unchanged, the ways we accomplish it are changing. Industry-wide retail sales of
personal finance software are declining. Customer demands are changing rapidly.
Competition is intensifying. The Internet is a pervasive force that is reshaping
our business and providing new challenges and opportunities. During fiscal 1997,
we made some major changes to our business strategy in response to these trends.
During the past few years we made several acquisitions and investments to expand
our business and sold two businesses that no longer support our corporate
strategy. In January 1996 we acquired Milkyway KK, a provider of PC-based small
business accounting software in Japan. In June 1996 we acquired Interactive
Insurance Services Corp. (or "IIS"), developer of our Quicken InsureMarket(SM)
website. In September 1996 we acquired GALT Technologies Inc. developer of the
mutual fund information service now incorporated in our Quicken.com(TM) website.
In March 1997 we acquired Nihon Micom Co. Ltd., a Japanese small business
accounting software company. In June 1997 we made a $39.2 million strategic
investment in Excite, Inc. In January 1997 we sold Intuit Services Corporation
(or "ISC"), our banking and bill payment processing subsidiary, to Checkfree
Corporation. In August 1997 (after the end of fiscal 1997) we sold Parsons
Technology, Inc., our direct marketing consumer software subsidiary, to
Broderbund Software, Inc. These transactions have had, and will continue to
have, a significant impact on our financial results. For more details about
these transactions and their impact, see Notes 2, 3 and 15 to our financial
statements beginning on page 29 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" (also called "MD&A") beginning on
page 40.
CAUTIONS ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-K includes "forward-looking" statements about future financial
results, future products and other events that have not yet happened. For
example, statements like "we expect" or "we anticipate" are forward-looking
statements, and most of the information in the paragraphs in the Business
section labeled "Fiscal 1998 Plans" is forward-looking. Investors should be
aware that actual results may differ materially from our expectations because of
risks and uncertainties about the future. In addition, we will not necessarily
update the information in this Form 10-K if any forward-looking statement later
turns out to be inaccurate. Details about risks affecting various aspects of our
business are included throughout this Form 10-K. Investors should read all of
these risks carefully, and should pay particular attention to risks affecting
the following areas: Timing of product launches (pages 4-5). Our Internet-based
businesses (page 3). Customer service and technical support (page 12).
Competition (page 10). The business model for online financial services (page
6). Regulatory changes (page 13). Acquisitions (page 41). International
operations (page 7). The
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value and size of our equity investments in other companies (Note 1 of the
financial statements, page 27, and MD&A, page 45). Market growth and sales of
new products and upgraded products (pages 8-10).
CORPORATE BACKGROUND
Intuit began operations in March 1983 and was incorporated in California in
March 1984. In March 1993 we reincorporated in Delaware. Our principal executive
offices are located at 2535 Garcia Avenue, Mountain View, California, 94043, and
our telephone number is (650) 944-6000. When we refer to "we," "Intuit" or the
"Company" in this Form 10-K, we mean the current Delaware corporation (Intuit
Inc.) and its California predecessor, as well as all of our consolidated
subsidiaries.
BUSINESS AND PRODUCTS
PRODUCTS AND SERVICES OVERVIEW
We offer products and services in the following areas:
- Small business accounting software, financial supplies and related
services
- Personal, professional and small business tax preparation software and
related services
- Consumer finance software and related services
- International (selected small business, tax and consumer finance products
in more than 20 countries)
INTERNET STRATEGY
Overview. During fiscal 1997, we have been focusing our efforts in three
strategic directions. Two of these directions -- expanding our small business
offerings, and adding online connectivity to our tax and personal finance
desktop software -- are extensions of the businesses that have historically
represented the majority of our revenue. Our third strategic effort is to
establish a "community" of new Internet-based resources and businesses. We
believe that the dramatic growth of the Internet and the World Wide Web will
eventually give us significant opportunities to grow our business over the next
several years -- although it also presents major risks and challenges. Our
current Internet strategy includes integrating online, Web-based resources into
many of our desktop software products, putting desktop software functionality
onto the Internet, investing in new, entirely Web-based businesses in the
financial services area, and establishing strategic relationships, such as our
relationship with Excite, Inc. (see page 7). Given the rapidly changing nature
of the Internet, we expect to update our strategy over time. Fiscal 1997
Internet-based revenue was well under 5% of our total revenue, but we made
significant progress during fiscal 1997 in refining and implementing our
Internet strategy.
In September 1996 we took an important step in implementing our Internet
strategy when we announced that we would move from a proprietary electronic
communications link between our software and financial institutions, to an
Internet-based link. This means that financial service providers could
electronically connect directly through the Internet to their customers who use
Intuit products, instead of through our private data network operated by our
former ISC subsidiary. As part of this strategic step, we sold ISC to Checkfree
in January 1997 (see Note 3 of the financial statements, page 31). In February
1997, we announced we would collaborate with several other parties (including
Microsoft Corporation and Checkfree) to merge our efforts in a jointly developed
standard called Open Financial Exchange. Open Financial Exchange is an
integrated collection of technical specifications and protocols designed to make
it easier and less expensive for a wide range of financial service providers,
such as banks, brokerage firms, mutual fund companies, insurance companies and
mortgage brokers, to build links for electronic financial data exchange and
communications with their customers using the Internet. While we believe that
Open Financial Exchange is the right strategic approach for Intuit, we face
risks and challenges in implementing it. Open Financial Exchange is a new,
unproven technology. Financial institutions may not accept and implement Open
Financial Exchange as rapidly as we would like, or they may adopt alternative
connectivity standards that may or may not support interoperability with Open
Financial Exchange. In October 1997, we announced a joint development effort
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with Integrion Financial Network (a consortium of retail banks that developed
the Gold Standard connectivity specification) to develop technology that will
allow users of Intuit software to connect to financial institutions that support
the Integrion platform.
Internet-Based Products and Services. The growth of the Internet and the World
Wide Web provides us opportunities in three areas. First, more households are
now connected to the Internet, so we have a greater market for online financial
services such as banking and downloading of financial account information. When
we talk about Internet-based financial services, we're including online banking,
even though some of our online banking currently operates through a private data
network rather than through the Internet. Second, we can create "marketspaces"
that bring together buyers and sellers of complex financial products and
services in a way that benefits buyers and sellers, and that can generate
revenue for us through advertising and marketing service fees. Third, we can
leverage the "community" nature of online services to help consumers share ideas
and information and give them greater confidence in making financial decisions.
During fiscal 1996 and 1997, we invested significant resources to lay some of
the groundwork for establishing these new businesses. We worked on Open
Financial Exchange (see page 2) and we are integrating it into our products
beginning in the fall of 1997. Several desktop products we plan to release in
fiscal 1998 will have imbedded Web "browser" software to make Web access easier.
We have formed relationships with financial institutions to allow our customers
to receive data from them electronically. We made progress in our marketspaces
effort through our acquisitions of IIS and GALT (see page 1). We expect to
launch QuickenMortgage(SM), our consumer mortgage service, in fiscal 1998. We
expanded the software products and financial information available on our
Quicken.com website, and we negotiated distribution arrangements with Excite and
Microsoft to enable our Web-based offerings to reach a broader audience. Our Web
offerings are described in more detail beginning on page 6.
Risks for Our Internet-Based Businesses. In spite of our progress, investors
should be aware that fiscal 1997 Internet-based revenue was well under 5% of our
total revenue. We expect these businesses to grow in absolute dollars, but we
can't predict if or when they will generate significant revenue or profits. We
face many risks and challenges in this area, including the following: The
Internet represents a new business model for Intuit, where revenues are expected
to come from advertising and marketing service fees instead of software product
sales. In order to generate significant revenue from these sources, at a minimum
we need to dramatically increase consumer traffic to our websites. This may
require establishing additional strategic relationships, such as our
relationship with Excite. We may not be able to establish these relationships,
and if we do, they may not bring significant increased traffic to our websites.
We also need to quickly and successfully build new skills as a website content
provider and publisher, which are somewhat different from our traditional
desktop software development skills. Customers may refuse to transact business
over the Internet due to privacy or security concerns. A major breach of
customer privacy or security, even by another company, could have a significant
negative effect on Intuit. We can't be certain that consumers' use of the
Internet, particularly for commercial transactions, will continue to increase as
rapidly as it has during the past few years. If Internet activity becomes
heavily regulated, that could have major consequences for our Internet
businesses. We face intense competition in our Internet-based businesses. There
are very low barriers to entry, and the market is extremely fragmented, making
it difficult for any one company to acquire a "critical mass" of customers. Many
of Intuit's competitors can afford large investments in this business. We may be
unable to adapt our operational infrastructure to support our Internet-based
businesses and the complex operational requirements of our strategic
relationships. The operational requirements for online businesses are very
different from the requirements of our desktop software business.
SMALL BUSINESS ACCOUNTING SOFTWARE, FINANCIAL SUPPLIES AND RELATED SERVICES
QuickBooks(R). Our QuickBooks product brings extensive bookkeeping capabilities
to small business users in an easy-to-use design that does not require customers
to be familiar with debit/credit accounting. QuickBooks supports both cash-based
and accrual-based accounts payable, with separate entry of bills and automatic
generation of accounts payable checks based on outstanding vendor balances.
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QuickBooks Pro(R). QuickBooks Pro is an enhanced version of QuickBooks that
addresses the needs of small businesses in the U.S. that are project, job or
time based, such as contractors, consultants, lawyers, accountants and
subcontractors. QuickBooks Pro allows users to integrate time tracking, job
estimating and project costing with accounting and payroll functions.
Payroll Tax Table Update Service. Our Payroll Tax Table Update Service is a
disk-based data service that provides customers with new tax table files when
relevant federal, state or local payroll tax rates change.
Financial Supplies. We offer a range of financial supplies designed for use with
our small business and consumer finance desktop software products. Supplies
include professional-quality paper checks, invoice forms, envelopes, deposit
slips and return address stamps. These products help users to save time and
automate transactions and record keeping. In September 1995, we entered into an
exclusive five-year contract with John H. Harland Co. to print all of our check
products. We believe our relationship with Harland is good. However, if for any
reason Harland can't provide checks on a timely basis, it could have a material
negative impact on sales of supplies and on Intuit as a whole.
Fiscal 1997 Overview. During fiscal 1997, our QuickBooks business expanded its
installed customer base significantly. We expanded our fee-for-support program,
called the QuickBooks Support Network, to generate revenue from our technical
support services. We also introduced our QuickBooks "professional adviser"
program, in which preferred QuickBooks customers provide assistance and advice
to other QuickBooks users. These advisers have been a source of product
referrals for us, and we hope to expand this program during fiscal 1998.
Our financial supplies business benefited from the growth of our small business
customer base. During the year we improved order accuracy and transmitted a
higher percentage of orders to Harland (our check printer) electronically. These
steps allowed us to improve customer satisfaction and reduce costs because of
fewer errors and reorders, faster order turnaround, and lower order fulfillment
costs. At the end of fiscal 1997, we began developing a website that will enable
customers to order supplies on-line.
Fiscal 1998 Plans. We recently announced that we are working on a multi-user
version of QuickBooks. This new product will address an important customer need,
so we think it represents a good business opportunity. However, there are a
number of risks we face in capitalizing on this opportunity. We currently expect
that the product will be available by the end of fiscal 1998. However, if the
launch date slips (which is possible given the uncertainties of complex software
development), that could have a significant negative impact on our revenue and
net income for fiscal 1998. Providing technical support for this new product
will present challenges as we don't have experience supporting multi-user
products, and all new products have a risk of "bugs." Higher technical support
costs could negatively affect our operating results.
PERSONAL, PROFESSIONAL AND SMALL BUSINESS TAX PREPARATION SOFTWARE AND SERVICES
We offer a broad range of tax preparation software for individuals, tax
professionals and small businesses. Our tax business has been a fairly
predictable source of recurring revenue, because tax products must be updated
every year to reflect tax law changes, and customers generally buy the latest
version every tax year. Our tax business is also very seasonal, with almost all
revenue occurring during our fiscal quarters ending January 31 and April 30.
Personal Tax Products. Our TurboTax(R) products (for Windows) and MacInTax(R)
products (for the Macintosh) are designed for individual consumers who prepare
their own tax returns. We have products for federal tax returns as well as for
the 45 states that have a state income tax. Our tax products are designed to be
easy to use even for inexperienced computer users, but they're sophisticated
enough for more complicated tax returns. Our tax products also allow customers
to transmit federal tax returns and some state returns for electronic filing.
Professional Tax Products. Our ProSeries(R) products are designed for tax
professionals who prepare tax returns for their individual and business clients.
While they have many of the same ease-of-use features as our personal tax
products, our professional products have additional features that enhance the
productivity of tax
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professionals. Our ProSeries products can be used to prepare individual,
corporate, partnership, fiduciary and not-for-profit federal income tax returns,
as well as many comparable state returns.
Small Business Tax Products. For small business owners that prepare their own
business tax returns, we offer TurboTax for Business and MacInTax for Business.
We have separate products for federal and some state S corporations, C
corporations and partnerships, plus products for sole proprietors. TurboTax for
Business can import data directly from QuickBooks and other leading accounting
software programs.
Electronic Filing. Users of Intuit's personal and professional tax preparation
software can file their federal (and some state) tax returns electronically.
Total electronic filings for all of our tax products were about 600,000 in
fiscal 1997, and we expect that the number will increase over the next few
years. We currently provide electronic filing services through third party
vendors, and the fee we charge to customers essentially covers our costs.
However we are working on our own electronic filing technology that will reduce
our cost of providing this service. We used this internally-developed technology
on a test basis in fiscal 1997.
Other Internet-Based Tax Products and Services. In fiscal 1997 we introduced an
online personal tax product that allows customers to prepare and file their Form
1040EZ tax returns entirely online. Only a small number of customers used 1040EZ
online during fiscal 1997, but we think consumer demand for online tax
preparation will increase in the future. Our tax business is also making use of
the Internet to distribute tax products electronically for customers who buy
their tax software directly from Intuit. This reduces our distribution cost and
gets products to customers faster and more conveniently. We are also
increasingly using the Internet to provide customer service and technical
support and to deliver updates and corrections for tax products.
Fiscal 1997 Overview. During fiscal 1997, we improved the quality of our
products and of our technical support, and the demand for electronic filing
increased. Total fiscal 1997 tax revenue reflected strong growth in direct
sales. However, we encountered strong competition in the personal tax area from
H&R Block's TaxCut product, which hindered retail sales growth.
Fiscal 1998 Plans. The primary challenge for our tax business in fiscal 1998
will be to execute a timely launch of high-quality products that reflect all of
the federal tax changes passed by Congress in July 1997. Major tax law changes
have historically contributed to industry-wide growth in tax software sales, and
we hope that will occur with the July 1997 tax law changes. However,
incorporating extensive tax law changes into the software on a tight time
schedule can lead to errors in the software. Our development schedules depend on
timely availability of new IRS forms, instructions and publications, which we
cannot control. If we have major errors in our tax products, or if there are
major delays in our product launches, fiscal 1998 financial performance of the
tax business and of Intuit as a whole would be negatively affected. See page 9
for more information about developing tax products.
During fiscal 1998, we plan to expand use of our internally-developed electronic
filing service. However, as our electronic filing program expands, so will the
risks involved. For example, if we have technical problems that prevent
customers from filing their returns, particularly right before the April 15
filing deadline, we could face serious financial and public relations
consequences. During fiscal 1998, we also plan to expand our online tax
preparation software offerings.
CONSUMER FINANCE SOFTWARE AND SERVICES
During fiscal 1997 the Internet had a profound impact on our consumer finance
business as we shifted our focus to Internet-based products and
services -- including Internet-based features in our desktop software.
Quicken(R) -- Desktop Features. Our Quicken desktop software products help users
organize, understand and manage their personal finances by providing easy
methods for recording and categorizing various types of financial transactions.
For example, Quicken enables customers to reconcile checking and savings
accounts, record credit card purchases and payments, and track cash,
investments, mortgages and other assets and liabilities.
Quicken(R) -- Online Banking and Other Internet-Based Features. During the past
few years, we have been adding Internet-based features to Quicken. In 1995 and
1996, we added Internet navigation software to
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Quicken, gave customers access from within Quicken to what is now called our
Quicken.com website, and offered Quicken users low-cost Internet access through
a third-party Internet service provider. Quicken also allows customers to
schedule bill payments through online payment services. Although we no longer
provide online bill payment directly since we sold our ISC subsidiary, we
continue to market and resell bill payment services offered either by Checkfree
or directly by participating financial institutions.
In our fall 1995 launch of Quicken, we introduced online banking features in
Quicken, which allow users to download transaction and account information from
participating financial institutions directly into their Quicken accounts,
instead of inputting data manually. We currently have about 45 financial
institutions participating in our online banking service. During fiscal 1997,
the business model for our online banking business changed dramatically. Before
we sold our ISC subsidiary to Checkfree in January 1997, ISC performed all of
the data processing for our online banking services, and we received monthly
per-subscriber fees from participating financial institutions. With the sale of
ISC, we no longer provide processing services, so we no longer receive monthly
per-subscriber fees. What we now provide to participating financial institutions
is marketing services and the opportunity to acquire Quicken users as new
customers. Financial institutions can purchase advertising within Quicken and on
Quicken.com, and may also purchase other marketing services. We can't predict if
or when this new business model will generate significant revenue. In addition,
the transition of ISC's processing business to Checkfree is ongoing and we can't
be certain that the transition will be successfully completed.
BankNOW (TM). In September 1996 we introduced our BankNOW software, which
enables America Online subscribers to perform basic online banking functions,
such as checking account balances and transferring funds between accounts,
independently of any personal finance software (such as Quicken). In 1997 we
introduced an Internet-based version of BankNOW to reach a broader customer
base. We don't currently receive any subscriber or transaction fees from
customers or financial institutions who use BankNOW, but we offer BankNOW as
part of our effort to encourage banks to provide electronic connectivity for
Intuit customers.
Quicken Financial Planner (TM). With our Quicken Financial Planner product, a
customer can create a personal financial and retirement plan based on his or her
current financial profile and financial and retirement goals. We also offer a
simplified, online version of this product, called the Quicken Retirement
Planner, on Quicken.com. In 1997 we introduced Fidelity QFP, which was
specifically designed for customers who have 401(k) retirement plans with
Fidelity Investments. Our QFP products are offered by Quicken Investment
Services, Inc., which is a registered investment adviser subsidiary (see page
13).
Quicken.com. Quicken.com (formerly Quicken Financial Network) is our community
website, and it's designed to enable people to make better financial decisions
and perform financial tasks more easily by giving them useful tools, software
applications, resources and objective information about a variety of personal
finance topics in one location. Quicken.com also acts as a vehicle for
distributing many of our Internet-based products and services. Some of the
content on Quicken.com is created by Intuit, and some is provided for us by
third party publishers and financial experts. Users can access Quicken.com
through versions of Quicken that have Web navigation software, as well as
through any Internet service provider and Internet browser software. We do not
currently charge customers a fee to access Quicken.com, but we receive revenue
from companies that advertise and sell their products or services on
Quicken.com. We also receive fees relating to some of the specific services that
are available through Quicken.com, such as Quicken InsureMarket.
By the end of calendar 1997, we expect that Quicken.com will have "channels" for
Investments, Tax, Insurance, Home/Mortgage and other financial areas. The
Investments channel has evolved from the NETworth(R) site originally created by
GALT, which we acquired in 1996. It includes portfolio tracking, investment
research tools, stock and mutual fund quotes and information and other
investment-related content. Other channels will provide relevant information and
tools about other financial topics. Certain channels will have direct links to
related websites. For example, the Insurance channel will link to Quicken
InsureMarket (described below.) On each channel, consumers will be able to have
live interactive discussions with other Quicken.com users, post their comments
about financial topics on bulletin boards, and participate in discussions about
financial topics led by financial experts.
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Quicken InsureMarket. Quicken InsureMarket is a website that enables customers
to shop for term life insurance, contact insurance agents and learn about other
insurance products online. We receive initial implementation fees and ongoing
annual participation fees from insurance carriers who participate in the Quicken
InsureMarket site, and some carriers pay us fees for data processing and other
administrative services. As of October 1997, nine insurance carriers were
participating in the Quicken InsureMarket site. Quicken InsureMarket is offered
by our IIS subsidiary, which is subject to state insurance regulations (see page
13).
Fiscal 1997 Overview. Fiscal 1997 was a year of transition and refocus for our
consumer finance business. The market for traditional desktop personal finance
software is declining as customers are using the Internet for many personal
finance tasks. While our Quicken products have been negatively affected by this
trend, our Internet strategy is designed to take advantage of it. We made
progress in implementing our Internet strategy during fiscal 1997, but these
changes have not yet had a significant positive impact on our financial
performance. Investors should be aware that Internet-based revenue during fiscal
1997 was substantially less than 5% of our total revenue. Although we think this
will increase in fiscal 1998, we can't predict if or when these sources will
generate significant revenue.
In June 1997 we announced an agreement with Excite to jointly develop, promote
and distribute a new online financial channel. Excite is a leading provider of
Internet search and navigation services, with about 2.5 million users daily.
Intuit will be the exclusive provider and aggregator of personal financial
content for all of Excite's Internet services. Excite will provide hosting as
well as advertising sales services and software services, and will become the
exclusive search and navigation service promoted in our Quicken, QuickBooks and
TurboTax products. This channel is expected to include financial information and
services designed to help consumers organize and manage their personal financial
lives and make more informed financial decisions. We anticipate that the channel
will premiere during calendar 1997. We expect that this agreement with Excite
will help us increase the customer base for our Internet-based products and
services and will eventually generate revenue for Intuit and Excite from a
combination of advertising, transaction and subscription fees, but we can't be
certain if or when we will see these benefits. In addition, in June 1997 we
invested $39.2 million for a 19% equity interest in Excite. See Note 4 of the
financial statements, on page 31.
Fiscal 1998 Plans. Our fall 1997 Quicken products will have new
investment-related features, including a feature that will allow Quicken users
who are customers of participating brokerage firms to download brokerage account
data and execute securities trades through their broker's website. Quicken
customers will also have easier access to the World Wide Web, as Microsoft's
Internet Explorer Web browser will be imbedded in Quicken and other Intuit
desktop software. In addition, our Quicken.com site will be a "channel" on
Microsoft's new Active Desktop product. We will also be launching a new product
in fiscal 1998 called Quicken Home & Business, which is designed to serve small
business owners that currently use personal finance software, rather than
software designed specifically for small businesses. During fiscal 1998, we plan
to expand the products and services available on our Quicken.com "channels"
described above. We expect to launch QuickenMortgage, a mortgage service that
will enable consumers to shop for home mortgages online. We also expect to
expand Quicken InsureMarket to allow consumers to shop for additional types of
insurance, such as auto insurance. Our new businesses involve many uncertainties
(including possible delays in launching them), so we don't know if they will be
successful.
During the next few years, our primary goals for our Internet-based businesses
will be to increase customer traffic, establish strategic relationships and
achieve participation by a broad range of financial institutions in the
financial products and services we offer. Investors should be aware that any
initial success achieved in these areas will not necessarily be reflected in
successful financial performance. See page 3 for more information about the
risks related to our Internet-based businesses.
INTERNATIONAL
Our international operations are divided into three regions: Europe, Japan and
the Pacific. We believe our international operations will give us opportunities
to expand in existing markets and reach new markets over the next several years.
See MD&A, page 42 for financial information about our foreign operations.
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European Region. We serve selected European markets and South Africa with
localized versions of our products through our offices in Germany, France and
the United Kingdom. We currently offer Quicken in France, Germany, Spain, the
United Kingdom, Austria and South Africa, and we offer QuickBooks in Germany and
the United Kingdom. We also offer small business accounting products in France
that were developed by Somma France S.A.R.L., a small business accounting
software company that we acquired in February 1997 (see Note 2 of the financial
statements on page 31). We sell personal tax products in France, Germany and the
United Kingdom.
Most of our sales in the European region are through distributors, who sell into
the retail channel. In September 1997 we entered into an equity, localization,
manufacturing and distribution arrangement with Intuit Services Europe N.V., a
Dutch company with headquarters in Switzerland (not an Intuit subsidiary).
Intuit Services Europe will help us distribute Quicken through banking channels
in France, Germany and the United Kingdom, and will develop Quicken products for
several new European markets.
Japan Region. Our Japanese operations are now managed by our Intuit KK
subsidiary. Intuit KK combines the businesses of Milkyway KK (which we acquired
in January 1996) and Nihon Micom (which we acquired in March 1997), and it is
now the largest Windows-based small business accounting software company in
Japan. We currently offer products developed by Milkyway and Nihon Micom, and we
expect to eventually offer QuickBooks products in Japan also. We sell products
in Japan through both retail and direct channels.
Pacific Region. Our Pacific region includes Canada, Australia, Latin America,
Hong Kong and other parts of Southeast Asia. We offer Quicken in Canada,
Australia, Hong Kong, the Philippines and Singapore, as well as several Latin
American countries (including Mexico, Brazil, Colombia and Argentina). We offer
QuickBooks in Canada, Australia and Hong Kong. We also offer our QuickTax(TM)
personal tax product in Canada and Australia. We sell products in the Pacific
region through both retail and direct channels.
Fiscal 1997 Overview and Fiscal 1998 Plans. During 1997 our European region
launched new Quicken products in France, Germany and the United Kingdom, and a
new QuickBooks product in the United Kingdom. In June 1997 we announced that we
would reorganize our European region to consolidate management operations for
our core European markets (France, Germany and the United Kingdom) in our German
headquarters in Munich. We'll continue to have sales and marketing offices in
France and the United Kingdom. We also announced that we plan to outsource all
European customer service, technical support, manufacturing and order
fulfillment functions to third party vendors. We expect that these steps will
lead to more efficient operations in fiscal 1998. In fiscal 1997 we established
a presence in several key markets in Southeast Asia, including Hong Kong and the
Philippines, where we hope to benefit from increasing adoption of home
computers.
Special Risks for International Operations. We intend to continue expanding our
international operations, but we can't be certain that our efforts will lead to
increased revenue or profits in international markets or for Intuit as a whole.
Developing products for foreign markets is more time-consuming and costly than
developing products for the U.S. market. Delays or other problems in product
launches may be more likely because of these factors, and they can impact our
financial performance. For example, our German subsidiary experienced delays in
two critical product launches in fiscal 1996 that resulted in excess inventory
levels in the distribution channel. Economic conditions in international markets
can also negatively affect our business as they did in fiscal 1996 when there
was general weakness in European consumer software markets. Our international
revenue and expenses are currently denominated in a variety of foreign
currencies and we don't currently engage in any hedging activities. Although the
impact of currency fluctuations has not been significant in the past, this could
change in the future as our international operations grow, and it could have a
negative impact on our operating results and financial condition. Other risks in
our international operations could also have a negative impact on our business,
including unexpected changes in regulatory requirements, tariffs and other trade
barriers; longer accounts receivable payment cycles and collection difficulties;
the burden of complying with a wide variety of foreign laws (including financial
reporting and record-keeping requirements); possible adverse tax consequences
including repatriation of earnings; and potentially less protection for our
intellectual property rights under foreign laws.
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PRODUCT DESIGN AND DEVELOPMENT
We believe that successful products must be easy to use and must respond to
customers' specific needs and use patterns. We design new products and
enhancements based on consumer input and then have actual users conduct field
tests and give us feedback. Once products are released, we continue to seek
customer input to incorporate in product enhancements and upgrades. A primary
goal of our desktop software product development efforts is to design products
that will stimulate additional sales to existing customers -- either upgrades of
products they already own or new products. We also develop products that
generate recurring revenue, such as our tax preparation products, which
customers generally buy every year. For our Web-based development efforts, a
major goal is to generate traffic to our websites, in order to generate
advertising revenue and customers for our marketspaces such as Quicken
InsureMarket. Our total research and development expenses were $57.3 million in
fiscal 1995, $76.5 million in fiscal 1996 and $93.0 million in fiscal 1997.
We remind investors that the software development process is complex and
involves some risks for Intuit. Our products may have "bugs" that hinder product
performance, give customers incorrect results and/or damage customer data. These
problems can be expensive to fix, particularly if we need to do a major
maintenance release or pay refunds to customers. Poor product quality can cause
us to lose revenue and customers, and incur higher technical support costs. Any
major product bugs could have a material negative effect on our financial
performance. In addition, investors should also keep in mind that only a small
percentage of new software products achieve any degree of sustained market
acceptance.
The development of tax preparation software presents a unique challenge because
of the demanding annual development cycle required to incorporate tax law
changes each year. We can't predict how complex the tax law changes will be each
year, or when tax forms will be available from the IRS and state tax agencies.
The rigid development timetable increases the risk of errors in the products.
Although fiscal 1997 tax product quality was high, in fiscal 1995 and 1996 we
had software defects that led to negative publicity, customer dissatisfaction
and incremental operating expenses.
As we expand our Internet-based businesses, we expect that customers will be
concerned about privacy and security of the personal information they provide
when using products and services. We currently incorporate extensive security
measures into our products and services, and we are developing a comprehensive
customer privacy policy. However, a major breach of customer privacy or
security, even by another company, could have a negative effect on Intuit.
MARKETING, SALES AND DISTRIBUTION
MARKETS
We use a variety of marketing approaches to sell our products and services into
the markets we serve through our retail and direct sales organizations. The
markets that we compete in, particularly in the Internet area, are characterized
by rapidly changing customer demands, continuous technological changes and
improvements, shifting industry standards and frequent new product introductions
by other companies. Changes in any of these areas can quickly render existing
products obsolete, so our marketing success depends on our ability to respond
rapidly to these changes with new products and services, as well as improvements
to existing products and services. One way that we're attempting to respond to
market changes is our Internet strategy (described on page 2).
RETAIL SALES
We market our desktop software in North America through traditional retail
software outlets, computer superstores, office and warehouse clubs and general
mass merchandisers. Retail sales revenue represented slightly less than half of
total gross revenues during fiscal 1995 and 1996. In fiscal 1997, the percentage
declined to about 40%, reflecting declines in retail sales of Quicken, as well
as a shift towards a higher percentage of direct sales for TurboTax. We sell
directly to some retailers and we also sell to distributors who then resell to
retailers. The only retailer or distributor that accounted for more than 10% of
our net revenue
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during the past three fiscal years was Ingram Micro Inc. (12% in 1995, 13% in
1996 and 14% in 1997). We also have retail distribution arrangements with banks
and other financial institutions for our electronic financial services, and for
our desktop software that includes these services. For example, our BankNOW,
Quicken and QuickBooks products are marketed through participating banks, and
Fidelity Investments markets Fidelity QFP financial planning software.
During the past few years, there has been increasing consolidation among
retailers. This trend has created a number of large retailers with significant
bargaining power, which makes it more difficult for us to negotiate financially
favorable terms. We expect this consolidation trend to continue in fiscal 1998.
An element of our retail sales efforts that has been important over the last
several years is our original equipment manufacturer, or "OEM," relationships
with hardware and software manufacturers. We sell our software to OEMs to be
combined with their products, which are then sold to consumers. Initially, most
of our OEM sales were special, limited feature editions of Quicken, but more
recently we have been selling regular full-feature Quicken to OEMs. The sale
prices we receive for OEM sales are much lower than retail or direct sale
prices. Although OEM sales generate little revenue for us and reduce operating
margins in the short term, they have been strategically important because they
have been a good source of new customers, with the potential for future sales of
more profitable products and services. OEM sales have been particularly
important for our Quicken business in responding to competitive pressures.
However, given the adverse impact of OEM sales on revenue and profitability, we
are also using other methods (such as our Web-based businesses) to acquire new
customers.
DIRECT SALES
We believe that direct sales campaigns stimulate retail demand and increase
consumer awareness of our products, while also generating orders and providing
opportunities for cross-selling. Direct sales frequently generate significantly
higher revenues and margins than retail sales, but this also means that
aggressive retail pricing can harm direct sales efforts. We use targeted
direct-mail and telephone solicitations, direct-response newspaper and magazine
advertising, and television and radio advertising to encourage direct sales.
During fiscal 1997, our Parsons subsidiary was a major source of direct sales
for us, since almost all of their products were sold direct to customers (see
MD&A, page 43).
Customers can order and receive products electronically through the Quicken
Store, which is accessible through Quicken.com and other Intuit websites.
Electronic ordering and delivery are convenient for customers and less expensive
for Intuit. We saw a significant increase in online orders and deliveries during
fiscal 1997. Although they accounted for less than 1% of revenue in fiscal 1997,
we anticipate that they will continue to increase.
PRODUCT RETURNS
Like most other software companies, we have a generous return policy for our
distributors and retailers, although we encourage them to make returns promptly.
We have an unconditional return policy for direct customers. In the past,
returns have not generally exceeded the reserves we have established for them in
our financial statements. However, if in the future retail sell-through of a
major product falls significantly below expectations, returns could exceed
reserves and could have a negative effect on our financial performance.
COMPETITION
OVERVIEW
We face intense competition from many companies in almost all of the markets in
which we compete -- both domestic and international. Some of our major
competitors (but not all of them) in each business area are identified below. We
think the most important competitive factors for desktop software are product
features, ease of use, quality and reliability, brand name, timing of product
launches compared to competitors, price, access to distribution channels and
quality of technical support services. In our Internet-based products and
services, our speed in getting new products and services out, and our ability to
distribute them effectively (by generating traffic on our websites) are the most
critical factors for competitive success, although our strong
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Quicken brand, product features and ease of use are also important to help
generate traffic. Strategic relationships are also important for generating and
distributing a wide variety of Web-based content to a large audience. We believe
we generally compete effectively on each of these competitive factors, although
our competitive position for any particular factor varies from product to
product and over time.
Some of our competitors have significantly greater financial, technical and
marketing resources and broader product lines than we do. Customer demands
change rapidly, and we have to respond quickly, with new products and
accelerated product release schedules, to remain competitive. This is
particularly true in our Internet-based businesses, where product and service
launches happen continuously. Actions taken by our competitors, such as cutting
prices, increasing advertising (especially advertising targeted at our
customers) and releasing new products before we do, can have a negative impact
on revenue and profitability, and can hinder our ability to keep existing
customers and acquire new customers.
SMALL BUSINESS ACCOUNTING SOFTWARE AND SERVICES
Our major competitors in small business accounting software are currently
Peachtree Software (a division of ADP) and The Sage Group PLC (based in the
United Kingdom). Because Peachtree's products use standard debit/credit
accounting principles, we think our QuickBooks products have a competitive
advantage in ease of use for customers unfamiliar with accounting principles.
Peachtree offers a multi-user accounting software product that will compete with
the new multi-user version of QuickBooks that we plan to release in late fiscal
1998. Sage is currently our major competitor in Europe. Microsoft recently
announced that it will offer versions of Microsoft Money targeted to the small
business market in Europe, so we expect that they will begin to be a major
competitor there in fiscal 1998.
Our financial supplies business competes with a number of business forms
companies, such as Deluxe Business Systems, New England Business Services and
Moore Business Forms. We're also seeing increased competition from the direct
mail check printers that now offer computer checks, as well from banks. Our
major competitive advantages in this market are our direct access to Intuit's
customer user base (through in-box advertising), product quality, speed of
delivery and guaranteed compatibility with Intuit software products, but we
can't guarantee continued competitive success.
PERSONAL, PROFESSIONAL AND SMALL BUSINESS TAX PREPARATION SOFTWARE AND SERVICES
In the personal tax area, our major competitor is currently Block Financial
Corporation, the makers of TaxCut software. During fiscal 1997, TaxCut was
priced very aggressively, and was released a little earlier than our personal
tax products. As a result, even though our total sales of TurboTax grew
significantly, our growth rate was lower than the growth rate of industry-wide
retail sales of personal tax software. We expect that TaxCut will continue to
offer aggressive competition in fiscal 1998. The professional tax preparation
market is highly fragmented. Competitors in the U.S. include Arthur Andersen,
Lacerte Software Corporation, Commerce Clearing House/Computax, RIA/Creative
Solutions, Pencil Pushers, Inc. and CLR Fast-Tax. Our competitors in
international tax include The Learning Company in Canada, Lexware and Viso in
Germany and TaxCalc in the United Kingdom.
CONSUMER FINANCE SOFTWARE AND SERVICES
In desktop consumer finance software, Microsoft is currently our primary
competition in both domestic and international markets. Quicken competes
directly with Microsoft Money, which is aggressively promoted with free product
offers through various distribution channels, and with advertising targeted to
Quicken users. These competitive pressures, as well as other factors, have
negatively affected Quicken revenue and profitability, as we have lowered prices
and concentrated on OEM sales in order to remain competitive. There are many
competitors for our other consumer finance products and services, and we expect
that competition will increase as we expand our consumer finance offerings, and
as more companies expand their businesses onto the Internet. There are
relatively low barriers to entry for Internet-based businesses, so we face
competition from new and relatively small companies as well as established
software companies. We also face competition from financial institutions that
are developing their own financial software and websites. Our
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Web-based investment-related services and the Quicken.com website compete with
online financial publishers and the financial areas on numerous online services
such as America Online and Yahoo.com, as well as financially-oriented websites
such as MSN Investor.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
We provide customer service and technical support for our products primarily by
telephone and fax. For customers who are connected to the Internet, we can
answer questions by electronic mail and make corrected software available
electronically. These methods are less expensive for us and often more efficient
for customers. We currently operate major domestic telephone support centers in
Tucson, Arizona and Fredericksburg, Virginia, and a telephone sales and service
center in Mountain View, California. We currently have a full-time customer
service and technical support staff of about 1,000 employees, but during periods
of peak call volumes (such as during the tax return filing season, or shortly
after a major product launch), we hire many seasonal employees and outsource
some of the work.
During fiscal 1996, we began a fee-for-support program for QuickBooks and
QuickBooks Pro customers under which customers could elect to pay a fee for
expedited telephone support, and in fiscal 1997 we expanded the fee-for-support
program. We believe this is consistent with industry trends in the small
business products market. We also instituted a fee-for-support policy for older
versions of Quicken during fiscal 1996. Revenues from our fee-for-support
programs have been minimal, but we believe the policies have helped to control
technical support costs. During fiscal 1998 we plan to expand the
fee-for-support policy to other products. We have not experienced significant
negative customer reactions to fee-for-support in the past, but that may occur
in the future.
Despite our efforts to adequately staff and equip our customer service and
support operations, during peak periods we occasionally can't respond promptly
to all customer calls. We may also have an unusually high volume of calls, and
be unable to respond promptly, if large numbers of customer order shipments are
delayed or if we have product bugs. For example, in fiscal 1995 we had some
operational problems with our direct order entry system that resulted in a high
volume of calls, customer dissatisfaction, lost business and negative publicity.
During fiscal 1996, customers had difficulties connecting to our online banking
and bill payment services, and we incurred unexpected expenses for operational
improvements. If we experience customer service and support problems in the
future they could adversely affect customer relationships and financial
performance.
In June 1997 we decided to close a major technical support facility in Rio
Rancho, New Mexico and consolidate its operations with our Tucson, Arizona call
center. Even though we eliminated about 150 technical support positions, we
think the consolidation will allow us to provide better customer service because
it will be easier to shift resources to where they are most needed at any given
time. We also restructured our European technical support operations during
fiscal 1997 (see page 8). Our technical support and other restructuring
activities during fiscal 1997 resulted in a restructuring charge of $10.4
million (see Note 6 to the financial statements on page 32, and MD&A, page 45).
Although we expect that these changes will allow us to operate more efficiently,
we can't be certain that they will.
MANUFACTURING AND SHIPPING
The major steps involved in manufacturing desktop software are duplicating disks
and CDs, printing manuals and boxes, and assembling and shipping the final
products. We outsource most of these tasks to vendors who are required to follow
our strict quality guidelines. We have a small in-house manufacturing and
shipping facility to handle low-volume products, and to handle shipments for
direct sales. We have multiple sources for all of our raw materials and
availability has not been a problem for us. Prior to major product releases, we
tend to have significant levels of backlog, but at other times backlog is
minimal and we normally ship products within a week of receiving an order.
Because of this fluctuation in backlog, we don't think backlog is necessarily an
important measure of future sales.
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GOVERNMENT REGULATION
Some of our products and services are regulated businesses under federal or
state laws. We offer these regulated products and services through separate
subsidiary corporations. These subsidiaries must comply with a variety of
regulations that don't apply to most software companies. Establishing and
maintaining regulated subsidiaries requires significant financial, legal and
management resources. If the subsidiaries fail to comply with applicable
regulations, they could face liability to customers and/or penalties and
sanctions by government regulators.
Our Quicken Investment Services, Inc. subsidiary (or "QISI") is registered as an
investment adviser in many states and is subject to certain federal laws as
well. QISI is responsible for Quicken Financial Planner, Quicken Retirement
Planner on Quicken.com and some investment-related features in our Quicken
products. Investment adviser regulations restrict QISI's business practices in
several areas, including advertising and distribution arrangements. The business
activities of IIS, which operates the Quicken InsureMarket website, are subject
to state insurance regulations. IIS (or one of its officers) currently has an
insurance license in each state where we believe licensing is necessary. State
insurance laws regulate various aspects of the business operations of IIS and
participating insurance carriers, including advertising, record-keeping and
compensation. Our QuickenMortgage loan service scheduled to be launched during
fiscal 1998 will be offered by a subsidiary called Intuit Lender Services, Inc.
(or "ILSI"). We are in the process of registering or licensing ILSI as a
mortgage or loan broker in all states where registration or licensing is
required, and we won't be able to offer the full-feature QuickenMortgage service
in any state until registration or licensing is completed in that state. We
expect that this process will be completed in most states by the time the
service is launched, but we can't be certain that it will be.
Our fall 1997 Quicken products will allow customers of participating brokerages
to trade securities through their broker's website. Quicken InsureMarket may
expand its site to include other insurance products that are considered
"securities" under federal and state laws. We believe we have structured these
services in a way that avoids direct government regulation. However, it's
possible that these services, or other services we may offer in the future, may
be regulated under federal and/or state securities broker-dealer laws or other
regulations. We continually analyze new business opportunities, and any new
businesses that we pursue may require additional expenditures and investments in
regulatory compliance.
Various Intuit products contain powerful encryption technology. Government
regulations currently prohibit this technology from being exported outside of
the United States and Canada. Some agencies of the federal government are
seeking to relax export laws, but others are seeking to tighten export
restrictions on software containing encryption technology. These regulations may
affect international sales of our desktop software as well as our ability to
provide the level of security customers are seeking in Internet-based products
and services on a worldwide basis.
INTELLECTUAL PROPERTY
We rely on a combination of copyright, patent, trademark and trade secret laws,
and employee and third-party nondisclosure agreements to protect our software
products and other proprietary technology. While our proprietary technology is
important, we believe our success depends more heavily on the innovative skills
and technical competency of our employees. We don't have any copy-protection
mechanisms in our software because we don't believe they are practical or
effective. Current U.S. laws that prohibit copying give us only limited
practical protection from software "pirates," and the laws of many other
countries provide almost no protection for our intellectual property. Policing
unauthorized use of our products is difficult, expensive and time-consuming and
we expect that software piracy will be a persistent problem for our desktop
software products. In addition the unique technology of the Internet may tend to
increase, and provide new methods for, illegal copying of the technology used in
our Internet-based products and services. We consider our principal trademarks
(including Intuit, Quicken, QuickBooks and TurboTax) to be important assets and
have registered these and other trademarks and service marks in the U.S. and
many foreign countries. The initial duration of trademark registrations varies
from country to country and is 10 years in the U.S. Most registrations can be
renewed repeatedly.
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We don't necessarily own all of the software and other technologies used in our
products and services, but we have all licenses that we believe are necessary
for using that technology. We don't believe that our products, trademarks and
other proprietary rights infringe anyone else's proprietary rights. However,
other parties occasionally claim that features or content of certain of our
products, or our use of certain trademarks, may infringe their property rights.
