=======================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-26592
------------------------
THE VANTIVE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0266
(STATE OR OTHER JURISDICTION OF (I.R.S. EM
INCORPORATION OR ORGANIZATION) IDENTIFICATI
</TABLE>
2455 AUGUSTINE DRIVE
SANTA CLARA, CALIFORNIA 95054
(408) 982-5700
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
Indicate by check mark whether registrant (1) has filed all report
required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 mo
for such shorter period that the registrant was required to file such r
and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [ ]
The number of shares of the Registrant's $0.001 par value Common S
outstanding on August 10, 1998 was 26,106,690.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, Dece
1998 1997
------------ ----
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $25,709
Short-term investments 75,541
Accounts receivable, net 36,928
Prepaid expenses and other current assets 16,151
------------ ----
Total current assets 154,329
Property and equipment, net 18,203
Other assets 6,241
------------ ----
TOTAL ASSETS $178,773 $
============ ====
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $9,871
Accrued Liabilities 22,456
Current portion of capital lease obligations 140
Deferred revenues 16,569
------------ ----
Total current liabilities 49,036
Convertible debt 69,000
Capital lease obligations, net of current portion --
Other 282
STOCKHOLDERS' EQUITY:
Preferred Stock: $.001 par value, 2,000,000
shares authorized; no shares issued and
outstanding at June 30, 1998 --
Common Stock: $.001 par value, 50,000,000
shares authorized; 26,005,683 shares at
June 30, 1998 and 25,275,191 shares at
December 31, 1997 issued and outstanding 26
Additional paid-in-capital 65,646
Accumulated Deficit (5,217)
------------ ----
Total stockholders' equity 60,455
------------ ----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $178,773 $
============ ====
</TABLE>
See accompanying notes.
<PAGE>
THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months
June 30, June 30
----------------- -----------
1998 1997 1998 19
-------- -------- -------- --
<S> <C> <C> <C> <C
REVENUES
License $19,182 $16,893 $41,699 $3
Service 18,560 9,117 32,323 1
-------- -------- -------- --
Total revenues 37,742 26,010 74,022 4
-------- -------- -------- --
COST OF REVENUES:
License 115 182 319
Service 10,937 4,975 18,249
-------- -------- -------- --
Total cost of revenues 11,052 5,157 18,568
-------- -------- -------- --
GROSS MARGIN 26,690 20,853 55,454 3
-------- -------- -------- --
OPERATING EXPENSES
Sales and marketing 16,191 10,674 30,317 2
Research and development 6,235 3,610 12,179
General and administrative 2,860 2,037 5,862
Acquired in-process
research and development 8,206 -- 8,206
Acquisition-related
compensatory expense 1,290 -- 1,290
-------- -------- -------- --
Total operating expenses 34,782 16,321 57,854 3
-------- -------- -------- --
INCOME (LOSS) FROM OPERATIONS (8,092) 4,532 (2,400)
OTHER INCOME 213 390 424
-------- -------- -------- --
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (7,879) 4,922 (1,976)
PROVISION FOR INCOME TAXES 121 1,817 2,305
-------- -------- -------- --
NET INCOME (LOSS) ($8,000) $3,105 ($4,281) $
======== ======== ======== ==
NET INCOME (LOSS) PER BASIC SHARE ($0.31) $0.13 ($0.17)
======== ======== ======== ==
NET INCOME (LOSS) PER DILUTED SHARE ($0.31) $0.12 ($0.17)
BASIC-SHARES USED IN
PER SHARE COMPUTATION 25,666 24,265 25,525 2
======== ======== ======== ==
DILUTED-SHARES USED IN
PER SHARE COMPUTATION 25,666 26,141 25,525 2
</TABLE>
See accompanying notes
<PAGE>
THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTH
June
----------------
1998 19
------------ --
<S> <C> <C
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($4,281)
Adjustments to reconcile net income(loss)to net cash
provided by operating activities:
Acquired in-process research and development 8,206
Acquisition-related compensatory expense 1,290
Depreciation and amortization 2,414
Provision for sales allowances and
doubtful accounts 696
Changes in net assets and liabilities, net of acquisition --
Increase in accounts receivable (4,322)
Increase in prepaid expenses and other current assets
Increase in other assets (2,889)
Increase in other assets (1,170)
Increase (decrease) in accounts payable and
accrued liabilities (2,078)
Increase (decrease) in long-term liabilities (109)
Increase in deferred revenues 5,850
------------ --
Net cash provided by operating activities 3,607
------------ --
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (51,741)
Purchase of property and equipment (7,517)
Cash acquired in Wayfarer acquisition 101
------------ --
Net cash used in investing activities (59,157)
------------ --
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 4,058
Payments on capital lease obligations (192)
------------ --
Net cash provided by financing activities 3,866
------------ --
NET DECREASE IN CASH AND CASH EQUIVALENTS (51,684)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (190)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 77,583
------------ --
CASH AND CASH EQUIVALENTS, END OF PERIOD $25,709
============ ==
</TABLE>
See accompanying notes
<PAGE>
THE VANTIVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein
have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and
regulations. The Company believes the disclosures included
in the unaudited consolidated financial statements, when
read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, are adequate
to make the information presented not misleading.
The unaudited consolidated financial statements included
herein reflect all adjustments which are, in the opinion of
the Company's management, necessary for a fair presentation
of the information for the periods presented. These
adjustments are of a normal, recurring nature. Operating
results for the three and six months ended June 30, 1998 are
not necessarily indicative of the results expected for any
future periods.
2. ACQUISITION
In June 1998, the Company acquired Wayfarer
Communications, Inc. ("Wayfarer"), a privately held
California corporation that specializes in web-based
information delivery by merging a wholly owned subsidiary of
the Company into Wayfarer (the "Acquisition"). The Company
issued 163,969 shares of its common stock and assumed all
outstanding warrants, which were converted to 2,251 shares
of the Company's common stock in exchange for approximately
89% of Wayfarer shares. In addition, the Company received
$101,000 in cash as part of the acquisition. The Company
anticipates that it will record charges associated with
acquiring the remaining minority interest of approximately
11% upon the completion of the acquisition of the remaining
shares in the quarter ending September 30, 1998. The
Acquisition was recorded under the purchase method of
accounting and the results of operations of Wayfarer and the
fair value of the acquired assets and liabilities were
included in the Company's financial statements beginning on
the acquisition date. A Form 8-K was filed by the Company
on July 15, 1998 in connection with the acquisition.
In connection with the Acquisition, acquired in-process
research and development of approximately $8.2 million
associated with the 89% acquired interest was expensed in
the quarter ended June 30, 1998. The Company anticipates
that an additional in-process research and development
charge of approximately $1.0 million, associated with the
acquisition of the remaining minority interest will be
charged in the quarter ending September 30, 1998. The
Company has also recorded a compensatory expense of $1.3
million associated with the Acquisition for the quarter
ended June 30, 1998. An additional compensatory expense of
approximately $300,000 is expected to be charged in each of
the quarters ending September 30, 1998 and December 31,
1998. The remaining intangibles were recorded as goodwill
and will be amortized on a straight-line basis over five
years.
The following table presents the unaudited pro forma
results assuming that the Company had acquired Wayfarer at
the beginning of 1998 and 1997, respectively. Net income
and basic and diluted earnings per share amounts have been
adjusted to exclude the write-off of acquired in process
research and development of approximately $8.2 million and
the acquistion-related compensatory expense of $1.2 million
and include the goodwill amortization of approximately
$98,000 for the six months ended June 30, 1998 and 1997.
This information may not necessarily be indicative of the
future combined results of operations of the Company.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its subsidiaries. All
intercompany accounts and transactions have been eliminated
in consolidation.
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, the Company
considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. Cash
equivalents primarily consist of certificates of deposit,
money market accounts, treasury bills and commercial paper
with a maturity of less than 90 days.
Investments
The Company accounts for its investments under the
provision of Statement of Financial Accounting Standards No.
115 (SFAS 115), "Accounting for Certain Investments in Debt
and Equity Securities." The Company has classified all
marketable debt securities and long-term debt investments as
held-to-maturity and has accounted for these investments at
amortized cost.
Revenue Recognition
The Company generates revenues from licensing the rights
to use its software products directly to end-users and
indirectly through sublicense fees from resellers. The
Company also generates revenues from sales of customer
support, consulting and training services performed for
customers that license its products.
Revenues from software license agreements are recognized
upon shipment of the software if collection is probable,
payment is due within one year, the fee is fixed or
determinable and vendor specific evidence exists to allocate
the total fee to all elements of the arrangement. If an
acceptance period is required, revenues are recognized upon
the earlier of customer acceptance or the expiration of the
acceptance period. If significant post-delivery obligations
exist or if a product is subject to customer acceptance,
revenues are deferred until no significant obligations
remain or acceptance has occurred. Revenues from services
have to date consisted primarily of consulting revenues,
customer support revenues and, to a lesser extent, training
revenues. The Company enters into reseller arrangements
that typically provide for sublicense fees payable to the
Company based on a percent of the Company's list price.
Sublicense fees are generally recognized as reported by the
reseller in re-licensing the Company's products to end-
users. In certain circumstances, sublicense fees are
recognized upon the initial sale if all products subject to
sublicensing are shipped in the current period, no rights of
return policy exists, collection is probable, payment is due
within one year, and the fee is fixed and determinable. If
these conditions are not met, the Company does not recognize
sublicense fees until reported by the reseller in re-
licensing the Company's products to end-users.
Revenues from customer support services are recognized
ratably over the term of the support period. If customer
support services are included free or at a discount in a
license agreement, these amounts are allocated out of the
license fee at their fair market value based on the value
established by independent sale of the customer support
services to customers. Consulting revenues are primarily
related to implementation services performed on a time and
materials basis under separate service arrangements related
to the installation of the Company's software products.
Revenues from consulting and training services are
recognized as services are performed. If a transaction
includes both license and service elements, license fee
revenue is recognized upon shipment of the software,
provided services do not include significant customization
or modification of the base product and the payment terms
for licenses are not subject to acceptance criteria. In
cases where license fee payments are contingent upon the
acceptance of services, revenues from both the license and
the service elements are deferred until the acceptance
criteria are met.
Cost of license revenues includes the costs of product
media, product duplication and manuals. Cost of service
revenues is primarily comprised of employee-related costs
and fees for third-party consultants incurred in providing
consulting, customer support and training services.
Deferred revenues primarily relate to customer support
fees, which have been paid by the customers prior to the
performance of these services.
Software Development Costs
The Company capitalizes internally generated software
development costs under the provision of Statement of
Financial Accounting Standards No. 86 (SFAS 86),
"Accounting for Costs of Computer Software to be Sold,
Leased or Otherwise Marketed." Capitalization of computer
software development costs begins upon the establishment of
technological feasibility, which the Company has defined as
completion of a working model. Internally generated
capitalizable software development costs have not been
material for the periods presented and thus, the Company has
charged its software development costs to research and
development expense in the accompanying consolidated
statements of operations.
Earnings per Share:
Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings per Share," requires companies to compute
net income per share under two different methods- basic and
diluted per share data- for all periods for which an income
statement is presented. Basic earnings per share is
computed by dividing net income by the weighted average
number of common shares outstanding for the quarters ended
June 30, 1998 and 1997. Diluted earnings per share reflects
the potential dilution that could occur if the income were
divided by the weighted-average number of common and
potential common shares outstanding during the period.
Diluted earnings per share is computed by dividing net
income by weighted average number of common shares and
common stock equivalents from outstanding stock options for
the quarter ended June 30, 1997. Common stock equivalents
are calculated using the treasury stock method and represent
incremental shares issuable upon exercise of the Company's
outstanding options. For the quarter and the six months
ended June 30, 1998, net loss per diluted share is based on
weighted average common shares and excludes any common stock
equivalents as they would be anti-dilutive due to the
reported loss. The following table provides a reconciliation
of the numerators and denominators used in calculating basic
and diluted earnings per share for the three and six months
ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
(In thousands except per sha
Three Months Ended Six Months
June 30, June 30
----------------- -----------
1998 1997 1998 19
-------- -------- -------- --
<S> <C> <C> <C> <C
Net income (loss) ($8,000) $3,105 ($4,281) $
Basic Earnings Per Share:
Income (loss) available to
common shareholders ($8,000) $3,105 ($4,281) $
Weighted average common
shares outstanding 25,666 24,265 25,525 2
-------- -------- -------- --
Basic earnings (loss) per share: ($0.31) $0.13 ($0.17)
-------- -------- -------- --
Diluted Earnings Per Share:
Income (loss) available to
common shareholders ($8,000) $3,105 ($4,281) $
Weighted average common
shares outstanding 25,666 24,265 25,525 2
Common stock equivalents -- 1,876 -- 1
-------- -------- -------- --
Total weighted average common shares
and equivalents 25,666 26,141 25,525 2
-------- -------- -------- --
Diluted earnings (loss) per share: ($0.31) $0.12 ($0.17)
-------- -------- -------- --
</TABLE>
Approximately 1.8 million and 1.9 million shares of weighted
average common stock equivalents were excluded in the
computation of diluted earnings per share during the quarter
and the six months ended June 30, 1998, respectively as a
result of their anti-dilutive effect due to the reported
loss. Approximately 900,000 and 1.7 million shares of
weighted average common stock equivalents were excluded in
the computation of diluted earnings per share for the
quarter and six months ended June 30, 1997 respectively,
because the options' exercise price was greater than the
average market price of the common shares.
Stock Option Repricing Program:
Effective as of July 27, 1998, the Compensation
Committee of the Company's Board of Directors authorized
employees the right to exchange certain outstanding stock
options for option grants with an exercise price of $13.25
per share (the fair market value on July 24, 1998), provided
that such employees made the election to convert by that
date. In connection to the reprice, optionholders who
exchange their options will not be permitted to exercise any
exchanged options for a six-month period beginning on the
effective date of the exchange.
Convertible Subordinated Notes
On August 21, 1997, the Company sold an aggregate of
$69.0 million in principal amount of convertible
subordinated notes, due August 2002, to certain investors
and incurred approximately $2.4 million of offering expenses
in connection with this issuance. These notes have a 4.75%
coupon over a five-year term and are convertible into the
Company's common stock at the investor's option, if and when
the share price exceeds $41.93 per share.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130 (SFAS 130), "Reporting Comprehensive
Income," which establishes standards for reporting and
display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general-purpose
financial statements. The following table reconciles
comprehensive income under the provisions of SFAS 130 for
the three and six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
(In thousands except per sha
Three Months Ende Six Months
June 30, June 30
-------- -------- -----------
1998 1997 1998 19
-------- -------- -------- --
<S> <C> <C> <C> <C
Net income (loss) ($8,000) $3,105 ($4,281) $
Other Comprehensive income
(loss), net of tax:
Unrealized Currency gain (loss) (142) 31 (114)
-------- -------- -------- --
Comprehensive income (loss) ($8,142) $3,136 ($4,395) $
-------- -------- -------- --
</TABLE>
Property
In June 1998, the Company entered into a seven year agreement
whereby it leased new facilities in Santa Clars for a
total commitment of $18.4 million. The Company will
occupy the facilities on an incremental basis over term of
the lease and has various options to extend term of lease,
if deemed necessary, or to terminate the lease in accordance
with provisions of the agreement.
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations
THE VANTIVE CORPORATION
Overview
The Company was founded in October 1990 to develop
software to enable businesses to improve their customer
service. The Company's suite of products addresses the
front-office automation market and is called the Vantive
Enterprise. The Vantive Enterprise consists of the
following applications: Vantive Sales, Vantive Support,
Vantive FieldService, Vantive Inventory, Vantive
Procurement, Vantive HelpDesk and Vantive Quality. The
Company made available Vantive 8 in the second quarter of
1998, which contains significant enhancements including the
integration of Vantive Inventory and Vantive Procurement and
the global Vantive Enterprise with the addition of the
Partner Desktop feature. License fees for the Company's
software products consist of (i) a per server fee based on
the specific Vantive Enterprise application(s) licensed and
(ii) a fee based on the maximum number of concurrent, named
or mobile users allowed to access applications. Most of the
Company's revenues to date have resulted from non-recurring
license fees based on sales of concurrent user licenses.
The remaining revenues are primarily attributable to service
revenues, which include customer support, consulting and
training revenue. Of these service revenues, only customer
support revenues are expected to be recurring. Customer
support revenues accounted for approximately 18.3% and 12.6%
of total revenues for the quarters ended June 30, 1998 and
1997, respectively, and accounted for approximately 17.2%
and 12.5% of total revenues for the first six months of 1998
and 1997, respectively. Because concurrent user fees are
not application-specific, the Company cannot precisely
determine the breakdown of revenues attributable to specific
applications for customers that have purchased more than one
application. However, the Company believes that most of its
revenues have been derived from fees associated with Vantive
Support, Vantive Sales and, to a lesser degree, Vantive
HelpDesk. In any period, a significant portion of the
Company's revenues may be derived from large sales to a
limited number of customers. However, no customer accounted
for over 10% of total revenues during the quarters ended
June 30, 1998 and 1997. As significant sales to a
particular end user customer are typically non-recurring,
the Company does not believe its future results are
dependent on recurring revenues from any particular
customer, however the Company has derived recurring revenues
from customers who use the Company's products to deliver
software services to other customers.
The Company's revenues are derived from software license
fees and fees for its services. License revenues consist of
license fees for the Company's products as well as fees from
sublicensing third party software products. The Company
generally recognizes license fees upon shipment of software
products if collection is probable, the license agreement
requires payment within one year, the fee is fixed or
determinable and vendor specific evidence exists to allocate
the total fee to all elements of the arrangement. If
significant post-delivery obligations exist or if a product
is subject to customer acceptance, revenues are deferred
until no significant obligations remain or acceptance has
occurred. Revenues from services have to date consisted
primarily of consulting revenues, customer support revenues
and, to a lesser extent, training revenues. Consulting and
training revenues generally are recognized as services are
performed. Customer support revenues are recognized ratably
over the term of the support period, which is typically one
year. If customer support services are included free or at
a discount in a license agreement, such amounts are
allocated out of the license fee at their fair market value
based on the value established by independent sale of such
customer support services to customers. If a transaction
includes both license and service elements, license fee
revenue is recognized upon shipment of the software,
provided services do not include significant customization
or modification of the base product and the payment terms
for licenses are not subject to acceptance criteria. In
cases where license fee payments are contingent upon the
acceptance of services, revenues from both the license and
the service elements are deferred until the acceptance
criteria are met.
This Management's Discussion and Analysis of Financial
Condition and Results of Operations includes a number of
forward-looking statements which reflect the Company's
current views with respect to future events and financial
performance. These forward-looking statements are subject
to certain risks and uncertainties, including those
discussed below that could cause actual results to differ
materially from historical results or those anticipated. In
this report, the words "anticipate," "believes," "expects,"
"future," "intends," and similar expressions identify
forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Readers should
carefully review the risk factors described in other
documents the Company files with the Securities Exchange
Commission, including the Annual Report on Form 10-K for the
fiscal year ended December 31, 1997. See "Business Risks."
Results of Operations
The following table sets forth the percentages that
income statement items are to total revenues for the three
and six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months
June 30, June 30
----------------- -----------
1998 1997 1998 19
-------- -------- -------- --
<S> <C> <C> <C> <C
REVENUES
License 50.8% 64.9% 56.3%
Service 49.2% 35.1% 43.7%
-------- -------- -------- --
Total revenues 100.0% 100.0% 100.0%
-------- -------- -------- --
COST OF REVENUES:
License 0.3% 0.7% 0.4%
Service 29.0% 19.1% 24.6%
-------- -------- -------- --
Total cost of revenues 29.3% 19.8% 25.0%
-------- -------- -------- --
GROSS MARGIN 70.7% 80.2% 75.0%
-------- -------- -------- --
OPERATING EXPENSES
Sales and marketing 42.9% 42.9% 53.8%
Research and development 16.5% 14.7% 16.5%
General and administrative 7.6% 7.8% 7.9%
Acquired in-process
research and development 21.7% -- 11.1%
Acquisition-related
compensatory expense 3.4% -- 1.7%
-------- -------- -------- --
Total operating expenses 92.2% 62.8% 78.2%
-------- -------- -------- --
INCOME (LOSS) FROM OPERATIONS (-21.5%) 17.4% (-3.2%)
OTHER INCOME 0.6% 1.5% 0.5%
-------- -------- -------- --
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (-20.9%) 17.9% (-2.7%)
PROVISION FOR INCOME TAXES 0.3% 6.0% 3.1%
-------- -------- -------- --
NET INCOME (LOSS) (-21.2%) 11.9% (-5.8%)
======== ======== ======== ==
</TABLE>
Revenues
License. The Company increased its license revenues by
13.6% to $19.2 million from $16.9 million for the three
months ended June 30, 1998 and 1997, respectively, and by
30.6% to $41.7 million from $31.9 million in the first six
months of June 30, 1998 and 1997, respectively. The increase
in license revenues was due to market growth for the
Company's products. The Company does not believe that the
historical growth rates of license revenues will necessarily
be sustainable or are indicative of future results.
Service. Service revenues are primarily comprised of fees
from consulting, customer support and, to a lesser extent,
training services. Service revenues increased by 103.6% to
$18.6 million from $9.1 million for the three months ended
June 30, 1998 and 1997, respectively, and by 94.6% to $32.3
million from $16.6 million in the first six months of June
30, 1998 and 1997, respectively. The increase in service
revenues was primarily due to the increased demand for
consulting, customer support and, to a lesser extent,
training services associated with sales of the Company's
applications. As the Company implements its strategy of
encouraging third party organizations such as systems
integrators to become proficient in implementing the
Company's products, consulting revenues as a percentage of
total revenues may decrease, but demand for consulting
services provided by the Company has continued to grow even
while the Company has pursed this strategy.
Cost of Revenue
License. Cost of license revenues includes the cost of
product media, product duplication and manuals. Cost of
license revenues decreased by 36.8% to $115,000, or 0.8% of
the related license revenues from $182,000, or 1.1% of
related license revenues for the three months ended June 30,
1998 and 1997, respectively. The decrease in cost of license
revenues as a percentage of the related license revenues was
primarily due to the costs reduction in developing the
product media and product duplication during the quarter
ended June 30, 1998. The cost of license revenues increased
by 5.6% to $319,000, or 0.8% of the related license revenues
from $302,000, or 0.9% of related license revenues in the
first six months of June 30, 1998 and 1997, respectively.
The increase in absolute dollar was primarily attributed to
the increases in volume shipments of the Company's software
applications and royalties due on embedded third-party
licenses.
Service. Cost of service revenues is primarily comprised
of employee-related costs and fees for third-party
consultants incurred in providing consulting, customer
support and training services. Cost of service revenues
increased by 119.8% to $10.9 million, or 58.9% of the related
service revenues from $5.0 million, or 54.6% of related
service revenues for the quarters ended June 30, 1998 and
1997, respectively. Cost of service revenues increased by
102.3% to $18.2 million, or 56.5% of the related service
revenues from $9.0 million, or 54.3% of the related service
revenues in the first six months of 1998 and 1997,
respectively. The increase in absolute dollars was due
primarily to increases in consulting, support and training
personnel and third-party service providers during these
periods. The increase in cost of service revenues as a
percentage of the related service revenues was primarily due
to the variation in the resources used during the period.
The cost of services as a percentage of service revenues may
vary between periods due to the mix of services provided by
the Company and the resources used to provide these services.
Operating Expenses
Sales and Marketing. Sales and marketing expenses
increased by 51.7% to $16.2 million, or 42.9% of total
revenues from $10.7 million, or 41.1% of total revenues for
the quarters ended June 30, 1998 and 1997, respectively.
Sales and marketing expenses increased by 49.1% to $30.3
million, or 41.0% of total revenues from $20.3 million, or
41.9% of total revenues in the first six months of 1998 and
1997, respectively. This increase in absolute dollars was
primarily related to the expansion of the Company's sales
force and marketing activities, increased expenses as a
result of the increase in sales related headcount, and
increased marketing activities, including trade show, direct
mail and other promotional expenses. The Company plans to
continue to invest heavily in expanding its sales and
marketing activities. Accordingly, sales and marketing
expenses are anticipated to increase both in absolute dollars
and as a percentage of revenues over the coming year.
Research and Development. Research and development
expenses increased by 72.7% to $6.2 million, or 16.5% of
total revenues from $3.6 million, or 13.9% of total revenues
for the quarters ended June 30, 1998 and 1997, respectively.
Research and development expenses increased by 76.3% to
$12.2 million, or 16.5% of total revenues from $6.9 million,
or 14.2% of total revenues in the first six months of 1998
and 1997, respectively. Research and development expenses
increased in absolute dollars and as percentage of total
revenues primarily as a result of an increase in personnel
and outside contractors to support the Company's product
development activities. Over the coming years, the Company
plans to continue to invest heavily in research and
development. As a result, research and development expenses
are anticipated to increase in absolute dollars over the
coming year.
Research and development expenses are generally charged to
operations as incurred. In accordance with Statement of
Financial Accounting Standards No. 86, internally-generated
costs which were eligible for capitalization for these
periods were insignificant and the Company charged all
internally-generated software development costs to research
and development expense.
General and Administrative. General and administrative
expenses increased by 40.4% to $2.9 million, or 7.6% of
total revenues from $2.0 million or 7.8% of total revenues
in the quarters ended June 30,1998 and 1997, respectively.
General and administrative expenses increased by 56.1% to
$5.9 million, or 7.9% of total revenues from $3.8 million,
or 7.8% of total revenues in the first six months of 1998
and 1997, respectively. General and administrative expenses
increased in absolute dollars during these periods primarily
due to the addition of staff and information system
investments to support the growth of the Company's business
during these periods. The Company expects general and
administrative expenses will increase in absolute dollars
over the coming year.
Acquired in-process research and development. In June
1998, the Company acquired Wayfarer Communications, Inc.
("Wayfarer"), a privately-held California corporation that
specializes in web-based information delivery by merging a
wholly-owned subsidiary of the Company into Wayfarer (the
"Acquisition"). The Company issued 163,969 shares of its
common stock, received $100,000 in cash, and assumed all
outstanding warrants, which were converted to 2,251 shares
of the Company's common stock in exchange for approximately
89% of Wayfarer shares. In addition, the Company received
$101,000 in cash as part of the acquisition. The Company
anticipates that it will record charges associated with
acquiring the remaining minority interest of approximately
11% upon the completion of the acquisition of the remaining
shares in the quarter ending September 30, 1998. The
Acquisition was recorded under the purchase method of
accounting and the results of operations of Wayfarer and the
fair value of the acquired assets and liabilities were
included in the Company's financial statements beginning on
the acquisition date. A Form 8-K was filed by the Company on
July 15, 1998 in connection with the acquisition.