Past claims have not resulted in any significant litigation, settlement or
licensing expenses in the past, but future claims could.
EMPLOYEES
As of August 31, 1997, Intuit and its domestic subsidiaries had about 2,500
full-time employees, and our international subsidiaries had about 500 full-time
employees. We don't have any collective bargaining agreements with our
employees, and we believe employee relations are generally good. We believe our
future success and growth will depend on our ability to attract and retain
qualified employees in all areas of our business. Although we believe we offer
competitive compensation and a good working environment, we face intense
competition for qualified employees. Like many of our competitors, we have had
difficulties during the past few years hiring and retaining employees. At
certain times during the past few years, employee morale and retention have been
hindered by declines in our stock price and the value of employee stock options.
To address this problem, we "repriced" certain stock options during fiscal 1997.
See Note 8 of the financial statements, on page 33.
In June 1997 we announced a corporate restructuring that included closing our
technical support facility in Rio Rancho, New Mexico, reorganizing European
administrative and technical support functions and eliminating some positions in
Northern California. These moves are reducing our worldwide workforce by
approximately 270 employees. Our sales of ISC in January 1997 and Parsons in
August 1997 reduced our workforce by about 900 employees. See Notes 3, 6 and 15
of the financial statements.
ITEM 2. PROPERTIES
Our principal offices are located in Mountain View, California. We also lease
office and manufacturing space in Palo Alto and San Diego, California. We lease
our Mountain View facilities (currently about 130,000 square feet) under leases
with staggered eight-year terms that we entered into in November 1994. Since
December 1995, we have been in the process of moving our Palo Alto operations to
Mountain View in stages. The move will be completed over the next several years.
In June 1996, we relocated our San Diego operations to new offices
(approximately 140,000 square feet) under a "build-to-suit" lease. See Note 7 of
the financial statements (page 32) for information about our lease commitments.
We also lease facilities in Tucson, Arizona and Fredericksburg, Virginia, for
customer service call centers; in Alexandria, Virginia, where our IIS subsidiary
is located; and in Canada, England, France, Germany and Japan. We have a call
center facility in Rio Rancho, New Mexico, but we recently consolidated its
operations into our Tucson location. We are currently attempting to dispose of
the Rio Rancho facility.
We believe our facilities are adequate for our current and near-term needs and
that we will be able to locate additional space to accommodate anticipated
growth.
ITEM 3. LEGAL PROCEEDINGS
We are subject to legal proceedings and claims that arise in the course of our
business. We currently believe that the ultimate amount of liability, if any,
for any pending actions (either alone or combined) will not materially affect
our financial position, results of operations or liquidity. However, the
ultimate outcome of any litigation is uncertain. An unfavorable outcome could
have a material negative impact. In addition, any litigation, regardless of
outcome, can have an adverse impact on Intuit because of defense costs,
diversion of management resources and other factors.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
These are our current officers and their areas of responsibility. Biographies of
our executive officers are included after the table.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ------------------------------------------------------
<S> <C> <C>
Scott D. Cook 45 Chairman of the Board of Directors
William V. Campbell 57 President, Chief Executive Officer and Director
William H. Harris, Jr. 41 Executive Vice President
Mari J. Baker 32 Senior Vice President, Consumer Finance
Eric C.W. Dunn 39 Senior Vice President, New Business and International;
Chief Technology Officer
Alan A. Gleicher 45 Senior Vice President, Sales
Mark R. Goines 44 Senior Vice President, International
James J. Heeger 41 Senior Vice President, Small Business
David A. Kinser 46 Senior Vice President, Operations
John Monson 42 Senior Vice President and Intuit Fellow
Larry J. Wolfe 46 Senior Vice President, Tax Products
Greg J. Santora 46 Vice President, Chief Financial Officer and Chief
Accounting Officer
Linda Fellows 49 Treasurer and Director of Investor Relations
Catherine L. Valentine 45 Vice President, General Counsel and Corporate
Secretary
OTHER OFFICERS
Joel T. Brown 36 Vice President and General Manager, Financial Supplies
Group
Caroline F. Donahue 36 Vice President, Sales
Brooks Fisher 39 Vice President, Community
Brian D. Fitzgerald 48 Vice President, Worldwide Operations
Larry King, Jr. 35 Vice President, Direct Sales and Service
Robert J. Meighan 39 Vice President, Personal Tax Group
Carl Reese 40 Vice President, Mortgage Marketspace
Tanya L. Roberts 36 Vice President, Direct Sales
William C. Shepard 54 Vice President, Professional Products Group
Paul Vallaincourt 41 Vice President, U.S. Technical Support
</TABLE>
Mr. Cook, a founder of Intuit, has been a director of Intuit since March 1984
and has been Intuit's Chairman of the Board of Directors since March 1993. From
March 1984 to April 1994, he also served as President and Chief Executive
Officer of Intuit. Mr. Cook also serves on the board of directors of Amazon.com
and Broderbund Software, Inc. Mr. Cook is also a member of Broderbund's Audit
Committee. Mr. Cook holds a Bachelor of Arts degree in economics and mathematics
from the University of Southern California and a Masters in Business
Administration from Harvard University.
Mr. Campbell joined Intuit as its President and Chief Executive Officer in April
1994 and was elected to Intuit's Board of Directors in May 1994. Mr. Campbell
was President and Chief Executive Officer of GO Corporation, a pen-based
computing software company, from January 1991 to December 1993. He was President
and CEO of Claris Corporation, a software subsidiary of Apple Computer, Inc.,
from 1987 to January 1991. Mr. Campbell also serves on the board of directors of
SanDisk, Inc., Great Plains Software, Inc.
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and Apple Computer, Inc. He is a member of SanDisk's Compensation Committee and
a member of Apple's Audit Committee. Mr. Campbell holds both a Bachelors and a
Masters degree in economics from Columbia University.
Mr. Harris became Executive Vice President of Intuit in December 1993, in
connection with Intuit's acquisition of ChipSoft, a tax preparation software
company. He has been responsible for Intuit's tax and consumer finance
businesses since July 1996. From January 1992 to December 1992, Mr. Harris
served as President and Chief Operating Officer of ChipSoft; and from June 1991
to January 1992, he was ChipSoft's Executive Vice President and Chief Operating
Officer. Mr. Harris earned a Bachelor of Arts degree in American Studies from
Middlebury College in Vermont and a Masters in Business Administration from
Harvard University.
Ms. Baker became Intuit's Senior Vice President of the Consumer Division in
March 1997. She served as Intuit's Vice President and General Manager of the
Personal Finance Group from July 1996 to March 1997. From April to July 1996,
she served as Vice President of Intuit's Financial Supplies Group, and she
served as Vice President of International from September 1994 to April 1996.
From January 1994 through September 1994, Ms. Baker was Vice President of
Marketing for Now Software, Inc., a personal and small business software
company. Ms. Baker first joined Intuit in April 1989 and served in various
marketing positions until she left Intuit in December 1993. Ms. Baker holds
Bachelor of Arts degrees in economics and sociology from Stanford University.
Ms. Baker also serves on the Board of Trustees for Stanford University.
Mr. Dunn became Intuit's Senior Vice President of the International/New Business
Division and Chief Technology Officer in March 1997. He served as Intuit's
Senior Vice President of the Consumer/International Division from July 1996 to
March 1997. He served as Vice President and General Manager of Intuit's Personal
Finance Group from May 1994 to July 1996, and served as Intuit's Chief Financial
Officer and a director from September 1986 to December 1993. He also served as
Intuit's Corporate Secretary from March 1991 to December 1993. From December
1993 to May 1994, Mr. Dunn was an Intuit Fellow. Mr. Dunn holds a Bachelor of
Arts degree in physics and a Masters in Business Administration from Harvard
University.
Mr. Gleicher became Intuit's Senior Vice President of Sales in March 1997. He is
responsible for retail, direct and OEM sales. He served as Intuit's Vice
President of Sales from December 1993 to March 1997. From September 1990 until
Intuit's acquisition of ChipSoft in December 1993, Mr. Gleicher served as
ChipSoft's President, Personal Tax Division. Prior to joining ChipSoft, Mr.
Gleicher was President and a co-founder of SoftKat, which was a leading
educational and consumer software distributor. Mr. Gleicher has a Bachelors
degree in economics and business finance from San Diego State University. He
also earned a certificate from the Marketing Management Program at Stanford
University.
Mr. Goines became Intuit's Senior Vice President and General Manager of the
International Group in August 1997. He served as Intuit's Vice President and
General Manager of the International Group from April 1996 to August 1997. He
initially joined Intuit in December 1993 as Director of Product Management for
Tax Products in connection with Intuit's acquisition of ChipSoft. He became Vice
President and General Manager of Personal Tax Products in March 1994. From April
1991 to December 1993, Mr. Goines served as the Director of Product Management
of ChipSoft. Mr. Goines holds a Bachelor of Science degree and a Masters in
Business Administration from the University of California at Berkeley.
Mr. Heeger became General Manager and Senior Vice President of Intuit's Small
Business Division in July 1997. He served as Chief Financial Officer of Intuit
from April 1996 to July 1997, and was Senior Vice President in charge of the
Finance, Customer Services and Operations functions from July 1996 until July
1997. He served as Vice President and General Manager of Intuit's Supplies Group
from December 1993 to April 1996 and served as Intuit's Vice President of
Operations from August 1993 to December 1993. From September 1982 to August
1993, Mr. Heeger served in a number of marketing and operations roles at
Hewlett-Packard Company. From 1987 to August 1993, he was responsible for
distribution of Hewlett-Packard's personal computer products. Mr. Heeger
received a Bachelor of Science degree in management from the Massachusetts
Institute of Technology and a Masters in Business Administration from Stanford
University.
16
<PAGE> 19
Mr. Kinser joined Intuit as Senior Vice President of Operations in February
1997. Prior to that, Mr. Kinser served as a consultant to Intuit from July 1995
to February 1997. Mr. Kinser served as Chief Financial Officer and Vice
President of Operations for Collabra Software from 1994 to 1995. Mr. Kinser
served as Chief Financial Officer of EO Corp. from 1991 to 1993. He has also
held executive positions at Claris Corp. and Apple Computer, Inc. Mr. Kinser
holds a Bachelor of Arts degree from Humboldt State University.
Mr. Monson became an Intuit Fellow in July 1997 and also serves as a Senior Vice
President. He served as Senior Vice President of the Small Business Division
from July 1996 to July 1997. Mr. Monson served as Vice President and General
Manager of Intuit's Business Products Group from May 1994 to July 1996 and as
Intuit's Vice President of Marketing from January 1989 to May 1994. Mr. Monson
holds a Bachelor of Arts degree in mathematics from Whitman College and a
Masters of Management degree in marketing and finance from Northwestern
University.
Mr. Wolfe became Intuit's Senior Vice President of the Tax Products Group in May
1997. Prior to that, he served as Vice President and General Manager of Intuit's
Personal Tax Group from April 1996 to May 1997. He was the director of technical
support and sales for Intuit's Professional Tax Group from March 1994 to April
1996. From January 1990 to March 1994, Mr. Wolfe was Vice President of Direct
Link Software, Inc. ("DLS") and its successors. DLS was a privately held
software company from January 1990 to March 1993, when it was acquired by
ChipSoft. ChipSoft was subsequently acquired by Intuit in December 1993. Mr.
Wolfe holds a Bachelor of Science degree in business administration from the
University of Southern California and is a certified public accountant.
Mr. Santora became Intuit's Chief Financial Officer in July 1997 and has served
as Vice President of Finance since November 1996. He joined Intuit as Corporate
Controller in January 1996. From 1983 to 1995, Mr. Santora held a variety of
senior financial positions at Apple Computer, Inc., including Senior Finance
Director of Apple Americas from May 1992 to January 1996 and Director of
Internal Audit from May 1991 to May 1992. Mr. Santora, who is a certified public
accountant, holds a Bachelor of Science degree in accounting from the University
of Illinois and a Masters in Business Administration from San Jose State
University.
Ms. Fellows joined Intuit as Corporate Treasurer and Director of Investor
Relations in May 1997. Prior to that, Ms. Fellows served as Treasurer and
Director of Investor Relations of Bay Networks, Inc. from October 1990 to April
1997. Ms. Fellows holds a Bachelor of Arts degree from Stanford University and a
Masters in Business Administration from the University of Santa Clara.
Ms. Valentine joined Intuit as General Counsel in September 1994. She has served
as a Vice President of Intuit since August 1997 and as Corporate Secretary since
April 1996. From November 1993 to September 1994, she was General Counsel of
Macromedia, Inc., a multimedia software tools company. Ms. Valentine was General
Counsel of GO Corporation, a pen-based computing software company, from
September 1991 to November 1993. Ms. Valentine holds Bachelor of Arts degrees in
finance and economics from the University of Illinois and a Juris Doctorate from
the University of Chicago.
17
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION FOR COMMON STOCK
Intuit's common stock began trading over the counter in March 1993 at the time
of our initial public offering. It is quoted on the Nasdaq National Market under
the symbol "INTU." The following table shows the range of high and low closing
sale prices reported on the Nasdaq National Market for the periods indicated.
Prices reflect inter-dealer prices without retail markup, markdown or
commissions. The unpredictability of our quarter-to-quarter results may have a
significant impact on our stock price. See MD&A, page 40.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1996
First quarter.................................... $72.00 $40.63
Second quarter................................... 87.00 53.25
Third quarter.................................... 67.63 43.00
Fourth quarter................................... 55.50 33.50
FISCAL 1997
First quarter.................................... $40.50 $26.00
Second quarter................................... 39.75 26.88
Third quarter.................................... 28.63 21.50
Fourth quarter................................... 28.50 22.13
</TABLE>
STOCKHOLDERS
As of September 30, 1997, we had approximately 1,000 record holders of our
common stock, and about 31,000 beneficial holders.
DIVIDENDS
We have never paid any cash dividends on our common stock. We currently
anticipate that we will retain all future earnings for use in our business, so
we don't anticipate paying any cash dividends in the foreseeable future.
18
<PAGE> 21
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
To better understand the following financial information, investors should also
read "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes. In August 1994,
Intuit changed its fiscal year end to July 31 from September 30. Consequently,
fiscal 1994 includes only ten months of operating results.
FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JULY 31, YEARS ENDED JULY 31,
CONSOLIDATED STATEMENT OF OPERATIONS ------------- ------------ ------------------------------
DATA 1993 1994 1995 1996 1997
------------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenue............................ $ 132,792 $ 210,376 $419,160 $538,608 $598,925
Income (loss) from continuing
operations........................... 9,420 (183,974) (44,296) (14,355) (2,932)
Net income (loss)...................... 9,420 (183,974) (44,296) (20,699) 68,308
Income (loss) per share from continuing
operations........................... 0.40 (5.34) (1.07) (0.32) (0.06)
Net income (loss) per share............ $ 0.40 $ (5.34) $ (1.07) $ (0.46) $ 1.44
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
SEPTEMBER 30, ---------------------------------------------
CONSOLIDATED BALANCE SHEET DATA 1993 1994 1995 1996 1997
------------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Cash, cash equivalents and short-term
investments.......................... $ 41,622 $ 87,185 $197,775 $198,018 $205,099
Working capital........................ 41,990 68,675 164,281 169,724 243,195
Total assets........................... 97,120 257,593 398,605 418,020 663,676
Long term obligations.................. 689 3,715 8,770 5,583 36,444
Total stockholders' equity............. $ 54,896 $ 183,872 $280,399 $299,235 $415,061
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See page 40, following the financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
19
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<S> <C> <C>
1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements are filed as part of this Report:
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
AUDITED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, independent auditors................................. 21
Consolidated Balance Sheets as of July 31, 1996 and 1997.......................... 22
Consolidated Statements of Operations for the three years ended July 31, 1997..... 23
Consolidated Statements of Stockholders' Equity for the three years ended July 31,
1997.............................................................................. 24
Consolidated Statements of Cash Flows for the three years ended July 31, 1997..... 25
Notes to Consolidated Financial Statements........................................ 26
2. INDEX TO FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as part of this report and
should be read in conjunction with the Consolidated Financial Statements:
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- -----
<C> <S> <C>
II Valuation and Qualifying Accounts for the three years ended July 31,
1997...................................................................... 39
3. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................ 40
</TABLE>
20
<PAGE> 23
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Intuit Inc.
We have audited the accompanying consolidated balance sheets of Intuit Inc. as
of July 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended July 31, 1997. Our audits also included the financial statement
schedule listed on the Index to Financial Statement Schedules on the preceding
page. 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 consolidated financial position of Intuit
Inc. at July 31, 1996 and 1997, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended July 31,
1997, 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
Palo Alto, California
August 25, 1997
21
<PAGE> 24
INTUIT INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, JULY 31,
(IN THOUSANDS, EXCEPT PAR VALUE) 1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 44,584 $ 46,780
Short-term investments....................................... 153,434 158,319
Marketable securities........................................ -- 190,800
Accounts receivable, net of allowance for doubtful accounts
of $4,951 and $4,499, respectively........................ 49,473 42,190
Inventories.................................................. 4,448 3,295
Prepaid expenses............................................. 9,269 13,393
Deferred income taxes........................................ 19,205 --
--------- ---------
Total current assets...................................... 280,413 454,777
Property and equipment, net.................................... 95,611 83,404
Purchased intangibles, net..................................... 16,449 19,836
Goodwill, net.................................................. 15,194 26,935
Long-term deferred income taxes................................ 6,892 --
Investments.................................................... -- 41,150
Restricted investments......................................... -- 34,766
Other assets................................................... 3,461 2,808
--------- ---------
Total assets................................................... $ 418,020 $ 663,676
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 33,972 $ 35,688
Accrued compensation and related liabilities................. 15,473 22,458
Deferred revenue............................................. 18,974 22,732
Income taxes payable......................................... -- 3,811
Deferred income taxes........................................ -- 27,310
Other accrued liabilities.................................... 42,270 99,583
--------- ---------
Total current liabilities................................. 110,689 211,582
Long-term deferred income taxes................................ 2,513 589
Long-term notes payable........................................ 5,583 36,444
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value
Authorized -- 3,000 shares
Issued and outstanding -- none.......................... -- --
Common stock, $0.01 par value
Authorized -- 250,000 shares
Issued and outstanding - 45,807 and 46,942 shares,
respectively............................................ 458 469
Additional paid-in capital................................... 530,818 558,391
Net unrealized gain on marketable securities................. -- 20,668
Cumulative translation adjustment and other.................. (502) (1,236)
Accumulated deficit.......................................... (231,539) (163,231)
--------- ---------
Total stockholders' equity................................ 299,235 415,061
--------- ---------
Total liabilities and stockholders' equity..................... $ 418,020 $ 663,676
========= =========
</TABLE>
See accompanying notes.
22
<PAGE> 25
INTUIT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
----------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenue.............................................. $419,160 $538,608 $598,925
Costs and expenses:
Cost of goods sold:
Product............................................. 110,322 136,470 137,281
Amortization of purchased software and other........ 11,369 1,399 1,489
Customer service and technical support................. 75,113 106,872 119,762
Selling and marketing.................................. 109,382 142,319 162,047
Research and development............................... 57,332 75,558 93,018
General and administrative............................. 26,437 33,153 37,460
Charge for purchased research and development.......... 52,471 8,043 11,009
Other acquisition costs, including amortization of
goodwill and purchased intangibles.................. 41,775 40,570 26,543
Restructuring costs.................................... -- -- 10,356
-------- -------- --------
Total costs and expenses............................ 484,201 544,384 598,965
-------- -------- --------
Loss from operations................................ (65,041) (5,776) (40)
Microsoft merger termination fee, net.................... 41,293 -- --
Interest and other income and expense, net............... 3,748 7,646 9,849
-------- -------- --------
Income (loss) from continuing operations before income
taxes.................................................. (20,000) 1,870 9,809
Provision for income taxes............................... 24,296 16,225 12,741
-------- -------- --------
Loss from continuing operations.......................... (44,296) (14,355) (2,932)
Loss from operations of discontinued operations, net of
income tax benefit of $3,725........................... -- (6,344) --
Gain from sale of discontinued operations, net of income
tax provision of $52,617............................... -- -- 71,240
-------- -------- --------
Net income (loss)........................................ $(44,296) $(20,699) $ 68,308
======== ======== ========
Loss per share from continuing operations................ $ (1.07) $ (0.32) $ (0.06)
Loss per share from discontinued operations.............. -- (0.14) --
Income per share from sale of discontinued operations.... -- -- 1.50
-------- -------- --------
Net income (loss) per share.............................. $ (1.07) $ (0.46) $ 1.44
======== ======== ========
Shares used in computing net income (loss) per share..... 41,411 45,149 47,448
======== ======== ========
</TABLE>
See accompanying notes.
23
<PAGE> 26
INTUIT INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED CUMULATIVE
COMMON STOCK ADDITIONAL GAIN ON TRANSLATION EARNINGS TOTAL
------------------- PAID-IN MARKETABLE ADJUSTMENT (ACCUMULATED STOCKHOLDERS'
(DOLLARS IN THOUSANDS) SHARES AMOUNT CAPITAL SECURITIES AND OTHER DEFICIT) EQUITY
---------- ------ ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1994.......... 39,121,512 $198 $350,462 $ -- $ (244) $(166,544) $183,872
Issuance of common stock pursuant
to Parsons Technology Inc.
acquisition..................... 1,799,464 9 33,022 -- -- -- 33,031
Issuance of common stock pursuant
to Personal News, Inc.
acquisition..................... 216,982 1 7,202 -- -- -- 7,203
Sale of common stock pursuant to
secondary offering, net of
issuance costs of $4,582........ 2,200,000 11 80,107 -- -- -- 80,118
Issuance of common stock upon
exercise of options............. 1,178,950 6 6,908 -- -- -- 6,914
Stock split....................... -- 220 (220) -- -- -- --
Tax benefit from employee stock
option transactions............. -- -- 13,217 -- -- -- 13,217
Amortization of deferred
compensation.................... -- -- -- -- 33 -- 33
Translation adjustment and
other........................... -- -- -- -- 307 -- 307
Net loss.......................... -- -- -- -- -- (44,296) (44,296)
---------- ---- -------- ------- ------- --------- --------
Balance at July 31, 1995.......... 44,516,908 445 490,698 -- 96 (210,840) 280,399
Issuance of common stock pursuant
to Interactive Insurance
Services acquisition............ 169,181 2 8,431 -- -- -- 8,433
Issuance of common stock upon
exercise of options............. 1,120,847 11 12,824 -- -- -- 12,835
Tax benefit from employee stock
option transactions............. -- -- 18,865 -- -- -- 18,865
Amortization of deferred
compensation.................... -- -- -- -- 29 -- 29
Translation adjustment and
other........................... -- -- -- -- (627) -- (627)
Net loss.......................... -- -- -- -- -- (20,699) (20,699)
---------- ---- -------- ------- ------- --------- --------
Balance at July 31, 1996.......... 45,806,936 458 530,818 -- (502) (231,539) 299,235
Issuance of common stock pursuant
to GALT acquisition............. 212,053 2 8,709 -- -- -- 8,711
Issuance of common stock upon
exercise of options and other... 826,818 8 7,540 -- -- -- 7,548
Issuance of common stock pursuant
to Employee Stock Purchase
Plan............................ 96,301 1 1,877 -- -- -- 1,878
Release of stock from escrow
pursuant to Parsons Technology,
Inc. acquisition................ -- -- 2,743 -- -- -- 2,743
Tax benefit from employee stock
option transactions............. -- -- 6,704 -- -- -- 6,704
Net unrealized gain on marketable
securities...................... -- -- -- 20,668 -- -- 20,668
Translation adjustment and
other........................... -- -- -- -- (734) -- (734)
Net income........................ -- -- -- -- -- 68,308 68,308
---------- ---- -------- ------- ------- --------- --------
Balance at July 31, 1997.......... 46,942,108 $469 $558,391 $20,668 $(1,236) $(163,231) $415,061
========== ==== ======== ======= ======= ========= ========
</TABLE>
See accompanying notes.
24
<PAGE> 27
INTUIT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
---------------------------------
(IN THOUSANDS) 1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (44,296) $ (20,699) $ 68,308
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Net gain on sale of discontinued operations............ -- -- (71,240)
Discontinued operations loss offset against gain....... -- -- (9,668)
Charge for purchased research and development.......... 52,471 8,043 11,009
Amortization of goodwill and other purchased
intangibles.......................................... 51,544 44,502 29,715
Depreciation........................................... 12,890 23,853 28,952
Changes in assets and liabilities:
Accounts receivable.................................. (23,781) (10,498) 7,482
Inventories.......................................... (3,108) 2,128 1,445
Prepaid expenses..................................... 4,269 (4,817) (4,090)
Deferred income tax assets and liabilities........... (16,536) (1,989) (14,501)
Accounts payable..................................... 4,543 12,281 (26)
Accrued compensation and related liabilities......... 6,010 47 6,441
Deferred revenue..................................... 118 9,723 58
Accrued acquisition liabilities...................... (5,074) (5,733) 1,445
Other accrued liabilities............................ 15,586 (4,624) 22,931
Income taxes payable................................. 22,842 9,258 2,888
--------- --------- ---------
Net cash provided by operating activities......... 77,478 61,475 81,149
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (33,087) (69,321) (27,597)
Sale of marketable securities............................. -- -- 29,500
Cash transferred for acquisitions and dispositions, net of
cash acquired.......................................... (26,323) 40 (34,224)
(Increase) decrease in other assets....................... 1,024 (1,628) (970)
Purchase of short-term investments........................ (144,651) (197,003) (258,892)
Liquidation and maturity of short-term investments........ 87,515 165,046 215,338
Purchase of long-term investments......................... -- -- (41,150)
--------- --------- ---------
Net cash used in investing activities............. (115,522) (102,866) (117,995)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................. 5,211 -- 30,277
Principal payments on long-term debt...................... (727) (3,187) (661)
Net proceeds from issuance of common stock................ 87,015 12,864 9,426
--------- --------- ---------
Net cash provided by financing activities......... 91,499 9,677 39,042
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 53,455 (31,714) 2,196
Cash and cash equivalents at beginning of period............ 22,843 76,298 44,584
--------- --------- ---------
Cash and cash equivalents at end of period.................. $ 76,298 $ 44,584 $ 46,780
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................. $ 232 $ 305 $ 652
========= ========= =========
Income taxes paid......................................... $ 14,468 $ 5,791 $ 31,906
========= ========= =========
</TABLE>
See accompanying notes.
25
<PAGE> 28
INTUIT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Intuit Inc. ("Intuit" or the "Company") is a leading developer of small business
accounting, tax preparation and consumer finance software. Intuit develops,
markets and supports software products and services that enable individuals,
professionals and small businesses to automate commonly performed financial
tasks and better organize, understand, manage and plan their financial lives.
Principal products include small business accounting software, personal and
professional tax preparation software, consumer finance and Internet-based
products and services and financial supplies, such as invoice forms and checks,
for use with certain of Intuit's products. Intuit markets its products through
distributors and retailers and by direct sales to OEMs (Original Equipment
Manufacturers) and individual users. Intuit's customers are located primarily in
North America, Europe and Asia.
Principles of Consolidation
The consolidated financial statements include the accounts of Intuit and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
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.
Significant estimates are used in determining both the collectibility of
accounts receivable and reserves for returns and exchanges, and in assessing the
carrying value of goodwill and purchased intangibles. Actual results could
differ from those estimates.
Net Revenue
Revenue is generally recognized at the time of shipment, net of allowances for
estimated future returns and for excess quantities in distribution channels,
provided that no significant vendor obligations exist and collections of
accounts receivable are probable. Reserves are provided for quantities of
current product versions that are considered excess and for inventories of all
previous versions of products at the time new product versions are introduced.
Advance payments are recorded as deferred revenue until the products are shipped
or services are provided. Rebate costs are provided at the time revenue is
recognized. Intuit provides warranty reserves for the estimated cost of
replacing defective products at the time revenue is recognized.
Research and Development
Research and development costs incurred to establish the technological
feasibility of computer software products are charged to operations as incurred.
Customer Service and Technical Support
Customer service and technical support costs include order processing, customer
inquiries and telephone assistance. The costs of post-contract customer support
are included in customer service and technical support expenses and are not
included in cost of goods sold.
Advertising
Advertising costs are expensed as incurred. Advertising expense for the years
ended July 31, 1995, 1996 and 1997 was approximately $21.1 million, $24.6
million and $35.3 million, respectively.
26
<PAGE> 29
Cash, Cash Equivalents, Short-Term Investments and Marketable Securities
Intuit considers all highly liquid investments purchased with a maturity of
three months or less at date of acquisition to be cash equivalents. Both cash
equivalents and short-term investments are considered available-for-sale
securities and are carried at amortized cost which approximates fair value. The
following is a summary of the estimated fair value of cash, cash equivalents and
short-term investments:
<TABLE>
<CAPTION>
JULY 31, JULY 31,
(IN THOUSANDS) 1996 1997
-------- --------
<S> <C> <C>
Cash and cash equivalents:
Cash................................................. $ 18,732 $ 20,188
Money market funds................................... 10,767 3,369
Commercial paper..................................... 3,786 4,292
Corporate notes...................................... 1,000 --
Municipal bonds...................................... 10,299 --
U.S. Government securities........................... -- 18,931
-------- --------
$ 44,584 $ 46,780
======== ========
Short-term investments:
Certificates of deposit.............................. $ 10,003 $ 5,075
Commercial paper..................................... 10,080 --
Corporate notes...................................... 14,875 37,811
Municipal bonds...................................... 67,188 140,245
U.S. Government securities........................... 51,288 9,954
Restricted short-term investments.................... -- (34,766)
-------- --------
$153,434 $158,319
======== ========
</TABLE>
At July 31, 1997, Intuit held marketable securities in Checkfree Corporation
("Checkfree") with a cost of $156.4 million and a fair value of $190.8 million.
These securities are carried at fair value and unrealized gains and losses, net
of tax, are included in stockholders' equity. As of July 31, 1997, there was a
gross unrealized gain of $34.4 million before a tax provision of $13.8 million.
Marketable securities in Checkfree were obtained as a result of Intuit's sale of
its online banking and bill payment transaction processing business to Checkfree
in January 1997. For more information on this sale, see Note 3 of Notes to
Consolidated Financial Statements. No marketable securities were held at July
31, 1996. For information on Intuit's investment in Excite, Inc. ("Excite"), see
Note 4 of Notes to Consolidated Financial Statements. For information about
restricted short-term investments, see Note 7 of Notes to Consolidated Financial
Statements.
Realized gains and losses on sales of each type of security for the years ended
July 31, 1996 and 1997 were immaterial.
The estimated fair value of cash equivalents and short-term investments by
contractual maturity is as follows:
<TABLE>
<CAPTION>
JULY 31, JULY 31,
(IN THOUSANDS) 1996 1997
-------- --------
<S> <C> <C>
Due within one year.................................... $169,573 $155,832
Due after one year..................................... 9,713 63,845
Restricted short-term investments...................... -- (34,766)
-------- --------
$179,286 $184,911
======== ========
</TABLE>
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist primarily of materials used in software products and related supplies
and packaging materials.
27
<PAGE> 30
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 3 to 30 years. Leasehold improvements are amortized using the straight-line
method over the lesser of the estimated useful lives or remaining lease terms.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JULY 31, JULY 31,
(IN THOUSANDS) 1996 1997
-------- --------
<S> <C> <C>
Machinery and equipment................................ $ 97,300 $102,241
Furniture and fixtures................................. 17,173 17,739
Leasehold improvements................................. 18,634 18,659
Land and buildings..................................... 12,588 15,365
-------- --------
145,695 154,004
Less accumulated depreciation and amortization......... (50,084) (70,600)
-------- --------
$ 95,611 $ 83,404
======== ========
</TABLE>
Goodwill and Intangible Assets
The excess cost over the fair value of net assets acquired (goodwill) is
generally amortized on a straight-line basis over periods not exceeding 3 years.
The cost of identified intangibles is generally amortized on a straight-line
basis over periods from 1 to 10 years. The carrying value of goodwill and
intangible assets is reviewed on a regular basis for the existence of facts or
circumstances, both internal and external, that may suggest impairment. To date
no such impairment has been indicated. Should there be an impairment in the
future, Intuit will measure the amount of the impairment based on undiscounted
expected future cash flows from the impaired assets. The cash flow estimates
that will be used will reflect management's best estimates, using appropriate
and customary assumptions and projections at the time. Components of intangible
assets are as follows:
<TABLE>
<CAPTION>
NET BALANCE AT
LIFE IN -------------------------------
(IN THOUSANDS) YEARS JULY 31, 1996 JULY 31, 1997
------- ------------- -------------
<S> <C> <C> <C>
Goodwill...................................... 3 $15,194 $26,935
Customer lists................................ 3-5 6,952 3,144
Covenant not to compete....................... 4-5 4,248 2,125
Purchased technology.......................... 1-5 857 7,517
Other intangibles............................. 1-10 4,392 7,050
</TABLE>
Other intangibles include items such as trade names, logos and other identified
intangible assets. The balances presented above are net of total accumulated
amortization of $125.1 million and $147.1 million at July 31, 1996 and 1997,
respectively.
Concentration of Credit Risk
Intuit's product revenues are concentrated in the personal computer software
industry which is highly competitive and rapidly changing. Significant
technological changes in the industry or customer requirements, or the emergence
of competitive products with new capabilities or technologies, could adversely
affect Intuit's operating results.
Financial investments that potentially subject Intuit to concentration of credit
and/or valuation risk consist principally of short-term investments, marketable
securities and trade accounts receivable. Intuit holds shares of Checkfree
common stock as marketable securities, representing approximately 19.5% of
Checkfree's outstanding common stock at July 31, 1997. Intuit also holds
approximately 19% of Excite's outstanding common stock as of July 31, 1997. The
ability to dispose of both the Checkfree and Excite stock is restricted by
volume trading limitations and other contractual arrangements. The Excite shares
are subject to greater restrictions than the Checkfree shares and are therefore
currently accounted for as a long-term investment, rather than as marketable
securities. Subsequent declines in fair value below cost that are deemed to be
other than temporary will be reported in earnings. Intuit's remaining investment
portfolio is diversified and generally
28
<PAGE> 31
consists of short-term investment grade securities. The credit risk in Intuit's
accounts receivable is mitigated by the fact that Intuit performs ongoing credit
evaluations of its customers' financial condition and that accounts receivable
are primarily derived from customers in North America. Generally, no collateral
is required. Intuit maintains reserves for estimated credit losses and such
losses have historically been within management's expectations.
Income (Loss) Per Share
Income (loss) per share has been computed using the weighted average number of
common and dilutive common equivalent shares outstanding during each period.
Dilutive common equivalent shares consist of stock options calculated using the
treasury method. As discussed in Note 8, all share and per share data in the
Financial Statements and notes thereto have been adjusted retroactively to give
effect to Intuit's two-for-one stock split in August 1995.
Foreign Currency
Gains and losses from the translation of foreign subsidiaries' financial
statements are reported as a separate component of stockholders' equity. Net
gains and losses resulting from foreign exchange transactions were immaterial in
all periods presented.
Recent Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 128, "Earnings per Share" ("FAS 128"), which will
require a change in the method used to compute earnings per share and the
restatement of all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact would have resulted in an increase in primary earnings per
share for the year ended July 31, 1997 of $0.03 per share. There would have been
no effect on primary earnings per share for the years ended July 31, 1996 or
1995. Intuit has not yet determined what the impact of FAS 128 will be on the
calculation of fully diluted earnings per share. The disclosure requirements of
FAS 128 will be effective for Intuit's 1998 fiscal year.
In June 1997, Financial Accounting Standard 130, "Reporting Comprehensive
Income" ("FAS 130"), was issued and is effective for fiscal years commencing
after December 15, 1997. Intuit will comply with the requirements of FAS 130 in
fiscal year 1999.
In June 1997, Financial Accounting Standard 131, "Disclosures About Segments of
an Enterprise and Related Information" ("FAS 131"), was issued and is effective
for fiscal years commencing after December 15, 1997. Intuit will comply with the
requirements of FAS 131 in fiscal year 1999.
2. ACQUISITIONS
In September 1994, Intuit completed its acquisition of Parsons Technology, Inc.
("Parsons"), which was treated as a purchase for accounting purposes. Under the
terms of the agreement, Intuit paid approximately $28.8 million in cash, issued
approximately 1,800,000 shares of Intuit's common stock to Parsons' stockholders
at the date of the acquisition and allocated 138,038 shares of common stock to
be paid for certain non-competition agreements. In the first quarter of fiscal
1996, Intuit paid an additional $2.7 million in cash as deferred consideration.
The total purchase price was approximately $67.3 million. In connection with the
acquisition, the following amounts were allocated to intangible assets: $44.0
million to in-process research and development, $14.0 million to intangible
assets and $9.9 million to goodwill. Intuit sold Parsons on August 7, 1997. See
Note 15.
In June 1995, Intuit completed its acquisition of Personal News Inc., a
developer of technology to provide online investment research data. The
acquisition, which was accounted for as a purchase, had an aggregate purchase
price of approximately $10.4 million in common stock and acquisition costs. Of
the purchase price, $8.5 million was allocated to in-process research and
development, $183,000 to identified intangible assets and $166,000 to goodwill.
The amount of the purchase price allocated to in-process research and
development was
29
<PAGE> 32
charged to Intuit's operations at the time of the acquisition. In addition to
the in-process research and development charge, Intuit incurred
acquisition-related charges of $1.6 million in fiscal 1995 related to the
termination of a conflicting license agreement.
In January 1996, Intuit completed its acquisition of Milkyway KK, a provider of
PC-based financial software in Japan. In February 1997, Milkyway KK's name was
changed to Intuit KK. The acquisition was treated as a pooling of interests for
accounting purposes. In addition to the issuance of 650,000 shares of Intuit
common stock, Intuit recorded acquisition related expenses of $0.6 million. The
accompanying Consolidated Financial Statements are presented on a combined basis
for all periods.
The following information shows revenue and net income (loss) of Intuit and
Milkyway during the periods preceding the combination:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
JULY 31, JANUARY 2,
(IN THOUSANDS) 1995 1996
------------- ------------
<S> <C> <C>
Net revenue:
Intuit........................................... $395,729 $164,696
Milkyway......................................... 23,431 14,510
-------- --------
$419,160 $179,206
======== ========
Net income (loss):
Intuit........................................... $(45,363) $(34,037)
Milkyway......................................... 1,067 1,312
-------- --------
$(44,296) $(32,725)
======== ========
</TABLE>
In June 1996, Intuit completed its acquisition of Interactive Insurance Services
Corp. ("IIS"), a developer of an Internet-based system designed to allow
consumers to obtain term life insurance information and quotes from
participating national insurance carriers via the World Wide Web. The
acquisition, which was treated as a purchase for accounting purposes, had a
purchase price of approximately $9.0 million. Under the terms of the acquisition
agreement, Intuit issued 169,181 shares of Intuit common stock and options to
purchase 3,255 shares of Intuit common stock to IIS stock and option holders,
respectively, at the date of acquisition. Approximately $8.0 million of
in-process research and development arising from the IIS acquisition was
expensed in the quarter ended July 31, 1996.
In September 1996, Intuit completed its acquisition of GALT Technologies, Inc.
("GALT"), a provider of mutual fund information on the World Wide Web. The
acquisition was treated as a purchase for accounting purposes. Under the terms
of the acquisition agreement, Intuit issued 212,053 shares of Intuit common
stock and options to purchase approximately 33,686 shares of Intuit common stock
to GALT stock and option holders, respectively, at the date of acquisition. Of
the purchase price of $14.6 million, approximately $8.5 million was allocated to
identified intangible assets and goodwill, which will be amortized over a period
not to exceed three years. Approximately $4.9 million of in-process research and
development was expensed in the quarter ended October 31, 1996. GALT was merged
into Intuit effective July 31, 1997.
The following information shows the pro forma net revenue, net loss and net loss
per share of Intuit and GALT combined as if the acquisition had taken place as
of the beginning of fiscal 1996:
<TABLE>
<CAPTION>
YEAR ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA) JULY 31, 1996
---------------------
<S> <C>
Net revenue........................................ $ 539,447
Net loss........................................... (27,721)
Net loss per share................................. $ (0.61)
</TABLE>
The above pro forma results of operations for the year ended July 31, 1996
reflect a charge for in-process research and development of $4.9 million and the
amortization of intangible assets related to the GALT acquisition. Pro forma
information for the year ended July 31, 1997 is not shown as it is not
materially different from that presented in Intuit's statement of operations.
30
<PAGE> 33
In February 1997, Intuit's French subsidiary completed its acquisition of Somma
France S.A.R.L. ("Somma"), a French small business accounting software company,
for a purchase price of approximately $2.3 million. In addition, assumed
liabilities were $0.8 million. The cash acquisition was treated as a purchase
for accounting purposes. Approximately $2.5 million was allocated to identified
intangible assets and goodwill, which will be amortized over a period not to
exceed three years. Pro forma information for Somma has not been presented due
to immateriality.
In March 1997, Intuit KK, a wholly owned subsidiary of Intuit, completed its
acquisition of Nihon Micom Co. Ltd. ("Nihon Micom"), a Japanese small business
accounting software company, for cash. The acquisition was treated as a purchase
for accounting purposes. The purchase price of the acquisition was approximately
$39.9 million. In addition, liabilities of approximately $9.6 million were
assumed. Approximately $32.8 million was allocated to identified intangible
assets and goodwill, which will be amortized over a period not to exceed three
years. An in-process research and development charge of $6.1 million was
expensed in the quarter ended April 30, 1997. Under the terms of the agreement,
Intuit issued options to purchase 89,170 shares of Intuit common stock to
employees of Nihon Micom on the date of acquisition. Pro forma information for
Nihon Micom has not been presented due to immateriality.
Consistent with the guidelines established by Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased or Otherwise Marketed," for each acquisition accounted for as a purchase,
Intuit determined the amounts allocated to developed and in-process research and
development based on whether technological feasibility had been achieved and
whether there was an alternative future use for the technology. Due to the
absence of detailed program designs, evidence of technological feasibility was
established through the existence of a completed working model at which point
functions, features and technical performance requirements can be demonstrated.
As of the respective dates of the acquisitions, Intuit concluded that the
in-process research and development had no alternative future use after taking
into consideration the potential for usage of the software in different
products, resale of the software and internal usage.
3. DISCONTINUED OPERATIONS AND DIVESTITURES
On January 27, 1997, Intuit completed the sale of its online banking and bill
payment transaction processing subsidiary, Intuit Services Corporation ("ISC"),
to Checkfree in exchange for 12.6 million shares of Checkfree common stock. The
closing price of Checkfree common stock was $14.75 per share on January 24,
1997, the last business day prior to closing. As a result of the divestiture,
Intuit recorded a gain on sale of discontinued operations of $71.2 million, net
of tax, in the quarter ended January 31, 1997. This gain has been recorded net
of certain contingent items relating to the divested business. In addition to
this gain, Intuit recorded $10 million of net revenue in January 1997,
reflecting a service and license fee received from Checkfree for providing
connectivity between Intuit's Quicken software and Checkfree's processing
services. In February 1997, Intuit sold two million shares of the acquired
Checkfree common stock, reducing its investment in Checkfree to approximately
19.6% of the resulting 54.2 million shares of Checkfree common stock outstanding
following consummation of the transaction.
The divested online banking and bill payment business of ISC has been accounted
for as a discontinued operation and, accordingly, its operating results have
been segregated for fiscal 1996. Revenue and net loss from discontinued
operations were $14.3 million and $6.3 million, respectively, for the fiscal
year ended 1996. Segregated operating results for the year ended July 31, 1995
have not been presented due to immateriality. Operating results for discontinued
operations for the period beginning August 1, 1996 until the close of the sale
on January 27, 1997 were deferred. These losses were approximately $5.8 million,
net of a tax benefit of approximately $3.9 million, and were netted against the
gain on sale of discontinued operations.
4. INVESTMENTS
In June 1997, Intuit purchased 2.9 million shares of Excite, Inc. common stock
for $13.50 per share, or approximately $39.2 million. The shares represented
approximately 19% of Excite's outstanding common stock after the transaction.
Based on terms in the agreement, Intuit may not sell any shares until
31
<PAGE> 34
December 1998, and sales after December 1998 are restricted. Intuit is currently
using the cost method to account for its investment. As resale restrictions
lapse over time, unrestricted shares will be accounted for as marketable
securities.
5. OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JULY 31, JULY 31,
(IN THOUSANDS) 1996 1997
-------- --------
<S> <C> <C>
Reserve for returns and exchanges........................ $ 24,203 $ 36,310
Acquisition and disposition related items................ 3,677 38,866
Rebates.................................................. 2,787 2,876
Post-contract customer support........................... 3,500 4,233
Other accruals........................................... 8,103 17,298
-------- --------
$ 42,270 $ 99,583
======== ========
</TABLE>
6. RESTRUCTURING COSTS
In fiscal 1997, Intuit decided to restructure its U.S. technical support
operations. Intuit is closing its technical support facility in Rio Rancho, New
Mexico and consolidating the operations of that facility within its Tucson,
Arizona technical support location. Intuit also announced in fiscal 1997 that it
would reorganize its European region to consolidate management operations for
its core European markets in its German headquarters in Munich and to outsource
all European customer service, technical support, manufacturing and order
fulfillment functions to third party vendors. As a result of these actions and
concurrent staff reductions in Northern California, Intuit's worldwide workforce
is being reduced by approximately 270 employees, or approximately 9%, and Intuit
incurred $10.4 million in restructuring charges, consisting of approximately
$5.4 million for severance costs and approximately $5.0 million for facility
commitments and fixed assets in buildings to be vacated as part of the
restructuring. At July 31, 1997, Intuit has approximately $9.1 million of
accrued restructuring costs, representing estimated severance costs and facility
payments to be paid in fiscal 1998.
7. NOTES PAYABLE AND COMMITMENTS
Notes Payable
In March 1995, Intuit entered into a 20-year loan for $4.0 million for its
technical support site in New Mexico. This property is expected to be disposed
of in fiscal 1998. The interest rate is variable with a maximum rate of 10%. At
July 31, 1997, the interest rate was 8.25%. The fair value of the loan
approximates cost, as the interest rate on the borrowings is adjusted
periodically to reflect market rates.
In March 1997, Intuit's Japanese subsidiary, Intuit KK, entered into a three
year loan agreement with Japanese banks for approximately $30.3 million used to
fund its acquisition of Nihon Micom. The interest rate is variable based on the
Tokyo interbank offered rate ("TIBOR") or the short-term prime rate offered in
Japan. At July 31, 1997, the interest rate was approximately 0.9%. The fair
value of the loan approximates cost as the interest rate on the borrowings is
adjusted periodically to reflect market rates (which are currently significantly
lower in Japan than in the United States). The agreement calls for interest only
payments until maturity. The loan is guaranteed by Intuit and Intuit has pledged
approximately $34.8 million, or 110% of the loan balance, of short-term
investments to be restricted as security for the borrowings at July 31, 1997.
32
<PAGE> 35
Leases
Intuit leases its office facilities and some equipment under various operating
lease agreements. The leases provide for annual rent increases up to 10%. Annual
minimum commitments under these leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JULY 31, COMMITMENTS
--------------------- --------------
(IN THOUSANDS)
<S> <C>
1998................................................... $ 11,218
1999................................................... 10,651
2000................................................... 10,478
2001................................................... 9,182
2002................................................... 9,243
Thereafter............................................. 21,704
--------
$ 72,476
========
</TABLE>
Total rent expense for the years ended July 31, 1995, 1996 and 1997 was
approximately $7.6 million, $9.2 million and $10.1 million, respectively.
8. STOCKHOLDERS' EQUITY
Stock Option Plans
On January 31, 1993, Intuit adopted the 1993 Equity Incentive Plan (the "1993
Plan"), which authorizes the granting of incentive and non-qualified stock
options, restricted stock awards and stock bonuses to employees, directors,
consultants, and independent contractors of and advisors to Intuit.
Exercisability, option price and other terms are determined by the Board of
Directors, but the option price is generally not less than the fair market value
of the stock at the date of grant. The options have a ten-year term and
generally become exercisable over a four-year period. Options assumed in the
acquisition of ISC were assumed under the 1993 Plan.
On October 7, 1996, Intuit adopted the 1996 Directors Stock Option Plan, which
authorizes the granting of non-qualified stock options to non-employee directors
of Intuit. Options are granted based on a formula prescribed by the plan at a
price equal to the fair market value of the shares at the time the option is
granted. The options have a ten-year term and become exercisable over a
four-year period.
33
<PAGE> 36
In addition, Intuit has several discontinued option plans pursuant to which
there are still outstanding options, including option plans which were assumed
by Intuit on December 12, 1993 in connection with Intuit's acquisition of
ChipSoft, Inc. The options have a seven-year term and generally become
exercisable over a five-year period. A summary of activity under all option
plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES ------------------------------ WEIGHTED AVERAGE
AVAILABLE NUMBER OF PRICE PER EXERCISE PRICE
FOR GRANT SHARES SHARE PER SHARE
---------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance at July 31, 1994.............. 1,247,948 4,715,460 $ 0.05 - $23.50 $ 8.90
Additional shares authorized.......... 5,000,000
Options granted..................... (3,114,974) 3,114,974 $19.75 - $43.13 $28.18
Options exercised................... -- (1,178,950) $ 0.05 - $31.00 $ 4.84
Options canceled or expired......... 291,396 (388,118) $ 0.45 - $43.13 $17.46
---------- ----------
Balance at July 31, 1995.............. 3,424,370 6,263,366 $ 0.05 - $43.13 $18.20
Options assumed from the IIS
acquisition...................... (3,255) 3,255 $ 0.44 - $ 8.30 $ 7.62
Options granted..................... (2,001,495) 2,001,495 $35.00 - $84.00 $50.54
Options exercised................... -- (1,120,847) $ 0.05 - $56.63 $11.98
Options canceled or expired......... 548,853 (581,296) $ 3.00 - $84.00 $34.01
---------- ----------
Balance at July 31, 1996.............. 1,968,473 6,565,973 $ 0.05 - $84.00 $27.74
GALT Plan options registered.......... 33,686
Options assumed from the GALT
acquisition......................... (33,686) 33,686 $ 2.27 - $37.37 $23.37
Additional shares authorized.......... 3,120,000
Options granted outside of option
plans............................... -- 112,006 $21.88 - $84.00 $33.10
Options granted..................... (4,388,187) 4,388,187 $21.75 - $38.00 $27.74
Options exercised................... -- (826,783) $ 0.05 - $57.63 $ 9.44
Options canceled or expired......... 1,240,207 (1,324,967) $ 2.27 - $84.00 $29.65
---------- ----------
Balance at July 31, 1997.............. 1,940,493 8,948,102 $ 0.05 - $84.00 $22.61
========== ==========
</TABLE>
At July 31, 1995, 1996 and 1997, options under the various plans for 1,480,588,
1,894,320 and 1,931,019 shares, respectively, were exercisable. At July 31,
1997, 1,880,493 shares were available for grant under the 1993 Plan and 60,000
shares were available for grant under the 1996 Directors Stock Option Plan.
On May 22, 1995, all non-officer employee grants of stock options under Intuit's
1993 Equity Incentive Plan issued between the date the proposed merger with
Microsoft Corporation was announced (October 13, 1994) and the date of
termination of the merger agreement (May 19, 1995) were repriced (a total of
928,150 options) to reflect an exercise price of $31.00, the fair market value
on the date of repricing.
On September 18, 1996, 1,787,746 options were repriced to reflect an exercise
price of $32.75, the fair market value on the date of repricing. As a condition
of the repricing, employees agreed that options which were repriced would not be
exercisable, even if vested, until September 17, 1997. Officers at the level of
senior vice president and above were not eligible for the repricing.
On March 27, 1997, 3,151,445 options were repriced to reflect an exercise price
of $23.75, the fair market value on the date of repricing. As a condition of the
repricing, employees agreed that options which were repriced would not be
exercisable, even if vested, until March 27, 1998. On June 30, 1997, 177,600
options held by employees of a Japanese subsidiary were also repriced to $23.75.
These were not repriced on March 27, 1997 because of filings required to meet
Japanese securities laws prior to repricing these options. There are no exercise
restrictions on these 177,600 repriced options. Officers at the level of senior
vice president and above were not eligible for the repricing.
34
<PAGE> 37
Stock Split
On July 20, 1995, Intuit's Board of Directors authorized a two-for-one stock
split effected in the form of a 100% stock dividend distributed on August 21,
1995 to stockholders of record on August 4, 1995. All references in the
financial statements to number of shares, per share amounts, stock option data,
and market prices of Intuit's common stock have been restated to reflect this
stock split.
Employee Stock Purchase Plan
In October 1996, Intuit adopted an Employee Stock Purchase Plan under Section
423 of the Internal Revenue Code and reserved 300,000 shares of common stock for
issuance under the plan. Eligible employees may purchase Intuit's stock at 85%
of fair market value at the beginning or end of the six-month offering period,
whichever is less. In June 1997, 96,301 shares were purchased by employees
enrolled in the plan.
Stock-Based Compensation
Intuit follows Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees," in accounting for its stock-based compensation. Under this
opinion, Intuit is not required to record any compensation expense when stock
options are granted to employees, provided the exercise price of the options is
not less than the fair market value of the stock when the option is granted. In
October 1995, the Financial Accounting Standards Board issued Statement 123,
"Accounting for Stock Based Compensation" ("FAS 123"). This statement provides
an alternative, optional method of accounting for stock-based compensation that
involves reflecting a compensation expense when an option is granted. FAS 123
also requires companies that continue to account for stock-based compensation
under Accounting Principles Board Opinion 25 to provide pro forma net income
(loss) and net income (loss) per share information showing what the impact would
have been if the company had adopted the alternative accounting method described
in FAS 123 for options and other stock based compensation awards granted after
December 31, 1994. The pro forma impact of applying FAS 123 in fiscal 1996 and
1997 is not likely to be representative of the pro forma impact in future years.
Intuit has elected to use the Black-Scholes model to estimate the fair value of
options granted. This valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
Intuit's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing model does not necessarily provide a reliable single
measure of the fair value of its employee stock options. Inputs used for the
valuation model are as follows:
<TABLE>
<CAPTION>
EMPLOYEE STOCK
OPTIONS PURCHASE PLAN
------------------------------- -----------------
1996 1997 1996 1997
------------- ------------- ----- -----
<S> <C> <C> <C> <C>
Expected life (years).............. 1.33 - 4.61 1.17 - 4.61 -- 0.50
Expected volatility................ 0.60% 0.60% -- 0.60%
Risk-free interest rate............ 4.83% - 6.92% 5.50% - 6.88% -- 5.61%
</TABLE>
Intuit's pro forma net income (loss) and net income (loss) per share information
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1997
-------- -------
<S> <C> <C>
Net income (loss)
As reported........................................... $(20,699) $68,308
Pro forma............................................. $(27,638) $46,409
Net income (loss) per share
As reported........................................... $ (0.46) $ 1.44
Pro forma............................................. $ (0.61) $ 0.97
</TABLE>
35
<PAGE> 38
The weighted average fair value of options granted during fiscal 1996 was
approximately $23.19 per share. The weighted average fair value of new options
granted in fiscal 1997 was approximately $11.99 per share.
The following table summarizes information about stock options outstanding at
July 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ----------------------------
WEIGHTED AVERAGE WEIGHTED
REMAINING CONTRACTUAL AVERAGE AVERAGE
EXERCISE PRICE NUMBER LIFE (YEARS) EXERCISE PRICE NUMBER EXERCISE PRICE
- ---------------- --------- --------------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.05 - $15.94 1,391,117 4.79 $11.20 1,129,289 $10.51
$16.00 - $21.88 1,452,393 7.62 $21.24 385,738 $20.54
$22.63 - $23.50 499,436 9.49 $22.98 28,794 $23.03
$23.75 - $23.75 3,241,956 8.60 $23.75 91,878 $23.75
$23.94 - $23.94 50,000 9.79 $23.94 0 $ 0.00
$24.50 - $24.50 1,166,205 9.88 $24.50 216,666 $24.50
$25.00 - $33.25 896,612 9.08 $29.69 62,222 $31.12
$34.50 - $84.00 250,383 8.55 $43.49 16,432 $44.51
- --------------- --------- ---- ------ --------- ------
$ 0.05 - $84.00 8,948,102 8.11 $22.58 1,931,019 $15.80
=============== ========= ==== ====== ========= ======
</TABLE>
9. PROFIT-SHARING AND BENEFIT PLANS
Profit-Sharing Plans
Intuit maintains profit-sharing plans for full-time employees. Amounts provided
are determined pursuant to criteria established by the Compensation Committee of
the Board of Directors. Profit-sharing expense for fiscal 1995, 1996 and 1997
was approximately $5.0 million, $1.4 million and $4.2 million, respectively.
Benefit Plans
At July 31, 1997, Intuit maintained two 401(k) retirement savings plans for its
full-time employees. Each participant may elect to contribute from 1% to 15% of
his or her annual salary to the plan, subject to IRS limitations. Intuit matches
a portion of employee contributions to a maximum amount per employee per year.
As of July 31, 1997, employee contributions were matched at 25%, up to $1,000,
but these matching amounts are subject to change. Matching contributions were
approximately $.3 million and $1.6 million respectively for the years ended July
31, 1996 and 1997.
10. INCOME TAXES
The components of the provision for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------
(IN THOUSANDS) 1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Current:
Federal......................................... $ 31,899 $ 15,732 $ 29,117
State........................................... 7,157 3,116 5,843
Foreign......................................... 1,583 1,302 651
-------- -------- --------
40,639 20,150 35,611
Deferred:
Federal......................................... (13,638) (3,378) (18,144)
State........................................... (2,705) (547) (4,726)
-------- -------- --------
(16,343) (3,925) (22,870)
-------- -------- --------
Total............................................. $ 24,296 $ 16,225 $ 12,741
======== ======== ========
</TABLE>
36
<PAGE> 39
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income/(loss) before income taxes. The
sources and tax effects of the differences are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------
(IN THOUSANDS) 1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Income (loss) before income taxes.................. $(20,000) $ 1,870 $ 9,809
======== ======= =======
Statutory federal income tax at 35%................ $ (7,000) $ 654 $ 3,433
State income tax, net of federal benefit........... 2,950 1,670 785
Federal research and experimental credits.......... (1,000) -- (4,100)
Non-deductible merger related charges.............. 29,742 13,531 10,637
Tax exempt interest................................ (630) (1,400) (1,633)
Foreign losses..................................... -- -- 3,533
Other, net......................................... 234 1,770 86
-------- ------- -------
Total.............................................. $ 24,296 $16,225 $12,741
======== ======= =======
</TABLE>
The current federal and state provisions do not reflect the tax savings
resulting from deductions associated with Intuit's various stock option plans.
This savings was approximately $13.2 million in fiscal 1995, $18.9 million in
fiscal 1996 and $6.7 million in fiscal 1997. These amounts were credited to
stockholders' equity.
Significant components of Intuit's deferred tax assets and liabilities for
federal, state and foreign income taxes are as follows:
<TABLE>
<CAPTION>
JULY 31, JULY 31,
(IN THOUSANDS) 1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves not currently deductible...... $ 20,317 $ 27,275
Deferred foreign taxes.............................. 1,641 4,247
State income taxes.................................. 1,390 1,742
Merger charges...................................... 2,458 439
Restructuring charges............................... -- 2,165
Fixed asset adjustments............................. -- 6,903
Other, net.......................................... 576 2,353
-------- --------
Total deferred tax assets........................ 26,382 45,124
Deferred tax liabilities:
Deferred gain on discontinued operations............ -- 54,993
Unrealized gain on marketable securities............ -- 13,782
Fixed asset adjustments............................. 285 --
Merger charges...................................... 2,513 --
-------- --------
Total deferred tax liabilities................... 2,798 68,775
-------- --------
Total net deferred tax assets (liabilities)........... 23,584 (23,651)
Valuation reserve due to foreign losses............. -- (4,248)
-------- --------
Total net deferred tax assets (liabilities), net of
valuation reserve................................... $ 23,584 $(27,899)
======== ========
</TABLE>
11. SIGNIFICANT CUSTOMER INFORMATION
One distributor accounted for 12% of net revenue in fiscal 1995, 13% of net
revenue in fiscal 1996 and 14% of net revenue in fiscal 1997.
12. MICROSOFT MERGER TERMINATION
On October 13, 1994, Intuit announced a proposed merger agreement with
Microsoft, which was subsequently terminated on May 20, 1995. The proposed
merger had been opposed in a lawsuit brought by the U.S. Department of Justice,
and the two companies were unable to agree to pursue the litigation. In the
fourth
37
<PAGE> 40
quarter of fiscal 1995, Intuit received a $46.3 million termination fee from
Microsoft ($41.3 million net of related expenses). The after-tax benefit to
Intuit was approximately $25.6 million.
13. LITIGATION
Intuit is subject to legal proceedings and claims that arise in the course of
its business. Management currently believes that the ultimate amount of
liability, if any, for any pending actions (either alone or combined) will not
materially affect the financial position, results of operations or liquidity of
Intuit. However, the ultimate outcome of any litigation is uncertain. An
unfavorable outcome could have a material negative impact. In addition, any
litigation, regardless of outcome, can have an adverse impact on Intuit because
of defense costs, diversion of management resources and other factors.
14. SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1996 QUARTER ENDED
------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) OCTOBER 31 JANUARY 31 APRIL 30 JULY 31(1)
------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue............................ $ 102,250 $218,996 $ 132,069 $ 85,293
Cost of goods sold..................... 28,091 49,482 35,269 25,027
All other costs and expenses........... 101,411 115,788 96,850 92,466
Income (loss) from continuing
operations........................... (18,684) 24,067 1,273 (21,011)
Loss from discontinued operations, net
of tax............................... (1,638) (2,157) (1,581) (968)
Net income (loss)...................... (20,322) 21,910 (308) (21,979)
Net income (loss) per share............ (0.46) 0.46 (0.01) (0.48)
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1997 QUARTER ENDED
------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) OCTOBER 31(2) JANUARY 31 APRIL 30(3) JULY 31
------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Net revenue............................ $ 102,506 $265,978 $ 136,326 $ 94,115
Cost of goods sold..................... 27,085 58,735 29,443 23,507
All other costs and expenses........... 114,511 133,634 108,730 103,320
Income (loss) from continuing
operations........................... (28,304) 44,700 488 (19,816)
Gain on sale of discontinued
operations, net of tax............... -- 71,240 -- --
Net income (loss)...................... (28,304) 115,940 488 (19,816)
Net income (loss) per share............ (0.61) 2.44 0.01 (0.42)
</TABLE>
- ---------------
(1) Includes a charge of $8.0 million related to purchased research and
development at the time of the IIS acquisition.
(2) Includes a charge of $4.9 million related to purchased research and
development at the time of the GALT acquisition.
(3) Includes a charge of $6.1 million related to purchased research and
development at the time of the Nihon Micom acquisition.
15. SUBSEQUENT EVENTS
On August 7, 1997, Intuit completed the sale of its consumer software and direct
marketing subsidiary, Parsons Technology Inc. to Broderbund Software, Inc. for
approximately $31 million. Parsons' revenue (excluding products not sold to
Broderbund) was approximately 14% and 12% of total net revenue in fiscal 1996
and 1997, respectively. Parsons' assets that were sold to Broderbund were
approximately $17 million at July 31, 1997. Intuit does not anticipate that
there will be a significant gain from this disposition, net of certain direct
costs relating to the sale. The sale will be recorded in the first quarter of
fiscal 1998.
38
<PAGE> 41
SCHEDULE II
INTUIT INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
CLASSIFICATION BALANCE AT ADDITIONS BALANCE
- ----------------------------------------------- BEGINNING OF CHARGED TO AT END OF
(IN THOUSANDS) PERIOD EXPENSE WRITE-OFFS PERIOD
------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended July 31, 1995
Allowance for doubtful accounts.............. $ 2,520 $ 2,176 $ (2,288) $ 2,408
Reserve for returns and exchanges............ $ 11,339 $ 62,374 $ (44,516) $29,197
Year ended July 31, 1996
Allowance for doubtful accounts.............. $ 2,408 $ 4,728 $ (2,185) $ 4,951
Reserve for returns and exchanges............ $ 29,197 $ 57,128 $ (62,122) $24,203
Year ended July 31, 1997
Allowance for doubtful accounts.............. $ 4,951 $ 3,308 $ (3,760) $ 4,499
Reserve for returns and exchanges............ $ 24,203 $ 73,775 $ (61,668) $36,310
</TABLE>
39
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
CAUTIONS ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-K includes "forward-looking" statements about future financial
results, future products and other events that have not yet occurred. For
example, statements like Intuit "expects" or "anticipates" are forward-looking
statements. Investors should be aware that actual results may differ materially
from expectations because of risks and uncertainties about the future. In
addition, Intuit will not necessarily update the information in this Form 10-K
if any forward-looking statement later turns out to be inaccurate. Details about
risks affecting various aspects of Intuit's business are included throughout
this Form 10-K. Investors should read all of these risks carefully. See page 1
for more information about forward looking statements.
OVERVIEW
In this section, readers are given a more detailed assessment of Intuit's
operating results and changes in financial position over the past three years.
This section should be read in conjunction with the Consolidated Financial
Statements and related Notes.
Intuit's mission is to revolutionize the way individuals and small businesses
manage their finances. To achieve this, Intuit develops, sells and supports
small business accounting, tax preparation and consumer finance software
products and related supplies and services. Revenues come primarily from the
United States, Japan, Germany, Canada, the United Kingdom and France through
both retail distribution channels and direct customer sales. While substantially
all of Intuit's revenue now comes from its core desktop software and related
products and services, Internet-based services are expected to become a growing
part of Intuit's business. For purposes of the following discussion,
Internet-based services include online banking activities even though some of
Intuit's online banking currently operates through a private data network rather
than through the Internet. See page 2 for a discussion of Intuit's Internet
strategy. In fiscal 1997, Intuit devoted significant financial resources to
developing and acquiring Internet-based products and services, resulting in
increased research and development expenses both in absolute dollars and as a
percentage of net revenue. Despite these increasing costs and slower revenue
growth, Intuit has experienced improved overall operating results over the past
three years, primarily due to declining cost of sales and declining acquisition
related charges as a percentage of revenue.
There were a number of one-time, non-recurring events that affected results
during the past three years. In fiscal 1997, Intuit sold its electronic banking
and bill payment subsidiary, Intuit Services Corporation ("ISC"), to Checkfree
Corporation ("Checkfree"). The sale, which occurred in the second quarter,
resulted in a gain, net of tax, of $71.2 million. Results for fiscal 1996
account for ISC as discontinued operations. In the fourth quarter of fiscal
1997, Intuit recorded a $10.4 million charge from restructuring technical
support operations in the United States and Europe. Intuit's Japanese
subsidiary, Intuit KK, also acquired Nihon Micom Co. Ltd. ("Nihon Micom") in the
third fiscal quarter making the combined company the largest Windows-based PC
accounting software company in Japan. In the fourth fiscal quarter, Intuit
announced the sale of its consumer software and direct marketing subsidiary,
Parsons Technology, to Broderbund Software. The Parsons sale closed in August
1997 (after fiscal year end) and the results of this transaction will be
recorded in the first quarter of fiscal 1998. Results for fiscal 1995 include a
$41.3 million merger termination fee, net of tax, received from Microsoft
Corporation.
Intuit's business is highly seasonal. Sales of tax products are heavily
concentrated from November through March. Sales of consumer finance products are
typically strongest during the year-end holiday buying season, so major product
launches usually occur in the fall to take advantage of this consumer buying
pattern. These seasonal patterns mean that financial results are usually
strongest during the quarters ending January 31 and April 30, and that operating
losses are normal for the quarters ending July 31 and October 31. Operating
results can also fluctuate from quarter to quarter for other reasons, such as
changes in product launch dates,
40
<PAGE> 43
non-recurring events such as acquisitions, and product price cuts in quarters
with relatively high fixed expenses. Because of these factors, Intuit believes
that consecutive quarter comparisons of operating results are not meaningful and
don't necessarily indicate future performance.
Intuit recognizes revenue at the time products are shipped, less reserves for
expected returns from both the retail and direct channels. These return reserves
are difficult to predict, especially for seasonal products. If at any point
returns are materially higher than reserved amounts, this could have a negative
impact on both revenue and operating results.
Intuit has acquired several businesses during the past three fiscal years. See
Note 2 of the financial statements. Although Intuit believes these transactions
were in the best interests of Intuit and its stockholders, there are significant
risks associated with these transactions. The acquisitions have expanded
Intuit's size, product lines, personnel and geographic locations. Intuit's
ability to integrate and organize these new businesses has required improvements
in its operational, financial and management information systems and further
improvements will be necessary. Although Intuit has taken steps to improve its
internal processes, it has experienced significant operational difficulties in
its order entry and shipping systems and in providing technical support to
customers in the past, and there is no assurance that similar problems will not
occur in the future or that they will not have a material adverse effect on
Intuit's results of operations.
RESULTS OF OPERATIONS
NET REVENUE
<TABLE>
<CAPTION>
1995 CHANGE 1996 CHANGE 1997
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Software....................... $360.1 29% $463.0 11% $512.0
% of revenue................... 86% 86% 85%
Supplies....................... $ 59.1 28% $ 75.6 15% $ 86.9
% of revenue................... 14% 14% 15%
Total.......................... $419.2 28% $538.6 11% $598.9
</TABLE>
Small Business Revenue. Small business software product revenues were driven by
higher direct and retail sales during fiscal 1997, resulting in approximately
25% growth over fiscal 1996. This was primarily due to the QuickBooks product
family, which released version 5.0 in December 1996. QuickBooks sales increases
were the result of higher unit sales and a favorable shift in consumer buying
patterns to higher priced, increased functionality products compared to fiscal
1996. In addition, growth was attributable to higher Payroll Tax Table sales in
fiscal 1997 and an expanded fee-for-support program which charged users for
telephone assistance with their QuickBooks products beginning in fiscal 1997. In
fiscal 1996, small business products revenue grew significantly compared to 1995
due to higher unit sales of the QuickBooks product family as well as a positive
shift in consumer preference toward higher priced, increased functionality
products. Intuit plans to introduce a multi-user version of QuickBooks late in
the 1998 fiscal year. If the release of this multiuser version is delayed, there
could be an adverse effect on revenues and operating results for 1998.
Tax Revenue. Both personal and professional tax products experienced growth in
fiscal 1997. Personal tax product revenues for fiscal 1997 grew by approximately
13% over 1996 as a result of increases in both direct and retail channel sales
of Intuit's TurboTax and related products. Sales increases were attributable
both to higher unit sales and a favorable shift in buying patterns to the higher
priced business tax and CD ROM products. In addition, there were significant
increases in direct product sales distributed via the Internet and in tax
returns filed electronically in fiscal 1997 compared to 1996. Revenue growth
occurred despite increased competition, particularly from H&R Block's TaxCut
product, which was priced below the average selling price of Intuit's TurboTax
product line. In fiscal 1996, personal tax product revenues grew significantly
as a result of higher unit sales of the TurboTax product family compared to
1995. Professional tax product revenues grew by approximately 16% over the prior
year due to strong customer acceptance of Windows-based product offerings,
increased revenues for tax products that charge a fee for each return prepared,
and a shift in customer
41
<PAGE> 44
preference to higher-priced "bundles" of professional tax products sold as one.
Professional tax also experienced revenue growth for fiscal 1996 over 1995
driven by customer upgrades to higher-priced bundled products. While Intuit
believes that recently passed tax legislation will bring new users to the
personal tax preparation market, there can be no guarantee that revenue growth
of its tax products will be maintained in the future, particularly in light of
increased competition from TaxCut and others.
Consumer Finance and Internet-Based Revenue. Partially offsetting overall fiscal
1997 revenue growth was the negative impact of consumer finance software net
revenues which declined by approximately 20% in fiscal 1997 from 1996. Fiscal
1997 software price reductions, combined with lower retail unit sales of
Intuit's Quicken product line, were primarily responsible for the decline. In
addition, a shift in consumer buying patterns away from the Deluxe versions of
products and toward lower-priced regular product versions had an adverse impact
on revenues. Consumer finance software product revenues were essentially flat in
fiscal 1996 compared to 1995, resulting from a combination of higher unit sales
and lower average selling prices, which was primarily attributable to an
increase in lower-margin OEM (Original Equipment Manufacturer) unit sales. OEM
agreements allow computer manufacturers to load Quicken onto their products in
exchange for a payment that is substantially lower than the average selling
price to the direct or traditional retail channel. Despite these lower selling
prices, Intuit increased its distribution through OEM channels in order to
acquire new customers. Intuit expects net revenue from the Quicken product line
to continue declining in fiscal 1998, although the impact or extent of such a
decline cannot be estimated.
In fiscal 1997, Intuit's Internet-based business generated participation fee,
advertising and marketing-based revenues through its Quicken.com site,
Interactive Insurance Services Corp. ("IIS"), mutual fund web sites and online
banking connectivity services. Online banking revenue included a $10 million fee
from Checkfree for connectivity to Checkfree's bill payment service through
Quicken. Though growth rates for Internet-based services were high, their
contribution to total revenue was insignificant in fiscal 1997. In the fourth
quarter of fiscal 1997, Intuit announced an agreement with Excite, Inc.
("Excite") making Intuit the exclusive provider of consumer financial content
for all of Excite's Internet services. While Intuit believes that current and
anticipated Internet-based offerings represent a significant opportunity for
future revenue growth, potential revenue growth for fiscal 1998 and beyond is
difficult to predict and may not be achieved.
International Revenue. Combined international product sales experienced
significant growth during fiscal 1997, led by gains in the Japan and European
regions. Combined international net revenue grew by approximately 28% (18%
excluding the impact of the March 1997 acquisition of Nihon Micom in Japan).
In the Japan region, growth resulted from increased unit sales of small business
accounting products across the Obanto(TM) and Kobanto(TM) product lines in
fiscal 1997 compared to 1996. Intuit's Japanese subsidiary, Intuit KK, is now
the largest Windows-based personal computer accounting software company in Japan
based on the third quarter release of Kobanto for Windows and Yayoi(TM), a
Windows-based product acquired from Nihon Micom. Intuit also plans to launch a
Windows version of its higher-end Obanto product in fiscal 1998. Sales in the
Japan region also improved in fiscal 1996 compared to 1995 due to the higher
unit sales of the Obanto and Kobanto product lines.
In the European region, sales improved during fiscal 1997 compared to 1996,
driven by Quicken product releases in Germany and the release of QuickBooks in
the U.K. The European region also improved sales in fiscal 1996 compared to 1995
despite difficulties in meeting key launch dates in Germany which resulted in
late deliveries into the retail channel and lower than anticipated net revenue.
In Canada, which is part of Intuit's Pacific region, fiscal 1997 and 1996 growth
were both attributable to an increase in sales of Canadian versions of Quicken,
QuickBooks and QuickTax products. In the Pacific region, revenues also grew as a
result of Intuit's entry into new markets in Southeast Asia and the initial
release of Quicken in Brazil in fiscal 1997. While these new markets may
represent areas of potential future growth, revenues generated in fiscal 1997
were not significant.
Supplies Revenue. Financial supplies net revenue increased by 15% in fiscal 1997
as the result of higher customized check, envelope and invoice orders from an
increasing small business customer base. As a percentage of total net revenue,
supplies revenue grew to 15% in fiscal 1997 from 14% in 1996 primarily as a
42
<PAGE> 45
result of lower overall software revenue growth in fiscal 1997 compared to 1996.
While a substantial portion of supplies revenue is derived from customers who
use consumer finance software, rather than small business software, to run small
businesses, most of the fiscal 1997 supplies revenue growth was the result of
increased small business (QuickBooks) product sales. Since supplies generate
recurring revenues from Intuit's installed customer base, future growth is
primarily a function of obtaining new software product users. The gradual
increase in product upgrade sales as a percentage of total software revenue
generally causes the growth rate of supplies to slow as the growth rate of new
users declines. This, in addition to increased competition and the potential
shift of software users to electronic bill payment services (which reduces
demand for sales of check supplies) may have an adverse effect on the future
growth rate of supplies revenues. Supplies net revenue grew by 28% in fiscal
1996 compared to 1995 due to the acquisition of new small business customers
attained through the growth of QuickBooks product sales.
Parsons Revenue. In fiscal 1997, Parsons Technology, Intuit's consumer software
and direct marketing subsidiary, experienced a slight decrease in net revenues
reflecting general softness in the consumer software market. Intuit completed
the sale of Parsons to Broderbund Software, Inc. in August 1997. Parsons'
revenue (excluding products not sold to Broderbund) was approximately 12% and
14% of total net revenue in fiscal 1997 and 1996, respectively. The sale will be
recorded in the first quarter of fiscal 1998. Intuit does not anticipate that
there will be a significant gain from this disposition. See Note 15 to the
financial statements.
COST OF GOODS SOLD
<TABLE>
<CAPTION>
1995 CHANGE 1996 CHANGE 1997
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Product........................ $110.3 24% $136.5 1% $137.3
% of revenue................... 26% 25% 23%
Amortization of purchased
software and other........... $ 11.4 (88)% $ 1.4 7% $ 1.5
% of revenue................... 3% 0% 0%
</TABLE>
Intuit has two categories of cost of goods sold. One is the direct cost of
manufacturing and shipping products (including warranty costs). The other is the
amortization of purchased software which is the cost of products obtained
through acquisition. Total cost of goods sold decreased as a percentage of net
revenue for fiscal 1997 compared to 1996. This was the result of improvements in
supplies order processing, a reduction of obsolete inventory write-offs in
Germany, lower materials costs, increasing sales of CD ROM products (which cost
less per product to manufacture and ship than disks) and a decrease in warranty
expenses in fiscal 1997 compared to 1996. Supplies cost of goods sold was
approximately 40% of supplies net revenue in fiscal 1997 compared to
approximately 42% in 1996 primarily due to more efficient order taking which
resulted in fewer re-orders. Inventory write-offs in Germany were down in fiscal
1997 compared to 1996 when product launch delays resulted in excess inventory
write-offs. Higher product quality led to lower warranty expenses in fiscal 1997
compared to 1996. While Intuit plans to take action to continue to decrease cost
of goods sold expenses as a percentage of net revenue, there can be no assurance
that this will occur or that margins will continue at their current rates. If
there are errors in Intuit's current or future products, there could be
significant increases in cost of goods sold and an adverse effect on operating
results. Specifically, new tax law changes that impact tax products and the
release of the QuickBooks multi-user product may increase the risk of product
errors in fiscal 1998. The cost of providing future telephone assistance to
customers (post-contract customer support) is accrued at the time revenue is
recognized and is included in customer service and technical support expenses,
rather than cost of goods sold.
Cost of goods sold also decreased as a percentage of net revenue for fiscal 1996
compared to 1995. In addition to a reduction in the amortization of purchased
software, efficiencies occurred primarily through supplies cost of goods sold
which decreased to 42% of supplies net revenue in fiscal 1996 compared to 43% in
1995. This improvement was driven by lower materials costs. Better product
quality also led to lower warranty expenses in fiscal 1996 compared to 1995.
43
<PAGE> 46
OPERATING EXPENSES
<TABLE>
<CAPTION>
1995 CHANGE 1996 CHANGE 1997
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Customer service and technical
support...................... $ 75.1 42% $106.9 12% $119.8
% of revenue................... 18% 20% 20%
Selling and marketing.......... $109.4 30% $142.3 14% $162.0
% of revenue................... 26% 26% 27%
Research and development....... $ 57.3 32% $ 75.6 23% $ 93.0
% of revenue................... 14% 14% 16%
General and administrative..... $ 26.4 25% $ 33.1 13% $ 37.5
% of revenue................... 6% 6% 6%
Charge for purchased research
and development.............. $ 52.5 (85)% $ 8.0 38% $ 11.0
% of revenue................... 13% 1% 2%
Other acquisition costs,
including amortization of
goodwill and purchased
intangibles.................. $ 41.8 (3)% $ 40.6 (35)% $ 26.5
% of revenue................... 10% 8% 4%
Restructuring costs............ -- 0% -- 100% $ 10.4
% of revenue................... -- -- 2%
</TABLE>
Customer Service and Technical Support. Customer service and technical support
expenses remained constant at approximately 20% of net revenue for both fiscal
1997 and 1996. International technical support cost increases were offset by
improved management of domestic technical support facilities and resources and
higher product quality in fiscal 1997 compared to 1996. In the fourth quarter of
fiscal 1997, Intuit announced a restructuring and consolidation of its technical
support facilities in both the United States and Europe. While this
consolidation is expected to result in reduced technical support costs as a
percentage of revenue in fiscal 1998, there can be no assurance that such
reduction will occur. With the significant enhancements to Intuit's tax and
small business products planned for fiscal 1998, demands for customer service
and technical support could significantly increase in fiscal 1998.
Fiscal 1996 customer service and technical support costs increased to 20% of net
revenue compared to 18% in 1995. This increase was attributable to QuickBooks
small business customers placing greater than expected demands on customer
support and an increase in staffing and training personnel in fiscal 1996 in
order to improve service levels in response to fiscal 1995 product quality
issues. In fiscal 1996, Intuit increased spending in support capabilities to
provide service to Intuit's online banking and bill payment customer base.
Selling and Marketing. Selling and marketing expenses for fiscal 1997 grew to
27% of net revenue compared to 26% in 1996. This increase was due to higher
marketing expenses in response to increased tax product competition and the
support of several key international product launches. As a percentage of net
revenue, selling and marketing expenses remained flat at 26% for fiscal 1996
compared to 1995.
Research and Development. Research and development expenses grew to 16% of net
revenue in fiscal 1997 compared to 14% in 1996. This increase reflects Intuit's
investment in Internet-related initiatives as well as development efforts for
desktop software. Specifically, expenses rose as a result of development costs
related to IIS which allows customers to shop for term life insurance via the
Internet from participating insurance carriers, development work on Open
Financial Exchange (a specification for the exchange of financial information
over the Internet) and the development of other financially-related web sites.
Research and
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<PAGE> 47
development costs remained flat, at 14% of net revenue, for fiscal 1996 compared
to 1995. As part of the Excite agreement which was announced in the fourth
quarter of fiscal 1997, Intuit has agreed to become the exclusive provider of
consumer financial content for all of Excite's Internet services. Intuit
believes that this initiative as well as the ongoing development of both
existing and future Internet-based offerings will result in higher research and
development expenses as a percentage of net revenue for fiscal 1998. While the
degree of potential increases in research and development costs cannot be
estimated, they may have an adverse effect on operating results, particularly if
revenue from these services does not meet expectations.
General and Administrative. General and administrative expenses remained
essentially flat at 6% of net revenue for fiscal 1997, 1996 and 1995. Intuit
expects these costs to remain flat as a percentage of revenue in fiscal 1998
though there can be no assurance that these costs will not increase.
Charge for Purchased Research and Development. The charge for purchased research
and development was $11.0 million in fiscal 1997 compared to $8.0 million in
1996 and $52.5 million in 1995. These expenses represent one-time charges
incurred as part of an acquisition based on the amount of the purchase price
allocated to acquired products that are under development. Consistent with
applicable accounting standards, for each acquisition accounted for as a
purchase, Intuit determined the amounts allocated to developed and in-process
research and development based on whether technological feasibility had been
achieved and whether there was an alternative future use for the technology. The
fiscal 1997 charge of $11.0 million was due to the acquisition of GALT
Technologies, Inc. ("GALT") ($4.9 million) and Nihon Micom ($6.1 million). The
fiscal 1996 charge of $8.0 million was attributable to the acquisition of IIS.
The fiscal 1995 charge of $52.5 million was the result of the acquisition of
Personal News Inc. ($8.5 million) and Parsons Technology ($44.0 million). Since
these charges are specific to a particular acquisition, Intuit is unable to
estimate what these charges may be in the future.
Other Acquisition Costs. Other acquisition costs, including amortization of
goodwill and purchased intangibles, decreased by $14.1 million to $26.5 million
in fiscal 1997 and remained roughly flat in absolute dollars for fiscal 1996
compared to 1995. These costs are primarily due to the amortization of goodwill
and purchased intangibles which are recorded as part of an acquisition under the
purchase method of accounting (See Note 1 of Notes to Consolidated Financial
Statements). The decrease in fiscal 1997 was primarily attributable to the
majority of the intangibles related to the fiscal 1994 acquisition of ChipSoft,
Inc. becoming fully amortized during the year. The high levels of non-cash
amortization expense related to completed acquisitions will continue to have a
negative impact on operating results in future periods. Assuming no additional
acquisitions and no impairment of value resulting in an acceleration of
amortization, future amortization will reduce net income by approximately $18.9
million, $15.9 million and $8.2 million for the years ending July 31, 1998
through 2000, respectively. If Intuit completes additional acquisitions in the
future, there could be an incremental negative impact on operating results from
future amortization relating to such acquisitions.
Restructuring Costs. Restructuring charges of $10.4 million were recorded in
Intuit's fourth quarter to account for its consolidation of technical support
operations in the U.S. and Europe. As part of the restructuring, Intuit is
closing its Rio Rancho, New Mexico customer support facility. This restructuring
is
45
<PAGE> 48
expected to eventually result in improved operational efficiencies particularly
relating to technical support costs, but there can be no assurance that such
improvements will occur.
OTHER INCOME
<TABLE>
<CAPTION>
1995 CHANGE 1996 CHANGE 1997
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Microsoft merger termination
fee, net..................... $41.3 (100)% $ -- 0% $ --
% of revenue................... 10% -- --
Interest and other income and
expense, net................. $ 3.7 105% $ 7.6 29% $ 9.8
% of revenue................... 1% 1% 2%
</TABLE>
The Microsoft termination fee was recorded in the fourth quarter of fiscal 1995,
upon the announcement that Intuit's October 1994 merger agreement with Microsoft
was terminated. The proposed merger was opposed in a lawsuit brought by the U.S.
Department of Justice, and the two companies were unable to agree to pursue the
litigation. As a result, Intuit received a $46.3 million termination fee from
Microsoft ($41.3 million net of related expenses). The after-tax benefit to
Intuit was approximately $25.6 million.
Interest and other income and expense, net, increased by $2.2 million in fiscal
1997 compared to 1996. This increase resulted from higher interest income due to
higher average cash and short-term investment balances generated primarily from
Intuit's operating activities during the year. Interest and other income and
expense, net, grew by $3.9 million in fiscal 1996 compared to 1995 as a result
of higher interest income since Intuit received the Microsoft merger termination
proceeds in the fourth quarter of fiscal 1995.
As of July 31, 1997, Intuit had significant investments in Checkfree and Excite
common stock. If these or other future investments become impaired (more than a
temporary decline in value), or if they are sold at a substantial loss, the
decline in value or loss would be reflected as other expense and there could be
a material adverse impact on net income.