In connection with the acquisition, acquired in-process
research and development of approximately $8.2 million
associated with the 89% acquired interest was expensed in
the quarter ended June 30, 1998. The Company anticipates
that an additional in-process research and development
charge of approximately $1.0 million, associated with the
acquisition of the remaining minority interest will be
charged in the quarter ending September 30, 1998. The
Company has also recorded a compensatory expense of $1.3
million associated with the Acquisition for the quarter
ended June 30, 1998. An additional compensatory expense of
approximately $300,000 is expected to be charged in each of
the quarters ending September 30, 1998 and December 31,
1998. The remaining intangibles were recorded as goodwill
and will be amortized on a straight-line basis over five
years.
Provision for Income Taxes. The Company's provision
for state, federal and foreign income taxes was $121,000 and
$1.8 million for the quarters ended June 30, 1998 and 1997,
respectively, based upon an estimated effective tax rate of
37% for both periods. The Company's provision for state,
federal and foreign income taxes was $2.3 million and $3.3
million in the first six months of 1998 and 1997,
respectively, based upon an estimated effective tax rate of
37% for both periods.
Business Risks
This report includes a number of forward-looking
statements, which reflect the Company's current views on
future events and its operations and financial performance.
These forward-looking statements are subject to certain risks
and uncertainties, including those discussed below which
could cause actual results to differ materially from
historical results or those anticipated. Some of the
forward-looking statements are generally applicable to
emerging growth companies or to the software industry, others
are specific to the front-office automation market and others
are specific to the Company. In this report, the words
"anticipates," "believes," "expects," "intends," "future" and
similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date
hereof.
Future Operating Results Uncertain. The Company has
experienced significant growth and significant fluctuations
in growth in revenues in recent periods. The Company does
not believe that the historical growth rates of revenues will
be sustainable or are indicative of future results. In
addition, the Company's limited operating history makes the
prediction of future operating results difficult or
impossible. The Company's future operating results will
depend on many things, including demand for the Company's
products, the level of product and price competition, the
ability of the Company to develop and market new products and
to control costs, the ability of the Company to expand its
direct sales force and indirect distribution channels and the
ability to attract and retain key personnel. The Company is
currently investing, and intends to continue to invest,
significant resources to develop its sales strategy, which
could adversely affect the Company's operating margins.
Competition for good salespeople and sales managers is
intense and there can be no assurance that the Company can
retain its existing sales personnel or that it can attract,
assimilate and retain additional highly qualified sales
personnel in the future. The Company's strategy also
depends, in part, on relationships with third parties. There
also can be no assurance that the Company will attract and
retain appropriate high-end integrators, resellers and other
third party distributors to market the Company's products
effectively. Further, the Company believes, based on
interactions with its customers and potential customers, that
the purchase of its products is relatively discretionary and
generally involves a significant commitment of capital. As a
result, in the event of any downturn in any potential
customer's business or the economy in general, purchases of
the Company's products may be deferred or canceled, which
could have a material adverse effect on the Company's
business, results of operations and financial condition. The
Company was not profitable prior to 1995 and there can be no
assurance that the Company will remain profitable on a
quarterly or annual basis.
Fluctuations in Quarterly Operating Results. The
Company's quarterly operating results have in the past varied
substantially and will probably in the future vary
significantly depending on factors such as the size, timing
and recognition of revenue from significant orders, increased
competition, sales execution, the timing of new product
releases by the Company and its competitors, market
acceptance of the Company's products, changes in the
Company's and its competitors' pricing policies, the mix of
license and service revenue, budgeting cycles of its
customers, seasonality, the mix of direct and indirect sales,
changes in operating expenses, changes in Company strategy,
personnel changes, foreign currency exchange rates and
general economic factors.
A significant portion of the Company's revenues in any
quarter is typically derived from non-recurring sales to a
limited number of customers. Accordingly, revenues in any
one quarter are not indicative of revenues in any future
period. In addition, like many software applications
businesses, the Company has generally recognized a
substantial portion of its revenues in the last month of each
quarter, with these revenues concentrated in the last weeks
of the quarter. Any significant deferral of purchases of the
Company's products, or failure by the Company to close
anticipated transactions could have a material adverse effect
on the Company's business, results of operations and
financial condition in any particular quarter and to the
extent that significant sales occur earlier than expected,
operating results for subsequent quarters may be adversely
affected. Product revenues are also difficult to forecast
because the market for front-office automation software
products is rapidly evolving. The Company's sales cycle is
typically six to nine months but varies substantially from
customer to customer. The Company expects that sales made
through indirect channels, which are harder to predict and
usually have lower margins than direct sales, will increase
as a percentage of total revenues.
The Company operates with little order backlog because
its products are typically shipped shortly after orders are
received. As a result of these factors, quarterly revenues
for any future quarter are not predictable with any
significant degree of certainty. The Company's expense
levels are based, in part, on its expectations as to future
revenues. Net income may be disproportionately affected by
a reduction in revenues, because most of the Company's
expenses do not vary with revenues. The Company may also
choose to reduce prices or increase spending in response to
competition or to pursue new market opportunities. In
particular, if new competitors, technological advances by
existing competitors, or other competitive factors require
the Company to invest significantly greater resources in
research and development efforts, the Company's operating
margins in the future may be adversely affected.
The foregoing statements regarding the Company's future
revenues and net income are forward-looking statements and
actual results may vary substantially depending upon a
variety of factors described in this section and elsewhere
in this report.
Because of these factors, the Company believes that
period-to-period comparisons of its results of operations are
not necessarily meaningful and that such comparisons should
not be relied upon as indications of future performance. Due
to all of the foregoing factors, and as occurred in the
quarter ended June 30, 1998, it is likely that in some future
quarter the Company's operating results will be below the
expectations of public market analysts and investors. If
this happens, the price of the Company's Common Stock will
likely be materially adversely affected.
Rapid Technological Change and Product Development Risks.
The front-office automation software market is subject to
rapid technological change, changing customer needs, frequent
new product introductions and evolving industry standards
that may render existing products and services less
marketable or obsolete. As a result, the Company's position
in its existing markets or other markets that it may enter
could be eroded rapidly by product advances. The life cycles
of the Company's products are difficult to estimate. The
Company's growth and future financial performance will depend
in part on its ability to enhance existing applications,
develop and introduce new applications that keep pace with
technological advances, meet changing customer requirements,
respond to competitive products and achieve market
acceptance. These are increasingly complex and costly
undertakings. For example, the Company's customers have
adopted a wide variety of hardware, software, database,
Internet-based and networking platforms and as a result, to
gain broad market acceptance, the Company must continue to
support and maintain its products on a variety of such
platforms. The Company's future success will depend on its
ability to address the increasingly sophisticated needs of
its customers by supporting existing and emerging hardware,
software, database, Internet-based and networking platforms
and by developing and introducing enhancements to its
products and new products on a timely basis that keep pace
with technological developments, evolving industry standards
and changing customer requirements. The Company may not be
able to successfully change other aspects of its business,
such as its distribution channels or cost structure, if
technological changes in its market require such change.
The Company's product development efforts require
substantial investments by the Company. There can be no
assurance that the Company will have sufficient resources to
make the necessary investments. The Company has in the past
experienced development delays and there can be no assurance
that the Company will not experience such delays in the
future. There can be no assurance that the Company will not
experience difficulties that could delay or prevent the
successful development, introduction or marketing of new or
enhanced products in the future. In addition, there can be
no assurance that such products will meet the requirements of
the marketplace and achieve market acceptance. If the
Company is unable, for technological or any other reasons, to
develop and introduce new and enhanced products in a timely
manner, the Company's business, results of operations and
financial condition could be materially adversely affected.
Software products as complex as those offered by the
Company may contain errors that may be detected at any point
in the products' life cycles. The Company has in the past
discovered software errors in certain of its products and has
delayed shipment of products during the period required to
correct these errors. There can be no assurance that,
despite testing by the Company and by current and potential
customers, errors will not be found, resulting in loss of, or
delay in, market acceptance and sales, diversion of
development resources, injury to the Company's reputation, or
increased service and warranty costs, any of which could have
a material adverse effect on the Company's business, results
of operations and financial condition.
Risks Associated with Potential Acquisitions. As part of
its business strategy, the Company expects to review
acquisition prospects that would complement its existing
product offerings, augment its market coverage or enhance its
technological capabilities or that may otherwise offer growth
opportunities. Future acquisitions by the Company could
result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities
or amortization expenses related to goodwill and other
intangible assets, any of which could materially adversely
affect the Company's operating results and/or the price of
the Company's Common Stock. Acquisitions entail numerous
risks, including difficulties in the assimilation of acquired
operations, technologies and products, diversion of
management's attention to other business concerns, risks of
entering markets which the Company has no or limited prior
experience and potential loss of key employees of acquired
organizations. No assurance can be given as to the ability
of the Company to successfully integrate any businesses,
products, technologies or personnel that might be acquired in
the future, and the failure of the Company to do so could
have a material adverse effect on the business, operating
results and financial condition of the Company.
Competition. The front-office automation software market
is intensely competitive, highly fragmented and subject to
rapid change. Because the Company offers multiple
applications that can be purchased separately or integrated
as part of Vantive Enterprise, the Company competes with a
variety of other businesses depending on the target market
for their applications software products. These competitors
include a select number of businesses targeting the
enterprise-level and department-level front-office markets,
such as Astea International, Inc., Aurum Software, Inc. (a
subsidiary of The Baan Company), Clarify, Inc., Onyx
Software, and Siebel Systems, Inc.
The Company also competes with a substantial number of
businesses that offer products targeted at one or more
specific markets, including the customer support market, the
help desk market, the quality assurance market and the sales
and marketing automation market, such as Remedy Corporation
and Software Artistry, Inc. (which was acquired by the IBM
subsidiary, Tivoli Systems, Inc.). The Company believes
that such point solution providers may expand their product
offerings, which could provide increased competition for the
company across its market segments. The Company also
competes with third party professional service organizations
that develop custom software and with internal information
technology departments of customers that develop customer
interaction applications. Among the Company's current and
potential competitors are also a number of large hardware
and software businesses that may develop or acquire products
that compete with the Company's products. In this regard,
SAP AG, Oracle Corporation and The Baan Company have each
introduced sales automation and/or customer support modules
as part of their application suites. Oracle has announced
the creation of a network of third party dealers that will
sell Oracle's application suites exclusively to medium-sized
businesses.
The Company expects that large software vendors in the
enterprise resource planning market will continue to enter
and pursue the front-office automation market. These
competitors have significantly greater financial, marketing,
service, support, technical and other resources than the
Company.
The Company also expects that competition will increase
as a result of software industry consolidations. Current and
potential competitors have established or may establish
cooperative relationships among themselves or with third
parties to increase the ability of their products to address
the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire
significant market share. The Company also expects that
competition may increase as a result of both new software
start ups entering the market as well as existing software
industry vendors which may be planning to enter the market
for front-office applications. Increased competition is
likely to result in price reductions, reduced operating
margins and loss of market share, any of which could
materially adversely affect the Company's business, results
of operations and financial condition. Many of the
Company's current and potential competitors have
significantly greater financial, marketing, service,
support, technical and other resources than the Company. As
a result, they may be able to respond more quickly to new or
emerging technologies and changes in customer requirements,
or to devote greater resources to the development,
promotion, service and sale of their products than can the
Company. There can be no assurance that the Company will be
able to compete successfully against current and future
competitors or that competitive pressures faced by the
Company will not materially adversely affect its business,
results of operations and financial condition.
The Company believes that the principal competitive
factors affecting its market include product features such
as adaptability, scalability, ability to integrate with
products produced by other vendors, functionality, ease of
use and such other factors as product reputation, quality,
performance, price, customer service and support, the
effectiveness of sales and marketing efforts and company
reputation. Although the Company believes that its products
currently compete favorably with respect to such factors,
there can be no assurance that the Company can maintain its
competitive position against current and potential
competitors, especially those with significantly greater
financial, marketing, service, support, technical and other
resources.
Dependence on Emerging Markets for Front-Office Automation
Software; Product Concentration. The Company's future
financial performance will depend in large part on the growth
in demand for individual front-office automation applications
as well as the number of organizations adopting comprehensive
front-office automation software information systems. To
date, much of the Company's license revenues have resulted
from sales of individual applications, particularly Vantive
Support, Vantive HelpDesk, and Vantive Sales. The markets
for these applications are relatively new and undeveloped and
failure of these markets to expand would have a material
adverse effect on the Company's business, results of
operations and financial condition. Additionally, the
Company is investing in the field service and quality
automation markets. Should these markets fail to develop,
not accept the Company's products or cause the company to
lose new business and/or customers in its traditional
markets, there would be an adverse effect on the Company's
business, results of operations and financial condition.
The Company believes that an important competitive
advantage for its software applications is their ability to
be integrated with one another and with other back-office
software applications to create an enterprise-wide
information system. If the demand for integrated suites of
front-office automation applications fails to develop, or
develops more slowly than the Company currently anticipates,
it could have a material adverse effect on the demand for the
Company's applications and on its business, results of
operations and financial condition. In addition, any other
factor adversely affecting the demand for the Company's
existing applications could have a material adverse effect on
the Company's business, results of operations and financial
condition.
Management of Expanding Operations; Dependence Upon Key
Personnel. The Company's ability to compete effectively and
to manage future growth, if any, will require the Company to
continue to improve its financial and management controls,
reporting systems and procedures on a timely basis and
expand, train and manage its workforce. There can be no
assurance that the Company will be able to do so. The
Company's failure to do so could have a material adverse
effect on the Company's business, results of operations and
financial condition. The Company has recently hired a
significant number of employees, including senior sales and
marketing personnel and in order to maintain its ability to
grow in the future, the Company will be required to
significantly increase its total headcount. In addition, the
Company's future performance depends in significant part upon
attracting and retaining key technical, sales, senior
management and financial personnel. In particular, delays in
hiring sales or research and development personnel may have a
material adverse effect on the Company's business, results of
operations and financial condition. The loss of the services
of one or more of the Company's officers or the inability to
recruit other additional senior management could have a
material adverse effect on the Company's business, results of
operations and financial condition. Competition for such
personnel is intense and the inability to retain its key
technical, sales, senior management and financial personnel
or to attract, assimilate or retain other highly qualified
technical, sales, senior management and financial personnel
in the future on a timely basis could have a material adverse
effect on the Company's business, results of operations and
financial condition.
International Operations, Foreign Currency Fluctuations.
International revenue, or revenue derived from sales to
customers in foreign countries, accounted for approximately
28% and 15% of the Company's revenue in the quarter ended
June 30, 1998 and 1997, and 28% and 13% of the Company's
revenue in the six months ended June 30, 1998 and 1997,
respectively. International revenues increased by 177% for
the quarter ended June 30, 1998 compared to quarter ended
June 30, 1997 and by 214% for the six months ended June 30,
1998 compared to six months ended June 30, 1997
demonstrating the increased acceptance of Vantive's front
office automation products internationally. The majority of
this international revenue has come from Europe. The Company
believes that its continued growth and profitability will
require further expansion of its international operations.
To successfully expand international sales, the Company must
establish additional foreign operations, hire additional
personnel and recruit additional international resellers. To
the extent that the Company is unable to do so in a timely
manner, the Company's growth in international sales, if any,
will be limited and the Company's business, results of
operations and financial condition could be materially
adversely affected.
As the Company continues to expand its international
operations, significant costs may be incurred before
achieving any additional international revenues, which could
have a material adverse effect on the Company's business,
results of operations and financial condition. In addition,
future increases in the value of the U.S. dollar could make
the Company's products less competitive in foreign markets.
There are certain risks inherent in doing business on an
international level, such as unexpected changes in regulatory
requirements, export restrictions, tariffs and other trade
barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting
accounts receivable, political instability, changes in
foreign economic conditions, fluctuations in currency
exchange rates, seasonal reductions in business activity
during the summer months in Europe and certain other parts of
the world and potentially adverse tax consequences, any of
which could adversely impact the success of the combined
company's international operations. The Company's foreign
subsidiaries operate primarily in local currencies, and their
results are translated into US dollars. If the value of the
US dollar increases relative to foreign currencies, the
Company's operating results could be materially adversely
affected. In particular, revenue from sales in the Pacific
Rim could be adversely affected by declines in the value of
such currencies against the dollar.
The Company has not been significantly affected by the
recent unfavorable economic conditions in certain Asian and
Pacific Rim countries. If the economic conditions in these
markets do not improve, this may have an adverse impact on
the Company's business, results of operations, and financial
condition.
Increased Use of Third Party Software. The Company
currently markets a proprietary application development
environment for its customers to tailor its products. This
application development environment is also used by the
Company to build and modify its products. The Company
believes, based on interactions with its customers and
potential customers, that it currently derives a competitive
advantage from this proprietary application development
environment. However, the Company believes that competitive
pressures, technological changes demanded by customers and
significant advances in the sophistication of third party
application development tools such as Visual Basic will
require the Company to make greater use of third party
software in the future. The greater use of third party
software could require the Company to invest significant
resources in rewriting some or all of its software
applications products utilizing third party software and/or
to enter into license arrangements with third parties which
could result in higher royalty payments and a loss of product
differentiation and any competitive advantage associated with
the proprietary development environment. There can be no
assurance that the Company would be able to successfully
rewrite its applications or enter into commercially
reasonable licenses and the costs of, or inability or delays
in doing so could have a material adverse effect on the
Company's business, results of operations and financial
condition.
Leverage; Subordination. In connection with the August
1997 sale of its 4.75% Convertible Subordinated Notes (the
"Notes"), the Company has incurred $69 million of
indebtedness. As a result of this additional indebtedness,
the Company's principal and interest obligations have
increased substantially. The degree to which the Company is
leveraged could materially and adversely affect the
Company's ability to obtain financing for working capital,
acquisitions or other purposes and could make it more
vulnerable to industry downturns and competitive pressures.
The Company's ability to meet its debt service obligations
is dependent upon the Company's future performance, which
will be subject to financial, business and other factors
affecting the operations of the Company, many of which are
beyond its control.
Need to Expand Distribution Channels and Successfully
Leverage Third Party Relationships. An important element of
the Company's distribution strategy is to expand its direct
sales force, to create additional relationships with third
parties and to dedicate certain direct sales resources and
leverage third party relationships to cover key vertical
markets. An important element of the Company's strategy is
to integrate its products with products from enterprise
resource planning ("ERP") vendors. The Company is currently
investing and intends to continue to invest, significant
resources toward these strategies, which could adversely
affect the Company's operating margins. In this regard, the
Company has recently hired significant numbers of direct
salespeople. Competition for salespeople is intense and
there can be no assurance that the Company can retain its
existing salespeople or that it can attract, assimilate and
retain additional highly qualified salespeople in the future.
The Company's distribution strategy also depends, in large
part, on attracting and retaining beneficial third party
relationships. There also can be no assurance that the
Company will be able to attract and retain appropriate high-
end integrators, resellers, other third party distributors or
ERP vendors. The Company's agreements with these third
parties are not exclusive and, in many cases, may be
terminated by either party without cause. In addition, many
of these third parties sell or co-market competing product
lines. Therefore, there can be no assurance that any of these
parties will continue to represent or recommend the Company's
products. There also can be no assurance that the Company
will effectively identify key vertical markets. The
inability to recruit, or the loss of, important direct sales
personnel, high-end integrators, resellers, other third party
distributors or ERP vendors, or the failure to effectively
identify key vertical markets, could have a material adverse
effect on the Company's business, results of operations and
financial condition.
Anti-Takeover Effects of Restated Certificate of
Incorporation, Bylaws and Delaware Law. Certain provisions
of the Company's Restated Certificate of Incorporation and
Bylaws and of Delaware law could discourage potential
acquisition proposals and could delay or prevent a change in
control of the Company. Such provisions could diminish the
opportunities for a stockholder to participate in tender
offers, including tender offers at a price above the then
current market value of the Common Stock. Such provisions
may also inhibit increase in the market price of the Common
Stock that could result from takeover attempts. In
addition, the Restated Certificate of Incorporation
authorizes 2,000,000 shares of undesignated preferred stock.
The Board of Directors of the Company, without further
stockholder approval, may issue this preferred stock with
such terms as the Board of Directors may determine, which
could have the effect of delaying or preventing a change in
control of the Company. The issuance of preferred stock
could also adversely affect the voting power of the holders
of Common Stock, including the loss of voting control. Such
preferred stock could be utilized to implement, without
stockholder approval, a stockholders' right plan that could
be triggered by certain change in control transactions,
which could delay or prevent a change in control of the
Company or could impede a merger, consolidation, takeover or
other business Combination involving the Company, or
discourage a potential acquiror from making a tender offer
or otherwise attempting to obtain control of the Company.
The Company's Bylaws and indemnity agreements provide that
the Company will indemnify officers and directors against
losses that they may incur in legal proceedings resulting
from their service to the Company. In addition, the
Restated Certificate of Incorporation and Bylaws eliminate
the right of stockholders to take action by written consent.
Moreover, Section 203 of the Delaware General Corporation
Law restricts certain business combinations with "interested
stockholders" as defined by that statute. The provisions of
the Restated Certificate of Incorporation and Bylaws and of
Delaware law are intended to encourage potential acquirers
to negotiate with the Company and allow the Board of
Directors the opportunity to consider alternative proposals
in the interest of maximizing stockholder value. However,
such provisions may also have the effect of discouraging
acquisition proposals or delaying or preventing a change in
control of the Company, which in turn may have an adverse
effect on the market price of the Company's Common Stock.
Possible Volatility of Stock Price. Future announcements
concerning the Company or its competitors, quarterly
variations in operating results, announcements of
technological innovations, the introduction of new products
or changes in product pricing policies by the Company or its
competitors, proprietary rights or other litigation, changes
in earnings estimates by analysts or other factors could
cause the market price of the Common Stock to fluctuate
substantially. In addition, stock prices for many technology
companies fluctuate widely for reasons which may be unrelated
to operating results of such companies. These fluctuations,
as well as general economic, market and political conditions
such as changes in interest rates, recessions or military
conflicts, may materially and adversely affect the market
price of the Company's Common Stock. In the past, following
periods of volatility in the market price of a company's
securities, securities class action litigation has often been
instituted against such companies. Such litigation could
result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse
effect on the Company's business, results of operations and
financial condition.
Dependence on Licensed Technology. Vantive licenses
technology on a non-exclusive basis from several businesses
for use with its products and anticipates that it will
continue to do so in the future. The inability of the
Company to continue to license these products or to license
other products for use with its products or substantial
increases in royalty payments under these third party
licenses could have a material adverse effect on its
business, results of operations and financial condition. In
addition, the effective implementation of the Company's
products depends upon the successful operation of these
licensed products in conjunction with the Company's products
and therefore any undetected errors in such licensed products
may prevent the implementation or impair the functionality of
the Company's products, delay new product introductions
and/or injure the Company's reputation. Such problems could
have a material adverse effect on the Company's business,
results of operations and financial condition.
Dependence on Proprietary Technology; Risks of
Infringement. The Company's success is heavily dependent
upon proprietary technology. The Company relies primarily on
a combination of copyright, trademark and trade secrets laws,
as well as confidentiality procedures and contractual
provisions to protect its proprietary rights. There can be
no assurance that such measures will be adequate to protect
the Company from infringement of its technology. The Company
presently has no patents or patent applications pending.
Despite the Company's efforts to protect its proprietary
rights, attempts may be made to copy aspects of the Company's
products or to obtain and use information that the Company
regards as proprietary. In particular, as the Company
provides its licensees with access to the proprietary
information underlying the Company's licensed applications,
there can be no assurance that licensees or others will not
develop products which infringe the Company's proprietary
rights.
Policing unauthorized use of the Company's products is
difficult and while the Company is unable to determine the
extent to which piracy of its software products exists,
software piracy can be expected to be a persistent problem.
In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to as great an
extent as do the laws of the United States. There can be no
assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's
competitors will not independently develop similar
technology. The Company is not aware that any of its
products infringe the proprietary rights of third parties,
although the Company has in the past and may in the future,
receive communications alleging possible infringement of
third party intellectual property rights. The Company expects
that software product developers will increasingly be subject
to infringement claims as the number of products and
competitors in the Company's target markets grows and the
functionality of products in such markets overlaps. Any such
claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the
Company or at all, which could have a material adverse effect
upon the Company's business, results of operations and
financial condition.
Product Liability. The Company's license agreements with
its customers typically contain provisions intended to limit
the Company's exposure to potential product liability claims.
It is possible that the limitation of liability provisions
contained in the Company's agreements may not be effective.
Although the Company has not experienced any product
liability claims to date, the sale and support of products by
the Company and the incorporation of products from other
businesses may entail the risk of such claims. A successful
product liability action brought against the Company could
have a material adverse effect upon the Company's business,
results of operations and financial condition.
Year 2000 Compliance. Many currently installed computer
systems and software products are coded to accept only two
digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st
century dates from the 20th century dates. As a result many
companies' software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000"
requirements. Although the Company believes that its systems
are Year 2000 compliant, the Company utilizes third-party
equipment and software that may not be Year 2000 compliant.
Failure of such third-party equipment or software to operate
properly with regard to Year 2000 and thereafter could
require the Company to incur unanticipated expenses to
address any problems, which could have a material adverse
effect on the Company's business, operating results and
financial condition. The business, operating results and
financial condition of the Company's customers could be
adversely affected to the extent that they utilize third-
party software products which are not Year 2000 compliant.
Furthermore, the purchasing patterns of customers or
potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct their
current systems for Year 2000 compliance. These expenditures
may result in reduced funds available to purchase products
and services such as those offered by the Company, which
could have a material adverse effect on the Company's
business, operating results and financial condition. The
Vantive Enterprise has been designed to support dates well
into the next century and to be Year 2000 compliant. Failure
of the software to operate properly with regard to Year 2000
and thereafter could require the Company to incur
unanticipated expenses to address any problems, which could
have a material adverse effect on the Company's business,
operating results and financial condition.
Financial Condition
Total assets as of June 30, 1998 increased by 9.9%, or
$16.0 million from December 31, 1997. The combined balance
of cash and short-term investments decreased by $133,000
primarily due to operating activities. Net property and
equipment increased $5.7 million primarily due to equipment
purchases associated with supporting the growth of the
Company's business during this period.
Total current liabilities as of June 30, 1998 increased
by 30.3%, or $11.4 million from December 31, 1997. The
increase was primarily due to increases in accounts payable
of $6.2 million and deferred revenues of $6.7 million,
partially offset by a decrease in accrued liabilities of
$1.4 million. The increase in accounts payable is primarily
due to increased business activities and the increase in
deferred revenues is primarily due to deferrals associated
with higher volume of revenues related to post-contract
support.
Liquidity and Capital Resources
Operating activities provided cash of $3.6 million in the
six months ended June 30, 1998. The primary source of these
funds was an increase in deferred revenues and long-term
liabilities, partially offset by increases in accounts
receivable, prepaid expenses and other assets. Operating
activities provided cash of $4.1 million in the six months
ended June 30, 1997. The primary source of these funds was
net income and an increase in accounts payable and accrued
liabilities, partially offset by an increase in accounts
receivable and other assets.
Investing activities used cash of $59.2 million and $7.2
million in the six months ended June 30, 1998 and 1997,
respectively, primarily for the purchase of short-term,
interest-bearing, investment-grade securities and for the
purchase of capital equipment. The Company does not
currently have any material commitments for capital
equipment acquisitions.
Financing activities provided cash of $3.9 million in the
six months ended June 30, 1998. The primary source of these
funds was proceeds from the issuance of common stock pursuant
to the exercise of outstanding stock options, partially
offset by payments on capital lease obligations. Financing
activities provided cash of $401,000, in the six months ended
June 30, 1997. The primary source of these funds was
proceeds from the issuance of common stock pursuant to the
exercise of outstanding stock options, partially offset by
payments on capital lease obligations.
On August 21, 1997, the Company sold an aggregate of
$69.0 million in principal amount of convertible
subordinated notes, due August 2002, to certain investors
and incurred approximately $2.4 million of offering expenses
in connection with this issuance. These notes have a 4.75%
coupon over a five-year term and are convertible into the
Company's common stock at the investor's option, if and when
the share price exceeds $41.93 per share. The Company has
used the proceeds primarily for operating activities and
equipment purchases.
At June 30, 1998, the Company's principal sources of
liquidity were its cash, cash equivalents and short-term
investments of $101.3 million. The Company believes that
existing cash and short-term investment balances and
potential cash flow from operations will be sufficient to
meet its cash requirements for the next twelve months. While
operating activities may provide cash in certain periods to
the extent the Company experiences growth in the future,
operating and investing activities may use cash and
consequently, such growth may require the Company to obtain
additional sources of financing.
Part II: Other Information
Item 1: Legal Proceedings:
Not Applicable.
Item 2: Changes in Securities:
Not Applicable.
Item 3: Defaults upon Senior Securities:
Not Applicable.
Item 4: Submission of Matters to a Vote of Security Holders:
The Company's Annual Meeting of Stockholders was
held on May 5, 1998. Proxies for the meeting
were solicited pursuant to Regulation 14A. At
the meeting, management's nominees for directors
were elected. A summary of the nominees and
voting results is as follows:
<TABLE>
<CAPTION>
<S> Shares Shares
Nominee Voting For Withheld
<C> <C>
John R. Luongo 21,046,360 31,250
Aneel Bhusri 20,929,915 147,695
William Davidow 21,046,460 31,150
Kevin Hall 21,046,460 31,150
Raymond Ocampo 21,044,960 32,650
Peter Roshko 21,046,260 31,350
</TABLE>
Item 5:Other Information:
Not Applicable.
Item 6:Exhibits and Reports on Form 8-K:
A. Exhibits
* 3.1 Form of Agreement and Plan of Merger between Th
Vantive Corporation, a California corporation,
and The Vantive Corporation, a Delaware
corporation.
* 3.2 Bylaws.
= 4.1 Declaration of Registration Rights made on
August 31, 1997 by the Company for the benefit
of the holders of Common Stock of Innovative
Computer Concepts, Inc.
* 10.1 Form of Indemnity Agreement for officers and
directors.
* 10.2 1991 Stock Option Plan, as amended.
* 10.3 1995 Outside Directors Stock Option Plan.
* 10.4 1995 Employee Stock Purchase Plan.
* 10.5 Offer Letter dated May 21, 1993 between the
Company and John R. Luongo.
* 10.6 Offer Letter dated April 6, 1995 between the
Company and John M. Jack.
*+ 10.7 Value Added Reseller License Agreement dated
October 5, 1993 by and between Inference
Corporation and the Company.
*+ 10.8 Basicscript License Agreement dated October 4,
1994 by and between Henneberry Hill Technologie
Corporation doing business as Summit Software
Company and the Company.
*+ 10.9 International VAR Agreement dated March 26, 199
between Oracle Corporation and the Company, as
amended.
10.9.1 International VAR Agreement dated June 28,
1996 between Oracle Corporation and the Company
as amended.
*+ 10.10 Value Added Remarketer Agreement dated
December 20, 1991 between Sybase, Inc. and the
Company, as amended.
*+ 10.11 Application Bridge API VAR License Agreement
dated January 22, 1993 between the Company and
Prospect Software, Inc.
*+ 10.12 Compensation Letter dated May 10, 1995 between
the Company and John R. Luongo.
'10.13 Lease Agreement dated January 13, 1995 between
John Arrillaga, Trustee, or his Successor
Trustee, UTA dated July 20, 1977 (John Arrillag
Separate Property Trust) as amended, and
Richard T. Peery, Trustee, or his Successor
Trustee, UTA dated July 20, 1977 (Richard T.
Peery Separate Property Trust) as amended,
and the Company.
# 10.14 Lease Agreement dated September 4, 1996 between
John Arrillaga, Trustee, or his Successor
Trustee, UTA dated July 20, 1977 (Arrillaga
Family Trust) as amended, and Richard T. Peery,
Trustee, or his Successor Trustee, UTA dated
July 20, 1977 (Richard T. Peery Separate
Property Trust) as amended, and the Company.
** 10.15 Agreement and Plan of Merger dated August 13,
1997 by and among The Vantive Corporation, Iglo
Acquisition Corporation and Innovative Computer
Concepts, Inc. as amended.
10.16 Lease Agreement dated June 22, 1998 between
Augustine Partners, LLC and the Company.
10.17 Offer Letter dated July 31, 1998 between the
Company and Leonard Le Blanc.
27.1 Financial Summary Table
* Previously filed in the Company's Registration Statement
(No. 33-94244), declared effective on August 14, 1995.
+ Confidential Treatment has been granted for portions of
this exhibit.
# Previously filed in the Report on Form 10-K filed on
March 31, 1997.
** Previously filed in the Company's Report on Form 8-K
filed on September 26, 1997 and on Form 8-K/A filed on
November 4, 1997.
= Incorporated by reference from the Company's Registration
Statement (No. 333-36547), declared effective on November
4, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 193
Registrant has duly caused this report to be signed on its behalf by th
undersigned thereunto duly authorized.
THE VANTIVE CORPORATION
Dated: August 14, 1998
By: /s/ MICHAEL M. LOO
---------------------------
Michael M. Loo
Vice President, Finan
(Principal Accounting Of
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXT
FROM THE ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 25,709
<SECURITIES> 75,541
<RECEIVABLES> 37,624
<ALLOWANCES> 696
<INVENTORY> 0
<CURRENT-ASSETS> 154,329
<PP&E> 20,617
<DEPRECIATION> 2,414
<TOTAL-ASSETS> 178,773
<CURRENT-LIABILITIES> 49,036
<BONDS> 0
0
0
<COMMON> 26
<OTHER-SE> 60,429
<TOTAL-LIABILITY-AND-EQUITY> 178,773
<SALES> 41,699
<TOTAL-REVENUES> 74,022
<CGS> 18,568
<TOTAL-COSTS> 18,568
<OTHER-EXPENSES> 57,854
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,917
<INCOME-PRETAX> (1,976)
<INCOME-TAX> 2,305
<INCOME-CONTINUING> (4,281)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,281)
<EPS-PRIMARY> ($0.17)
<EPS-DILUTED> ($0.17)
</TABLE>
LEASE
BY AND BETWEEN
Augustine Partners LLC,
a California limited liability company
as Landlord
and
The Vantive Corporation,
a Delaware corporation
as Tenant
June 22, 1998
LEASE
THIS LEASE, dated June 22, 1998, for reference purposes
only, is made by and between AUGUSTINE PARTNERS LLC, a
California limited liability company ("Landlord") and THE
VANTIVE CORPORATION, a Delaware corporation ("Tenant"), to be
effective and binding upon the parties as of the date the
last of the designated signatories to this Lease shall have
executed this Lease (the "Effective Date of this Lease").
ARTICLE 1
REFERENCE
1.1 References. All references in this Lease (subject to
any further clarifications contained in this Lease) to the
following terms shall have the following meaning or refer
to the respective address, person, date, time period,
amount, percentage, calendar year or fiscal year as below
set forth:
Tenant's Address for Notice: The Vantive Corporation
2455 Augustine Drive
Santa Clara, CA 95054
Attention: Real Estate
& Legal
Tenant's Representative: Mona Wyckoff
Landlord's Address for Notices: c/o Menlo Equities LLC
525 University Avenue
Suite 100
Palo Alto, California
94301
Landlord's Representative: Henry Bullock/Richard
Holmstrom
Phone Number: (650) 326-9300
Intended Commencement Date: October 15, 1998.
Intended Term: Seven (7) years
Lease Expiration Date: October 31, 2005,
unless earlier terminated by Landlord in accordance with the terms o
Lease, or extended by Tenant pursuant to Article 15.
Options to Renew: One (1) option to renew
for a term of five (5)
years.
First Month's Prepaid Rent: $26,129.03 [plus
estimated triple-net
expenses]
(prorated)
Tenant's Security Deposit: $202,500.00
Late Charge Amount: Five Percent (5%) of
the Delinquent Amount
Tenant's Required Liability
Coverage: $3,000,000 Combined
Single Limit
Tenant's Broker(s): Cushman & Wakefield
Landlord's Broker(s): BT Commercial
Property: That certain real property situated in the City of Santa
County of Santa Clara, State of California
as presently improved with one (1) building(the
"Building"), which real property is shown on the Site Plan attached
as Exhibit "A" and is commonly known as or otherwise
described as follows: 2525 Augustine Drive,
Santa Clara, California.
'Outside Areas:
The "Outside Areas" shall mean all areas within the Property which are
outside the Building, such as pedestrian walkways, parking areas,
landscaped area, open areas and enclosed trash disposal areas.
Leased Premises: All the interior space within the Building, includi
stairwells connecting walkways, and atriums, consisting of approximat
square feet and, for purposes of this Lease, agreed to contain said
feet.
Base Monthly Rent:
The term "Base Monthly Rent" shall mean the following:
Period Base Monthly Rent
10/15/98-10/31/98 $26,129.03 (prorated)
11/1/98-1/31/99 $101,250.00
2/1/99-5/31/99 $151,875.00
6/1/99-10/31/99 $202,500.00
11/1/99-10/31/00 $209,588.00
11/1/00-10/31/01 $216,923.00
11/1/01-10/31/02 $224,515.00
11/1/02-10/31/03 $232,373.00
11/1/03-10/31/04 $240,506.00
11/1/04-10/31/05 $248,924.00
Base monthly rent shall also include the monthly payment amount fo
Additional Allowance, if any, calculated pursuant to the Work Letter
attached hereto as Exhibit B. Use: General office use,
as Exhibit B. Use: General office use, including Software develop
sales training, and other related purposes (other than manufacturing
or any use involving
Hazardous Materials). Exhibits: The term "Exhibits" shall mean t
this Lease which are described as follows:
Exhibit "A" - Site Plan showing the Property
and delineating the Building in which the Leased Premises are located.
Exhibit "B" Work Letter
Exhibit "C" Form of Estoppel
ARTICLE 2
LEASED PREMISES, TERM AND POSSESSION
2.1 Demise Of Leased Premises. Landlord hereby leases to
Tenant and Tenant hereby leases from Landlord for Tenant's
own use in the conduct of Tenant's business and not for
purposes of speculating in real estate, for the Lease Term
and upon the terms and subject to the conditions of this
Lease, that certain interior space described in Article 1
as the Leased Premises, reserving and excepting to Landlord
the right to fifty percent (50%) of all assignment
consideration and excess rentals as provided in Article 7
below. Tenant's lease of the Leased Premises, together
with the appurtenant right to use the Outside Areas as
described in Paragraph 2.2 below, shall be conditioned upon
and be subject to the continuing compliance by Tenant with
(i) all the terms and conditions of this Lease, (ii) all
Laws governing the use of the Leased Premises and the
Property, (iii) all Private Restrictions, easements and
other matters now of public record respecting the use of
the Leased Premises and Property, and (iv) all reasonable
rules and regulations from time to time established by
Landlord.
2.2 Right To Use Outside Areas. As an appurtenant right
to Tenant's right to the use and occupancy of the Leased
Premises, Tenant shall have the right to use the Outside
Areas in conjunction with its use of the Leased Premises
solely for the purposes for which they were designated and
intended and for no other purposes whatsoever. Tenant's
right to so use the Outside Areas shall be subject to the
limitations on such use as set forth in Article 1 and shall
terminate concurrently with any termination of this Lease.
2.3 Lease Commencement Date And Lease Term. Subject to
Paragraph 2.4 below, the term of this Lease shall begin,
and the Lease Commencement Date shall be deemed to have
occurred, on the Intended Commencement Date, as set forth
in Article 1 (the "Lease Commencement Date"). The term of
this Lease shall in all events end on the Lease Expiration
Date (as set forth in Article 1). The Lease Term shall be
that period of time commencing on the Lease Commencement
Date and ending on the Lease Expiration Date (the "Lease
Term"). The parties intend that this Lease shall be
effective and binding on the parties as of the Effective
Date of the Lease; provided, however, each of Landlord's
and Tenant's rights and obligations hereunder shall be
conditioned upon the close of escrow whereupon Landlord
acquires fee title to the Property.
2.4 Delivery Of Possession. Landlord shall deliver to
Tenant possession of the Leased Premises on the Lease
Commencement Date in its "as-is" condition as of the
Effective Date of this Lease, except for the removal of the
personal property, trade fixtures, equipment and other
property of Computer Associates International, and except
for any modifications, alterations, improvements, fixtures,
or personal property, made, installed or brought onto the
Leased Premises by Tenant. If Landlord is unable to so
deliver possession of the Leased Premises to Tenant on or
before the Intended Commencement Date, Landlord shall not
be in default under this Lease, nor shall this Lease be
void, voidable or cancelable by Tenant until the lapse of
ninety (90) days after the Intended Commencement Date (the
"delivery grace period"); however, if Landlord's inability
to so deliver the Leased Premises to Tenant is caused by
the existing tenant's hold over in the Leased Premises
beyond the term of its current lease or by Landlord's gross
negligence or willful misconduct, the Lease Commencement
Date shall not be deemed to have occurred until the actual
date of delivery. Additionally, the delivery grace period
above set forth shall be extended for such number of days
as Landlord may be delayed in delivering possession of the
Leased Premises to Tenant by reason of Force Majeure or the
action or inaction of Tenant. If Landlord is unable to
deliver possession of the Leased Premises in the agreed
condition to Tenant within the described delivery grace
period (including any extension thereof by reason of Force
Majeure or the actions or inactions of Tenant), then
Tenant's sole remedy shall be to terminate this Lease, and
in no event shall Landlord be liable in damages to Tenant
for such delay. Tenant may not terminate this Lease at any
time after the date Landlord notifies Tenant that the
Leased Premises have been put into the agreed condition and
are available for delivery to Tenant, unless Landlord's
notice is not given in good faith.
2.5 Performance Of Improvement Work; Acceptance Of
Possession. Landlord shall, pursuant to the work letter
attached to and made a part of this Lease (the "Work
Letter"), perform the work and make the installations in
the Leased Premises substantially as set forth in the Work
Letter (such work and installations hereinafter referred to
as the "Improvement Work"). Such Improvement Work shall be
performed after the Lease Commencement Date. Landlord
shall deliver in good working order the roof, exterior
walls, foundation and all existing plumbing, lighting,
heating, ventilating and air conditioning systems within
the Leased Premises. It is agreed that by occupying the
Leased Premises, Tenant formally accepts same and
acknowledges that the Leased Premises are in the condition
called for hereunder, subject to notification of defects or
notification of non-compliance with applicable Laws (only
if such non-compliance is not allowed pursuant to
"grandfather" clauses in such Laws) in the Leased Premises
specified by Tenant by a notice to Landlord in writing
which notice shall have been given prior to Tenant's
occupancy of any part of the Leased Premises or shall be
deemed waived.
2.6 Surrender Of Possession. Immediately prior to the
expiration or upon the sooner termination of this Lease,
Tenant shall remove all of Tenant's signs from the exterior
of the Building and shall remove all of Tenant's equipment,
trade fixtures, furniture, supplies, wall decorations and
other personal property from within the Leased Premises,
the Building and the Outside Areas, and shall vacate and
surrender the Leased Premises, the Building, the Outside
Areas and the Property to Landlord in the same condition,
broom clean, as existed at the Lease Commencement Date,
reasonable wear and tear excepted. Tenant shall repair all
damage to the Leased Premises, the exterior of the Building
and the Outside Areas caused by Tenant's removal of
Tenant's property. Tenant shall patch and refinish, to
Landlord's reasonable satisfaction, all penetrations made
by Tenant or its employees to the floor, walls, ceiling or
roof of the Leased Premises, whether such penetrations were
made with Landlord's approval or not. Tenant shall repair
or replace all stained or damaged ceiling tiles, wall
coverings and floor coverings to the reasonable
satisfaction of Landlord. Tenant shall repair all damage
caused by Tenant to the exterior surface of the Building
and the paved surfaces of the Outside Areas and, where
necessary, replace or resurface same. Additionally, to the
extent that Landlord shall have notified Tenant in writing
at the time Tenant requested Landlord's consent to the
improvements that Landlord desired to have certain
improvements removed at the expiration or sooner
termination of the Lease, Tenant shall, upon the expiration
or sooner termination of the Lease, remove any such
improvements constructed or installed by Landlord or Tenant
and repair all damage caused by such removal. If the
Leased Premises, the Building, the Outside Areas and the
Property are not surrendered to Landlord in the condition
required by this paragraph at the expiration or sooner
termination of this Lease, Landlord may, at Tenant's
expense, so remove Tenant's signs, property and/or
improvements not so removed and make such repairs and
replacements not so made or hire, at Tenant's expense,
independent contractors to perform such work. Tenant shall
be liable to Landlord for all costs incurred by Landlord in
returning the Leased Premises, the Building and the Outside
Areas to the required condition, together with interest on
all costs so incurred from the date paid by Landlord at the
then maximum rate of interest not prohibited or made
usurious by law until paid. Tenant shall pay to Landlord
the amount of all costs so incurred plus such interest
thereon, within ten (10) days of Landlord's billing Tenant
for same. Tenant shall indemnify Landlord against loss or
liability resulting from delay by Tenant in surrendering
the Leased Premises, including, without limitation, any
claims made by any succeeding Tenant or any losses to
Landlord with respect to lost opportunities to lease to
succeeding tenants.
ARTICLE 3
RENT, LATE CHARGES AND SECURITY DEPOSITS
3.1 Base Monthly Rent. Commencing on the Lease
Commencement Date (as determined pursuant to Paragraph 2.3
above) and continuing throughout the Lease Term, Tenant
shall pay to Landlord, without prior demand therefor, in
advance on the first day of each calendar month, the amount
set forth as "Base Monthly Rent" in Article 1 (the "Base
Monthly Rent").
3.2 Additional Rent. Commencing on the Lease
Commencement Date (as determined pursuant to Paragraph 2.3
above) and continuing throughout the Lease Term, in
addition to the Base Monthly Rent and to the extent not
required by Landlord to be contracted for and paid directly
by Tenant, Tenant shall pay to Landlord as additional rent
(the "Additional Rent") the following amounts:
(a) An amount equal to all Property Operating
Expenses (as defined in Article 13) incurred by Landlord.
Payment shall be made by whichever of the following methods
(or combination of methods) is (are) from time to time
designated by Landlord:
(i) Landlord may forward invoices or bills
for such expenses to Tenant no later than twenty (20) days
before such invoices or bills are due, and Tenant shall, no
later than ten (10) days prior to the due date, pay such
invoices or bills and deliver satisfactory evidence of such
payment to Landlord, and/or
(ii) Landlord may bill to Tenant, on a
periodic basis not more frequently than monthly, the amount
of such expenses (or group of expenses) as paid or incurred
by Landlord, and Tenant shall pay to Landlord the amount of
such expenses within ten days after receipt of a written
bill therefor from Landlord, and/or
(iii) Landlord may deliver to Tenant Landlord's
reasonable estimate of any given expense (such as
Landlord's Insurance Costs or Real Property Taxes), or
group of expenses, which it anticipates will be paid or
incurred for the ensuing calendar or fiscal year, as
Landlord may determine, and Tenant shall pay to Landlord an
amount equal to the estimated amount of such expenses for
such year in equal monthly installments during such year
with the installments of Base Monthly Rent.
Landlord reserves the right to change from time to time the
methods of billing Tenant for any given expense or group of
expenses or the periodic basis on which such expenses are
billed.
(b) Landlord's share of the consideration received
by Tenant upon certain assignments and sublettings as
required by Article 7.
(c) Any legal fees and costs that Tenant is
obligated to pay or reimburse to Landlord pursuant to
Article 13; and
(d) Any other charges or reimbursements due
Landlord from Tenant pursuant to the terms of this Lease.
Notwithstanding the foregoing, Landlord may elect by
written notice to Tenant to have Tenant pay Real Property
Taxes or any portion thereof directly to the applicable
taxing authority, in which case Tenant shall make such
payments and deliver satisfactory evidence of payment to
Landlord no later than ten (10) days before such Real
Property Taxes become delinquent.
3.3 Year-End Adjustments. If Landlord shall have elected
to bill Tenant for the Property Operating Expenses (or any
group of such expenses) on an estimated basis in accordance
with the provisions of Paragraph 3.2(a)(iii) above,
Landlord shall furnish to Tenant within three months
following the end of the applicable calendar or fiscal
year, as the case may be, a statement setting forth (i) the
amount of such expenses paid or incurred during the just
ended calendar or fiscal year, as appropriate, and (ii) the
amount that Tenant has paid to Landlord for credit against
such expenses for such period. If Tenant shall have paid
more than its obligation for such expenses for the stated
period, Landlord shall, at its election, either (i) credit
the amount of such overpayment toward the next ensuing
payment or payments of Additional Rent that would otherwise
be due or (ii) refund in cash to Tenant the amount of such
overpayment. If such year-end statement shall show that
Tenant did not pay its obligation for such expenses in
full, then Tenant shall pay to Landlord the amount of such
underpayment within ten days from Landlord's billing of
same to Tenant. The provisions of this Paragraph shall
survive the expiration or sooner termination of this Lease.
3.4 Late Charge, And Interest On Rent In Default. Tenant
acknowledges that the late payment by Tenant of any monthly
installment of Base Monthly Rent or any Additional Rent
will cause Landlord to incur certain costs and expenses not
contemplated under this Lease, the exact amounts of which
are extremely difficult or impractical to fix. Such costs
and expenses will include without limitation,
administration and collection costs and processing and
accounting expenses. Therefor, if any installment of Base
Monthly Rent is not received by Landlord from Tenant within
ten calendar days after the same becomes due, Tenant shall
immediately pay to Landlord a late charge in an amount
equal to the amount set forth in Article 1 as the "Late
Charge Amount," and if any Additional Rent is not received
by Landlord within ten calendar days after same becomes
due, Tenant shall immediately pay to Landlord a late charge
in an amount equal to 5% of the Additional Rent not so
paid. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses
and is fair compensation to Landlord for the anticipated
loss Landlord would suffer by reason of Tenant's failure to
make timely payment. In no event shall this provision for
a late charge be deemed to grant to Tenant a grace period
or extension of time within which to pay any rental
installment or prevent Landlord from exercising any right
or remedy available to Landlord upon Tenant's failure to
pay each rental installment due under this Lease when due,
including the right to terminate this Lease. If any rent
remains delinquent for a period in excess of 10 calendar
days, then, in addition to such late charge, Tenant shall
pay to Landlord interest on any rent that is not so paid
from said tenth day at the then maximum rate of interest
not prohibited or made usurious by Law until paid.
3.5 Payment Of Rent. Except as specifically provided
otherwise in this Lease, all rent shall be paid in lawful
money of the United States, without any abatement,
reduction or offset for any reason whatsoever, to Landlord
at such address as Landlord may designate from time to
time. Tenant's obligation to pay Base Monthly Rent and all
Additional Rent shall be appropriately prorated at the
commencement and expiration of the Lease Term. The failure
by Tenant to pay any Additional Rent as required pursuant
to this Lease when due shall be treated the same as a
failure by Tenant to pay Base Monthly Rent when due, and
Landlord shall have the same rights and remedies against
Tenant as Landlord would have had Tenant failed to pay the
Base Monthly Rent when due.
3.6 Prepaid Rent. Tenant shall, upon execution of this
Lease, pay to Landlord the amount set forth in Article 1 as
"First Month's Prepaid Rent" as prepayment of rent for
credit against the first payment of Base Monthly Rent due
hereunder.
3.7 Security Deposit. Tenant has deposited with Landlord
the amount set forth in Article 1 as the "Security Deposit"
as security for the performance by Tenant of the terms of
this Lease to be performed by Tenant, and not as prepayment
of rent. Landlord may apply such portion or portions of
the Security Deposit as are reasonably necessary for the
following purposes: (i) to remedy any default by Tenant in
the payment of Base Monthly Rent or Additional Rent or a
late charge or interest on defaulted rent, or any other
monetary payment obligation of Tenant under this Lease;
(ii) to repair damage to the Leased Premises, the Building
or the Outside Areas caused or permitted to occur by
Tenant; (iii) to clean and restore and repair the Leased
Premises, the Building or the Outside Areas following their
surrender to Landlord if not surrendered in the condition
required pursuant to the provisions of Article 2, and (iv)
to remedy any other default of Tenant to the extent
permitted by Law including, without limitation, paying in
full on Tenant's behalf any sums claimed by materialmen or
contractors of Tenant to be owing to them by Tenant for
work done or improvements made at Tenant's request to the
Leased Premises. In this regard, Tenant hereby waives any
restriction on the uses to which the Security Deposit may
be applied as contained in Section 1950.7(c) of the
California Civil Code and/or any successor statute. In the
event the Security Deposit or any portion thereof is so
used, Tenant shall pay to Landlord, promptly upon demand,
an amount in cash sufficient to restore the Security
Deposit to the full original sum. If Tenant fails to
promptly restore the Security Deposit and if Tenant shall
have paid to Landlord any sums as "Last Month's Prepaid
Rent," Landlord may, in addition to any other remedy
Landlord may have under this Lease, reduce the amount of
Tenant's Last Month's Prepaid Rent by transferring all or
portions of such Last Month's Prepaid Rent to Tenant's
Security Deposit until such Security Deposit is restored to
the amount set forth in Article 1. Landlord shall not be
deemed a trustee of the Security Deposit. Landlord may use
the Security Deposit in Landlord's ordinary business and
shall not be required to segregate it from Landlord's
general accounts. Tenant shall not be entitled to any
interest on the Security Deposit. If Landlord transfers
the Building or the Property during the Lease Term,
Landlord may pay the Security Deposit to any subsequent
owner in conformity with the provisions of Section 1950.7
of the California Civil Code and/or any successor statute,
in which event the transferring landlord shall be released
from all liability for the return of the Security Deposit.