INCOME TAXES
<TABLE>
<CAPTION>
1995 CHANGE 1996 CHANGE 1997
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Provision for income taxes..... $ 24.3 (33)% $ 16.2 (22)% $ 12.7
% of revenue................... 6% 3% 2%
</TABLE>
Income tax expense, excluding the tax effect of the gain on sale of ISC,
declined in fiscal 1997 compared to 1996. Fiscal 1996 tax expense, which
excluded the benefit of discontinued operations, was lower compared to 1995. The
tax provision reflects the non-deductible status of both the in-process research
and development charges and the amortization of goodwill. At July 31, 1997,
there was a valuation allowance of $4.2 million for tax assets of Intuit's
international subsidiaries based on management's assessment that Intuit may not
receive the benefit of certain loss carryforwards.
46
<PAGE> 49
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
1995 CHANGE 1996 CHANGE 1997
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Loss from operations of
discontinued operations,
net........................... $ -- (100)% $(6.3) 100% $ --
% of revenue.................... -- (1)% --
Gain from sale of discontinued
operations, net............... $ -- 0% $ -- 100% $ 71.2
% of revenue.................... -- -- 12%
</TABLE>
Discontinued operations accounting was implemented by Intuit for fiscal 1996 as
a result of the announced sale of ISC to Checkfree. This accounting method
requires that all activity for the disposed business be separated and
reclassified in one line item on the Consolidated Statement of Operations.
Consequently, a loss from operations of discontinued operations, net of tax, of
$6.3 million was reported for all of ISC's fiscal 1996 results. In Intuit's
second quarter of fiscal 1997, the sale of ISC was completed, and a gain of
$71.2 million was recorded, net of tax.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1997, cash and cash equivalents were $46.8 million compared to
$44.6 million as of July 31, 1996. Unrestricted short-term investments were
$158.3 million and $153.4 million respectively. Liquidity improvements were the
result of net cash provided by operating and financing activities offset by net
cash used by investing activities. In fiscal 1997, $81.1 million in cash was
provided from operating activities driven by net income adjusted for
depreciation and acquisition-related expenses, higher accrued liabilities and
lower accounts receivable balances in fiscal 1997 compared to 1996. Accrued
liabilities rose by approximately $22.9 million in fiscal 1997 primarily as a
result of higher returns reserve and dealer advertising accruals. Accounts
receivable balances were down by approximately $7.5 million in fiscal 1997 due
in part to improved collection efforts both domestically and internationally.
Investing activities used $118 million in cash for fiscal 1997. This reflects
Intuit's purchase of approximately $27.6 million of property and equipment for
ongoing operations, the buildup of Internet-related infrastructure and the
relocation to new facilities in Mountain View and San Diego, California. In
addition, Intuit used approximately $39.2 million in cash to purchase its 19%
interest in Excite and approximately $34.2 million for acquisition and
disposition-related activity, most notably the acquisition of Nihon Micom.
Offsetting these uses of cash was the sale of two million shares of Intuit's
common stock investment in Checkfree which provided $29.5 million.
Financing activities provided Intuit with $39.0 million in cash in fiscal 1997.
This was primarily attributable to an increase in long term debt of
approximately $30.3 million issued by Intuit's subsidiary, Intuit KK, to fund
its cash payment to acquire Nihon Micom. Intuit has guaranteed this debt and at
July 31, 1997, approximately $34.8 million of Intuit's short-term investments
were restricted and pledged as security for these borrowings. Intuit also
received cash proceeds of approximately $9.4 million for common stock issued to
employees under its stock option and purchase plans.
Intuit enters into leases for new or expanded facilities in the normal course of
its business. During fiscal 1996, Intuit began moving its headquarters from
Menlo Park, California to larger facilities in Mountain View, California. The
move is expected to be complete by the end of calendar year 2000. Intuit also
relocated its operations in San Diego, California to a new office facility in
June 1996. Intuit leases various other properties throughout the world. Intuit
has no other significant capital expenditure commitments, although there may be
additional cash requirements for strategic acquisitions in the future.
Intuit believes that its cash and short-term investments will be sufficient to
meet anticipated seasonal working capital and capital expenditure requirements
for at least the next fiscal year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
47
<PAGE> 50
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information about directors that is required by this Item is incorporated by
reference to our Proxy Statement for our January 1998 Annual Meeting of
Stockholders. Information about executive officers that is required by this Item
can be found in Item 4A on page 15.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to our Proxy Statement for our
January 1998 Annual Meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to our Proxy Statement for our
January 1998 Annual Meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to our Proxy Statement for
our January 1998 Annual Meeting.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
Financial Statements -- See Index to Consolidated Financial Statements in
Part II, Item 8.
Financial Statement Schedules -- See Index to Consolidated Financial
Statements in Part II, Item 8.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------------
<C> <S>
2.01(1) Exchange Agreement between Intuit and Kabushiki Kaisha Milkyway and its
stockholders dated December 26, 1995 (schedules and similar attachments will
be furnished to the Commission upon request)
2.02(1) Agreement and Plan of Reorganization by and between Intuit and GALT
Technologies, Inc. dated as of October 24, 1995; Stipulation and Amendment
No. 1 dated November 3, 1995; Amendment No. 2 dated January 7, 1996; and the
related Agreement of Merger dated September 3, 1996 (other schedules and
similar attachments will be furnished to the Commission upon request)
2.03(1) Agreement and Plan of Merger among Checkfree Corporation, Checkfree
Acquisition Corporation II, Intuit and Intuit Services Corporation dated
September 15, 1996 (schedules and similar attachments will be furnished to
the Commission upon request)
2.04(2) Amendment No. 1 to Agreement and Plan of Merger dated as of September 15,
1996 by and among Intuit Inc., Intuit Services Corporation, Checkfree
Corporation and Checkfree Acquisition Corporation II
2.05(3) Amended and Restated Checkfree Corporation Stock Restriction Agreement dated
September 15, 1996 between Intuit and Checkfree Corporation
2.06(4) Stock Purchase Agreement, dated as of June 11, 1997, between Excite, Inc. and
Intuit
2.07(5) Stock Purchase Agreement dated as of August 6, 1997 by and among Intuit,
Broderbund Software, Inc. and Parsons Technology, Inc. (other schedules and
similar attachments to be furnished to the Commission upon request)
2.08(2) Amended and Restated Registration Rights Agreement dated as of September 15,
1996 between Intuit and Checkfree Corporation
</TABLE>
48
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------------
<C> <S>
2.09(4) Nomination and Observer Agreement, dated as of June 25, 1997, between Excite,
Inc. and Intuit
2.10(4) Registration Rights Agreement, dated as of June 25, 1997, between Excite,
Inc. and Intuit
2.11(4) Right of First Refusal Agreement, dated as of June 25, 1997, between Excite,
Inc. and Intuit
2.12(4) Amendment to Restated and Amended Investors' Rights Agreement, dated as of
June 25, 1997, among Excite, Inc., Institutional Venture Partners VI,
Institutional Venture Management VI, IVP Founders Fund I, L.P., Kleiner
Perkins Caufield & Byers VII, KPCB VII Founders Fund, KPCB Information
Sciences Zaibatsu Fund II and Intuit
3.01(6) Certificate of Incorporation of Intuit dated February 1, 1993
3.02(7) Certificate of Amendment to Intuit's Certificate of Incorporation dated
December 14, 1993
3.03(8) Certificate of Amendment to Intuit's Certificate of Incorporation dated
January 18, 1996
3.04(6) Bylaws of Intuit
4.01(6) Form of Specimen Certificate for Intuit's Common Stock
10.01(6)+ Intuit 1988 Stock Option Plan and related documents.
10.02(6)+ Intuit's form of Non-Plan Non-Qualified Stock Option Agreement
10.03(6) Form of Indemnification Agreement entered into by Intuit with each of its
directors and certain executive officers
10.04(9)+ 1992 Stock Option Plan of ChipSoft
10.05(9)+ Form of Non-Qualified Stock Option Agreement under the 1992 Stock Option Plan
of ChipSoft
10.06(9)+ 1989 Stock Option Plan of ChipSoft
10.07(9)+ Form of Non-Qualified Stock Option Agreement under the 1989 Stock Option Plan
of ChipSoft
10.08(9)+ Softview Acquisition Stock Option Plan of ChipSoft
10.09(9)+ Form of Incentive Stock Option Agreement under the Softview Acquisition Plan
of ChipSoft
10.10(9)+ Restricted Stock Purchase Agreement dated as of March 28, 1991, between
ChipSoft and Alan A. Gleicher
10.11(9)+ Non-Transferable, Non Qualified Stock Option Agreement dated as of March 28,
1991, between ChipSoft and Alan A. Gleicher
10.12(9)+ Non-Transferable, Non Qualified Stock Option Agreement dated as of August 1,
1991, between ChipSoft and William H. Harris Jr.
10.13(7)+ Letter Agreement of Employment dated March 30, 1994 between Intuit and
William V. Campbell
10.14(7) Contract for Purchase of Land dated July 25, 1994 between Intuit and Amrep
Southwest, Inc.
10.15(10)+ Severance Agreement dated September 30, 1994 between Intuit and Charles H.
Gaylord, Jr.
10.16(10) Indenture dated as of September 1, 1994 among the City of Rio Rancho, New
Mexico ("Rio Rancho"), Intuit and Sunwest Bank of Albuquerque, N.A. ("Sunwest
Bank")
</TABLE>
49
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------------
<C> <S>
10.17(10) Lease and Purchase Agreement dated as of September 1, 1994 between Intuit and
Rio Rancho
10.18(10) Bond Purchase Agreement dated October 12, 1994 among ChipSoft, Inc., Rio
Rancho and Intuit as assigned to Greenco Subsidiary Corporation
10.19(10) Construction Loan Agreement effective September 29, 1994 between Sunwest Bank
and Intuit and the related Collateral Assignments
10.20(10) Mortgage dated July 24, 1994 between Intuit and Sunwest Bank, as amended
September 29, 1994
10.21(10) Amended and Restated Real Estate Mortgage Note dated September 29, 1994
issued by Intuit to Sunwest Bank
10.22(11) Lease Agreement dated as of November 30, 1994 between Intuit and Charleston
Properties for 2700 Coast Drive, Mountain View, California to commence on
January 1, 1999
10.23(11) Lease Agreement dated as of November 30, 1994 between Intuit and Charleston
Properties for 2750 Coast Drive, Mountain View, California to commence on
January 1, 1998
10.24(11) Lease Agreement dated as of November 30, 1994 between Intuit and Charleston
Properties for 2475 Garcia Drive, Mountain View, California
10.25(11) Lease Agreement dated as of November 30, 1994 between Intuit and Charleston
Properties for 2525 Garcia Drive, Mountain View, California
10.26(11) Lease Agreement dated as of November 30, 1994 between Intuit and Charleston
Properties for 2535 Garcia Drive, Mountain View, California
10.27* Lease Agreement dated as of November 30, 1994 between Intuit and Charleston
Properties for 2500 Garcia Drive, Mountain View, California
10.28* Lease Agreement dated as of November 30, 1994 between Intuit and Charleston
Properties for 2550 Garcia Drive, Mountain View, California
10.29(11) Option Agreement dated as of November 30, 1994 between Intuit and Charleston
Properties for 2650 Casey Drive, Mountain View, California
10.30(12) Build-to-Suit Lease Agreement dated as of June 5, 1995 between Intuit and UTC
Greenwich Partners, a California limited partnership
10.31(12) Lease Agreement dated as of August 31, 1995 between Intuit and Airport
Business Center Associates Limited Partnership, an Arizona limited
partnership
10.32(13) Supply Agreement dated August 23, 1995 by and between Intuit Inc. and John H.
Harland Company
10.33(2)+ Intuit Inc. 1993 Equity Incentive Plan, as amended through November 25, 1996
10.34*+ Intuit Inc. 1996 Employee Stock Purchase Plan, as adopted on October 7, 1996
and amended through July 30, 1997
10.35(2)+ Intuit Inc. 1996 Directors Stock Option Plan, as adopted on October 7, 1996
10.36(14) Noncompetition Agreements dated as of October 24, 1995 between Intuit and
certain former GALT shareholders
10.37(5) Distribution, Assumption and Assignment Agreement dated as of August 7, 1997
between Intuit and Parsons Technology, Inc. (schedules and attachments
thereto to be furnished to the Commission upon request)
11.01* Computation of Net Income(Loss) Per Share
21.01* List of Intuit's Subsidiaries
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------------
<C> <S>
23.01* Consent of Ernst & Young LLP, Independent Auditors
24.01* Power of Attorney (see signature page)
27.01* Financial Data Schedule (filed only in electronic format)
</TABLE>
- ---------------
+ Indicates a management contract or compensatory plan or arrangement
* Filed with this Form 10-K
(1) Filed as an exhibit to Intuit's Form 10-K for the fiscal year ended July
31, 1996, filed on October 24, 1996 and incorporated by reference
(2) Filed as an exhibit to Intuit's Form 10-Q for the quarter ended January 31,
1997, filed on March 14, 1997 and incorporated by reference
(3) Incorporated by reference from Intuit's report on Schedule 13D with respect
to its beneficial ownership of shares of Checkfree Corporation filed on
February 6, 1997
(4) Incorporated by reference from Intuit's report on Schedule 13D filed on
July 7, 1997
(5) Filed as an exhibit to Intuit's Form 8-K filed with the Commission on
August 22, 1997 and incorporated by reference
(6) Filed as an exhibit to Intuit's Registration Statement on Form S-1, filed
February 3, 1993, as amended (File No. 33-57884) and incorporated by
reference
(7) Filed as an exhibit to Intuit's Form 10-K as originally filed on October
31, 1994, as amended, and incorporated by reference
(8) Filed as an exhibit to Intuit's Form 10-Q for the quarter ended January 31,
1996, filed on March 15, 1996 and incorporated by reference
(9) Filed as an exhibit to the ChipSoft Form S-1 registration statement filed
on February 24, 1993 (file No. 33-57692) and incorporated by reference
(10) Filed as an exhibit to Intuit's Form 10-Q for the quarter ended October 31,
1994, filed on December 13, 1994 and incorporated by reference
(11) Filed as an exhibit to Intuit's Form 10-Q for the quarter ended January 31,
1995, filed on March 17, 1995 and incorporated by reference
(12) Filed as an exhibit to Intuit's Form 10-K for the fiscal year ended July
31, 1995, filed on October 30, 1995 and incorporated by reference
(13) Filed as an exhibit to Intuit's Form 10-Q for the quarter ended October 31,
1995, filed on December 14, 1995 and incorporated by reference
(14) Filed as an exhibit to Intuit's Form 8-K filed with the Commission on
September 3, 1996 and incorporated by reference
(15) Filed as an exhibit to Checkfree's Form 8-K filed with the Commission on
December 6, 1996
(b) REPORTS ON FORM 8-K
On June 11, 1997, Intuit filed a report on Form 8-K to report under Item 5
its investment in and strategic relationship with Excite, Inc.
(c) EXHIBITS
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
51
<PAGE> 54
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.
INTUIT INC.
Dated: October 15, 1997 By: /s/ GREG J. SANTORA
------------------------------------
Greg J. Santora
Vice President and Chief Financial
Officer
POWER OF ATTORNEY
By signing this Form 10-K below, I hereby appoint each of William V. Campbell
and Greg J. Santora as my attorney-in-fact to sign all amendments to this Form
10-K on my behalf, and to file this Form 10-K (including all exhibits and other
documents related to the Form 10-K) with the Securities and Exchange Commission.
I authorize each of my attorneys-in-fact to (1) appoint a substitute
attorney-in-fact for himself and (2) perform any actions that he believes are
necessary or appropriate to carry out the intention and purpose of this Power of
Attorney. I ratify and confirm all lawful actions taken directly or indirectly
by my attorneys-in-fact and by any properly appointed substitute
attorneys-in-fact.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- ------------------
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ WILLIAM V. CAMPBELL President, Chief Executive Officer October 15, 1997
- ----------------------------------- and Director
William V. Campbell
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ GREG J. SANTORA Vice President and Chief Financial October 15, 1997
- ----------------------------------- Officer
Greg J. Santora
ADDITIONAL DIRECTORS:
/s/ SCOTT D. COOK Chairman of the Board of Directors October 15, 1997
- -----------------------------------
Scott D. Cook
/s/ CHRISTOPHER W. BRODY Director October 15, 1997
- -----------------------------------
Christopher W. Brody
/s/ L. JOHN DOERR Director October 15, 1997
- -----------------------------------
L. John Doerr
/s/ MICHAEL R. HALLMAN Director October 15, 1997
- -----------------------------------
Michael R. Hallman
/s/ BURTON J. MCMURTRY Director October 15, 1997
- -----------------------------------
Burton J. McMurtry
</TABLE>
52
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- --------------------------------------------------------------------- ----
<C> <S> <C>
2.01(1) Exchange Agreement between Intuit and Kabushiki Kaisha Milkyway and
its stockholders dated December 26, 1995 (schedules and similar
attachments will be furnished to the Commission upon request)........
2.02(1) Agreement and Plan of Reorganization by and between Intuit and GALT
Technologies, Inc. dated as of October 24, 1995; Stipulation and
Amendment No. 1 dated November 3, 1995; Amendment No. 2 dated January
7, 1996; and the related Agreement of Merger dated September 3, 1996
(other schedules and similar attachments will be furnished to the
Commission upon request).............................................
2.03(1) Agreement and Plan of Merger among Checkfree Corporation, Checkfree
Acquisition Corporation II, Intuit and Intuit Services Corporation
dated September 15, 1996 (schedules and similar attachments will be
furnished to the Commission upon request)............................
2.04(2) Amendment No. 1 to Agreement and Plan of Merger dated as of September
15, 1996 by and among Intuit Inc., Intuit Services Corporation,
Checkfree Corporation and Checkfree Acquisition Corporation II.......
2.05(3) Amended and Restated Checkfree Corporation Stock Restriction
Agreement dated September 15, 1996 between Intuit and Checkfree
Corporation..........................................................
2.06(4) Stock Purchase Agreement, dated as of June 11, 1997, between Excite,
Inc. and Intuit......................................................
2.07(5) Stock Purchase Agreement dated as of August 6, 1997 by and among
Intuit, Broderbund Software, Inc. and Parsons Technology, Inc. (other
schedules and similar attachments to be furnished to the Commission
upon request)........................................................
2.08(2) Amended and Restated Registration Rights Agreement dated as of
September 15, 1996 between Intuit and Checkfree Corporation..........
2.09(4) Nomination and Observer Agreement, dated as of June 25, 1997, between
Excite, Inc. and Intuit..............................................
2.10(4) Registration Rights Agreement, dated as of June 25, 1997, between
Excite, Inc. and Intuit..............................................
2.11(4) Right of First Refusal Agreement, dated as of June 25, 1997, between
Excite, Inc. and Intuit..............................................
2.12(4) Amendment to Restated and Amended Investors' Rights Agreement, dated
as of June 25, 1997, among Excite, Inc., Institutional Venture
Partners VI, Institutional Venture Management VI, IVP Founders Fund
I, L.P., Kleiner Perkins Caufield & Byers VII, KPCB VII Founders
Fund, KPCB Information Sciences Zaibatsu Fund II and Intuit..........
3.01(6) Certificate of Incorporation of Intuit dated February 1, 1993........
3.02(7) Certificate of Amendment to Intuit's Certificate of Incorporation
dated December 14, 1993..............................................
3.03(8) Certificate of Amendment to Intuit's Certificate of Incorporation
dated January 18, 1996...............................................
3.04(6) Bylaws of Intuit.....................................................
4.01(6) Form of Specimen Certificate for Intuit's Common Stock...............
10.01(6)+ Intuit 1988 Stock Option Plan and related documents..................
10.02(6)+ Intuit's form of Non-Plan Non-Qualified Stock Option Agreement.......
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- --------------------------------------------------------------------- ----
<C> <S> <C>
10.03(6) Form of Indemnification Agreement entered into by Intuit with each of
its directors and certain executive officers.........................
10.04(9)+ 1992 Stock Option Plan of ChipSoft...................................
10.05(9)+ Form of Non-Qualified Stock Option Agreement under the 1992 Stock
Option Plan of ChipSoft..............................................
10.06(9)+ 1989 Stock Option Plan of ChipSoft...................................
10.07(9)+ Form of Non-Qualified Stock Option Agreement under the 1989 Stock
Option Plan of ChipSoft..............................................
10.08(9)+ Softview Acquisition Stock Option Plan of ChipSoft...................
10.09(9)+ Form of Incentive Stock Option Agreement under the Softview
Acquisition Plan of ChipSoft.........................................
10.10(9)+ Restricted Stock Purchase Agreement dated as of March 28, 1991,
between ChipSoft and Alan A. Gleicher................................
10.11(9)+ Non-Transferable, Non Qualified Stock Option Agreement dated as of
March 28, 1991, between ChipSoft and Alan A. Gleicher................
10.12(9)+ Non-Transferable, Non Qualified Stock Option Agreement dated as of
August 1, 1991, between ChipSoft and William H. Harris Jr............
10.13(7)+ Letter Agreement of Employment dated March 30, 1994 between Intuit
and William V. Campbell..............................................
10.14(7) Contract for Purchase of Land dated July 25, 1994 between Intuit and
Amrep Southwest, Inc.................................................
10.15(10)+ Severance Agreement dated September 30, 1994 between Intuit and
Charles H. Gaylord, Jr...............................................
10.16(10) Indenture dated as of September 1, 1994 among the City of Rio Rancho,
New Mexico ("Rio Rancho"), Intuit and Sunwest Bank of Albuquerque,
N.A. ("Sunwest Bank")................................................
10.17(10) Lease and Purchase Agreement dated as of September 1, 1994 between
Intuit and Rio Rancho................................................
10.18(10) Bond Purchase Agreement dated October 12, 1994 among ChipSoft, Inc.,
Rio Rancho and Intuit as assigned to Greenco Subsidiary
Corporation..........................................................
10.19(10) Construction Loan Agreement effective September 29, 1994 between
Sunwest Bank and Intuit and the related Collateral Assignments.......
10.20(10) Mortgage dated July 24, 1994 between Intuit and Sunwest Bank, as
amended September 29, 1994...........................................
10.21(10) Amended and Restated Real Estate Mortgage Note dated September 29,
1994 issued by Intuit to Sunwest Bank................................
10.22(11) Lease Agreement dated as of November 30, 1994 between Intuit and
Charleston Properties for 2700 Coast Drive, Mountain View, California
to commence on January 1, 1999.......................................
10.23(11) Lease Agreement dated as of November 30, 1994 between Intuit and
Charleston Properties for 2750 Coast Drive, Mountain View, California
to commence on January 1, 1998.......................................
10.24(11) Lease Agreement dated as of November 30, 1994 between Intuit and
Charleston Properties for 2475 Garcia Drive, Mountain View,
California...........................................................
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- --------------------------------------------------------------------- ----
<C> <S> <C>
10.25(11) Lease Agreement dated as of November 30, 1994 between Intuit and
Charleston Properties for 2525 Garcia Drive, Mountain View,
California...........................................................
10.26(11) Lease Agreement dated as of November 30, 1994 between Intuit and
Charleston Properties for 2535 Garcia Drive, Mountain View,
California...........................................................
10.27* Lease Agreement dated as of November 30, 1994 between Intuit and
Charleston Properties for 2500 Garcia Drive, Mountain View,
California...........................................................
10.28* Lease Agreement dated as of November 30, 1994 between Intuit and
Charleston Properties for 2550 Garcia Drive, Mountain View,
California...........................................................
10.29(11) Option Agreement dated as of November 30, 1994 between Intuit and
Charleston Properties for 2650 Casey Drive, Mountain View,
California...........................................................
10.30(12) Build-to-Suit Lease Agreement dated as of June 5, 1995 between Intuit
and UTC Greenwich Partners, a California limited partnership.........
10.31(12) Lease Agreement dated as of August 31, 1995 between Intuit and
Airport Business Center Associates Limited Partnership, an Arizona
limited partnership..................................................
10.32(13) Supply Agreement dated August 23, 1995 by and between Intuit Inc. and
John H. Harland Company..............................................
10.33(2)+ Intuit Inc. 1993 Equity Incentive Plan, as amended through November
25, 1996.............................................................
10.34*+ Intuit Inc. 1996 Employee Stock Purchase Plan, as adopted on October
7, 1996 and amended through July 30, 1997............................
10.35(2)+ Intuit Inc. 1996 Directors Stock Option Plan, as adopted on October
7, 1996..............................................................
10.36(14) Noncompetition Agreements dated as of October 24, 1995 between Intuit
and certain former GALT shareholders.................................
10.37(5) Distribution, Assumption and Assignment Agreement dated as of August
7, 1997 between Intuit and Parsons Technology, Inc. (schedules and
attachments thereto to be furnished to the Commission upon
request).............................................................
11.01* Computation of Net Income(Loss) Per Share............................
21.01* List of Intuit's Subsidiaries........................................
23.01* Consent of Ernst & Young LLP, Independent Auditors...................
24.01* Power of Attorney (see signature page)...............................
27.01* Financial Data Schedule (filed only in electronic format)............
</TABLE>
- ---------------
+ Indicates a management contract or compensatory plan or arrangement
* Filed with this Form 10-K
(1) Filed as an exhibit to Intuit's Form 10-K for the fiscal year ended July
31, 1996, filed on October 24, 1996 and incorporated by reference
(2) Filed as an exhibit to Intuit's Form 10-Q for the quarter ended January 31,
1997, filed on March 14, 1997 and incorporated by reference
(3) Incorporated by reference from Intuit's report on Schedule 13D with respect
to its beneficial ownership of shares of Checkfree Corporation filed on
February 6, 1997
(4) Incorporated by reference from Intuit's report on Schedule 13D filed on
July 7, 1997
(5) Filed as an exhibit to Intuit's Form 8-K filed with the Commission on
August 22, 1997 and incorporated by reference
(6) Filed as an exhibit to Intuit's Registration Statement on Form S-1, filed
February 3, 1993, as amended (File No. 33-57884) and incorporated by
reference
55
<PAGE> 58
(7) Filed as an exhibit to Intuit's Form 10-K as originally filed on October
31, 1994, as amended, and incorporated by reference
(8) Filed as an exhibit to Intuit's Form 10-Q for the quarter ended January 31,
1996, filed on March 15, 1996 and incorporated by reference
(9) Filed as an exhibit to the ChipSoft Form S-1 registration statement filed
on February 24, 1993 (file No. 33-57692) and incorporated by reference
(10) Filed as an exhibit to Intuit's Form 10-Q for the quarter ended October 31,
1994, filed on December 13, 1994 and incorporated by reference
(11) Filed as an exhibit to Intuit's Form 10-Q for the quarter ended January 31,
1995, filed on March 17, 1995 and incorporated by reference
(12) Filed as an exhibit to Intuit's Form 10-K for the fiscal year ended July
31, 1995, filed on October 30, 1995 and incorporated by reference
(13) Filed as an exhibit to Intuit's Form 10-Q for the quarter ended October 31,
1995, filed on December 14, 1995 and incorporated by reference
(14) Filed as an exhibit to Intuit's Form 8-K filed with the Commission on
September 3, 1996 and incorporated by reference
(15) Filed as an exhibit to Checkfree's Form 8-K filed with the Commission on
December 6, 1996
(b) REPORTS ON FORM 8-K
On June 11, 1997, Intuit filed a report on Form 8-K to report under Item 5
its investment in and strategic relationship with Excite, Inc.
(c) EXHIBITS
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
56
<PAGE> 1
EXHIBIT 10.27
LEASE AGREEMENT
THIS LEASE, made this 30th day of November, 1994 between CHARLESTON PROPERTIES,
a California General Partnership, hereinafter called Landlord, and INTUIT, INC.,
a Delaware Corporation, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit
"A", attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
The entire two story building comprising 42,632 gross square feet of space
located in Mountain View, Santa Clara County, California and further identified
at the following address: 2500 Garcia. The building leased hereunder shall be
known between Landlord and Tenant as Building Two.
As used herein the Complex shall mean and include all of the land outlined in
red and described in Exhibit "B", attached hereto, and all of the buildings,
improvements, fixtures and equipment now or hereafter situated on said land.
The Complex of which the Premises form a part shall further be known as
Complex 2.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of office,
sales, R&D and related uses necessary for Tenant to conduct its business,
provided such uses are permitted and conform to City zoning laws and all other
governmental laws, requisitions, rules and ordinances.
and for no other purpose. Tenant shall not do or permit to be done in or about
the Premises or the Complex nor bring or keep or permit to be brought or kept
in or about the Premises or the Complex anything which is prohibited by or will
in any way increase the existing rate of (or otherwise affect) fire or any
insurance covering the Complex or any part thereof, or any of its contents, or
will cause a cancellation of any insurance covering the Complex or any part
thereof, or any of its contents. Tenant shall not do or permit to be done
anything in, on or about the Premises or the Complex which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Complex or injure or annoy them, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises or the
Complex. No sale by auction shall be permitted on the Premises. Tenant shall
not place any loads upon the floors, walls, or ceiling, which endanger the
structure, or place any harmful fluids or other materials in the drainage
system of the building, or overload existing electrical or other mechanical
systems. No waste materials or refuse shall be dumped upon or permitted to
remain upon any part of the Premises or outside of the building in which the
Premises are a part, except in trash containers placed inside exterior
enclosures designated by Landlord for that purpose or inside of the building
proper where designated by Landlord. No materials, supplies, equipment,
finished products or semi-finished products, raw materials or articles of any
nature shall be stored upon or permitted to remain outside the Premises or on
any portion of common area of the Complex. No loudspeaker or other device,
system or apparatus which can be heard outside the Premises shall be used in or
at the Premises without the prior written consent of Landlord. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises. Tenant
shall indemnify, defend and hold Landlord harmless against any loss, expense,
damage, attorneys' fees, or liability arising out of failure of Tenant to
comply with any applicable law whose compliance is Tenant's obligation
hereunder. Tenant shall comply with any covenant, condition, or restriction
("CC&R's") affecting the Premises. The provisions of this paragraph are for the
benefit of Landlord only and shall not be construed to be for the benefit of
any tenant or occupant of the Complex.
2. TERM
A. The term of this Lease shall be for a period of eight years (8)
years (unless sooner terminated as hereinafter provided) and, subject to
Paragraphs 2(B) and 3, shall commence on the 1st day of January, 1997, and end
on the 31st day of December, 2004.
B. Possession of the Premises shall be deemed tendered and the term of
this Lease shall commence when the first of the following occurs:
Ninety days after the date Landlord offers Tenant possession of the Premises
for the commencement of construction of Tenant Improvements (if any); or
(2) Upon the occupancy of the Premises by any of Tenant's operating
personnel; or
(3) n/a
(This paragraph 2 is continued on page 10 below)
3. POSSESSION If Landlord, for any reason whatsoever, cannot offer
possession of said Premises to Tenant at the commencement of the said term, as
hereinbefore specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be
liable to Tenant for any loss or damage resulting therefrom (subject to the
provisions of paragraph 2.B.(1) on page 10 below) but in that event the
commencement and termination dates of the Lease, and all other dates affected
thereby shall be revised to conform to the date of Landlord's delivery of
possession, as specified in Paragraph 2(b), above. The above is, however,
subject to the provision that the period of delay of delivery of the premises
shall not exceed 90 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease. Notwithstanding anything
herein to the contrary, if Landlord has not offered possession to Tenant of the
Premises by February 1, 1997 then Tenant may cancel this Lease.
Page 1 of 9
<PAGE> 2
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the leased Premises the total sum
of Six Million, Four Hundred Forty Five Thousand Nine Hundred Fifty Eight and
40/100. _______________________________________________________________________
($6,445,958.40 _____________) Dollars in lawful money of the United States of
America, payable as follows:
Paragraph 4A is continued on page 10 below.
B. Time for Payment. In the event that the term of this Lease
commences on a date other than the first day of a calendar month, on the date
of commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number
of days between such date of commencement and the first day of the next
succeeding calendar month bears to thirty (30). In the event that the term of
this Lease for any reason ends on a date other than the last day of a calendar
month, on the first day of the last calendar month of the term hereof Tenant
shall pay to Landlord as rent for the period from said first day of said last
calendar month to and including the last day of the term hereof that proportion
of the monthly rent hereunder which the number of days between said first day
of said last calendar month and the last day of the term hereof bears to thirty
(30).
C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rent as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to
the delinquent rental due, a late charge for each rental payment in default ten
(10) days. Said late charge shall equal ten (10%) percent of each rental payment
so in default. Landlord shall not assess a late charge after such 10 day period
unless Landlord thereafter notifies Tenant by telephone or fax that Tenant's
rental is delinquent and said rental remains delinquent for 48 hours after said
notice to Tenant.
D. Additional Rent. Beginning with the commencement date of the term
of this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and
as Additional Rent the following:
(1) Tenant's proportionate share of all utilities relating to the
Complex as set forth in Paragraph 11, and
(2) Tenant's proportionate share of all Taxes relating to the
Complex as set forth in Paragraph 12, and
(3) Tenant's proportionate share of all insurance premiums
relating to the Complex, as set forth in Paragraph 15, and
(4) Tenant's proportionate share of expenses for the operation,
management, maintenance and repair of the Building (including
common areas of the Building) and Common Areas of the Complex
in which the Premises are located as set forth in Paragraph 7,
and
(5) All charges, costs and expenses, which Tenant is required to
pay hereunder, together with all interest and penalties, costs
and expenses including attorneys' fees and legal expenses,
that may accrue thereto in the event of Tenant's failure to
pay such amounts, and all damages, reasonable costs and
expenses which Landlord may incur by reason of default of
Tenant or failure on Tenant's part to comply with the terms of
this Lease. In the event of nonpayment by Tenant of Additional
Rent, Landlord shall have the rights and remedies with respect
thereto as Landlord has for nonpayment of rent.
Tenant shall pay to Landlord monthly, in advance, Tenant's prorata share of an
amount estimated by Landlord to be Landlord's approximate average monthly
expenditure for such Additional Rent items, which estimated amount shall be
reconciled within 120 days of the end of each calendar year as compared to
Landlord's actual expenditure for said Additional Rent items, with Tenant
paying to Landlord, upon demand, any amount of actual expenses expended by
Landlord in excess of said estimated amount, or Landlord refunding to Tenant
(providing Tenant is not in default in the performance of any of the terms,
covenants and conditions of this Lease) any amount of estimated payments made
by Tenant in excess of Landlord's actual expenditures for said Additional Rent
items. Landlord shall provide Tenant reasonably adequate supportive
documentation to the reconciliation. Landlord's estimate of 1994 expense and
Tenant's payment for such Additional Rent as of the commencement of the term of
this lease shall be Six Thousand Six Hundred and 00/100 ($6,600.00) Dollars per
month. Any payments required to be made by Tenant for Additional Rent shall be
made by check or instrument separate from that check or instrument used by
Tenant to make any payments for Basic Rent, pursuant to paragraph 4 A.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease,
and if the term hereof shall expire or shall otherwise terminate on a day
other than the last day of a calendar year, the actual Additional Rent incurred
for the calendar year in which the term hereof expires or otherwise terminates
shall be determined and settled on the basis of the statement of actual
Additional Rent for such calendar year and shall be prorated in the proportion
which the number of days in such calendar year preceding such expiration or
termination bears to 365.
(Paragraph 4D is continued below)
E. Place of Payment of Rent and Additional Rent. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at 3201 Ash Street, Palo Alto, CA 94306 or
to such other person or to such other place as Landlord may from time to time
designate in writing.
F. Security Deposit. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of Seventy-Five Thousand and
00/100 ($75,000.00) Dollars. Said sum shall be held by Landlord as a Security
Deposit for the faithful performance by Tenant of all of the terms, covenants,
and conditions of this Lease to be kept and performed by Tenant during the term
hereof. If Tenant defaults with respect to any provision of this Lease,
including, but not limited to, the provisions relating to the payment of rent
and any of the monetary sums due herewith, Landlord may (but shall be required
to) use, apply or retain all or any part of this Security Deposit for the
payment of any other amount which Landlord may 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. If any portion of said Deposit is so
used or applied, Tenant shall, within ten (10) days after written demand
therefor, deposit cash with Landlord in the amount sufficient to restore the
Security Deposit to its original amount. Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Deposit. If Tenant fully and faithfully performs
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) at the expiration of the Lease
term and after Tenant has vacated the Premises. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer said Deposit to
Landlord's successor in interest whereupon Tenant agrees to release Landlord
from liability for the return of such Deposit or the accounting therefor.
(Paragraph 4F is continued below)
5. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and
conditions of this Lease and such Rules and Regulations as Landlord may from
time to time prescribe, Tenant and Tenant's employees, invitees and customers
shall, in common with other occupants of the Complex in which the Premises are
located, and their respective employees, invitees and customers, and others
entitled to the use thereof, have the non-exclusive right to use the access
roads, parking areas, and facilities provided and designated by Landlord for
the general use and convenience of the occupants of the Complex in which the
Premises are located, which areas and facilities are referred to herein as
"Common Area." This right shall terminate upon the termination of this Lease.
Landlord reserves the right from time to time to make reasonable changes in the
shape, size, location, amount and extent of Common Area. All such changes shall
not unreasonably affect Tenant's access or use of the Premises and shall not
deminish Tenant's parking rights. Landlord further reserves the right to
promulgate such reasonable rules and regulations relating to the use of the
Common Area, and any part of parts thereof, as Landlord may deem appropriate for
the best interests of the occupants of the Complex. The Rules and Regulations
shall be binding upon Tenant upon delivery of a copy of them to Tenant, and
Tenant shall abide by them and cooperate in their observance. Such Rules and
Regulations may be reasonably amended by Landlord from time to time, with or
without advance notice, and all amendments shall be effective upon delivery of a
copy to Tenant. Landlord shall not be responsible to Tenant for the
non-performance by any other tenant or occupant of the Complex of any of said
Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The Common
Area shall be maintained in a first class manner and the expenditures for such
maintenance shall be at the discretion of Landlord.
Page 2 of 9
<PAGE> 3
6. PARKING. Landlord hereby acknowledges that Tenant shall have the right to
restripe parking lots at Tenant's own expense (provided Tenant is the only
occupant of a Complex to be restriped). Any restriping shall be in compliance
with all applicable codes and regulations and Landlord shall cooperate with
Tenant in this effort. Tenant shall have the right to use with other tenants or
occupants of the Complex its proportionate share of parking spaces in the common
parking areas of the Complex. Tenant agrees that Tenant, Tenant's employees,
agents, representatives and/or invitees shall not use parking spaces outside of
the Complex parking spaces allocated to Tenant hereunder. Landlord shall have
the right, at Landlord's sole discretion, to specifically designate the
location of Tenant's parking spaces within the common parking areas of the
Complex in the event of a dispute among the tenants occupying the building
and/or Complex referred to herein, in which event Tenant agrees that Tenant,
Tenant's employees, agents, representatives and/or invitees shall not use any
parking spaces other than those parking spaces specifically designated by
Landlord for Tenant's use. Said parking spaces, if specifically designated by
Landlord to Tenant, may be relocated by Landlord at any time, and from time to
time. Landlord reserves the right, at Landlord's sole discretion, to rescind
any specific designation of parking spaces, thereby returning Tenant's parking
spaces to the common parking area. Landlord shall give Tenant written notice of
any change in Tenant's parking spaces. Tenant shall not, at any time, park, or
permit to be parked, any trucks or vehicles adjacent to the loading areas so as
to interfere in any way with the use of such areas, nor shall Tenant at any
time park, or permit the parking of Tenant's trucks or other vehicles or the
trucks and vehicles of Tenant's suppliers or others, in any portion of the
common area not designated by Landlord for such use by Tenant. Tenant shall not
park nor permit to be parked, any inoperative vehicles or equipment on any
portion of the common parking area or other common areas of the Complex. Tenant
agrees to assume responsibility for compliance by its employees with the
parking provision contained herein. If Tenant or its employees park in other
than such designated parking areas, then Landlord may charge Tenant, as an
additional charge, and Tenant agrees to pay, ten ($10.00) Dollars per day for
each day or partial day each such vehicle is parked in any area other than that
designated. Tenant hereby authorizes Landlord at Tenant's sole expense to tow
away from the Complex any vehicle belonging to Tenant or Tenant's employees
parked in violation of these provisions, or to attach violation stickers or
notices to such vehicles. Tenant shall use the parking areas for vehicle
parking only, and shall not use the parking areas for storage.
7. EXPENSES OF OPERATION, MANAGEMENT AND MAINTENANCE OF THE COMMON AREAS OF THE
COMPLEX, PREMISES AND BUILDING IN WHICH THE PREMISES ARE LOCATED. As
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord Tenant's proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of all expenses of operation,
management, maintenance and repair of the Common Areas of the Complex
including, but not limited to, license, permit and inspection fees; security;
utility charges associated with exterior landscaping and lighting (including
water and sewer charges); all charges incurred in the maintenance of landscaped
areas, lakes, parking lots, sidewalks, driveways; maintenance, repair and
replacement of all fixtures and electrical, mechanical and plumbing systems;
structural elements and exterior surfaces of the buildings; salaries and
employee benefits of personnel and payroll taxes applicable thereto; supplies,
materials, equipment and tools; the cost of capital expenditures which have the
effect of reducing operating expenses, provided, however, that in the event
Landlord makes such capital improvements, Landlord may amortize its investment
in said improvements (together with interest at the rate of fifteen (15%)
percent per annum on the unamortized balance) as an operating expense in
accordance with standard accounting practices, provided, that such amortization
is not at a rate greater than the anticipated savings in the operating expenses.
As Additional Rent and in accordance with paragraph 4D of this Lease,
Tenant shall pay its proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of the cost of operation
(including common utilities), management, maintenance and repair of the
Premises and the building (including common areas such as lobbies, restrooms,
janitor's closets, hallways, elevators, mechanical and telephone rooms,
stairwells, entrances, spaces above the ceilings) in which the Premises are
located. The maintenance items herein referred to include, but are not limited
to, electrical systems (such as outlets, lighting fixtures, lamps, bulbs,
tubes, ballasts), heating and airconditioning controls (such as mixing boxes,
thermostats, time clocks, supply and return grills), all interior improvements
within the Premises including but not limited to: wall coverings, window
coverings, acoustical ceilings, vinyl tile, carpeting, partitioning, doors
(both interior and exterior, including closing mechanisms, latches, locks), and
all other interior improvements of any nature whatsoever, all windows, window
frames, plate glass, glazing, truck doors, main plumbing systems of the
building (such as water and drain lines, sinks, toilets, faucets, drains,
showers and water fountains), main electrical systems (such as panels and
conduits), heating and airconditioning systems (such as compressors, fans, air
handlers, ducts, boilers, heaters), store fronts, roofs, downspouts, building
common area interiors (such as wall coverings, window coverings, floor
coverings and partitioning), ceilings, building exterior doors, skylights (if
any), automatic fire extinguishing systems and elevators; license,
permit, and inspection fees; security; salaries and employee benefits of
personnel and payroll taxes applicable thereto; supplies, materials, equipment
and tools; the cost of capital expenditures which have the effect of reducing
operating expenses, provided, however, that in the event Landlord makes such
capital improvements, Landlord may amortize its investment in said improvements
(together with interest at the rate of fifteen (15%) percent per annum on the
unamortized balance) as an operating expense in accordance with standard
accounting practices, provided, that such amortization is not at a rate greater
than the anticipated savings in the operating expenses. Tenant hereby waives all
rights under, and benefits of, subsection 1 of Section 1932 and Sections 1941
and 1942 of the California Civil Code and under any similar law, statute or
ordinance now or hereafter in effect. Tenant agrees to provide carpet shields
under all rolling chairs or to otherwise be responsible for wear and tear of
the carpet caused by such rolling chairs if such wear and tear exceeds that
caused by normal foot traffic in surrounding areas. Areas of excessive wear
shall be replaced at Tenant's sole expense upon Lease termination.
"Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
Tenant agrees to contract and pay directly for five-day janitorial
service for the leased Premises and Landlord agrees to maintain the Complex in
a first-class manner.