Tenant specifically grants to Landlord (and Tenant hereby
waives the provisions of California Civil Code Section
1950.7 to the contrary) a period of ninety days following a
surrender of the Leased Premises by Tenant to Landlord
within which to inspect the Leased Premises, make required
restorations and repairs, receive and verify workmen's
billings therefor, and prepare a final accounting with
respect to the Security Deposit. In no event shall the
Security Deposit or any portion thereof, be considered
prepaid rent. Notwithstanding the foregoing, in the event
Tenant achieves a Standard & Poor's investment grade credit
rating of BBB- or higher, the Security Deposit shall be
returned to Tenant within thirty (30) days of Tenant's
written request therefor after such achievement.
ARTICLE 4
USE OF LEASED PREMISES AND OUTSIDE AREA
4.1 Permitted Use. Tenant shall be entitled to use the
Leased Premises solely for the "Permitted Use" as set forth
in Article 1 and for no other purpose whatsoever. Tenant
shall continuously and without interruption use the Leased
Premises for such purpose for the entire Lease Term. Any
discontinuance of such use for a period of sixty
consecutive calendar days shall be, at Landlord's election,
a default by Tenant under the terms of this Lease. Tenant
shall have the right to use the Outside Areas in
conjunction with its Permitted Use of the Leased Premises
solely for the purposes for which they were designed and
intended and for no other purposes whatsoever.
4.2 General Limitations On Use. Tenant shall not do or
permit anything to be done in or about the Leased Premises,
the Building, the Outside Areas or the Property which does
or could (i) jeopardize the structural integrity of the
Building or (ii) cause damage to any part of the Leased
Premises, the Building, the Outside Areas or the Property.
Tenant shall not operate any equipment within the Leased
Premises which does or could (i) injure, vibrate or shake
the Leased Premises or the Building, (ii) damage, overload
or impair the efficient operation of any electrical,
plumbing, heating, ventilating or air conditioning systems
within or servicing the Leased Premises or the Building, or
(iii) damage or impair the efficient operation of the
sprinkler system (if any) within or servicing the Leased
Premises or the Building. Tenant shall not install or
affix any equipment or antennas on or make any penetrations
of or cuts in the exterior walls, ceilings or floors or
roof of the Building or the Leased Premises without
Landlord's consent, which consent shall not be unreasonably
withheld. Any such installation shall be at Tenant's sole
cost and expense and only in strict compliance with
Landlord's approval using a person approved by Landlord to
install the same. Tenant shall not place any loads upon
the floors, walls, ceiling or roof systems which could
endanger the structural integrity of the Building or damage
its floors, foundations or supporting structural
components. Tenant shall not place any explosive,
flammable or harmful fluids or other waste materials in the
drainage systems of the Leased Premises, the Building, the
Outside Areas or the Property. Tenant shall not drain or
discharge any fluids in the landscaped areas or across the
paved areas of the Property. Tenant shall not use any of
the Outside Areas for the storage of its materials,
supplies, inventory or equipment and all such materials,
supplies, inventory or equipment shall at all times be
stored within the Leased Premises. Tenant shall not commit
nor permit to be committed any waste in or about the Leased
Premises, the Building, the Outside Areas or the Property.
4.3 Noise And Emissions. All noise generated by Tenant
in its use of the Leased Premises shall be confined or
muffled so that it does not interfere with the businesses
of or annoy the occupants and/or users of adjacent
properties. All dust, fumes, odors and other emissions
generated by Tenant's use of the Leased Premises shall be
sufficiently dissipated in accordance with sound
environmental practice and exhausted from the Leased
Premises in such a manner so as not to interfere with the
businesses of or annoy the occupants and/or users of
adjacent properties, or cause any damage to the Leased
Premises, the Building, the Outside Areas or the Property
or any component part thereof or the property of adjacent
property owners.
4.4 Trash Disposal. Landlord shall provide trash
enclosure areas outside the Leased Premises sufficient for
the interim disposal of all reasonable amounts of its
trash, garbage and waste. Landlord shall provide trash
bins or other adequate garbage disposal facilities for
Tenant's use and cause the removal of such reasonable
amounts of trash, garbage and waste on a regular basis of
not more than once per week. Tenant shall ensure that all
such trash, garbage and waste temporarily stored in such
areas is stored in such a manner so that it is completely
within such areas, is not visible from outside of such
areas, and is generally in sanitary condition.
4.5 Parking. Tenant shall have the non-exclusive use of
3.75 parking spaces per 1,000 square feet of space actually
occupied by Tenant, which parking spaces shall be within
the parking areas shown with cross-hatching on the Site
Plan attached as Exhibit A, provided that Landlord may
redesignate such parking area as long as such redesignation
does not decrease the number of parking spaces by more than
five percent (5%). Tenant shall not, at any time, park or
permit to be parked any recreational vehicles, inoperative
vehicles or equipment in the Outside Areas or on any
portion of the Property. Tenant agrees to assume
responsibility for compliance by its employees and invitees
with the parking provisions contained herein. If Tenant or
its employees park any vehicle within the Property in
violation of these provisions, then Landlord may, upon
prior written notice to Tenant giving Tenant one (1) day
(or any applicable statutory notice period, if longer than
one (1) day) to remove such vehicle(s), in addition to any
other remedies Landlord may have under this Lease, charge
Tenant, as Additional Rent, and Tenant agrees to pay, as
Additional Rent, One Hundred Dollars ($100) per day for
each day or partial day that each such vehicle is so parked
within the Property.
4.6 Signs. Tenant shall not place or install on or
within any portion of the Leased Premises, the exterior of
the Building, the Outside Areas or the Property any sign,
advertisement, banner, placard, or picture which is visible
from the exterior of the Leased Premises. Tenant may place
on the exterior of the Building a business identification
sign which is visible from the exterior of the Leased
Premises and one monument sign in the area of the Property
adjacent to Highway 101, provided the sign is on the same
legal parcel as the Leased Premises, and provided Landlord
shall have approved in writing and in its reasonable
discretion the size, content, design, method of attachment
and material to be used in the making of such sign.
Landlord shall designate the location of the monument sign
in its sole discretion at any location visible from Highway
101. Any sign, once approved by Landlord, shall be
installed at Tenant's sole cost and expense and only in
strict compliance with Landlord's approval, using a person
approved by Landlord to install same and shall comply with
all requirements of the City of Santa Clara. Landlord may
remove any signs (which have not been approved in writing
by Landlord), advertisements, banners, placards or pictures
so placed by Tenant on or within the Leased Premises, the
exterior of the Building, the Outside Areas or the Property
and charge to Tenant the cost of such removal, together
with any costs incurred by Landlord to repair any damage
caused thereby, including any cost incurred to restore the
surface (upon which such sign was so affixed) to its
original condition. Tenant shall remove all of Tenant's
signs, repair any damage caused thereby, and restore the
surface upon which the sign was affixed to its original
condition, all to Landlord's reasonable satisfaction, upon
the termination of this Lease.
4.7 Compliance With Laws And Private Restrictions.
Subject to the terms of Section 6.3, Tenant shall abide by
and shall promptly observe and comply with, at its sole
cost and expense, all Laws and Private Restrictions
respecting the use and occupancy of the Leased Premises,
the Building, the Outside Areas or the Property including,
without limitation, all Laws governing the use and/or
disposal of Hazardous Materials (other than Hazardous
Materials which were present on the Property prior to
Tenant's possession of the Leased Premises, which migrated
from an off-site source or which are a result of Landlord's
activities on the Premises), and shall defend with
competent counsel, indemnify and hold Landlord harmless
from any claims, damages or liability resulting from
Tenant's failure to so abide, observe, or comply. Tenant's
obligations hereunder shall survive the expiration or
sooner termination of this Lease.
4.8 Compliance With Insurance Requirements. With respect
to any insurance policies required or permitted to be
carried by Landlord in accordance with the provision of
this Lease, copies of which have been or will, upon
Tenant's written request therefor, be provided to Tenant,
Tenant shall not conduct nor permit any other person to
conduct any activities nor keep, store or use (or allow any
other person to keep, store or use) any item or thing
within the Leased Premises, the Building, the Outside Areas
or the Property which (i) is prohibited under the terms of
any such policies, (ii) could result in the termination of
the coverage afforded under any of such policies, (iii)
could give to the insurance carrier the right to cancel any
of such policies, or (iv) could cause an increase in the
rates (over standard rates) charged for the coverage
afforded under any of such policies. Tenant shall comply
with all requirements of any insurance company, insurance
underwriter, or Board of Fire Underwriters which are
necessary to maintain, at standard rates, the insurance
coverages carried by either Landlord or Tenant pursuant to
this Lease.
4.9 Landlord's Right To Enter. Landlord and its agents
shall have the right to enter the Leased Premises during
normal business hours after giving Tenant reasonable notice
and subject to Tenant's reasonable security measures for
the purpose of (i) inspecting the same; (ii) showing the
Leased Premises to prospective purchasers, mortgagees or
tenants; (iii) making necessary alterations, additions or
repairs; and (iv) performing any of Tenant's obligations
when Tenant has failed to do so. Landlord shall have the
right to enter the Leased Premises during normal business
hours (or as otherwise agreed), subject to Tenant's
reasonable security measures, for purposes of supplying any
maintenance or services agreed to be supplied by Landlord.
Landlord shall have the right to enter the Outside Areas
during normal business hours for purposes of (i) inspecting
the exterior of the Building and the Outside Areas; (ii)
posting notices of nonresponsibility (and for such purposes
Tenant shall provide Landlord at least thirty days' prior
written notice of any work to be performed on the Leased
Premises); and (iii) supplying any services to be provided
by Landlord. Any entry into the Leased Premises or the
Outside Areas obtained by Landlord in accordance with this
paragraph shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a
detainer of, the Leased Premises, or an eviction, actual or
constructive of Tenant from the Leased Premises or any
portion thereof.
4.10 Use Of Outside Areas. Tenant, in its use of the
Outside Areas, shall at all times keep the Outside Areas
free and clear of all materials, equipment, inoperable
vehicles, and other items which are not specifically
permitted by Landlord to be stored or located thereon by
Tenant. If, in the opinion of Landlord, unauthorized
persons are using any of the Outside Areas by reason of, or
under claim of, the express or implied authority or consent
of Tenant, then Tenant, upon demand of Landlord, shall
restrain, to the fullest extent then allowed by Law, such
unauthorized use, and shall initiate such appropriate
proceedings as may be required to so restrain such use.
4.11 Environmental Protection. Tenant's obligations under
this Section 4.11 shall survive the expiration or
termination of this Lease.
(a) As used herein, the term "Hazardous Materials"
shall mean any toxic or hazardous substance, material or
waste or any pollutant or infectious or radioactive
material, including but not limited to those substances,
materials or wastes regulated now or in the future under
any of the following statutes or regulations and any and
all of those substances included within the definitions of
"hazardous substances," "hazardous materials," "hazardous
waste," "hazardous chemical substance or mixture,"
"imminently hazardous chemical substance or mixture,"
"toxic substances," "hazardous air pollutant," "toxic
pollutant," or "solid waste" in the (a) Comprehensive
Environmental Response, Compensation and Liability Act of
1990 ("CERCLA" or "Superfund"), as amended by the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), 42
U.S.C. 9601 et seq., (b) Resource Conservation and
Recovery Act of 1976 ("RCRA"), 42 U.S.C. 6901 et seq.,
(c) Federal Water Pollution Control Act ("FSPCA"), 33
U.S.C. 1251 et seq., (d) Clean Air Act ("CAA"), 42 U.S.C.
7401 et seq., (e) Toxic Substances Control Act ("TSCA"),
14 U.S.C. 2601 et seq., (f) Hazardous Materials
Transportation Act, 49 U.S.C. 1801, et seq., (g)
Carpenter-Presley-Tanner Hazardous Substance Account Act
("California Superfund"), Cal. Health & Safety Code 25300
et seq., (h) California Hazardous Waste Control Act, Cal.
Health & Safety code 25100 et seq., (i) Porter-Cologne
Water Quality Control Act ("Porter-Cologne Act"), Cal.
Water Code 13000 et seq., (j) Hazardous Waste Disposal
Land Use Law, Cal. Health & Safety codes 25220 et seq.,
(k) Safe Drinking Water and Toxic Enforcement Act of 1986
("Proposition 65"), Cal. Health & Safety code 25249.5
et seq., (l) Hazardous Substances Underground Storage Tank
Law, Cal. Health & Safety code 25280 et seq., (m) Air
Resources Law, Cal. Health & Safety Code 39000 et seq.,
and (n) regulations promulgated pursuant to said laws or
any replacement thereof, or as similar terms are defined in
the federal, state and local laws, statutes, regulations,
orders or rules. Hazardous Materials shall also mean any
and all other biohazardous wastes and substances, materials
and wastes which are, or in the future become, regulated
under applicable Laws for the protection of health or the
environment, or which are classified as hazardous or toxic
substances, materials or wastes, pollutants or
contaminants, as defined, listed or regulated by any
federal, state or local law, regulation or order or by
common law decision, including, without limitation, (i)
trichloroethylene, tetrachloroethylene, perchloroethylene
and other chlorinated solvents, (ii) any petroleum products
or fractions thereof, (iii) asbestos, (iv) polychlorinted
biphenyls, (v) flammable explosives, (vi) urea
formaldehyde, (vii) radioactive materials and waste, and
(viii) materials and wastes that are harmful to or may
threaten human health, ecology or the environment.
(b) Notwithstanding anything to the contrary in this
Lease, Tenant, at its sole cost, shall comply with all Laws
relating to the storage, use and disposal of Hazardous
Materials; provided, however, that Tenant shall not be
responsible for contamination of the Leased Premises by
Hazardous Materials existing as of the date the Leased
Premises are delivered to Tenant (whether before or after
the Lease Commencement Date) or contamination of the Leased
Premises by Hazardous Materials which have migrated from an
off-site source, or which are a result of Landlord's
activities on the Leased Premises, unless caused by Tenant.
Tenant shall not store, use or dispose of any Hazardous
Materials except for small quantities of standard household
or office products used and disposed of in compliance with
all applicable Laws and except for those Hazardous
Materials listed in a Hazardous Materials management plan
("HMMP") which Tenant shall deliver to Landlord upon
execution of this Lease and update at least annually with
Landlord ("Permitted Materials") which may be used, stored
and disposed of provided (i) such Permitted Materials are
used, stored, transported, and disposed of in strict
compliance with applicable laws, (ii) such Permitted
Materials shall be limited to the materials listed on and
may be used only in the quantities specified in the HMMP,
and (iii) Tenant shall provide Landlord with copies of all
material safety data sheets and other documentation
required under applicable Laws in connection with Tenant's
use of Permitted Materials as and when such documentation
is provided to any regulatory authority having
jurisdiction, in no event shall Tenant cause or permit to
be discharged into the plumbing or sewage system of the
Building or onto the land underlying or adjacent to the
Building any Hazardous Materials. Tenant shall be solely
responsible for and shall defend, indemnify, and hold
Landlord and its agents harmless from and against all
claims, costs and liabilities, including attorneys' fees
and costs, arising out of or in connection with Tenant's
storage, use and/or disposal of Hazardous Materials. If
the presence of Hazardous Materials on the Leased Premises
caused or permitted by Tenant results in contamination or
deterioration of water or soil, then Tenant shall promptly
take any and all action necessary to clean up such
contamination, but the foregoing shall in no event be
deemed to constitute permission by Landlord to allow the
presence of such Hazardous Materials. At any time prior to
the expiration of the Lease Term if Tenant has a reasonable
basis to suspect that there has been any release or the
presence of Hazardous Materials in the ground or ground
water on the Leased Premises which did not exist upon
commencement of the Lease Term, Tenant shall have the right
to conduct appropriate tests of water and soil and to
deliver to Landlord the results of such tests to
demonstrate that no contamination in excess of permitted
levels has occurred as a result of Tenant's use of the
Leased Premises. Tenant shall further be solely
responsible for, and shall defend, indemnify, and hold
Landlord and its agents harmless from and against all
claims, costs and liabilities, including attorneys' fees
and costs, arising out of or in connection with any
removal, cleanup and restoration work and materials
required hereunder to return the Leased Premises and any
other property of whatever nature to their condition
existing prior to the appearance of the Hazardous
Materials.
(c) Upon termination or expiration of the Lease,
Tenant at its sole expense shall cause all Hazardous
Materials placed in or about the Leased Premises, the
Building and/or the Property by Tenant, its agents,
contractors, or invitees, and all installations (whether
interior or exterior) made by or on behalf of Tenant
relating to the storage, use, disposal or transportation of
Hazardous Materials to be removed from the property and
transported for use, storage or disposal in accordance and
compliance with all Laws and other requirements respecting
Hazardous Materials used or permitted to be used by Tenant.
Tenant shall apply for and shall obtain from all
appropriate regulatory authorities (including any
applicable fire department or regional water quality
control board) all permits, approvals and clearances
necessary for the closure of the Property and shall take
all other actions as may be required to complete the
closure of the Building and the Property. In addition,
prior to vacating the Leased Premises, Tenant shall
undertake and submit to Landlord an environmental site
assessment from an environmental consulting company
reasonably acceptable to Landlord which site assessment
shall evidence Tenant's compliance with this
Paragraph 4.11.
(d) At any time prior to expiration of the Lease term,
subject to reasonable prior notice (not less than forty-
eight (48) hours) and Tenant's reasonable security
requirements and provided such activities do not
unreasonably interfere with the conduct of Tenant's
business at the Leased Premises, Landlord shall have the
right to enter in and upon the Property, Building and
Leased Premises in order to conduct appropriate tests of
water and soil to determine whether levels of any Hazardous
Materials in excess of legally permissible levels has
occurred as a result of Tenant's use thereof. Landlord
shall furnish copies of all such test results and reports
to Tenant and, at Tenant's option and cost, shall permit
split sampling for testing and analysis by Tenant. Such
testing shall be at Tenant's expense if Landlord has a
reasonable basis for suspecting and confirms the presence
of Hazardous Materials in the soil or surface or ground
water in, on, under, or about the Property, the Building or
the Leased Premises, which has been caused by or resulted
from the activities of Tenant, its agents, contractors, or
invitees.
(e) Landlord may voluntarily cooperate in a reasonable
manner with the efforts of all governmental agencies in
reducing actual or potential environmental damage. Tenant
shall not be entitled to terminate this Lease or to any
reduction in or abatement of rent by reason of such
compliance or cooperation. Tenant agrees at all times to
cooperate fully with the requirements and recommendations
of governmental agencies regulating, or otherwise involved
in, the protection of the environment.
4.12 Rules And Regulations. In the event The Vantive
Corporation is no longer the sole tenant of the Leased
Premises, Landlord shall have the right from time to time
to establish reasonable rules and regulations and/or
amendments or additions thereto respecting the use of the
Leased Premises and the Outside Areas for the care and
orderly management of the Property. Upon delivery to
Tenant of a copy of such rules and regulations or any
amendments or additions thereto, Tenant shall comply with
such rules and regulations. A violation by Tenant of any
of such rules and regulations shall constitute a default by
Tenant under this Lease. If there is a conflict between
the rules and regulations and any of the provisions of this
Lease, the provisions of this Lease shall prevail.
Landlord shall not be responsible or liable to Tenant for
the violation of such rules and regulations by any other
tenant of the Property.
ARTICLE 5
REPAIRS, MAINTENANCE, SERVICES AND UTILITIES
5.1 Repair And Maintenance. Except in the case of damage
to or destruction of the Leased Premises, the Building, the
Outside Areas or the Property caused by an act of God or
other peril, in which case the provisions of Article 10
shall control, the parties shall have the following
obligations and responsibilities with respect to the repair
and maintenance of the Leased Premises, the Building, the
Outside Areas, and the Property.
5.2 Tenant's Obligations. Except as specifically set
forth in clause (b) below Tenant shall, at all times during
the Lease Term and at its sole cost and expense, regularly
clean and continuously keep and maintain in good order,
condition and repair the Leased Premises and every part
thereof including, without limiting the generality of the
foregoing, (i) all interior walls, floors and ceilings,
(ii) all windows, doors and skylights, (iii) all electrical
wiring, conduits, connectors and fixtures, (iv) all
plumbing, pipes, sinks, toilets, faucets and drains, (v)
all lighting fixtures, bulbs and lamps, and (vi) all
entranceways to the Leased Premises. Tenant shall, at all
times during the Lease Term, keep in a clean and safe
condition the Outside Areas. Tenant shall, at its sole
cost and expense, repair all damage to the Leased Premises,
the Building, the Outside Areas or the Property caused by
the activities of Tenant, its employees, invitees or
contractors promptly following written notice from Landlord
to so repair such damages. If Tenant shall fail to perform
the required maintenance or fail to make repairs required
of it pursuant to this paragraph within a reasonable period
of time following notice from Landlord to do so, then
Landlord may, at its election and without waiving any other
remedy it may otherwise have under this Lease or at law,
perform such maintenance or make such repairs and charge to
Tenant, as Additional Rent, the costs so incurred by
Landlord for same. All glass within or a part of the
Leased Premises, both interior and exterior, is at the sole
risk of Tenant and any broken glass shall promptly be
replaced by Tenant at Tenant's expense with glass of the
same kind, size and quality.
(b) Landlord's Obligation. Landlord shall, at all
times during the Lease Term, maintain in good condition and
repair the foundation, roof, load-bearing and exterior
walls of the Building, the sanitary sewer systems, all
heating, ventilating and air conditioning equipment.
Landlord shall maintain the Outside Areas and shall sweep
and clean the driveways and parking areas. Landlord shall
charge to Tenant, as Additional Rent pursuant to Article 3
(to the extent permitted pursuant to Article 3 and Section
13.12), the costs incurred by Landlord in performing such
maintenance and/or making such repairs.
5.3 Utilities. Tenant shall arrange at its sole cost and
expense and in its own name, for the supply of gas and
electricity to the Leased Premises. In the event that such
services are not separately metered, Tenant shall, at its
sole expense, cause such meters to be installed. Landlord
shall maintain the water meter(s) in its own name;
provided, however, that if at any time during the Lease
Term Landlord shall require Tenant to put the water service
in Tenant's name, Tenant shall do so at Tenant's sole cost.
Tenant shall be responsible for determining if the local
supplier of water, gas and electricity can supply the needs
of Tenant and whether or not the existing water, gas and
electrical distribution systems within the Building and the
Leased Premises are adequate for Tenant's needs. Tenant
shall be responsible for determining if the existing
sanitary and storm sewer systems now servicing the Leased
Premises and the Property are adequate for Tenant's needs.
Tenant shall pay all charges for water, gas, electricity
and storm and sanitary sewer services as so supplied to the
Leased Premises, irrespective of whether or not the
services are maintained in Landlord's or Tenant's name.
5.4 Security. Tenant acknowledges that Landlord has not
undertaken any duty whatsoever to provide security for the
Leased Premises, the Building, the Outside Areas or the
Property and, accordingly, Landlord is not responsible for
the security of same or the protection of Tenant's property
or Tenant's employees, invitees or contractors. To the
extent Tenant determines that such security or protection
services are advisable or necessary, Tenant shall arrange
for and pay the costs of providing same.
5.5 Energy And Resource Consumption. Landlord may
voluntarily cooperate in a reasonable manner with the
efforts of governmental agencies and/or utility suppliers
in reducing energy or other resource consumption within the
Property. Tenant shall not be entitled to terminate this
Lease or to any reduction in or abatement of rent by reason
of such compliance or cooperation. Tenant agrees at all
times to cooperate fully with Landlord and to abide by all
reasonable rules established by Landlord (i) in order to
maximize the efficient operation of the electrical,
heating, ventilating and air conditioning systems and all
other energy or other resource consumption systems with the
Property and/or (ii) in order to comply with the
requirements and recommendations of utility suppliers and
governmental agencies regulating the consumption of energy
and/or other resources.
5.6 Limitation Of Landlord's Liability. Landlord shall
not be liable to Tenant for injury to Tenant, its
employees, agents, invitees or contractors, damage to
Tenant's property or loss of Tenant's business or profits,
nor shall Tenant be entitled to terminate this Lease or to
any reduction in or abatement of rent by reason of (i)
Landlord's failure to provide security services or systems
within the Property for the protection of the Leased
Premises, the Building or the Outside Areas, or the
protection of Tenant's property or Tenant's employees,
invitees, agents or contractors, or (ii) Landlord's failure
to perform any maintenance or repairs to the Leased
Premises, the Building, the Outside Areas or the Property
until Tenant shall have first notified Landlord, in
writing, of the need for such maintenance or repairs, and
then only after Landlord shall have had a reasonable period
of time following its receipt of such notice within which
to perform such maintenance or repairs, or (iii) any
failure, interruption, rationing or other curtailment in
the supply of water, electric current, gas or other utility
service to the Leased Premises, the Building, the Outside
Areas or the Property from whatever cause (other than
Landlord's sole active negligence or willful misconduct),
or (iv) the unauthorized intrusion or entry into the Leased
Premises by third parties (other than Landlord).
ARTICLE 6
ALTERATIONS AND IMPROVEMENTS
6.1 By Tenant. Tenant shall not make any alterations to
or modifications of the Leased Premises or construct any
improvements within the Leased Premises until Landlord
shall have first approved, in writing, the plans and
specifications therefor, which approval may be withheld in
Landlord's reasonable discretion. All such modifications,
alterations or improvements, once so approved, shall be
made, constructed or installed by Tenant at Tenant's
expense (including all permit fees and governmental charges
related thereto), using a licensed contractor first
approved by Landlord, in substantial compliance with the
Landlord-approved plans and specifications therefor. All
work undertaken by Tenant shall be done in accordance with
all Laws and in a good and workmanlike manner using new
materials of good quality. Tenant shall not commence the
making of any such modifications or alterations or the
construction of any such improvements until (i) all
required governmental approvals and permits shall have been
obtained, (ii) all requirements regarding insurance imposed
by this Lease have been satisfied, (iii) Tenant shall have
given Landlord at lease five business days prior written
notice of its intention to commence such work so that
Landlord may post and file notices of non-responsibility,
and (iv) if requested by Landlord, Tenant shall have
obtained contingent liability and broad form builder's risk
insurance in an amount satisfactory to Landlord in its
reasonable discretion to cover any perils relating to the
proposed work not covered by insurance carried by Tenant
pursuant to Article 9. In no event shall Tenant make any
modification, alterations or improvements whatsoever to the
Outside Areas or the exterior or structural components of
the Building including, without limitation, any cuts or
penetrations in the floor, roof or exterior walls of the
Leased Premises, without the prior written consent of
Landlord in accordance with Section 4.2. As used in this
Article, the term "modifications, alterations and/or
improvements" shall include, without limitation, the
installation of additional electrical outlets, overhead
lighting fixtures, drains, sinks, partitions, doorways, or
the like. Notwithstanding the foregoing, Tenant, without
Landlord's prior written consent, shall be permitted to
make non-structural alterations to the Building, provided
that: (a) such alterations do not exceed $10,000
individually or $100,000 in the aggregate, (b) Tenant shall
timely provide Landlord the notice required pursuant to
Paragraph 4.9 above, (c) Tenant shall notify Landlord in
writing within thirty (30) days of completion of the
alteration and deliver to Landlord a set of the plans and
specifications therefor, either "as built" or marked to
show construction changes made, and (d) Tenant shall, upon
Landlord's request, remove the alteration at the
termination of the Lease and restore the Leased Premises to
their condition prior to such alteration.