8. ACCEPTANCE AND SURRENDER OF PREMISES By entry hereunder, Tenant accepts
the Premises as being in good and sanitary order, condition and repair and
accepts the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof except
as otherwise provided herein. Any exceptions to the foregoing must be by written
agreement executed by Landlord and Tenant. Tenant agrees on the last day of the
Lease term, or on the sooner termination of this Lease, to surrender the
Premises promptly and peaceably to Landlord in good condition and repair (damage
by Acts of God, fire or normal wear and tear excepted), with all interior walls
painted, or cleaned so that they appear freshly painted, and repaired and
replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and
shampooed; the airconditioning and heating equipment serviced by a reputable and
licensed service firm and in good operating condition (provided the maintenance
of such equipment has been Tenant's responsibility during the term of this
Lease) together with all alterations, additions and improvements which may have
been made in, to, or on the Premises (except movable trade fixtures installed at
the expense of Tenant) except that subject to paragraph 9 of this Lease Landlord
shall notify Tenant at the same time as Landlord provides its consent to such
alterations, conditions or improvements which exceed $15,000 in construction
costs whether Landlord desires to have the Premises or any part or parts thereof
restored to their condition and configuration as when the Premises existed prior
to such alteration, addition, or improvement and if Landlord shall so desire,
then Tenant shall restore said Premises or such part or parts thereof before the
end of this Lease at Tenant's sole cost and expense. Tenant, on or before the
end of the term or sooner termination of this Lease, shall remove all of
Tenant's personal property and trade fixtures from the Premises, and all
property not so removed on or before the end of the term or sooner termination
of this Lease shall be deemed abandoned by Tenant and title to same shall
thereupon pass to Landlord without compensation to Tenant, Landlord may, upon
termination of this Lease, remove all moveable furniture and equipment so
abandoned by Tenant, at Tenant's sole cost, and repair any damage caused by such
removal at Tenant's sole cost. If the Premises be not surrendered at the end of
the term or sooner termination of this Lease, Tenant shall indemnify Landlord
against loss or liability resulting from the delay by Tenant in so surrendering
the Premises including, without limitation, any claims made by any succeeding
tenant founded on such delay. Nothing contained herein shall be construed as an
extension of the term hereof or as a consent of Landlord to any holding over by
Tenant. The voluntary or other surrender of this Lease or the Premises by Tenant
or a mutual cancellation of this Lease shall not work as a merger and, at the
option of Landlord, shall either terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of all or any such
subleases or subtenancies.
(See paragraph 50 below)
9. ALTERATIONS AND ADDITIONS Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the
written consent of Landlord first had and obtained by Tenant, but at the cost
of Tenant, and any addition to, or alteration of, the Premises, except moveable
furniture and trade fixtures, shall at once become a part of the Premises and
belong to Landlord. If Landlord consents to the making of any alteration,
addition, or improvement to or of the Premises by Tenant, the same shall be
made at Tenant's sole cost and expense. Any modifications to the building or
building systems required by governmental code or otherwise as a result of
Tenant's alterations, additions or improvements shall be made at Tenant's sole
cost and expense. Tenant shall retain title to all moveable furniture and trade
fixtures placed in the Premises. All heating, lighting, electrical,
airconditioning, partitioning, drapery, carpeting and floor installations made
by Tenant, together with all property that has become an integral part by the
Premises, shall not be deemed trade fixtures. Tenant agrees that it will not
proceed to make any alterations or additions, without having obtained consent
from Landlord to do so, and until five (5) days from the receipt of such
consent, in order that Landlord may post appropriate notices to avoid any
liability to contractors or material suppliers for payment for Tenant's
improvements. Tenant will at all times permit such notices to be posted and to
remain posted until the completion of work. Tenant shall, if required by
Landlord, secure at Tenant's own cost and expense, a completion and lien
indemnity bond reasonably satisfactory to Landlord, for such work in excess of
$100,000. Tenant further covenants and agrees that any mechanic's lien filed
against the Premises or against the Complex for work claimed to have been done
for, or materials claimed to have been furnished to Tenant, will be discharged
by Tenant, by bond or otherwise, within ten (10) days after the filing thereof,
at the cost and expense of Tenant. Any exceptions to the foregoing must be made
in writing and executed by both Landlord and Tenant.
(Paragraph 9 is continued on page 12 below)
[SIG]
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Page 3 of 9
<PAGE> 4
(Paragraph 11 is continued on page 13 below)
12. TAXES. A. As Additional Rent and in accordance with Paragraph 4D of
this Lease, Tenant shall pay to Landlord Tenant's proportionate share of all
Real Property Taxes, which prorata share shall be allocated to the leased
Premises by square footage or other equitable basis, as calculated by Landlord.
The term "Real Property Taxes", as used herein, shall mean (i) all taxes,
assessments, levies and other charges of any kind or nature whatsoever, general
and special, foreseen and unforeseen (including all installments of principal
and interest required to pay any general or special assessments for public
improvements and any increases resulting from reassessments caused by any
change in ownership of the Complex) now or hereafter imposed by any
governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against, or with respect to the value, occupancy or use of, all or any
portion of the Complex (as now constructed or as may at any time hereafter be
constructed, altered, or otherwise changed) or Landlord's interest therein; any
improvements located within the Complex (regardless of ownership); the
fixtures, equipment and other property of Landlord, real or personal, that are
an integral part of and located in the Complex; or parking areas, public
utilities, or energy within the Complex; (ii) all charges, levies or fees
imposed by reason of environmental regulation or other governmental control of
the Complex; and (iii) all costs and fees (including attorneys' fees) incurred
by Landlord in contesting any Real Property Tax and negotiating with public
authorities as to any Real Property Tax. In the event said contesting results in
a refund of Real Property Taxes, Tenant shall be credited with the appropriate
proportionate share of said refund reflecting Tenant's period of occupancy. If
at any time during the term of this Lease the taxation or assessment of the
Complex prevailing as of the commencement date of this Lease shall be altered
so that in lieu of or in addition to any Real Property Tax described above
there shall be levied, assessed or imposed (whether by reason of a change in
the method of taxation or assessment, creation of a new tax or charge, or any
other cause) an alternate or additional tax or charge (i) on the value, use or
occupancy of the Complex or Landlord's interest therein or (ii) on or measured
by the gross receipts, income or rentals from the Complex, on Landlord's
business of leasing the Complex, or computed in any manner with respect to the
operation of the Complex, then any such tax or charge, however designated,
shall be included within the meaning of the term "Real Property Taxes" for
purposes of this Lease. If any Real Property Tax is based upon property or
rents unrelated to the Complex, then only that part of such Real Property Tax
that is fairly allocable to the Complex shall be included within the meaning of
the term "Real Property Taxes". Notwithstanding the foregoing, the term "Real
Property Taxes" shall not include estate, inheritance, gift or franchise taxes
of Landlord or the federal or state net income tax imposed on Landlord's income
from all sources.
B. Taxes on Tenant's Property
(1) Tenant shall be liable for and shall pay ten days before delinquency, taxes
levied against any personal property or trade fixtures placed by Tenant in or
about the Premises. If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or if the assessed
value of the Premises is increased by the inclusion therein of a value placed
upon such personal property or trade fixtures of Tenant and if Landlord, after
written notice to Tenant, pays the taxes based on such increased assessment,
which Landlord shall have the right to do regardless of the validity thereof,
but only under proper protest if requested by Tenant, Tenant shall upon demand,
as the case may be, repay to Landlord the taxes so levied against Landlord, or
the proportion of such taxes resulting from such increase in the assessment;
provided that in any such event Tenant shall have the right, in the name of
Landlord and with Landlord's full cooperation, to bring suit in any court of
competent jurisdiction to recover the amount of any such taxes so paid under
protest, and any amount so recovered shall belong to Tenant.
(2) If the Tenant improvements in the Premises, whether installed, and/or paid
for by Landlord or Tenant and whether or not affixed to the real property so as
to become a part thereof, are assessed for Real Property Tax purposes at a
valuation higher than the valuation at which standard office improvements in
other space in the Complex are assessed, then the Real Property Taxes and
assessments levied against Landlord or the Complex by reason of such excess
assessed valuation shall be deemed to be taxes levied against personal property
of Tenant and shall be governed by the provisions of 12A(i), above. If the
records of the County Assessor are available and sufficiently detailed to serve
as a basis for determining whether said Tenant improvements are assessed at a
higher valuation than standard office improvements in other spaces in the
Complex, such records shall be binding on both the Landlord and the Tenant. If
the records of the County Assessor are not available or sufficiently detailed
to serve as a basis for making said determination, the actual cost of
construction shall be used.
13. LIABILITY INSURANCE. Tenant, at Tenant's expense, agrees to keep in
force during the term of this Lease a policy of comprehensive public liability
insurance with limits in the amount of $1,000,000/1,000,000 for injuries to or
death of persons occurring in, on or about the Premises or the Complex, and
property damage insurance with limits of $500,000. The policy or policies
affecting such insurance, certificates of which shall be furnished to Landlord,
shall name Landlord as additional insureds, and shall insure any liability of
Landlord, contingent or otherwise, as respects acts or omissions of Tenant, its
agents, employees or invitees or otherwise by any conduct or transactions of
any of said persons in or about or concerning the Premises, including any
failure of Tenant to observe or perform any of its obligations hereunder; shall
be issued by an insurance company admitted to transact business in the State of
California; and shall provide that the insurance effected thereby shall not be
canceled, except upon thirty (30) days' prior written notice to Landlord. If,
during the term of this Lease, in the reasonable opinion of Landlord's Lender,
insurance advisor or counsel, the amount of insurance described in this
paragraph 13 is not adequate, Tenant agrees to increase said coverage to such
reasonable amount as Landlord's Lender, insurance advisor or counsel shall
deem adequate. Landlord shall carry a reasonable amount of liability insurance.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKER'S COMPENSATION
INSURANCE. Tenant shall maintain a policy or policies of fire and property
damage insurance in "all risk" form with a sprinkler leakage endorsement
insuring the personal property, inventory, trade fixtures and leasehold
improvements within the leased Premises for the full replacement value thereof.
The proceeds from any of such policies shall be used for the repair or
replacement of such items so insured.
Tenant shall also maintain a policy or policies of worker's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.
15. PROPERTY INSURANCE. Landlord shall purchase and keep in force and, as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord Tenant's proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of the cost of policy or
policies of insurance covering loss or damage to the Premises and Complex in
the amount of the full replacement value thereof, providing protection against
those perils included within the classification of "all risks" insurance and
flood and/or earthquake insurance, if available, plus a liability policy and a
policy of rental income insurance in the amount of one hundred (100%) percent
of twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such
insurance cost is increased due to Tenant's use of the Premises or the Complex,
Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall
have no interest in nor any right to the proceeds of any insurance procured by
Landlord for the Complex.
Landlord and Tenant do each hereby respectively release the other, to
the extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.
Page 4 of 9
<PAGE> 5
16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises or the Complex by
or from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the Premises or the Complex but excluding, however, the negligence or
willful misconduct of Landlord, its agents, servants, employees, invitees, or
contractors of which negligence Landlord has knowledge and reasonable time to
correct. The requirement of knowledge and reasonable time to correct, shall not
apply to direct negligent acts by Landlord or Landlord's agents, servants,
employees, Invitees or contractors. Except as to injury to persons or damage to
property the principal cause of which is the negligence or willful misconduct of
Landlord, its agents, servants, employees, invitees or contractors Tenant shall
hold Landlord harmless from and defend Landlord against any and all expenses,
including reasonable attorneys' fees, in connection therewith, arising out of
any injury to or death of any person or damage to or destruction of property
occurring in, on or about the Premises, or any part thereof, from any cause
whatsoever.
17. COMPLIANCE Tenant at its sole cost and expense, shall promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. This paragraph shall not
be interpreted as requiring Tenant to make structural changes or improvements,
except to the extent such changes or improvements are required as a result of
Tenant's use of the Premises. Tenant shall, at its sole cost and expense, comply
with any and all requirements pertaining to said Premises, of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises.
(SEE PARAGRAPH 48)
18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred
by Tenant. In the event that Tenant shall not, within ten (10) days following
the imposition of such lien, cause the same to be released of record, Landlord
shall have, in addition to all other remedies provided herein and by law, the
right, but no obligation, to cause the same to be released by such means as it
shall deem proper including payment of the claim giving rise to such lien. All
sums paid by Landlord for such purpose, and all expenses incurred by it in
connection therewith, shall be payable to Landlord by Tenant on demand with
interest at the prime rate of interest as quoted by the Bank of America.
19. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer or
hypothecate the leasehold estate under this Lease, or any interest therein, and
shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises or any portion thereof, without, in each case, the prior written
consent of Landlord which consent will not be unreasonably withheld. Tenant
agrees to pay to Landlord, as additional rent, fees of all rents (after Tenant
deducts all costs of subleasing) or additional consideration received by Tenant
from its assignees, transferees or subtenants in excess of the rent payable by
Tenant to Landlord hereunder. Tenant shall by thirty days (30) written notice,
advise Landlord of its intent to assign or transfer Tenant's interest in the
Lease or sublet the Premises or any portion thereof for any part of the term
hereof. In the event Tenant is allowed to assign, transfer or sublet the whole
or any part of the Premises, with the prior written consent of Landlord, no
assignee, transferee or subtenant shall assign or transfer this Lease, either in
whole or in part, or sublet the whole or any part of the Premises, without also
having obtained the prior written consent of Landlord. A consent of Landlord to
one assignment, transfer, hypothecation, subletting, occupation or use by any
other person shall not release Tenant from any of Tenant's obligations hereunder
or be deemed to be a consent to any subsequent similar or dissimilar assignment,
transfer, hypothecation, subletting, occupation or use by any other person. Any
such assignment, transfer, hypothecation, subletting, occupation or use without
such consent shall be void and shall constitute a breach of this Lease by Tenant
and shall, at the option of Landlord exercised by written notice to Tenant,
terminate this Lease. The leasehold estate under this Lease shall not, nor shall
any interest therein, be assignable for any purpose by operation of law without
the written consent of Landlord. As a condition to its consent, Landlord may
require Tenant to pay all reasonable expenses in connection with the assignment,
and Landlord may require Tenant's assignee or transferee (or other assignees or
transferees) to assume in writing, all of the obligations under this Lease and
for Tenant to remain liable to Landlord under the Lease.
(Paragraph 19 is continued below)
20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest
of Landlord in the land and buildings in which the demised Premises are
located, to secure a loan from a lender (hereinafter referred to as "Lender")
to Landlord, Tenant shall, at the request of Landlord or Lender, execute in
writing an agreement subordinating its rights under this Lease to the lien of
such deed of trust, or, if so requested, agreeing that the lien of Lender's
deed of trust shall be or remain subject and subordinate to the rights of
Tenant under this Lease. Tenant hereby irrevocably appoints Landlord the
attorney in fact of Tenant to execute, deliver and record any such instrument
or instruments for and in the name and on behalf of Tenant. Notwithstanding any
such subordination, Tenant's possession under this Lease shall not be
disturbed if Tenant is not in default and so long as Tenant shall pay all rent
and observe and perform all of the provisions set forth in this Lease and any
such subordination agreement shall so reflect. Tenant agrees to send to any
mortgages and/or deed of trust holders, by registered mail, a copy of any
notice of default served by Tenant upon the Landlord, provided that prior to
such notice, Tenant has been notified, in writing (by way of notice of
assignment of rents or otherwise) of the addresses of such mortgagees and/or
deed of trust holders. Tenant further agrees that if Landlord shall have failed
to cure such default within the time provided for in this Lease, any such
mortgagees and/or deed of trust holders shall have an additional thirty (30)
days within which to cure such default, or if such default is not reasonably
susceptible of cure within that time, then such additional time as may be
reasonably necessary if within such (30) days, any mortgagee and/or deed of
trust holder has commenced and is diligently pursuing the remedies necessary to
cure such default, (including but not limited to commencement of foreclosure
proceedings), in which event this Lease shall not be terminated when such
remedies are being diligently pursued. (SEE PARAGRAPH 52 BELOW)
21. ENTRY BY LANDLORD Landlord reserves, and shall during normal business
hours, have, the right to enter the Premises to inspect them; to perform any
services to be provided by Landlord hereunder; to submit the Premises to
prospective purchasers, mortgagers or tenants; to post notices of
nonresponsibility; and to alter, improve or repair the Premises and any portion
of the Complex, all without abatement of rent; and may erect scaffolding and
other necessary structures in or through the Premises where reasonably required
by the character of the work to be performed; provided, however, that the
business of Tenant shall be interfered with to the least extent that is
reasonably practical. For each of the foregoing purposes, Landlord shall at all
times have and retain a key with which to unlock all of the doors in an
emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord by any of said means, or otherwise, shall not
under any circumstances be construed or deemed to be a forcible or unlawful
entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof. Landlord
shall also have the right at any time to change the arrangement or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets or other public parts of the Complex and to change the name, number or
designation by which the Complex is commonly known, and none of the foregoing
shall be deemed an actual or constructive eviction of Tenant, or shall entitle
Tenant to any reduction of rent hereunder.
22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance as used herein, includes, but shall not
be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusively provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided. Tenant shall
have a period of five (5) days from the date of written notice from Landlord
within which to cure any default in the payment of rental or adjustment thereto.
Tenant shall have a period of twenty (20) days from the date of written notice
from Landlord within which to commence to cure any other default under this
Lease and Tenant shall diligently prosecute the cure to completion. Upon an
uncured default of this Lease by Tenant, Landlord shall have the following
rights and remedies in addition to any other rights or remedies available to
Landlord at law or in equity:
<PAGE> 6
(a) The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of the worth at the time
of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of rental loss for the same period
that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraph
(2) and (3) of Section 1951.2 of the California Civil Code of the amount of
rental loss that could be reasonably avoided shall be made in the following
manner: Landlord and Tenant shall each select a licensed real estate broker in
the business of renting property of the same type and use as the Premises and
in the same geographic vicinity. Such two real estate brokers shall select a
third licensed real estate broker, and the three licensed real estate brokers
so selected shall determine the amount of the rental loss that could be
reasonably avoided from the balance of the term of this Lease after the time of
award. The decision of the majority of said licensed real estate brokers shall
be final and binding upon the parties hereto.
(b) The rights and remedies provided by California Civil Code which
allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) The right and power, as attorney-in-fact for Tenant, to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord, as attorney-in-fact for Tenant, may from
time to time sublet the Premises or any part thereof for such term or terms
(which may extend beyond the term of this Lease) and at such rent and such
other terms as Landlord in its sole discretion may deem advisable, with the
right to make alterations and repairs to the Premises. Upon each subletting,
(i) Tenant shall be immediately liable to pay Landlord, in addition to
indebtedness other than rent due hereunder, the cost of such subletting,
including, but not limited to, reasonable attorneys' fees, and any real estate
commissions actually paid, and the cost of such alterations and repairs
incurred by Landlord and the amount, if any, by which the rent hereunder for
the period of such subletting (to the extent such period does not exceed the
term hereof) exceeds the amount to be paid as rent for the Premises for such
period or (ii) at the option of Landlord, rents received from such subletting
shall be applied first to payment of indebtedness other than rent due hereunder
from Tenant to Landlord; second, to the payment of any costs of such subletting
and of such alterations and repairs; third to payment of rent due to unpaid
hereunder; and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same becomes due hereunder. If Tenant has been
credited with any rent to be received by such subletting under option (i) and
such rent shall not be promptly paid to Landlord by the subtenant(s), or if
such rentals received from such subletting under option (ii) during any month
be less than that to be paid during that month by Tenant hereunder, Tenant
shall pay any such deficiency to Landlord. Such deficiency shall be calculated
and paid monthly. For all purposes set forth in this subparagraph (d), Landlord
is hereby irrevocably appointed attorney-in-fact for Tenant, with power of
substitution. No taking possession of the Premises by Landlord, as
attorney-in-fact for Tenant, shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention be given to
Tenant. Notwithstanding any such subletting without termination, Landlord may at
any time hereafter elect to terminate this Lease for such previous breach.
(e) The right to have a receiver appointed for Tenant upon application
by Landlord, to take possession of the Premises and to apply any rental
collected from the Premises and to exercise all other rights and remedies
granted to Landlord as attorney-in-fact for Tenant pursuant to subparagraph
(d) above.
23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease; and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.
24. DESTRUCTION
(Paragraph 24 is continued below)
25 EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this Lease shall terminate as to any portion of the
Premises so taken or conveyed on the date when title vests in the condemnor,
and Landlord shall be entitled to any and all payment, income, rent, award or
any interest therein whatsoever which may be paid or made in connection with
such taking or conveyance, and Tenant shall have no claim against Landlord or
otherwise for the value of any unexpired term of this Lease. Notwithstanding
the foregoing paragraph, any compensation specifically awarded Tenant for loss
of business, Tenant's personal property, moving cost or loss of goodwill, shall
be and remain the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any
entity or body having the right or power of condemnation of its intention to
condemn the Premises or any portion thereof, or (ii) any of the foregoing
events occur with respect to the taking of any space in the Complex not leased
hereby, or if any such spaces so taken or conveyed in lieu of such taking and
Landlord shall decide to discontinue the use and operation of the Complex, or
decide to demolish, alter or rebuild the Complex, then, in any of such events
Landlord shall have the right to terminate this Lease by giving Tenant written
notice thereof within sixty (60) days of the date of receipt of said written
advice, or commencement of said action or proceeding, or taking conveyance,
which termination shall take place as of the first to occur of the last day of
the calendar month next following the month in which such notice is given or
the date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if
the portion of the Premises taken or conveyed is so substantial that the Tenant
can no longer reasonably conduct its business, Tenant shall have the privilege
of terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.
26. SALE OF CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Complex or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any
liability thereafter arising upon any of the terms, covenants or conditions
(express or implied) herein contained in favor of Tenant, and in such event,
insofar as such transfer is concerned, Tenant agrees to look solely to the
responsibility of the successor in interest of such transferor in and to the
Complex and this Lease. This Lease shall not be affected by any such sale or
conveyance, and Tenant agrees to attorn to the successor in interest of such
transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the liens of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
Page 6 of 9
<PAGE> 7
28. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred twenty (120%) percent of the monthly Basic Rent
required during the last month of the Lease term.
(Paragraph 28 is continued below)
29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days' prior written notice from Landlord execute, acknowledge and deliver
to Landlord a statement in writing (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults, if any, are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that this Lease is in full force and effect, without
modification except as may be represented by Landlord; that there are no
uncured defaults in Landlord's performance, and that not more than one month's
rent has been paid in advance. If requested by Tenant, Landlord shall issue
Tenant a certificate of Estoppel stating whether or not Tenant is in compliance
with the Lease and current on rental payments.
30. CONSTRUCTION CHANGES Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid
by it hereunder or shall fail to perform any other term or covenant hereunder
on its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord, Landlord, without waiving or
releasing Tenant from any obligation of Tenant hereunder, may, but shall not be
obligated to, make any such payment or perform any such other term or covenant
on Tenant's part to be performed. All sums so paid by Landlord and all
necessary costs of such performance by Landlord together with interest thereon
at the rate of the prime rate of interest per annum as quoted by the Bank of
America from the date of such payment of performance by Landlord, shall be paid
(and Tenant covenants to make such payment) to Landlord on demand by Landlord,
and Landlord shall have (in addition to any other right or remedy of Landlord)
the same rights and remedies in the event of nonpayment by Tenant as in the
case of failure by Tenant in the payment of rent hereunder.
32. ATTORNEYS' FEES
(A) In the event that Landlord should bring suit for the possession of the
Premises, for the recovery of any sum due under this Lease, or because of the
breach of any provision of this Lease, or for any other relief against Tenant
hereunder, or in the event that Tenant should bring suit against Landlord for
the recovery of any sum due hereunder or because of the breach of any provision
of this Lease or for any other relief against Landlord hereunder, then all
costs and expenses, including reasonable attorneys' fees, incurred by the
prevailing party therein shall be paid by the other party, which obligation on
the part of the other party shall be deemed to have accrued on the date of the
commencement of such action and shall be enforceable whether or not the action
is prosecuted to judgement.
(B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder,
Tenant shall pay to Landlord its costs and expenses incurred in such suit,
including a reasonable attorney's fee, except to the extent Landlord's cost and
expense were caused by the negligence or willful misconduct of Landlord, its
agents or employees.
33. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any
way affect, the right of either party to insist upon performance and observance
by the other party in strict accordance with the terms hereof.
34. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served
on Tenant by leaving the same at the Premises or if sent by United States
certified or registered mail, postage prepaid, addressed to Tenant at the
Premises. All notices, demands, requests, advices or designations by Tenant to
Landlord shall be sent by United States certified or registered mail, postage
prepaid, addressed to Landlord at its offices at 5201 Ash Street, Palo Alto, CA
94306. Each notice, request, demand, advice or designation referred to in this
paragraph shall be deemed received on the date of the personal service or
mailing thereof in the manner herein provided, as the case may be.
35. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its
execution and delivery by both Landlord and Tenant. Landlord and Tenant
mutually intend that neither shall have any binding contractual obligations to
the other with respect to the matters referred to herein unless and until this
instrument has been fully executed by both parties.
36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.
(Paragraph 36 is continued below)
37. CORPORATE AUTHORITY If Tenant is a corporation (or a partnership) each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or
partnership) in accordance with its terms. If Tenant is a corporation, Tenant
shall, within thirty (30) days of written request by Landlord after execution
of this Lease, deliver to Landlord a certified copy of the resolution of the
Board of Directors of said corporation authorizing or ratifying the execution
of this Lease.
38.
39. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder,
Tenant and all successors and assigns covenant and agree that, in the event of
any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord and
Landlord's assets;
(ii) no partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership)
(iii) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the
partnership)
(iv) no partner of Landlord shall be required to answer or otherwise
plead to any service of process;
(v) no judgment shall be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(viii) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Page 7 of 9
<PAGE> 8
(ix) The term, "Landlord", as used in this section, shall mean only the
owner or owners from time to time of the fee title or the tenant's interest
under a ground lease of the land described in Exhibit "B", and in the event of
any transfer of such title or interest, Landlord herein named (and in case of
any subsequent transfers the then grantor) shall be relieved from and after the
date of such transfer of all liability as respects Landlord's obligations
thereafter to be performed, provided that any funds in the hands of Landlord or
the then grantor at the time of such transfer, in which Tenant has an interest,
shall be delivered to the grantee. Similarly, the obligations contained in this
Lease to be performed by Landlord shall be binding on Landlord's successors and
assigns only during their respective periods of ownership. Tenant agrees that
each of the foregoing covenants and agreements shall be applicable to any
covenant or agreement either expressly contained in this Lease or imposed by
statute or at common law.
40. BROKERS Tenant warrants that it had dealing with only the following
real estate brokers or agents in connection with the negotiation of this Lease:
The Staubach Company, and that it knows of no other real estate broker or agent
who is entitled to a commission in connection with this Lease.
41. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed or affixed on or to any part of the outside of the
Premises or any exterior windows of the Premises without the written consent of
Landlord first had and obtained and Landlord shall have the right to remove any
such sign, placard, picture, advertisement, name or notice without notice to and
at the expense of Tenant. If Tenant is allowed to print or affix or in any way
place a sign in, on or about the Premises, then upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
(Paragraph 41 is continued below)
42. FINANCIAL STATEMENTS In the event Tenant tenders to Landlord any
information on the financial stability, creditworthiness or ability of the
Tenant to pay the rent due and owing under the Lease, then Landlord shall be
entitled to rely upon the information provided in determining whether or not to
enter into this Lease Agreement with Tenant and Tenant hereby represents and
warrants to Landlord the following: (i) That all documents provided by Tenant to
Landlord are true and correct copies of the original; and (ii) Tenant has not
withheld any information from Landlord which is material to Tenant's
creditworthiness, financial condition or ability to pay the rent; and (iii) all
information supplied by Tenant to Landlord is true, correct and accurate in
every material aspect and (iv) no part of the information supplied by Tenant to
Landlord contains misleading or fraudulent statements as to any material matter.
A default under this paragraph shall be a non-curable default on behalf
of Tenant and Landlord shall be entitled to pursue any right or remedy available
to Landlord under the terms of this Lease or available to Landlord under the
laws of the State of California.
43. HAZARDOUS MATERIALS
A. As used herein, the term "Hazardous Material" shall mean any
substance or material which has been determined by any state, federal or local
governmental authority to be capable of posing a risk of injury to health,
safety or property including all of those materials and substances designated or
defined as "hazardous" or "toxic" by (i) the Environmental Protection Agency,
the California Water Quality Control Board, the Department of Labor, the
California Department of Industrial Relations, the Department of Transportation,
the Department of Agriculture, the Consumer Product Safety Commission, the
Department of Health and Human Services, the Food and Drug Agency or any other
governmental agency now or hereafter authorized to regulate materials and
substances in the environment, or by (ii) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601 et seq., as
amended; the Hazardous Materials Transportation Act, 49 U.S.C. 1801, et seq., as
amended; the Resource Conservation and Recovery Act, 42 U.S.C. 6901, et seq., as
amended; the Hazardous Waste Control Law, California Health & Safety Code 25100
et seq., as amended; Sections 66680 through 66685 of Title 22 of the California
Administration Code, Division 4, Chapter 30, as amended; and in the regulations
adopted and publications promulgated pursuant to said laws.
B. Tenant shall not cause or permit any Hazardous Material to be
improperly or illegally used, stored, discharged, released or disposed of in,
from, under or about the Premises or the Complex, or any other land or
improvements in the vicinity of the Premises or the Complex. Without limiting
the generality of the foregoing, Tenant, at its sole cost, shall comply with all
laws relating to Hazardous Materials. If the presence of Hazardous Materials on
the Premises or the Complex caused or permitted by Tenant results in
contamination of the Premises or the Complex or any soil in or about the
Premises or the Complex, Tenant, at its expense shall promptly take all actions
necessary to return the Premises or the Complex to the condition existing prior
to the appearance of such Hazardous Material. The termination of this Lease
shall not terminate or reduce the liability or obligations of Tenant under this
Section, or as may be required by law, to clean up, monitor or remove any
Hazardous Materials from the Premises or the Complex.
Tenant shall defend, hold harmless and indemnify Landlord and its agents
and employees with respect to all claims, damages and liabilities arising out of
or in connection with any Hazardous Material used, stored, discharged, released
or disposed of in, from, under or about the Premises or the Complex, where said
Hazardous Material is or was attributable to the activities of Tenant, its
agents or contractors during the Lease term and whether or not Tenant had
knowledge of such Hazardous Material, including, without limitation, any cost of
monitoring or removal, any reduction in the fair market value or fair rental
value of the Premises or the Complex and any loss, claim or demand by any third
person or entity relating to bodily injury or damage to real or personal
property.
Tenant shall not suffer any lien to be recorded against the Premises or
the Complex as a consequence of a Hazardous Material, including any so called
state, federal or local "super fund" lien related to the "clean up" of a
Hazardous Material in or about the Premises, where said Hazardous Material is or
was attributable to the activities of the Tenant.
C. In the event Hazardous Materials are discovered in or about the
Premises or the Complex, and Landlord has substantial reason to believe that
Tenant was responsible for the presence of the Hazardous Material, then Landlord
shall have the right to appoint a consultant, at Tenant's expense, to conduct an
investigation to determine whether Hazardous Materials are located in or about
the Premises or the Complex and to determine the corrective measures, if any,
required to remove such Hazardous Materials. Tenant, at its expense, shall
comply with all recommendations of the consultant, as required by law. To the
extent it is determined that Tenant was not responsible for the presence of the
Hazardous Materials, then Landlord shall reimburse Tenant for any costs incurred
by Landlord and paid by Tenant under the terms of this paragraph 45.C.
Tenant shall immediately notify Landlord of any inquiry, test,
investigation or enforcement proceeding by or against Tenant or the Premises or
the Complex concerning a Hazardous Material. Tenant acknowledges that Landlord,
as the owner of the property, at its election, shall have the sole right, at
Tenant's expense, to negotiate, defend, approve and appeal any action taken or
order issued with regard to a Hazardous Material by an applicable governmental
authority. Provided Tenant is not in default under the terms of this Lease,
Tenant shall likewise have the right to participate in any negotiations,
approvals or appeals of any actions taken or orders issued with regard to the
Hazardous Material and Landlord shall not have the right to bind Tenant in said
actions or orders.
Landlord shall defend, hold harmless and indemnify Tenant and its agents
and employees with respect to all claims, damages and liabilities arising out of
or in connection with any Hazardous Material used, stored, discharged, released
or disposed of in, from, under or about the Premises or the Complex, where said
Hazardous Material is or was not attributable to the activities of Tenant, its
agents or contractors during the Lease term and whether or not Tenant had
knowledge of such Hazardous Material, including, without limitation, any cost of
monitoring or removal, any reduction in the fair market value or fair rental
value of the Premises or the Complex and any loss, claim or demand by any third
person or entity relating to bodily injury or damage to real or personal
property.
D. It shall not be unreasonable for Landlord to withhold its consent to
any proposed assignment or subletting if (i) the proposed assignee's or
subtenant's anticipated use of the Premises involves the storage, use or
disposal of Hazardous Material; (ii) if the proposed assignee or subtenant has
been required by any prior landlord, lender or governmental authority to "clean
up" Hazardous Material; (iii) if the proposed assignee or subtenant is subject
to investigation or enforcement order or proceeding by any governmental
authority in connection with the use, disposal or storage of a Hazardous
Material.
E. Tenant shall surrender the Premises to Landlord, upon the expiration
or earlier termination of the Lease, free of Hazardous Materials which are or
were attributable to Tenant. If Tenant fails to so surrender the Premises,
Tenant shall indemnify and hold Landlord harmless from all damages resulting
from Tenant's failure to surrender the Premises as required by this paragraph,
including, without limitation, any claims or damages in connection with the
condition of the Premises including, without limitation, damages occasioned by
the inability to relet the Premises or a reduction in the fair market and/or
rental value of the Premises or the Complex by reason of the existence of any
Hazardous Materials, which are or were attributable to the activities of Tenant,
in or around the Premises or the Complex.
Notwithstanding any provision to the contrary in this Lease, if any
action is required to be taken by a governmental authority to clean-up, monitor
or remove any Hazardous Materials, which are or were attributable to the
activities of Tenant, from the Premises or the Complex and such action is not
completed prior to the expiration or earlier termination of the Lease, then at
Landlord's election (i) this Lease shall be deemed renewed for a term commencing
on the expiration date of this Lease and ending on the date the clean-up,
monitoring or removal procedure is completed (provided, however, that the total
term of this Lease shall not be longer than 34 years and 11 months); or (ii)
Tenant shall be deemed to have impermissibly held over and Landlord shall be
entitled to all damages directly or indirectly incurred in connection with such
holding over, including without limitation damages occasioned by the inability
to relet the Premises or a reduction in the fair market and/or fair rental value
of the Premises or the Complex by reason of the existence of the Hazardous
Material.
F. Upon the Lease Commencement Date, Tenant shall provide to Landlord a
complete list of all chemicals, toxic waste or Hazardous Materials employed by
Tenant within the Premises. Throughout the term of this Lease, Tenant shall
continue to update this list of chemicals, contaminants and Hazardous Materials.
Landlord hereby warrants Tenant that there is no asbestos in the buildings.
Page 8 of 9
<PAGE> 9
44. MISCELLANEOUS AND GENERAL PROVISIONS
a. Tenants shall not, without the written consent of Landlord, use the name
of the building for any purpose other than as the address of the business
conducted by Tenant in the Premises.
b. This lease shall in all respects be governed by and construed in
accordance withe the laws of the State of California. If any provision of
this Lease shall be invalid, unenforceable or ineffective for any reason
whatsoever, all other provisions hereof shall be and remain in full force
and effect.
c. the term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The
term "Landlord" or any pronoun used in place thereof includes the plural as
well as the singular and the successors and assigns of Landlord. The term
"Tenant" or any pronoun used in place thereof includes the plural as well as
the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted
assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used
in any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph
headings of this Lease are for convenience of reference only and shall have
no effect upon the construction or interpretation of any provision hereof.
d. Time is of the essence of this Lease and of each and all of its
provisions.
e. At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after
written demand from Landlord to Tenant, any quitclaim deed or other document
required by any reputable title company, licensed to operate in the State of
California, to remove the cloud or encumbrance created by this Lease from
the real property of which Tenant's Premises are a part.
f. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Landlord and Tenant relative to the
Premises and this agreement and the exhibits and attachments may be altered,
amended or revoked only by an instrument in writing signed by both Landlord
and Tenant. Landlord and Tenant hereby agree that all prior or
contemporaneous oral agreements between and among themselves and their
agents or representatives relative to the leasing of the Premises are merged
in or revoked by this agreement.
g. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
h. Tenant further agrees to execute any amendments required by a lender to
enable Landlord to obtain financing, so long as Tenant's rights hereunder
are not substantially affected.
i. Paragraph(s) 45 through 54 are/is added hereto and are/is included as a
part of this Lease.
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shutting off of light,
air or view by any structure which may be hereafter erected (whether or not
by Landlord) shall in any way affect this Lease, entitle Tenant to any
reduction of rent hereunder or result in any liability of Landlord to
Tenant.
Paragraph 44 is continued below.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease
as of the day and year first above written.
LANDLORD: TENANT:
CHARLESTON PROPERTIES, a INTUIT, INC., a
California General Partnership Delaware Corporation
By /s/ Boyd C. Smith By /s/ W.H. Lane
------------------------------- -----------------------------------
Title Partner Title VP/CFO
---------------------------- --------------------------------
<PAGE> 10
2.B.(continued). TENANT'S COMPENSATION IN THE EVENT OF A DELAY
(1) In the event Landlord is unable to make the Premises available
to Tenant 90 days prior to the Lease Commencement Date as set
forth in Paragraph 2A above to permit Tenant to commence
construction of desired changes within the Premises, Tenant
shall receive any and all monies received by Landlord as
penalties (hereinafter referred to as Sun Excess Rent) from Sun
Microsystems (the prior Tenant) in excess of the Basic Rent
amount that Sun Microsystems would have been obligated to pay
Charleston Properties during any holdover period. For example,
if Sun Microsystems paid Landlord 150% of Basic Rent during a
holdover period, Landlord would receive 100% of the Basic Rent
and Tenant would receive the 50% Sun Excess Rent.
Paragraph 2.C. EARLY OCCUPANCY FOR CONSTRUCTION PURPOSES
The Lease Commencement Date for the Premises leased hereunder
shall remain as stated in paragraph 2A provided Landlord has
granted Tenant access to the Premises ninety days prior to the
commencement of the Lease for the purpose of Tenant's
construction of Tenant Improvements. At such time as Landlord has
made the Premises available for the commencement of construction,
Tenant or Tenant's contractor, shall be permitted to commence
construction. During this 90 day period, Tenant shall hold
Landlord, and WSJ Properties (Landlord's Property Management
Company retained to manage the Complex) harmless from any loss or
damage caused by Tenant's or Tenant's contractor's construction
activities during this period. During this 90 day construction
period, Tenant shall not be obligated to pay Basic or Additional
Rent on the Premises so under construction unless Tenant elects
to occupy the Premises during this 90 day period with Tenant's
operating personnel. In the event Tenant does occupy the Premises
with operating personnel, Tenant shall occupy the Premises under
all the terms and conditions of the Lease and Tenant shall pay
Landlord Basic and Additional Rent beginning with said Date of
Occupancy by Tenant's operating personnel up and until the
specified Commencement Date of the term of the Lease in the
following daily amounts:
Daily Basic Rent $2,132.00
Daily Additional Rent $ 317.00 (estimated)
The Commencement Date and Termination Date of Lease for the
Premises shall not be affected by this early occupancy and shall
remain as stated.
Paragraph 4A (1) (continued). BASIC RENT
The table below represents a specific Basic Rent expressed in
dollars per square foot per month for a specific time period. The
Basic Rent due and payable is calculated by multiplying the gross
square footage leased times the Basic Rent per square foot per
month as indicated.
The Basic Rent rates are as follows:
1/1/1997 - 12/31/1999 $1.50 per square foot per month
1/1/2000 - 12/31/2003 $1.60 per square foot per month
1/1/2004 - 12/31/2007 $1.70 per square foot per month
1/1/2008 - 12/31/2008 $1.75 per square foot per month
or the Fair Market Value,
10
<PAGE> 11
whichever is greater
1/1/2009 and thereafter The rate per square foot per month
shall be increased by $.05/per
square foot per month as of each
January 1 during the term over the
prior year or shall be the Fair
Market Value, whichever is greater.
(See paragraph 46 for Fair Market Value definition and
determination and paragraph 50 for Basic Rent Abatement for
Tenant Improvements).
Paragraph 4A (2). PAYMENT UPON EXECUTION OF LEASE AND TIMELY PAYMENT OF
MONTHLY BASIC AND ADDITIONAL RENT
Upon execution of this Lease, Tenant shall pay Landlord, $63,948
(42,632 x $1.50) representing the first month's Basic Rent
payment. During the term of the Lease, Tenant's monthly Basic and
Additional Rent shall be due and payable on or before the first
day of each month of the Lease term.
Paragraph 4D (continued). ADDITIONAL RENT
For purposes of calculating Tenant's proportionate share of
Additional Rent Expenses for the Complex it is hereby mutually
agreed the Complex totals 85,264 rentable square feet (Buildings
1, 2).
Landlord's monthly estimate for Additional Rent items described
in paragraph 4D (excluding taxes) for calendar year 1996 is
$6,600 per month (42,632 x $0.155). The following represents a
line item breakdown of Landlord's estimate of monthly expenses
(expressed in dollars per square foot per month):
<TABLE>
<S> <C>
Exterior maintenance and landscape $0.045
Building maintenance and HVAC 0.065
Insurance (including earthquake insurance) 0.025
Management 0.02
Utilities (Tenant pays directly) -0-
Janitorial (Tenant pays directly) -0-
------
Total $0.155
</TABLE>
Landscape water for the Complex shall be paid directly by Tenant
if Tenant occupies the entire Complex.
Taxes shall be billed separately and prorated for periods of
occupancy and shall be due December 1st and April 1st of each
calendar year. Landlord's estimate for the 1995-1996 Tax year
(July 1, 1995 - June 30, 1996) for the Complex is as follows:
Parcel #116-03-029 (Buildings 1,2)
$83,000 or $41,500 per Building per year
Tenant shall have the right, during normal business hours and at
Tenant's own expense, to audit Landlord's records concerning
Additional Rent items. In the event a discrepancy of greater than
3% of Tenant's correct share of costs is discovered, Landlord
shall pay the cost of Tenant's out of pocket costs to third
parties and shall credit or refund to Tenant the amount of the
discrepancy. If the audit indicates Tenant owes Landlord an
additional
11
<PAGE> 12
amount, Tenant shall pay the additional amount promptly.
Paragraph 4F (continued). SECURITY DEPOSIT
Notwithstanding anything in the Lease to the contrary, Landlord agrees
to accept, and Tenant shall have the right, at Tenant's sole discretion, to pay
for the Security Deposit by tendering to Landlord, on execution of this Lease,
an irrevocable standby Letter of Credit. The form of the irrevocable standby
Letter of Credit must be acceptable to Landlord, and in the event the term of
said Letter of Credit is for one year, then Tenant agrees to renew said Letter
of Credit 30 days prior to expiration of the Letter of Credit. Tenant's failure
to renew the Letter of Credit for an additional year, 30 days prior to its
expiration date, shall entitle Landlord to draw against the Letter of Credit the
amount of the Security Deposit.