6.2 Ownership Of Improvements. All modifications,
alterations and improvements made or added to the Leased
Premises by Tenant (other than the Tenant Improvements,
Tenant's inventory, equipment, movable furniture, wall
decorations and trade fixtures) shall be deemed real
property and a part of the Leased Premises, but shall
remain the property of Tenant during the Lease. Any such
modifications, alterations or improvements, once completed,
shall not be altered or removed from the Leased Premises
during the Lease Term without Landlord's written approval
first obtained in accordance with the provisions of
Paragraph 6.1 above. At the expiration or sooner
termination of this Lease, all such modifications,
alterations and improvements other than Tenant's inventory,
equipment, movable furniture, wall decorations and trade
fixtures, shall automatically become the property of
Landlord and shall be surrendered to Landlord as part of
the Leased Premises as required pursuant to Article 2,
unless Landlord shall require Tenant to remove any of such
modifications, alterations or improvements in accordance
with the provisions of Article 2, in which case Tenant
shall so remove same. Landlord shall have no obligations
to reimburse Tenant for all or any portion of the cost or
value of any such modifications, alterations or
improvements so surrendered to Landlord. All
modifications, alterations or improvements which are
installed or constructed on or attached to the Leased
Premises by Landlord and/or at Landlord's expense, and all
Tenant Improvements constructed with the Tenant Improvement
Allowance shall be deemed real property and a part of the
Leased Premises and shall be property of Landlord at all
times. All lighting, plumbing, electrical, heating,
ventilating and air conditioning fixtures, partitioning,
window coverings, wall coverings and floor coverings
installed by Tenant shall be deemed improvements to the
Leased Premises and not trade fixtures of Tenant.
6.3 Alterations Required By Law. Tenant shall make all
modifications, alterations and improvements to the Leased
Premises, at its sole cost, that are required by any Law
because of (i) Tenant's use or occupancy of the Leased
Premises, the Building, the Outside Areas or the Property,
(ii) Tenant's application for any permit or governmental
approval, or (iii) Tenant's making of any modifications,
alterations or improvements to or within the Leased
Premises. If Landlord shall, at any time during the Lease
Term, be required by any governmental authority to make any
modifications, alterations or improvements to the Building
or the Property, the cost incurred by Landlord in making
such modifications, alterations or improvements, including
interest at a rate equal to the greater of (a) 12%, or
(b) the sum of that rate quoted by Wells Fargo Bank, N.T. &
S.A. from time to time as its prime rate, plus two percent
(2%) ("Wells Prime Plus Two"), shall be amortized by
Landlord over the useful life of such modifications,
alterations or improvements, as determined in accordance
with generally accepted accounting principles, and the
monthly amortized cost of such modifications, alterations
and improvements as so amortized shall be considered a
Property Maintenance Cost. Notwithstanding the foregoing,
Landlord shall not include in Property Maintenance Costs
the cost of modifications, alterations or improvements to
Building or the Property if such are required by a
governmental authority solely as a result of Landlord's
Separate Work (as defined in the Work Letter attached as
Exhibit B).
6.4 Liens. Tenant shall keep the Property and every part
thereof free from any lien, and shall pay when due all
bills arising out of any work performed, materials
furnished, or obligations incurred by Tenant, its agents,
employees or contractors relating to the Property. If any
such claim of lien is recorded against Tenant's interest in
this Lease, the Property or any part thereof, Tenant shall
bond against, discharge or otherwise cause such lien to be
entirely released within ten days after the same has been
recorded. Tenant's failure to do so shall be conclusively
deemed a material default under the terms of this Lease.
ARTICLE 7
ASSIGNMENT AND SUBLETTING BY TENANT
7.1 By Tenant. Tenant shall not sublet the Leased
Premises or any portion thereof or assign its interest in
this Lease, whether voluntarily or by operation of Law,
without Landlord's prior written consent which shall not be
unreasonably withheld. Any attempted subletting or
assignment without Landlord's prior written consent, at
Landlord's election, shall constitute a default by Tenant
under the terms of this Lease. The acceptance of rent by
Landlord from any person or entity other than Tenant, or
the acceptance of rent by Landlord from Tenant with
knowledge of a violation of the provisions of this
paragraph, shall not be deemed to be a waiver by Landlord
of any provision of this Article or this Lease or to be a
consent to any subletting by Tenant or any assignment of
Tenant's interest in this Lease. Without limiting the
circumstances in which it may be reasonable for Landlord to
withhold its consent to an assignment or subletting,
Landlord and Tenant acknowledge that it shall be reasonable
for Landlord to withhold its consent in the following
instances:
(a) the proposed assignee or sublessee is a
governmental agency;
(b) in Landlord's reasonable judgment, the use of
the Leased Premises by the proposed assignee or sublessee
would involve occupancy by other than primarily general
office or software engineering personnel, would entail any
alterations which would lessen the value of the leasehold
improvements in the Leased Premises, or would require
increased services by Landlord;
(c) in Landlord's reasonable judgment, the
financial worth of the proposed assignee is less than that
of Tenant or does not meet the credit standards applied by
Landlord;
(d) the proposed assignee or sublessee (or any of
its affiliates) has been in material default under a lease,
has been in litigation with a previous landlord, or in the
ten years prior to the assignment or sublease has filed for
bankruptcy protection, has been the subject of an
involuntary bankruptcy, or has been adjudged insolvent;
(e) Landlord has experienced a previous default by
or is in litigation with the proposed assignee or
sublessee;
(f) in Landlord's reasonable judgment, the Leased
Premises, or the relevant part thereof, will be used in a
manner that will violate any negative covenant as to use
contained in this Lease;
(g) the use of the Leased Premises by the proposed
assignee or sublessee will violate any applicable law,
ordinance or regulation, or the proposed assignee or
sublessee will use or store Hazardous Materials;
(h) the proposed assignee or sublessee is, as of
the date of this Lease, a tenant in the Building;
(i) the proposed assignment or sublease fails to
include all of the terms and provisions required to be
included therein pursuant to this Article 7;
(j) Tenant is in default of any obligation of
Tenant under this Lease, or Tenant has defaulted under this
Lease on three or more occasions during the 12 months
preceding the date that Tenant shall request consent; or
(k) in the case of a subletting of less than the
entire Leased Premises, if the subletting would result in
the division of the Leased Premises into more than two
subparcels or would require improvements to be made outside
of the Leased Premises.
7.2 Merger, Reorganization, or Sale of Assets. Any
dissolution, merger, consolidation or other reorganization
of Tenant, or the sale or other transfer in the aggregate
over the Lease Term of a controlling percentage of the
capital stock of Tenant, or the sale or transfer of all or
a substantial portion of the assets of Tenant, shall be
deemed a voluntary assignment of Tenant's interest in this
Lease except that any public offering of capital stock or
sales of stock (other than a block trade) through an over-
the-counter market or recognized national or international
exchange shall not be included in determining whether a
controlling percentage of the capital stock of Tenant has
been transferred. The phrase "controlling percentage"
means the ownership of and the right to vote stock
possessing more than fifty percent of the total combined
voting power of all classes of Tenant's capital stock
issued, outstanding and entitled to vote for the election
of directors. If Tenant is a partnership, a withdrawal or
change, voluntary, involuntary or by operation of Law, of
any general partner, or the dissolution of the partnership,
shall be deemed a voluntary assignment of Tenant's interest
in this Lease. Notwithstanding the foregoing, Tenant may,
without Landlord's prior written consent and without being
subject to any of the provisions of this Article 7,
including without limitation, Landlord's right to recapture
any portion of the Leased Premises, sublet the Leased
Premises or assign this Lease to (individually, a
"Permitted Assignee," collectively, "Permitted Assignees"):
(i) a subsidiary, affiliate, division, corporation or joint
venture controlling, controlled by or under common control
with Tenant; or (ii) a successor corporation related to
Tenant by merger, consolidation, nonbankruptcy
reorganization, or government action; provided that any
Permitted Assignee under (i) or (ii) above has a net worth
equal to or greater than Tenant and does not have any
contingent or off-balance sheet liabilities that make it
less credit worthy than Tenant.
7.3 Landlord's Election. If Tenant shall desire to
assign its interest under the Lease or to sublet the Leased
Premises, Tenant must first notify Landlord, in writing, of
its intent to so assign or sublet, at least thirty (30)
days in advance of the date it intends to so assign its
interest in this Lease or sublet the Leased Premises but
not sooner than one hundred eighty days in advance of such
date, specifying in detail the terms of such proposed
assignment or subletting, including the name of the
proposed assignee or sublessee, the property assignee's or
sublessee's intended use of the Leased Premises, current
financial statements (including a balance sheet, income
statement and statement of cash flow, all prepared in
accordance with generally accepted accounting principles)
of such proposed assignee or sublessee, the form of
documents to be used in effectuating such assignment or
subletting and such other information as Landlord may
reasonably request. Landlord shall have a period of ten
(10) business days following receipt of such notice and the
required information within which to do one of the
following: (i) consent to such requested assignment or
subletting subject to Tenant's compliance with the
conditions set forth in Paragraph 7.4 below, or (ii) refuse
to so consent to such requested assignment or subletting,
provided that such consent shall not be unreasonably
refused, or (iii) terminate this Lease as to the portion
(including all) of the Leased Premises that is the subject
of the proposed assignment or subletting; provided however,
if for any proposed sublease, the term of the sublease is
less than two (2) years in length and the term of the
sublease expires more than two (2) years prior to the end
of the original Lease Term, then Landlord shall not have
the right to terminate this Lease as provided herein.
During such ten (10) business day period, Tenant covenants
and agrees to supply to Landlord, upon request, all
necessary or relevant information which Landlord may
reasonably request respecting such proposed assignment or
subletting and/or the proposed assignee or sublessee.
7.4 Conditions To Landlord's Consent. If Landlord elects
to consent, or shall have been ordered to so consent by a
court of competent jurisdiction, to such requested
assignment or subletting, such consent shall be expressly
conditioned upon the occurrence of each of the conditions
below set forth, and any purported assignment or subletting
made or ordered prior to the full and complete satisfaction
of each of the following conditions shall be void and, at
the election of Landlord, which election may be exercised
at any time following such a purported assignment or
subletting but prior to the satisfaction of each of the
stated conditions, shall constitute a material default by
Tenant under this Lease until cured by satisfying in full
each such condition by the assignee or sublessee. The
conditions are as follows:
(a) Landlord having approved in form and substance
the assignment or sublease agreement and any ancillary
documents, which approval shall not be unreasonably
withheld by Landlord if the requirements of this Article 7
are otherwise complied with.
(b) Each such sublessee or assignee having agreed,
in writing satisfactory to Landlord and its counsel and for
the benefit of Landlord, to assume, to be bound by, and to
perform the obligations of this Lease to be performed by
Tenant which relate to space being subleased.
(c) Tenant having fully and completely performed
all of its obligations under the terms of this Lease
through and including the date of such assignment or
subletting.
(d) Tenant having reimbursed to Landlord all
reasonable costs and reasonable attorneys' fees incurred by
Landlord in conjunction with the processing and
documentation of any such requested subletting or
assignment.
(e) Tenant having delivered to Landlord a complete
and fully-executed duplicate original of such sublease
agreement or assignment agreement (as applicable) and all
related agreements.
(f) Tenant having paid, or having agreed in writing
to pay as to future payments, to Landlord fifty percent
(50%) of all assignment consideration or excess rentals to
be paid to Tenant or to any other on Tenant's behalf or for
Tenant's benefit for such assignment or subletting as
follows:
(i) If Tenant assigns its interest under this
Lease and if all or a portion of the consideration for such
assignment is to be paid by the assignee at the time of the
assignment, that Tenant shall have paid to Landlord and
Landlord shall have received an amount equal to fifty
percent (50%) of the assignment consideration so paid or to
be paid (whichever is the greater) at the time of the
assignment by the assignee; or
(ii) If Tenant assigns its interest under this
Lease and if Tenant is to receive all or a portion of the
consideration for such assignment in future installments,
that Tenant and Tenant's assignee shall have entered into a
written agreement with and for the benefit of Landlord
satisfactory to Landlord and its counsel whereby Tenant and
Tenant's assignee jointly agree to pay to Landlord an
amount equal to fifty percent (50%) of all such future
assignment consideration installments to be paid by such
assignee as and when such assignment consideration is so
paid.
(iii) If Tenant subleases the Leased Premises,
that Tenant and Tenant's sublessee shall have entered into
a written agreement with and for the benefit of Landlord
satisfactory to Landlord and its counsel whereby Tenant and
Tenant's sublessee jointly agree to pay to Landlord fifty
percent (50%) of all excess rentals to be paid by such
sublessee as and when such excess rentals are so paid.
7.5 Assignment Consideration And Excess Rentals Defined.
For purposes of this Article, including any amendment to
this Article by way of addendum or other writing, the term
"assignment consideration" shall mean all consideration to
be paid by the assignee to Tenant or to any other party on
Tenant's behalf or for Tenant's benefit as consideration
for such assignment, without deduction for any commissions
paid by Tenant or any other costs or expenses (including,
without limitation, tenant improvements, capital
improvements, building upgrades, permit fees, attorneys'
fees, and other consultants' fees) incurred by Tenant in
connection with such assignment, and the term "excess
rentals" shall mean all consideration to be paid by the
sublessee to Tenant or to any other party on Tenant's
behalf or for Tenant's benefit for the sublease of the
Leased Premises in excess of the rent due to Landlord under
the terms of this Lease for the same period, after
deduction for any reasonable third party leasing
commissions and any reasonably necessary tenant
improvements paid for by Tenant but without deductions for
any other costs or expenses (including, without limitation,
building upgrades, permit fees, attorneys' fees, and other
consultants' fees) incurred by Tenant in connection with
such sublease. Tenant agrees that the portion of any
assignment consideration and/or excess rentals arising from
any assignment or subletting by Tenant which is to be paid
to Landlord pursuant to this Article now is and shall then
be the property of Landlord and not the property of Tenant.
7.6 Payments. All payments required by this Article to
be made to Landlord shall be made in cash in full as and
when they become due. At the time Tenant, Tenant's
assignee or sublessee makes each such payment to Landlord,
Tenant or Tenant's assignee or sublessee, as the case may
be, shall deliver to Landlord an itemized statement in
reasonable detail showing the method by which the amount
due Landlord was calculated and certified by the party
making such payment as true and correct.
7.7 Good Faith. The rights granted to Tenant by this
Article are granted in consideration of Tenant's express
covenant that all pertinent allocations which are made by
Tenant between the rental value of the Leased Premises and
the value of any of Tenant's personal property which may be
conveyed or leased generally concurrently with and which
may reasonably be considered a part of the same transaction
as the permitted assignment or subletting shall be made
fairly, honestly and in good faith. If Tenant shall breach
this covenant, Landlord may immediately declare Tenant to
be in default under the terms of this Lease and terminate
this Lease and/or exercise any other rights and remedies
Landlord would have under the terms of this Lease in the
case of a material default by Tenant under this Lease.
7.8 Effect Of Landlord's Consent. No subletting or
assignment, even with the consent of Landlord, shall
relieve Tenant of its personal and primary obligation to
pay rent and to perform all of the other obligations to be
performed by Tenant hereunder. Consent by Landlord to one
or more assignments of Tenant's interest in this Lease or
to one or more sublettings of the Leased Premises shall not
be deemed to be a consent to any subsequent assignment or
subletting. If Landlord shall have been ordered by a court
of competent jurisdiction to consent to a requested
assignment or subletting, or such an assignment or
subletting shall have been ordered by a court of competent
jurisdiction over the objection of Landlord, such
assignment or subletting shall not be binding between the
assignee (or sublessee) and Landlord until such time as all
conditions set forth in Paragraph 7.4 above have been fully
satisfied (to the extent not then satisfied) by the
assignee or sublessee, including, without limitation, the
payment to Landlord of all agreed assignment considerations
and/or excess rentals then due Landlord.
ARTICLE 8
LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY
8.1 Limitation On Landlord's Liability And Release.
Landlord shall not be liable to Tenant for, and Tenant
hereby releases Landlord and its partners, principals,
members, officers, agents, employees, lenders, attorneys,
and consultants from, any and all liability, whether in
contract, tort or on any other basis, for any injury to or
any damage sustained by Tenant, Tenant's agents, employees,
contractors or invitees, any damage to Tenant's property,
or any loss to Tenant's business, loss of Tenant's profits
or other financial loss of Tenant resulting from or
attributable to the condition of, the management of, the
repair or maintenance of, the protection of, the supply of
services or utilities to, the damage in or destruction of
the Leased Premises, the Building, the Property or the
Outside Areas, including without limitation (i) the
failure, interruption, rationing or other curtailment or
cessation in the supply of electricity, water, gas or other
utility service to the Property, the Building or the Leased
Premises; (ii) the vandalism or forcible entry into the
Building or the Leased Premises; (iii) the penetration of
water into or onto any portion of the Leased Premises; (iv)
the failure to provide security and/or adequate lighting in
or about the Property, the Building or the Leased Premises,
(v) the existence of any design or construction defects
within the Property, the Building or the Leased Premises;
(vi) the failure of any mechanical systems to function
properly (such as the HVAC systems); (vii) the blockage of
access to any portion of the Property, the Building or the
Leased Premises, except that Tenant does not so release
Landlord from such liability to the extent such damage was
proximately caused by Landlord's gross negligence, willful
misconduct, or Landlord's failure to perform an obligation
expressly undertaken pursuant to this Lease after a
reasonable period of time shall have lapsed following
receipt of written notice from Tenant to so perform such
obligation. In this regard, Tenant acknowledges that it is
fully apprised of the provisions of Law relating to
releases, and particularly to those provisions contained in
Section 1542 of the California Civil Code which reads as
follows:
"A general release does not extend to claims
which the creditor does not know or suspect to
exist in his favor at the time of executing the
release, which if known by him must have
materially affected his settlement with the
debtor."
Notwithstanding such statutory provision, and for the
purpose of implementing a full and complete release and
discharge, Tenant hereby (i) waives the benefit of such
statutory provision and (ii) acknowledges that, subject to
the exceptions specifically set forth herein, the release
and discharge set forth in this paragraph is a full and
complete settlement and release and discharge of all claims
and is intended to include in its effect, without
limitation, all claims which Tenant, as of the date hereof,
does not know of or suspect to exist in its favor.
8.2 Tenant's Indemnification Of Landlord. Tenant shall
indemnify, defend and hold harmless Landlord with competent
counsel reasonably satisfactory to Landlord any claims made
or legal actions filed or threatened against Landlord with
respect to the violation of any Law, or the death, bodily
injury, personal injury, property damage, or interference
with contractual or property rights suffered by any third
party occurring within the Leased Premises or resulting
from Tenant's use or occupancy of the Leased Premises, the
Building or the Outside Areas, or resulting from Tenant's
activities in or about the Leased Premises, the Building,
the Outside Areas or the Property, and Tenant shall
indemnify and hold Landlord, Landlord's partners,
principals, members, employees, agents and contractors
harmless from any loss liability, penalties, or expense
whatsoever (including any loss attributable to vacant space
which otherwise would have been leased, but for such
activities) resulting therefrom, except to the extent
proximately caused by the gross negligence or willful
misconduct of Landlord or Landlord's failure to perform an
obligation expressly undertaken pursuant to this Lease
after a reasonable period of time shall have lapsed
following receipt of written notice from Tenant to so
perform such obligation. This indemnity agreement shall
survive until the latter to occur of (i) the date of the
expiration, or sooner termination, of this Lease, or (ii)
the date Tenant actually vacates the Leased Premises.
8.3 Landlord's Indemnification Of Tenant. Landlord shall
indemnify defend, and hold harmless Tenant with competent
counsel satisfactory to Tenant any claims made or legal
actions filed or threatened against Tenant (to the extent
proximately caused by the gross negligence or willful
misconduct of Landlord or Landlord's failure to perform an
obligation expressly undertaken pursuant to this Lease
after a reasonable period of time shall have lapsed
following receipt of written notice from Landlord to so
perform such obligation) with respect to the violation of
any Law, or the death, bodily injury, personal injury,
property damage, or interference with contractual or
property rights suffered by any third party.
ARTICLE 9
INSURANCE
9.1 Tenant's Insurance. Tenant shall maintain insurance
complying with all of the following:
(a) Tenant shall procure, pay for and keep in full
force and effect, at all times during the Lease Term, the
following:
(i) Comprehensive general liability insurance
insuring Tenant against liability for personal injury,
bodily injury, death and damage to property occurring
within the Leased Premises, or resulting from Tenant's use
or occupancy of the Leased Premises, the Building, the
Outside Areas or the Property, or resulting from Tenant's
activities in or about the Leased Premises or the Property,
with coverage in an amount equal to Tenant's Required
Liability Coverage (as set forth in Article 1), which
insurance shall contain a "broad form liability"
endorsement insuring Tenant's performance of Tenant's
obligations to indemnify Landlord as contained in this
Lease.
(ii) Fire and property damage insurance in so-
called "fire and extended coverage" form insuring Tenant
against loss from physical damage to Tenant's personal
property, inventory, trade fixtures and improvements within
the Leased Premises with coverage for the full actual
replacement cost thereof;
(iii) Plate glass insurance, at actual
replacement cost;
(iv) Pressure vessel insurance, if applicable;
(v) Product liability insurance (including,
without limitation, if food and/or beverages are
distributed, sold and/or consumed within the Leased
Premises, to the extent obtainable, coverage for liability
arising out of the distribution, sale, use or consumption
of food and/or beverages (including alcoholic beverages, if
applicable) at the Leased Premises for not less than
Tenant's Required Liability Coverage (as set forth in
Article 1);
(vi) Workers' compensation insurance and any
other employee benefit insurance sufficient to comply with
all laws; and
(vii) With respect to making of alterations or
the construction of improvements or the like undertaken by
Tenant, contingent liability and builder's risk insurance,
in an amount and with coverage reasonably satisfactory to
Landlord.
(b) Each policy of liability insurance required to
be carried by Tenant pursuant to this paragraph or actually
carried by Tenant with respect to the Leased Premises or
the Property: (i) shall, except with respect to insurance
required by subparagraph (a)(vi) above, name Landlord, and
such others as are designated by Landlord, as additional
insureds; (ii) shall be primary insurance providing that
the insurer shall be liable for the full amount of the
loss, up to and including the total amount of liability set
forth in the declaration of coverage, without the right of
contribution from or prior payment by any other insurance
coverage of Landlord; (iii) shall be in a form satisfactory
to Landlord; (iv) shall be carried with companies
reasonably acceptable to Landlord with Best's ratings of at
least A and XI; (v) shall provide that such policy shall
not be subject to cancellation, lapse or change except
after at least thirty days prior written notice to
Landlord, and (vi) shall contain a so-called "severability"
or "cross liability" endorsement. Each policy of property
insurance maintained by Tenant with respect to the Leased
Premises or the Property or any property therein (i) shall
provide that such policy shall not be subject to
cancellation, lapse or change except after at least thirty
days prior written notice to Landlord and (ii) shall
contain a waiver and/or a permission to waive by the
insurer of any right of subrogation against Landlord, its
partners, principals, members, officers, employees, agents
and contractors, which might arise by reason of any payment
under such policy or by reason of any act or omission of
Landlord, its partners, principals, members, officers,
employees, agents and contractors.
(c) Prior to the time Tenant or any of its
contractors enters the Leased Premises, Tenant shall
deliver to Landlord, with respect to each policy of
insurance required to be carried by Tenant pursuant to this
Article, a copy of such policy (appropriately authenticated
by the insurer as having been issued, premium paid) or a
certificate of the insurer certifying in form satisfactory
to Landlord that a policy has been issued, premium paid,
providing the coverage required by this Paragraph and
containing the provisions specified herein. With respect
to each renewal or replacement of any such insurance, the
requirements of this Paragraph must be complied with not
less than thirty days prior to the expiration or
cancellation of the policies being renewed or replaced.
Landlord may, at any time and from time to time, inspect
and/or copy any and all insurance policies required to be
carried by Tenant pursuant to this Article. If Landlord's
Lender, insurance broker, advisor or counsel reasonably
determines at any time that the amount of coverage set
forth in Paragraph 9.1(a) for any policy of insurance
Tenant is required to carry pursuant to this Article is not
adequate, then Tenant shall increase the amount of coverage
for such insurance to such greater amount as Landlord's
Lender, insurance broker, advisor or counsel reasonably
deems adequate.
9.2 Landlord's Insurance. With respect to insurance
maintained by Landlord:
(a) Landlord shall maintain, as the minimum
coverage required of it by this Lease, fire and property
damage insurance in so-called "fire and extended coverage"
form insuring Landlord (and such others as Landlord may
designate) against loss from physical damage to the
Building with coverage of not less than one hundred percent
(100%) of the full actual replacement cost thereof and
against loss of rents for a period of not less than six
months. Such fire and property damage insurance, at
Landlord's election but without any requirements on
Landlord's behalf to do so, (i) may be written in so-called
"all risk" form, excluding only those perils commonly
excluded from such coverage by Landlord's then property
damage insurer; (ii) may provide coverage for physical
damage to the improvements so insured for up to the entire
full actual replacement cost thereof; (iii) may be endorsed
to cover loss or damage caused by any additional perils
against which Landlord may elect to insure, including
earthquake and/or flood; and/or (iv) may provide coverage
for loss of rents for a period of up to twelve months.
Landlord shall not be required to cause such insurance to
cover any of Tenant's personal property, inventory, and
trade fixtures, or any modifications, alterations or
improvements made or constructed by Tenant to or within the
Leased Premises. Landlord shall use commercially
reasonable efforts to obtain such insurance at competitive
rates.
(b) Landlord shall maintain comprehensive general
liability insurance insuring Landlord (and such others as
are designated by Landlord) against liability for personal
injury, bodily injury, death, and damage to property
occurring in, on or about, or resulting from the use or
occupancy of the Property, or any portion thereof, with
combined single limit coverage of at least Three Million
Dollars ($3,000,000). Landlord may carry such greater
coverage as Landlord or Landlord's Lender, insurance
broker, advisor or counsel may from time to time determine
is reasonably necessary for the adequate protection of
Landlord and the Property.
(c) Landlord may maintain any other insurance which
in the opinion of its insurance broker, advisor or legal
counsel is prudent in carry under the given circumstances,
provided such insurance is commonly carried by owners of
property similarly situated and operating under similar
circumstances.