Paragraph 7 (continued)
Further, Landlord hereby represents and covenants that with respect to
direct maintenance of the Premises only WSJ's overhead shall be included in
these costs and no profit component is or will be built into the cost of the
services or materials provided by any of Landlord's subsidiaries or affiliates
who are under contract to provide services and materials to the Premises
(including without limitation WSJ Properties). Excluded as reimbursable costs
from Tenant to Landlord are the follows:
1. any fines, costs, penalties or interest resulting from the negligence
or willful misconduct of the Landlord or its agents, contractors, or employees;
2. any costs of any services sold or provided to tenants or other
occupants for which Landlord or Managing Agent is entitled to be reimbursed by
such tenants or other occupants.
3. acquisition costs for sculptures, paintings, or other objects of art;
4 costs for which Landlord has been compensated by a management fee; for
example, accounting costs necessary to operate the Complex and report its
financial status to the Landlord.
Paragraph 9 (continued). ALTERATIONS AND ADDITIONS
Landlord shall lease the premises to Tenant in an "as-is" condition, and
other than Landlord's repair obligation per paragraph 49 and Landlord's code
compliance obligation per paragraph 48, all cost of construction including
demolition, architectural, drawings, permitting fees, etc., shall be paid by
Tenant with landlord's contributions limited to those described in paragraph 50.
Notwithstanding anything herein to the contrary, upon Landlord's
approval of Tenant's initial Tenant Improvements to be installed and paid for by
Tenant (except as provided for in paragraph 50), Tenant shall not be required to
restore the initial build-out to the configuration and condition in existence as
of the date Landlord first delivers possession of the Premises to Tenant. Should
Tenant elect to install a ceiling and lighting system that is other than a
standard 2 x 2 or 2 x 4 T-Bar grid and 2 x 2 or 2 x 4 drop-in parabolic lens
with fluorescent bulb fixtures Landlord may, in its sole discretion determined
at the time Landlord approves the plans, require restoration to the existing
ceiling system and similar light fixtures. If Tenant makes no changes to the
Premises at the outset and uses the Premises in an as-is condition, and later
makes substantial renovations or improvements, then, at Landlord's option, any
future restoration required shall be to the original condition and configuration
as first delivered to Tenant. At the time any subsequent alterations are
requested
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Landlord shall notify Tenant of any restoration requirements per this paragraph
9. Landlord shall not have the right to approve or disapprove or to require
restoration in the event any changes subsequent to the initial build-out of any
building meet the following criteria:
1) The total cost of construction is less than $15,000.
2) The changes do not in anyway affect exiting or fire corridors,
restrooms, building entrances, lobbies, building systems or
structure. Landlord's granting approval to Tenant to make changes
herein described without the obligation to restore is in reliance
upon Tenant's making commercially reasonably alterations and
Tenant agrees not to use this subparagraph to circumvent
Landlord's right to require Tenant to restore the premises under
paragraph 9.
Tenant shall have the right to employ a general contractor of its
choosing for any modifications desired to be made to the Premises leased
hereunder. However, Tenant hereby agrees in the event Tenant elects to make
subsequent modifications to the Premises to consider the WSJ Properties
Construction Division a preferred vendor and Tenant hereby acknowledges that it
is Landlord's strong preference to have WSJ Properties Construction Division
perform any modifications to the Premises. Although Tenant shall consider WSJ
Properties Construction Division a preferred vendor, Tenant shall be under no
obligation to select WSJ Properties and Tenant further acknowledges WSJ is a
completely separate entity from landlord and any disputes relating to
construction performed by WSJ for Tenant shall be resolved directly between WSJ
and Tenant.
Paragraph 11 (continued). UTILITIES
Tenant shall pay promptly, as the same become due, all charges for
water, gas, electricity, telephone, telex and other electronic communications
service, sewer service, waste pick-up and any other utilities, materials or
services furnished directly to or used by Tenant on or about the Premises during
the term of this Lease, including, without limitation, any temporary or
permanent utility' surcharge or other exactions whether or not hereinafter
imposed.
Landlord shall not be liable for and Tenant shall not be entitled to
any abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
Paragraph 19 (continued). ASSIGNMENT AND SUBLETTING
Notwithstanding the foregoing, without the prior consent of Landlord,
Tenant shall have the right (i) to assign this Lease to an affiliate or
subsidiary of Tenant or (ii) to merge with another corporation or entity or
(iii) to enter into an acquisition of another corporation or be acquired by
another corporation, in each case provided that Landlord is promptly provided
with notice thereof and Tenant remains fully liable for the full performance of
Tenant's obligation under the Lease; provided, however, that in the event Tenant
merges into another entity or is wholly acquired by another entity (in each
case, the "Successor Entity"), and provided Tenant ceases to exist and the
Successor Entity is at least as well capitalized as Tenant and has at least the
same overall financial wherewithal as Tenant had prior to such merger or
acquisition, it shall be the Successor Entity (not Tenant) who shall be fully
liable hereunder as the successor tenant.
Paragraph 24 (continued). DESTRUCTION
In the event the Premises are damaged or destroyed in whole or
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<PAGE> 14
in part from any cause, Landlord shall, within fifteen (15) days of the event of
such damage or destruction, notify Tenant in writing as to the approximate
length of time necessary for Landlord to reconstruct the Premises to
substantially its former condition. If such estimate exceeds one hundred eighty
(180) days from the date of damage or destruction, Tenant shall have the option,
within ten (10) days of receipt of Landlord's notice, to terminate this Lease.
If Tenant does not exercise its option to terminate, or if Tenant is not
entitled to terminate under this paragraph, Landlord shall promptly, at its sole
expense, rebuild or restore the Premises to substantially the condition existing
prior to the date of damage or destruction. Tenant shall be entitled to a
reduction in rent while such repair is being made in the proportion that the
area of the Premises rendered untenantable by such damage bears to the total
area of the Premises. If Landlord does not complete the rebuilding or
restoration within one hundred eighty (180) days following the date of
destruction (such period of time to be extended for delays caused by the fault
or neglect of Tenant or because of Acts of God, acts of public agencies, labor
disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability
to obtain materials, supplies or fuels), then Tenant shall have the right to
terminate this Lease by giving fifteen (15) days prior written notice to
Landlord. Notwithstanding anything herein to the contrary, Landlord's obligation
to rebuild or restore shall be limited to the building and interior improvements
constructed by Landlord as they existed as of the commencement date of the Lease
and the initial Tenant Improvements installed at the commencement of the term,
but shall not include restoration of Tenant's trade fixtures, equipment,
merchandise or any subsequent improvements, alterations or additions made by
Tenant to the Premises, which Tenant shall forthwith replace or fully repair at
Tenant's sole cost and expense provided this Lease is not canceled according to
the provisions above. Unless this Lease is terminated pursuant to the foregoing
provisions, this Lease shall remain in full force and effect. Tenant hereby
expressly waives the provisions of Section 1932, Subdivision 2, and Section
1933, Subdivision 4 of the California Civil Code.
Notwithstanding anything to the contrary set forth above, in the event
the damage or destruction of the Premises (i) occurs during the last two years
of the term (unless any applicable extension option has been exercised) and (ii)
has rendered at least 33% of the Premises unusable by Tenant, Landlord shall
have the option during the aforementioned fifteen (15) day period to elect not
to rebuild the Premises by so notifying Tenant or to elect to terminate this
Lease by so notifying Tenant.
Paragraph 28 (continued). HOLDING OVER
Tenant shall have the right, upon one year prior written notice to
Landlord, to extend the lease termination date for this Lease up to six months
beyond the lease expiration date provided and only if Tenant has also agreed to
similarly and in a coterminus manner extend the lease termination date for all
the leases for Buildings leased by Tenant within the Complex. Tenant may not
exercise this right to extend the lease termination date on less than all the
Buildings leased within the Complex. The Basic Rent during this extended period
shall be 125% of the monthly Basic Rent then in effect for the month immediately
prior to the lease expiration.
Paragraph 36 (continued). DEFAULT BY LANDLORD
Notwithstanding anything to the contrary set forth above in this
paragraph 36, Landlord and Tenant agree that under certain "emergency
circumstances", Tenant shall have the right to perform obligations otherwise
required of Landlord without the necessity of providing Landlord (and any
mortgagee) with such thirty (30) day notice and opportunity to cure. Under such
"emergency circumstances", Tenant shall use its good faith reasonable
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<PAGE> 15
judgement in determining a shorter notice period for response by Landlord or
determining that the matter at hand must be resolved immediately such that
notice can only be given after the fact. For the purposes hereof, "emergency
circumstances" shall mean (i) any hazardous situation that poses a threat of
damage, destruction or injury to any person or property of a material nature or
otherwise threatens the safety of employees and/or visitors to the Premises or
(ii) any other circumstance that involves a substantial interference with the
operations of Tenant's business enterprise in the Premises, including without
limitation the launching of new software products or revisions thereto
(especially to correct existing problems which must be addressed immediately)
to enable customers to perform needed financial and tax-related functions, which
is of special concern during the months preceding April 15th of each calendar
year.
Paragraph 41 (continued). SIGNS
Subject to the approval of the City of Mountain View and Landlord, whose
consent shall not be unreasonably delayed, Tenant, at Tenant's sole cost and
expense, shall have the right to install (i) a monument sign located at the
main driveway entrance to the Complex; (ii) suitable building signage adjacent
to the Premises and (iii) suitable directional signage in the common areas and
within the Premises leased hereunder. Landlord shall promptly remove all prior
tenant signage from the Premises and any common areas adjacent thereto and said
removal shall not be at Tenant's expense.
Paragraph 44 (continued). MISCELLANEOUS AND GENERAL PROVISIONS
Landlord covenants with Tenant that upon Tenant paying the rent and all
other charges required under this Lease and performing all of Tenant's covenants
and agreements contained herein, Tenant shall peacefully have, hold and enjoy
the Premises, subject to all of the terms and conditions of this Lease.
45. OPTIONS TO EXTEND
Provided Tenant is not in default under any of the terms, covenants or
conditions of this Lease and subject to the terms and conditions set forth
hereafter, Tenant is hereby granted the option to extend the term of Lease for
the Premises leased hereunder for two consecutive five year periods:
a) Tenant's option to extend this Lease is contingent upon Tenant also
extending the term of lease for all the Buildings then leased within the
Complex. For example, should Tenant desire to extend this lease in the Complex,
Tenant must exercise its option to extend the Lease for each of Buildings 1 & 2,
and may not, for example, elect to extend the lease on building 2 but not 1. It
is hereby acknowledged that the lease expiration dates of buildings leased
within the Complex might not terminate on the same date. It is further agreed
that in the event Tenant does not lease all the buildings within the Complex,
nevertheless, Tenant shall have the option to extend the lease on the buildings
so leased per the terms of this paragraph 45.
b) Tenant shall notify Landlord in writing of Tenant's exercise of its
option to extend the Lease for each Building leased within the Complex no less
than 12 months prior to the earliest lease expiration date of any Building
leased within the Complex.
c) The Lease for each building within The Complex shall be extended for
a period of five years commencing upon the day after the Lease termination date
for such Building within the Complex and shall terminate five years later.
d) The monthly Basic Rent during the extended term shall be
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as defined in paragraph 4A.
e) The then current payment for Additional Rent described in paragraph
4 D of the Lease shall continue to be adjusted according to paragraph 4D of the
Lease.
f) This option to extend can be exercised solely by Tenant for its sole
use of the Premises (including any permitted subtenants and affiliates which in
total do not exceed 25% of a Complex) and may not be transferred or assigned to
any sublessee or other party, nor may this option be exercised by Tenant if more
than 25% of a Complex is then subleased to a party other than Tenant or Tenant's
affiliates.
46. FAIR MARKET RATE
The fair market rate shall be defined as the prevailing market rate with
interim adjustments (if any) then charged for comparable space of comparable
quality in the immediate Mountain View/Shoreline market area. For the period
January 1, 2008 and annually thereafter this Lease calls for a determination of
the fair market rate. Landlord shall promptly notify Tenant of such rate as
reasonably determined by Landlord one hundred and eighty days prior to the
beginning of each successive calendar year, beginning with calendar year 2008.
Landlord and Tenant shall attempt to agree in writing on such fair market rate.
If Landlord and Tenant do not agree on the fair market rate for the Premises by
that date which is one hundred fifty (150) days prior to the beginning of a
calendar year, then Landlord and Tenant shall each select a licensed real estate
broker (the "Brokers") with a minimum five (5) years commercial leasing
experience in the Mountain View area to determine the fair market rate for the
Premises. If the Brokers are unable to agree as to the fair market rate by that
date which is one hundred twenty (120) days prior to the end of the calendar
year in question, then the Brokers shall mutually select a third licensed real
estate broker (the "Arbitrator") who has the same minimum qualifications as the
Brokers and who has not previously represented either party. Each Broker shall
submit to the Arbitrator his or her determination of the fair market rate for
the Premises, and the support therefor, and the Arbitrator shall decide which
Broker has most accurately determined the fair market rate, which decision shall
be final and binding on both Landlord and Tenant. Landlord and Tenant shall each
pay their own Broker's fees and costs and shall each pay one-half (1/2) of the
Arbitrator's fees and costs.
47. Paragraph 47 is hereby intentionally omitted.
48. CODE COMPLIANCE
With respect to all applicable local, state and federal regulations and
codes including without limitation the Americans with Disabilities Act and Title
XXIV of the California Energy Code, as of the commencement of lease term for the
Premises, Landlord at Landlord's sole cost and expense shall make all
modifications to the exterior of the Premises such as parking lots, stairways,
walkways, etc. to bring the exterior of the Premises leased hereunder into
compliance. Commencing as of the date Landlord offers possession of the Premises
to Tenant, Landlord shall at Landlord's sole cost and expense make any
governmentally required modifications to the restrooms to bring them into
compliance with all applicable codes. Landlord's compliance obligations with
respect to the restrooms set forth in this paragraph 48 shall also include
replacing fixtures and finishes as necessary. Landlord's sole obligation with
respect to compliance is therefore limited to any governmentally required
modifications to the Bathrooms within the Premises and any governmentally
required modifications to the exterior. All other costs and obligations with
respect to compliance shall rest solely with Tenant. All such interior
modifications shall be completed diligently prior to the Lease
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<PAGE> 17
Commencement Date referenced in Paragraph 2A above. All exterior modifications
to be made by Landlord shall be diligently constructed to completion.
49. ACCEPTANCE AND SURRENDER OF PREMISES AND COST OF MAJOR REPAIRS
Notwithstanding anything in paragraphs 8 & 9 to the contrary, commencing
as of the date Landlord offers possession of the Premises to Tenant, an
independent inspection team shall be hired to make a thorough inspection of the
Premises. Tenant shall hire the inspectors subject to Landlord's reasonable
approval of the cost of the inspection and the inspector. Landlord shall pay for
the inspection. Said inspection shall be limited to and shall only include
roofs, elevators, HVAC systems, electrical systems (including lights and bulbs),
plumbing systems, locking mechanisms, exterior and roll-up doors, and glazing.
Tenant shall provide Landlord a copy of these reports. Landlord shall deliver
the buildings and all operating systems covered in the report to Tenant as of
the Lease Commencement Date referenced in Paragraph 2A above in a well
maintained condition and in good repair. Landlord shall be under no specific
obligation to upgrade any particular system and Tenant acknowledges that the
systems have been previously used. Landlord's repair of the referenced items
shall not affect the commencement date of the Lease so long as Tenant is able to
occupy and operate in the Premises without interference. Notwithstanding
anything in paragraph 7 to the contrary, Capital Expenses made by Landlord shall
not be included in the annual expenses of operation, management and maintenance
of the Building or Complex. For example, the replacement of an entire roof shall
not be deemed an expense of operation whereas the ongoing repair and maintenance
of a roof is deemed an operating expense. In addition to provisions of paragraph
4D and 7, if there is a single incident that requires a maintenance expense up
to $15,000, said expense shall be reimbursable by Tenant and shall be included
in the annual operating expenses. For single large maintenance expenses between
$15,000 and $20,000, such expense will be reimbursable by Tenant (without
interest) over three years with an equal amount charged per year. If a single
large maintenance expense is greater than $20,000, it shall be reimbursable by
Tenant over a 5 year period, in equal amounts reimbursable per year.
Landlord shall lease the Premises to Tenant in an "as-is," condition,
and other than Landlord's repair obligation per paragraph 49 and Landlord's code
compliance obligation per paragraph 48, all cost of construction including
demolition, architectural, drawings, permitting fees, etc., shall be paid by
Tenant with Landlord's contributions limited to those described in paragraph
50.
50. LANDLORD'S CONTRIBUTION TOWARDS TENANT IMPROVEMENTS
Landlord shall contribute $15.00 per rentable square foot towards Tenant
requested improvements to the Premises. Landlord's total tenant improvement
obligation is $15 x 42,632 s.f. = $639,480. Tenant shall be granted these tenant
improvement dollars in the form of $383,688 Basic Rent abatement and $255,792
cash allowance towards improvements. If the initial tenant improvement expense
is less than the amounts specified herein, Landlord and Tenant shall split
equally the savings after Landlord has deducted the cost of Landlord's
expenditures per paragraph 48 from the contributions towards Tenant's
Improvements. Landlord's cash contribution shall only be made available in the
event tenant improvements exceed the amount granted in the form of rent
abatement. For example, should Tenant improvements for the Premises total
$400,000 and Landlord's costs per paragraph 48 was $20,000 the savings
represented would be $639,480 -20,000 - 400,000 = $219,480. Landlord would
therefore grant Tenant a total of $509,740 calculated as follows; 219,480 + 2 =
109,740; 400,000 + 109,740 = $509,740 as Landlord's contribution towards
improvements. Landlord's rent abatement would equal $383,688 and Landlord's cash
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<PAGE> 18
contribution would equal $126,052. Other than the cost of Landlord's obligations
under paragraphs 48 and 49, the allowance described in this Paragraph 50
represents Landlord's only obligation toward improvements to the Premises.
51. CONSTRUCTION SUPERVISION. Landlord, at Landlord's sole cost and expense,
shall retain WSJ Properties Construction Division to supervise the improvements
made by Tenant's Contractor (if other than WSJ Properties) for Tenant's initial
built-out. Landlord shall approve all plans in a timely manner prior to
commencement of construction and copies of all permits and final signed-off
copies of permits shall be submitted to Landlord. Landlord shall also be named
as an additional insured on all general and subcontractor insurance policies and
shall receive lien releases from all subcontractors. In general, Landlord
requires the following:
1) The construction area must be kept clean and neat with interior
and exterior daily pick-up.
2) The construction may not unreasonably interfere with any other
tenants in the Complex.
3) Landlord shall received copies of as-built drawings for the
improvements, including HVAC, electrical, plumbing, partitions,
reflected ceilings, finish schedules, millwork, etc. There shall
also be one reproducible set of drawings submitted to Landlord.
4) Landlord shall received a list of all finishes and suppliers.
5) ELECTRICAL
a) All electrical shall be in EMT with no M.C. Cable.
b) Any new panels and breakers to match existing and shall be
accurately labeled.
c) All fluorescent lighting shall be cool white or otherwise as
reasonably agreeable to both parties.
6) HVAC
a) Zone boxes and controls shall match existing if available.
b) EMONDEMON meters shall be installed on all special air
conditioning units.
c) All thermostats shall be new and match existing if available.
d) Landlord shall receive a structural report for all new units
placed on the roof.
e) All roof patching shall be hot mopped not cold patched.
f) Upon completion of construction the HVAC Systems shall be air
balanced and all filters changed.
7) PLUMBING
Tenant shall not use plastic piping. All piping must be copper
galvanized or cast iron.
8) KEYS
Landlord shall be provided with the copies of any keys to
locking mechanisms for emergency purposes. Tenant shall
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use a BEST-lock system.
9) Tenant shall be responsible for meeting all applicable codes for
earthquake, energy, and handicap requirements directly related
to Tenant's interior improvements. Any contractor or
subcontractor must be licensed to do business in the State of
California. This Tenant responsibility shall be for all items
not defined as Landlord's responsibility in paragraph 48.
10) The general contractor and subcontractors shall use first class
construction practices and shall comply with reasonable
suggestions of the WSJ Properties Construction Supervisor.
52. NON DISTURBANCE
Landlord further represents that there are no outstanding loans on the
Premises leased hereunder. In the event Landlord borrows in the future and uses
the Premises leased hereunder as security, Landlord shall so notify Tenant.
53. MICROSOFT TO BE SUBSTITUTED AS TENANT
Tenant warrants to Landlord that Tenant's Board of Directors has
approved this Lease transaction. Landlord and Tenant further acknowledge that
Tenant is in the process of being acquired by Microsoft, Inc., a Delaware
Corporation (hereinafter referred to as Microsoft) headquartered at One
Microsoft Way, Redmond, Washington 98052-6399. Landlord, as a material
consideration for entering into this Lease has relied on Tenant's representation
that in the event this acquisition is completed, Microsoft shall assume directly
all the obligations and liabilities of Tenant hereunder and shall be liable for
the full performance as Tenant under this Lease. Microsoft has agreed that the
assumption of this Lease by Microsoft is a condition of the acquisition of
Tenant. Tenant warrants to Landlord that Microsoft has been made aware of this
obligation and that Microsoft has agreed to assume all the obligations of this
Lease at the time the acquisition is completed.
54. CROSS DEFAULT
It is understood that Landlord and Tenant may enter into several leases
for premises in the vicinity of the Premises leased hereunder. Exhibit "B" shows
3 additional buildings for which Tenant shall enter into leases with Landlord
(Buildings 3, 4 and 5), and several additional buildings may be leased by Tenant
from Landlord at a later date. As a material part of the consideration for the
execution of this Lease by Landlord, it is agreed between Landlord and Tenant
that a default under this Lease (after any applicable notice and cure period has
expired), or a default under a lease by Tenant (after any applicable notice and
cure period has expired) for any building leased and shown on Exhibit "B" may,
at the option of Landlord, be considered a default under all leases by and
between Landlord and Tenant then in effect, in which event Landlord shall be
entitled (but in no event required) to apply all rights and remedies of Landlord
under the terms of one lease to all leases including, but not limited to, the
right to terminate one or all of said leases by reason of default under said
Lease or hereunder.
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[MAP OF COMPLEX]
COMPLEX PARCEL NUMBER
------- --------------
1 APN 116 03 020
2 APN 116 03 029
3 APN 116 03 028
4 APN 116 03 027
<PAGE> 21
[MAP OF COMPLEX]
COMPLEX PARCEL NUMBER
------- --------------
1 APN 116 03 020
2 APN 116 03 029
3 APN 116 03 028
4 APN 116 03 027
<PAGE> 22
RULES AND REGULATIONS OF THE BUILDING
1
No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed as affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice
to and at the expense of Tenant.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
2
Tenant shall not occupy or permit any portion of the Premises to be
occupied for the manufacture or sale of liquor, narcotics or tobacco in any
form.
3
4
The sidewalks, passages, exits, entrances, elevators and stairways
shall not be obstructed by Tenant or used by it for any purpose other than
ingress to and egress from its Premises. The passages, exits, entrances,
stairways, balconies and roof are not for the use of the general public and
Landlord shall in all cases retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord shall be
prejudicial to the safety, character, reputation and interests of the Premises
and its tenants, provided that nothing herein contained shall be construed to
prevent such access to persons with whom Tenant normally deals in the ordinary
course of Tenant's business unless such persons are engaged in illegal
activities. Tenant, employees or invitees of Tenant shall not go upon the roof
of the Premises.
5
The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substances of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by Tenant who, or whose employees or invitees shall
have caused it.
6
Tenants shall not overload the floor of the Premises or in any way
deface the Premises or any part thereof.
7
Landlord shall have the right to prescribe the weight, size and position
of all safes and other heavy equipment brought into the Premises. Safes or other
heavy objects shall, if considered necessary by Landlord, stand on wood strips
of such thickness as is necessary to properly distribute the weight. Landlord
will not be responsible for loss of or damage to any such safe or property from
any cause and all damage done to the Premises by moving or maintaining any such
safe or other property shall be repaired at the expense of Tenant.
8
9
Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to
be occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Premises by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds with the exception of Dog Guides for the blind, be
brought in or kept about the Premises.
10
No cooking (except microwave cooking and coffee/tea brewing) shall be
done or permitted by Tenant on the Premises, nor shall the Premises be used for
the storage of merchandise for washing clothes, for lodging, or for any
improper, objectionable or immoral purposes.
11
No boring or cutting for wires will be allowed without the consent of
Landlord. The location of telephones, call boxes and other office equipment
affixed to the Premises shall be subject to the approval of Landlord.
<PAGE> 23
12
Tenant upon the termination of the tenancy, shall deliver to Landlord
the keys of offices, rooms and toilet rooms which have been furnished the
Tenant or which Tenant shall have had made.
13
Tenant shall see that the doors of the Premises are closed and securely
locked before leaving the Premises and must observe strict care and caution
that all water faucets or water apparatus within the Premises are entirely shut
off before Tenant or Tenant's employees leave the Premises, and that all
electricity shall likewise be carefully cut off, so as to prevent waste or
damage.
14
Landlord reserves the right to exclude or expel from the Premises any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any
of the rules and regulations of the Premises.
15
16
17
Tenant shall not disturb, solicit, or canvass any occupant of the
Premises and shall cooperate to prevent same.
18
Tenant agrees to assume responsibility for compliance by its employees
with the parking provision contained herein. Tenant hereby authorizes Landlord
at Tenant's sole expense to tow away from the Complex any vehicle belonging to
Tenant or Tenant's employees parked in violation of these provisions, or to
attach violation stickers or notices to such vehicle. Tenant shall use the
parking areas for vehicle parking only, and shall not use the parking areas for
storage.
Landlord's initials Tenant's initials
<PAGE> 1
EXHIBIT 10.28
LEASE AGREEMENT
THIS LEASE, made this ________ day of November , 1994 between CHARLESTON
PROPERTIES, a California General Partnership, hereinafter called Landlord and
INTUIT, INC. a Delaware Corporation, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit
"A", attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
The entire two story building comprising 42,632 gross square feet of
space located in Mountain View, Santa Clara County, California and further
identified at the following address: 2550 Garcia. The building leased
hereunder shall be known between Landlord and Tenant as Building One.
As used herein the Complex shall mean and include all of the land
outlined in red and described in Exhibit "B", attached hereto, and all of the
buildings, improvements, fixtures and equipment now or hereafter situated on
said land. The Complex of which the premises form a part shall further be
known as Complex 2.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.
1. USE Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of Office,
Sales, R&D and related uses necessary for Tenant to conduct its business,
provided such uses are permitted and conform to City zoning laws and all other
governmental laws, regulations, rules and ordinances and for no other purpose.
Tenant shall not do or permit to be done in or about the Premises or the Complex
nor bring or keep or permit to be brought or kept in or about the Premises or
the Complex anything which is prohibited by or will in any way increase the
existing rate of (or otherwise affect) fire or any insurance covering the
Complex or any part thereof, or any of its contents, or will cause a
cancellation of any insurance covering the Complex or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
about the Premises or the Complex which will in any way obstruct or interfere
with the rights of other tenants or occupants of the Complex or injure or annoy
them, or use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises or the Complex. No sale by auction
shall be permitted on the Premises. Tenant shall not place any loads upon the
floors, walls, or ceiling, which endanger the structure, or place any harmful
fluids or other materials in the drainage system of the building, or overload
existing electrical or other mechanical systems. No waste materials or refuse
shall be dumped upon or permitted to remain upon any part of the Premises or
outside of the building in which the Premises are a part, except in trash
containers placed inside exterior enclosures designated by Landlord for that
purpose or inside of the building proper where designated by Landlord. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to remain
outside the Premises or on any portion of common area of the Complex. No
loudspeaker or other device, system or apparatus which can be heard outside the
Premises shall be used in or at the Premises without the prior written consent
of Landlord. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless
against any loss, expense, damage, attorneys' fees, or liability arising out of
failure of Tenant to comply with any applicable law where compliance is Tenant's
obligation hereunder. Tenant shall comply with any covenant, condition, or
restriction ("CC&R's") affecting the Premises. The provisions of this paragraph
are for the benefit of Landlord only and shall not be construed to be for the
benefit of any tenant or occupant of the Complex.
2. TERM
A. The term of this Lease shall be for a period of Eight years (8)
years (unless sooner terminated as hereinafter provided) and, subject to
Paragraphs 2(B) and 3, shall commence on the 1st day of January 1997, and end
on the 31st day of December, 2004.
B. Possession of the Premises shall be deemed tendered and the term of
this Lease shall commence when the first of the following occurs:
Ninety days after the date Landlord offers Tenant possession of the Premises
for the commencement of construction of Tenant Improvements (if any)
(2) Upon the occupancy of the Premises by any of Tenant's operating
personnel; or
(3) N/A
(This paragraph 2 is continued on page 10 below)
3. POSSESSION If Landlord, for any reason whatsoever, cannot offer
possession of said Premises to Tenant at the commencement of the said term, as
hereinbefore specified, this Lease shall not be void or voidable; no obligation
of Tenant shall be affected thereby; nor shall Landlord or Landlord's agents be
liable to Tenant for any loss or damage resulting therefrom (subject to the
provisions of paragraph 2.B.(1) on page 10 below), but in that event the
commencement and termination dates of the Lease, and all other dates affected
thereby shall be revised to conform to the date of Landlord's delivery of
possession, as specified in Paragraph 2(b), above. The above is, however,
subject to the provision that the period of delay of delivery of the Premises
shall not exceed 90 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.
Notwithstanding anything herein to the contrary, if Landlord has not offered
possession to Tenant of the Premises by February 1, 1997 then Tenant may cancel
this Lease.
<PAGE> 2
4. RENT
A. Basic Rent. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand, and
Landlord agrees to accept as Basic Rent for the leased Premises the total sum
of Six Million, Four Hundred Forty Five Thousand Nine Hundred Fifty Eight and
40/100. ($6,445,958.40) Dollars in lawful money of the United States of
America, payable as follows:
B. Time for Payment. In the event that the term of this Lease
commences on a date other than the first day of a calendar month, on the date
of commencement of the term hereof Tenant shall pay to Landlord as rent for the
period from such date of commencement to the first day of the next succeeding
calendar month that proportion of the monthly rent hereunder which the number
of days between such date of commencement and the first day of the next
succeeding calendar month bears to thirty (30). In the event that the term of
this Lease for any reason ends on a date other than the last day of a calendar
month, on the first day of the last calendar month of the term hereof Tenant
shall pay to Landlord as rent for the period from said first day of said last
calendar month to and including the last day of the term hereof that proportion
of the monthly rent hereunder which the number of days between said first day
of said last calendar month and the last day of the term hereof bears to thirty
(30).
C. Late Charge. Notwithstanding any other provision of this Lease, if
Tenant is in default in the payment of rent as set forth in this Paragraph 4
when due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten (10%) percent of each rental payment so
in default. Landlord shall not assess a late charge after such 10 day period
unless Landlord thereafter notifies Tenant by telephone or fax that Tenant's
rental is delinquent and said rental remains delinquent for 48 hours after said
notice to Tenant.
D. Additional Rent. Beginning with the commencement date of the term
of this Lease, Tenant shall pay to Landlord in addition to the Basic Rent and
as Additional Rent the following:
(1) Tenant's proportionate share of all utilities relating to the
Complex as set forth in Paragraph 11, and
(2) Tenant's proportionate share of all Taxes relating to the
Complex as set forth in Paragraph 12, and
(3) Tenant's proportionate share of all insurance premiums
relating to the Complex, as set forth in Paragraph 15, and
(4) Tenant's proportionate share of expenses for the operation,
management, maintenance and repair of the Building (including
common areas of the Building) and Common Areas of the Complex
in which the Premises are located as set forth in Paragraph 7,
and
(5) All charges, costs and expenses, which Tenant is required to
pay hereunder, together with all interest and penalties, costs
and expenses including attorneys' fees and legal expenses,
that may accrue thereto in the event of Tenant's failure to
pay such amounts, and all damages, reasonable costs and
expenses which Landlord may incur by reason of default of
Tenant or failure on Tenant's part to comply with the terms of
this Lease. In the event of nonpayment by Tenant of Additional
Rent, Landlord shall have all the rights and remedies with
respect thereto as Landlord has for nonpayment of rent.
Tenant shall pay to Landlord monthly, in advance, Tenant's prorata share of an
amount estimated by Landlord to be Landlord's approximate average monthly
expenditure for such Additional Rent items, which estimated amount shall be
reconciled within 120 days of the end of each calendar year as compared to
Landlord's actual expenditure for said Additional Rent items, with Tenant paying
to Landlord, upon demand, any amount of actual expenses expended by Landlord in
excess of said estimated amount, or Landlord refunding to Tenant (providing
Tenant is not in default in the performance of any of the terms, covenants and
conditions of this Lease) any amount of estimated payments made by Tenant in
excess of Landlord's actual expenditures for said Additional Rent items.
Landlord shall provide Tenant reasonably adequate supportive documentation to
the reconciliation. Tenant's payment for such Additional Rent as of the
commencement of the term of this lease shall be Six Thousand Six Hundred and
00/000 ($6,600.00) Dollars per month. Any payments required to be made by Tenant
for Additional Rent shall be made by check or instrument separate from that
check or instrument used by Tenant to make any payments for Basic Rent, pursuant
to paragraph 4 A.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease,
and if the term hereof shall expire or shall otherwise terminate on a day
other than the last day of a calendar year, the actual Additional Rent incurred
for the calendar year in which the term hereof expires or otherwise terminates
shall be determined and settled on the basis of the statement of actual
Additional Rent for such calendar year and shall be prorated in the proportion
which the number of days in such calendar year preceding such expiration or
termination bears to 365.
E. Place of Payment of Rent and Additional Rent. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at 3201 Ash Street, Palo Alto, CA 94306 or
to such other person or to such other place as Landlord may from time to time
designate in writing.
F. Security Deposit. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of Seventy Five Thousand and
00/100 ($75,000.00) Dollars. Said sum shall be held by Landlord as a Security
Deposit for faithful performance by Tenant of all of the terms, covenants, and
conditions of this Lease to be kept and performed by Tenant during the term
hereof. If Tenant defaults with respect to any provision of this Lease,
including, but not limited to, the provisions relating to the payment of rent
and any of the monetary sums due herewith, Landlord may (but shall not be
required to) use, apply or retain all or any part of this Security Deposit for
the payment of any other amount which Landlord may 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. If any portion of said Deposit is so
used or applied, Tenant shall, within ten (10) days after written demand
therefor, deposit cash with Landlord in the amount sufficient to restore the
Security Deposit to its original amount. Tenant's failure to do so shall be a
material breach of this Lease. Landlord shall not be required to keep this
Security Deposit separate from its general funds, and Tenant shall not be
entitled to interest on such Deposit. If Tenant fully and faithfully performs
every provision of this Lease to be performed by it, the Security Deposit or any
balance thereof shall be returned to Tenant (or at Landlord's option, to the
last assignee of Tenant's interest hereunder) at the expiration of the Lease
term and after Tenant has vacated the Premises. In the event of termination of
Landlord's interest in this Lease, Landlord shall transfer said Deposit to
Landlord's successor in interest whereupon Tenant agrees to release Landlord
from liability for the return of such Deposit or the accounting therefor.
(Paragraph 4F is continued below)
5. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and
conditions of this Lease and such Rules and Regulations as Landlord may from
time to time prescribe, Tenant and Tenant's employees, invitees and customers
shall, in common with other occupants of the Complex in which the Premises are
located, and their respective employees, invitees and customers, and others
entitled to the use thereof, have the non-exclusive right to use the access
roads, parking areas, and facilities provided and designated by Landlord for the
general use and convenience of the occupants of the Complex in which the
Premises are located, which areas and facilities are referred to herein as
"Common Area." This right shall terminate upon the termination of this Lease.
Landlord reserves the right from time to time to make reasonable changes in the
shape, size, location, amount and extent of Common Area. All such changes shall
not unreasonably affect Tenant's access or use of the Premises and shall not
diminish Tenant's parking rights. Landlord further reserves the right to
promulgate such reasonable rules and regulations relating to the use of the
Common Area, and any part of parts thereof, as Landlord may deem appropriate for
the best interests of the occupants of the Complex. The Rules and Regulations
shall be binding upon Tenant upon delivery of a copy of them to Tenant, and
Tenant shall abide by them and cooperate in their observance. Such Rules and
Regulations may be reasonably amended by Landlord from time to time, with or
without advance notice, and all amendments shall be effective upon delivery of a
copy to Tenant. Landlord shall not be responsible to Tenant for the
non-performance by any other tenant or occupant of the Complex of any of said
Rules and Regulations.
Landlord shall operate, manage and maintain the Common Area. The Common
Area shall be maintained in a first class manner and the expenditures for such
maintenance shall be at the discretion of Landlord.
Page 2 of 9
<PAGE> 3
6. PARKING. Landlord hereby acknowledges that Tenant shall have the right to
restripe parking lots at Tenant's own expense (provided Tenant is the only
occupant of a Complex to be restriped). Any restriping shall be in compliance
with all applicable codes and regulations and Landlord shall cooperate with
Tenant in this effort. Tenant shall have the right to use with other tenants or
occupants of the Complex its proportionate share of parking spaces in the common
parking areas of the Complex. Tenant agrees that Tenant, Tenant's employees,
agents, representatives and/or invitees shall not use parking spaces outside of
the Complex parking allocated to Tenant hereunder. Landlord shall have
the right, at Landlord's sole discretion, to specifically designate the location
of Tenant's parking spaces within the common parking areas of the Complex in the
event of a dispute among the tenants occupying the building and/or Complex
referred to herein, in which event Tenant agrees that Tenant, Tenant's
employees, agents, representatives and/or invitees shall not use any parking
spaces other than those parking spaces specifically designated by Landlord for
Tenant's use. Said parking spaces, if specifically designated by Landlord to
Tenant, may be relocated by Landlord at any time, and from time to time.
Landlord reserves the right, at Landlord's sole discretion, to rescind any
specific designation of parking spaces, thereby returning Tenant's parking
spaces to the common parking area. Landlord shall give Tenant written notice of
any change in Tenant's parking spaces. Tenant shall not, at any time, park, or
permit to be parked, any trucks or vehicles adjacent to the loading areas so as
to interfere in any way with the use of such areas, nor shall Tenant at any time
park, or permit the parking of Tenant's trucks or other vehicles or the trucks
and vehicles of Tenant's suppliers or others, in any portion of the common area
not designated by Landlord for such use by Tenant. Tenant shall not park nor
permit to be parked, any inoperative vehicles or equipment on any portion of the
common parking area or other common areas of the Complex. Tenant agrees to
assume responsibility for compliance by its employees with the parking provision
contained herein. If Tenant or its employees park in other than such designated
parking areas, then Landlord may charge Tenant, as an additional charge, and
Tenant agrees to pay, ten ($10.00) Dollars per day for each day or partial day
each such vehicle is parked in any area other than that designated. Tenant
hereby authorizes Landlord at Tenant's sole expense to tow away from the Complex
any vehicle belonging to Tenant or Tenant's employees parked in violation of
these provisions, or to attach violation stickers or notices to such vehicles.
Tenant shall use the parking areas for vehicle parking only, and shall not use
the parking areas for storage.
7. EXPRESS OF OPERATION, MANAGEMENT AND MAINTENANCE OF THE COMMON AREAS OF THE
COMPLEX, PREMISES AND BUILDING IN WHICH THE PREMISES ARE LOCATED. As
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord Tenant's proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of all expenses of operation,
management, maintenance and repair of the Common Areas of the Complex
including, but not limited to, license, permit and inspection fees; security;
utility charges associated with exterior landscaping and lighting (including
water and sewer charges); all charges incurred in the maintenance of landscaped
areas, lakes, parking lots, sidewalks, driveways; maintenance, repair and
replacement of all fixtures and electrical, mechanical and plumbing systems;
structural elements and exterior surfaces of the building; salaries and
employee benefits of personnel and payroll taxes applicable thereto; supplies,
materials, equipment and tools; the cost of capital expenditures which have the
effect of reducing operating expenses, provided, however, that in the event
Landlord makes such capital improvements, Landlord may amortize its investment
in said improvements (together with interest at the rate of fifteen (15%)
percent per annum on the unamortized balance) as an operating expense in
accordance with standard accounting practices, provided, that such amortization
is not at a greater than the anticipated savings in the operating expenses.
As additional Rent and in accordance with paragraph 4D of this Lease,
Tenant shall pay its proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of the cost of operation
(including common utilities), management, maintenance and repair of the
Premises and the building (including common areas such as lobbies, restrooms,
janitor's closets, hallways, elevators, mechanical and telephone rooms,
stairwells, entrances, spaces above the ceilings) in which the Premises are
located. The maintenance items herein referred to include, but are not limited
to, electrical systems (such as outlets, lighting fixtures, lamps, bulbs,
tubes, ballasts), heating and airconditioning controls (such as mixing boxes,
thermostats, time clocks, supply and return grills), all interior improvements
within the Premises including but not limited to: wall coverings, window
coverings, acoustical ceilings, vinyl tile, carpeting, partitioning, doors
(both interior and exterior, including closing mechanisms, latches, locks), and
all other interior improvements of any nature whatsoever, all windows, window
frames, plate glass, glazing, truck doors, main plumbing systems of the
building (such as water and drain lines, sinks, toilets, faucets, drains,
showers and water fountains), main electrical systems (such as panels and
conduits), heating and airconditioning systems (such as compressors, fans, air
handlers, ducts, boilers, heaters), store fronts, roofs, downspouts, building
common area interiors (such as wall coverings, window coverings, floor
coverings and partitioning), ceilings, building exterior doors, skylights (if
any), automatic fire extinguishing systems and elevators; license,
permit, and inspection fees; security; salaries and employee benefits of
personnel and payroll taxes applicable thereto; supplies, materials, equipment
and tools; the cost of capital expenditures which have the effect of reducing
operating expenses, provided, however, that in the event Landlord makes such
capital improvements, Landlord may amortize its investment in said improvements
(together with interest at the rate of fifteen (15%) percent per annum on the
unamortized balance) as an operating expense in accordance with standard
accounting practices, provided, that such amortization is not at a rate greater
than the anticipated savings in the operating expenses. Tenant hereby waives all
rights under, and benefits of, subsection 1 of Section 1932 and Sections 1941
and 1942 of the California Civil code and under any similar law, statute or
ordinance now or hereafter in effect. Tenant agrees to provide carpet shields
under all rolling chairs or to otherwise be responsible for wear and tear of
the carpet caused by such rolling chairs if such wear and tear exceeds that
caused by normal foot traffic in surrounding areas. Areas of excessive wear
shall be replaced at Tenant's sole expense upon Lease termination.
"Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.
Tenant agrees to contract and pay directly for five-day janitorial
service for the leased Premises and Landlord agrees to maintain the Complex in
a first-class manner.
8. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant accepts
the Premises as being in good and sanitary order, condition and repair and
accepts the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof except
as otherwise provided herein. Any exceptions to the foregoing must be by written
agreement executed by Landlord and Tenant. Tenant agrees on the last day of the
Lease term, or on the sooner termination of this Lease, to surrender the
Premises promptly and peaceably to Landlord in good condition and repair (damage
by Acts of God, fire or normal wear and tear excepted), with all interior walls
painted, or cleaned so that they appear freshly painted, and repaired and
replaced, if damaged; all floors cleaned and waxed; all carpets cleaned and
shampooed; the airconditioning and heating equipment serviced by a reputable and
licensed service firm and in good operating condition (provided the maintenance
of such equipment has been Tenant's responsibility during the term of this
Lease) together with all alterations, additions and improvements which may have
been made in, to, or on the Premises (except movable trade fixtures installed at
the expense of Tenant) except that subject to paragraph 9 of this Lease Landlord
shall notify Tenant at the same time as Landlord provides its consent to such
alterations, additions or improvements which exceed $15,000 in construction
costs whether Landlord desires to have the Premises or any part or parts thereof
restored to their condition and configuration as when the Premises existed prior
to such alteration, addition, or improvement and if Landlord shall so desire,
then Tenant shall restore said Premises or such part or parts thereof before the
end of this Lease at Tenant's sole cost and expense. Tenant, on or before the
end of the term or sooner termination of this Lease, shall remove all of
Tenant's personal property and trade fixtures from the Premises, and all
property not so removed on or before the end of the term or sooner termination
of this Lease shall be deemed abandoned by Tenant and title to same shall
thereupon pass to Landlord without compensation to Tenant. Landlord may, upon
termination of this Lease, remove all moveable furniture and equipment so
abandoned by Tenant, at Tenant's sole cost, and repair any damage caused by such
removal at Tenant's sole cost. If the Premises be not surrendered at the end of
the term or sooner termination of this Lease, Tenant shall indemnify Landlord
against loss or liability resulting from the delay by Tenant in so surrendering
the Premises including, without limitation, any claims made by any succeeding
tenant founded on such delay. Nothing contained herein shall be construed as an
extension of the term hereof or as a consent of Landlord to any holding over by
Tenant. The voluntary or other surrender of this Lease or the Premises by Tenant
or a mutual cancellation of this Lease shall not work as a merger and, at the
option of Landlord, shall either terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of all or any such
subleases or subtenancies.
(See paragraph 50 below)
9. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant, but at the cost of Tenant,
and any addition to, or alteration of, the Premises, except moveable furniture
and trade fixtures, shall at once become a part of the Premises and belong to
Landlord. If Landlord consents to the making of any alteration, addition, or
improvement to or of the Premises by Tenant, the same shall be made at Tenant's
sole cost and expense. Any modifications to the building or building systems
required by governmental code or otherwise as a result of Tenant's alterations,
additions or improvements shall be made at Tenant's sole cost and expense.
Tenant shall retain title to all moveable furniture and trade fixtures placed in
the Premises. All heating, lighting, electrical, airconditioning, partitioning,
drapery, carpeting and floor installations made by Tenant, together with all
property that has become an integral part of the Premises, shall not be deemed
trade fixtures. Tenant agrees that it will not proceed to make any alterations
or additions, without having obtained consent from Landlord to do so, and until
five (5) days from the receipt of such consent, in order that Landlord may post
appropriate notices to avoid any liability to contractors or material suppliers
for payment for Tenant's improvements, Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work. Tenant
shall, if required by Landlord, secure at Tenant's own cost and expense, a
completion and lien indemnity bond reasonably satisfactory to Landlord, for such
work in excess of $100,000. Tenant further covenants and agrees that any
mechanic's lien filed against the Premises or against the Complex for work
claimed to have been done for, or materials claimed to have been furnished to
Tenant, will be discharged by Tenant, by bond or otherwise, within ten (10) days
after the filing thereof, at the cost and expense of Tenant. Any exceptions to
the foregoing must be made in writing and executed by both Landlord and Tenant.
(Paragraph 9 is continued on page 12 below)
[SIG]
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Page 3 of 9
<PAGE> 4
(Paragraph 11 is continued on page 13 below)
12. TAXES A. As Additional Rent and in accordance with Paragraph 4D of
this Lease, Tenant shall pay to Landlord Tenant's proportionate share of all
Real Property Taxes, which prorata share shall be allocated to the leased
Premises by square footage or other equitable basis, as calculated by Landlord.
The term "Real Property Taxes", as used herein, shall mean (i) all taxes,
assessments, levies and other charges of any kind or nature whatsoever, general
and special, foreseen and unforeseen (including all installments of principal
and interest required to pay any general or special assessments for public
improvements and any increases resulting from reassessments caused by any change
in ownership of the Complex) now or hereafter imposed by any governmental or
quasi-governmental authority or special district having the direct or indirect
power to tax or levy assessments, which are levied or assessed against, or with
respect to the value, occupancy or use of, all or any portion of the Complex (as
now constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein; any improvements located
within the Complex (regardless of ownership); the fixtures, equipment and other
property of Landlord, real or personal, that are an integral part of and located
in the Complex; or parking areas, public utilities, or energy within the
Complex; (ii) all charges, levies or fees imposed by reason of environmental
regulation or other governmental control of the Complex; and (iii) all costs and
fees (including attorneys' fees) incurred by Landlord in contesting any Real
Property Tax and negotiating with public authorities as to any Real Property
Tax. In the event said contesting results in a refund of Real Property Taxes,
Tenant shall be credited with the appropriate proportionate share of said refund
reflecting Tenant's period of occupancy. If at any time during the term of this
Lease the taxation or assessment of the Complex prevailing as of the
commencement date of this Lease shall be altered so that in lieu of or in
addition to any Real Property Tax described above there shall be levied,
assessed or imposed (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate or
additional tax or charge (i) on the value, use or occupancy of the Complex or
Landlord's interest therein or (ii) on or measured by the gross receipts, income
or rentals from the Complex, on Landlord's business of leasing the Complex, or
computed in any manner with respect to the operation of the Complex, then any
such tax or charge, however designated, shall be included within the meaning of
the term "Real Property Taxes" for purposes of this Lease. If any Real Property
Tax is based upon property or rents unrelated to the Complex, then only that
part of such Real Property Tax that is fairly allocable to the Complex shall be
included within the meaning of the term "Real Property Taxes". Notwithstanding
the foregoing, the term "Real Property Taxes" shall not include estate,
inheritance, gift or franchise taxes of Landlord or the federal or state net
income tax imposed on Landlord's income from all sources.
B. Taxes on Tenant's Property
(1) Tenant shall be liable for and shall pay ten days before delinquency, taxes
levied against any personal property or trade fixtures placed by Tenant in or
about the Premises. If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or if the assessed
value of the Premises is increased by the inclusion therein of a value placed
upon such personal property or trade fixtures of Tenant and if Landlord, after
written notice to Tenant, pays the taxes based on such increased assessment,
which Landlord shall have the right to do regardless of the validity thereof,
but only under proper protest if requested by Tenant, Tenant shall upon demand,
as the case may be, repay to Landlord the taxes so levied against Landlord, or
the proportion of such taxes resulting from such increase in the assessment;
provided that in any such event Tenant shall have the right, in the name of
Landlord and with Landlord's full cooperation, to bring suit in any court of
competent jurisdiction to recover the amount of any such taxes so paid under
protest, and any amount so recovered shall belong to Tenant.
(2) If the Tenant improvements in the Premises, whether installed, and/or paid
for by Landlord or Tenant and whether or not affixed to the real property so as
to become a part thereof, are assessed for Real Property Tax purposes at a
valuation higher than the valuation at which standard office improvements in
other space in the Complex are assessed, then the Real Property Taxes and
assessments levied against Landlord or the Complex by reason of such excess
assessed valuation shall be deemed to be taxes levied against personal property
of Tenant and shall be governed by the provisions of 12A(i), above. If the
records of the County Assessor are available and sufficiently detailed to serve
as a basis for determining whether said Tenant improvements are assessed at a
higher valuation than standard office improvements in other spaces in the
Complex, such records shall be binding on both the Landlord and the Tenant. If
the records of the County Assessor are not available or sufficiently detailed
to serve as a basis for making said determination, the actual cost of
construction shall be used.
13. LIABILITY INSURANCE Tenant, at Tenant's expense, agrees to keep in
force during the term of this Lease a policy of comprehensive public liability
insurance with limits in the amount of $1,000,000/1,000,000 for injuries to or
death of persons occurring in on or about the Premises or the Complex, and
property damage insurance with limits of $500,000. The policy or policies
affecting such insurance, certificates of which shall be furnished to Landlord,
shall name Landlord as additional insureds, and shall insure any liability of
Landlord, contingent or otherwise, as respects acts or omissions of Tenant, its
agents, employees or invitees or otherwise by any conduct or transactions of
any of said persons in or about or concerning the Premises, including any
failure of Tenant to observe or perform any of its obligations hereunder; shall
be issued by an insurance company admitted to transact business in the State of
California; and shall provide that the insurance effected thereby shall not be
canceled, except upon thirty (30) days' prior written notice to Landlord. If,
during the term of this Lease, in the reasonable opinion of Landlord's Lender,
insurance advisor or counsel, the amount of insurance described in this
paragraph 13 is not adequate, Tenant agrees to increase said coverage to such
reasonable amount as Landlord's Lender, insurance advisor or counsel shall
deem adequate. Landlord shall carry a reasonable amount of liability insurance.
14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKER'S COMPENSATION
INSURANCE Tenant shall maintain a policy or policies of fire and property
damage insurance in "all risk" form with a sprinkler leakage endorsement
insuring the personal property, inventory, trade fixtures and leasehold
improvements within the leased Premises for the full replacement value thereof.
The proceeds from any of such policies shall be used for the repair or
replacement of such items so insured.
Tenant shall also maintain a policy or policies of worker's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.
15. PROPERTY INSURANCE Landlord shall purchase and keep in force and, as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord Tenant's proportionate share (calculated on a square footage or
other equitable basis as calculated by Landlord) of the cost of policy or
policies of insurance covering loss or damage to the Premises and Complex in
the amount of the full replacement value thereof, providing protection against
those perils included within the classification of "all risks" insurance and
flood and/or earthquake insurance, if available, plus a liability policy and a
policy of rental income insurance in the amount of one hundred (100%) percent
of twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such
insurance cost is increased due to Tenant's use of the Premises or the Complex,
Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall
have no interest in nor any right to the proceeds of any insurance procured by
Landlord for the Complex.
Landlord and Tenant do each hereby respectively release the other, to
the extent of insurance coverage of the releasing party, from any liability for
loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the cause
of such fire or casualty; provided, however, that if the insurance policy of
either releasing party prohibits such waiver, then this waiver shall not take
effect until consent to such waiver is obtained. If such waiver is so
prohibited, the insured party affected shall promptly notify the other party
thereof.
Page 4 of 9
<PAGE> 5
16. INDEMNIFICATION Landlord shall not be liable to Tenant and Tenant
hereby waives all claims against Landlord for any injury to or death of any
person or damage to or destruction of property in or about the Premises or the
Complex by or from any cause whatsoever, including, without limitation, gas,
fire, oil, electricity or leakage of any character from the roof, walls,
basement or other portion of the Premises or the Complex but excluding, however,
the negligence or willful misconduct of Landlord, its agents, servants,
employees, invitees, or contractors of which negligence Landlord has knowledge
and reasonable time to correct, the requirements of knowledge and reasonable
time to correct, shall not apply to direct negligent acts by Landlord or
Landlord's agents, servants, employees, Invitees or contractors. Except as to
injury to persons or damage to property the principal cause of which is the
negligence or willful misconduct of Landlord, its agents, servants, employees,
invitees or contractors Tenant shall hold Landlord harmless from and defend
Landlord against any and all expenses, including reasonable attorneys' fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring in, on or about the Premises, or
any part thereof, from any cause whatsoever.
17. COMPLIANCE Tenant at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, however, that no such failure shall be deemed a
breach of the provisions if Tenant, immediately upon notification, commences to
remedy or rectify said failure. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any such law,
statute, ordinance or governmental rule, regulation, requirement, direction or
provision, shall be conclusive of that fact as between Landlord and Tenant.
This paragraph shall not be interpreted as requiring Tenant to make structural
changes or improvements, except to the extent such changes or improvements are
required as a result of Tenant's use of the Premises. Tenant shall, at its sole
cost and expense, comply with any and all requirements pertaining to said
Premises, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance covering the
Premises.
(SEE PARAGRAPH 48)
18. LIENS Tenant shall keep the Premises and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred
by Tenant. In the event that Tenant shall not, within ten (10) days following
the imposition of such lien, cause the same to be released of record, Landlord
shall have, in addition to all other remedies provided herein and by law, the
right, but no obligation, to cause the same to be released by such means as it
shall deem proper including payment of the claim giving rise to such lien. All
sums paid by Landlord for such purpose, and all expenses incurred by it in
connection therewith, shall be payable to Landlord by Tenant on demand with
interest at the prime rate of interest as quoted by the Bank of America.
19. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer or
hypothecate the leasehold estate under this Lease, or any interest therein, and
shall not sublet the Premises, or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person or entity to occupy or use the
Premises or any portion thereof, without, in each case, the prior written
consent of Landlord which consent will not be unreasonably withheld. Tenant
agrees to pay to Landlord, as additional rent, fees of all rents (after tenant
deducts all costs of subleasing) or additional consideration received by Tenant
from its assignees, transferees or subtenants in excess of the rent payable by
Tenant to Landlord hereunder. Tenant shall by thirty days' (30) written notice,
advise Landlord of its intent to assign or transfer Tenant's interest in the
Lease or sublet the Premises or any portion thereof for any part of the term
hereof. In the event Tenant is allowed to assign, transfer or sublet the whole
or any part of the Premises, with the prior written consent of Landlord, no
assignee, transferee or subtenant shall assign or transfer this Lease, either in
whole or in part, or sublet the whole or any part of the Premises, without also
having obtained the prior written consent of Landlord. A consent of Landlord to
one assignment, transfer, hypothecation, subletting, occupation or use by any
other person shall not release Tenant from any of Tenant's obligations hereunder
or be deemed to be a consent to any subsequent similar or dissimilar assignment,
transfer, hypothecation, subletting, occupation or use by any other person. Any
such assignment, transfer, hypothecation, subletting, occupation or use without
such consent shall be void and shall constitute a breach of this Lease by
Tenant and shall, at the option of Landlord exercised by written notice to
Tenant, terminate this Lease. The leasehold estate under this Lease shall not,
nor shall any interest therein, be assignable for any purpose by operation of
law without the written consent of Landlord. As a condition to its consent,
Landlord may require Tenant to pay all reasonable expenses in connection with
the assignment, and Landlord may require Tenant's assignee or transferee (or
other assignees or transferees) to assume in writing, all of the obligations
under this Lease and for Tenant to remain liable to Landlord under the Lease.
20. SUBORDINATION AND MORTGAGES In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest
of Landlord in the land and buildings in which the demised Premises are
located, to secure a loan from a lender (hereinafter referred to as "Lender")
to landlord, Tenant shall, at the request of Landlord or Lender, execute in
writing an agreement subordinating its rights under this Lease to the lien of
such deed of trust, or, if so requested, agreeing that the lien of Lender's
deed of trust shall be or remain subject and subordinate to the rights of
Tenant under this Lease. Tenant hereby irrevocably appoints Landlord the
attorney in fact of Tenant to execute, deliver and record any such instrument
or instruments for and in the name and on behalf of Tenant. Notwithstanding any
such subordination, Tenant's possession under this Lease shall not be
disturbed if Tenant is not in default and so long as Tenant shall pay all rent
and observe and perform all of the provisions set forth in this Lease and any
such subordination agreement shall so reflect. Tenant agrees to send to any
mortgagees and/or deed of trust holders, by registered mail, a copy of any
notice of default served by Tenant upon the Landlord, provided that prior to
such notice, Tenant has been notified, in writing (by way of notice of
assignment of rents or otherwise) of the addresses of such mortgagees and/or
deed of trust holders. Tenant further agrees that if Landlord shall have failed
to cure such default within the time provided for in this Lease, any such
mortgagees and/or deed of trust holders shall have an additional thirty (30)
days within which to cure such default, or if such default is not reasonably
susceptible of cure within that time, then such additional time as may be
reasonably necessary if within such (30) days, any mortgagee and/or deed of
trust holder has commenced and is diligently pursuing the remedies necessary to
cure such default, (including but not limited to commencement of foreclosure
proceedings), in which event this Lease shall not be terminated when such
remedies are being diligently pursued. (SEE PARAGRAPH 52 BELOW)
21. ENTRY BY LANDLORD Landlord reserves, and shall during normal business
hours, have, the right to enter the Premises to inspect them; to perform any
services to be provided by Landlord hereunder; to submit the Premises to
prospective purchasers, mortgagors or tenants; to post notices of
nonresponsibility; and to alter, improve or repair the Premises and any portion
of the Complex, all without abatements of rent; and may erect scaffolding and
other necessary structures in or through the Premises where reasonably required
by the character of the work to be performed; provided, however, that the
business of Tenant shall be interfered with to the least extent that is
reasonably practical. For each of the foregoing purposes, Landlord shall at all
times have and retain a key with which to unlock all of the doors in an
emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord by any of said means, or otherwise, shall not
under any circumstances be construed or deemed to be a forcible or unlawful
entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof. Landlord
shall also have the right at any time to change the arrangement or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets or other public parts of the Complex and to change the name, number or
designation by which the Complex is commonly known, and none of the foregoing
shall be deemed an actual or constructive eviction of Tenant, or shall entitle
Tenant to any reduction of rent hereunder, and no such changes shall
unreasonably interfere with Tenant's use of or access to the building leased
hereunder.
22. BANKRUPTCY AND DEFAULT The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that the trustee or receiver shall cure) any
and all previous defaults under the unexpired Lease and shall compensate
Landlord for all actual pecuniary loss and shall provide adequate assurance of
future performance under said Lease to the reasonable satisfaction of Landlord.
Adequate assurance of future performance, as used herein, includes, but shall
not be limited to: (i) assurance of source and payment of rent, and other
consideration due under this Lease; (ii) assurance that the assumption or
assignment of this Lease will not breach substantially any provision, such as
radius, location, use, or exclusivity provision, in any agreement relating to
the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary bankruptcy
proceeding without the prior written consent of Landlord. In no event shall this
Lease or any rights or privileges hereunder be an asset of Tenant under any
bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice from
Landlord within which to cure any default in the payment of rental or adjustment
thereto. Tenant shall have a period of twenty (20) days from the date of written
notice from Landlord within which to commence to cure any other default under
this Lease and Tenant shall diligently prosecute the cure to completion. Upon an
uncured default of this Lease by Tenant, Landlord shall have the following
rights and remedies in addition to any other rights or remedies available to
Landlord at law or in equity:
<PAGE> 6
(a) The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of the worth at the time
of award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of rental loss for the same period
that Tenant proves could be reasonably avoided, as computed pursuant to
subsection (b) of said Section 1951.2. Any proof by Tenant under subparagraph
(2) and (3) of Section 1951.2 of the California Civil Code of the amount of
rental loss that could be reasonably avoided shall be made in the following
manner: Landlord and Tenant shall each select a licensed real estate broker in
the business of renting property of the same type and use as the Premises and
in the same geographic vicinity. Such two real estate brokers shall select a
third licensed real estate broker, and the three licensed real estate brokers
so selected shall determine the amount of the rental loss that could be
reasonably avoided from the balance of the term of this Lease after the time of
award. The decision of the majority of said licensed real estate brokers shall
be final and binding upon the parties hereto.
(b) The rights and remedies provided by California Civil Code which
allows Landlord to continue the Lease in effect and to enforce all of its
rights and remedies under this Lease, including the right to recover rent as it
becomes due, for so long as Landlord does not terminate Tenant's right to
possession; acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver upon Landlord's initiative to protect its
interest under this Lease shall not constitute a termination of Tenant's right
to possession.
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) The right and power, as attorney-in-fact for Tenant, to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant
and to sell such property and apply such proceeds therefrom pursuant to
applicable California law. Landlord, as attorney-in-fact for Tenant, may from
time to time sublet the Premises or any part thereof for such term or terms
(which may extend beyond the term of this Lease) and at such rent and such
other terms as Landlord in its sole discretion may deem advisable, with the
right to make alterations and repairs to the Premises. Upon each subletting,
(i) Tenant shall be immediately liable to pay Landlord, in addition to
indebtedness other than rent due hereunder, the cost of such subletting,
including, but not limited to, reasonable attorneys' fees, and any real estate
commissions actually paid, and the cost of such alterations and repairs
incurred by Landlord and the amount, if any, by which the rent hereunder for
the period of such subletting (to the extent such period does not exceed the
term hereof) exceeds the amount to be paid as rent for the Premises for such
period or (ii) at the option of Landlord, rents received from such subletting
shall be applied first to payment of indebtedness other than rent due hereunder
from Tenant to Landlord; second, to the payment of any costs of such subletting
and of such alterations and repairs; third to payment of rent due to unpaid
hereunder; and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same becomes due hereunder. If Tenant has been
credited with any rent to be received by such subletting under option (i) and
such rent shall not be promptly paid to Landlord by the subtenant(s), or if
such rentals received from such subletting under option (ii) during any month
be less than that to be paid during that month by Tenant hereunder, Tenant
shall pay any such deficiency to Landlord. Such deficiency shall be calculated
and paid monthly. For all purposes set forth in this subparagraph (d), Landlord
is hereby irrevocably appointed attorney-in-fact for Tenant, with power of
substitution. No taking possession of the Premises by Landlord, as
attorney-in-fact for Tenant, shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention be given to
Tenant. Notwithstanding any such subletting without termination, Landlord may at
any time hereafter elect to terminate this Lease for such previous breach.
(c) The right to have a receiver appointed for Tenant upon application
by Landlord, to take possession of the Premises and to apply any rental
collected from the Premises and to exercise all other rights and remedies
granted to Landlord as attorney-in-fact for Tenant pursuant to subparagraph
(d) above.
23. ABANDONMENT Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease; and if Tenant shall abandon, vacate or surrender
said Premises, or be dispossessed by the process of law, or otherwise, any
personal property belonging to Tenant and left on the Premises shall be deemed
to be abandoned, at the option of Landlord, except such property as may be
mortgaged to Landlord.
24. DESTRUCTION
(Paragraph 24 is continued below)
25 EMINENT DOMAIN If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this Lease shall terminate as to any portion of the
Premises so taken or conveyed on the date when title vests in the condemnor,
and Landlord shall be entitled to any and all payment, income, rent, award or
any interest therein whatsoever which may be paid or made in connection with
such taking or conveyance, and Tenant shall have no claim against Landlord or
otherwise for the value of any unexpired term of this Lease. Notwithstanding
the foregoing paragraph, any compensation specifically awarded Tenant for loss
of business, Tenant's personal property, moving cost or loss of goodwill, shall
be and remain the property of Tenant.
If (i) any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advised in writing by any
entity or body having the right or power of condemnation of is intention to
condemn the Premises or any portion thereof, or (ii) any of the foregoing
events occur with respect to the taking of any space in the Complex not leased
hereby, or if any such spaces so taken or conveyed in lieu of such taking and
Landlord shall decide to discontinue the use and operation of the Complex, or
decide to demolish, alter or rebuild the Complex, then, in any of such events
Landlord shall have the right to terminate this Lease by giving Tenant written
notice thereof within sixty (60) days of the date of receipt of said written
advice, or commencement of said action or proceeding, or taking conveyance,
which termination shall take place as of the first to occur of the last day of
the calendar month next following the month in which such notice is given or
the date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if
the Premises taken or conveyed is so substantial that the Tenant can no longer
reasonably conduct its business, Tenant shall have the privilege of terminating
this Lease within sixty (60) days from the date of such taking or conveyance,
upon written notice to Landlord of its intention so to do, and upon giving of
such notice this Lease shall terminate on the last day of the calendar month
next following the month in which such notice is given, upon payment by Tenant
of the rent from the date of such taking or conveyance to the date of
termination.
If a portion of the Premises be taken by condemnation or conveyance in
lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter the
rent to be paid by Tenant shall be in the ratio that the area of the portion of
the Premises not so taken or conveyed bears to the total area of the Premises
prior to such taking.
26. SALE OF CONVEYANCE BY LANDLORD In the event of a sale or conveyance of the
Complex or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any
liability thereafter arising upon any of the terms, covenants or conditions
(express or implied) herein contained in favor of Tenant, and in such event,
insofar as such transfer is concerned, Tenant agrees to look solely to the
responsibility of the successor in interest of such transferor in and to the
Complex and this Lease. This Lease shall not be affected by any such sale or
conveyance, and Tenant agrees to attorn to the successor in interest of such
transferor.
27. ATTORNMENT TO LENDER OR THIRD PARTY In the event the interest of Landlord
in the Land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
Page 6 of 9
<PAGE> 7
28. HOLDING OVER Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred twenty-five (125%) percent of the monthly Basic
Rent required during the last month of the Lease term. (Paragraph 28 is
continued below)
29. CERTIFICATE OF ESTOPPEL Tenant shall at any time upon not less than ten
(10) days' prior written notice from Landlord execute, acknowledge and deliver
to Landlord a statement in writing (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults, if any, are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that this Lease is in full force and effect, without
modification except as may be represented by Landlord; that there are no
uncured defaults in Landlord's performance, and that not more than one month's
rent has been paid in advance. If requested by Tenant, Landlord shall issue
Tenant a certificate of Estoppel stating whether or not Tenant is in compliance
with the Lease and current on rental payments.
30. CONSTRUCTION CHANGES Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.
31. RIGHT OF LANDLORD TO PERFORM All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid
by it hereunder or shall fail to perform any other term or covenant hereunder
on its part to be performed, and such failure shall continue for five (5) days
after written notice thereof by Landlord, Landlord, without waiving or
releasing Tenant from any obligation of Tenant hereunder, may, but shall not be
obligated to, make any such payment or perform any such other term or covenant
on Tenant's part to be performed. All sums so paid by Landlord and all
necessary costs of such performance by Landlord together with interest thereon
at the rate of the prime rate of interest per annum as quoted by the Bank of
America from the date of such payment of performance by Landlord, shall be paid
(and Tenant covenants to make such payment) to Landlord on demand by Landlord,
and Landlord shall have (in addition to any other right or remedy of Landlord)
the same rights and remedies in the event of nonpayment by Tenant as in the
case of failure by Tenant in the payment of rent hereunder.
32. ATTORNEYS' FEES
(A) In the event that Landlord should bring suit for the possession of the
Premises, for the recovery of any sum due under this Lease, or because of the
breach of any provision of this Lease, or for any other relief against Tenant
hereunder, or in the event that Tenant should bring suit against Landlord for
the recovery of any sum due hereunder or because of the breach of any provision
of this Lease or for any other relief against Landlord hereunder, then all
costs and expenses, including reasonable attorneys' fees, incurred by the
prevailing party therein shall be paid by the other party, which obligation on
the part of the other party shall be deemed to have accrued on the date of the
commencement of such action and shall be enforceable whether or not the action
is prosecuted to judgement
(B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder,
Tenant shall pay to Landlord its costs and expenses incurred in such suit,
including a reasonable attorney's fee, except to the extent Landlord's cost and
expense were caused by the negligence or willful misconduct of Landlord, its
agents or employees.
33. WAIVER The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any
way affect, the right of either party to insist upon performance and observance
by the other party in strict accordance with the terms hereof.
34. NOTICES All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served
on Tenant by leaving the same at the Premises or if sent by United States
certified or registered mail, postage prepaid, addressed to Tenant at the
Premises. All notices, demands, requests, advices or designations by Tenant to
Landlord shall be sent by United States certified or registered mail, postage
prepaid, addressed to Landlord at its offices at 3201 Ash Street, Palo Alto, CA
94306. Each notice, request, demand, advice or designation referred to in this
paragraph shall be deemed received on the date of the personal service or
mailing thereof in the manner herein provided, as the case may be.
35. EXAMINATION OF LEASE Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its
execution and delivery by both Landlord and Tenant. Landlord and Tenant
mutually intend that neither shall have any binding contractual obligations to
the other with respect to the matters referred to herein unless and until this
instrument has been fully executed by both parties.
36. DEFAULT BY LANDLORD Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion. Paragraph
36 is continued below.
37. CORPORATE AUTHORITY If Tenant is a corporation (or a partnership) each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or
partnership) in accordance with its terms. If Tenant is a corporation, Tenant
shall, within thirty (30) days of written request by Landlord after execution
of this Lease, deliver to Landlord a certified copy of the resolution of the
Board of Directors of said corporation authorizing or ratifying the execution
of this Lease.
38.
39. LIMITATION OF LIABILITY In consideration of the benefits accruing hereunder,
Tenant and all successors and assigns covenant and agree that, in the event of
any actual or alleged failure, breach or default hereunder by Landlord:
(i) the sole and exclusive remedy shall be against Landlord and
Landlord's assets;
(ii) no partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership)
(iii) no service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the
partnership)
(iv) no partner of Landlord shall be required to answer or otherwise
plead to any service of process;
(v) no judgment shall be taken against any partner of Landlord;
(vi) any judgment taken against any partner of Landlord may be vacated
and set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets of any
partner of Landlord;
(viii) these covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Page 7 of 9
<PAGE> 8
(ix) The term, "Landlord", as used in this section, shall mean only the
owner or owners from time to time of the fee title or the tenant's interest
under a ground lease of the land described in Exhibit "B", and in the event of
any transfer of such title or interest, Landlord herein named (and in case of
any subsequent transfers the then grantor) shall be relieved from and after the
date of such transfer of all liability as respects Landlord's obligations
thereafter to be performed, provided that any funds in the hands of Landlord or
the then grantor at the time of such transfer, in which Tenant has an interest,
shall be delivered to the grantee. Similarly, the obligations contained in this
Lease to be performed by Landlord shall be binding on Landlord's successors and
assigns only during their respective periods of ownership. Tenant agrees that
each of the foregoing covenants and agreements shall be applicable to any
covenant or agreement either expressly contained in this Lease or imposed by
statute or at common law.
40. BROKERS Tenant warrants that it had dealing with only the following
real estate brokers or agents in connection with the negotiation of this Lease:
None, and that it knows of no other real estate broker or agent who is entitled
to a commission in connection with this Lease.
41. SIGNS No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed or affixed on or to any part of the outside of the
Premises or any exterior windows of the Premises without the written consent of
Landlord first had and obtained and Landlord shall have the right to remove any
such sign, placard, picture, advertisement, name or notice without notice to and
at the expense of Tenant. If Tenant is allowed to print or affix or in any way
place a sign in, on or about the Premises, then upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved of
by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
(Paragraph 41 is continued below)
42. FINANCIAL STATEMENTS In the event Tenant tenders to Landlord any
information on the financial stability, creditworthiness or ability of the
Tenant to pay the rent due and owing under the Lease, then Landlord shall be
entitled to rely upon the information provided in determining whether or not to
enter into this Lease Agreement with Tenant and Tenant hereby represents and
warrants to Landlord the following: (i) that all documents provided by Tenant to
Landlord are true and correct copies of the originals; and (ii) Tenant has not
withheld any information from Landlord which is material to Tenant's
creditworthiness, financial condition or ability to pay the rent; and (iii) all
information supplied by Tenant to Landlord is true, correct and accurate in
every material aspect and (iv) no part of the information supplied by Tenant to
Landlord contains misleading or fraudulent statements as to any material matter.
A default under this paragraph shall be a non-curable default on behalf
of Tenant and Landlord shall be entitled to pursue any right or remedy available
to Landlord under the terms of this Lease or available to Landlord under the
laws of the State of California.
43. HAZARDOUS MATERIALS
A. As used herein, the term "Hazardous Material" shall mean any
substance or material which has been determined by any state, federal or local
governmental authority to be capable of posing a risk of injury to health,
safety or property including all of those materials and substances designated or
defined as "hazardous" or "toxic" by (i) the Environmental Protection Agency,
the California Water Quality Control Board, the Department of Labor, the
California Department of Industrial Relations, the Department of Transportation,
the Department of Agriculture, the Consumer Product Safety Commission, the
Department of Health and Human Services, the Food and Drug Agency or any other
governmental agency now or hereafter authorized to regulate materials and
substances in the environment, or by (ii) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601 et seq., as
amended; the Hazardous Materials Transportation Act, 49 U.S.C. 1801, et seq., as
amended; the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., as
amended; the Hazardous Waste Control Law, California Health & Safety Code 25100
et seq., as amended; Sections 66680 through 66685 of Title 22 of the California
Administration Code, Division 4, chapter 30, as amended; and in the regulations
adopted and publications promulgated pursuant to said laws.
B. Tenant shall not cause or permit any Hazardous Material to be
improperly or illegally used, stored, discharged, released or disposed of in,
from, under or about the Premises or the Complex, or any other land or
improvements in the vicinity of the Premises or the Complex. Without limiting
the generality of the foregoing, Tenant, at its sole cost, shall comply with all
laws relating to Hazardous Materials. If the presence of Hazardous Materials on
the Premises or the Complex caused or permitted by Tenant results in
contamination of the Premises or the Complex or any soil in or about the
Premises or the Complex, Tenant, at its expense shall promptly take all actions
necessary to return the Premises or the Complex to the condition existing prior
to the appearance of such Hazardous Material. The termination of this Lease
shall not terminate or reduce the liability or obligations of Tenant under this
Section, or as may be required by law, to clean up, monitor or remove any
Hazardous Materials from the Premises or the Complex.
Tenant shall defend, hold harmless and indemnify Landlord and its agents
and employees with respect to all claims, damages and liabilities arising out of
or in connection with any Hazardous Material used, stored, discharged, released
or disposed of in, from, under or about the Premises or the Complex, where said
Hazardous Material is or was attributable to the activities of Tenant, its
agents or contractors during the Lease term and whether or not Tenant had
knowledge of such Hazardous Material, including, without limitation, any cost of
monitoring or removal, any reduction in the fair market value or fair rental
value of the Premises or the Complex and any loss, claim or demand by any third
person or entity relating to bodily injury or damage to real or personal
property.
Tenant shall not suffer any lien to be recorded against the Premises or
the Complex as a consequence of a Hazardous Material, including any so called
state, federal or local "super fund" lien related to the "clean up" of a
Hazardous Material in or about the Premises, where said Hazardous Material is or
was attributable to the activities of the Tenant.
C. In the event Hazardous Materials are discovered in or about the
Premises or the Complex, and Landlord has substantial reason to believe that
Tenant was responsible for the presence of the Hazardous Material, then Landlord
shall have the right to appoint a consultant, at Tenant's expense, to conduct an
investigation to determine whether Hazardous Materials are located in or about
the Premises or the Complex and to determine the corrective measures, if any,
required to remove such Hazardous Materials. Tenant, at its expense, shall
comply with all recommendations of the consultant, as required by law. To the
extent it is determined that Tenant was not responsible for the presence of the
Hazardous Materials, then Landlord shall reimburse Tenant for any costs incurred
by Landlord and paid by Tenant under the terms of this paragraph 45.C.
Tenant shall immediately notify Landlord of any inquiry, test,
investigation or enforcement proceeding by or against Tenant or the premises or
the Complex concerning a Hazardous Material. Tenant acknowledges that Landlord,
as the owner of the property, at its election, shall have the sole right, at
Tenant's expense, to negotiate, defend, approve and appeal any action taken or
order issued with regard to a Hazardous Material by an applicable governmental
authority. Provided Tenant is not in default under the terms of this Lease,
Tenant shall likewise have the right to participate in any negotiations,
approvals or appeals of any actions taken or orders issued with regard to the
Hazardous Material and Landlord shall not have the right to bind Tenant in said
actions or orders.
Landlord shall defend, hold harmless and indemnify Tenant and its agents
and employees with respect to all claims, damages and liabilities arising out of
or in connection with any Hazardous Material used, stored, discharged, released
or disposed of in, from, under or about the Premises or the Complex, where said
Hazardous Material is or was not attributable to the activities of Tenant, its
agents or contractors during the Lease term and whether or not Tenant had
knowledge of such Hazardous Material, including, without limitation, any cost of
monitoring or removal, any reduction in the fair market value or fair rental
value of the Premises or the Complex and any loss, claim or demand by any third
person or entity relating to bodily injury or damage to real or personal
property.
D. It shall not be unreasonable for Landlord to withhold its consent to
any proposed assignment or subletting if (i) the proposed assignee's or
subtenant's anticipated use of the Premises involves the storage, use or
disposal of Hazardous Material; (ii) if the proposed assignee or subtenant has
been required by any prior landlord, lender or governmental authority to "clean
up" Hazardous Material; (iii) if the proposed assignee or subtenant is subject
to investigation or enforcement order or proceeding by any governmental
authority in connection with the use, disposal or storage of a Hazardous
Material.
E. Tenant shall surrender the Premises to Landlord, upon the expiration
or earlier termination of the Lease, free of Hazardous Materials which are or
were attributable to Tenant. If Tenant fails to so surrender the Premises,
Tenant shall indemnify and hold Landlord harmless form all damages resulting
from Tenant's failure to surrender the Premises as required by this paragraph,
including, without limitation, any claims or damages in connection with the
condition of the Premises including, without limitation, damages occasioned by
the inability to relet the Premises or a reduction in the fair market and/or
rental value of the Premises or the Complex by reason of the existence of any
Hazardous Materials, which are or were attributable to the activities of Tenant,
in or around the Premises or the Complex.
Notwithstanding any provision to the contrary in this Lease, if any
action is required to be taken by a governmental authority to clean-up, monitor
or remove any Hazardous Materials, which are or were attributable to the
activities of Tenant, from the Premises or the Complex and such action is not
completed prior to the expiration or earlier termination of the Lease, then at
Landlord's election (i) this Lease shall be deemed renewed for a term commencing
on the expiration date of this Lease and ending on the date the clean-up,
monitoring or removal procedure is completed (provided, however, that the total
term of this Lease shall not be longer than 34 years and 11 months); or (ii)
Tenant shall be deemed to have impermissibly held over and Landlord shall be
entitled to all damages directly or indirectly incurred in connection with such
holding over, including without limitation damages occasioned by the inability
to relet the Premises or a reduction in the fair market and/or fair rental value
of the Premises or the Complex by reason of the existence of the Hazardous
Material.
F. Upon the Lease Commencement Date, Tenant shall provide to Landlord a
complete list of all chemicals, toxic waste or Hazardous Materials employed by
Tenant within the Premises. Throughout the term of this Lease, Tenant shall
continue to update this list of chemicals, contaminants and Hazardous Materials.
Landlord hereby warrants Tenant that there is no asbestos in the buildings.
Page 8 of 9
<PAGE> 9
44. MISCELLANEOUS AND GENERAL PROVISIONS
a. Tenant shall not, without the written consent of Landlord, use the name
of the building for any purpose other than as the address of the business
conducted by Tenant in the Premises.
b. This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of California. If any provision of
this Lease shall be invalid, unenforceable or ineffective for any reason
whatsoever, all other provisions hereof shall be and remain in full force
and effect.
c. The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The
term "Landlord" or any pronoun used in place thereof includes the plural
as well as the singular and the successors and assigns of Landlord. The term
"Tenant" or any pronoun used in place thereof includes the plural as well as
the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted
assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used
in any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph
headings of this Lease are for convenience of reference only and shall have
no effect upon the construction or interpretation of any provision hereof.
d. Time is of the essence of this Lease and of each and all of its
provisions.
e. At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after
written demand from Landlord to Tenant, any quitclaim deed or other document
required by any reputable title company, licensed to operate in the State of
California, to remove the cloud or encumbrance created by this Lease from
the real property of which Tenant's Premises are a part.
f. This instrument along with any exhibits and attachments hereto
constitutes the entire agreement between Landlord and Tenant relative to the
Premises and this agreement and the exhibits and attachments may be altered,
amended or revoked only by an instrument in writing signed by both Landlord
and Tenant. Landlord and Tenant hereby agree that all prior or
contemporaneous oral agreements between and among themselves and their
agents or representatives relative to the leasing of the Premises are merged
in or revoked by this agreement.
g. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
h. Tenant further agrees to execute any amendments required by a lender to
enable Landlord to obtain financing, so long as Tenant's rights hereunder
are not substantially affected.
i. Paragraph(s) 45 through 54 are/is added hereto and are/is included as a
part of this Lease.
j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
k. Tenant covenants and agrees that no diminution or shutting off of light,
air or view by any structure which may be hereafter erected (whether or not
by Landlord) shall in any way affect this Lease, entitle Tenant to any
reduction of rent hereunder or result in any liability of Landlord to
Tenant.
Paragraph 44 is continued below.
IN WITNESS WHEREOF, Landlord and tenant have executed and delivered this Lease
as of the day and year first above written.
LANDLORD: TENANT:
CHARLESTON PROPERTIES, a INTUIT, INC., a
California General Partnership Delaware Corporation
By /s/ Boyd C. Smith By /s/ W.H. Lane
------------------------------- -----------------------------------
Title Partner Title VP/CFO
---------------------------- --------------------------------
<PAGE> 10
2.B.(continued). TENANT'S COMPENSATION IN THE EVENT OF A DELAY
(1) In the event Landlord is unable to make the Premises available
to Tenant 90 days prior to the Lease Commencement Date as set
forth in Paragraph 2A above to permit Tenant to commence
construction of desired changes within the Premises, Tenant
shall receive any and all monies received by Landlord as
penalties (hereinafter referred to as Sun Excess Rent) from Sun
Microsystems (the prior Tenant) in excess of the Basic Rent
amount that Sun Microsystems would have been obligated to pay
Charleston Properties during any holdover period. For example,
if Sun Microsystems paid Landlord 150% of Basic Rent during a
holdover period, Landlord would receive 100% of the Basic Rent
and Tenant would receive the 50% Sun Excess Rent.
Paragraph 2.C. EARLY OCCUPANCY FOR CONSTRUCTION PURPOSES
The Lease Commencement Date for the Premises leased hereunder
shall remain as stated in paragraph 2A provided Landlord has
granted Tenant access to the Premises ninety days prior to the
commencement of the Lease for the purpose of Tenant's
construction of Tenant Improvements. At such time as Landlord
has made the Premises available for the commencement of
construction, Tenant or Tenant's contractor, shall be permitted
to commence construction. During this 90 day period, Tenant
shall hold Landlord, and WSJ Properties (Landlord's Property
Management Company retained to manage the Complex) harmless from
any loss or damage caused by Tenant's or Tenant's contractor's
construction activities during this period. During this 90 day
construction period, Tenant shall not be obligated to pay Basic
or Additional Rent on the Premises so under construction unless
Tenant elects to occupy the Premises during this 90 day period
with Tenant's operating personnel. In the event Tenant does
occupy the Premises with operating personnel, Tenant shall
occupy the Premises under all the terms and conditions of the
Lease and Tenant shall pay Landlord Basic and Additional Rent
beginning with said Date of occupancy by Tenant's operating
personnel up and until the specified Commencement Date of the
term of the Lease in the following daily amounts:
Daily Basic Rent $2,132.00
Daily Additional Rent $ 317.00 (estimated)
The Commencement Date and Termination Date of Lease for the
Premises shall not be affected by this early occupancy and shall
remain as stated.
Paragraph 4A (1) (continued). BASIC RENT
The table below represents a specific Basic Rent expressed in
dollars per square foot per month for a specific time period.
The Basic Rent due and payable is calculated by multiplying the
gross square footage leased times the Basic Rent per square foot
per month as indicated.
The Basic Rent rates are as follows:
<TABLE>
<S> <C>
1/1/1997 - 12/31/1999 $1.50 per square foot per month
1/1/2000 - 12/31/2003 $1.60 per square foot per month
1/l/2004 - 12/31/2007 $1.70 per square foot per month
1/1/2008 - 12/31/2008 $1.75 per square foot per month
or the Fair Market Value,
</TABLE>
10
<PAGE> 11
whichever is greater
1/1/2009 and thereafter The rate per square foot per
month shall be increased by
$.05/per square foot per
month as of each January 1
during the term over the
prior year or shall be the
Fair Market Value, whichever
is greater.
(See paragraph 46 for Fair Market Value definition and
determination and paragraph 50 for Basic Rent Abatement for
Tenant Improvements).
Paragraph 4A (2). PAYMENT UPON EXECUTION OF LEASE AND TIMELY PAYMENT OF MONTHLY
BASIC AND ADDITIONAL RENT
Upon execution of this Lease, Tenant shall pay Landlord $63,948
(42,632 x $1.50) representing the first month's Basic Rent
payment. During the term of the Lease, Tenant's monthly
Basic and Additional Rent shall be due and payable on or before
the first day of each month of the Lease term.