9.3 Mutual Waiver Of Subrogation. Landlord hereby
releases Tenant, and Tenant hereby releases Landlord,
together with each of their respective partners,
principals, members, officers, agents, employees and
servants, from any and all liability for loss, damage or
injury to the property of the other in or about the Leased
Premises or the Property which is caused by or results from
a peril or event or happening which is covered by insurance
actually carried and in force at the time of the loss;
provided, however, that such waiver shall be effective only
to the extent permitted by the insurance pertaining to such
loss.
ARTICLE 10
DAMAGE TO LEASED PREMISES
10.1 Landlord's Duty To Restore. If the Leased Premises,
the Building or the Outside Area are damaged by any peril
after the Effective Date of this Lease, Landlord shall
restore the same, as and when required by this paragraph,
unless this Lease is terminated by Landlord pursuant to
Paragraph 10.3 or by Tenant pursuant to Paragraph 10.4. If
this Lease is not so terminated, then upon the issuance of
all necessary governmental permits, Landlord shall commence
and diligently prosecute to completion the restoration of
the Leased Premises, the Building or the Outside Area, as
the case may be, to the extent then allowed by law, to
substantially the same condition in which it existed as of
the Lease Commencement Date. Landlord's obligation to
restore shall be limited to actual receipt of insurance
proceeds and to the improvements constructed by Landlord.
Landlord shall have no obligation to restore any
Improvements made by Tenant to the Leased Premises or any
of Tenant's personal property, inventory or trade fixtures.
Upon completion of the restoration by Landlord, Tenant
shall forthwith replace or fully repair all of Tenant's
personal property, inventory, trade fixtures and other
improvements constructed by Tenant to like or similar
conditions as existed at the time immediately prior to such
damage or destruction.
10.2 Insurance Proceeds. All insurance proceeds available
from the fire and property damage insurance carried by
Landlord shall be paid to and become the property of
Landlord. If this Lease is terminated pursuant to either
Paragraph 10.3 or 10.4, all insurance proceeds available
from insurance carried by Tenant which cover loss of
property that is Landlord's property or would become
Landlord's property on termination of this Lease shall be
paid to and become the property of Landlord, and the
remainder of such proceeds shall be paid to and become the
property of Tenant. If this Lease is not terminated
pursuant to either Paragraph 10.3 or 10.4, all insurance
proceeds available from insurance carried by Tenant which
cover loss to property that is Landlord's property shall be
paid to and become the property of Landlord, and all
proceeds available from such insurance which cover loss to
property which would only become the property of Landlord
upon the termination of this Lease shall be paid to and
remain the property of Tenant. The determination of
Landlord's property and Tenant's property shall be made
pursuant to Paragraph 6.2.
10.3 Landlord's Right To Terminate. Landlord shall have
the option to terminate this Lease in the event any of the
following occurs, which option may be exercised only by
delivery to Tenant of a written notice of election to
terminate within thirty (30) days after the date of such
damage or destruction:
(a) The Building is damaged by any peril covered by
valid and collectible insurance actually carried by
Landlord and in force at the time of such damage or
destruction (an "insured peril") to such an extent that the
estimated cost to restore the Building exceeds the lesser
of (i) the insurance proceeds available from insurance
actually carried by Landlord, or (ii) fifty percent of the
then actual replacement cost thereof;
(b) The Building is damaged by an uninsured peril,
which peril Landlord was not required to insure against
pursuant to the provisions of Article 9 of this Lease;
(c) The Building is damaged by any peril and,
because of the laws then in force, the Building (i) cannot
be restored at reasonable cost or (ii) if restored, cannot
be used for the same use being made thereof before such
damage;
provided, however, in the event Landlord elects to
terminate the Lease because of a shortfall of funds, as may
be permitted herein, Tenant shall have fifteen (15) days
from the date it receives notice from Landlord of such
termination to elect to pay such shortfall, at Tenant's
sole cost and expense, in which case Landlord shall not
terminate the Lease.
10.4 Tenant's Right To Terminate. If the Leased Premises,
the Building or the Outside Area are damaged by any peril
and Landlord does not elect to terminate this Lease or is
not entitled to terminate this Lease pursuant to this
Article, then as soon as reasonably practicable, Landlord
shall furnish Tenant with the written opinion of Landlord's
architect or construction consultant as to when the
restoration work required of Landlord may be complete.
Tenant shall have the option to terminate this Lease in the
event any of the following occurs, which option may be
exercised only by delivery to Landlord of a written notice
of election to terminate within seven days after Tenant
receives from Landlord the estimate of the time needed to
complete such restoration:
(a) If the time estimated to substantially complete
the restoration exceeds nine (9) months from and after the
date the architect's or construction consultant's written
opinion is delivered; or
(b) If the damage occurred within twelve months of
the last day of the Lease Term and the time estimated to
substantially complete the restoration exceeds one hundred
thirty-five (135) days from and after the date such
restoration is commenced.
10.5 Tenant's Waiver. Landlord and Tenant agree that the
provisions of Paragraph 10.4 above, captioned "Tenant's
Right To Terminate", are intended to supersede and replace
the provisions contained in California Civil Code, Section
1932, Subdivision 2, and California Civil Code, Section
1934, and accordingly, Tenant hereby waives the provisions
of such Civil Code Sections and the provisions of any
successor Civil Code Sections or similar laws hereinafter
enacted.
10.6 Abatement Of Rent. In the event of damage to the
Leased Premises which does not result in the termination of
this Lease, the Base Monthly Rent (and any Additional Rent)
shall be temporarily abated during the period of
restoration in proportion in the degree to which Tenant's
use of the Leased Premises is impaired by such damage.
ARTICLE 11
CONDEMNATION
11.1 Tenant's Right To Terminate. Except as otherwise
provided in Paragraph 11.4 below regarding temporary
takings, Tenant shall have the option to terminate this
Lease if, as a result of any taking, (i) all of the Leased
Premises is taken, or (ii) twenty-five percent (25%) or
more of the Leased Premises is taken and the part of the
Leased Premises that remains cannot, within a reasonable
period of time, be made reasonably suitable for the
continued operation of Tenant's business. Tenant must
exercise such option within a reasonable period of time, to
be effective on the later to occur of (i) the date that
possession of that portion of the Leased Premises that is
condemned is taken by the condemnor or (ii) the date Tenant
vacated the Leased Premises.
11.2 Landlord's Right To Terminate. Except as otherwise
provided in Paragraph 11.4 below regarding temporary
takings, Landlord shall have the option to terminate this
Lease if, as a result of any taking, (i) all of the Leased
Premises is taken, (ii) twenty-five percent (25%) or more
of the Leased Premises is taken and the part of the Leased
Premises that remains cannot, within a reasonable period of
time, be made reasonably suitable for the continued
operation of Tenant's business, or (iii) because of the
laws then in force, the Leased Premises may not be used for
the same use being made before such taking, whether or not
restored as required by Paragraph 11.3 below. Any such
option to terminate by Landlord must be exercised within a
reasonable period of time, to be effective as of the date
possession is taken by the condemnor.
11.3 Restoration. If any part of the Leased Premises or
the Building is taken and this Lease is not terminated,
then Landlord shall, to the extent not prohibited by laws
then in force, repair any damage occasioned thereby to the
remainder thereof to a condition reasonably suitable for
Tenant's continued operations and otherwise, to the extent
practicable, in the manner and to the extent provided in
Paragraph 10.1.
11.4 Temporary Taking. If a portion of the Leased
Premises is temporarily taken for a period of one year or
less and such period does not extend beyond the Lease
Expiration Date, this Lease shall remain in effect. If any
portion of the Leased Premises is temporarily taken for a
period which exceeds one year or which extends beyond the
Lease Expiration Date, then the rights of Landlord and
Tenant shall be determined in accordance with
Paragraphs 11.1 and 11.2 above.
11.5 Division Of Condemnation Award. Any award made for
any taking of the Property, the Building, or the Leased
Premises, or any portion thereof, shall belong to and be
paid to Landlord, and Tenant hereby assigns to Landlord all
of its right, title and interest in any such award;
provided, however, that Tenant shall be entitled to receive
any portion of the award that is made specifically (i) for
the taking of personal property, inventory or trade
fixtures belonging to Tenant, (ii) for the interruption of
Tenant's business or its moving costs, or (iii) for the
value of any leasehold improvements installed and paid for
by Tenant. The rights of Landlord and Tenant regarding any
condemnation shall be determined as provided in this
Article, and each party hereby waives the provisions of
Section 1265.130 of the California Code of Civil Procedure,
and the provisions of any similar law hereinafter enacted,
allowing either party to petition the Supreme Court to
terminate this Lease and/or otherwise allocate condemnation
awards between Landlord and Tenant in the event of a taking
of the Leased Premises.
11.6 Abatement Of Rent. In the event of a taking of the
Leased Premises which does not result in a termination of
this Lease (other than a temporary taking), then, as of the
date possession is taken by the condemning authority, the
Base Monthly Rent shall be reduced in the same proportion
that the area of that part of the Leased Premises so taken
(less any addition to the area of the Leased Premises by
reason of any reconstruction) bears to the area of the
Leased Premises immediately prior to such taking.
11.7 Taking Defined. The term "taking" or "taken" as used
in this Article 11 shall mean any transfer or conveyance of
all or any portion of the Property to a public or quasi-
public agency or other entity having the power of eminent
domain pursuant to or as a result of the exercise of such
power by such an agency, including any inverse condemnation
and/or any sale or transfer by Landlord of all or any
portion of the Property to such an agency under threat of
condemnation or the exercise of such power.
ARTICLE 12
DEFAULT AND REMEDIES
12.1 Events Of Tenant's Default. Tenant shall be in
default of its obligations under this Lease if any of the
following events occur:
(a) Tenant shall have failed to pay Base Monthly
Rent or any Additional Rent when due; provided, however,
that once but only once in any twelve (12) month period
during the Lease Term, Tenant shall be entitled to written
notice of non-receipt of Base Monthly Rent or Additional
Rent from Landlord, and Tenant shall not be in default for
such delinquency if such installment of Base Monthly Rent
or Additional Rent is received by Landlord within five (5)
business days after Tenant's receipt of such notice from
Landlord; or
(b) Tenant shall have done or permitted to be done
any act, use or thing in its use, occupancy or possession
of the Leased Premises or the Building or the Outside Areas
which is prohibited by the terms of this Lease; or
(c) Tenant shall have failed to perform any term,
covenant or condition of this Lease (except those requiring
the payment of Base Monthly Rent or Additional Rent, which
failures shall be governed by subparagraph (a) above)
within thirty (30) days after written notice from Landlord
to Tenant specifying the nature of such failure and
requesting Tenant to perform same; or
(d) Tenant shall have sublet the Leased Premises or
assigned or encumbered its interest in this Lease in
violation of the provisions contained in Article 7, whether
voluntarily or by operation of law; or
(e) Tenant shall have abandoned the Leased
Premises; or
(f) Tenant or any Guarantor of this Lease shall
have permitted or suffered the sequestration or attachment
of, or execution on, or the appointment of a custodian or
receiver with respect to, all or any substantial part of
the property or assets of Tenant (or such Guarantor) or any
property or asset essential to the conduct of Tenant's (or
such Guarantor's) business, and Tenant (or such Guarantor)
shall have failed to obtain a return or release of the same
within thirty days thereafter, or prior to sale pursuant to
such sequestration, attachment or levy, whichever is
earlier; or
(g) Tenant or any Guarantor of this Lease shall
have made a general assignment of all or a substantial part
of its assets for the benefit of its creditors; or
(h) Tenant or any Guarantor of this Lease shall
have allowed (or sought) to have entered against it a
decree or order which: (i) grants or constitutes an order
for relief, appointment of a trustee, or condemnation or a
reorganization plan under the bankruptcy laws of the United
States; (ii) approves as properly filed a petition seeking
liquidation or reorganization under said bankruptcy laws or
any other debtor's relief law or similar statute of the
United States or any state thereof; or (iii) otherwise
directs the winding up or liquidation of Tenant; provided,
however, if any decree or order was entered without
Tenant's consent or over Tenant's objection, Landlord may
not terminate this Lease pursuant to this Subparagraph if
such decree or order is rescinded or reversed within thirty
days after its original entry; or
(i) Tenant or any Guarantor of this Lease shall
have availed itself of the protection of any debtor's
relief law, moratorium law or other similar law which does
not require the prior entry of a decree or order.
12.2 Landlord's Remedies. In the event of any default by
Tenant, and without limiting Landlord's right to
indemnification as provided in Article 8.2, Landlord shall
have the following remedies, in addition to all other
rights and remedies provided by law or otherwise provided
in this Lease, to which Landlord may resort cumulatively,
or in the alternative:
(a) Landlord may, at Landlord's election, keep this
Lease in effect and enforce, by an action at law or in
equity, all of its rights and remedies under this Lease
including, without limitation, (i) the right to recover the
rent and other sums as they become due by appropriate legal
action, (ii) the right to make payments required by Tenant,
or perform Tenant's obligations and be reimbursed by Tenant
for the cost thereof with interest at the then maximum rate
of interest not prohibited by law from the date the sum is
paid by Landlord until Landlord is reimbursed by Tenant,
and (iii) the remedies of injunctive relief and specific
performance to prevent Tenant from violating the terms of
this Lease and/or to compel Tenant to perform its
obligations under this Lease, as the case may be.
(b) Landlord may, at Landlord's election, terminate
this Lease by giving Tenant written notice of termination,
in which event this Lease shall terminate on the date set
forth for termination in such notice. Any termination
under this subparagraph shall not relieve Tenant from its
obligation to pay to Landlord all Base Monthly Rent and
Additional Rent then or thereafter due, or any other sums
due or thereafter accruing to Landlord, or from any claim
against Tenant for damages previously accrued or then or
thereafter accruing. In no event shall any one or more of
the following actions by Landlord, in the absence of a
written election by Landlord to terminate this Lease
constitute a termination of this Lease:
(i) Appointment of a receiver or keeper in
order to protect Landlord's interest hereunder;
(ii) Consent to any subletting of the Leased
Premises or assignment of this Lease by Tenant, whether
pursuant to the provisions hereof or otherwise; or
(iii) Any action taken by Landlord or its
partners, principals, members, officers, agents, employees,
or servants, which is intended to mitigate the adverse
effects of any breach of this Lease by Tenant, including,
without limitation, any action taken to maintain and
preserve the Leased Premises on any action taken to relet
the Leased Premises or any portion thereof for the account
at Tenant and in the name of Tenant.
(c) In the event Tenant breaches this Lease and
abandons the Leased Premises, Landlord may terminate this
Lease, but this Lease shall not terminate unless Landlord
gives Tenant written notice of termination. If Landlord
does not terminate this Lease by giving written notice of
termination, Landlord may enforce all its rights and
remedies under this Lease, including the right and remedies
provided by California Civil Code Section 1951.4 ("lessor
may continue lease in effect after lessee's breach and
abandonment and recover rent as it becomes due, if lessee
has right to sublet or assign, subject only to reasonable
limitations"), as in effect on the Effective Date of this
Lease.
(d) In the event Landlord terminates this Lease,
Landlord shall be entitled, at Landlord's election, to the
rights and remedies provided in California Civil Code
Section 1951.2, as in effect on the Effective Date of this
Lease. For purposes of computing damages pursuant to
Section 1951.2, an interest rate equal to the maximum rate
of interest then not prohibited by law shall be used where
permitted. Such damages shall include, without limitation:
(i) The worth at the time of award of the
amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental
loss that Tenant proves could be reasonably avoided,
computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco, at the time of
award plus one percent; and
(ii) Any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's
failure to perform Tenant's obligations under this Lease,
or which in the ordinary course of things would be likely
to result therefrom, including without limitation, the
following: (i) expenses for cleaning, repairing or
restoring the Leased Premises, (ii) expenses for altering,
remodeling or otherwise improving the Leased Premises for
the purpose of reletting, including removal of existing
leasehold improvements and/or installation of additional
leasehold improvements (regardless of how the same is
funded, including reduction of rent, a direct payment or
allowance to a new tenant, or otherwise), (iii) broker's
fees allocable to the remainder of the term of this Lease,
advertising costs and other expenses of reletting the
Leased Premises; (iv) costs of carrying and maintaining the
Leased Premises, such as taxes, insurance premiums, utility
charges and security precautions, (v) expenses incurred in
removing, disposing of and/or storing any of Tenant's
personal property, inventory or trade fixtures remaining
therein; (vi) reasonable attorney's fees, expert witness
fees, court costs and other reasonable expenses incurred by
Landlord (but not limited to taxable costs) in retaking
possession of the Leased Premises, establishing damages
hereunder, and releasing the Leased Premises; and (vii) any
other expenses, costs or damages otherwise incurred or
suffered as a result of Tenant's default.
12.3 Landlord's Default And Tenant's Remedies. In the
event Landlord fails to perform its obligations under this
Lease, Landlord shall nevertheless not be in default under
the terms of this Lease until such time as Tenant shall
have first given Landlord written notice specifying the
nature of such failure to perform its obligations, and then
only after Landlord shall have had thirty (30) days
following its receipt of such notice within which to
perform such obligations; provided that, if longer than
thirty (30) days is reasonably required in order to perform
such obligations, Landlord shall have such longer period.
In the event of Landlord's default as above set forth,
then, and only then, Tenant may then proceed in equity or
at law to compel Landlord to perform its obligations and/or
to recover damages proximately caused by such failure to
perform (except as and to the extent Tenant has waived its
right to damages as provided in this Lease).
12.4 Limitation Of Tenant's Recourse. Tenant's recourse
shall be limited to Landlord's interest in the Property, or
the net proceeds from the sale thereof. In addition, if
Landlord is a corporation, trust, partnership, joint
venture, limited liability company, unincorporated
association, or other form of business entity, Tenant
agrees that (i) the obligations of Landlord under this
Lease shall not constitute personal obligations of the
officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals of such
business entity, and (ii) Tenant shall have no recourse to
the assets of such officers, directors, trustees, partners,
joint venturers, members, owners, stockholders or
principals. Additionally, if Landlord is a partnership or
limited liability company, then Tenant covenants and
agrees:
(a) No partner or member of Landlord shall be sued
or named as a party in any suit or action brought by Tenant
with respect to any alleged breach of this Lease (except to
the extent necessary to secure jurisdiction over the
partnership and then only for that sole purpose);
(b) No service of process shall be made against any
partner or member of Landlord except for the sole purpose
of securing jurisdiction over the partnership; and
(c) No writ of execution will ever be levied
against the assets of any partner or member of Landlord
other than to the extent of his or her interest in the
assets of the partnership or limited liability company
constituting Landlord.
Tenant further agrees that each of the foregoing covenants
and agreements shall be enforceable by Landlord and by any
partner or member of Landlord and shall be applicable to
any actual or alleged misrepresentation or nondisclosure
made regarding this Lease or the Leased Premises or any
actual or alleged failure, default or breach of any
covenant or agreement either expressly or implicitly
contained in this Lease or imposed by statute or at common
law.
12.5 Tenant's Waiver. Landlord and Tenant agree that the
provisions of Paragraph 12.3 above are intended to
supersede and replace the provisions of California Civil
Code Sections 1932(1), 1941 and 1942, and accordingly,
Tenant hereby waives the provisions of California Civil
Code Sections 1932(1), 1941 and 1942 and/or any similar or
successor law regarding Tenant's right to terminate this
Lease or to make repairs and deduct the expenses of such
repairs from the rent due under this Lease.
ARTICLE 13
GENERAL PROVISIONS
13.1 Taxes On Tenant's Property. Tenant shall pay before
delinquency any and all taxes, assessments, license fees,
use fees, permit fees and public charges of whatever nature
or description levied, assessed or imposed against Tenant
or Landlord by a governmental agency arising out of, caused
by reason of or based upon Tenant's estate in this Lease,
Tenant's ownership of property, improvements made by Tenant
to the Leased Premises or the Outside Areas, improvements
made by Landlord for Tenant's use within the Leased
Premises or the Outside Areas, Tenant's use (or estimated
use) of public facilities or services or Tenant's
consumption (or estimated consumption) of public utilities,
energy, water or other resources (collectively, "Tenant's
Interest"). Upon demand by Landlord, Tenant shall furnish
Landlord with satisfactory evidence of these payments. If
any such taxes, assessments, fees or public charges are
levied against Landlord, Landlord's property, the Building
or the Property, or if the assessed value of the Building
or the Property is increased by the inclusion therein of a
value placed upon Tenant's Interest, regardless of the
validity thereof, Landlord shall have the right to require
Tenant to pay such taxes, and if not paid and satisfactory
evidence of payment delivered to Landlord at least ten days
prior to delinquency, then Landlord shall have the right to
pay such taxes on Tenant's behalf and to invoice Tenant for
the same. Tenant shall, within the earlier to occur of (a)
thirty (30) days of the date it receives an invoice from
Landlord setting forth the amount of such taxes,
assessments, fees, or public charge so levied, or (b) the
due date of such invoice, pay to Landlord, as Additional
Rent, the amount set forth in such invoice. Failure by
Tenant to pay the amount so invoiced within such time
period shall be conclusively deemed a default by Tenant
under this Lease. Tenant shall have the right to bring
suit in any court of competent jurisdiction to recover from
the taxing authority the amount of any such taxes,
assessments, fees or public charges so paid.
13.2 Holding Over. This Lease shall terminate without
further notice on the Lease Expiration Date (as set forth
in Article 1). Any holding over by Tenant after expiration
of the Lease Term shall neither constitute a renewal nor
extension of this Lease nor give Tenant any rights in or to
the Leased Premises except as expressly provided in this
Paragraph. Any such holding over to which Landlord has
consented 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 Base Monthly Rent
shall be increased to an amount equal to one hundred fifty
percent (150%) of the Base Monthly Rent payable during the
last full month immediately preceding such holding over.
13.3 Subordination To Mortgages. This Lease is subject to
and subordinate to all ground leases, mortgages and deeds
of trust which affect the Building or the Property and
which are of public record as of the Effective Date of this
Lease and which are of public record as of the date
Landlord acquires fee title to the Property, or which my
operation of law, have priority over this Lease, and to all
renewals, modifications, consolidations, replacements and
extensions thereof; provided, however, that Landlord,
within sixty (60) days following the date it acquires fee
title to the Property shall make commercially reasonable
efforts to provided Tenant with a Subordination,
Nondisturbance and Attornment Agreement from any ground
lessors or lenders holding such ground leases, mortgages or
deeds of trust. If the lessor under any such ground lease
or any lender holding any such mortgage or deed of trust
shall advise Landlord that it desires or requires this
Lease to be made prior and superior thereto, then, upon
written request of Landlord to Tenant, Tenant shall
promptly execute, acknowledge and deliver any and all
customary or reasonable documents or instruments which
Landlord and such lessor or lender deems necessary or
desirable to make this Lease prior thereto. Tenant hereby
consents to Landlord's ground leasing the land underlying
the Building or the Property and/or encumbering the
Building or the Property as security for future loans on
such terms as Landlord shall desire, all of which future
ground leases, mortgages or deeds of trust shall be subject
to and subordinate to this Lease. However, if any lessor
under any such future ground lease or any lender holding
such future mortgage or deed of trust shall desire or
require that this Lease be made subject to and subordinate
to such future ground lease, mortgage or deed of trust,
then Tenant agrees, within ten days after Landlord's
written request therefor, to execute, acknowledge and
deliver to Landlord any and all documents or instruments
requested by Landlord or by such lessor or lender as may be
necessary or proper to assure the subordination of this
Lease to such future ground lease, mortgage or deed of
trust, but only if such lessor or lender agrees to
recognize Tenant's rights under this Lease and agrees not
to disturb Tenant's quiet possession of the Leased Premises
so long as Tenant is not in default under this Lease. If
Landlord assigns the Lease as security for a loan, Tenant
agrees to execute such documents as are reasonably
requested by the lender and to provide reasonable
provisions in the Lease protecting such lender's security
interest which are customarily required by institutional
lenders making loans secured by a deed of trust, and which
do not increase Tenant's monetary obligations hereunder or
materially increase Tenant's nonmonetary obligations
hereunder.
13.4 Tenant's Attornment Upon Foreclosure. Tenant shall,
upon request, attorn (i) to any purchaser of the Building
or the Property at any foreclosure sale or private sale
conducted pursuant to any security instruments encumbering
the Building or the Property, (ii) to any grantee or
transferee designated in any deed given in lieu of
foreclosure of any security interest encumbering the
Building or the Property, or (iii) to the lessor under an
underlying ground lease of the land underlying the Building
or the Property, should such ground lease be terminated;
provided that such purchaser, grantee or lessor recognizes
Tenant's rights under this Lease.
13.5 Mortgagee Protection. In the event of any default on
the part of Landlord, Tenant will give notice by registered
mail to any Lender or lessor under any underlying ground
lease who shall have requested, in writing, to Tenant that
it be provided with such notice, and Tenant shall offer
such Lender or lessor a reasonable opportunity to cure the
default, including time to obtain possession of the Leased
Premises by power of sale or judicial foreclosure or other
appropriate legal proceedings if reasonably necessary to
effect a cure (other than for maintenance or repair
obligations).
13.6 Estoppel Certificate. Tenant will, following any
request by Landlord, promptly execute and deliver to
Landlord an estoppel certificate in the form attached as
Exhibit C, (i) certifying that this Lease is unmodified and
in full force and effect, or, if modified, stating the
nature of such modification and certifying that this Lease,
as so modified, is in full force and effect, (ii) stating
the date to which the rent and other charges are paid in
advance, if any, (iii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of
Landlord hereunder, or specifying such defaults if any are
claimed, and (iv) certifying such other information about
this Lease as may be reasonably requested by Landlord, its
Lender or prospective lenders, investors or purchasers of
the Building or the Property. Tenant's failure to execute
and deliver such estoppel certificate within ten days after
Landlord's request therefor shall be a material default by
Tenant under this Lease, and Landlord shall have all of the
rights and remedies available to Landlord as Landlord would
otherwise have in the case of any other material default by
Tenant, including the right to terminate this Lease and sue
for damages proximately caused thereby, it being agreed and
understood by Tenant that Tenant's failure to so deliver
such estoppel certificate in a timely manner could result
in Landlord being unable to perform committed obligations
to other third parties which were made by Landlord in
reliance upon this covenant of Tenant. Landlord and Tenant
intend that any statement delivered pursuant to this
paragraph may be relied upon by any Lender or purchaser or
prospective Lender or purchaser of the Building, the
Property, or any interest in them. Landlord will,
following any request by Tenant, promptly execute and
deliver to Tenant an estoppel certificate in the form
attached as Exhibit C, (i) certifying that this Lease is
unmodified and in full force and effect, or, if modified,
stating the nature of such modification and certifying that
this Lease, as so modified, is in full force and effect,
(ii) stating the date to which the rent and other charges
are paid in advance, if any, (iii) acknowledging that there
are not, to Landlord's knowledge (without any duty of
inquiry), any uncured defaults on the part of Tenant
hereunder, or specifying such defaults if any are claimed,
and (iv) certifying such other information about this Lease
as may be reasonably requested by Tenant.
13.7 Tenant's Financial Information. Tenant shall, within
ten business days after Landlord's request therefor,
deliver to Landlord a copy of Tenant's (and any
guarantor's) current financial statements (including a
balance sheet, income statement and statement of cash flow,
all prepared in accordance with generally accepted
accounting principles) and any such other information
reasonably requested by Landlord regarding Tenant's
financial condition. Landlord shall be entitled to
disclose such financial statements or other information to
its Lender, to any present or prospective principal of or
investor in Landlord, or to any prospective Lender or
purchaser of the Building, the Property, or any portion
thereof or interest therein. Any such financial statement
or other information which is marked "confidential" or
"company secrets" (or is otherwise similarly marked by
Tenant) shall be confidential and shall not be disclosed by
Landlord to any third party except as specifically provided
in this paragraph, unless the same becomes a part of the
public domain without the fault of Landlord.
13.8 Transfer By Landlord. Landlord and its successors in
interest shall have the right to transfer their interest in
the Building, the Property, or any portion thereof at any
time and to any person or entity. In the event of any such
transfer, the Landlord originally named herein (and in the
case of any subsequent transfer, the transferor), from the
date of such transfer (i) shall be automatically relieved,
without any further act by any person or entity, of all
liability for the performance of the obligations of the
Landlord hereunder which may accrue after the date of such
transfer, if its transferee agrees to assume and perform
all such obligations of the Landlord hereunder and
(ii) shall be relieved of all liability for the performance
of the obligations of the Landlord hereunder which have
accrued before the date of transfer if its transferee
agrees to assume and perform all such prior obligations of
the Landlord hereunder. Tenant shall attorn to any such
transferee. After the date of any such transfer, the term
"Landlord" as used herein shall mean the transferee of such
interest in the Building or the Property.
13.9 Force Majeure. The obligations of each of the
parties under this Lease (other than the obligations to pay
money) shall be temporarily excused if such party is
prevented or delayed in performing such obligations by
reason of any strikes, lockouts or labor disputes;
government restrictions, regulations, controls, action or
inaction; civil commotion; or extraordinary weather, fire
or other acts of God.
13.10 Notices. Any notice required or desired to be given
by a party regarding this Lease shall be in writing and
shall be personally served, or in lieu of personal service
may be given by reputable overnight courier service,
postage prepaid, addressed to the other party as follows:
If to Landlord: Augustine Partners LLC
c/o Menlo Equities LLC
525 University Avenue, Suite 100
Palo Alto, California 94301
Attention: Henry Bullock/Richard
Holmstrom
with a copy to: Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, California 94111
Attention: Paul Churchill
If to Tenant: The Vantive Corporation
2455 Augustine Drive
Santa Clara, California 95054
Attention: Real Estate & Legal
Any notice given in accordance with the foregoing shall be
deemed received upon actual receipt or refusal to accept
delivery.
13.11 Attorneys' Fees. In the event any party shall bring
any action, arbitration proceeding or legal proceeding
alleging a breach of any provision of this Lease, to
recover rent, to terminate this Lease, or to enforce,
protect, determine or establish any term or covenant of
this Lease or rights or duties hereunder of either party,
the prevailing party shall be entitled to recover from the
non-prevailing party as a part of such action or
proceeding, or in a separate action for that purpose
brought within one year from the determination of such
proceeding, reasonable attorneys' fees, expert witness
fees, court costs and other reasonable expenses incurred by
the prevailing party.
13.12 Definitions. Any term that is given a special
meaning by any provision in this Lease shall, unless
otherwise specifically stated, have such meaning wherever
used in this Lease or in any Addenda or amendment hereto.
In addition to the terms defined in Article 1, the
following terms shall have the following meanings:
(a) Real Property Taxes. The term "Real Property
Tax" or "Real Property Taxes" shall each mean (i) all
taxes, assessments, levies and other charges of any kind or
nature whatsoever, general and special, foreseen and
unforeseen (including all instruments 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 or new
construction), 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 for whatever reason against
the Property or any portion thereof, or Landlord's interest
herein, or the fixtures, equipment and other property of
Landlord that is an integral part of the Property and
located thereon, or Landlord's business of owning, leasing
or managing the Property or the gross receipts, income or
rentals from the Property, (ii) all charges, levies or fees
imposed by any governmental authority against Landlord by
reason of or based upon the use of or number of parking
spaces within the Property, the amount of public services
or public utilities used or consumed (e.g. water, gas,
electricity, sewage or waste water disposal) at the
Property, the number of person employed by tenants of the
Property, the size (whether measured in area, volume,
number of tenants or whatever) or the value of the
Property, or the type of use or uses conducted within the
Property, and all costs and fees (including attorneys'
fees) reasonably incurred by Landlord in contesting any
Real Property Tax and in negotiating with public
authorities as to any Real Property Tax. If, at any time
during the Lease Term, the taxation or assessment of the
Property prevailing as of the Effective Date of this Lease
shall be altered so that in lieu of or in addition to any
the Real Property Tax described above there shall be
levied, awarded 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,
substitute, or additional use or charge (i) on the value,
size, use or occupancy of the Property or Landlord's
interest therein or (ii) on or measured by the gross
receipts, income or rentals from the Property, or on
Landlord's business of owning, leasing or managing the
Property or (iii) computed in any manner with respect to
the operation of the Property, then any such tax or charge,
however designated, shall be included within the meaning of
the terms "Real Property Tax" or "Real Property Taxes" for
purposes of this Lease. If any Real Property Tax is partly
based upon property or rents unrelated to the Property,
then only that part of such Real Property Tax that is
fairly allocable to the Property shall be included within
the meaning of the terms "Real Property Tax" or "Real
Property Taxes." Notwithstanding the foregoing, the terms
"Real Property Tax" or "Real Property Taxes" shall not
include estate, inheritance, transfer, gift or franchise
taxes of Landlord or the federal or state income tax
imposed on Landlord's income from all sources, or tax
penalties provided that Tenant has paid taxes or reimbursed
Landlord within the time periods required in this Lease.
(b) Landlord's Insurance Costs. The term
"Landlord's Insurance Costs" shall mean the costs to
Landlord to carry and maintain the policies of fire and
property damage insurance for the Building and the Property
and general liability and any other insurance required or
permitted to be carried by Landlord pursuant to Article 9,
together with any deductible amounts paid by Landlord upon
the occurrence of any insured casualty or loss; provided
that any deductible amounts paid by Landlord in the event
of a loss from an earthquake shall be amortized over ten
(10) years at the rate of ten percent (10%) or Landlord's
cost of capital, whichever is higher.
(c) Property Maintenance Costs. The term "Property
Maintenance Costs" shall mean all costs and expenses
(except Landlord's Insurance Costs and Real Property Taxes)
paid or incurred by Landlord in protecting, operating,
maintaining, repairing and preserving the Property and all
parts thereof, including without limitation, (i) property
management fees of three percent (3%) of all Base Monthly
Rent and Additional Rent from the Property, (ii) the
amortizing portion of any costs incurred by Landlord in the
making of any modification, alteration or improvement
required by any governmental authority as set forth in
Article 6, amortized over the useful life of such
modification, alteration or improvement, which are so
amortized during the Lease Term, and (iii) such other costs
as may be paid or incurred with respect to operating,
maintaining, and preserving the Property, such as repairing
and resurfacing the exterior surfaces of the Building
(other than the roof structure, but including the roof
membrane), repairing and resurfacing paved areas, and
repairing and replacing, when necessary, electrical,
plumbing, heating, ventilating and air conditioning systems
serving the Building, providing trash enclosures, trash
bins and trash service; provided, however, the cost of any
capital improvement or repair (as defined in accordance
with generally accepted accounting principles) shall be
amortized over the useful life of such improvement or
repair and Tenant shall be responsible for the amortizing
portion of such cost during the Lease Term. "Property
Maintenance Costs" shall not include the following (except
to the extent any of the following costs are incurred by
Landlord as a result of Tenant's failure to perform its
obligations hereunder or are otherwise caused by Tenant):
Landlord's debt service on any financing related to the
Building or the Property; franchise, excess profits or
revenue tax, excise tax or inheritance tax, gift tax, gains
tax, franchise tax, corporation tax, capital levy transfer,
estate, succession, income taxes payable by Landlord;
salaries, benefits and related costs of Landlord's off-site
administrative personnel (other than the management fee);
costs of utility usage for utility services separately
metered in the name of Tenant; the cost of any work
(including the cost of permits, licenses and inspections)
performed (such as preparing space for occupancy, including
painting and decorating) or services provided (such as
separately metered electricity) for Tenant at Tenant's
cost; the cost of any items for which Landlord is actually
reimbursed by insurance proceeds, or condemnation awards;
costs associated with financing or refinancing personal
property associated with the Leased Premises; interest,
principal and amortization payments on any debt, bad debt
loss, points and financing fees, cost to service a loan,
depreciation, or rental under any ground lease or other
underlying lease; interest, fines or penalties incurred by
reason of Landlord's failure to perform an obligation
hereunder; real estate brokerage commissions, moving
expenses, design or engineering fees, rental concessions or
credits, allowances, lease assumptions, lease cancellation
fees or other costs in each case incurred in procuring
other tenants or other occupants, or any fee in lieu of
commissions; advertising, promotional and marketing
expenses; expenses for repairs or maintenance (to the
extent Landlord is fully reimbursed thereunder) which are
covered by warranties, guarantees or service contracts and
any reserves for repairs, maintenance or replacement; costs
incurred by Landlord by reason of the willful misconduct or
gross negligence of Landlord or its agents, invitees,
employees or contractors, including costs associated with
death or injury to persons, damage to or loss of property
(other than the cost of insurance to cover same); costs to
remediate Hazardous Materials contamination (other than
asbestos abatement required in connection with a capital
repair or replacement which is otherwise properly included
in Property Operating Expenses) which existed on the
Property prior to the Lease Commencement Date, which
migrated from an off-site source, or which is caused by
Landlord's activities on the Property, unless caused by
Tenant; or capital expenditures to repair or replace the
roof structure, the exterior load bearing walls or the
foundation.
(d) Property Operating Expenses. The term
"Property Operating Expenses" shall mean and include all
Real Property Taxes, plus all Landlord's Insurance Costs,
plus all Property Maintenance Costs.
(e) Law. The term "Law" shall mean any judicial
decisions and any statute, constitution, ordinance,
resolution, regulation, rule, administrative order, or
other requirements of any municipal, county, state,
federal, or other governmental agency or authority having
jurisdiction over the parties to this Lease, the Leased
Premises, the Building or the Property, or any of them, in
effect either at the Effective Date of this Lease or at any
time during the Lease Term, including, without limitation,
any regulation, order, or policy of any quasi-official
entity or body (e.g. a board of fire examiners or a public
utility or special district).
(f) Lender. The term "Lender" shall mean the
holder of any promissory note or other evidence of
indebtedness secured by the Property or any portion
thereof.
(g) Private Restrictions. The term "Private
Restrictions" shall mean (as they may exist from time to
time) any and all covenants, conditions and restrictions,
private agreements, easements, and any other recorded
documents or instruments affecting the use of the Property,
the Building, the Leased Premises, or the Outside Areas.
(h) Rent. The term "Rent" shall mean collectively
Base Monthly Rent and all Additional Rent.
13.13 General Waivers. One party's consent to or approval
of any act by the other party requiring the first party's
consent or approval shall not be deemed to waive or render
unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. No waiver of
any provision hereof, or any waiver of any breach of any
provision hereof, shall be effective unless in writing and
signed by the waiving party. The receipt by Landlord of
any rent or payment with or without knowledge of the breach
of any other provision hereof shall not be deemed a waiver
of any such breach. No waiver of any provision of this
Lease shall be deemed a continuing waiver unless such
waiver specifically states so in writing and is signed by
both Landlord and Tenant. No delay or omission in the
exercise of any right or remedy accruing to either party
upon any breach by the other party under this Lease shall
impair such right or remedy or be construed as a waiver of
any such breach theretofore or thereafter occurring. The
waiver by either party of any breach of any provision of
this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or any other provisions
herein contained.
13.14 Miscellaneous. Should any provisions of this Lease
prove to be invalid or illegal, such invalidity or
illegality shall in no way affect, impair or invalidate any
other provisions hereof, and such remaining provisions
shall remain in full force and effect. Time is of the
essence with respect to the performance of every provision
of this Lease in which time of performance is a factor.
Any copy of this Lease which is executed by the parties
shall be deemed an original for all purposes. This Lease
shall, subject to the provisions regarding assignment,
apply to and bind the respective heirs, successors,
executors, administrators and assigns of Landlord and
Tenant. The term "party" shall mean Landlord or Tenant as
the context implies. If Tenant consists of more than one
person or entity, then all members of Tenant shall be
jointly and severally liable hereunder. This Lease shall
be construed and enforced in accordance with the Laws of
the State in which the Leased Premises are located. The
captions in this Lease are for convenience only and shall
not be construed in the construction or interpretation of
any provision hereof. When the context of this Lease
requires, the neuter gender includes the masculine, the
feminine, a partnership, corporation, limited liability
company, joint venture, or other form of business entity,
and the singular includes the plural. The terms "must,"
"shall," "will," and "agree" are mandatory. The term "may"
is permissive. When a party is required to do something by
this Lease, it shall do so at its sole cost and expense
without right of reimbursement from the other party unless
specific provision is made therefor. Where Landlord's
consent is required hereunder, the consent of any Lender
shall also be required. Landlord and Tenant shall both be
deemed to have drafted this Lease, and the rule of
construction that a document is to be construed against the
drafting party shall not be employed in the construction or
interpretation of this Lease. Where Tenant is obligated
not to perform any act or is not permitted to perform any
act, Tenant is also obligated to restrain any others
reasonably within its control, including agents, invitees,
contractors, subcontractors and employees, from performing
such act. Landlord shall not become or be deemed a partner
or a joint venturer with Tenant by reason of any of the
provisions of this Lease.
13.15 Cooperation. Notwithstanding anything to the
contrary contained herein, Tenant consents to and agrees to
fully cooperate with Landlord and Landlord's agents,
employees and contractors in Landlord's efforts, if any, to
improve the Property and divide the Property into separate
legal parcels, which efforts may include, without
limitation, the elimination of landscaping and addition of
parking spaces, the restriping or reconfiguration of the
parking areas, modification of the loading dock area of the
Building, application for building permits and other
development approvals, parcelization of the Property and
construction of buildings. Tenant agrees to execute such
documents and take such actions as reasonably necessary to
assist Landlord with such efforts and actions. Tenant
agrees that such efforts and actions of Landlord shall not
constitute constructive eviction of Tenant from the
Property or Leased Premises. Following any parcelization
of the Property, Landlord and Tenant agree to amend this
Lease to conform the descriptions of the Property, Site
Plan, and Outside Areas, and, subject to Section 4.5, the
parking areas contained herein to the parcelization and
reconfiguration. Landlord agrees to minimize the
disruption of Tenant's use of the Leased Premises, the
Building, the Outside Areas and the Property to the extent
reasonable, given Landlord's efforts and actions described
herein. Landlord reserves the right to relocate Tenant's
parking areas from that shown on Exhibit A or provide
alternative parking arrangements as may be necessary or
reasonable.
ARTICLE 14
CORPORATE AUTHORITY
BROKERS AND ENTIRE AGREEMENT
14.1 Corporate Authority. If Tenant is a corporation,
each individual executing this Lease on behalf of such
corporation represents and warrants that Tenant is validly
formed and duly authorized and existing, that Tenant is
qualified to do business in the State in which the Leased
Premises are located, that Tenant has the full right and
legal authority to enter into this Lease, and that he or
she is duly authorized to execute and deliver this Lease on
behalf of Tenant in accordance with its terms. Tenant
shall, within thirty days after execution of this Lease,
deliver to Landlord a certified copy of the resolution of
its board of directors authorizing or ratifying the
execution of this Lease and if Tenant fails to do so,
Landlord at its sole election may elect to terminate this
Lease.
14.2 Brokerage Commissions. Tenant and Landlord each
represent, warrant and agree that they have not had any
dealings with any real estate broker(s), leasing agent(s),
finder(s) or salesmen, other than the Brokers (as named in
Article 1) with respect to the lease by it of the Leased
Premises pursuant to this Lease, and that Landlord will
assume all obligations with respect to such Broker that
Landlord retained and Tenant will assume all obligations
and responsibility with respect to the payment of such
Broker that Tenant retained. Each of Landlord and Tenant
will indemnify, defend with competent counsel, and hold the
other harmless from any liability for the payment of any
real estate brokerage commissions, leasing commissions or
finder's fees claimed by any other real estate broker(s),
leasing agent(s), finder(s), or salesmen due to the other
party's breach of the representations, warranties and
covenants made by such party in this Section 14.2.
14.3 Entire Agreement. This Lease and the Exhibits (as
described in Article 1), which Exhibits are by this
reference incorporated herein, constitute the entire
agreement between the parties, and there are no other
agreements, understandings or representations between the
parties relating to the lease by Landlord of the Leased
Premises to Tenant, except as expressed herein. No
subsequent changes, modifications or additions to this
Lease shall be binding upon the parties unless in writing
and signed by both Landlord and Tenant.
14.4 Landlord's Representations. Tenant acknowledges that
neither Landlord nor any of its agents made any
representations or warranties respecting the Property, the
Building or the Leased Premises, upon which Tenant relied
in entering into the Lease, which are not expressly set
forth in this Lease. Tenant further acknowledges that
neither Landlord nor any of its agents made any
representations as to (i) whether the Leased Premises may
be used for Tenant's intended use under existing Law, or
(ii) the suitability of the Leased Premises for the conduct
of Tenant's business, or (iii) the exact square footage of
the Leased Premises, and that Tenant relies solely upon its
own investigations with respect to such matters. Tenant
expressly waives any and all claims for damage by reason of
any statement, representation, warranty, promise or other
agreement of Landlord or Landlord's agent(s), if any, not
contained in this Lease or in any Exhibit attached hereto.
ARTICLE 15
OPTIONS TO EXTEND
15.1 So long as The Vantive Corporation (or a Permitted
Assignee) is the Tenant hereunder and occupies the entirety
of the Leased Premises as of its exercise of its option to
extend, and subject to the condition set forth in
clause (b) below, Tenant shall have one option to extend
the term of this Lease with respect to the entirety of the
Leased Premises, for a period of five (5) years from the
expiration of the Lease Term (the "Extension Period"),
subject to the following conditions:
(a) The option to extend shall be exercised, if at
all, by notice of exercise given to Landlord by Tenant not
more than twelve (12) months nor less than nine (9) months
prior to the expiration of the Lease Term.
(b) Anything herein to the contrary
notwithstanding, if Tenant is in default under any of the
terms, covenants or conditions of this Lease, either at the
time Tenant exercises the extension option or on the
commencement date of the Extension Period, Landlord shall
have, in addition to all of Landlord's other rights and
remedies provided in this Lease, the right to terminate
such option to extend upon notice to Tenant.
15.2 In the event the option is exercised in a timely
fashion, the Lease shall be extended for the term of the
Extension Period upon all of the terms and conditions of
this Lease, provided that the Base Monthly Rent for the
Extension Period shall be the "Fair Market Rent" for the
Leased Premises, taking into account buildings of similar
quality and location, increased by three and one half
percent (3.5%) at the end of each twelve (12) month period
during the Extension Period. For purposes hereof, "Fair
Market Rent" shall mean the Base Monthly Rent determined
pursuant to the process described below. In no event,
however, shall any adjustment of Base Monthly Rent pursuant
to this paragraph result in a decrease of the Base Monthly
Rent for the Leased Premises below the amount due from
Tenant for the preceding portion of the initial Lease Term
for which Base Monthly Rent had been fixed.
15.3 Within 30 days after receipt of Tenant's notice of
exercise, Landlord shall notify Tenant in writing of
Landlord's estimate of the Base Monthly Rent for the
Extension Period, based on the provisions of Paragraph 15.2
above. Within 30 days after receipt of such notice from
Landlord, Tenant shall have the right either to (i) accept
Landlord's statement of Base Monthly Rent as the Base
Monthly Rent for the Extension Period; or (ii) elect to
arbitrate Landlord's estimate of Fair Market Rent, such
arbitration to be conducted pursuant to the provisions
hereof. Failure on the part of Tenant to require
arbitration of Fair Market Rent within such 30-day period
shall constitute acceptance of the Base Monthly Rent for
the Extension Period as calculated by Landlord. If Tenant
elects arbitration, the arbitration shall be concluded
within 90 days after the date of Tenant's election, subject
to extension for an additional 30-day period if a third
arbitrator is required and does not act in a timely manner.
To the extent that arbitration has not been completed prior
to the expiration of any preceding period for which Base
Monthly Rent has been determined, Tenant shall pay Base
Monthly Rent at the rate calculated by Landlord, with the
potential for an adjustment to be made (retroactive to the
start of the Extension Period) once Fair Market Rent is
ultimately determined by arbitration.
15.4 In the event of arbitration, the judgment or the
award rendered in any such arbitration may be entered in
any court having jurisdiction and shall be final and
binding between the parties. The arbitration shall be
conducted and determined in the City and County of
San Francisco in accordance with the then prevailing rules
of the American Arbitration Association or its successor
for arbitration of commercial disputes except to the extent
that the procedures mandated by such rules shall be
modified as follows:
(a) Tenant shall make demand for arbitration in
writing within 30 days after service of Landlord's
determination of Fair Market Rent given under
Paragraph 15.3 above, specifying therein the name and
address of the person to act as the arbitrator on its
behalf. The arbitrator shall be qualified as a real estate
appraiser familiar with the Fair Market Rent of similar
industrial, research and development, or office space in
the Silicon Valley area who would qualify as an expert
witness over objection to give opinion testimony addressed
to the issue in a court of competent jurisdiction. Failure
on the part of Tenant to make a proper demand in a timely
manner for such arbitration shall constitute a waiver of
the right thereto. Within 15 days after the service of the
demand for arbitration, Landlord shall give notice to
Tenant, specifying the name and address of the person
designated by Landlord to act as arbitrator on its behalf
who shall be similarly qualified. If Landlord fails to
notify Tenant of the appointment of its arbitrator, within
or by the time above specified, then the arbitrator
appointed by Tenant shall be the arbitrator to determine
the issue.
(b) In the event that two arbitrators are chosen
pursuant to Paragraph 15.4(a) above, the arbitrators so
chosen shall, within 15 days after the second arbitrator is
appointed determine the Fair Market Rent. If the two
arbitrators shall be unable to agree upon a determination
of Fair Market Rent within such 15-day period, the Fair
Market Rent shall be set at the straight average of the two
separate determinations. Such average shall constitute the
decision of the arbitrators and be final and binding upon
the parties.
(c) In the event of a failure, refusal or inability
of any arbitrator to act, his successor shall be appointed
by him. Any decision in which the arbitrator appointed by
Landlord and the arbitrator appointed by Tenant concur
shall be binding and conclusive upon the parties. Each
party shall pay the fee and expenses of its respective
arbitrator and both shall share the fee and expenses of the
third arbitrator, if any, and the attorneys' fees and
expenses of counsel for the respective parties and of
witnesses shall be paid by the respective party engaging
such counsel or calling such witnesses.
(d) The arbitrators shall have the right to consult
experts and competent authorities to obtain factual
information or evidence pertaining to a determination of
Fair Market Rent, but any such consultation shall be made
in the presence of both parties with full right on their
part to cross-examine. The arbitrators shall render their
decision and award in writing with counterpart copies to
each party. The arbitrators shall have no power to modify
the provisions of this Lease.
ARTICLE 16
EXPANSION OPTION AND RIGHTS OF FIRST OFFER
16.1 So long as The Vantive Corporation (or a Permitted
Assignee) is the Tenant hereunder and occupies the entirety
of the Leased Premises as of its exercise of the option
granted herein, and subject to the condition set forth in
clause (c) below, Tenant shall have one option to lease
from Landlord (the "Expansion Option"), in whole floor
increments, space in the proposed 60,000 square foot
building (the "New Building") which may be built on the
Property, subject to the following conditions:
(a) The Expansion Option shall be exercised, if at
all, by notice of exercise given to Landlord by Tenant not
more than three (3) months following the commencement of
site improvement work for construction of the New Building;
(b) Tenant's notice of exercise of its Expansion
Option shall specify that it will lease the entire New
Building or if Tenant elects to lease less than the entire
New Building, shall specify the number of floors Tenant has
elected to lease. Landlord shall thereafter designate
which floors of the New Building shall be leased to Tenant.
(c) Anything herein to the contrary
notwithstanding, if Tenant is in default under any of the
terms, covenants or conditions of this Lease at the time
Tenant exercises the Expansion Option, Landlord shall have,
in addition to all of Landlord's other rights and remedies
provided in this Lease, the right to terminate such
Expansion Option upon notice to Tenant.
16.2 In the event the Expansion Option is exercised in a
timely fashion, Landlord and Tenant shall enter into a new
lease for the space to be leased to Tenant in the New
Building, which lease shall be upon all of the terms and
conditions of this Lease (other than the right to install a
monument sign) and which Lease shall be coterminous with
this Lease, provided, however, that the Base Monthly Rent
for the New Building shall be $2.50 per square foot for the
first twelve (12) months of the lease term and shall be
increased by three and one half percent (3.5%) at the end
of the first twelve (12) months and at the end of each
twelve (12) month period thereafter. Landlord shall be
obligated to deliver a "cold shell" to Tenant and shall be
obligated to provide a $25 per square foot tenant
improvement allowance.
16.3 In the event Tenant fails to exercise the Expansion
Option as set forth above, Tenant shall have the right to
make the first offer to lease from Landlord any block of
space in the New Building, as such blocks of space become
available (after the initial rental following the
construction of the New Building), within five (5) business
days of notice from Landlord that such space is available,
which offer Landlord may accept or reject in its sole and
absolute discretion.
16.4 In the event Landlord acquires the property and
improvements located immediately to the North of the
Property commonly known as 2575 Augustine Drive, Santa
Clara, California(the "Adjacent Building"), Tenant shall
have the right to make the first offer to lease from
Landlord the entirety of the Adjacent Building within five
(5) business days of notice from Landlord that such space
is available, which offer Landlord may accept or reject in
its sole and absolute discretion.