Paragraph 4D (continued). ADDITIONAL RENT
For purposes of calculating Tenant's proportionate share of
Additional Rent Expenses for the Complex it is hereby mutually
agreed the Complex totals 85,264 rentable square feet
(Buildings 1, 2).
Landlord's monthly estimate for Additional Rent items described
in paragraph 4D (excluding taxes) for calendar year 1996 is
$6,600 per month (42,632 x $0.155). The following represents a
line item breakdown of Landlord's estimate of monthly expenses
(expressed in dollars per square foot per month):
<TABLE>
<S> <C>
Exterior maintenance and landscape $ 0.045
Building maintenance and HVAC 0.065
Insurance (including earthquake insurance) 0.025
Management 0.02
Utilities (Tenant pays directly) -0-
Janitorial (Tenant pays directly) -0-
----------
Total $ 0.155
</TABLE>
Landscape water for the Complex shall be paid directly by Tenant
if Tenant occupies the entire Complex.
Taxes shall be billed separately and prorated for periods of
occupancy and shall be due December lst and April 1st of each
calendar year. Landlord's estimate for the 1995-1996 Tax year
(July 1, 1995 - June 30, 1996) for the Complex is as follows:
Parcel #116-03-029 (Buildings 1,2)
$83,000 or $41,500 per Building per year
Tenant shall have the right, during normal business hours and at
Tenant's own expense, to audit Landlord's records concerning
Additional Rent items. In the event a discrepancy of greater
than 3% of Tenant's correct share of costs is discovered,
Landlord shall pay the cost of Tenant's out of pocket costs to
third parties and shall credit or refund to Tenant the amount of
the discrepancy. If the audit indicates Tenant owes Landlord an
additional
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<PAGE> 12
amount, Tenant shall pay the additional amount promptly.
Paragraph 4F (continued). SECURITY DEPOSIT
Notwithstanding anything in the Lease to the contrary, Landlord agrees
to accept, and Tenant shall have the right, at Tenant's sole discretion, to pay
for the Security Deposit by tendering to Landlord, on execution of this Lease,
an irrevocable standby Letter of Credit. The form of the irrevocable standby
Letter of Credit must be acceptable to Landlord, and in the event the term of
said Letter of Credit is for one year, then Tenant agrees to renew said Letter
of Credit 30 days prior to expiration of the Letter of Credit. Tenant's failure
to renew the Letter of Credit for an additional year, 30 days prior to its
expiration date, shall entitle Landlord to draw against the Letter of Credit the
amount of the Security Deposit.
Paragraph 7 (continued)
Further, Landlord hereby represent and covenants that with respect to
direct maintenance of the Premises only WSJ's overhead shall be included in
these costs and no profit component is or will be built into the cost of the
services or materials provided by any of Landlord's subsidiaries or affiliates
who are under contract to provide services and materials to the Premises
(including without limitation WSJ Properties). Excluded as reimbursable costs
from Tenant to Landlord are the follows:
1. any fines, costs, penalties or interest resulting from the negligence
or willful misconduct of the Landlord or its agents, contractors, or employees;
2. any costs of any services sold or provided to tenants or other
occupants for which Landlord-or Managing Agent is entitled to be reimbursed by
such tenants or other occupants.
3. acquisition costs for sculptures, paintings, or other objects of art;
4. costs for which Landlord has been compensated by a management fee;
for example, accounting costs necessary to operate the Complex and report its
financial status to the Landlord.
Paragraph 9 (continued). ALTERATIONS AND ADDITIONS
Landlord shall lease the promises to Tenant in an "as-is" condition, and
other than Landlord's repair obligation per paragraph 49 and Landlord's code
compliance obligation per paragraph 48, all cost of construction including
demolition, architectural, drawings, permitting fees, etc., shall be paid by
Tenant with landlord's contributions limited to those described in paragraph 50.
Notwithstanding anything herein to the contrary, upon Landlord's
approval of Tenant's initial Tenant Improvements to be installed and paid for by
Tenant (except as provided for in paragraph 50), Tenant shall not be required to
restore the initial build-out to the configuration and condition in existence as
of the date Landlord first delivers possession of the Promises to Tenant. Should
Tenant elect to install a ceiling and lighting system that is other than a
standard 2 x 2 or 2 x 4 T-Bar grid and 2 x 2 or 2 x 4 drop-in parabolic lens
with fluorescent bulb fixtures Landlord may, in its sole discretion determined
at the time Landlord approves the plans, require restoration to the existing
ceiling system and similar light fixtures. If Tenant makes no changes to the
Premises at the outset and uses the Premises in an as-is condition, and later
makes substantial renovations or improvements, then, at Landlord's option, any
future restoration required shall be to the original condition and configuration
as first delivered to Tenant. At the time any subsequent alterations are
requested,
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<PAGE> 13
Landlord shall notify Tenant of any restoration requirements per this paragraph
9. Landlord shall not have the right to approve or disapprove or to require
restoration in the event any changes subsequent to the initial build-out of any
building meet the following criteria:
1) The total cost of construction is less than $15,000.
2) The changes do not in anyway affect exiting or fire corridors,
restrooms, building entrances, lobbies, building systems or
structure. Landlord's granting approval to Tenant to make
changes herein described without the obligation to restore is in
reliance upon Tenant's making commercially reasonably
alterations and Tenant agrees not to use this subparagraph to
circumvent Landlord's right to require Tenant to restore the
premises under paragraph 9.
Tenant shall have the right to employ a general contractor of its
choosing for any modifications desired to be made to the Premises leased
hereunder. However, Tenant hereby agrees in the event Tenant elects to make
subsequent modifications to the Premises to consider the WSJ Properties
Construction Division a preferred vendor and Tenant hereby acknowledges that it
is Landlord's strong preference to have WSJ Properties Construction Division
perform any modifications to the Premises. Although Tenant shall consider WSJ
Properties Construction Division a preferred vendor, Tenant shall be under no
obligation to select WSJ Properties and Tenant further acknowledges WSJ is a
completely separate entity from landlord and any disputes relating to
construction performed by WSJ for Tenant shall be resolved directly between WSJ
and Tenant.
Paragraph 11 (continued). UTILITIES
Tenant shall pay promptly, as the same become due, all charges for
water, gas, electricity, telephone, telex and other electronic communications
service, sewer service, waste pick-up and any other utilities, materials or
services furnished directly to or used by Tenant on or about the Premises during
the term of this Lease, including, without limitation, any temporary or
permanent utility surcharge or other exactions whether or not hereinafter
imposed. Landlord shall not be liable for and Tenant shall not be entitled to
any abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.
Paragraph 19 (continued). ASSIGNMENT AND SUBLETTING
Notwithstanding the foregoing, without the prior consent of Landlord,
Tenant shall have the right (i) to assign this Lease to an affiliate or
subsidiary of Tenant or (ii) to merge with another corporation or entity or
(iii) to enter into an acquisition of another corporation or be acquired by
another corporation, in each case provided that Landlord is promptly provided
with notice thereof and Tenant remains fully liable for the full performance of
Tenant's obligation under the Lease; provided, however, that in the event Tenant
merges into another entity or is wholly acquired by another entity (in each
case, the "Successor Entity") , and provided Tenant ceases to exist and the
Successor Entity is at least as well capitalized as Tenant and has at least the
same overall financial wherewithal as Tenant had prior to such merger or
acquisition, it shall be the Successor Entity (not Tenant) who shall be fully
liable hereunder as the successor tenant.
Paragraph 24 (continued). DESTRUCTION
In the event the Premises are damaged or destroyed in whole or
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<PAGE> 14
in part from any cause, Landlord shall, within fifteen (15) days of the event of
such damage or destruction, notify Tenant in writing as to the approximate
length of time necessary for Landlord to reconstruct the Premises to
substantially its former condition. If such estimate exceeds one hundred eighty
(180) days from the date of damage or destruction, Tenant shall have the option,
within ten (10) days of receipt of Landlord's notice, to terminate this Lease.
If Tenant does not exercise its option to terminate, or if Tenant is not
entitled to terminate under this paragraph, Landlord shall promptly, at its sole
expense, rebuild or restore the Premises to substantially the condition existing
prior to the date of damage or destruction. Tenant shall be entitled to a
reduction in rent while such repair is being made in the proportion that the
area of the Premises rendered untenantable by such damage bears to the total
area of the Premises. If Landlord does not complete the rebuilding or
restoration within one hundred eighty (180) days following the date of
destruction (such period of time to be extended for delays caused by the fault
or neglect of Tenant or because of -Acts of God, acts of public agencies, labor
disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability
to obtain materials, supplies or fuels), then Tenant shall have the right to
terminate this Lease by giving fifteen (15) days prior written notice to
Landlord. Notwithstanding anything herein to the contrary, Landlord's obligation
to rebuild or restore shall be limited to the building and interior improvements
constructed by Landlord as they existed as of the commencement date of the Lease
and the initial Tenant Improvements installed at the commencement of the term,
but shall not include restoration of Tenant's trade fixtures, equipment,
merchandise or any subsequent improvements, alterations or additions made by
Tenant to the Premises, which Tenant shall forthwith replace or fully repair at
Tenant's sole cost and expense provided this Lease is not canceled according to
the Provisions above. Unless this Lease is terminated pursuant to the foregoing
provisions, this Lease shall remain in full force and effect. Tenant hereby
expressly waives the provisions of Section 1932, Subdivision 2, and Section
1933, Subdivision 4 of the California Civil Code.
Notwithstanding anything, to the contrary set forth above, in the event
the damage or destruction of the Premises (i) occurs during the last two years
of the term (unless any applicable extension option has been exercised) and (ii)
has rendered at least 33% of the Premises unusable by Tenant, Landlord shall
have the option during the aforementioned fifteen (15) day period to elect not
to rebuild the Premises by so notifying Tenant or to elect to terminate this
Lease by so notifying Tenant.
Paragraph 28 (continued). HOLDING OVER
Tenant shall have the right, upon one year prior written notice to
Landlord, to extend the lease termination date for this Lease up to six months
beyond the lease expiration date provided and only if Tenant has also agreed to
similarly and in a coterminus manner extend the lease termination date for all
the leases for Buildings leased by Tenant within the Complex. Tenant may not
exercise this right to extend the lease termination date on less than all the
Buildings leased within the Complex. The Basic Rent during this extended period
shall be 125% of the monthly Basic Rent then in affect for the month immediately
prior to the lease expiration.
Paragraph 36 (continued). DEFAULT BY LANDLORD
Notwithstanding anything to the contrary set forth above in this
paragraph 36, Landlord and Tenant agree that under certain "emergency
circumstances", Tenant shall have the right to perform obligations otherwise
required of Landlord without the necessity of providing Landlord (and any
mortgagee) with such thirty (30) day notice and opportunity to cure. Under such
"emergency circumstances", Tenant shall use its good faith reasonable
14
<PAGE> 15
judgment in determining a shorter notice period for response by Landlord or
determining that the matter at hand must be resolved immediately such that
notice can only be given after the fact. For the purposes hereof, "emergency
circumstances" shall mean (i) any hazardous situation that poses a threat of
damage, destruction or injury to any person or property of a material nature or
otherwise threatens the safety of employees and/or visitors to the Premises or
(ii) any other circumstance that involves a substantial interference with the
operations of Tenant's business enterprise in the Premises, including without
limitation the launching of new software products or revisions thereto
(especially to correct existing problems which must be addressed immediately) to
enable customers to perform needed financial and tax-related functions, which is
of special concern during the months preceding April 15th of each calendar year.
Paragraph 41 (continued). SIGNS
Subject to the approval of the City of Mountain View and Landlord, whose
consent shall not be unreasonably delayed, Tenant, at Tenant's sole cost and
expense, shall have the right to install (i) a monument sign located at the main
driveway entrance to the Complex; (ii) suitable building signage adjacent to the
Premises and (iii) suitable directional signage in the common areas and within
the Premises leased hereunder. Landlord shall promptly remove all prior tenant
signage from the Premises and any common areas adjacent thereto and said removal
shall not be at Tenant's expense.
Paragraph 44 (continued). MISCELLANEOUS AND GENERAL PROVISIONS
Landlord covenants with Tenant that upon Tenant paying the rent and all
other charges required under this Lease and performing all of Tenant's covenants
and agreements contained herein, Tenant shall peacefully have, hold and enjoy
the Premises, subject to all of the terms and conditions of this Lease.
45. OPTIONS TO EXTEND
Provided Tenant is not in default under any of the terms, covenants or
conditions of this Lease and subject to the terms and conditions set forth
hereafter, Tenant is hereby granted the option to extend the term of Lease for
the Premises leased hereunder for two consecutive five year periods:
a) Tenant's option to extend this Lease is contingent upon Tenant also
extending the term of lease for all the Buildings then leased within the
Complex. For example, should Tenant desire to extend this lease in the Complex,
Tenant must exercise its option to extend the Lease for each of Buildings 1 & 2,
and may not, for example, elect to extend the lease on building 2 but not 1. It
is hereby acknowledged that the lease expiration dates of buildings leased
within the Complex might not terminate on the same date. It is further agreed
that in the event Tenant does not lease all the buildings within the Complex,
nevertheless, Tenant shall have the option to extend the lease on the buildings
so leased per the terms of this paragraph 45.
b) Tenant shall notify Landlord in writing of Tenant's exercise of its
option to extend the Lease for each Building leased within the Complex no less
than 12 months prior to the earliest lease expiration date of any Building
leased within the Complex.
c) The Lease for each building within The Complex shall be extended for
a period of five years commencing upon the day after the Lease termination date
for such Building within the Complex and shall terminate five years later.
d) The monthly Basic Rent during the extended term shall be
15
<PAGE> 16
as defined in paragraph 4A.
e) The then current payment for Additional Rent described in paragraph 4
D of the Lease shall continue to be adjusted according to paragraph 4D of the
Lease.
f) This option to extend can be exercised solely by Tenant for its sole
use of the Premises (including any permitted subtenants and affiliates which in
total do not exceed 25% of a Complex) and may not be transferred or assigned to
any sublessee or other party, nor may this option be exercised by Tenant if more
than 25% of a Complex is then subleased to a party other than Tenant or Tenant's
affiliates.
46. FAIR MARKET RATE
The fair market rate shall be defined as the prevailing market rate with
interim adjustments (if any) then charged for comparable space of comparable
quality in the immediate Mountain View/Shoreline market area. For the period
January 1, 2008 and annually thereafter this Lease calls for a determination of
the fair market rate. Landlord shall promptly notify Tenant of such rate as
reasonably determined by Landlord one hundred and eighty days prior to the
beginning of each successive calendar year, beginning with calendar year 2008.
Landlord and Tenant shall attempt to agree in writing on such fair market rate.
If Landlord and Tenant do not agree on the fair market rate for the Premises by
that date which is one hundred fifty (150) days prior to the beginning of a
calendar year, then Landlord and Tenant shall each select a licensed real estate
broker (the "Brokers") with a minimum five (5) years commercial leasing
experience in the Mountain View area to determine the fair market rate for the
Premises. If the Brokers are unable to agree as to the fair market rate by that
date which is one hundred twenty (120) days prior to the end of the calendar
year in question, then the Brokers shall mutually select a third licensed real
estate broker (the "Arbitrator") who has the same minimum qualifications as the
Brokers and who has not previously represented either party. Each Broker shall
submit to the Arbitrator his or her determination of the fair market rate for
the Premises, and the support therefor, and the Arbitrator shall decide which
Broker has most accurately determined the fair market rate, which decision shall
be final and binding on both Landlord and Tenant. Landlord and Tenant shall each
pay their own Broker's fees and costs and shall each pay one-half (1/2) of the
Arbitrator's fees and costs.
47. Paragraph 47 is hereby intentionally omitted.
48. CODE COMPLIANCE
With respect to all applicable local, state and federal regulations and
codes including without limitation the Americans with Disabilities Act and Title
XXIV of the California Energy Code, as of the commencement of lease term for the
Premises, Landlord at Landlord's sole cost and expense shall make all
modifications to the exterior of the Premises such as parking lots, stairways,
walkways, etc. to bring the exterior of the Premises leased hereunder into
compliance. Commencing as of the date Landlord offers possession of the Premises
to Tenant, Landlord shall at Landlord's sole cost and expense make any
governmentally required modifications to the restrooms to bring then into
compliance with all applicable codes. Landlord's compliance obligations with
respect to the restrooms set forth in this paragraph 48 shall also include
replacing fixtures and finishes as necessary. Landlord's sole obligation with
respect to compliance is therefore limited to any governmentally required
modifications to the Bathrooms within the Premises and any governmentally
required modifications to the exterior. All other costs and obligations with
respect to compliance shall rest solely with Tenant. All such interior
modifications shall be completed diligently prior to the Lease
16
<PAGE> 17
Commencement Date referenced in Paragraph 2A above. All exterior modifications
to be made by Landlord shall be diligently constructed to completion.
49. ACCEPTANCE AND SURRENDER OF PREMISES AND COST OF MAJOR REPAIRS
Notwithstanding anything in paragraphs 8 & 9 to the contrary, commencing
as of the date Landlord offers possession of the Premises to Tenant, an
independent inspection team shall be hired to make a thorough inspection of the
Premises. Tenant shall hire the inspectors subject to Landlord's reasonable
approval of the cost of the inspection and the inspector. Landlord shall pay for
the inspection. Said inspection shall be limited to and shall only include
roofs, elevators, HVAC systems, electrical systems (including lights and bulbs),
plumbing systems, locking mechanisms, exterior and roll-up doors, and glazing.
Tenant shall provide Landlord a copy of these reports. Landlord shall deliver
the buildings and all operating systems covered in the report to Tenant as of
the Lease Commencement Date referenced in Paragraph 2A above in a well
maintained condition and in good repair. Landlord shall be under no specific
obligation to upgrade any particular system and Tenant acknowledges that the
systems have been previously used. Landlord's repair of the referenced items
shall not affect the commencement date of the Lease so long as Tenant is able to
occupy and operate in the Premises without interference. Notwithstanding
anything in paragraph 7 to the contrary, Capital Expenses made by Landlord shall
not be included in the annual expenses of operation, management and maintenance
of the Building or Complex. For example, the replacement of an entire roof shall
not be deemed an expense of operation whereas the ongoing repair and maintenance
of a roof is deemed an operating expense. In addition to provisions of paragraph
4D and 7, if there is a single incident that requires a maintenance expense up
to $15,000, said expense shall be reimbursable by Tenant and shall be included
in the annual operating expenses. For single large maintenance expenses between
$15,000 and $20,000, such expense will be reimbursable by Tenant (without
interest) over three years with an equal amount charged per year. If a single
large maintenance expense is greater than $20,000, it shall be reimbursable by
Tenant over a 5 year period, in equal amounts reimbursable per year.
Landlord shall lease the Premises to Tenant in an "as-is" condition, and
other than Landlord's repair obligation per paragraph 49 and Landlord's code
compliance obligation per paragraph 48, all cost of construction including
demolition, architectural, drawings, permitting fees, etc., shall be paid by
Tenant with Landlord's contributions limited to those described in paragraph 50.
50. LANDLORD'S CONTRIBUTION TOWARDS TENANT IMPROVEMENTS
Landlord shall contribute $15.00 per rentable square foot towards Tenant
requested improvements to the Premises. Landlord's total tenant improvement
obligation is $15 x 42,632 s.f. = $639,480. Tenant shall be granted these tenant
improvement dollars in the form of $383,688 Basic Rent abatement and $255,792
cash allowance towards improvements. If the initial tenant improvement expense
is less than the amounts specified herein, Landlord and Tenant shall split
equally the savings after Landlord has deducted the cost of Landlord's
expenditures per paragraph 48 from the contributions towards Tenant's
Improvements. Landlord's cash contribution shall only be made available in the
event tenant improvements exceed the amount granted in the form of rent
abatement. For example, should Tenant improvements for the Premises total
$400,000 and Landlord's costs per paragraph 48 was $20,000 the savings
represented would be $639,480 -20,000 - 400,000 = $219,480. Landlord would
therefore grant Tenant a total of $509,740 calculated as follows: 219,480 + 2 =
109,740; 400,000 + 109,740 = $509,740 as Landlord's contribution towards
improvements. Landlord's rent abatement would equal $383,688 and Landlord's cash
17
<PAGE> 18
contribution would equal $126,052. Other than the cost of Landlord's obligations
under paragraphs 48 and 49, the allowance described in this Paragraph 50
represents Landlord's only obligation toward improvements to the Premises.
51. CONSTRUCTION SUPERVISION. Landlord, at Landlord's sole cost and expense,
shall retain WSJ Properties Construction Division to supervise the improvements
made by Tenant's Contractor (if other than WSJ Properties) for Tenant's initial
built-out. Landlord shall approve all plans in a timely manner prior to
commencement of construction and copies of all permits and final signed-off
copies of permits shall be submitted to Landlord. Landlord shall also be named
as an additional insured on all general and subcontractor insurance policies and
shall receive lien releases from all subcontractors. In general, Landlord
requires the following:
1) The construction area must be kept clean and neat with interior
and exterior daily pick-up.
2) The construction may not unreasonably interfere with any other
tenants in the Complex.
3) Landlord shall receive copies of as-built drawings for the
improvements, including HVAC, electrical, plumbing, partitions,
reflected ceilings, finish schedules, millwork, etc. There shall
also be one reproducible set of drawings submitted to Landlord.
4) Landlord shall received a list of all finishes and suppliers.
5) ELECTRICAL
a) All electrical shall be in EMT with no M.C. Cable.
b) Any new panels and breakers to match existing and shall be
accurately labeled.
c) All fluorescent lighting shall be cool white or otherwise as
reasonably agreeable to both parties.
6) HVAC
a) Zone boxes and controls shall match existing if available.
b) EMONDEMON meters shall be installed on all special air
conditioning units.
c) All thermostats shall be now and match existing if available.
d) Landlord shall receive a structural report for all new units
placed on the roof.
e) All roof patching shall be hot mopped not cold patched.
f) Upon completion of construction the HVAC Systems shall be air
balanced and all filters changed.
7) PLUMBING
Tenant shall not use plastic piping. All piping must be copper
galvanized or cast iron.
8) KEYS
Landlord shall be provided with the copies of any keys to
locking mechanisms for emergency purposes. Tenant shall
18
<PAGE> 19
use a BEST-lock system.
9) Tenant shall-be responsible for meeting all applicable codes for
earthquake, energy, and handicap requirements directly related
to Tenant's interior improvements. Any contractor or
subcontractor must be licensed to do business in the State of
California. This Tenant responsibility shall be for all items
not defined as Landlord's responsibility in paragraph 48.
10) The general contractor and subcontractors shall use first class
construction practices and shall comply with reasonable
suggestions of the WSJ Properties Construction Supervisor.
52. NON DISTURBANCE
Landlord further represents that there are no outstanding loans on the
Premises leased hereunder. In the event Landlord borrows in the future and uses
the Premises leased hereunder as security, Landlord shall so notify Tenant.
53. MICROSOFT TO BE SUBSTITUTED AS TENANT
Tenant warrants to Landlord that Tenant's Board of Directors has
approved this Lease transaction. Landlord and Tenant further acknowledge that
Tenant is in the process of being acquired by Microsoft, Inc, a Delaware
Corporation (hereinafter referred to as Microsoft) headquartered at One
Microsoft Way, Redmond, Washington 98052-6399. Landlord, as a material
consideration for entering into this Lease has relied on Tenant's representation
that in the event this acquisition is completed, Microsoft shall assume directly
all the obligations and liabilities of Tenant hereunder and shall be liable for
the full performance as Tenant under this Lease. Microsoft has agreed that the
assumption of this Lease by Microsoft is a condition of the acquisition of
Tenant. Tenant warrants to Landlord that Microsoft has been made aware of this
obligation and that Microsoft has agreed to assume all the obligations of this
Lease at the time the acquisition is completed.
54. CROSS DEFAULT
It is understood that Landlord and Tenant may enter into several leases
for premises in the vicinity of the Premises leased hereunder. Exhibit "B" shows
4 additional buildings for which Tenant shall enter into leases with Landlord
(Buildings 2, 3, 4 and 5), and several additional buildings may be leased by
Tenant from Landlord at a later date. As a material part of the consideration
for the execution of this Lease by Landlord, it is agreed between Landlord and
Tenant that a default under this Lease (after any applicable notice and cure
period has expired), or a default under a lease by Tenant (after any applicable
notice and cure period has expired) for any building leased and shown on Exhibit
"B" may, at the option of Landlord, be considered a default under all leases by
and between Landlord and Tenant then in effect, in which event Landlord shall be
entitled (but in no event required) to apply all rights and remedies of Landlord
under the terms of one lease to all leases including, but not limited to, the
right to terminate one or all of said leases by reason of default under said
Lease or hereunder.
19
<PAGE> 20
[MAP OF COMPLEX]
COMPLEX PARCEL NUMBER
------- --------------
1 APN 116 03 020
2 APN 116 03 029
3 APN 116 03 028
4 APN 116 03 027
<PAGE> 21
[MAP OF COMPLEX]
COMPLEX PARCEL NUMBER
------- --------------
1 APN 116 03 020
2 APN 116 03 029
3 APN 116 03 028
4 APN 116 03 027
<PAGE> 22
RULES AND REGULATIONS OF THE BUILDING
1
No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice
to and at the expense of Tenant.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door partition or wall which may appear unsightly from
outside the Premises.
2
Tenant shall not occupy or permit any portion of the Premises to be
occupied for the manufacture or sale of liquor, narcotics or tobacco in any
form.
3
4
The sidewalks, passages, exits, entrances, elevators and stairways
shall not be obstructed by Tenant or used by it for any purpose other than
ingress to and egress from its Premises. The passages, exits, entrances,
stairways, balconies and roof are not for the use of the general public and
Landlord shall in all cases retain the right to control and prevent access
thereto by all persons whose presence in the judgment of Landlord shall be
prejudicial to the safety, character, reputation and interests of the Premises
and its tenants, provided that nothing herein contained shall be construed to
prevent such access to persons with whom Tenant normally deals in the ordinary
course of Tenant's business unless such persons are engaged in illegal
activities. Tenant, employees or invitees of Tenant shall not go upon the roof
of the Premises.
5
The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by Tenant who, or whose employees or invitees shall
have caused it.
6
Tenants shall not overload the floor of the Premises or in any way
deface the Premises or any part thereof.
7
Landlord shall have the right to prescribe the weight, size and position
of all safes and other heavy equipment brought into the Premises. Safes or other
heavy objects shall, if considered necessary by Landlord, stand on wood strips
of such thickness as is necessary to properly distribute the weight. Landlord
will not be responsible for loss of or damage to any such safe or property from
any cause and all damage done to the Premises by moving or maintaining any such
safe or other property shall be repaired at the expense of Tenant.
8
9
Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to
be occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Premises by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds with the exception of Dog Guides for the blind, be
brought in or kept about the Premises.
10
No cooking (except microwave cooking and coffee/tea brewing) shall be
done or permitted by Tenant on the Premises, nor shall the Premises be used for
the storage of merchandise for washing clothes, for lodging, or for any
improper, objectionable or immoral purposes.
11
No boring or cutting for wires will be allowed without the consent of
Landlord. The location of telephones, call boxes and other office equipment
affixed to the Premises shall be subject to the approval of Landlord.
<PAGE> 23
12
Tenant upon the termination of the tenancy, shall deliver to Landlord
the keys of offices, rooms and toilet rooms which have been furnished the
Tenant or which Tenant shall have had made.
13
Tenant shall see that the doors of the Premises are closed and securely
locked before leaving the Premises and must observe strict care and caution that
all water faucets or water apparatus within the Premises are entirely shut off
before Tenant or Tenant's employees leave the Premises, and that all electricity
shall likewise be carefully cut off, so as to prevent waste or damage.
14
Landlord reserves the right to exclude or expel from the Premises any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any
of the rules and regulations of the Premises.
15
16
17
Tenant shall not disturb, solicit, or canvass any occupant of the
Premises and shall cooperate to prevent same.
18
Tenant agrees to assume responsibility for compliance by its employees
with the parking provision contained herein. Tenant hereby authorizes Landlord
at Tenant's sole expense to tow away from the Complex any vehicle belonging to
Tenant or Tenant's employees parked in violation of these provisions, or to
attach violation stickers or notices to such vehicle. Tenant shall use the
parking areas for vehicle parking only, and shall not use the parking areas for
storage.
Landlord's initials Tenant's initials
<PAGE> 1
EXHIBIT 10.34
INTUIT INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
As Adopted on October 7, 1996
As Amended July 30, 1997
1. ESTABLISHMENT OF PLAN. Intuit Inc., a Delaware corporation (the
"Company"), proposes to grant options for purchase of the Company's Common
Stock, $0.01 par value, to eligible employees of the Company and its
Subsidiaries (as hereinafter defined) pursuant to this Employee Stock Purchase
Plan (this "Plan"). For purposes of this Plan, "Parent Corporation" and
"Subsidiary" (collectively, "Subsidiaries") shall have the same meanings as
"parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f),
respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). The
Company intends this Plan to qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments to or replacements of such
Section), and this Plan shall be so construed. Any term not expressly defined
in this Plan but defined for purposes of Section 423 of the Code shall have the
same definition herein. A total of 300,000 shares of the Company's Common Stock
is reserved for issuance under this Plan. Such number shall be subject to
adjustments effected in accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide employees of the
Company, or of any Subsidiary designated by the Board of Directors of the
Company (the "Board") as eligible to participate in this Plan, with a convenient
means of acquiring an equity interest in the Company through payroll deductions,
to enhance such employees' sense of participation in the affairs of the Company
and Subsidiaries, and to provide an incentive for continued employment.
3. ADMINISTRATION. This Plan shall be administered by a committee
appointed by the Board (the "Committee"). If two or more members of the Board
are "Outside Directors" within the meaning of Code Section 162(m), the Committee
will be comprised of at least two (2) members of the Board, all of whom are
Outside Directors. As used in this Plan, references to the "Committee" shall
mean either such committee or the Board if no committee has been established.
Subject to the provisions of this Plan and the limitations of Section 423 of the
Code or any successor provision in the Code, all questions of interpretation or
application of this Plan shall be determined by the Committee and its decisions
shall be final and binding upon all participants. Members of the Committee shall
receive no compensation for their services in connection with the administration
of this Plan, other than standard fees as established from time to time by the
Committee for services rendered by Committee members serving on Board
committees. All expenses incurred in connection with the administration of this
Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company, or of any Subsidiary
designated by the Board as eligible to participate in this Plan, is eligible to
participate in an Offering Period (as hereinafter defined) under this Plan
except the following:
(a) employees who are not employed by the Company or Subsidiaries
fifteen (15) days before the beginning of such Offering Period;
(b) employees who are customarily employed for less than twenty (20)
hours per week;
(c) employees who are customarily employed for less than five (5)
months in a calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Subsidiaries or who, as a result of being granted an option under this Plan
with respect to such Offering Period, would own stock or hold options to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or any of its
Subsidiaries.
An individual who provides services to the Company, or any designated
Subsidiary, as an independent contractor shall not be considered an "employee"
for purposes of this Section 4 or this Plan, and shall not be eligible to
participate in the Plan, except during such periods as the Company or the
designated Subsidiary, as applicable, is required to withhold U.S. federal
employment taxes for the individual. This exclusion from participation shall
apply even if the individual is reclassified as an employee, rather than an
independent contractor, for any purpose other than U.S. federal employment tax
withholding."
<PAGE> 2
Intuit Inc.
1996 Employee Stock Purchase Plan
5. OFFERING DATES. The offering periods of this Plan (each, an
"Offering Period") shall be of six (6) months duration commencing on January 1
and July 1 of each year and ending on June 30 and December 31 of each year.
Within such guidelines, the Board shall determine the first day of the initial
Offering Period. The first business day of each Offering Period is referred to
as the "Offering Date". The last business day of each Offering Period is
referred to as the "Purchase Date". The Board shall have the power to change the
duration of Offering Periods with respect to future offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company not later than fifteen (15) days before such Offering
Date unless a later time for filing the subscription agreement authorizing
payroll deductions is set by the Committee for all eligible employees with
respect to a given Offering Period. An eligible employee who does not deliver a
subscription agreement to the Company by such date after becoming eligible to
participate in such Offering Period shall not participate in that Offering
Period or any subsequent Offering Period unless such employee enrolls in this
Plan by filing a subscription agreement with the Company not later than fifteen
(15) days preceding a subsequent Offering Date. Once an employee becomes a
participant in an Offering Period, such employee will automatically participate
in the Offering Period commencing immediately following the last day of the
prior Offering Period unless the employee withdraws or is deemed to withdraw
from this Plan or terminates further participation in the Offering Period as set
forth in Section 11 below. Such participant is not required to file any
additional subscription agreement in order to continue participation in this
Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Offering Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date (but in no event less than the par value of a
share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Purchase Date
(but in no event less than the par value of a share of the Company's Common
Stock); provided, however, that the number of shares of the Company's Common
Stock subject to any option granted pursuant to this Plan shall not exceed the
maximum number of shares which may be purchased pursuant to Section 10(b) or
10(c) below with respect to the applicable Offering Period. The fair market
value of a share of the Company's Common Stock shall be determined as provided
in Section 8 hereof.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date;
provided, however, that in no event may the purchase price per share of the
Company's Common Stock be below the par value per share of the Company's Common
Stock.
For purposes of this Plan, the term "Fair Market Value" means as
of any date, the value OF a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is then quoted on the Nasdaq
National Market, its last reported sale price on the
Nasdaq National Market or, if no such reported sale
takes place on such date, the average of the closing
bid and asked prices;
-2-
<PAGE> 3
Intuit Inc.
1996 Employee Stock Purchase Plan
(b) if such Common Stock is publicly traded and is then
listed on a national securities exchange, its last
reported sale price or, if no such reported sale takes
place on such date, the average of the closing bid and
asked prices on the principal national securities
exchange on which the Common Stock is listed or
admitted to trading;
(c) if such Common Stock is publicly traded but is not
quoted on the Nasdaq National Market or listed or
admitted to trading on a national securities exchange,
the average of the closing bid and asked prices on such
date, as reported in The Wall Street Journal, for the
over-the-counter market; or
(d) if none of the foregoing is applicable, by the Board in
good faith.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE
OF SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean base salary. Payroll
deductions shall commence on the first payday following the Offering Date and
shall continue to the end of the Offering Period unless sooner altered or
terminated as provided in this Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Company a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing more than fifteen (15) days
after the Company's receipt of the authorization and shall continue for the
remainder of the Offering Period unless changed as described below. Such change
in the rate of payroll deductions may be made at any time during an Offering
Period, but not more than one (1) change may be made effective during any
Offering Period. A participant may increase or decrease the rate of payroll
deductions for any subsequent Offering Period by filing with the Company a new
authorization for payroll deductions not later than fifteen (15) days before the
beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited to
his or her account under this Plan and are deposited with the general funds of
the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(d) On each Purchase Date, so long as this Plan remains in effect
and provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be carried forward, without interest, into the next Offering
Period; provided, however, that in the event that this Plan has been
oversubscribed, all funds not used to purchase shares on the Purchase Date shall
be returned to the participant, without interest. No Common Stock shall be
purchased on a Purchase Date on behalf of any employee whose participation in
this Plan has terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until
-3-
<PAGE> 4
Intuit Inc.
1996 Employee Stock Purchase Plan
such option has been exercised. Shares issued for the benefit of a
participant under this Plan will be issued in the name of the participant or in
the name of the participant and his or her spouse.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No participant shall be entitled to purchase stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan.
(b) No more than two hundred percent (200%) of the number of
shares determined by using eighty-five percent (85%) of the fair market value of
a share of the Company's Common Stock on the Offering Date as the denominator
may be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Not less
than thirty (30) days prior to the commencement of any Offering Period, the
Committee may, in its sole discretion, set a maximum number of shares which may
be purchased by any employee at any single Purchase Date (hereinafter the
"Maximum Share Amount"). In no event shall the Maximum Share Amount exceed the
amounts permitted under Section 10(b) above. If a new Maximum Share Amount is
set, then all participants must be notified of such Maximum Share Amount not
less than fifteen (15) days prior to the commencement of the next Offering
Period. Once the Maximum Share Amount is set, it shall continue to apply with
respect to all succeeding Offering Periods unless revised by the Committee as
set forth above.
(d) If the number of shares to be purchased on a Purchase Date by
all employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such event,
the Company shall give written notice of such reduction of the number of shares
to be purchased under a participant's option to each participant affected
thereby.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Offering Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under
this Plan by signing and delivering to the Company a written notice to that
effect on a form provided for such purpose. Such withdrawal may be elected at
any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
this Plan.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee, immediately terminates his or her
participation in this Plan. In such event, the payroll deductions credited to
the participant's account will be returned to him or her or, in the case of his
or her death, to his or her legal representative, without interest. For purposes
of this Section 12, an employee will not be deemed to have terminated employment
or failed to remain in the continuous employ of the Company in the case of sick
leave, military leave, or any other leave of absence approved
-4-
<PAGE> 5
Intuit Inc.
1996 Employee Stock Purchase Plan
by the Committee; provided that such leave is for a period of not more than
ninety (90) days or reemployment upon the expiration of such leave is guaranteed
by contract or statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
such participant's account. No interest shall accrue on the payroll deductions
of a participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "Reserves"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
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"; and provided further, that the price per
share of Common Stock shall not be reduced below its par value per share. Such
adjustment shall be made by the Board, whose determination shall be final,
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that the options
under this Plan shall terminate as of a date fixed by the Board and give each
participant the right to exercise his or her option as to all of the optioned
stock, including shares which would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger or consolidation of the Company with or into another corporation,
each option under this Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the participant
shall have the right to exercise the option as to all of the optioned stock. If
the Board makes an option exercisable in lieu of assumption or substitution in
the event of a merger, consolidation or sale of assets, the Board shall notify
the participant that the option shall be fully exercisable for a period of
twenty (20) days from the date of such notice, and the option will terminate
upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation; provided, that the price per share of Common Stock shall not
be reduced below its par value per share.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each
participant in this Plan. Each participant shall receive promptly after the end
of each Offering Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Offering Period.
-5-
<PAGE> 6
Intuit Inc.
1996 Employee Stock Purchase Plan
17. NOTICE OF DISPOSITION. Each participant shall notify the Company if
the participant disposes of any of the shares purchased in any Offering Period
pursuant to this Plan if such disposition occurs within two (2) years from the
Offering Date or within one (1) year from the Purchase Date on which such shares
were purchased (the "Notice Period"). Unless such participant is disposing of
any of such shares during the Notice Period, such participant shall keep the
certificates issued to him or her that represent shares purchased hereunder in
his or her name (and not in the name of a nominee) during the Notice Period. The
Company may, at any time during the Notice Period, place a legend or legends on
any certificate representing shares acquired pursuant to this Plan requesting
the Company's transfer agent to notify the Company of any transfer of the
shares. The obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Subsidiary, or restrict the right of the Company or
any Subsidiary to terminate such employee's employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have
equal rights and privileges with respect to this Plan so that this Plan
qualifies as an "employee stock purchase plan" within the meaning of Section 423
or any successor provision of the Code and the related regulations. Any
provision of this Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the Company or
the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to
the Company under or in connection with this Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. This Plan shall become effective on the
date that it is adopted by the Board. This Plan shall be approved by the
stockholders of the Company, in any manner permitted by applicable corporate
law, within twelve (12) months before or after the date this Plan is adopted by
the Board. No purchase of shares pursuant to this Plan shall occur prior to such
stockholder approval. This Plan shall continue until the earlier to occur of (a)
termination of this Plan by the Board (which termination may be effected by the
Board at any time), (b) issuance of all of the shares of Common Stock reserved
for issuance under this Plan, or (c) ten (10) years from the adoption of this
Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under this Plan in the event of such participant's death
subsequent to the end of an Offering Period but prior to delivery to him of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under this
Plan in the event of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities
-6-
<PAGE> 7
Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange or automated quotation system upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 hereof within twelve (12) months of the adoption of such amendment
(or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this
Plan;
(b) change the designation of the employees (or class of
employees) eligible for participation in this Plan; or
(c) constitute an amendment for which stockholder approval is
required by any stock exchange or automated quotation system upon which the
shares may then be listed.
-7-
<PAGE> 1
EXHIBIT 11.01
INTUIT INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
PRIMARY
Computation of common and common equivalent shares
outstanding:
Weighted average common shares outstanding............ 41,411 45,149 46,424
Equivalent shares issuable upon exercise of options... -- -- 1,024
-------- -------- --------
Shares used in computing per share amounts............... 41,411 45,149 47,448
======== ======== ========
Loss from continuing operations.......................... $(44,296) $(14,355) $ (2,932)
Loss from discontinued operations........................ -- (6,344) --
Gain from sale of discontinued operations................ -- -- 71,240
-------- -------- --------
Net income (loss)........................................ $(44,296) $(20,699) $(68,308)
======== ======== ========
Net loss per share from continuing operations............ $ (1.07) $ (0.32) $ (0.06)
Net loss per share from discontinued operations.......... -- (0.14) --
Net income per share from sale of discontinued
operations............................................ -- -- 1.50
-------- -------- --------
Net income (loss) per share.............................. $ (1.07) $ (0.46) $ 1.44
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21.01
LIST OF REGISTRANT'S SUBSIDIARIES
<TABLE>
<CAPTION>
STATE/COUNTRY
OF
ENTITY INCORPORATION
- --------------------------------------------------------------------------- ---------------
<S> <C>
Greenco Subsidiary Corporation............................................. Delaware
Interactive Insurance Services Corp........................................ Virginia
Intuit Lender Services, Inc................................................ Delaware
Quicken Investment Services, Inc........................................... Delaware
Intuit Canada Limited...................................................... Canada
Intuit Deutschland GmbH.................................................... Germany
Intuit Ltd................................................................. United Kingdom
Intuit K.K................................................................. Japan
Intuit France S.A.......................................................... France
Intuit (AUS) Pty. Ltd...................................................... Australia
</TABLE>
<PAGE> 1
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-59458, No. 33-95040, No. 33-73222, No. 333-06889, No.
333-14715, No. 333-16827, No. 333-16829, No. 333-20361; Form S-3 No. 33-99646;
and Form S-4 No. 33-99644) pertaining primarily to the Intuit Inc. 1993 Equity
Incentive Plan, the 1996 Directors Stock Option Plan and the 1996 Employee Stock
Purchase Plan and the Common Stock of Intuit Inc., of our report dated August
25, 1997, with respect to the consolidated financial statements and schedule of
Intuit Inc. included in this Annual Report (Form 10-K) for the year ended July
31, 1997.
Ernst & Young LLP
Palo Alto, California
October 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-1-1996
<PERIOD-END> JUL-31-1997
<CASH> 46,780
<SECURITIES> 349,119
<RECEIVABLES> 46,689
<ALLOWANCES> (4,499)
<INVENTORY> 3,295
<CURRENT-ASSETS> 454,777
<PP&E> 154,004
<DEPRECIATION> (70,600)
<TOTAL-ASSETS> 663,676
<CURRENT-LIABILITIES> 211,582
<BONDS> 36,444
0
0
<COMMON> 469
<OTHER-SE> 414,592
<TOTAL-LIABILITY-AND-EQUITY> 663,676
<SALES> 598,925
<TOTAL-REVENUES> 598,925
<CGS> 137,281
<TOTAL-COSTS> 138,770
<OTHER-EXPENSES> 460,195
<LOSS-PROVISION> 3,308
<INTEREST-EXPENSE> 652
<INCOME-PRETAX> 9,809
<INCOME-TAX> 12,741
<INCOME-CONTINUING> (2,932)
<DISCONTINUED> 71,240
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,308
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
</TABLE>