ARTICLE 17
TELEPHONE SERVICE
Notwithstanding any other provision of this Lease to
the contrary:
(a) So long as the entirety of the Leased Premises
is leased to Tenant:
(i) Landlord shall have no responsibility for
providing to Tenant any telephone equipment, including
wiring, within the Leased Premises or for providing
telephone service or connections from the utility to the
Leased Premises; and
(ii) Landlord makes no warranty as to the
quality, continuity or availability of the
telecommunications services in the Building, and Tenant
hereby waives any claim against Landlord for any actual or
consequential damages (including damages for loss of
business) in the event Tenant's telecommunications services
in any way are interrupted, damaged or rendered less
effective, except to the extent caused by the grossly
negligent or willful act or omission by Landlord, its
agents or employees. Tenant accepts the telephone
equipment (including, without limitation, the INC, as
defined below) in its "AS-IS" condition, and Tenant shall
be solely responsible for contracting with a reliable third
party vendor to assume responsibility for the maintenance
and repair thereof (which contract shall contain provisions
requiring such vendor to inspect the INC periodically (the
frequency of such inspections to be determined by such
vendor based on its experience and professional judgment),
and requiring such vendor to meet local and federal
requirements for telecommunications material and
workmanship). Landlord shall not be liable to Tenant and
Tenant waives all claims against Landlord whatsoever,
whether for personal injury, property damage, loss of use
of the Leased Premises, or otherwise, due to the
interruption or failure of telephone services to the Leased
Premises. Tenant hereby holds Landlord harmless and agrees
to indemnify, protect and defend Landlord from and against
any liability for any damage, loss or expense due to any
failure or interruption of telephone service to the Leased
Premises for any reason.
(b) At such time as the entirety of the Leased
Premise is no longer leased to Tenant, Landlord shall in
its sole discretion have the right, by written notice to
Tenant, to elect to assume limited responsibility for INC,
as provided below, and upon such assumption of
responsibility by Landlord, this subparagraph (b) shall
apply prospectively.
(i) Landlord shall provide Tenant access to
such quantity of pairs in the Building intra-building
network cable ("INC") as is determined to be available by
Landlord in its reasonable discretion. Tenant's access to
the INC shall be solely by arrangements made by Tenant, as
Tenant may elect, directly with Pacific Bell or Landlord
(or such vendor as Landlord may designate), and Tenant
shall pay all reasonable charges as may be imposed in
connection therewith. Pacific Bell's charges shall be
deemed to be reasonable. Subject to the foregoing,
Landlord shall have no responsibility for providing to
Tenant any telephone equipment, including wiring, within
the Leased Premises or for providing telephone service or
connections from the utility to the Leased Premises, except
as required by law.
(ii) Tenant shall not alter, modify, add to or
disturb any telephone wiring in the Leased Premises or
elsewhere in the Building without the Landlord's prior
written consent. Tenant shall be liable to Landlord for
any damage to the telephone wiring in the Building due to
the act, negligent or otherwise, of Tenant or any employee,
contractor or other agent of Tenant. Tenant shall have no
access to the telephone closets within the Building, except
in the manner and under procedures established by Landlord.
Tenant shall promptly notify Landlord of any actual or
suspected failure of telephone service to the Leased
Premises.
(iii) All costs incurred by Landlord for the
installation, maintenance, repair and replacement of
telephone wiring in the Building shall be a Property
Maintenance Cost.
(iv) Landlord makes no warranty as to the
quality, continuity or availability of the
telecommunications services in the Building, and Tenant
hereby waives any claim against Landlord for any actual or
consequential damages (including damages for loss of
business) in the event Tenant's telecommunications services
in any way are interrupted, damaged or rendered less
effective, except to the extent caused by the grossly
negligent or willful act or omission by Landlord, its
agents or employees. Tenant acknowledges that Landlord
meets its duty of care to Tenant with respect to the
Building INC by contracting with a reliable third party
vendor to assume responsibility for the maintenance and
repair thereof (which contract shall contain provisions
requiring such vendor to inspect the INC periodically (the
frequency of such inspections to be determined by such
vendor based on its experience and professional judgment),
and requiring such vendor to meet local and federal
requirements for telecommunications material and
workmanship). Subject to the foregoing, Landlord shall not
be liable to Tenant and Tenant waives all claims against
Landlord whatsoever, whether for personal injury, property
damage, loss of use of the Leased Premises, or otherwise,
due to the interruption or failure of telephone services to
the Leased Premises. Tenant hereby holds Landlord harmless
and agrees to indemnify, protect and defend Landlord from
and against any liability for any damage, loss or expense
due to any failure or interruption of telephone service to
the Leased Premises for any reason. Tenant agrees to
obtain loss of rental insurance adequate to cover any
damage, loss or expense occasioned by the interruption of
telephone service.
IN WITNESS WHEREOF, Landlord and Tenant have executed
this Lease as of the respective dates below set forth with
the intent to be legally bound thereby as of the Effective
Date of this Lease first above set forth.
LANDLORD:
AUGUSTINE PARTNERS LLC,
a California limited
liability company
By: Menlo Equities
LLC, a
California
limited liability
company,
its Manager
Dated: By:
Member
TENANT:
THE VANTIVE CORPORATION,
a Delaware corporation
Dated: By:
Title: President
Dated: By:
Title: Chief Financial
Officer
EXHIBIT A
SITE PLAN
EXHIBIT B
WORK LETTER
THIS WORK LETTER, dated June 22, 1998, is entered
into by and between AUGUSTINE PARTNERS LLC, a California
limited liability company ("Landlord"), and THE VANTIVE
CORPORATION, a Delaware corporation ("Tenant"). On or
about the date hereof, Landlord and Tenant entered into
that certain Lease (the "Lease") for certain premises
(the "Leased Premises") commonly known as 2525 Augustine
Drive, Santa Clara, California. This Work Letter sets
forth the agreement of Landlord and Tenant with respect
to the improvements to be constructed in the Leased
Premises. All defined terms used herein shall have the
meaning set forth in the Lease, unless otherwise defined
in this Work Letter.
1. Construction of Tenant Improvements.
(a) Landlord shall, through a general
contractor proposed by Landlord and approved by Tenant
(the "Contractor") furnish and install within the Leased
Premises, certain items of general construction (the
"Tenant Improvements") to be determined in the manner
described in Paragraph 2 below. Landlord shall cause
the Tenant Improvements to be constructed by the
Contractor in accordance with the plans and
specifications to be approved by Landlord and Tenant
pursuant to Paragraph 2 below. The quantities,
character and manner of installation of all of the
Tenant Improvements shall be subject to the limitations
imposed by any applicable governmental regulations
relating to conservation of energy and by applicable
building codes and regulations and, subject thereto,
Landlord shall cause all such work to be done by
Contractor in accordance with all applicable
governmental codes and regulations and pursuant to all
applicable building permits required therefore. In
addition, Tenant agrees that the Tenant Improvements
shall not require Landlord to perform work which would
(i) require changes to structural components of the
Building or the exterior design of the Building; (ii)
require any material modification to the Building's
mechanical or electrical systems; or (iii) be
incompatible with the Building plans filed with the City
of Santa Clara. If any of the Tenant Improvements are
specialized improvements particular to Tenant's use of
the Leased Premises, Landlord may require that such
Tenant Improvements be removed at the expiration or
earlier termination of the Lease, in which case Landlord
shall notify Tenant in writing upon delivery to Tenant
of the Working Drawings (pursuant to Section3 below).
(b) Landlord shall enter into a
construction contract with the Contractor for the
construction of the Tenant Improvements in a form
reasonably approved by Tenant, which approval shall not
be unreasonably withheld and shall be for a contract
price acceptable to both Landlord and Tenant; provided,
however, that if the cost of constructing the Tenant
Improvements shall be less than the amount of the Tenant
Improvement Allowance (as defined below), Landlord shall
not be required to obtain Tenant's approval as to the
cost of such construction. The construction contract
for the Tenant Improvements shall contain warranties of
a nature customary in the marketplace that shall be
assignable to and enforceable by Tenant against the
Contractor and shall require that the Contractor
designate Tenant as an additional insured as to all
insurance to be carried by the Contractor (including
public liability insurance in an amount of at least
$2,000,000) in connection with the construction of the
Tenant Improvements.
2. Space Planning.
(a) Landlord and Tenant acknowledge and
agree that Tenant shall prepare for Landlord's approval
comprehensive space planning documents (once approved by
Landlord, the "Space Planning Documents"), which Space
Planning Documents shall be delivered to Landlord no
later than August 15, 1998. Tenant agrees that such
space planning documents shall be, sufficient to enable
Landlord's architect and engineers to prepare the
Working Drawings (as defined below).
(b) All planning and interior design
services relating to furniture and equipment, such as
selection of colors, finishes, fixtures, furnishings or
floor coverings, will not be included in the cost of the
Tenant Improvements, shall be subject to prior written
approval of Landlord, and shall be timely delivered so
as not to impede the design and construction of the
Tenant Improvements.
(c) Upon execution of the Lease and this
Work Letter by Tenant and receipt by Landlord of the
Space Planning Documents, Landlord shall be authorized
to cause its architect and engineers to prepare the
Working Drawings.
3. Approval of Working Drawings.
(a) Landlord and Tenant acknowledge that
Landlord shall retain Habitec as architect ("Landlord's
Architect") to prepare all architectural plans and
specifications and shall retain engineers to prepare all
engineering plans and specifications required for the
construction of the Tenant Improvements in conformance
with the base building and tenant improvement standard
specifications of the Building (the "Working Drawings"),
which Working Drawings shall be delivered to Tenant no
later than September 15, 1998, and to prepare drawings
and specifications for Changes (as defined below), if
any, requested or required pursuant to paragraph 5
below.
(b) Landlord shall submit the completed
Working Drawings to Tenant for Tenant's approval.
Tenant will provide written approval of the Working
Drawings within five business days after such
submission. If Tenant disapproves any part of the
submission, the disapproval shall include written
instructions adequate for Landlord's architect and
engineers to revise the Working Drawings. Such
revisions shall be subject to Landlord's approval, which
shall not be unreasonably withheld. Tenant will finally
approve the revised Working Drawings within three
business days after submission thereof to Tenant. If
Tenant's instructions necessitate (i) revisions to the
Working Drawings (as originally submitted) which do not
conform with the Space Planning Documents, or (ii) a
change of scope relative to the Space Planning
Documents, the costs incurred by Landlord as a result of
such instructions (including, without limitation, the
cost of revising the Working Drawings) shall be promptly
borne and paid by Tenant upon demand by Landlord. If
Tenant's instructions necessitate revisions that are
required for the Working Drawings to conform to the
Space Planning Documents, the costs incurred for such
revisions shall be borne by Landlord.
(c) If Tenant fails to approve the Working
Drawings or the required Working Drawings within the
applicable periods set forth in subparagraph 3(b) above,
then (A) Landlord shall not be obligated to commence
construction of the Tenant Improvements until such
approval is given (and all other permits and approvals
have been obtained), (B) Tenant shall be responsible for
any resulting delay, and the cost of such delay, in
Landlord's completion of the Tenant Improvements, and
(C) any such delay shall be deemed a Tenant Delay (as
defined below).
(d) After the Lease Commencement Date, and
upon Tenant's approval of the Working Drawings and
receipt of all other necessary permits and approvals,
Landlord shall cause the Contractor to proceed with the
construction of the Tenant Improvements in accordance
with the Working Drawings.
4. Cost of Tenant Improvements. Unless
specified otherwise herein, Landlord shall bear and pay
the cost of the Tenant Improvements (which cost shall
include, without limitation, the costs of construction,
the cost of permits and permit expediting, the costs of
code compliance work, if such work is required as a
result of, or is a condition imposed by appropriate
governmental authorities for, construction of the Tenant
Improvements, and all architectural and engineering
services obtained by Landlord in connection with the
Tenant Improvements, the Contractor's fees, Landlord's
fee for construction administration in an amount which
shall not exceed three percent (3%) of hard costs,
utilities, and Landlord's Insurance Costs (including,
without limitation, course of construction insurance),
from the date of this Work Letter until the Lease
Commencement Date up to a maximum of $450,000.00 (the
"Tenant Improvement Allowance"). The Tenant Improvement
Allowance shall be utilized only for building
improvements to the Building, and not for signage,
furniture costs, any third party consulting or
contracting fees, any telecom/cabling costs, or any
other purpose. Tenant shall bear and pay the cost of
the Tenant Improvements (including but not limited to
all of the foregoing fees and costs) in excess of the
Tenant Improvement Allowance, if any. The cost of the
Tenant Improvements shall exclude the cost of furniture,
fixtures and inventory and other items of Tenant's Work
(as defined below). Tenant shall have the right to
elect to increase the Tenant Improvement Allowance by up
to an additional $450,000.00 (the "Additional
Allowance"), subject to the following terms and
conditions: (i) Tenant shall make such election, if at
all, no later than August 15, 1998; (ii) such amount
shall be paid to Landlord in equal monthly installments
over the seven (7) year Lease Term with interest at 10%,
as additional Base Monthly Rent in the manner specified
by Article 3 of the Lease; and (iii) the Additional
Allowance shall otherwise constitute a part of the
Tenant Improvement Allowance and shall be subject to the
restrictions and conditions on such Tenant Improvement
Allowance provided in this Work Letter. Notwithstanding
anything to the contrary contained herein or in the
Lease, Landlord shall be responsible at its sole cost
and expense for the incremental costs incurred by either
Landlord or Tenant for asbestos removal within the
interior of the Leased Premises required solely as a
result of the construction of the Tenant Improvements.
5. Changes.
(a) Any request by Tenant for a change in
the Tenant Improvements after approval of the Working
Drawings (a "Change") shall be accompanied by all
information necessary to clearly identify and explain
the proposed Change. As soon as practicable after
receipt of such an Estimate Request form, Landlord shall
notify Tenant of the estimated cost of such Change as
well as the estimated increase in construction time
caused by the Change, if any. Tenant shall approve in
writing such estimates within two days after receipt of
Landlord's notice. Upon receipt of such written
request, Landlord shall be authorized to cause the
Contractor to proceed with the implementation of the
requested Change.
(b) The increased cost and time, as
determined by Landlord, of all Changes, including the
cost of architectural and engineering services required
to revise the Working Drawings to reflect such Changes,
the Contractor's overhead and fee, and Landlord's fee
for construction administration services, shall be
treated as costs of the Tenant Improvements, and shall
be as determined by Landlord upon completion of the
Tenant Improvements, subject only to Landlord's
furnishing to Tenant appropriate back-up information
from the Contractor concerning the increased costs and
increased construction time.
6. Tenant's Work. Landlord and Tenant
acknowledge and agree that certain work required for
Tenant's occupancy of the Leased Premises, including but
not limited to the procurement and installation of
furniture, fixtures, equipment, artwork and interior
signage are beyond the scope of the Tenant Improvements
and shall be performed by Tenant or its contractors at
Tenant's sole cost and expense. All such work
("Tenant's Work") shall be subject to Landlord's prior
written approval, which shall not be unreasonably
withheld. Tenant shall adopt a construction schedule
for Tenant's Work in conformance with the Contractor's
schedule, and shall perform Tenant's Work in such a way
as not to hinder or delay the operations of Landlord or
the Contractor in the Building. Any costs incurred by
Landlord as a result of any interference with Landlord's
operations by Tenant or its contractors shall be
promptly paid by Tenant to Landlord upon demand.
Landlord shall make all reasonable efforts to notify
Tenant of any such interference of which Landlord has
actual knowledge, but failure to provide such notice
shall in no way limit Landlord's right to demand payment
for such costs. Tenant's contractors shall be subject
to Landlord's prior written approval, and to the
administrative supervision of the Contractor. Tenant's
Work shall comply with all of the following
requirements:
(a) Tenant's Work shall not proceed until
Landlord has approved in writing: (i) Tenant's
contractors, (ii) proof of the amount and coverage of
public liability and property damage insurance carried
by Tenant's contractors in the form of an endorsed
insurance certificate naming Landlord, the Contractor,
and the agents of Landlord and the Contractor as
additional insureds, in an amount not less than two
million dollars, and (iii) complete and detailed plans
and specifications for Tenant's Work.
(b) Tenant's Work shall be performed in
conformity with a valid permit when required, a copy of
which shall be furnished to Landlord before such work is
commenced. In any event, all Tenant's Work shall comply
with all applicable laws, codes and ordinances of any
governmental entity having jurisdiction over the
Building. Landlord shall have no responsibility for
Tenant's failure to comply with such applicable laws.
Any and all delay in obtaining a certificate of
occupancy due to Tenant's vendors is the responsibility
of Tenant and shall be a Tenant Delay.
(c) In connection with Tenant's Work
(e.g., delivering or installing furniture or equipment
to the second floor of the Leased Premises), Tenant or
its contractors shall arrange for any necessary hoisting
or elevator service with Landlord (if needed, beyond
existing elevator service) and shall pay such reasonable
costs for such services as may be charged by Landlord.
(d) Tenant shall promptly pay Landlord
upon demand for any extra expense incurred by Landlord
by reason of faulty work done by Tenant or its
contractors, by reason of damage to existing work caused
by Tenant or its contractors, or by reason of inadequate
cleanup by Tenant or its contractors.
7. Completion; Tenant Delay.
(a) Landlord shall complete the Tenant
Improvements in accordance with a schedule to be
developed by Landlord and reasonably approved by Tenant
prior to the commencement of construction. After
completion of the Tenant Improvements (as certified by
Landlord's Architect), Tenant shall have ten (10) days
to inspect the Tenant Improvements and develop a punch
list of items for completion prior to any obligation for
Tenant to accept the Tenant Improvements and pay any
sums due from Tenant in connection with such work, to
the extent the cost of such work is in excess of the
Tenant Improvement Allowance. After such ten (10) day
period, if Tenant shall not have provided such a
punchlist, Tenant shall be deemed to have accepted the
Leased Premises as being in the condition called for
hereunder.
(b) "Tenant Delay" shall mean:
(i) Tenant's failure to furnish the
information, instructions and plans required in
paragraph 3 or approve the Working Drawings, within the
applicable time periods specified in paragraph 3; or
(ii) Any changes in the scope of the
Tenant Improvements from that set forth in the Space
Planning Documents, or any Changes to the Working
Drawings requested by Tenant after approval thereof
pursuant to paragraph 5 (including without limitation
Tenant Changes which are requested but not subsequently
approved by Tenant pursuant to paragraph 5); or
(iii) Any interruption or interference
in Landlord's construction of the Tenant Improvements
caused by Tenant, its contractors or its vendors; or
(iv) Tenant's failure to timely pay
any amounts which Tenant is obligated to pay under this
Work Letter; or
(v) Any other act, neglect, failure
or omission of Tenant, its agents, employees or
contractors (items (i) through (v) above being
collectively referred to as "Tenant Delays").
8. Landlord's Separate Work. Subject to
Section 13.15 of the Lease, Landlord may, at its own
cost and expense, and at any time, perform such work
(other than the Tenant Improvements) in the Outside
Areas, on the exterior of the Building, or elsewhere on
the Property, as Landlord deems necessary or desirable
in its sole and absolute discretion ("Landlord's
Separate Work"). Landlord's Separate Work shall include
necessary code compliance work, if such work is required
as a result of, or is a condition imposed by appropriate
governmental authorities for, construction of Landlord's
Separate Work. Landlord's Separate Work shall not
include any work that is Tenant's responsibility under
this Lease, but which may be done by Landlord on
Tenant's behalf.
IN WITNESS WHEREOF, Landlord and Tenant have executed
this Work Letter as of the respective dates set forth
below.
LANDLORD:
AUGUSTINE PARTNERS LLC,
a California limited
liability company
By: Menlo Equities
LLC, a
California
limited liability
company,
its Manager
Dated: By:
Member
TENANT:
THE VANTIVE CORPORATION,
a Delaware
corporation
Dated: By:
Title: President
Dated: By:
Title: Chief
Financial Officer
EXHIBIT C
FORM OF ESTOPPEL
The undersigned, _________________________
[("Landlord")/,("Tenant")], hereby certifies to
_________________________, as follows:
1. Attached hereto is a true, correct and
complete copy of that certain lease dated
____________________, 19_____, between Landlord and
Tenant (the "Lease"), which demises premises which are
located at 2525 Augustine Drive, Santa Clara,
California. The Lease is now in full force and effect
and has not been amended, modified or supplemented,
except as set forth in Paragraph 4 below.
2. The term of the Lease commenced on
___________________, 19__.
3. The term of the Lease shall expire on
________________, 19__.
4. The Lease has: (Initial one)
( ) not been amended, modified,
supplemented, extended, renewed or
assigned.
( ) been amended, modified, supplemented,
extended, renewed or assigned by the
following described agreements, copies
of which are attached hereto:
5. Tenant has accepted and is now in possession
of said Leased Premises.
6. Tenant and Landlord acknowledge that the
Lease will be assigned to _________________ and that no
modification, adjustment, revision or cancellation of
the Lease or amendments thereto shall be effective
unless written consent of ____________________ is
obtained, and that until further notice, payments under
the Lease may continue as heretofore.
7. The amount of current monthly rent is
$________; current monthly parking charges are
$___________.
8. The amount of security deposits (if any) is
$______________. No other security deposits have been
made.
9. Tenant is paying the full lease rental,
which has been paid in full as of the date hereof. No
rent under the Lease has been paid for more than thirty
(30) days in advance of its due date.
10. All work required to be performed by
Landlord under the Lease has been completed.
11. To the knowledge of the undersigned, there
are no defaults on the part of the Landlord or Tenant
under the Lease.
12. Tenant has no defense as to its obligations
under the Lease and claims no set-off or counterclaim
against Landlord.
13. Tenant has no right to any concession
(rental or otherwise) or similar compensation in
connection with renting the space it occupies, except as
provided in the Lease.
14. All provisions of the Lease and the
amendments thereto (if any) referred to above are hereby
ratified.
The foregoing certification is made with the knowledge
that ___________________ is about to [fund a loan to
Landlord/purchase the property from Landlord], and that
___________________ is relying upon the representations
herein made in [funding such loan/purchasing the
property].
Dated: June 22, 1998
<PAGE>
July 31, 1998
Leonard LeBlanc
18309 Twin Creeks Road
Monte Sereno, California 95030
Dear Len,
We are delighted that you are considering joining us at The
Vantive Corporation (the "Company"). The purpose of this
letter is to set forth the offer of employment that we have
discussed.
We propose that you begin employment with the Company as
Executive Vice President and Chief Financial Officer,
reporting to John Luongo, Vantive CEO. The effective date
of your employment will be August 10, 1998.
Your base salary, before deductions computed on an annual
basis and beginning on the date you become an employee of
the Company, will be initially $250,000 per year. Such
base salary shall be paid in installments in accordance
with the Company's US payroll policy for services performed
prior to the date of payment.
You will be a member of Vantive's Executive Committee,
which also entitles you to participate in Vantive's
Executive discretionary performance bonus program. Your
targeted incentive bonus will be $150,000 on an annual
basis, subject to the achievement of your quarterly
performance goals, as well as Company performance goals.
From your first day through the end of 1998, your target
bonus will be $62,500, of which $30,000 in bonus is
guaranteed.
Subject to the approval of the Board of Directors and your
execution of the Company's form of stock option agreement,
you shall be awarded incentive stock options under the
Company's Stock Purchase and Option Plan to purchase a
grant of 200,000 shares of the common stock of the Company.
This option agreement will vest over a 48-month period at
the rate of 6/48 after the first full six months of
employment, and 1/48 per month thereafter.
The price per share of this option agreement will be the
fair market value of a share of common stock of the Company
as of the date of grant as determined by the Board of
Directors. The option grant is subject to your execution of
a form of the Company's standard form stock option
agreement and will be governed by the terms and conditions
of that agreement.
You and the CEO will develop and present to Vantive's Board
of Directors for approval a new stock-accelerated program
based on achievement of specific goals (TARSAP or similar)
for yourself (at 100,000 shares) and other executive
officers (shares to be determined) as designated by the
CEO.
You are also being offered a sign-on bonus of $50,000.
Such bonus will be generated through Payroll after 14 days
of employment with Vantive.
Should The Vantive Corporation or an merging or acquiring
entity terminate your employment for any reason other than
your voluntary resignation, death, disability or "just
cause", you may invoke 6 months of paid COBRA coverage of
medical, dental, and other insurance, 12 month stock
vesting, and a salary continuation of 6 months in length,
i.e. continuing to receive your base salary for a total of
6 months beyond your last day of work on the same schedule
as salary was paid prior to such termination. As read
herein, "just cause" shall mean: a) your commission of a
felony; b) your commission of an act of dishonesty, theft,
misrepresentation, or fraud; c) your commission of an act
involving moral turpitude; d) your failure to discharge
the lawful directions given to you by your immediately
direct supervisor (that person to whom you report) or the
Board of Directors of The Vantive Corporation; e) your
willful engagement in bad faith conduct or professionally
inappropriate conduct which is materially detrimental to
Vantive; f) the voluntary filing of bankruptcy petition by
you or g) the adjudication of you as insane or
incompetent.
In the case of any merger or acquisition or other business
combination (a "Transaction") involving all or
substantially all of the assets of The Vantive Corporation,
other than re-incorporation where Vantive is not the
surviving company and where the acquiring company or merger
partner controls a majority of Vantive stock after a
Transaction, any of your granted and unvested options will
have their vesting accelerated by one year, i.e. by 12/48,
up to a maximum of 100% of your option shares.
This offer of employment is expressly subject to your
executing the Company's standard form of non-disclosure
agreement in the form enclosed with this letter as well as
your agreement to follow all other rules, guidelines, and
policies that the Company may announce from time to time.
The non-disclosure agreement must be signed and returned to
Vantive Human Resources in Santa Clara, California, and
received there before your start date.
As with all US-based employees, this offer of employment is
not for any specific period of time and your employment may
be terminated with or without cause by yourself or by the
Company at any time and for any reason.
This offer of employment contains all terms and conditions
of employment with the Company and supersedes any and all
prior, oral or written, representations or agreements made
by anyone employed by, or associated with, the Company.
Please note that on your first day of work, you will be
asked to complete a range of employment forms, including a
US Employment Eligibility Verification (I-9) form. The
forms must be completed within three business days of the
date your employment begins, and will require you to
present acceptable documentation of that eligibility.
Failure to do so may result in suspension without pay or
termination.
After you have commenced employment at Vantive, you
authorize the Company to capture your employee-related
information in its worldwide database. This information
will be stored as part of your personnel record. You agree
to cooperate fully with such information requests from your
manager or Human Resources. Vantive will guarantee to do
everything in its power to secure this system and protect
the sensitivity and integrity of the information.
You shall be entitled to receive all other benefits of
employment generally available to the Company's other full
time regular employees. All amounts payable to you as
taxable compensation shall be subject to income tax
withholdings as required by federal, state, and /or local
authorities, and any other applicable withholdings.
I hope that you will accept this offer. Please be advised
that this offer of employment is valid only until August 6,
1998. Please acknowledge acceptance of this offer by
signing and dating this letter and returning it to us on or
before the day the offer becomes invalid.
Sincerely,
John R. Luongo
Chief Executive Officer
I agree to the terms and conditions of employment set forth
above.
____________________________________
_____________________
Leonard J. LeBlanc Date
Vantive : For US employment
v. 3.0, February, 1997
Vantive : For US employment
v. 3.0, February, 1997
<PAGE>
